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.

<TABLE>
<CAPTION>
                                               AT DECEMBER 31,                  AT FEBRUARY 29/28,
                                     2002          2001          2000          2000           1999
                                     ----          ----          ----          ----           ----
                                                            (IN THOUSANDS)
<S>                                <C>           <C>           <C>           <C>           <C>
SELECTED FINANCIAL DATA:
Total assets                       $316,400      $242,170      $237,602      $213,187      $201,171
Cash and cash equivalents            42,827        18,249        11,244         5,762        16,171
Loans receivable, net               150,269       112,911       115,619       113,602       101,834
Securities available-for-sale        91,562        97,106        42,592        29,442        26,622
Securities held-to-maturity          24,471        10,036        61,619        58,927        51,524
Deposits                            263,834       192,784       184,878       182,572       176,682
Total borrowings                      4,000         4,000         5,000         6,000            --
Total equity                         47,031        43,701        45,867        24,026        23,337

<CAPTION>

                                                              TEN MONTHS
                                        YEARS ENDED              ENDED             YEARS ENDED
                                        DECEMBER 31,          DECEMBER 31,       FEBRUARY 29/28,
                                     2002          2001          2000          2000           1999
                                     ----          ----          ----          ----           ----
                                                            (IN THOUSANDS)
<S>                                <C>           <C>           <C>           <C>           <C>
SELECTED OPERATING
  DATA:
Total interest income              $ 13,092      $ 15,417      $ 12,898      $ 13,660      $ 13,295
Total interest expense                6,154         9,135         8,186         8,642         8,350
                                   --------      --------      --------      --------      --------
    Net interest income               6,938         6,282         4,712         5,018         4,945
Provision for loan losses                 7           103            71           119             6
                                   --------      --------      --------      --------      --------
Net interest income after
  provision for loan losses           6,931         6,179         4,641         4,899         4,939
Noninterest income                      573           630           287           291           236
Noninterest expense:
    Compensation and
      benefits                        2,713         2,199         1,443         1,464         1,336
    Other noninterest
      expense                         1,730         1,697         1,241         1,381         1,387
                                   --------      --------      --------      --------      --------
        Total noninterest
          expense                     4,443         3,896         2,684         2,845         2,723
                                   --------      --------      --------      --------      --------
Income before income
  taxes                               3,061         2,913         2,244         2,345         2,452
Income tax provision                  1,124         1,062           788           837           851
                                   --------      --------      --------      --------      --------

    Net income                     $  1,937      $  1,851      $  1,456      $  1,508      $  1,601
                                   ========      ========      ========      ========      ========
</TABLE>


                                       2.
<PAGE>

<TABLE>
<CAPTION>
                                                              TEN MONTHS
                                        YEARS ENDED              ENDED             YEARS ENDED
                                        DECEMBER 31,          DECEMBER 31,       FEBRUARY 29/28,
                                     2002          2001          2000          2000           1999
                                     ----          ----          ----          ----           ----
                                                            (IN THOUSANDS)
<S>                                <C>           <C>           <C>              <C>            <C>
PER SHARE DATA:
Earnings per share:
  Basic                            $ 1.09        $  .91        $  .22           N/A            N/A
  Diluted                            1.07           .91           .22           N/A            N/A
Dividend declared                     .32           .29           .05           N/A            N/A

<CAPTION>

                                       AT OR FOR THE        AT OR FOR THE TEN     AT OR FOR THE
                                         YEAR ENDED           MONTHS ENDED         YEAR ENDED
                                        DECEMBER 31,          DECEMBER 31,       FEBRUARY 29/28,
                                     2002          2001          2000*         2000           1999
                                     ----          ----          ----          ----           ----
<S>                                   <C>           <C>           <C>           <C>            <C>
SELECTED FINANCIAL
  RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
  Return on assets(1)                 .77%          .76%          .78%          .72%           .83%
  Return on equity(2)                4.49          4.01          6.01          6.55           7.37
  Dividend payout ratio              1.77          1.84           .38           N/A            N/A
  Average interest rate
    spread(3)                        2.36          1.75          1.95          2.06           2.10
  Net interest margin(4)             2.84          2.64          2.56          2.50           2.62
  Operating (noninterest)
    expense to average total
    assets                           1.70          1.58          1.43          1.33           1.40
  Efficiency ratio(5)               59.15         56.37         53.69         54.59          52.56
  Average interest-earning
    assets to average interest-
    bearing liabilities            119.01        123.17        113.58        110.14         111.65

CAPITAL RATIOS:
  Tangible capital ratio            11.97         14.13         15.15          11.3           11.7
  Core capital ratio                11.97         14.13         15.15          11.3           11.7
  Risk-based capital ratio          25.92         31.38         35.60          24.9           26.0
  Ratio of average equity to
    average assets                  17.15         18.91         12.93         11.03          11.20

ASSET QUALITY RATIOS:
  Non-performing loans to
    total loans                      1.27           .80           .94           .89            .76
  Allowance for loan losses to
    non-performing loans(6)         50.89         59.01         52.48         47.73          58.44
  Allowance for loan losses
    to total loans                    .65           .47           .49           .42            .45
</TABLE>

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

(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Difference between weighted average yield on interest-earning assets and
    weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Noninterest expense divided by the sum of net interest income and
    noninterest income.
(6) Nonperforming loans consist of nonaccrual loans and loans greater than 90
    days delinquent and still accruing.


                                       3.
<PAGE>


                     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.


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 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.


                                       4.
<PAGE>


ACQUISITIONS

On November 22, 2002, the Company completed the acquisition of PFSB Bancorp,
Inc. ("PFSB"), and its wholly owned subsidiary Palmyra Savings pursuant to an
Agreement and Plan of Merger dated as of June 4, 2002, by and between the
Company and PFSB. The acquisition was completed through the merger of PFSB with
and into the Company. As part of the acquisition, Palmyra Savings merged with
and into First Federal with First Federal being the surviving bank. First
Federal Bancshares paid approximately $4.4 million in cash and issued
approximately 252,000 shares of the Company's common stock to the former
stockholders of PFSB. The PFSB acquisition included total assets of
approximately $73.8 and three banking offices in northeast Missouri.


COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2002 AND 2001

Total assets at December 31, 2002 were $316.4 million compared to $242.2 million
at December 31, 2001, an increase of $74.2 million. The growth in total assets
primarily reflects the purchase of PFSB resulting in the addition of loans
totaling $46.9 million, securities totaling $2.4 million, cash and cash
equivalents totaling $23.1 million, premises and equipment totaling $1.2
million, and miscellaneous other assets, including goodwill of $1.5 million. The
increase in loans receivable was partially offset by the refinancing of existing
loans outside of the Bank as a result of competition in the low interest rate
environment. Additional offset occurred due to existing loans refinancing into
the Federal Home Loan Bank Mortgage Partnership Finance Program. This program
allows the Bank to offer long-term fixed rate loans funded by the Federal Home
Loan Bank, while the Bank maintains the customer relationship through the
servicing of the loan. During the year ended December 31, 2002, securities
available-for-sale decreased $5.5 million to $91.6 million at December 31, 2002
from $97.1 million at December 31, 2001, as paydowns on available-for-sale
securities were reinvested in held-to-maturity securities. Held-to-maturity
securities increased $14.4 million to $24.5 million at December 31, 2002 as a
result of additional purchases of held-to-maturity securities funded through
increases in customer deposits.

Total liabilities at December 31, 2002 were $269.4 million compared to
$198.5 million at December 31, 2001, an increase of $70.9 million. The increase
in total liabilities was primarily due to an increase in deposits. Deposits
increased $71.0 million, primarily reflecting the purchase of PFSB and the
resulting assumption of deposits totaling $64.8 million.

Shareholders' equity at December 31, 2002 was $47.0 million compared to
$43.7 million at December 31, 2001, an increase of $3.3 million. The increase
was primarily a result of the acquisition of PFSB resulting in the issuance of
common stock of $5.6 million, net income totaling $1.9 million, and an increase
in comprehensive income of $1.3 million, partially offset by dividends of
$592,000 and the purchase of treasury shares totaling $5.6 million.


COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 AND
DECEMBER 31, 2001

GENERAL. Net income remained relatively stable, increasing $86,000 to
$1.9 million for the year ended December 31, 2002. While net income remained
stable from 2001 to 2002, net interest income increased $656,000, noninterest
income decreased $57,000 and noninterest expense increased $547,000, primarily
due to compensation and benefits.


                                       5.
<PAGE>


INTEREST INCOME. Interest income for the year ended December 31, 2002 was
$13.1 million compared to $15.4 million for the year ended December 31, 2001, a
decrease of $2.3 million. The decrease was primarily a result of the decrease in
the average yield on interest-earning assets to 5.37% for the year ended
December 31, 2002 from 6.47% for the year ended December 31, 2001, partially
offset by an increase in the average balance of interest-earning assets to
$244.0 million for the year ended December 31, 2002 from $238.2 million for the
year ended December 31, 2001. The average yield on securities decreased to 4.66%
for the year ended December 31, 2002 from 5.61% for the year ended December 31,
2001, as proceeds from paydowns, sales, and maturities of higher yielding
securities were reinvested in lower yielding securities. The average balance of
securities decreased to $102.7 million for the year ended December 31, 2002 from
$105.2 million for the year ended December 31, 2001. The average balance of
other interest earning assets increased $10.2 million to $28.0 million for the
year ended December 31, 2002 as a result of assets acquired in the acquisition
of PFSB. The increase in the average balance of other interest earning assets
was partially offset by the decrease in the yield on other interest earning
assets to 1.24% for the year ended December 31, 2002 from 3.24% for the year
ended December 31, 2001.

INTEREST EXPENSE. Interest expense for the year ended December 31, 2002 was
$6.1 million compared to $9.1 million for the year ended December 31, 2001, a
decrease of $3.0 million. The decreases primarily represent decreases in the
average cost of funds from 4.72% for the year ended December 31, 2001 to 3.00%
for the year ended December 31, 2002. The decrease in the average cost of funds
was partially offset by an increase in the average balance of savings and
certificates of deposit to $161.9 million for the year ended December 31, 2002
compared to $153.2 million for the year ended December 31, 2001 due to the
acquisition of PFSB.

NET INTEREST INCOME. Net interest income of $6.9 million for the year ended
December 31, 2002 reflects an increase of $656,000 as compared to $6.3 million
for the year ended December 31, 2001. The increase in net interest income was
primarily a result of the increase in the net interest spread to 2.36% for the
year ended December 31, 2002 from 1.75% for the year ended December 31, 2001, as
well as an increase in the net interest margin to 2.84% from 2.64% for the same
period. The increase in the Company's net interest margin was primarily due to
the decrease in the average cost of interest-bearing liabilities during the
year, partially offset by the decrease in the ratio of interest-earning assets
to interest-earning liabilities to 119.01% from 123.17%.

PROVISION FOR LOAN LOSSES. The Company establishes an allowance for loan losses
at a level that management believes is appropriate to absorb probable 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 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 $7,000


                                       6.
<PAGE>


for the year ended December 31, 2002 and $103,000 for the year ended December
31, 2001. The decrease in the provision for loan losses for the year ended
December 31, 2002 was largely due to decreases in net loans charged off from
$141,000 for the year ended December 31, 2001, compared to net recoveries of
$63,000 for the year ended December 31, 2002. The Company also acquired
additional loan loss reserves of $372,000 with the acquisition of PFSB.

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 the existing level of reserves 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, 2002 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. Noninterest income was $573,000 for the year ended December
31, 2002 compared to $630,000 for the year ended December 31, 2001, a decrease
of $57,000. During the year ended December 31, 2001, the Company realized gains
on the sale of securities of $819,000, which was offset by an impairment loss of
$596,000 related to certificates of deposits (CDs) purchased through a broker
that has been charged by the SEC with securities fraud in relation to these
certificates. During 2002 gains on the sales of securities totaled $68,000. In
addition, the Company continued to originate loans through the Federal Home Loan
Bank of Chicago Mortgage Partnership Finance program, resulting in loan
origination and servicing fees of $164,000 during 2002 compared to $42,000
during 2001.

NONINTEREST EXPENSE. Noninterest expense was $4.4 million for the year ended
December 31, 2002 and $3.9 million for the year ended December 31, 2001, an
increase of $547,000. The increase in noninterest expense primarily resulted
from an increase in compensation and benefits expense and data processing
expense, partially offset by a decrease in other noninterest expense.
Compensation and benefits expense increased $514,000 to $2.7 million for the
year ended December 31, 2002 due to increases in normal salary and retirement
benefits, an increase of $61,000 for health insurance benefits, and expense of
$271,000 related to restricted stock awards granted in October 2001. Data
processing expense increased $56,000 due to the increases in average deposits
from 2001 to 2002. Other noninterest expense decreased $63,000 compared to the
prior year as a result of an increase in deferred loan origination costs
associated with increased loan originations.

