Exhibit 13.0

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

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



|                                             |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------------------- |  | --------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                             |  | At December 31,
|                                             |  | 2005            |         | 2004 |   | 2003    |  | 2002 |         | 2001
|                                             |  | (In thousands) 
|SELECTED FINANCIAL DATA:                     |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total assets                                 |  | $               | 339,302 |      | $ | 312,487 |  | $    | 328,730 |      | $ | 316,400 |  | $ | 242,170
|Cash and cash equivalents                    |  |                 | 12,798  |      |   | 14,387  |  |      | 29,124  |      |   | 42,827  |  |   | 18,249 
|Securities available for sale, at fair value |  |                 | 137,023 |      |   | 152,060 |  |      | 158,949 |      |   | 90,443  |  |   | 96,096 
|Loans receivable, net                        |  |                 | 178,551 |      |   | 136,331 |  |      | 131,935 |      |   | 150,269 |  |   | 112,911
|Securities held to maturity                  |  |                 |        |      |   |        |  |      |        |      |   | 24,471  |  |   | 10,036 
|Deposits                                     |  |                 | 291,228 |      |   | 273,711 |  |      | 271,850 |      |   | 263,834 |  |   | 192,784
|Federal Home Loan Bank advances              |  |                 | 18,188  |      |   | 6,450   |  |      | 6,000   |      |   | 4,000   |  |   | 4,000  
|Subordinated debentures                      |  |                 | 7,217   |      |   | 7,217   |  |      |        |      |   |        |  |   |       
|Total equity                                 |  |                 | 21,315  |      |   | 24,124  |  |      | 41,393  |      |   | 47,031  |  |   | 43,701 



|                                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|--------------------------------------------------- |  | ------------------------ | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                    |  | Years Ended December 31,
|                                                    |  | 2005                     |        | 2004 |   | 2003   |  | 2002 |        | 2001
|                                                    |  | (In thousands)          
|SELECTED OPERATING DATA:                            |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Total interest income                               |  | $                        | 15,634 |      | $ | 14,450 |  | $    | 15,311 |      | $ | 13,092 |  | $ | 15,417
|Total interest expense                              |  |                          | 8,157  |      |   | 6,152  |  |      | 6,555  |      |   | 6,154  |  |   | 9,135 
|                                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Net interest income                                 |  |                          | 7,477  |      |   | 8,298  |  |      | 8,756  |      |   | 6,938  |  |   | 6,282 
|Provision for loan losses                           |  |                          | 303    |      |   |       |  |      | 90     |      |   | 7      |  |   | 103   
|                                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Net interest income after provision for loan losses |  |                          | 7,174  |      |   | 8,298  |  |      | 8,666  |      |   | 6,931  |  |   | 6,179 
|Noninterest income                                  |  |                          | 1,221  |      |   | 1,465  |  |      | 2,493  |      |   | 573    |  |   | 630   
|Noninterest expense:                                |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Compensation and benefits                           |  |                          | 4,368  |      |   | 4,322  |  |      | 4,010  |      |   | 2,713  |  |   | 2,199 
|Other noninterest expense                           |  |                          | 2,595  |      |   | 2,556  |  |      | 2,766  |      |   | 1,730  |  |   | 1,697 
|                                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Total noninterest expense                           |  |                          | 6,963  |      |   | 6,878  |  |      | 6,776  |      |   | 4,443  |  |   | 3,896 
|                                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Income before income taxes                          |  |                          | 1,432  |      |   | 2,885  |  |      | 4,383  |      |   | 3,061  |  |   | 2,913 
|Provision for income taxes                          |  |                          | 517    |      |   | 1,086  |  |      | 1,551  |      |   | 1,124  |  |   | 1,062 
|                                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       
|Net Income                                          |  | $                        | 915    |      | $ | 1,799  |  | $    | 2,832  |      | $ | 1,937  |  | $ | 1,851 
|                                                    |  |                          |        |      |   |        |  |      |        |      |   |        |  |   |       



2.



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|                    |  |                          |     |      |   |      |  |      |      |      |   |      |  |   |    
|------------------- |  | ------------------------ | --- | ---- | - | ---- |  | ---- | ---- | ---- | - | ---- |  | - | ---
|                    |  | Years Ended December 31,
|                    |  | 2005                     |     | 2004 |   | 2003 |  | 2002 |      | 2001
|                    |  | (In thousands)          
|PER SHARE DATA:     |  |                          |     |      |   |      |  |      |      |      |   |      |  |   |    
|Earnings per share: |  |                          |     |      |   |      |  |      |      |      |   |      |  |   |    
|Basic               |  | $                        | .80 |      | $ | 1.30 |  | $    | 1.58 |      | $ | 1.09 |  | $ | .91
|Diluted             |  |                          | .76 |      |   | 1.21 |  |      | 1.48 |      |   | 1.07 |  |   | .91
|Dividend declared   |  |                          | .48 |      |   | .44  |  |      | .41  |      |   | .32  |  |   | .29



|                                                                        |  |                                       |   |  |        |   |  |        |   |  |        |   |  |        |  
|----------------------------------------------------------------------- |  | ------------------------------------- | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | -
|                                                                        |  | At or For the Year Ended December 31, |  
|                                                                        |  | 2005                                  |   |  | 2004   |   |  | 2003   |   |  | 2002   |   |  | 2001   |  
|SELECTED FINANCIAL RATIOS AND OTHER DATA:                               |  |                                       |   |  |        |   |  |        |   |  |        |   |  |        |  
|Performance Ratios:                                                     |  |                                       |   |  |        |   |  |        |   |  |        |   |  |        |  
|Return on assets (1)                                                    |  | .28                                   | % |  | .56    | % |  | .88    | % |  | .77    | % |  | .76    | %
|Return on equity (2)                                                    |  | 4.04                                  |   |  | 5.92   |   |  | 6.26   |   |  | 4.49   |   |  | 4.01   |  
|Dividend payout ratio                                                   |  | 60.00                                 |   |  | 33.85  |   |  | 25.95  |   |  | 29.36  |   |  | 31.87  |  
|Average interest rate spread (3)                                        |  | 2.19                                  |   |  | 2.51   |   |  | 2.50   |   |  | 2.36   |   |  | 1.75   |  
|Net interest margin (4)                                                 |  | 2.33                                  |   |  | 2.67   |   |  | 2.80   |   |  | 2.84   |   |  | 2.64   |  
|Operating (noninterest) expense to average total assets                 |  | 2.13                                  |   |  | 2.16   |   |  | 2.05   |   |  | 1.70   |   |  | 1.58   |  
|Efficiency ratio (5)                                                    |  | 82.15                                 |   |  | 74.87  |   |  | 66.29  |   |  | 59.69  |   |  | 63.94  |  
|Average interest-earning assets to average interest-bearing liabilities |  | 105.44                                |   |  | 108.12 |   |  | 114.36 |   |  | 119.01 |   |  | 123.17 |  
|Capital Ratios (6):                                                     |  |                                       |   |  |        |   |  |        |   |  |        |   |  |        |  
|Tangible capital ratio                                                  |  | 7.25                                  |   |  | 7.93   |   |  | 8.52   |   |  | 11.97  |   |  | 14.13  |  
|Core capital ratio                                                      |  | 7.25                                  |   |  | 7.93   |   |  | 8.52   |   |  | 11.97  |   |  | 14.13  |  
|Risk-based capital ratio                                                |  | 15.52                                 |   |  | 18.51  |   |  | 20.98  |   |  | 25.92  |   |  | 31.38  |  
|Ratio of average equity to average assets                               |  | 6.92                                  |   |  | 9.55   |   |  | 13.99  |   |  | 17.15  |   |  | 18.91  |  
|Asset Quality Ratios:                                                   |  |                                       |   |  |        |   |  |        |   |  |        |   |  |        |  
|Nonperforming loans to total loans                                      |  | .62                                   |   |  | 1.33   |   |  | .87    |   |  | 1.27   |   |  | .80    |  
|Allowance for loan losses to nonperforming loans (7)                    |  | 86.70                                 |   |  | 51.45  |   |  | 83.52  |   |  | 50.89  |   |  | 59.01  |  
|Allowance for loan losses to total loans                                |  | .54                                   |   |  | .69    |   |  | .72    |   |  | .65    |   |  | .47    |  

---

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

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

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

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

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

|(6) | Ratios are for First Federal Bank.
|--- | ----------------------------------

|(7) | Nonperforming loans consist of nonaccrual loans and loans greater than 90 days delinquent and still accruing.
|--- | -------------------------------------------------------------------------------------------------------------



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MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

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

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

Critical Accounting
Policies

The Companys critical accounting policies include the allowance for loan losses and evaluation of other-than-temporary impairment of
securities.

The Company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty
in evaluating the level of the allowance required for probable credit losses and the material effect that such judgments can have on the results of operations. The Companys policies on the allowance for loan losses is disclosed in Note 1
to the consolidated financial statements and discussed below under Provision for Loan Losses in the comparison of results of operations for 2005 and 2004. All accounting policies are important, and as such, the Company encourages the
reader to review each of the policies included in Note 1 to the consolidated financial statements to obtain a better understanding of how the Companys financial performance is reported.

We have historically reviewed investment securities with significant declines in fair value for potential other-than-temporary impairment pursuant to the guidance set
forth in Statement of Financial Accounting Standards 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115 and SAB No. 59).

SAB No. 59 provides that if a marketable security is in an unrealized loss position, whether due to general market conditions or industry or issuer specific
factors, the holder must assess whether the impairment is other than temporary. The assessment must consider all available evidence relating to the realizable value of the investment, including the length of time and the extent to which the market
value of the investment has been less than cost; the financial condition and near-term prospects of the issuer, including any specific events which may



4.



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influence the operations of the issuer; and the intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to
allow for any anticipated recovery in market value.

SAB No. 59 states that the holder of the securities should conduct the foregoing assessment
acting on the premise that a write-down may be required. Unless evidence exists to support a realizable value equal to or greater than the carrying value of the investment, a write-down to fair value must be recorded as a realized loss and
recognized as a charge against net income in the period in which it occurs. The written down value of the investment then becomes the new carrying value for the investment.

In March 2004, the Financial Accounting Standards Board adopted new guidance for testing securities for impairment on a prospective basis. The new guidance is set forth in Emerging Issues Task Force Issue 03-1,
The Meaning of Other-than-Temporary Impairment and Its Application to Certain Instruments (EITF 03-1). EITF 03-1 provides that, for equity securities and debt securities that can contractually be prepaid for less than their
initial cost, an impairment is considered to be other than temporary unless the investor has the ability and intent to hold the investment for a reasonable period of time sufficient for a forecasted market price recovery, and evidence indicating
that the full initial cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. For other debt securities, an impairment is considered other than temporary if the holder does not have the ability
and intent to hold the debt security until its maturity date or the date the forecasted recovery occurs, or if it is probable that the investor will be unable to collect all amounts due according to the contractual terms of the debt security.
Appropriate and unbiased weighting must be given to all reasonably available information, including the severity and duration of the loss in relation to the forecasted recovery period and other relevant evidence. The Financial Accounting Standards
Board recently delayed the effective date of the impairment testing requirements of EITF 03-1. We believe that the delay does not impact the financial statements presented because we view the requirements of SAB No. 59 to be no less stringent
than those set forth in the currently proposed version of EITF 03-1.

We have developed a methodology for conducting periodic impairment testing on
marketable equity securities with dividends that adjust periodically based on market interest rate indices such as the Shay Funds that we own.

Forward-Looking Statements

This Annual Report contains certain forward-looking statements that are based on certain assumptions and
describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words believe, expect, intend, anticipate,
estimate, project, or similar expressions. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the
operations of the Company include, but are not limited to, changes in interest rates; general economic conditions; legislative/regulatory changes; monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and
the Federal Reserve Board; the quality or composition of the Companys loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Companys market area; and accounting
principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company does not



5.



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undertakeand specifically disclaims any obligationto publicly release the result of any revisions that may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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

Comparison of Financial
Condition at December 31, 2005 and 2004

Total assets at December 31, 2005 were $339.3 million compared to $312.5 million at December 31,
2004, an increase of $26.8 million. Decreases of $1.6 million in cash and cash equivalents and $15.0 million in securities available for sale during 2005 were offset by an increase in the loan portfolio of $42.2 million.

Loans receivable totaled $178.6 million, or 52.6% of total assets, at December 31, 2005. Loans receivable increased $42.2 million, or 31.0%, from the prior
year-end. The increase in loans receivable was primarily a result of loans and participations purchased of $37.4 million and originations of real estate loans totaling $36.9 million. The increase also includes originations of consumer loans in the
amount of $7.2 million and commercial loans of $11.8 million, offset by net repayments of principal. Purchases of mortgage loans are part of the Companys strategy to increase income through an increase in interest-earning assets, in particular
loans receivable. Management feels the asset growth needed in loans receivable can be accomplished through purchasing loans to augment local residential and commercial production. Any future purchases will be dependent upon the Companys local
lending production and pricing levels.

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

The Companys securities portfolio totaled $137.0 million, or 40.4% of total assets, at December 31, 2005. During 2005, the securities portfolio
decreased $15.0 million, or 9.9%, primarily due to principal paydowns on mortgage-backed securities totaling $16.8 million and proceeds from sales of securities available for sale of $5.4 million, partially offset by purchases of securities
available for sale of $9.9 million.

Cash and cash equivalents totaled $12.8 million, or 3.8% of total assets, at December 31, 2005. Cash and cash
equivalents decreased $1.6 million in 2005.

Total liabilities at December 31, 2005 were $318.0 million compared to $288.4 million at
December 31, 2004, an increase of $29.6 million. The increase in total liabilities was primarily due to an increase in deposits of $17.5 million and an increase in Federal Home Loan Bank advances of $11.7 million. The Company used the increase
in advances and deposits to fund retail loan originations and loan purchases.



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Shareholders equity at December 31, 2005 was $21.3 million compared to $24.1 million at December 31,
2004, a decrease of $2.8 million. The decrease in equity primarily reflects the repurchase of 77,310 shares of common stock totaling $1.9 million and a decrease in the fair value of securities available-for-sale, net of tax of $2.0 million, offset
by net income of $915,000. Other items affecting equity include ESOP and stock awards earned, dividends paid, and options exercised.

Comparison of
Results of Operations for the Year Ended December 31, 2005 and December 31, 2004

General.Net income decreased $884,000, or 49.1%, to
$915,000 for the year ended December 31, 2005. The decrease was primarily a result of decreased net interest income, and decreases in recovery of impairment losses and the net gain on the sale of securities recognized in the prior period. In
addition, provision for loan losses and noninterest expenses increased, and were partially offset by a decrease in the provision for income taxes.

Interest Income.Interest income for the year ended December 31, 2005 was $15.6 million compared to $14.5 million for the year ended December 31, 2004, an increase of $1.1 million. The increase was primarily a result of an
increase in the volume of interest-earning assets, in particular loans receivable.