INCOME TAXES. The provision for income taxes increased $72,000 to $1.1 million
for the year ended December 31, 2002. The increase was a direct result of an
increase in pretax income. The effective tax rate was 36.7% for 2002 and 36.5%
for 2001.


COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001, AND
THE TEN MONTHS ENDED DECEMBER 31, 2000 (ANNUALIZED)

The following table compares results of operations for the year ended December
31, 2001, to the annualized results of operations for the ten months ended
December 31, 2000.


                                       7.
<PAGE>


                                                                    ANNUALIZED
                                                                    TEN MONTHS
                                                       YEAR ENDED      ENDED
                                                      DECEMBER 31,  DECEMBER 31,
                                                          2001         2000
                                                          ----         ----
                                                            (IN THOUSANDS)
SELECTED OPERATING DATA:
Total interest income                                   $15,417      $15,478
Total interest expense                                    9,135        9,823
                                                        -------      -------
     Net interest income                                  6,282        5,655
Provision for loan losses                                   103           85
                                                        -------      -------
Net interest income after provision for loan losses       6,179        5,570
Noninterest income                                          630          344
Noninterest expense:
     Compensation and benefits                            2,199        1,732
     Other noninterest expense                            1,697        1,489
                                                        -------      -------
         Total noninterest expense                        3,896        3,221
                                                        -------      -------
Income before income taxes                                2,913        2,693
Income tax provision                                      1,062          946
                                                        -------      -------

     Net income                                         $ 1,851      $ 1,747
                                                        =======      =======

GENERAL. Net income increased $104,000 to $1.9 million for the year ended
December 31, 2001 compared to $1.7 million (annualized) for the ten months ended
December 31, 2000. The increase was primarily a result of a $627,000 increase in
net interest income, combined with a $286,000 increase in noninterest income,
partially offset by a $675,000 increase in noninterest expense primarily related
to compensation and benefits.

INTEREST INCOME. Interest income for the year ended December 31, 2001 was $15.4
million compared to $15.5 million (annualized) for the ten months ended December
31, 2000, a decrease of $61,000. The decrease was primarily a result of a
decrease in the average yield on interest-earning assets to 6.47% for the year
ended December 31, 2001 from 7.00% for the ten months ended December 31, 2000,
partially offset by an increase in the average balance of interest earning
assets to $238.2 million for the year ended December 31, 2001 from $221.0
million for the ten months ended December 31, 2000. The average balance of
securities increased $13.5 million as funds generated from the initial public
offering in September of 2000 were reinvested in securities during the year
ended December 31, 2001. The increase in the average balance of securities was
partially offset by the decrease in the yield on securities to 5.61% for the
year ended December 31, 2001 from 6.27% for the ten months ended December 31,
2000.


                                       8.
<PAGE>


INTEREST EXPENSE. Interest expense for the year ended December 31, 2001 was $9.1
million compared to $9.8 million (annualized) for the ten months ended December
31, 2000, a decrease of $688,000 or 7.0%. The decrease primarily represents a
decrease in the average cost of funds from 5.05% for the ten months ended
December 31, 2000 to 4.72% for the year ended December 31, 2001. This was
partially offset by an increase in the average balance of savings and
certificates of deposit to $153.2 million for the year ended December 31, 2001
compared to $150.8 million for the ten months ended December 31, 2000.

NET INTEREST INCOME. Net interest income of $6.3 million for the year ended
December 31, 2001 reflects an increase of $627,000, or 11.1%, as compared to
$5.7 million (annualized) for the ten months ended December 31, 2000. The
increase in net interest income was primarily a result of an increase in the
Company's interest-earning assets, which was offset by a decrease in the net
interest spread to 1.75% for the year ended December 31, 2001 from 1.95% for the
ten months ended December 31, 2000, as well as an increase in the net interest
margin to 2.64% from 2.56% for the same period. The increase in the net interest
margin was due primarily to the increase in the ratio of interest-earning assets
to interest-earning liabilities to 123.17% from 113.58%.

PROVISION FOR LOAN LOSSES. The Company made provisions of $103,000 for the year
ended December 31, 2001 and $71,000 ($85,000 annualized) for the ten months
ended December 31, 2000. The increase in the provision for loan losses for the
year ended December 31, 2001 was a direct result of increased charge-offs of
consumer loans, as management charged off all consumer loans greater than 120
days delinquent. Net charge-offs for the year ended December 31, 2001, totaled
$141,000 compared to net recoveries of $18,000 for the ten months ended December
31, 2000.

NONINTEREST INCOME. Noninterest income was $630,000 for the year ended December
31, 2001 compared to $344,000 (annualized) for the ten months ended December 31,
2001, an increase of $286,000, or 83.1%. The increase primarily reflects a net
gain on sales of securities of $819,000 during the year ended December 31, 2001
offset by an impairment loss of $596,000 related to certificates of deposits
(CDs) purchased through a broker that has been charged by the SEC with
securities fraud in relation to these certificates. In addition, service charges
and fee income have increased due to the increase in average deposits.

NONINTEREST EXPENSE. Noninterest expense was $3.9 million for the year ended
December 31, 2001 and $3.2 million (annualized) for the ten months ended
December 31, 2000, an increase of $675,000, or 21.0%. The increase in
noninterest expense primarily resulted from an increase in compensation and
benefits expense of $446,000, due to normal salary and retirement benefit
increases, expense of $283,000 associated with the ESOP established as part of
the stock conversion, and expense of $68,000 related to restricted stock awards
granted in October 2001. Professional fees increased $128,000 as a result of
filings associated with being a public company. Other expenses increased,
including expenses associated with being a public company, such as Illinois
franchise taxes, filing fees, and printing and supplies.