Interest Expense.Interest expense for the year ended
December 31, 2005 was $8.2 million compared to $6.2 million for the prior year, an increase of $2.0 million. The increase was primarily due to an increase in the average cost of funds to 2.68% for the year ended December 31, 2005 from
2.14% for the year ended December 31, 2004 as a result of the increasing rate environment. In addition, the volume of interest-bearing liabilities increased for the year ended December 31, 2005 to $304.2 million from $287.2 million for the
year ended December 31, 2004 as a result of increased customer deposits and Federal Home Loan Bank advances. The increase in customer deposits was primarily due to more competitive pricing and growth in commercial customers.

Net Interest Income.Net interest income of $7.5 million for the year ended December 31, 2005 reflects a decrease of approximately $821,000 from $8.3 million
for the year ended December 31, 2004. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 105.44% in 2005 from 108.12% in 2004. The net interest spread and the net interest margin decreased to 2.19%
and 2.33% for the year ended December 31, 2005 from 2.51% and 2.67% in the prior year. The decrease in the spread and margin was due to increases in both volume and rate of interest-bearing liabilities primarily as a result of an increase of
$11.7 million in Federal Home Loan Bank advances. The increase in the cost of funds exceeded the increase in the yield on interest-earning assets in reaction to the increasing short-term interest rate environment and flat yield curve. The average
yield on interest-earning assets increased to 4.87% for the year ended December 31, 2005 from 4.65% for the prior year, while the average cost of interest-bearing liabilities increased to 2.68% for the year ended December 31, 2005 from
2.14% for the prior year.

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



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considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, an evaluation of losses inherent in the loan
portfolio, problem loans, delinquency trends, and prevailing economic conditions. In evaluating the level of the allowance for loan losses, the Company evaluates larger commercial, commercial real estate, and construction loans individually for
impairment based upon collateral values, adverse situations that may affect the borrowers ability to repay, and other factors. Smaller balance homogeneous mortgage and consumer loans are evaluated independently based upon loss factors derived
from historical loss experience, peer group information, and similar factors adjusted for current economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information
becomes available or as circumstances change. Based on the Companys evaluation of these factors, the Company made provisions of $303,000 for the year ended December 31, 2005 and did not make provisions for the year ended December 31,
2004. The increase in the provision for loan losses for the year ended December 31, 2005 was largely due to increased classified loans, and increased loan volume in 1-4 family mortgages and multi-family and commercial real estate, which are
inherently higher risk in nature.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary
in order to maintain the adequacy of the allowance. While management believes that the existing level of the allowance is adequate, future adjustments to the allowance may be necessary due to economic, operating, regulatory, and other conditions
that may be beyond the Companys control. The allowance for loan losses as of December 31, 2005 is maintained at a level that represents managements best estimate of losses in the loan portfolio and such losses were both probable and
reasonably estimatable.

Noninterest Income. The following table summarizes noninterest income in 2005 and 2004 (dollars in thousands):



|                                    |  |      |       |      |   |          |  |   |          |   |  |        |  
|----------------------------------- |  | ---- | ----- | ---- | - | -------- |  | - | -------- | - |  | ------ | -
|                                    |  | 2005 |       | 2004 |   | $ change |  |   | % change |  
|Service charges on deposit accounts |  | $    | 440   |      | $ | 321      |  | $ | 119      |   |  | 37.1   |  
|Loan origination and servicing fees |  |      | 264   |      |   | 260      |  |   | 4        |   |  | 1.5    |  
|Other fee income                    |  |      | 249   |      |   | 180      |  |   | 69       |   |  | 38.3   |  
|Net gain on sale of securities      |  |      | 222   |      |   | 576      |  |   | (354     | ) |  | (61.5  | )
|Recovery of impairment loss         |  |      |      |      |   | 85       |  |   | (85      | ) |  | (100.0 | )
|Other income                        |  |      | 46    |      |   | 43       |  |   | 3        |   |  | 7.0    |  
|                                    |  |      |       |      |   |          |  |   |          |   |  |        |  
|Total                               |  | $    | 1,221 |      | $ | 1,465    |  | $ | (244     | ) |  | (16.7  | )

The decrease in noninterest income was primarily a result of decreases in gain on the sale of securities and the
recovery of impairment loss recorded in 2004 that related to certificates of deposit purchased through a broker that has been charged with securities fraud by the Securities and Exchange Commission (SEC). These decreases were partially
offset by increases in service charges on deposit accounts and other fee income, primarily as a result of increased volume. Slight increases also occurred in loan origination and servicing fees and other income.



8.



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Noninterest Expense. The following table summarizes noninterest expense in 2005 and 2004 (dollars in thousands):



|                           |  |      |       |      |   |          |  |   |          |   |  |      |  
|-------------------------- |  | ---- | ----- | ---- | - | -------- |  | - | -------- | - |  | ---- | -
|                           |  | 2005 |       | 2004 |   | $ change |  |   | % change |  
|Compensation and benefits  |  | $    | 4,368 |      | $ | 4,322    |  | $ | 46       |   |  | 1.1  |  
|Occupancy and equipment    |  |      | 566   |      |   | 556      |  |   | 10       |   |  | 1.8  |  
|Data processing            |  |      | 659   |      |   | 536      |  |   | 123      |   |  | 22.9 |  
|Federal insurance premiums |  |      | 117   |      |   | 118      |  |   | (1       | ) |  | (0.8 | )
|Advertising                |  |      | 150   |      |   | 161      |  |   | (11      | ) |  | (6.8 | )
|Professional fees          |  |      | 286   |      |   | 278      |  |   | 8        |   |  | 2.9  |  
|Other noninterest expense  |  |      | 817   |      |   | 907      |  |   | (90      | ) |  | (9.9 | )
|                           |  |      |       |      |   |          |  |   |          |   |  |      |  
|Total                      |  | $    | 6,963 |      | $ | 6,878    |  | $ | 85       |   |  | 1.2  |  

The increase in noninterest expense is primarily associated with data processing expense and compensation and
benefits expense due to an increase in health insurance premiums and retirement funds. Slight increases also occurred in occupancy and equipment expense, and professional fees. The increases were offset by a decrease of $90,000 in other noninterest
expense and a slight decrease in advertising expense.

Income Taxes.The provision for income taxes decreased $569,000 to $517,000 for the year
ended December 31, 2005. The decrease was a direct result of a decrease in pretax income. The effective tax rate was approximately 36.1% for 2005 and 37.6% for 2004.

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

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

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

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

Net Interest Income.Net interest income of $8.3 million for the year ended December 31, 2004 reflects a decrease of $500,000 from $8.8 million for the year
ended December 31, 2003. Net interest income decreased primarily as a result of the tender offer completed on May 28, 2004,



9.



---

which decreased interest-earning assets approximately $11.6 million, and the trust preferred offering, completed on March 25, 2004, which increased
interest-bearing liabilities approximately $7.2 million. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 108.12% in 2004 from 114.36% in 2003. The net interest margin decreased to 2.67% for the year
ended December 31, 2004 from 2.80% in the prior year. The decrease in the margin was primarily due to the decrease in volume of interest-earning assets and the increase in volume of interest-earning liabilities. The net interest rate spread
remained relatively stable increasing to 2.51% for 2004 compared to 2.50% for 2003.

Provision for Loan Losses.The Company did not make provisions
for loan losses for the year ended December 31, 2004 and made provisions of $90,000 for the year ended December 31, 2003. The provision for loan losses for the year ended December 31, 2003 was largely due to increases in consumer loan
charge-offs, increased classified loans, and a shift in the composition of the loan portfolio due to a decrease in lower risk one- to four-family mortgage loans, offset by an increase in commercial loans, which are inherently higher risk in nature.

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



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

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

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



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

The increase in noninterest expense is primarily associated with compensation and benefits expense due to an
increase in health insurance premiums and retirement funds. Slight increases



10.



---

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

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

Liquidity and Capital Resources

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

The Companys cash flows are comprised of three primary
classifications: cash flows from operating activities, investing activities, and financing activities. Cash flows provided by operating activities were $2,316,000, $1,438,000, and $2,258,000 for the years ended December 31, 2005, 2004, and
2003, respectively. Net cash used in investing activities consisted primarily of disbursements for loan originations, loan purchases, and the purchase of securities, offset by principal collections on loans, proceeds from maturities, and paydowns on
securities. Net cash from financing activities consisted primarily of the activity in deposit accounts and FHLB advances, less equity transactions. During 2004, the Company used subordinated debt and excess liquidity to repurchase 559,993 shares of
common stock totaling $18.9 million through the tender offer.

The Companys most liquid assets are cash and short-term investments. The levels of
these assets are dependent on the Companys operating, financing, lending, and investing activities during any given period. At December 31, 2005, cash and short-term investments totaled $12.8 million. The Company has other sources of
liquidity if a need for additional funds arises, including securities maturing within one year and the repayment of loans. The Company may also utilize the sale of securities available for sale, federal funds purchased, and Federal Home Loan Bank
advances as sources of funds. At December 31, 2005, the Company had the ability to borrow a total of approximately $1.7 million from the FHLB of Chicago without securing advances with securities specifically assigned to the FHLB of Chicago. On
that date, the Company had outstanding advances of $18.2 million.

At December 31, 2005, the Company had outstanding commitments to originate loans of
$1.1 million. These loans are to be secured by properties located in its market area. The Company anticipates that it will have sufficient funds available to meet its current loan commitments. Loan commitments have, in recent periods, been funded
through liquidity or through FHLB borrowings. Certificates of deposit, which are scheduled to mature in one year or less from December 31, 2005, totaled $119.8 million. Management believes, based on past experience, that a significant portion
of such deposits will remain with the Company. Based on the foregoing, in



11.



---

addition to the Companys high level of core deposits and capital, the Company considers its liquidity and capital resources sufficient to meet its
outstanding short-term and long-term needs.

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

The Bank is subject to various regulatory capital requirements imposed by the Office of Thrift Supervision (OTS). At December 31, 2005,
the Company was in compliance with all applicable capital requirements. See Note 14 of the Notes to Consolidated Financial Statements.

Contractual
Obligations

The following table sets forth the contractual obligations of the Company as of December 31, 2005 (in thousands):



|                                   |  |       |        |                  |   |             |  |             |        |               |   |     |  |   |      
|---------------------------------- |  | ----- | ------ | ---------------- | - | ----------- |  | ----------- | ------ | ------------- | - | --- |  | - | -----
|                                   |  | Total |        | Less Than 1 Year |   | 1  3 Years |  | 4  5 Years |        | After 5 Years
|FHLB advances                      |  | $     | 18,188 |                  | $ | 7,087       |  | $           | 10,186 |               | $ | 206 |  | $ | 709  
|Subordinated debentures            |  |       | 7,217  |                  |   |            |  |             |       |               |   |    |  |   | 7,217
|                                   |  |       |        |                  |   |             |  |             |        |               |   |     |  |   |      
|Total contractual cash obligations |  | $     | 25,405 |                  | $ | 7,087       |  | $           | 10,186 |               | $ | 206 |  | $ | 7,926
|                                   |  |       |        |                  |   |             |  |             |        |               |   |     |  |   |      

Off-Balance-Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principals, are not recorded in its consolidated financial
statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers requests for funding and take the form of loan commitments, lines of
credit, and letters of credit. See Note 11 to the Consolidated Financial Statements.

For the year ended December 31, 2005, the Company engaged in no
off-balance-sheet transactions reasonably likely to have a material effect on its consolidated financial condition, results of operations or cash flows.

New Accounting Pronouncements

FAS 123R requires all public companies to record compensation cost for stock options provided to employees in
return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. This will apply to awards granted or
modified beginning in 2006. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. The effect on results of operations will depend on the level of future



12.



---

option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods provided. Existing options
that will vest after adoption date are expected to result in additional compensation expense of approximately $165,000 in 2006, $19,000 in 2007, $19,000 in 2008, and $17,000 in 2009. There will be no significant effect on financial position as total
equity will not change.

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

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

Effect of Inflation and Changing Prices

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

Average Balances,
Interest, and Average Yields/Cost

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



13.



---

|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|---------------------------------------------------------------- |  | ---------------------------- | ------- | -------- | ---------------------------- | ----------------- |  | ---------------------------- | -------------- |  | -------- | ------- | ----------------- | - | ------ | -------------- | ------ | -------- |  | ----------------- | ------- |  | - | ------ |  | ------ | -
|                                                                 |  | Year ended December 31, 2005 |         |          | Year ended December 31, 2004 |                   |  | Year ended December 31, 2003 |               
|Dollars in Thousands                                             |  | AverageBalance               |         | Interest |                              | AverageYield/Cost |  |                              | AverageBalance |  | Interest |         | AverageYield/Cost |   |        | AverageBalance |        | Interest |  | AverageYield/Cost |        
|Interest-earning assets:                                         |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Loans receivable (1)                                             |  | $                            | 159,874 |          | $                            | 9,556             |  | 5.98                         | %              |  | $        | 134,237 |                   | $ | 8,363  |                | 6.23   | %        |  | $                 | 138,533 |  | $ | 9,327  |  | 6.73   | %
|Securities (2)                                                   |  |                              | 148,211 |          |                              | 5,819             |  | 3.93                         |                |  |          | 158,247 |                   |   | 5,919  |                | 3.74   |          |  |                   | 143,478 |  |   | 5,728  |  | 3.99   |  
|Other interest-earning assets                                    |  |                              | 12,668  |          |                              | 259               |  | 2.04                         |                |  |          | 18,006  |                   |   | 168    |                | 0.93   |          |  |                   | 31,052  |  |   | 256    |  | .82    |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total interest-earning assets                                    |  |                              | 320,753 |          |                              | 15,634            |  | 4.87                         |                |  |          | 310,490 |                   |   | 14,450 |                | 4.65   |          |  |                   | 313,063 |  |   | 15,311 |  | 4.89   |  
|Non-interest-earning assets                                      |  |                              | 6,816   |          |                              |                   |  |                              |                |  |          | 8,018   |                   |   |        |                |        |          |  |                   | 10,214  |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total assets                                                     |  | $                            | 327,569 |          |                              |                   |  |                              |                |  | $        | 318,508 |                   |   |        |                |        |          |  | $                 | 323,277 |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Interest-bearing liabilities:                                    |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Deposits:                                                        |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|NOW and money market accounts                                    |  | $                            | 54,852  |          |                              | 1,035             |  | 1.89                         |                |  | $        | 46,053  |                   |   | 418    |                | .91    |          |  | $                 | 45,602  |  |   | 487    |  | 1.07   |  
|Savings and certificates                                         |  |                              | 229,594 |          |                              | 6,220             |  | 2.71                         |                |  |          | 227,792 |                   |   | 5,234  |                | 2.30   |          |  |                   | 223,251 |  |   | 5,901  |  | 2.64   |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total deposits                                                   |  |                              | 284,446 |          |                              | 7,255             |  | 2.55                         |                |  |          | 273,845 |                   |   | 5,652  |                | 2.06   |          |  |                   | 268,853 |  |   | 6,388  |  | 2.38   |  
|FHLB advances                                                    |  |                              | 12,540  |          |                              | 481               |  | 3.84                         |                |  |          | 6,114   |                   |   | 177    |                | 2.89   |          |  |                   | 4,888   |  |   | 167    |  | 3.42   |  
|Subordinated debentures                                          |  |                              | 7,217   |          |                              | 421               |  | 5.83                         |                |  |          | 7,214   |                   |   | 323    |                | 5.84   |          |  |                   |        |  |   |       |  |       |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total interest-bearing liabilities                               |  |                              | 304,203 |          |                              | 8,157             |  | 2.68                         |                |  |          | 287,176 |                   |   | 6,152  |                | 2.14   |          |  |                   | 273,741 |  |   | 6,555  |  | 2.39   |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Non-interest-bearing liabilities                                 |  |                              | 690     |          |                              |                   |  |                              |                |  |          | 921     |                   |   |        |                |        |          |  |                   | 4,287   |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total liabilities                                                |  |                              | 304,893 |          |                              |                   |  |                              |                |  |          | 288,097 |                   |   |        |                |        |          |  |                   | 278,028 |  |   |        |  |        |  
|Equity                                                           |  |                              | 22,676  |          |                              |                   |  |                              |                |  |          | 30,411  |                   |   |        |                |        |          |  |                   | 45,249  |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Total liabilities and equity                                     |  | $                            | 327,569 |          |                              |                   |  |                              |                |  | $        | 318,508 |                   |   |        |                |        |          |  | $                 | 323,277 |  |   |        |  |        |  
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Net interest income/interest rate spread                         |  |                              |         |          | $                            | 7,477             |  | 2.19                         | %              |  |          |         |                   | $ | 8,298  |                | 2.51   | %        |  |                   |         |  | $ | 8,756  |  | 2.50   | %
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Net interest margin                                              |  |                              |         |          |                              |                   |  | 2.33                         | %              |  |          |         |                   |   |        |                | 2.67   | %        |  |                   |         |  |   |        |  | 2.80   | %
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                              |         |          |                              |                   |  | 105.44                       | %              |  |          |         |                   |   |        |                | 108.12 | %        |  |                   |         |  |   |        |  | 114.36 | %
|                                                                 |  |                              |         |          |                              |                   |  |                              |                |  |          |         |                   |   |        |                |        |          |  |                   |         |  |   |        |  |        |  

---

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

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



14.



---

Rate/Volume Analysis

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



|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|------------------------------------------ |  | -------------------------- | ------ | - | ------ | - | ----- | ----- |  | - | ----- | -
|                                           |  | 2005 - 2004                |       
|                                           |  | Increase (Decrease) Due to |       
|                                           |  | Rate                       |        |   | Volume |   |       | Total | 
|                                           |  | (Dollars in thousands)     |       
|Interest-earning assets:                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Loans receivable                           |  | $                          | (351   | ) |        | $ | 1,544 |       |  | $ | 1,193 |  
|Securities                                 |  |                            | 286    |   |        |   | (386  | )     |  |   | (100  | )
|Other interest-earning assets              |  |                            | 91     |   |        |   |      |       |  |   | 91    |  
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-earning assets              |  |                            | 26     |   |        |   | 1,158 |       |  |   | 1,184 |  
|                                           |  |                            |       
|Interest-bearing liabilities:              |  |                            |        |   |        |   |       |       |  |   |       |  
|Deposits:                                  |  |                            |        |   |        |   |       |       |  |   |       |  
|NOW and money market accounts              |  |                            | 617    |   |        |   |      |       |  |   | 617   |  
|Savings accounts and certificates          |  |                            | 944    |   |        |   | 42    |       |  |   | 986   |  
|FHLB advances                              |  |                            | 304    |   |        |   |      |       |  |   | 304   |  
|Subordinated debentures                    |  |                            | 98     |   |        |   |      |       |  |   | 98    |  
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-bearing liabilities         |  |                            | 1,963  |   |        |   | 42    |       |  |   | 2,005 |  
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|Increase (Decrease) in net interest income |  | $                          | (1,937 | ) |        | $ | 1,116 |       |  | $ | (821  | )
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|                                           | 
|                                           |  | 2004 - 2003                |       
|                                           |  | Increase (Decrease) Due to |       
|                                           |  | Rate                       |        |   | Volume |   |       | Total | 
|                                           |  | (Dollars in thousands)     |       
|Interest-earning assets:                   |  |                            |        |   |        |   |       |       |  |   |       |  
|Loans receivable                           |  | $                          | (681   | ) |        | $ | (283  | )     |  | $ | (964  | )
|Securities                                 |  |                            | (376   | ) |        |   | 567   |       |  |   | 191   |  
|Other interest-earning assets              |  |                            | (88    | ) |        |   |      |       |  |   | (88   | )
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-earning assets              |  |                            | (1,145 | ) |        |   | 284   |       |  |   | (861  | )
|                                           |  |                            |       
|Interest-bearing liabilities:              |  |                            |        |   |        |   |       |       |  |   |       |  
|Deposits:                                  |  |                            |        |   |        |   |       |       |  |   |       |  
|NOW and money market accounts              |  |                            | (69    | ) |        |   |      |       |  |   | (69   | )
|Savings accounts and certificates          |  |                            | (785   | ) |        |   | 118   |       |  |   | (667  | )
|FHLB advances                              |  |                            | 10     |   |        |   |      |       |  |   | 10    |  
|Subordinated debentures                    |  |                            |       |   |        |   | 323   |       |  |   | 323   |  
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|Total interest-bearing liabilities         |  |                            | (844   | ) |        |   | 441   |       |  |   | (403  | )
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  
|Decrease in net interest income            |  | $                          | (301   | ) |        | $ | (157  | )     |  | $ | (458  | )
|                                           |  |                            |        |   |        |   |       |       |  |   |       |  



15.



---

Market Risk Analysis

Qualitative Aspects of Market Risk.The Companys most significant form of market risk is interest rate risk. The principal objectives of the Companys interest rate risk management are to evaluate the interest rate
risk inherent in certain balance sheet accounts; determine the level of risk appropriate given the Companys business strategy, operating environment, capital and liquidity requirements; and performance objectives; and manage the risk
consistent with the Board of Directors approved guidelines. The Company has an Asset/Liability Committee, responsible for reviewing its asset/liability policies and interest rate risk position. The committee meets monthly and reports trends
and interest rate risk position to the Board of Directors quarterly. The extent of the movement of interest rates is uncertainty that could have a negative impact on the earnings of the Company.

The Company has used the following strategies to manage interest rate risk: (1) emphasizing the origination of adjustable-rate and balloon loans and not originating
long-term, fixed-rate loans for retention in its portfolio; (2) using the Federal Home Loan Bank Mortgage Partnership Finance Program and Countrywide Home Loans to continue to offer fixed-rate loans with no interest rate risk to the Company;
(3) introducing floating-rate commercial business loans tied to the prime rate; (4) maintaining a high quality securities portfolio that provides adequate liquidity and flexibility to take advantage of opportunities that may arise from
fluctuations in market interest rates, the overall maturity of which is monitored in relation to the repricing of its loan portfolio; and (5) using Federal Home Loan Bank advances to better structure maturities of its interest rate sensitive
liabilities. The Company currently does not participate in hedging programs, interest rate swaps, or other activities involving the use of off-balance-sheet derivative financial instruments.

Quantitative Aspects of Market Risk.The Company primarily utilizes an interest sensitivity analysis prepared by the OTS to review the level of interest
rate risk. This analysis measures interest rate risk by computing changes in the net portfolio value of the Companys cash flows from assets, liabilities, and off-balance-sheet items in the event of a range of assumed changes in market interest
rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance-sheet items. This analysis assesses the risk of loss
in market risk sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or decrease in market interest rates with no effect given to any steps that management might take to counter the effect of that interest rate
movement. The following tables, which are based on information provided to the Company by the OTS, presents the change in the Companys net portfolio value at December 31, 2005, that would occur upon an immediate change in interest rates
based on OTS assumptions, but without giving effect to any steps that management might take to counteract that change. Due to the abnormally low prevailing interest rate environment, the OTS report did not provide NPV estimated for the -300 basis
points.



16.



---

|                                                      |                     |                        |          |          |         |          |                   |     |                                      |  |       |   |  |      |    
|----------------------------------------------------- | ------------------- | ---------------------- | -------- | -------- | ------- | -------- | ----------------- | --- | ------------------------------------ |  | ----- | - |  | ---- | ---
|Change in Interest
Rates in Basis Points (Rate Shock) |                     | 2005                   |         
|                                                      |                     |                        |          |          |         |          |                   |     | NPV as % ofPortfolio Value of Assets | 
|                                                      | Net Portfolio Value |                        |          | NPVRatio |         |          | Basis PointChange |    
|                                                      | Amount              |                        | $ Change |          |         | % Change |                   |     |                                     
|                                                      |                     | (Dollars in thousands) |          |          |         |          |                   |     |                                     
|300                                                   |                     | $                      | 15,687   |          | (14,915 | )        |                   | (49 | )%                                   |  | 4.91  | % |  | (408 | )bp
|200                                                   |                     |                        | 21,145   |          | (9,458  | )        |                   | (31 | )                                    |  | 6.46  |   |  | (252 | )bp
|100                                                   |                     |                        | 26,275   |          | (4,328  | )        |                   | (14 | )                                    |  | 7.86  |   |  | (112 | )bp
|Static                                                |                     |                        | 30,602   |          |        |          |                   |    |                                      |  | 8.99  |   |  |     |    
|(100)                                                 |                     |                        | 33,877   |          | 3,275   |          |                   | 11  |                                      |  | 9.79  |   |  | 81   | bp 
|(200)                                                 |                     |                        | 35,162   |          | 4,560   |          |                   | 15  |                                      |  | 10.06 |   |  | 108  | bp 

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

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



17.



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

First Federal Bancshares, Inc.

Colchester, Illinois

We have audited the accompanying consolidated
statements of financial condition of First Federal Bancshares, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders equity, and cash flows for each of the three years in the
period ended December 31, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Federal
Bancshares, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/S/    CROWE CHIZEK AND
COMPANY LLC

Crowe Chizek and Company LLC

Oak Brook, Illinois

March 8, 2006



18.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31, 2005 and 2004

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



|                                                                                                         |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                         |  | 2005 |         |   | 2004 |  
|ASSETS                                                                                                   |  |      |         |   |      |   |         |  
|Cash and due from banks                                                                                  |  | $    | 1,605   |   |      | $ | 1,003   |  
|Interest-bearing deposits                                                                                |  |      | 11,193  |   |      |   | 13,384  |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                |  |      | 12,798  |   |      |   | 14,387  |  
|Time deposits in other financial institutions                                                            |  |      | 196     |   |      |   | 295     |  
|Securities available for sale, at fair value                                                             |  |      | 137,023 |   |      |   | 152,060 |  
|Loans receivable, net of allowance of $971 and $942                                                      |  |      | 178,551 |   |      |   | 136,331 |  
|Real estate owned, net                                                                                   |  |      | 233     |   |      |   | 101     |  
|Federal Home Loan Bank stock, at cost                                                                    |  |      | 1,682   |   |      |   | 1,562   |  
|Premises and equipment, net                                                                              |  |      | 3,300   |   |      |   | 3,471   |  
|Goodwill                                                                                                 |  |      | 1,340   |   |      |   | 1,340   |  
|Core deposits and other intangibles                                                                      |  |      | 209     |   |      |   | 248     |  
|Accrued interest receivable                                                                              |  |      | 1,606   |   |      |   | 1,363   |  
|Other assets                                                                                             |  |      | 2,364   |   |      |   | 1,329   |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Total assets                                                                                             |  | $    | 339,302 |   |      | $ | 312,487 |  
|                                                                                                         |  |      |         |   |      |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                     |  |      |         |   |      |   |         |  
|Liabilities                                                                                              |  |      |         |   |      |   |         |  
|Deposits                                                                                                 |  |      |         |   |      |   |         |  
|Non-interest-bearing                                                                                     |  | $    | 5,027   |   |      | $ | 3,256   |  
|Interest-bearing                                                                                         |  |      | 286,201 |   |      |   | 270,455 |  
|                                                                                                         |  |      |         |   |      |   |         |  
|                                                                                                         |  |      | 291,228 |   |      |   | 273,711 |  
|Advances from borrowers for taxes and insurance                                                          |  |      | 217     |   |      |   | 184     |  
|Federal Home Loan Bank advances                                                                          |  |      | 18,188  |   |      |   | 6,450   |  
|Subordinated debentures                                                                                  |  |      | 7,217   |   |      |   | 7,217   |  
|Accrued interest payable                                                                                 |  |      | 754     |   |      |   | 592     |  
|Other liabilities                                                                                        |  |      | 383     |   |      |   | 209     |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Total liabilities                                                                                        |  |      | 317,987 |   |      |   | 288,363 |  
|Shareholders equity                                                                                     |  |      |         |   |      |   |         |  
|Preferred stock, $.01 par value per share, 1,000,000 shares authorized, no shares issued and outstanding |  |      |        |   |      |   |        |  
|Common stock, $.01 par value per share, 4,000,000 shares authorized, 2,242,500 shares issued             |  |      | 22      |   |      |   | 22      |  
|Additional paid-in capital                                                                               |  |      | 23,166  |   |      |   | 22,954  |  
|Unearned ESOP shares                                                                                     |  |      | (852    | ) |      |   | (1,032  | )
|Unearned stock awards                                                                                    |  |      | (203    | ) |      |   | (474    | )
|Treasury stock, 1,000,236 shares in 2005 and 925,401 shares in 2004                                      |  |      | (30,015 | ) |      |   | (28,185 | )
|Retained earnings                                                                                        |  |      | 31,751  |   |      |   | 31,393  |  
|Accumulated other comprehensive loss                                                                     |  |      | (2,554  | ) |      |   | (554    | )
|                                                                                                         |  |      |         |   |      |   |         |  
|Total shareholders equity                                                                               |  |      | 21,315  |   |      |   | 24,124  |  
|                                                                                                         |  |      |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                               |  | $    | 339,302 |   |      | $ | 312,487 |  
|                                                                                                         |  |      |         |   |      |   |         |  

See accompanying notes to consolidated financial statements.