INCOME TAXES. The provision for income taxes increased $116,000 to $1.1 million
for the year ended December 31, 2001 compared to $946,000 (annualized) for the
ten-month period in 2000. The increase was a direct result of an increase in
pretax 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


                                       9.
<PAGE>


operating activities were $635,000, $1.2 million, and $1.1 million for the years
ended December 31, 2002 and 2001 and the ten months ended December 31, 2000,
respectively. Net cash from investing activities consisted primarily of
disbursements for loan originations and the purchase of securities, offset by
principal collections on loans, proceeds from maturation of securities and
paydowns on mortgage-backed securities. Net cash from financing activities
consisted primarily of the stock issuance proceeds, activity in deposit accounts
and Federal Home Loan Bank advances. During 2002 and 2001, the Company used
excess liquidity to repurchase 300,920 and 224,250 shares of its common stock
for a total of $5.6 million and $3.6 million, respectively.

The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period. At December 31, 2002, cash and
short-term investments totaled $43.1 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, 2002, the Company had
the ability to borrow a total of approximately $22.4 million from the Federal
Home Loan Bank of Chicago. On that date, the Company had outstanding advances of
$4.0 million.

At December 31, 2002, the Company had outstanding commitments to originate loans
of $611,000, none of which had fixed interest rates. These loans are to be
secured by properties located in its market area. The Company anticipates that
it will have sufficient funds available to meet its current loan commitments.
Loan commitments have, in recent periods, been funded through liquidity or
through FHLB borrowings. Certificates of deposit, which are scheduled to mature
in one year or less from December 31, 2002, totaled $119.5 million. Management
believes, based on past experience, that a significant portion of such deposits
will remain with the Company. Based on the foregoing, in addition to the
Company's high level of core deposits and capital, the Company considers its
liquidity and capital resources sufficient to meet its outstanding short-term
and long-term needs.

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

The following tables disclose contractual obligations and commercial commitments
of the Company as of December 31, 2002 (in thousands):

                                        Less Than                         After
                              Total      1 Year    1-3 Years  4-5 Years  5 Years
                              -----      ------    ---------  --------   -------

      FHLB advances          $ 4,000    $ 2,000     $ 2,000    $    -    $    -
                             -------    -------     -------    ------    ------
      Total contractual
        cash obligations     $ 4,000    $ 2,000     $ 2,000    $    -    $    -
                             =======    =======     =======    ======    ======


                                      10.
<PAGE>


                              Total
                             Amounts    Less Than                         Over
                            Committed    1 Year    1-3 Years  4-5 Years  5 Years
                            ---------    ------    ---------  ---------  -------

        Lines of credit      $ 4,195    $ 4,195     $     -    $    -    $    -
        Other loan
          commitments            611        611           -         -         -
                             -------    -------     -------    ------    ------
        Total commercial
          commitments        $ 4,806    $ 4,806     $     -    $    -    $    -
                             =======    =======     =======    ======    ======

The Bank is subject to various regulatory capital requirements imposed by the
OTS. At December 31, 2002, the Company was in compliance with all applicable
capital requirements. See Note 13 of the Notes to Consolidated Financial
Statements.


NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosure in the financial statements about the effects
of stock-based compensation. The transitional guidance and annual disclosure
provisions of this Statement are effective for the December 31, 2003 financial
statements. The interim reporting disclosure requirements will be effective for
the Company's March 31, 2003 Form 10-Q. The Company is currently reviewing the
transitional guidance of SFAS No. 148 to determine the effect on the financial
statements.


EFFECT OF INFLATION AND CHANGING PRICES

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


AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST

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


                                      11.
<PAGE>

<TABLE>
<CAPTION>

                                                           Year ended                          Year ended
                                                          December 31,                        December 31,
                                                          ------------                        ------------
                                                --------------2002--------------    --------------2001--------------
                                                                         Average                             Average
                                                 Average                 Yield/      Average                 Yield/
                                                 Balance     Interest     Cost       Balance     Interest(2)  Cost(2)
                                                 -------     --------     ----       -------     --------     ----
<S>                                             <C>          <C>          <C>       <C>          <C>          <C>
INTEREST-EARNING ASSETS:
   Loans receivable(1)                          $113,246     $  7,961     7.03%     $115,136     $  8,941     7.77%
   Securities(2)                                 102,739        4,783     4.66       105,189        5,898     5.61
   Other interest-earning assets                  28,021          348     1.24        17,839          578     3.24
                                                --------     --------               --------     --------
     Total interest-earning assets               244,006       13,092     5.37       238,164       15,417     6.47
   Non-interest-earning assets                     7,428                               6,144
                                                --------                            --------

     Total assets                               $251,434                            $244,308
                                                ========                            ========

INTEREST-BEARING
  LIABILITIES:
   Deposits:
     NOW and money market accounts              $ 39,222     $    572     1.46      $ 37,842     $  1,088     2.88%
     Savings and certificates                    161,878        5,428     3.35       153,161        7,920     5.17
                                                --------     --------               --------     --------
       Total deposits                            201,100        6,000     2.98       191,003        9,008     4.72
   FHLB advances                                   3,934          154     3.91         2,362          127     5.38
                                                --------     --------               --------     --------
     Total interest-bearing liabilities          205,034        6,154     3.00       193,365        9,135     4.72
                                                --------     --------               --------     --------
   Noninterest-bearing liabilities                 3,281                               4,732
                                                --------                            --------
     Total liabilities                           208,315                             198,097
   Equity                                         43,119                              46,211
                                                --------                            --------

     Total liabilities and equity               $251,434                            $244,308
                                                ========                            ========

Net interest income/interest rate spread                     $  6,938     2.36%                  $  6,282     1.75%
                                                             ========     ====                   ========     ====
Net interest margin/interest earning assets                               2.84%                               2.64%
                                                                          ====                                ====
Ratio of interest-earning assets to
  interest-bearing liabilities                                          119.01%                             123.17%
                                                                        ======                              ======
</TABLE>


[WIDE TABLE CONTINUED FROM ABOVE]

<TABLE>
<CAPTION>
                                                       Annualized
                                                    Ten months ended
                                                      December 31,
                                                      ------------
                                            --------------2000--------------
                                                                     Average
                                             Average                 Yield/
                                             Balance     Interest(2)  Cost(2)
                                             -------     --------     ----
                                            <C>          <C>          <C>
INTEREST-EARNING ASSETS:
   Loans receivable(1)                      $116,094     $  9,112     7.85%
   Securities(2)                              91,716        5,752     6.27
   Other interest-earning assets              13,212          614     4.65
                                            --------     --------
     Total interest-earning assets           221,022       15,478     7.00
   Non-interest-earning assets                 4,096
                                            --------

     Total assets                           $225,118
                                            ========

INTEREST-BEARING
  LIABILITIES:
   Deposits:
     NOW and money market accounts          $ 39,036     $  1,682     4.31%
     Savings and certificates                150,765        7,815     5.18
                                            --------     --------
       Total deposits                        189,801        9,497     5.00
   FHLB advances                               4,789          326     6.80
                                            --------     --------
     Total interest-bearing liabilities      194,590        9,823     5.05
                                            --------     --------
   Noninterest-bearing liabilities             1,431
                                            --------
     Total liabilities                       196,021
   Equity                                     29,097
                                            --------

     Total liabilities and equity           $225,118
                                            ========

Net interest income/interest rate spread                 $  5,655     1.95%
                                                         ========     ====
Net interest margin/interest earning assets                           2.56%
                                                                      ====
Ratio of interest-earning assets to
  interest-bearing liabilities                                      113.58%
                                                                    ======
</TABLE>

(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.

(3) Interest and average yield/cost have been annualized.


                                      12.
<PAGE>


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.

<TABLE>
<CAPTION>
                                                                        2002 - 2001
                                                                        -----------
                                                                    Increase (Decrease)
                                                                          Due to
                                                                          ------
                                                               Rate      Volume       Total
                                                               ----      ------       -----
                                                                  (Dollars in thousands)
<S>                                                        <C>         <C>         <C>
INTEREST-EARNING ASSETS:
    Loans receivable                                       $   (835)   $   (155)   $   (980)
    Securities                                                 (980)       (135)     (1,115)
    Other interest-earning assets                              (462)        232        (230)
                                                           --------    --------    --------
       Total interest-earning assets                         (2,277)        (58)     (2,325)

INTEREST-BEARING LIABILITIES:
    Deposits:
       Savings accounts and certificates                       (554)         38        (516)
       NOW and money market accounts                         (2,921)        429      (2,492)

    FHLB advances                                               (41)         68          27
                                                           --------    --------    --------
       Total interest-bearing liabilities                    (3,516)        535      (2,981)
                                                           --------    --------    --------

          Increase (decrease) in net interest income       $  1,239    $   (593)   $    656
                                                           ========    ========    ========

<CAPTION>

                                                         Year ended December 31, 2001 compared to ten
                                                         months ended December 31, 2000 (annualized)
                                                         -------------------------------------------
                                                                    Increase (Decrease)
                                                                          Due to
                                                                          ------
                                                               Rate      Volume       Total
                                                               ----      ------       -----
                                                                  (Dollars in thousands)
<S>                                                        <C>         <C>         <C>
INTEREST-EARNING ASSETS:
    Loans receivable                                       $    (96)   $    (75)   $   (171)
    Securities                                                 (647)        793         146
    Other interest-earning assets                               (36)         --         (36)
                                                           --------    --------    --------
       Total interest-earning assets                           (779)        718         (61)

INTEREST-BEARING LIABILITIES:
    Deposits:
       Savings accounts and certificates                        106          --         106
       NOW and money market accounts                           (544)        (50)       (594)
    FHLB advances                                              (199)         --        (199)
                                                           --------    --------    --------
       Total interest-bearing liabilities                      (637)        (50)       (687)
                                                           --------    --------    --------

          Increase (decrease) in net interest income       $   (142)   $    768    $    626
                                                           ========    ========    ========
</TABLE>


                                      13.
<PAGE>


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

The Company has used the following strategies to manage interest rate risk: (1)
emphasizing the origination of adjustable-rate and balloon loans and not
originating long-term, fixed-rate loans for retention in its portfolio; (2)
using the Federal Home Loan Bank Mortgage Partnership Finance Program to
continue to offer a 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 Office of Thrift Supervision (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 Office of Thrift Supervision, presents the change in the Company's net
portfolio value at December 31, 2002 and 2001, that would occur upon an
immediate change in interest rates based on Office of Thrift Supervision
assumptions, but without giving effect to any steps that management might take
to counteract that change. Due to the abnormally low prevailing interest rate
environment, the OTS report did not provide NPV estimated for the -200 and -300
basis points.


                                      14.
<PAGE>

<TABLE>
<CAPTION>
                                                          2 0 0 2
                    --------------------------------------------------------------------------------
                                                                                  NPV as % of
   Change in                                                               Portfolio Value of Assets
Interest Rates                      Net Portfolio Value                    -------------------------
in Basis Points                     -------------------                    NPV           Basis Point
 (Rate Shock)           Amount           $ Change         % Change         Ratio            Change
-------------           ------           --------         --------         -----            ------
                                  (Dollars in thousands)
<S>   <C>           <C>                   <C>                 <C>          <C>            <C>
      300           $   37,370            (7,832)             (17)%        12.16%         (195) bp
      200               40,352            (4,850)             (11)         12.94          (117) bp
      100               43,095            (2,107)              (5)         13.62           (49) bp
   Static               45,202                --               --          14.11                --
     (100)              46,334             1,132                3          14.34            23  bp

<CAPTION>

                                                          2 0 0 1
                    --------------------------------------------------------------------------------
                                                                                  NPV as % of
   Change in                                                               Portfolio Value of Assets
Interest Rates                      Net Portfolio Value                    -------------------------
in Basis Points                     -------------------                    NPV           Basis Point
 (Rate Shock)           Amount           $ Change         % Change         Ratio            Change
-------------           ------           --------         --------         -----            ------
                                  (Dollars in thousands)
<S>   <C>           <C>                   <C>                 <C>          <C>            <C>
      300           $   30,741            (9,587)             (24)%        13.42%         (324) bp
      200               33,818            (6,510)             (16)         14.50          (216) bp
      100               36,975            (3,353)              (8)         15.57          (109) bp
   Static               40,328                --               --          16.66                --
     (100)              43,151             2,823                7          17.54            88  bp
</TABLE>

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

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


                                      15.
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
First Federal Bancshares, Inc.
Colchester, Illinois


We have audited the accompanying consolidated statements of financial condition
of First Federal Bancshares, Inc. (the Corporation) as of December 31, 2002 and
2001 and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the years ended December 31, 2002 and 2001 and the
ten months ended December 31, 2000. These consolidated financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2002 and 2001 and the results of its
operations and its cash flows for the years ended December 31, 2002 and 2001 and
the ten months ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.