19.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2005, 2004, and
2003

(Dollars in thousands, except per share data)



|                                                    |  |      |        |      |   |        |  |   |       
|--------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                    |  | 2005 |        | 2004 |   | 2003  
|Interest income                                     |  |      |        |      |   |        |  |   |       
|Loans                                               |  | $    | 9,556  |      | $ | 8,363  |  | $ | 9,327 
|Securities                                          |  |      | 5,819  |      |   | 5,919  |  |   | 5,728 
|Time deposits in other financial institutions       |  |      | 259    |      |   | 168    |  |   | 256   
|                                                    |  |      |        |      |   |        |  |   |       
|Total interest income                               |  |      | 15,634 |      |   | 14,450 |  |   | 15,311
|Interest expense                                    |  |      |        |      |   |        |  |   |       
|Savings and certificates                            |  |      | 6,220  |      |   | 5,234  |  |   | 5,901 
|NOW and money market accounts                       |  |      | 1,035  |      |   | 418    |  |   | 487   
|Federal Home Loan Bank advances                     |  |      | 481    |      |   | 177    |  |   | 167   
|Subordinated debentures                             |  |      | 421    |      |   | 323    |  |   |      
|                                                    |  |      |        |      |   |        |  |   |       
|Total interest expense                              |  |      | 8,157  |      |   | 6,152  |  |   | 6,555 
|                                                    |  |      |        |      |   |        |  |   |       
|Net interest income                                 |  |      | 7,477  |      |   | 8,298  |  |   | 8,756 
|Provision for loan losses                           |  |      | 303    |      |   |       |  |   | 90    
|                                                    |  |      |        |      |   |        |  |   |       
|Net interest income after provision for loan losses |  |      | 7,174  |      |   | 8,298  |  |   | 8,666 
|                                                    |  |      |       
|Noninterest income                                  |  |      |        |      |   |        |  |   |       
|Service charges on deposit accounts                 |  |      | 440    |      |   | 321    |  |   | 209   
|Loan origination and servicing fees                 |  |      | 264    |      |   | 260    |  |   | 482   
|Other fee income                                    |  |      | 249    |      |   | 180    |  |   | 210   
|Net gain on sale of securities                      |  |      | 222    |      |   | 576    |  |   | 599   
|Gain on sale of branch                              |  |      |       |      |   |       |  |   | 428   
|Recovery of impairment loss                         |  |      |       |      |   | 85     |  |   | 452   
|Other income                                        |  |      | 46     |      |   | 43     |  |   | 113   
|                                                    |  |      |        |      |   |        |  |   |       
|Total noninterest income                            |  |      | 1,221  |      |   | 1,465  |  |   | 2,493 
|Noninterest expense                                 |  |      |        |      |   |        |  |   |       
|Compensation and benefits                           |  |      | 4,368  |      |   | 4,322  |  |   | 4,010 
|Occupancy and equipment                             |  |      | 566    |      |   | 556    |  |   | 542   
|Data processing                                     |  |      | 659    |      |   | 536    |  |   | 765   
|Federal insurance premiums                          |  |      | 117    |      |   | 118    |  |   | 116   
|Advertising                                         |  |      | 150    |      |   | 161    |  |   | 150   
|Professional fees                                   |  |      | 286    |      |   | 278    |  |   | 319   
|Other noninterest expense                           |  |      | 817    |      |   | 907    |  |   | 874   
|                                                    |  |      |        |      |   |        |  |   |       
|Total noninterest expense                           |  |      | 6,963  |      |   | 6,878  |  |   | 6,776 
|                                                    |  |      |        |      |   |        |  |   |       
|Income before income taxes                          |  |      | 1,432  |      |   | 2,885  |  |   | 4,383 
|Provision for income taxes                          |  |      | 517    |      |   | 1,086  |  |   | 1,551 
|                                                    |  |      |        |      |   |        |  |   |       
|Net income                                          |  | $    | 915    |      | $ | 1,799  |  | $ | 2,832 
|                                                    |  |      |        |      |   |        |  |   |       
|Earnings per share                                  |  |      |        |      |   |        |  |   |       
|Basic                                               |  | $    | .80    |      | $ | 1.30   |  | $ | 1.58  
|Diluted                                             |  | $    | .76    |      | $ | 1.21   |  | $ | 1.48  

See accompanying notes to consolidated financial statements.



20.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the years ended
December 31, 2005, 2004, and 2003

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



|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ----------- | -- | ------------------------ | - | ------ | ------------------ |  | - | ------------------- | - |  | ------------- | ------ | - | ---------------- | - | ------ | ------------------------------------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                                          |  | CommonStock |    | AdditionalPaid-InCapital |   |        | UnearnedESOPShares |  |   | UnearnedStockAwards |   |  | TreasuryStock |        |   | RetainedEarnings |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|Balance at January 1, 2003                                                                |  | $           | 22 |                          | $ | 22,629 |                    |  | $ | (1,390              | ) |  | $             | (1,016 | ) |                  | $ | (3,272 | )                                          |  | $ | 28,090 |   |  | $ | 1,968  |   |  | $ | 47,031 |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Purchase of 240,666 shares of treasury stock                                              |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   | (7,333 | )                                          |  |   |       |   |  |   |       |   |  |   | (7,333 | )
|                                                                                          |  |             |    |                          |   |        |                    | 
|ESOP shares earned                                                                        |  |             |   |                          |   | 293    |                    |  |   | 179                 |   |  |               |       |   |                  |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 472    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Options exercised (32,910 shares)                                                         |  |             |   |                          |   | (185   | )                  |  |   |                    |   |  |               |       |   |                  |   | 703    |                                            |  |   |       |   |  |   |       |   |  |   | 518    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Stock awards earned and related tax benefit                                               |  |             |   |                          |   | 115    |                    |  |   |                    |   |  |               | 271    |   |                  |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 386    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Dividends declared ($.41 per share)                                                       |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   |       |                                            |  |   | (742   | ) |  |   |       |   |  |   | (742   | )
|                                                                                          |  |             |    |                          |   |        |                    | 
|Comprehensive income                                                                      |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Net income                                                                                |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   |       |                                            |  |   | 2,832  |   |  |   |       |   |  |   | 2,832  |  
|Unrealized loss on securities available-for-sale, net of reclassification and tax effects |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |       |   |                  |   |       |                                            |  |   |       |   |  |   | (1,771 | ) |  |   | (1,771 | )
|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|Total comprehensive income                                                                |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |   |        |   |  |   |        |   |  |   | 1,061  |  
|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |        |   |                  |   |        |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|Balance at December 31, 2003                                                              |  |             | 22 |                          |   | 22,852 |                    |  |   | (1,211              | ) |  |               | (745   | ) |                  |   | (9,902 | )                                          |  |   | 30,180 |   |  |   | 197    |   |  |   | 41,393 |  



(Continued)

21.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the years ended
December 31, 2005, 2004, and 2003

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



|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |      |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ----------- | -- | ------------------------ | - | ------ | ------------------ |  | - | ------------------- | - |  | ------------- | ---- | - | ---------------- | - | ------- | ------------------------------------------ |  | - | ------ | - |  | - | ---- | - |  | - | ------- | -
|                                                                                           |  | CommonStock |    | AdditionalPaid-InCapital |   |        | UnearnedESOPShares |  |   | UnearnedStockAwards |   |  | TreasuryStock |      |   | RetainedEarnings |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Purchase of 562,148 shares of treasury stock through tender offer, including related costs |  | $           |   |                          | $ |       |                    |  | $ |                    |   |  | $             |     |   |                  | $ | (18,969 | )                                          |  | $ |       |   |  | $ |     |   |  | $ | (18,969 | )
|                                                                                           |  |             |    |                          |   |        |                    | 
|ESOP shares earned                                                                         |  |             |   |                          |   | 324    |                    |  |   | 179                 |   |  |               |     |   |                  |   |        |                                            |  |   |       |   |  |   |     |   |  |   | 503     |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Options exercised (32,910 shares)                                                          |  |             |   |                          |   | (284   | )                  |  |   |                    |   |  |               |     |   |                  |   | 686     |                                            |  |   |       |   |  |   |     |   |  |   | 402     |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Stock awards earned and related tax benefit                                                |  |             |   |                          |   | 62     |                    |  |   |                    |   |  |               | 271  |   |                  |   |        |                                            |  |   |       |   |  |   |     |   |  |   | 333     |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Dividends declared ($.44 per share)                                                        |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   | (586   | ) |  |   |     |   |  |   | (586    | )
|                                                                                           |  |             |    |                          |   |        |                    | 
|Comprehensive income                                                                       |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |      |   |  |   |         |  
|Net income                                                                                 |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   | 1,799  |   |  |   |     |   |  |   | 1,799   |  
|Unrealized gain on securities available for sale, net of reclassification and tax effects  |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   |       |   |  |   | (751 | ) |  |   | (751    | )
|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |      |   |  |   |         |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Total comprehensive income                                                                 |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |      |   |  |   | 1,048   |  
|                                                                                           |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |      |   |  |   |         |  
|                                                                                           |  |             |    |                          |   |        |                    | 
|Balance at December 31, 2004                                                               |  |             | 22 |                          |   | 22,954 |                    |  |   | (1,032              | ) |  |               | (474 | ) |                  |   | (28,185 | )                                          |  |   | 31,393 |   |  |   | (554 | ) |  |   | 24,124  |  



(Continued)

22.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the years ended
December 31, 2005, 2004, and 2003

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



|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ----------- | -- | ------------------------ | - | ------ | ------------------ |  | - | ------------------- | - |  | ------------- | ---- | - | ---------------- | - | ------- | ------------------------------------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                                          |  | CommonStock |    | AdditionalPaid-InCapital |   |        | UnearnedESOPShares |  |   | UnearnedStockAwards |   |  | TreasuryStock |      |   | RetainedEarnings |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Purchase of 77,310 shares of treasury stock                                               |  | $           |   |                          | $ |       |                    |  | $ |                    |   |  | $             |     |   |                  | $ | (1,905  | )                                          |  | $ |       |   |  | $ |       |   |  | $ | (1,905 | )
|                                                                                          |  |             |    |                          |   |        |                    | 
|ESOP shares earned                                                                        |  |             |   |                          |   | 209    |                    |  |   | 180                 |   |  |               |     |   |                  |   |        |                                            |  |   |       |   |  |   |       |   |  |   | 389    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Options exercised (2,475 shares)                                                          |  |             |   |                          |   | (33    | )                  |  |   |                    |   |  |               |     |   |                  |   | 75      |                                            |  |   |       |   |  |   |       |   |  |   | 42     |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Stock awards earned and related tax benefit                                               |  |             |   |                          |   | 36     |                    |  |   |                    |   |  |               | 271  |   |                  |   |        |                                            |  |   |       |   |  |   |       |   |  |   | 307    |  
|                                                                                          |  |             |    |                          |   |        |                    | 
|Dividends declared ($.48 per share)                                                       |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   | (557   | ) |  |   |       |   |  |   | (557   | )
|                                                                                          |  |             |    |                          |   |        |                    | 
|Comprehensive income                                                                      |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|Net income                                                                                |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   | 915    |   |  |   |       |   |  |   | 915    |  
|Unrealized loss on securities available for sale, net of reclassification and tax effects |  |             |   |                          |   |       |                    |  |   |                    |   |  |               |     |   |                  |   |        |                                            |  |   |       |   |  |   | (2,000 | ) |  |   | (2,000 | )
|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|Total comprehensive loss                                                                  |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   | (1,085 | )
|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |        |  
|Balance at December 31, 2005                                                              |  | $           | 22 |                          | $ | 23,166 |                    |  | $ | (852                | ) |  | $             | (203 | ) |                  | $ | (30,015 | )                                          |  | $ | 31,751 |   |  | $ | (2,554 | ) |  | $ | 21,315 |  
|                                                                                          |  |             |    |                          |   |        |                    |  |   |                     |   |  |               |      |   |                  |   |         |                                            |  |   |        |   |  |   |        |   |  |   |        |  

See accompanying notes to consolidated financial statements.



23.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2005, 2004,
and 2003

(Dollars in thousands)



|                                                                                 |  |      |         |   |      |   |         |      |  |   |          |  
|-------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                 |  | 2005 |         |   | 2004 |   |         | 2003 | 
|Cash flows from operating activities                                             |  |      |         |   |      |   |         |      |  |   |          |  
|Net income                                                                       |  | $    | 915     |   |      | $ | 1,799   |      |  | $ | 2,832    |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |      |         |   |      |   |         |      |  |   |          |  
|Depreciation                                                                     |  |      | 256     |   |      |   | 259     |      |  |   | 230      |  
|Loss (gain) on sale of real estate owned                                         |  |      | (51     | ) |      |   | 12      |      |  |   | (11      | )
|Net amortization of premiums and discounts                                       |  |      | 131     |   |      |   | 133     |      |  |   | 71       |  
|ESOP compensation expense                                                        |  |      | 389     |   |      |   | 503     |      |  |   | 472      |  
|Stock award compensation expense                                                 |  |      | 271     |   |      |   | 271     |      |  |   | 271      |  
|Amortization of intangible assets                                                |  |      | 40      |   |      |   | 40      |      |  |   | 40       |  
|Provision for loan losses                                                        |  |      | 303     |   |      |   |        |      |  |   | 90       |  
|Deferred income taxes                                                            |  |      | 106     |   |      |   |        |      |  |   | 107      |  
|Federal Home Loan Bank stock dividends                                           |  |      | (79     | ) |      |   | (89     | )    |  |   | (96      | )
|Net gain on sale of securities                                                   |  |      | (222    | ) |      |   | (576    | )    |  |   | (599     | )
|Gain on sale of branch                                                           |  |      |        |   |      |   |        |      |  |   | (428     | )
|Net changes in                                                                   |  |      |         |   |      |   |         |      |  |   |          |  
|Accrued interest receivable and other assets                                     |  |      | (30     | ) |      |   | (850    | )    |  |   | 7        |  
|Deferred loan (fees) costs                                                       |  |      | (45     | ) |      |   | 5       |      |  |   | 27       |  
|Accrued interest payable and other liabilities                                   |  |      | 332     |   |      |   | 986     |      |  |   | 131      |  
|                                                                                 |  |      |         |   |      |   |         |      |  |   |          |  
|Net cash from operating activities                                               |  |      | 2,316   |   |      |   | 2,493   |      |  |   | 3,144    |  
|                                                                                 |  |      |        
|Cash flows from investing activities                                             |  |      |         |   |      |   |         |      |  |   |          |  
|Net change in time deposits in other financial institutions                      |  |      | 99      |   |      |   |        |      |  |   |         |  
|Purchase of securities available for sale                                        |  |      | (9,905  | ) |      |   | (65,844 | )    |  |   | (147,666 | )
|Principal paydowns on mortgage-backed securities                                 |  |      | 16,774  |   |      |   | 16,676  |      |  |   | 19,907   |  
|Sale of Federal Home Loan Mortgage Corporation stock                             |  |      | 239     |   |      |   | 20      |      |  |   |         |  
|Purchase of Federal Home Loan Bank stock                                         |  |      | (42     | ) |      |   | (85     | )    |  |   | (175     | )
|Proceeds from maturities of securities available for sale                        |  |      | 90      |   |      |   | 10,609  |      |  |   | 38,755   |  
|Proceeds from sales of securities available for sale                             |  |      | 5,399   |   |      |   | 36,699  |      |  |   | 52,494   |  
|Dividend reinvestments                                                           |  |      | (738    | ) |      |   | (1,055  | )    |  |   | (886     | )
|Purchase of loans                                                                |  |      | (37,354 | ) |      |   | (4,039  | )    |  |   | (7,137   | )
|Sale of loans                                                                    |  |      | 2,104   |   |      |   |        |      |  |   |         |  
|Net (increase) decrease in loans receivable                                      |  |      | (7,894  | ) |      |   | (624    | )    |  |   | 24,827   |  
|Proceeds from sale of real estate owned                                          |  |      | 585     |   |      |   | 298     |      |  |   | 641      |  
|Payments for sale of branch                                                      |  |      |        |   |      |   |        |      |  |   | (6,103   | )
|Purchase of property and equipment                                               |  |      | (85     | ) |      |   | (195    | )    |  |   | (506     | )
|                                                                                 |  |      |         |   |      |   |         |      |  |   |          |  
|Net cash from investing activities                                               |  |      | (30,728 | ) |      |   | (7,540  | )    |  |   | (25,849  | )



(Continued)

24.