                                                /s/ Crowe Chizek and Company LLC

Oak Brook, Illinois
March 11, 2003


                                      16.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 2002 and 2001
                             (Dollars in thousands)

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

<TABLE>
<CAPTION>
                                                                            2002          2001
                                                                         ---------     ---------
<S>                                                                      <C>           <C>
ASSETS
Cash and cash equivalents (interest-bearing:  2002 - $40,992;
  2001 - $16,786)                                                        $  42,827     $  18,249
Time deposits in other financial institutions                                  295           588
Securities available-for-sale                                               91,562        97,106
Securities held-to-maturity (fair value: 2002 - $24,764;
  2001 - $10,033)                                                           24,471        10,036
Loans receivable, net                                                      150,269       112,911
Real estate owned, net                                                         277           195
Premises and equipment                                                       3,294         1,522
Accrued interest receivable                                                  1,473         1,445
Goodwill                                                                     1,515            --
Core deposits and other intangibles                                            327            --
Other assets                                                                    90           118
                                                                         ---------     ---------

    Total assets                                                         $ 316,400     $ 242,170
                                                                         =========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
    Deposits
       Non-interest-bearing                                              $   3,722     $   3,156
       Interest-bearing                                                    260,112       189,628
                                                                         ---------     ---------
                                                                           263,834       192,784

    Advances from borrowers for taxes and insurance                            167           157
    Federal Home Loan Bank advances                                          4,000         4,000
    Accrued interest payable                                                   606           536
    Other liabilities                                                          762           992
                                                                         ---------     ---------

       Total liabilities                                                   269,369       198,469

Shareholders' equity
    Preferred stock, $.01 par value per share,
      1,000,000 shares authorized, no shares issued
      and outstanding                                                           --            --
    Common stock, $.01 par value per share,
      4,000,000 shares authorized, 2,242,500 shares issued                      22            22
    Additional paid-in capital                                              22,629        21,418
    Unearned ESOP shares                                                    (1,390)       (1,570)
    Unearned stock awards                                                   (1,016)       (1,287)
    Treasury stock, 180,557 shares in 2002 and 134,550 shares in 2001       (3,272)       (2,322)
    Retained earnings                                                       28,090        26,745
    Accumulated other comprehensive income                                   1,968           695
                                                                         ---------     ---------
       Total equity                                                         47,031        43,701
                                                                         ---------     ---------

          Total liabilities and shareholders' equity                     $ 316,400     $ 242,170
                                                                         =========     =========
</TABLE>

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

          See accompanying notes to consolidated financial statements.


                                      17.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                 For the years ended December 31, 2002 and 2001
                   and the ten months ended December 31, 2000
                  (Dollars in thousands, except per share data)

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

<TABLE>
<CAPTION>
                                                         2002        2001         2000
                                                       --------    --------     --------
Interest income
<S>                                                    <C>         <C>          <C>
    Loans                                              $  7,961    $  8,941     $  7,593
    Securities                                            4,783       5,898        4,793
    Deposits in other financial institutions                348         578          512
                                                       --------    --------     --------
       Total interest income                             13,092      15,417       12,898

Interest expense
    Savings and certificates                              5,428       7,920        6,512
    NOW and money market accounts                           572       1,088        1,402
    Federal Home Loan Bank advances                         154         127          272
                                                       --------    --------     --------
       Total interest expense                             6,154       9,135        8,186
                                                       --------    --------     --------

NET INTEREST INCOME                                       6,938       6,282        4,712

Provision for loan losses                                     7         103           71
                                                       --------    --------     --------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES       6,931       6,179        4,641

Noninterest income
    Service charges on NOW accounts                         142         138          119
    Loan origination and servicing fees                     164          42           --
    Other fee income                                        149         135          100
    Net gain on sale of securities                           68         819           --
    Impairment loss                                          --        (596)          --
    Other income                                             50          92           68
                                                       --------    --------     --------
       Total noninterest income                             573         630          287

Noninterest expense
    Compensation and benefits                             2,713       2,199        1,443
    Occupancy and equipment                                 383         353          310
    Data processing                                         484         428          412
    Federal insurance premiums                              100          96           65
    Advertising                                             109          98           69
    Professional fees                                       172         177           41
    Other noninterest expense                               482         545          344
                                                       --------    --------     --------
       Total noninterest expense                          4,443       3,896        2,684
                                                       --------    --------     --------

INCOME BEFORE INCOME TAXES                                3,061       2,913        2,244

Provision for income taxes                                1,124       1,062          788
                                                       --------    --------     --------

NET INCOME                                             $  1,937    $  1,851     $  1,456
                                                       ========    ========     ========

Earnings per share
    Basic                                              $   1.09    $    .91     $    .22
    Diluted                                            $   1.07    $    .91     $    .22
</TABLE>

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

          See accompanying notes to consolidated financial statements.


                                      18.
<PAGE>

                         FIRST FEDERAL BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 For the years ended December 31, 2002 and 2001
                   and the ten months ended December 31, 2000
                  (Dollars in thousands, except per share data)

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

<TABLE>
<CAPTION>
                                                                         Additional     Unearned       Unearned
                                                             Common        Paid-in        ESOP          Stock         Treasury
                                                              Stock        Capital       Shares         Awards         Stock
                                                            --------      --------      --------       --------       --------
<S>                                                         <C>           <C>           <C>            <C>            <C>
Balance at February 29, 2000                                $     --      $     --      $     --       $     --       $     --

Issuance of common stock, net of expenses                         22        21,302        (1,794)            --             --

ESOP shares earned                                                --            13            45             --             --

Dividends declared ($.05 per share)                               --            --            --             --             --

Comprehensive income
   Net income                                                     --            --            --             --             --
     Unrealized gain on securities available-for-sale,
     net of reclassification and tax effects                      --            --            --             --             --

     Total comprehensive income
                                                            --------      --------      --------       --------       --------

Balance at December 31, 2000                                      22        21,315        (1,749)            --             --

Purchase of 224,250 shares of treasury stock                      --            --            --             --         (3,677)

Allocation of stock awards                                        --            --            --         (1,355)         1,355

ESOP shares earned                                                --           103           179             --             --

Stock awards earned                                               --            --            --             68             --

Dividends declared ($.29 per share)                               --            --            --             --             --

Comprehensive income
   Net income                                                     --            --            --             --             --
     Unrealized loss on securities available-for-sale,
     net of reclassification and tax effects                      --            --            --             --             --

     Total comprehensive income
                                                            --------      --------      --------       --------       --------
</TABLE>


[WIDE TABLE CONTINUED FROM ABOVE]

<TABLE>
<CAPTION>
                                                                         Accumulated
                                                                            Other
                                                            Retained    Comprehensive
                                                            Earnings        Income         Total
                                                            --------       --------       --------

<S>                                                         <C>            <C>            <C>
Balance at February 29, 2000                                $ 24,130       $   (105)      $ 24,025

Issuance of common stock, net of expenses                         --             --         19,530

ESOP shares earned                                                --             --             58

Dividends declared ($.05 per share)                             (103)            --           (103)

Comprehensive income
   Net income                                                  1,456             --          1,456
     Unrealized gain on securities available-for-sale,
     net of reclassification and tax effects                      --            901            901
                                                                                          --------

     Total comprehensive income                                                              2,357
                                                            --------       --------       --------

Balance at December 31, 2000                                  25,483            796         45,867

Purchase of 224,250 shares of treasury stock                      --             --         (3,677)

Allocation of stock awards                                        --             --              0

ESOP shares earned                                                --             --            282

Stock awards earned                                               --             --             68

Dividends declared ($.29 per share)                             (589)            --           (589)

Comprehensive income
   Net income                                                  1,851             --          1,851
     Unrealized loss on securities available-for-sale,
     net of reclassification and tax effects                      --           (101)          (101)
                                                                                          --------

     Total comprehensive income                                                              1,750
                                                            --------       --------       --------
</TABLE>

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

                                  (Continued)


                                      19.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 For the years ended December 31, 2002 and 2001
                   and the ten months ended December 31, 2000
                  (Dollars in thousands, except per share data)

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

<TABLE>
<CAPTION>
                                                                         Additional     Unearned       Unearned
                                                             Common        Paid-in        ESOP          Stock         Treasury
                                                              Stock        Capital       Shares         Awards         Stock
                                                            --------      --------      --------       --------       --------
<S>                                                         <C>           <C>           <C>            <C>            <C>
Balance at December 31, 2001                                $     22      $ 21,418       $ (1,570)      $ (1,287)      $ (2,322)

Purchase of 300,920 shares of treasury stock                      --            --             --             --         (5,572)

Acquisition of PFSB Bancorp, Inc. (252,310 shares)                --         1,072             --             --          4,575

ESOP shares earned                                                --           143            180             --             --

Options exercised (2,603 shares)                                  --            (4)            --             --             47

Stock awards earned                                               --            --             --            271             --

Dividends declared ($.32 per share)                               --            --             --             --             --

Comprehensive income
   Net income                                                     --            --             --             --             --
     Unrealized gain on securities available-for-sale,
     net of reclassification and tax effects                      --            --             --             --             --


     Total comprehensive income
                                                            --------      --------       --------       --------       --------

Balance at December 31, 2002                                $     22      $ 22,629       $ (1,390)      $ (1,016)      $ (3,272)
                                                            ========      ========       ========       ========       ========
</TABLE>


[WIDE TABLE CONTINUED FROM ABOVE]

<TABLE>
<CAPTION>
                                                                         Accumulated
                                                                            Other
                                                            Retained    Comprehensive
                                                            Earnings        Income         Total
                                                            --------       --------       --------
<S>                                                         <C>            <C>           <C>
Balance at December 31, 2001                                $ 26,745       $    695      $ 43,701

Purchase of 300,920 shares of treasury stock                      --             --        (5,572)

Acquisition of PFSB Bancorp, Inc. (252,310 shares)                --             --         5,647

ESOP shares earned                                                --             --           323

Options exercised (2,603 shares)                                  --             --            43

Stock awards earned                                               --             --           271

Dividends declared ($.32 per share)                             (592)            --          (592)

Comprehensive income
   Net income                                                  1,937             --         1,937
     Unrealized gain on securities available-for-sale,
     net of reclassification and tax effects                      --          1,273         1,273
                                                                                         --------

     Total comprehensive income                                                             3,210
                                                            --------       --------      --------

Balance at December 31, 2002                                $ 28,090       $  1,968      $ 47,031
                                                            ========       ========      ========
</TABLE>

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

          See accompanying notes to consolidated financial statements.


                                      20.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the years ended December 31, 2002 and 2001
                   and the ten months ended December 31, 2000
                             (Dollars in thousands)

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

<TABLE>
<CAPTION>
                                                                      2002         2001         2000
                                                                    --------     --------     --------
<S>                                                                 <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                     $  1,937     $  1,851     $  1,456
     Adjustments to reconcile net income to net cash
       provided by operating activities
         Depreciation                                                    126          116          150
         Loss (gain) on sale of real estate owned                         17          (25)         (27)
         Net amortization of premiums and discounts                      149         (286)         (70)
         ESOP compensation expense                                       323          282           58
         Stock award compensation expense                                271           68           --
         Amortization of intangible assets                               (32)          12           35
         Provision for loan losses                                         7          103           71
         Deferred income taxes                                            87          (70)         (32)
         Dividend reinvestments                                       (1,102)      (1,323)      (1,044)
         Federal Home Loan Bank stock dividends                          (55)         (67)          --
         Gain on sale of securities                                      (68)        (819)          --
         Impairment loss                                                  --          596           --
         Net changes in
              Accrued interest receivable and other assets               607          844         (256)
              Deferred loan (fees) costs                                 (52)         (10)          13
              Accrued interest payable and other liabilities          (1,580)         (23)         731
                                                                    --------     --------     --------
                  Net cash from operating activities                     635        1,249        1,085

CASH FLOWS FROM INVESTING ACTIVITIES
     Cash acquired from PFSB Bancorp, Inc. net of cash
       paid (Note 2)                                                  18,108           --           --
     Net change in time deposits in other financial institutions         293        1,378         (990)
     Purchase of securities available-for-sale                       (25,464)     (84,595)     (12,738)
     Purchase of securities held-to-maturity                         (23,422)      (8,192)      (2,952)
     Principal paydowns on mortgage-backed securities
        available-for-sale                                            10,659        6,821        2,135
     Principal paydowns on mortgage-backed securities
       held-to-maturity                                                  396          850          299
     Redemption of Federal Home Loan Bank stock                          509           --           --
     Purchase of Federal Home Loan Bank stock                            (54)          --           --
     Proceeds from maturities of securities available-for-sale         1,000        5,917           --
     Proceeds from maturities of securities held-to-maturity          10,025       58,843           --
     Proceeds from sale of securities available-for-sale              22,973       19,757           --
     Capital expenditures on real estate owned                            (1)          --           --
     Net (increase) decrease in loans receivable                       9,196        2,331       (2,133)
     Proceeds from sale of real estate owned                             417          114          107
     Purchase of property and equipment                                 (739)         (91)         (60)
                                                                    --------     --------     --------
         Net cash from investing activities                           23,896        3,133      (16,332)
</TABLE>