---

FIRST FEDERAL BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2005, 2004,
and 2003

(Dollars in thousands)



|                                                                                 |  |      |        |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                 |  | 2005 |        |   | 2004 |   |         | 2003 | 
|Cash flows from financing activities                                             |  |      |        |   |      |   |         |      |  |   |         |  
|Net increase in deposits                                                         |  | $    | 17,517 |   |      | $ | 1,861   |      |  | $ | 14,607  |  
|Net change in advances from borrowers for taxes and insurance                    |  |      | 33     |   |      |   | 47      |      |  |   | (30     | )
|Advances from the Federal Home Loan Bank                                         |  |      | 14,192 |   |      |   | 4,450   |      |  |   | 4,000   |  
|Repayment of Federal Home Loan Bank advances                                     |  |      | (2,454 | ) |      |   | (4,000  | )    |  |   | (2,000  | )
|Proceeds from subordinated debentures                                            |  |      |       |   |      |   | 7,217   |      |  |   |        |  
|Purchase of treasury stock                                                       |  |      | (1,905 | ) |      |   | (18,969 | )    |  |   | (7,333  | )
|Dividends paid                                                                   |  |      | (602   | ) |      |   | (698    | )    |  |   | (760    | )
|Exercise of stock options                                                        |  |      | 42     |   |      |   | 402     |      |  |   | 518     |  
|                                                                                 |  |      |        |   |      |   |         |      |  |   |         |  
|Net cash from financing activities                                               |  |      | 26,823 |   |      |   | (9,690  | )    |  |   | 9,002   |  
|                                                                                 |  |      |        |   |      |   |         |      |  |   |         |  
|Net change in cash and cash equivalents                                          |  |      | (1,589 | ) |      |   | (14,737 | )    |  |   | (13,703 | )
|                                                                                 |  |      |       
|Cash and cash equivalents                                                        |  |      |        |   |      |   |         |      |  |   |         |  
|Beginning of year                                                                |  |      | 14,387 |   |      |   | 29,124  |      |  |   | 42,827  |  
|                                                                                 |  |      |        |   |      |   |         |      |  |   |         |  
|End of year                                                                      |  | $    | 12,798 |   |      | $ | 14,387  |      |  | $ | 29,124  |  
|                                                                                 |  |      |        |   |      |   |         |      |  |   |         |  
|Supplemental disclosures of cash flow information                                |  |      |        |   |      |   |         |      |  |   |         |  
|Cash paid during the year for Interest                                           |  | $    | 7,995  |   |      | $ | 6,044   |      |  | $ | 6,677   |  
|Taxes, net of refunds                                                            |  |      | 261    |   |      |   | 627     |      |  |   | 1,362   |  
|Transfer of loans to real estate owned                                           |  |      | 856    |   |      |   | 262     |      |  |   | 502     |  
|Transfer of securities to available for sale from held to maturity at fair value |  |      |       |   |      |   |        |      |  |   | 24,471  |  
|Due to broker                                                                    |  |      |       |   |      |   |        |      |  |   | 9,000   |  

See accompanying notes to consolidated financial statements.



25.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

Securities: All securities are classified as available for sale since the Company may decide to sell those securities in
response to changes in market interest rates, liquidity needs, changes in yields or alternative investments, and for other reasons. Securities are carried at market value with unrealized gains and losses charged or credited, net of income taxes, to
a valuation allowance included in other comprehensive income.



(Continued)

26.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



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

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

Loans:Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate
cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

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

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



(Continued)

27.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



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

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

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

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

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



(Continued)

28.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



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

Goodwill and Other Intangible Assets: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets.
Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified. No impairment was recognized in 2005 or 2004. Other intangible assets consist of core deposit and customer relationship assets
arising from bank acquisition. These intangibles are initially measured at fair value and then are amortized on an accelerated method over their useful lives, estimated to be ten years.

Gain on Sale of Branch: The Bank completed the sale of its Mount Sterling, Illinois branch office on September 26, 2003. The sale included the assumption of approximately $6.2 million in deposits and
miscellaneous other assets totaling approximately $106,000. A gain of $428,000, pre-tax, was recorded on the sale.

Federal Home Loan Bank
(FHLB) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost,
classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

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

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



(Continued)

29.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



Equity: Stock dividends in excess of 20% are reported by transferring the par value of the stock issued from
retained earnings to common stock. Stock dividends for 20% or less are reported by transferring the fair value, as of the ex-dividend date, of the stock issued from retained earnings to common stock and additional paid-in capital. Fractional share
amounts are paid in cash with a reduction in retained earnings.

Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders. These restrictions pose no practical limit on the ability of the bank or holding company to pay dividends at historical levels.
(See Note 14 for more specific disclosures related to national banks or savings associations.)

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

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

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

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



(Continued)

30.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



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

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

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options vesting period.



|                                                                                  |  |                         |     |      |   |       |  |   |      
|--------------------------------------------------------------------------------- |  | ----------------------- | --- | ---- | - | ----- |  | - | -----
|                                                                                  |  | Year Ended December 31,
|                                                                                  |  | 2005                    |     | 2004 |   | 2003 
|Net income as reported                                                            |  | $                       | 915 |      | $ | 1,799 |  | $ | 2,832
|Deduct: stock-based compensation expense determined under fair value-based method |  |                         | 101 |      |   | 93    |  |   | 90   
|                                                                                  |  |                         |     |      |   |       |  |   |      
|Pro forma net income                                                              |  |                         | 814 |      |   | 1,706 |  |   | 2,742
|Earnings per share as reported                                                    |  |                         |     |      |   |       |  |   |      
|Basic                                                                             |  |                         | .80 |      |   | 1.30  |  |   | 1.58 
|Diluted                                                                           |  |                         | .76 |      |   | 1.21  |  |   | 1.48 
|Pro forma earnings per share                                                      |  |                         |     |      |   |       |  |   |      
|Basic                                                                             |  |                         | .71 |      |   | 1.23  |  |   | 1.52 
|Diluted                                                                           |  |                         | .68 |      |   | 1.15  |  |   | 1.44 



(Continued)

31.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



The pro forma effects are computed using option pricing models, using the following weighted-average assumptions as
of grant date. No options were granted during 2005.



|                                                     |  |      |         |   |      |   |         |  
|---------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                     |  | 2004 |         |   | 2003 |  
|Options granted                                      |  |      | 12,701  |   |      |   | 3,000   |  
|Weighted average fair value of stock options granted |  | $    | 6.58    |   |      | $ | 3.26    |  
|Assumptions used:                                    |  |      |         |   |      |   |         |  
|Risk-free interest rate                              |  |      | 3.48    | % |      |   | 2.94    | %
|Expected option life                                 |  |      | 5 years |   |      |   | 5 years |  
|Expected stock price volatility                      |  |      | 25.10   | % |      |   | 12.80   | %
|Expected dividend yield                              |  |      | 1.56    | % |      |   | 1.55    | %

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

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

Effect of Newly Issued But Not Yet
Effective Accounting Standards: SFAS No. 123R requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when
granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. This will apply to awards granted or modified beginning in 2006. Compensation cost will also be recorded for prior option
grants that vest after the date of adoption. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods
provided. Existing options that will vest after adoption date are expected to result in additional compensation expense of approximately $165,000 in 2006, $19,000 in 2007, $19,000 in 2008, and $17,000 in 2009.



(Continued)

32.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)



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

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

NOTE 2 - SECURITIES

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



|                                                                                          |  |                    |        |                      |   |                       |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ------------------ | ------ | -------------------- | - | --------------------- |  | - | ------ | -
|                                                                                          |  | EstimatedFairValue |        | GrossUnrealizedGains |   | GrossUnrealizedLosses | 
|2005                                                                                      |  |                    |        |                      |   |                       |  |   |        |  
|U.S. government agency                                                                    |  | $                  | 26,407 |                      | $ | 20                    |  | $ | (1,185 | )
|SBA                                                                                       |  |                    | 1,751  |                      |   |                      |  |   | (10    | )
|Corporate bonds                                                                           |  |                    | 5,868  |                      |   |                      |  |   | (232   | )
|State and municipal obligations                                                           |  |                    | 7,296  |                      |   | 137                   |  |   | (22    | )
|                                                                                          |  |                    |        |                      |   |                       |  |   |        |  
|                                                                                          |  |                    | 41,322 |                      |   | 157                   |  |   | (1,449 | )
|U.S. government agency mortgage-backed securities and collateralized mortgage obligations |  |                    |        |                      |   |                       |  |   |        |  
|FHLMC                                                                                     |  |                    | 10,110 |                      |   | 6                     |  |   | (372   | )
|FNMA                                                                                      |  |                    | 38,669 |                      |   | 6                     |  |   | (1,538 | )
|GNMA                                                                                      |  |                    | 14,547 |                      |   | 3                     |  |   | (266   | )
|Other                                                                                     |  |                    | 3,493  |                      |   |                      |  |   | (91    | )
|                                                                                          |  |                    |        |                      |   |                       |  |   |        |  
|                                                                                          |  |                    | 66,819 |                      |   | 15                    |  |   | (2,267 | )



(Continued)

33.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 2 - SECURITIES(Continued)



|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ------------------- | ------- | -------------------- | - | --------------------- |  | - | ------ | -
|                                                                                          |  | EstimatedFair Value |         | GrossUnrealizedGains |   | GrossUnrealizedLosses | 
|Marketable equity securities                                                              |  |                     |         |                      |   |                       |  |   |        |  
|FHLMC stock                                                                               |  | $                   | 531     |                      | $ | 503                   |  | $ |       |  
|Mortgage securities fund                                                                  |  |                     | 18,223  |                      |   |                      |  |   | (911   | )
|Adjustable rate mortgage securities fund                                                  |  |                     | 9,127   |                      |   |                      |  |   | (203   | )
|Ultra Fund                                                                                |  |                     | 1,001   |                      |   |                      |  |   | (20    | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 28,882  |                      |   | 503                   |  |   | (1,134 | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|Total                                                                                     |  | $                   | 137,023 |                      | $ | 675                   |  | $ | (4,850 | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|2004                                                                                      |  |                     |         |                      |   |                       |  |   |        |  
|U.S. government agency                                                                    |  | $                   | 26,932  |                      | $ | 88                    |  | $ | (727   | )
|SLMA bonds                                                                                |  |                     | 2,555   |                      |   |                      |  |   | (13    | )
|Corporate bonds                                                                           |  |                     | 6,036   |                      |   |                      |  |   | (64    | )
|State and municipal obligations                                                           |  |                     | 7,520   |                      |   | 256                   |  |   | (6     | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 43,043  |                      |   | 344                   |  |   | (810   | )
|U.S. government agency mortgage-backed securities and collateralized mortgage obligations |  |                     |         |                      |   |                       |  |   |        |  
|FHLMC                                                                                     |  |                     | 12,768  |                      |   | 16                    |  |   | (116   | )
|FNMA                                                                                      |  |                     | 44,024  |                      |   | 59                    |  |   | (708   | )
|GNMA                                                                                      |  |                     | 18,390  |                      |   | 24                    |  |   | (135   | )
|Other                                                                                     |  |                     | 3,976   |                      |   |                      |  |   | (10    | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 79,158  |                      |   | 99                    |  |   | (969   | )
|Marketable equity securities                                                              |  |                     |         |                      |   |                       |  |   |        |  
|FHLMC stock                                                                               |  |                     | 907     |                      |   | 867                   |  |   |       |  
|Mortgage securities fund                                                                  |  |                     | 18,285  |                      |   |                      |  |   | (344   | )
|Adjustable rate mortgage securities fund                                                  |  |                     | 9,232   |                      |   |                      |  |   | (81    | )
|Ultra Fund                                                                                |  |                     | 1,435   |                      |   |                      |  |   | (11    | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|                                                                                          |  |                     | 29,859  |                      |   | 867                   |  |   | (436   | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  
|Total                                                                                     |  | $                   | 152,060 |                      | $ | 1,310                 |  | $ | (2,215 | )
|                                                                                          |  |                     |         |                      |   |                       |  |   |        |  

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



(Continued)

34.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 2 - SECURITIES (Continued)



Sales of available for sale securities were as follows:



|             |  |      |       |   |      |   |        |      |  |   |        |  
|------------ |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|             |  | 2005 |       |   | 2004 |   |        | 2003 | 
|Proceeds     |  | $    | 5,638 |   |      | $ | 36,699 |      |  | $ | 52,494 |  
|Gross gains  |  |      | 232   |   |      |   | 608    |      |  |   | 615    |  
|Gross losses |  |      | (10   | ) |      |   | (32    | )    |  |   | (16    | )

Securities with a carrying amount of $27,816 and $16,821 at year-end 2005 and 2004 were pledged to secure public
deposits and for other purposes as required by law.

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

The scheduled maturities of securities available for sale at year-end 2005 were as follows:



|                                       |  |            |        
|-------------------------------------- |  | ---------- | -------
|                                       |  | Fair Value
|Due in one year or less                |  | $          | 184    
|Due after one year through five years  |  |            | 21,696 
|Due after five years through ten years |  |            | 17,171 
|Due after ten years                    |  |            | 2,271  
|                                       |  |            |        
|Subtotal                               |  |            | 41,322 
|Mortgage-backed securities             |  |            | 66,819 
|Marketable equity securities           |  |            | 28,882 
|                                       |  |            |        
|Total                                  |  | $          | 137,023
|                                       |  |            |        



(Continued)

35.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 2 - SECURITIES (Continued)



Securities with unrealized losses at year-end 2005 and 2004 aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position are as follows:



|                                                                                           |  |                     |        |                |                   |      |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  
|------------------------------------------------------------------------------------------ |  | ------------------- | ------ | -------------- | ----------------- | ---- | ---------- | ----- | -------------- | ------- |  | ---------- | ------ | -------------- |  | - | ------- |  | - | ------ | -
|                                                                                           |  | Less Than 12 Months |        |                | 12 Months or More |      |            | Total |               
|2005                                                                                       |  | FairValue           |        | UnrealizedLoss |                   |      | Fair Value |       | UnrealizedLoss |         |  | Fair Value |        | UnrealizedLoss | 
|                                                                                           |  |                     |        |                |                   |      |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  
|U.S. government agency                                                                     |  | $                   |       |                | $                 |     |            |       | $              | 24,395  |  | $          | (1,185 | )              |  | $ | 24,395  |  | $ | (1,185 | )
|SBA                                                                                        |  |                     |       |                |                   |     |            |       |                | 1,751   |  |            | (10    | )              |  |   | 1,751   |  |   | (10    | )
|Corporate bonds                                                                            |  |                     |       |                |                   |     |            |       |                | 5,868   |  |            | (232   | )              |  |   | 5,868   |  |   | (232   | )
|State and municipal obligations                                                            |  |                     | 348    |                |                   | (3   | )          |       |                | 722     |  |            | (19    | )              |  |   | 1,070   |  |   | (22    | )
|U.S. government agency mortgage- backed securities and collateralized mortgage obligations |  |                     | 13,833 |                |                   | (261 | )          |       |                | 52,459  |  |            | (2,006 | )              |  |   | 66,292  |  |   | (2,267 | )
|Marketable equity securities                                                               |  |                     |       |                |                   |     |            |       |                | 28,351  |  |            | (1,134 | )              |  |   | 28,351  |  |   | (1,134 | )
|                                                                                           |  |                     |        |                |                   |      |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  
|Total temporarily impaired                                                                 |  | $                   | 14,181 |                | $                 | (264 | )          |       | $              | 113,546 |  | $          | (4,586 | )              |  | $ | 127,727 |  | $ | (4,850 | )
|                                                                                           |  |                     |        |                |                   |      |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  
|                                                                                           |  |                     |        |                |                   |     
|2004                                                                                       |  |                     |        |                |                   |      |            |       |                |         |  |            |        |                | 
|U.S. government agency                                                                     |  | $                   |       |                | $                 |     |            |       | $              | 24,853  |  | $          | (727   | )              |  | $ | 24,853  |  | $ | (727   | )
|SLMA bonds                                                                                 |  |                     |       |                |                   |     |            |       |                | 2,390   |  |            | (13    | )              |  |   | 2,390   |  |   | (13    | )
|Corporate bonds                                                                            |  |                     | 2,077  |                |                   | (23  | )          |       |                | 3,959   |  |            | (41    | )              |  |   | 6,036   |  |   | (64    | )
|State and municipal obligations                                                            |  |                     | 737    |                |                   | (5   | )          |       |                | 103     |  |            | (1     | )              |  |   | 840     |  |   | (6     | )
|U.S. government agency mortgage- backed securities and collateralized mortgage obligations |  |                     | 53,142 |                |                   | (533 | )          |       |                | 16,161  |  |            | (436   | )              |  |   | 69,303  |  |   | (969   | )
|Marketable equity securities                                                               |  |                     | 1,435  |                |                   | (187 | )          |       |                | 27,517  |  |            | (249   | )              |  |   | 28,952  |  |   | (436   | )
|                                                                                           |  |                     |        |                |                   |      |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  
|Total temporarily impaired                                                                 |  | $                   | 57,391 |                | $                 | (748 | )          |       | $              | 74,983  |  | $          | (1,467 | )              |  | $ | 132,374 |  | $ | (2,215 | )
|                                                                                           |  |                     |        |                |                   |      |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  

Unrealized losses on bonds have not been recognized into income because the issuer(s) bonds are of high credit
quality, management is not aware of any specific credit risk issues, management has the intent and the Company has the ability to hold the bonds/funds through the expected recovery period, and the decline in fair value is largely due to increases in
market interest rates. The fair value is expected to recover as the bonds/funds approach their maturity date and/or market rates decline. The mortgage securities fund, which holds U.S. government bonds, is inversely sensitive to interest rate
movements with U.S. five-year treasury notes. Historical performance supports that the fund is expected to recover within normal interest rate cycles. The adjustable rate mortgage securities fund holds mortgage-backed securities and is inversely
sensitive to short-term rates. The fund is expected to recover as short-term interest rates stabilize or decline.



(Continued)

36.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 3 - LOANS RECEIVABLE



Loans receivable consist of the following:



|                            |  |      |         |   |      |   |         |  
|--------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                            |  | 2005 |         |   | 2004 |  
|First mortgage loans        |  |      |         |   |      |   |         |  
|One- to four-family         |  | $    | 111,267 |   |      | $ | 84,098  |  
|Multi-family and commercial |  |      | 49,469  |   |      |   | 34,962  |  
|Construction                |  |      | 1,904   |   |      |   | 3,305   |  
|                            |  |      |         |   |      |   |         |  
|Total first mortgage loans  |  |      | 162,640 |   |      |   | 122,365 |  
|Commercial loans            |  |      | 7,526   |   |      |   | 6,932   |  
|Consumer loans              |  |      |         |   |      |   |         |  
|Automobile                  |  |      | 5,976   |   |      |   | 5,075   |  
|Home improvement            |  |      | 413     |   |      |   | 484     |  
|Share loans                 |  |      | 1,524   |   |      |   | 1,282   |  
|Other                       |  |      | 1,153   |   |      |   | 1,025   |  
|                            |  |      |         |   |      |   |         |  
|Total consumer loans        |  |      | 9,066   |   |      |   | 7,866   |  
|                            |  |      |         |   |      |   |         |  
|Total loans                 |  |      | 179,232 |   |      |   | 137,163 |  
|Add                         |  |      |         |   |      |   |         |  
|Real estate in judgment     |  |      |        |   |      |   | 20      |  
|Unearned premiums           |  |      | 160     |   |      |   |        |  
|Less                        |  |      |         |   |      |   |         |  
|Unearned discounts          |  |      | (71     | ) |      |   | (66     | )
|Deferred loans costs, net   |  |      | 201     |   |      |   | 156     |  
|Allowance for loan losses   |  |      | (971    | ) |      |   | (942    | )
|                            |  |      |         |   |      |   |         |  
|Loans receivable, net       |  | $    | 178,551 |   |      | $ | 136,331 |  
|                            |  |      |         |   |      |   |         |  

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

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



|                             |  |      |      |   |      |   |     |      |  |   |      |  
|---------------------------- |  | ---- | ---- | - | ---- | - | --- | ---- |  | - | ---- | -
|                             |  | 2005 |      |   | 2004 |   |     | 2003 | 
|Balance at beginning of year |  | $    | 942  |   |      | $ | 963 |      |  | $ | 976  |  
|Provision charged to income  |  |      | 303  |   |      |   |    |      |  |   | 90   |  
|Charge-offs                  |  |      | (338 | ) |      |   | (96 | )    |  |   | (189 | )
|Recoveries                   |  |      | 64   |   |      |   | 75  |      |  |   | 86   |  
|                             |  |      |      |   |      |   |     |      |  |   |      |  
|Balance at end of year       |  | $    | 971  |   |      | $ | 942 |      |  | $ | 963  |  
|                             |  |      |      |   |      |   |     |      |  |   |      |  



(Continued)

37.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 3 - LOANS RECEIVABLE(Continued)



There were no impaired loans at year-end 2005 or 2004. Differences in interest income recorded on the cash basis on
nonaccrual loans for the years ended 2005, 2004, and 2003 and the amounts that would have been recorded if interest on such nonaccrual loans had been accrued were not material to the consolidated financial statements.

Nonperforming loans were as follows:



|                                             |  |      |       |      |   |    
|-------------------------------------------- |  | ---- | ----- | ---- | - | ---
|                                             |  | 2005 |       | 2004
|Loans past due over 90 days still on accrual |  | $    | 1,086 |      | $ | 902
|Nonaccrual loans                             |  |      | 34    |      |   | 929

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

Loans to principal officers, directors, and their affiliates in 2005 were as follows:



|                  |  |      |     |   |      |   |      |  
|----------------- |  | ---- | --- | - | ---- | - | ---- | -
|                  |  | 2005 |     |   | 2004 |  
|Beginning balance |  | $    | 575 |   |      | $ | 525  |  
|New loans         |  |      | 76  |   |      |   | 498  |  
|Repayments        |  |      | (99 | ) |      |   | (448 | )
|                  |  |      |     |   |      |   |      |  
|Ending balance    |  | $    | 552 |   |      | $ | 575  |  
|                  |  |      |     |   |      |   |      |  

NOTE 4 - LOAN SERVICING

Mortgage loans serviced for the Federal Home Loan Bank are not included in the accompanying consolidated financial statements. The unpaid principal balances of these loans totaled $51,061,000 and $45,881,000 at
year-end 2005 and 2004.



(Continued)

38.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:



|                                   |  |      |        |   |      |   |        |  
|---------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                   |  | 2005 |        |   | 2004 |  
|Land, buildings, and improvements  |  | $    | 4,481  |   |      | $ | 4,477  |  
|Furniture, fixtures, and equipment |  |      | 2,097  |   |      |   | 2,026  |  
|                                   |  |      |        |   |      |   |        |  
|                                   |  |      | 6,578  |   |      |   | 6,503  |  
|Less accumulated depreciation      |  |      | (3,278 | ) |      |   | (3,032 | )
|                                   |  |      |        |   |      |   |        |  
|Total                              |  | $    | 3,300  |   |      | $ | 3,471  |  
|                                   |  |      |        |   |      |   |        |  

NOTE 6 - INTANGIBLE ASSETS

Goodwill and other intangible assets resulted from the 2002 acquisition of PFSB Bancorp, Inc. Goodwill is not deductible for tax purposes. Intangible assets consist primarily of a core deposit intangible, which is
being amortized over ten years on an accelerated basis. Intangible assets are reported net of accumulated amortization of $122,000, $83,000 and $43,000 at year-end 2005, 2004, and 2003. Estimated amortization for intangibles for each of the next
five years is approximately $40,000.

NOTE 7 - DEPOSITS

Certificate of deposit accounts with balances of $100,000 or more totaled approximately $32,419,000 and $31,629,000 at year-end 2005 and 2004. Deposits greater than $100,000 are not federally insured.

Scheduled maturities of certificates of deposit at year-end 2005 were as follows:



|           |  |   |        
|---------- |  | - | -------
|2006       |  | $ | 119,778
|2007       |  |   | 45,711 
|2008       |  |   | 16,018 
|2009       |  |   | 10,574 
|2010       |  |   | 4,200  
|Thereafter |  |   | 105    
|           |  |   |        
|Total      |  | $ | 196,386
|           |  |   |        

At year-end 2005 and 2004, deposits to related parties were approximately $1,097,000 and $1,495,000.



(Continued)

39.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank advances consist of:



|                       |  |            |   |  |      |        |      |   |      
|---------------------- |  | ---------- | - |  | ---- | ------ | ---- | - | -----
|Maturity Date          |  | Fixed Rate |   |  | 2005 |        | 2004
|January 31, 2006       |  | 3.41       | % |  | $    | 2,000  |      | $ |     
|June 14, 2006          |  | 3.96       | % |  |      | 5,000  |      |   |     
|February 20, 2007      |  | 4.43       | % |  |      | 3,000  |      |   |     
|September 24, 2007     |  | 3.38       | % |  |      | 4,000  |      |   | 4,000
|June 24, 2008          |  | 4.19       | % |  |      | 3,000  |      |   |     
|August 3, 2015         |  | 5.07       | % |  |      | 223    |      |   |     
|December 1, 2015       |  | 5.16       | % |  |      | 965    |      |   |     
|Matured January 2005   |  | 4.40       | % |  |      |       |      |   | 2,000
|Matured September 2005 |  | 2.67       | % |  |      |       |      |   | 450  
|                       |  |            |   |  |      |        |      |   |      
|                       |  |            |   |  | $    | 18,188 |      | $ | 6,450
|                       |  |            |   |  |      |        |      |   |      

The Bank maintains a collateral pledge agreement covering secured advances whereby the Bank has agreed to at all
times keep on hand, free of all other pledges, and encumbrances, securities issued, insured or guaranteed by the U.S. government or any agency thereof, with an aggregate market value of no less than 95% of the outstanding secured advances.

Scheduled repayments and maturities at year-end 2005 were as follows:



|      |  |   |       
|----- |  | - | ------
|2006  |  | $ | 7,087 
|2007  |  |   | 7,091 
|2008  |  |   | 3,095 
|2009  |  |   | 100   
|2010  |  |   | 106   
|2011  |  |   | 709   
|      |  |   |       
|Total |  | $ | 18,188
|      |  |   |       



(Continued)

40.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 9 - SUBORDINATED DEBENTURES AND TRUST PREFERRED SECURITIES

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

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



(Continued)

41.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 10 - INCOME TAXES

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



|         |  |      |     |      |   |       |      |  |   |      
|-------- |  | ---- | --- | ---- | - | ----- | ---- |  | - | -----
|         |  | 2005 |     | 2004 |   |       | 2003
|Current  |  | $    | 59  |      | $ | 1,256 |      |  | $ | 1,444
|Deferred |  |      | 458 |      |   | (170  | )    |  |   | 107  
|         |  |      |     |      |   |       |      |  |   |      
|         |  | $    | 517 |      | $ | 1,086 |      |  | $ | 1,551
|         |  |      |     |      |   |       |      |  |   |      

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at year-end 2005 and 2004 are as follows:



|                                                   |  |      |       |   |      |   |       |  
|-------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                   |  | 2005 |       |   | 2004 |  
|Deferred tax assets                                |  |      |       |   |      |   |       |  
|Allowance for loan losses                          |  | $    | 377   |   |      | $ | 366   |  
|Stock awards                                       |  |      | 81    |   |      |   | 106   |  
|Unrealized losses on securities available for sale |  |      | 1,621 |   |      |   | 351   |  
|Other                                              |  |      | 39    |   |      |   | 223   |  
|                                                   |  |      |       |   |      |   |       |  
|Total deferred tax assets                          |  |      | 2,118 |   |      |   | 1,046 |  
|Deferred tax liabilities                           |  |      |       |   |      |   |       |  
|Deferred loan costs                                |  |      | (78   | ) |      |   | (61   | )
|Depreciation                                       |  |      | (207  | ) |      |   | (189  | )
|Federal Home Loan Bank stock dividends             |  |      | (209  | ) |      |   | (176  | )
|Purchase accounting adjustments                    |  |      | (108  | ) |      |   | (35   | )
|Other                                              |  |      | (119  | ) |      |   |      |  
|                                                   |  |      |       |   |      |   |       |  
|Total deferred tax liabilities                     |  |      | (721  | ) |      |   | (461  | )
|                                                   |  |      |       |   |      |   |       |  
|Net deferred tax asset                             |  | $    | 1,397 |   |      | $ | 585   |  
|                                                   |  |      |       |   |      |   |       |  

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



(Continued)

42.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 10 - INCOME TAXES(Continued)



A reconciliation of the federal statutory tax rate of 34% for the years ended 2005 and 2004 to the effective tax rate
on income before income taxes is as follows:



|                                   |  |        |     |   |         |      |   |        |   |       |         |  |      |        |  |   |         |   |  |      |  
|---------------------------------- |  | ------ | --- | - | ------- | ---- | - | ------ | - | ----- | ------- |  | ---- | ------ |  | - | ------- | - |  | ---- | -
|                                   |  | 2005   |     |   | 2004    |      |   | 2003   |  
|                                   |  | Amount |     |   | Percent |      |   | Amount |   |       | Percent |  |      | Amount |  |   | Percent |  
|Tax expense at statutory rate      |  | $      | 487 |   |         | 34.0 | % |        | $ | 981   |         |  | 34.0 | %      |  | $ | 1,490   |   |  | 34.0 | %
|Tax-exempt interest income         |  |        | (91 | ) |         | (6.4 | ) |        |   | (89   | )       |  | (3.1 | )      |  |   | (93     | ) |  | (2.1 | )
|State income taxes, net of federal |  |        | 36  |   |         | 2.5  |   |        |   | 58    |         |  | 2.0  |        |  |   | 30      |   |  | 0.7  |  
|ESOP expense                       |  |        | 70  |   |         | 4.9  |   |        |   | 110   |         |  | 3.8  |        |  |   | 101     |   |  | 2.3  |  
|Other                              |  |        | 15  |   |         | 1.1  |   |        |   | 26    |         |  | 0.9  |        |  |   | 23      |   |  | 0.5  |  
|                                   |  |        |     |   |         |      |   |        |   |       |         |  |      |        |  |   |         |   |  |      |  
|Tax expense at effective rate      |  | $      | 517 |   |         | 36.1 | % |        | $ | 1,086 |         |  | 37.6 | %      |  | $ | 1,551   |   |  | 35.4 | %
|                                   |  |        |     |   |         |      |   |        |   |       |         |  |      |        |  |   |         |   |  |      |  

Retained earnings at year-end 2005 include allocations for federal income tax purposes representing tax bad debt
deductions of approximately $2,300,000 through year-end 2005, on which no tax has been paid and no deferred federal income taxes have been provided. Reductions of amounts so allocated for purposes other than tax bad debt losses will create income
for tax purposes only, which will be subject to the then current corporate income tax rate.

NOTE 11 - LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

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



|                                             |  |      |       |      |   |      
|-------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                             |  | 2005 |       | 2004
|Commitments to make loans                    |  | $    | 1,083 |      | $ | 1,728
|Unused lines of credit and letters of credit |  |      | 5,163 |      |   | 4,106
|Construction loans in process                |  |      | 2,227 |      |   | 326  

Commitments to make loans are generally made for periods of 60 days or less. At year-end 2005, the Company had
$447,000 in fixed rate commitments to extend credit ranging from 6.5% to 7.0% and maturities ranging from six months to thirty years. At year-end 2004, the Company did not have any fixed rate commitments to extend credit. Since many commitments
expire without being used, the amounts above do not necessarily represent future cash commitments. Collateral may be obtained upon exercise of a commitment. The amount of collateral is determined by management and may include commercial and
residential real estate and other business and consumer assets.



(Continued)

43.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 12 - PENSION PLAN

The Company participates in a multi-employer defined benefit pension plan. The plan provides benefits to substantially all employees. The plan is funded through contributions to a nationwide plan for savings and loan associations. Pension
expense was $407,000, $322,000, and $224,000 during the years ended 2005, 2004, and 2003. Under ERISA, a contributor to a multi-employer pension plan may be liable in the event of complete withdrawal for the benefit payments guaranteed under ERISA,
but there is no intention to withdraw.

NOTE 13 - STOCK-BASED COMPENSATION PLANS

ESOP: The Company maintains an ESOP for the benefit of substantially all employees. Shares issued to the ESOP are allocated to ESOP participants based on principal and interest repayments made by the ESOP on a
loan from the Company. The loan, which had a balance of $1,061,000 at year-end 2005, is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Companys discretionary contributions to the ESOP and
earnings on the ESOPs assets. Principal payments are scheduled to occur over a ten-year period. However, in the event the Companys contributions exceed the minimum debt service requirements, additional principal payments will be made.

During 2005, 2004, and 2003, 17,940 shares of stock each year with an average fair value of $21.60, $28.05, and $26.37 per share were committed to be
released, resulting in ESOP compensation expense of $389,000, $504,000, and $472,000 respectively. During 2005, 3,066 shares were released from the plan for terminated employees. Shares held by the ESOP at December 31 are as follows:



|                                 |  |      |         |      |   |        
|-------------------------------- |  | ---- | ------- | ---- | - | -------
|                                 |  | 2005 |         | 2004
|Allocated shares                 |  |      | 86,823  |      |   | 71,949 
|Unallocated shares               |  |      | 85,215  |      |   | 103,155
|                                 |  |      |         |      |   |        
|Total ESOP shares                |  |      | 172,038 |      |   | 175,104
|                                 |  |      |         |      |   |        
|Fair value of unallocated shares |  | $    | 1,576   |      | $ | 2,219  
|                                 |  |      |         |      |   |        

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



(Continued)

44.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 13 - STOCK-BASED COMPENSATION PLANS(Continued)



A summary of the status of the stock option plan is presented below:



|                                                           |  |         |  |                              |           |        |         |                              |   |           |  |                              |  |   |          
|---------------------------------------------------------- |  | ------- |  | ---------------------------- | --------- | ------ | ------- | ---------------------------- | - | --------- |  | ---------------------------- |  | - | ---------
|                                                           |  | 2005    |  | 2004                         |           | 2003  
|                                                           |  | Shares  |  | WeightedAverageExercisePrice |           | Shares |         | WeightedAverageExercisePrice |   | Shares    |  | WeightedAverageExercisePrice
|Outstanding at beginning of year                           |  | 211,491 |  | $                            | 15.18     |        | 223,850 |                              | $ | 14.16     |  | 253,760                      |  | $ | 13.86    
|Granted                                                    |  |        |  |                              |          |        | 12,701  |                              |   | 22.50     |  | 3,000                        |  |   | 20.01    
|Exercised                                                  |  | 2,475   |  |                              | 14.37     |        | 25,060  |                              |   | 10.29     |  | 32,910                       |  |   | 11.96    
|                                                           |  |         |  |                              |           |        |         |                              |   |           |  |                              |  |   |          
|Outstanding at end of year                                 |  | 209,016 |  | $                            | 15.19     |        | 211,491 |                              | $ | 15.18     |  | 223,850                      |  | $ | 14.16    
|                                                           |  |         |  |                              |           |        |         |                              |   |           |  |                              |  |   |          
|Options exercisable at year-end                            |  | 155,349 |  |                              |           |        | 112,976 |                              |   |           |  | 95,729                       |  |   |          
|Weighted average fair value of options granted during year |  |         |  |                              |           |        |         |                              | $ | 6.58      |  |                              |  | $ | 3.26     
|Average remaining option term                              |  |         |  |                              | 6.1 years |        |         |                              |   | 7.1 years |  |                              |  |   | 7.7 years

Options outstanding at year-end 2005 were as follows:



|                        |  |             |  |                                         |  |                  
|----------------------- |  | ----------- |  | --------------------------------------- |  | -----------------
|                        |  | Outstanding |  |                                        
|Exercise Prices         |  | Number      |  | WeightedAverageRemainingContractualLife |  | ExercisableNumber
|$8.52                   |  | 13,521      |  | 5 years                                 |  | 13,521           
|$15.10                  |  | 179,794     |  | 6 years                                 |  | 138,087          
|$20.01                  |  | 3,000       |  | 7 years                                 |  | 1,200            
|$22.50                  |  | 12,701      |  | 9 years                                 |  | 2,541            
|                        |  |             |  |                                         |  |                  
|Outstanding at year end |  | 209,016     |  |                                         |  | 155,349          
|                        |  |             |  |                                         |  |                  

Restricted Stock Plan: Pursuant to its 2001 stock-based incentive plan, the Company awarded 89,700 shares
of restricted stock during 2001. These shares vest over a five-year period. The unamortized cost of shares not yet earned (vested) is reported as a reduction of shareholders equity. Compensation expense for restricted stock awards totaled
$270,894 for all three years ended year-end 2005, 2004, and 2003.



(Continued)

45.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 14 - REGULATORY CAPITAL REQUIREMENTS

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

Prompt corrective action regulations
provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2005 and 2004, the most
recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

There are no
conditions or events since that notification that management believes have changed the institutions category.

The Banks actual and required
capital amounts and ratios are presented below at year end:



|                                                 |  |        |        |       |                              |   |        |                                                                |        |  |     |        |  |       |        |  |      |  
|------------------------------------------------ |  | ------ | ------ | ----- | ---------------------------- | - | ------ | -------------------------------------------------------------- | ------ |  | --- | ------ |  | ----- | ------ |  | ---- | -
|                                                 |  | Actual |        |       | For CapitalAdequacy Purposes |   |        | To Be Well CapitalizedUnder Prompt CorrectiveAction Provisions |       
|                                                 |  | Amount |        | Ratio |                              |   | Amount |                                                                | Ratio  |  |     | Amount |  | Ratio |       
|2005                                             |  |        |        |       |                              |   |        |                                                                |        |  |     |        |  |       |        |  |      |  
|Total capital (to risk-weighted assets)          |  | $      | 24,919 |       | 15.52                        | % |        | $                                                              | 12,847 |  | 8.0 | %      |  | $     | 16,059 |  | 10.0 | %
|Tier I capital (to risk-weighted assets)         |  |        | 24,486 |       | 15.25                        |   |        |                                                                | 6,424  |  | 4.0 |        |  |       | 9,635  |  | 6.0  |  
|Tier I (core) capital (to adjusted total assets) |  |        | 24,486 |       | 7.25                         |   |        |                                                                | 13,505 |  | 4.0 |        |  |       | 16,882 |  | 5.0  |  
|                                                 |  |        |        |       |                              |  
|2004                                             |  |        |        |       |                              |   |        |                                                                |        |  |     |        |  |       |        |  |      |  
|Total capital (to risk-weighted assets)          |  | $      | 25,336 |       | 18.49                        | % |        | $                                                              | 10,961 |  | 8.0 | %      |  | $     | 13,701 |  | 10.0 | %
|Tier I capital (to risk-weighted assets)         |  |        | 24,512 |       | 17.89                        |   |        |                                                                | 5,480  |  | 4.0 |        |  |       | 8,221  |  | 6.0  |  
|Tier I (core) capital (to adjusted total assets) |  |        | 24,512 |       | 7.93                         |   |        |                                                                | 12,357 |  | 4.0 |        |  |       | 15,447 |  | 5.0  |  



(Continued)

46.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 14 - REGULATORY CAPITAL REQUIREMENTS (Continued)

The Company may pay dividends without restriction as a unitary thrift holding company. The Bank is subject to statutory dividend restrictions, which provide, in general,
that the Bank may pay the current years earnings and the prior two years retained earnings without the prior approval of the Office of Thrift Supervision (OTS). The Bank requested and obtained approval of the OTS to pay
dividends of $2,000,000, $6,000,000, and $8,000,000 to the Company in 2005, 2004, and 2003 respectively. Because of the large dividends paid in the past few years, the Bank will be required to obtain prior approval to pay dividends in 2006.

NOTE 15 - EARNINGS PER SHARE

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



|                                                                               |  |      |           |      |   |           |  |   |          
|------------------------------------------------------------------------------ |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                                                               |  | 2005 |           | 2004 |   | 2003     
|Net income attributable to common shareholders                                 |  | $    | 915       |      | $ | 1,799     |  | $ | 2,832    
|                                                                               |  |      |           |      |   |           |  |   |          
|Weighted average common shares outstanding for basic earnings per common share |  |      | 1,146,385 |      |   | 1,385,193 |  |   | 1,798,428
|Add: dilutive effects of assumed exercises of stock options and stock awards   |  |      | 57,636    |      |   | 98,692    |  |   | 110,845  
|                                                                               |  |      |           |      |   |           |  |   |          
|Average shares and dilutive potential common shares                            |  |      | 1,204,021 |      |   | 1,483,885 |  |   | 1,909,273
|                                                                               |  |      |           |      |   |           |  |   |          
|Basic earnings per share                                                       |  | $    | .80       |      | $ | 1.30      |  | $ | 1.58     
|                                                                               |  |      |           |      |   |           |  |   |          
|Diluted earnings per share                                                     |  | $    | .76       |      | $ | 1.21      |  | $ | 1.48     
|                                                                               |  |      |           |      |   |           |  |   |          



(Continued)

47.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The approximate carrying amount and estimated fair value of financial instruments at year-end 2005 and 2004 are as follows:



|                                                      |  |                           |         |                     |   |                           |  |                     |         |  |   |        
|----------------------------------------------------- |  | ------------------------- | ------- | ------------------- | - | ------------------------- |  | ------------------- | ------- |  | - | -------
|                                                      |  | 2005                      |         | 2004               
|                                                      |  | ApproximateCarryingAmount |         | EstimatedFair Value |   | ApproximateCarryingAmount |  | EstimatedFair Value
|Financial assets                                      |  |                           |         |                     |   |                           |  |                     |         |  |   |        
|Cash and cash equivalents                             |  | $                         | 12,798  |                     | $ | 12,798                    |  | $                   | 14,387  |  | $ | 14,387 
|Time deposits in other financial Institutions         |  |                           | 196     |                     |   | 196                       |  |                     | 295     |  |   | 295    
|Securities available for sale                         |  |                           | 137,023 |                     |   | 137,023                   |  |                     | 152,060 |  |   | 152,060
|Loans receivable, net                                 |  |                           | 178,551 |                     |   | 178,903                   |  |                     | 136,331 |  |   | 137,902
|Federal Home Loan Bank stock, at cost                 |  |                           | 1,682   |                     |   | 1,682                     |  |                     | 1,562   |  |   | 1,562  
|Accrued interest receivable                           |  |                           | 1,606   |                     |   | 1,606                     |  |                     | 1,363   |  |   | 1,363  
|                                                      |  |                           |         |                    
|Financial liabilities                                 |  |                           |         |                     |   |                           |  |                     |         |  |   |        
|Deposits                                              |  | $                         | 291,228 |                     | $ | 291,271                   |  | $                   | 273,711 |  | $ | 274,665
|Advance payments by borrowers for taxes and insurance |  |                           | 217     |                     |   | 217                       |  |                     | 184     |  |   | 184    
|Federal Home Loan Bank advances                       |  |                           | 18,188  |                     |   | 18,018                    |  |                     | 6,450   |  |   | 6,434  
|Subordinated Debentures                               |  |                           | 7,217   |                     |   | 6,871                     |  |                     | 7,217   |  |   | 7,368  
|Accrued interest payable                              |  |                           | 754     |                     |   | 754                       |  |                     | 592     |  |   | 592    

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

Carrying amount is the estimated fair value for cash and cash equivalents, time deposits in other institutions, short-term borrowings, Federal Home Loan Bank stock,
accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes and, if no such information is
available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar
financing. The fair value of off balance sheet items is not considered material.



(Continued)

48.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 17 - OTHER COMPREHENSIVE LOSS

Other comprehensive loss components and related taxes were as follows:



|                                                                |  |              |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                |  | December 31, |       
|                                                                |  | 2005         |        |   | 2004 |   |        | 2003 | 
|Unrealized holdings losses on securities available for sale     |  | $            | (3,048 | ) |      | $ | (651   | )    |  | $ | (2,292 | )
|Reclassification adjustments for net gains recognized in income |  |              | (222   | ) |      |   | (576   | )    |  |   | (599   | )
|                                                                |  |              |        |   |      |   |        |      |  |   |        |  
|Net unrealized losses                                           |  |              | (3,270 | ) |      |   | (1,227 | )    |  |   | (2,891 | )
|Tax effect                                                      |  |              | 1,270  |   |      |   | 476    |      |  |   | 1,120  |  
|                                                                |  |              |        |   |      |   |        |      |  |   |        |  
|Other comprehensive loss                                        |  | $            | (2,000 | ) |      | $ | (751   | )    |  | $ | (1,771 | )
|                                                                |  |              |        |   |      |   |        |      |  |   |        |  

NOTE 18 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

CONDENSED BALANCE SHEET

December 31,
2005 and 2004



|                                             |  |      |        |      |   |       
|-------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                             |  | 2005 |        | 2004
|ASSETS                                       |  |      |        |      |   |       
|Cash and cash equivalents                    |  | $    | 888    |      | $ | 918   
|Securities available for sale                |  |      | 2,222  |      |   | 2,873 
|ESOP loan                                    |  |      | 1,061  |      |   | 1,230 
|Investment in bank subsidiary                |  |      | 23,798 |      |   | 25,845
|Accrued interest receivable and other assets |  |      | 810    |      |   | 718   
|                                             |  |      |        |      |   |       
|                                             |  | $    | 28,779 |      | $ | 31,584
|                                             |  |      |        |      |   |       
|LIABILITIES AND SHAREHOLDERS EQUITY         |  |      |        |      |   |       
|Accrued expenses and other liabilities       |  | $    | 7,464  |      | $ | 7,460 
|Shareholders equity                         |  |      | 21,315 |      |   | 24,124
|                                             |  |      |        |      |   |       
|                                             |  | $    | 28,779 |      | $ | 31,584
|                                             |  |      |        |      |   |       



(Continued)

49.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 18 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS(Continued)



CONDENSED STATEMENT OF INCOME

For the years ended December 31



|                                                                                      |  |      |       |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                      |  | 2005 |       |   | 2004 |   |        | 2003 | 
|Income                                                                                |  |      |       |   |      |   |        |      |  |   |         |  
|Securities                                                                            |  | $    | 109   |   |      | $ | 120    |      |  | $ | 75      |  
|ESOP loan                                                                             |  |      | 111   |   |      |   | 127    |      |  |   | 140     |  
|Time deposits in other financial institutions                                         |  |      | 19    |   |      |   | 22     |      |  |   | 18      |  
|Dividend income from bank subsidiary                                                  |  |      | 2,000 |   |      |   | 6,000  |      |  |   | 13,000  |  
|Loss on sale of securities                                                            |  |      | (10   | ) |      |   | (21    | )    |  |   |        |  
|Other operating income                                                                |  |      |      |   |      |   |       |      |  |   | 2       |  
|                                                                                      |  |      |       |   |      |   |        |      |  |   |         |  
|Total income                                                                          |  |      | 2,229 |   |      |   | 6,248  |      |  |   | 13,235  |  
|                                                                                      |  |      |      
|Expenses                                                                              |  |      |       |   |      |   |        |      |  |   |         |  
|Subordinated debentures                                                               |  |      | 421   |   |      |   | 323    |      |  |   |        |  
|Other operating expenses                                                              |  |      | 240   |   |      |   | 388    |      |  |   | 341     |  
|                                                                                      |  |      |       |   |      |   |        |      |  |   |         |  
|Total expenses                                                                        |  |      | 661   |   |      |   | 711    |      |  |   | 341     |  
|                                                                                      |  |      |      
|Income before income taxes and equity in over distributed earnings of bank subsidiary |  |      | 1,568 |   |      |   | 5,537  |      |  |   | 12,894  |  
|                                                                                      |  |      |      
|Provision (benefit) for income taxes                                                  |  |      | (158  | ) |      |   | (181   | )    |  |   | (23     | )
|                                                                                      |  |      |       |   |      |   |        |      |  |   |         |  
|                                                                                      |  |      |      
|Income before equity in over distributed earnings of bank subsidiary                  |  |      | 1,726 |   |      |   | 5,718  |      |  |   | 12,917  |  
|                                                                                      |  |      |      
|Equity in over distributed earnings of bank subsidiary                                |  |      | (811  | ) |      |   | (3,919 | )    |  |   | (10,085 | )
|                                                                                      |  |      |       |   |      |   |        |      |  |   |         |  
|                                                                                      |  |      |      
|Net income                                                                            |  | $    | 915   |   |      | $ | 1,799  |      |  | $ | 2,832   |  
|                                                                                      |  |      |       |   |      |   |        |      |  |   |         |  



(Continued)

50.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 18 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)



CONDENSED STATEMENT OF CASH FLOWS

For the year ended December 31



|                                                                                 |  |      |        |   |      |   |         |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                 |  | 2005 |        |   | 2004 |   |         | 2003 | 
|Operating activities                                                             |  |      |        |   |      |   |         |      |  |   |        |  
|Net income                                                                       |  | $    | 915    |   |      | $ | 1,799   |      |  | $ | 2,832  |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |      |        |   |      |   |         |      |  |   |        |  
|Equity in over distributed earnings of bank subsidiary                           |  |      | 811    |   |      |   | 3,919   |      |  |   | 10,085 |  
|Net accretion                                                                    |  |      | (1     | ) |      |   | (1      | )    |  |   | (3     | )
|Dividend reinvestments                                                           |  |      | (81    | ) |      |   | (91     | )    |  |   | (27    | )
|Loss on sale of securities                                                       |  |      | 10     |   |      |   | 21      |      |  |   |       |  
|Change in other assets and liabilities                                           |  |      | (32    | ) |      |   | 13,763  |      |  |   | (7,010 | )
|                                                                                 |  |      |        |   |      |   |         |      |  |   |        |  
|Net cash provided by operating activities                                        |  |      | 1,622  |   |      |   | 19,410  |      |  |   | 5,877  |  
|                                                                                 |  |      |       
|Investing activities                                                             |  |      |        |   |      |   |         |      |  |   |        |  
|Purchase of securities available for sale                                        |  |      |       |   |      |   | (6,000  | )    |  |   | (1,000 | )
|Paydowns on mortgage-backed securities                                           |  |      | 61     |   |      |   | 184     |      |  |   | 688    |  
|Proceeds from sales of securities available for sale                             |  |      | 633    |   |      |   | 5,600   |      |  |   |       |  
|Capital contribution to bank subsidiary                                          |  |      | (50    | ) |      |   | (53     | )    |  |   | (57    | )
|Payment received on loan to ESOP                                                 |  |      | 169    |   |      |   | 154     |      |  |   | 140    |  
|                                                                                 |  |      |        |   |      |   |         |      |  |   |        |  
|Net cash provided by investing activities                                        |  |      | 813    |   |      |   | (115    | )    |  |   | (229   | )
|                                                                                 |  |      |       
|Financing activities                                                             |  |      |        |   |      |   |         |      |  |   |        |  
|Purchase of treasury stock                                                       |  |      | (1,905 | ) |      |   | (18,969 | )    |  |   | (7,333 | )
|Exercise of options                                                              |  |      | 42     |   |      |   | 402     |      |  |   | 518    |  
|Dividends paid                                                                   |  |      | (602   | ) |      |   | (698    | )    |  |   | (760   | )
|                                                                                 |  |      |        |   |      |   |         |      |  |   |        |  
|Net cash used in financing activities                                            |  |      | (2,465 | ) |      |   | (19,265 | )    |  |   | (7,575 | )
|                                                                                 |  |      |        |   |      |   |         |      |  |   |        |  
|                                                                                 |  |      |       
|Net change in cash and cash equivalents                                          |  |      | (30    | ) |      |   | 30      |      |  |   | (1,927 | )
|                                                                                 |  |      |       
|Cash and cash equivalents at beginning of year                                   |  |      | 918    |   |      |   | 888     |      |  |   | 2,815  |  
|                                                                                 |  |      |        |   |      |   |         |      |  |   |        |  
|                                                                                 |  |      |       
|Cash and cash equivalents at end of year                                         |  | $    | 888    |   |      | $ | 918     |      |  | $ | 888    |  
|                                                                                 |  |      |        |   |      |   |         |      |  |   |        |  



(Continued)

51.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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



NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)



|                   |  |                |       |                    |   |           |  |                        |     |  |   |     
|------------------ |  | -------------- | ----- | ------------------ | - | --------- |  | ---------------------- | --- |  | - | ----
|                   |  | InterestIncome |       | Net InterestIncome |   | NetIncome |  | BasicEarningsPer Share
|2005               |  |                |       |                    |   |           |  |                        |     |  |   |     
|First quarter      |  | $              | 3,680 |                    | $ | 1,929     |  | $                      | 285 |  | $ | 0.24
|Second quarter     |  |                | 3,812 |                    |   | 1,892     |  |                        | 289 |  |   | 0.26
|Third quarter (1)  |  |                | 4,049 |                    |   | 1,880     |  |                        | 142 |  |   | 0.13
|Fourth quarter     |  |                | 4,093 |                    |   | 1,776     |  |                        | 199 |  |   | 0.17
|2004               |  |                |       |                    |   |           |  |                        |     |  |   |     
|First quarter      |  | $              | 3,589 |                    | $ | 2,143     |  | $                      | 568 |  | $ | 0.34
|Second quarter (2) |  |                | 3,612 |                    |   | 2,108     |  |                        | 248 |  |   | 0.16
|Third quarter (3)  |  |                | 3,592 |                    |   | 2,046     |  |                        | 460 |  |   | 0.39
|Fourth quarter (4) |  |                | 3,657 |                    |   | 2,001     |  |                        | 523 |  |   | 0.45

---

|(1) | During the third quarter 2005, the Company recorded $7,000 in net losses on the sale of securities compared to $225,000 net gains recorded in the second quarter 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During the second quarter 2004, the Company recorded $4,000 in net gains on the sale of securities compared to $380,000 recorded in the first quarter 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | During the third quarter 2004, the Company recorded $192,000 in net gains on the sale of securities compared to $4,000 during the second quarter 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | During the fourth quarter 2004, the Company recorded a tax benefit as a result of filing a consolidated tax return for 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------

NOTE 20 - TENDER OFFER

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



(Continued)

52.



---

FIRST FEDERAL BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005 and 2004

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

NOTE 20 - TENDER OFFER (Continued)



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



(Continued)

53.



---

DIRECTORS AND OFFICERS



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



54.



---

INVESTOR AND CORPORATE INFORMATION

Annual Meeting

The annual meeting of shareholders will be held at 2:00 p.m., on May 23, 2006 at the Quincy
Holiday Inn located at 201 S. Third Street, Quincy, Illinois 62301.

Stock Listing

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

Price Range of Common Stock

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



|              |  |      |       |      |   |                   |  |      |     |     |   |                  |  |   |       |  |   |    
|------------- |  | ---- | ----- | ---- | - | ----------------- |  | ---- | --- | --- | - | ---------------- |  | - | ----- |  | - | ---
|              |  | 2005 |       | 2004
|Quarter Ended |  | High |       | Low  |   | Dividend Declared |  | High |     | Low |   | DividendDeclared
|March 31      |  | $    | 26.99 |      | $ | 21.55             |  | $    | .12 |     | $ | 35.25            |  | $ | 32.85 |  | $ | .11
|June 30       |  |      | 25.10 |      |   | 18.83             |  |      | .12 |     |   | 33.41            |  |   | 27.07 |  |   | .11
|September 30  |  |      | 22.65 |      |   | 19.23             |  |      | .12 |     |   | 27.31            |  |   | 20.30 |  |   | .11
|December 31   |  |      | 20.48 |      |   | 17.02             |  |      | .12 |     |   | 24.00            |  |   | 21.50 |  |   | .11
|              |  |      |       |      |   |                   |  |      |     |     |   |                  |  |   |       |  |   |    
|              |  |      |       |      |   |                   |  | $    | .48 |     |   |                  |  |   |       |  | $ | .44
|              |  |      |       |      |   |                   |  |      |     |     |   |                  |  |   |       |  |   |    

The stock price information set forth in the table above was provided by The Nasdaq Stock Market. The closing sale
price of First Federal Bancshares, Inc.s common stock on December 31, 2005 was $18.50.

At March 20, 2006, there were 1,160,039 shares of
First Federal Bancshares, Inc. common stock outstanding (including unallocated ESOP shares) and there were 554 holders of record.



|                                                                                                       |  |                                                                                              
|------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------
|Shareholders and General Inquiries                                                                     |  | Transfer Agent                                                                               
|                                                                                                       | 
|Cathy D. Pendell First Federal Bancshares,
Inc. P.O. Box 256 Colchester, Illinois 62326 (309) 776-3225 |  | Computershare Investor Services 350 Indiana Street,
Suite 800 Golden, CO 80401 (303) 262-0600

Annual and Other Reports

A copy of the First Federal Bancshares, Inc.s Annual Report on Form 10-K without exhibits for the year ended December 31, 2005, as filed with the Securities and Exchange Commission, may be obtained without
charge by contacting Cathy D. Pendell, First Federal Bancshares, Inc., P.O. Box 256, Colchester, Illinois 62326.



55.



---

OFFICE LOCATIONS

Main Office

109 East Depot Street

Colchester, Illinois 62326

Illinois Branch Offices

Quincy

2001
Maine Street

Quincy, Illinois 62301

Quincy

101 North 36thStreet

Quincy, Illinois 62301

Macomb

430 West Jackson Street

Macomb, Illinois 61455

Bushnell

190 East Hurst Street

Bushnell, Illinois 61422

Missouri Branch Offices

Palmyra

123 W. LaFayette Street

Palmyra, Missouri 63461

Canton

600 Washington Street

Canton, Missouri 63435

Kahoka

180 S. Johnson Street

Kahoka, Missouri 63445



56.