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

                                  (Continued)


                                      21.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the years ended December 31, 2002 and 2001
                   and the ten months ended December 31, 2000
                             (Dollars in thousands)

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

<TABLE>
<CAPTION>
                                                          2002         2001         2000
                                                        --------     --------     --------
<S>                                                     <C>          <C>          <C>
CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase in deposits                           $  6,278     $  7,906     $  2,306
     Net change in advances from borrowers for taxes
       and insurance                                         (55)         (32)        (107)
     Federal Home Loan Bank advances                          --        4,000           --
     Repayment of Federal Home Loan Bank advances             --       (5,000)      (1,000)
     Purchase of treasury stock                           (5,572)      (3,677)          --
     Dividends paid                                         (647)        (574)          --
     Net proceeds from stock issuance                         --           --       19,530
     Exercise of stock options                                43           --           --
                                                        --------     --------     --------
         Net cash from financing activities                   47        2,623       20,729
                                                        --------     --------     --------

Net change in cash and cash equivalents                   24,578        7,005        5,482

Cash and cash equivalents
     Beginning of period                                  18,249       11,244        5,762
                                                        --------     --------     --------

     End of period                                      $ 42,827     $ 18,249     $ 11,244
                                                        ========     ========     ========

Supplemental disclosures of cash flow information
     Cash paid during the period for
         Interest                                       $  6,084     $  9,268     $  7,637
         Taxes, net of refunds                             1,384        1,058          652
     Transfer of loans to real estate owned                  346          284           32
</TABLE>




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

          See accompanying notes to consolidated financial statements.


                                      22.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Use of Estimates: In preparing consolidated financial statements, management
must make estimates and assumptions. These estimates and assumptions affect the
amounts reported for assets, liabilities, income, and expenses, as well as
affecting the disclosures provided. Actual results could differ from the current
estimates. The collectibility of loans, fair values of financial instruments,
impairment of goodwill, and status of contingencies are particularly subject to
change.

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

Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses.

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

                                  (Continued)


                                      23.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. Payments received on such loans
are reported as principal reductions.

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

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

A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans and on an
individual loan basis for other loans. 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.

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.

Income Taxes: The provision for income taxes is based on an asset and liability
approach, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.

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

                                  (Continued)


                                      24.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share: The amount reported as earnings per common share for the
year ended December 31, 2000 reflects the earnings since September 27, 2000
available to common shareholders divided by the weighted average number of
common shares outstanding since that date. Diluted earnings per share is
computed using the weighted number of shares determined for the basic
computation plus the number of shares of common stock that would be issued
assuming all contingently issuable shares having a dilutive effect on earnings
per share were outstanding for the period.

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: 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 paid-in
capital. Dividends on allocated ESOP shares reduce retained earnings; dividends
on unallocated ESOP shares reduce debt.

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

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

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.

Other intangible assets consist of core deposit and customer relationship assets
arising from bank acquisitions. These intangibles are initially measured at fair
value and then are amortized on an accelerated method over their useful lives,
estimated to be 10 years.

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

                                  (Continued)


                                      25.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Off-Balance-Sheet Financial Instruments: Financial instruments include
off-balance-sheet credit instruments, such as commitments to make loans and
standby 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 Options: The Corporation applies Accounting Principles Board (APB) Opinion
25 and related interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized at the date of grant. Had
compensation cost been determined based on the fair value at the grant dates for
awards under the plan consistent with the method of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
the Corporation's net income and earnings per share would have been reduced to
the pro forma amounts in the table below. For purposes of pro forma disclosure,
the estimated fair value of the options is amortized to expense over the
options' vesting period. The Company did not issue stock options prior to 2001.

                                         Year Ended               Year Ended
                                      December 31, 2002        December 31, 2001
                                      -----------------        -----------------

Net income as reported                  $     1,937              $      1,851
Pro forma net income                          1,849                     1,814
Earnings per share as reported
    Basic                                      1.09                       .91
    Diluted                                    1.04                       .91
Pro forma earnings per share
    Basic                                      1.07                       .91
    Diluted                                    1.02                       .89

The Black-Scholes option pricing valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

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

                                  (Continued)


                                      26.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Date of grant                                                   October 10, 2001
Options granted                                                      208,549
Estimated fair value of stock options granted                         $ 3.50
Assumptions used:
    Risk-free interest rate                                             3.88%
    Expected option life                                             5 years
    Expected stock price volatility                                    20.10%
    Expected dividend yield                                             1.93%

Pursuant to its 2001 stock-based incentive plan, the Corporation awarded 89,700
shares of restricted stock during 2001. These shares vest over a five-year
period. The unamortized cost of shares not yet earned (vested) is reported as a
reduction of shareholders' equity. Compensation expense for restricted stock
awards totaled $270,894 and $68,000 for the years ended December 31, 2002 and
2001.

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.

Newly Issued But Not Yet Effective Accounting Standards: New accounting
standards on asset retirement obligations, restructuring activities and exit
costs, operating leases, and early extinguishment of debt were issued in 2002.
Management determined that when the new accounting standards are adopted in
2003, they will not have a material impact on the Corporation's financial
condition or results of operations.

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 financial statements were
reclassified to conform to the current presentation.

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

                                  (Continued)


                                      27.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 2 - ACQUISITION OF PFSB BANCORP, INC.

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

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

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

Cash and cash equivalents                                             $  23,067
Securities                                                                2,359
Loans, net of allowance for loan losses                                  46,852
Premises and equipment                                                    1,159
Other assets                                                                776
Goodwill                                                                  1,515
Intangible assets                                                           331
                                                                      ---------
Total assets acquired                                                    76,059
                                                                      ---------

Deposits                                                                (64,796)
Other liabilities                                                          (657)
                                                                      ---------
Total liabilities acquired                                              (65,453)
                                                                      ---------

Net assets acquired                                                   $  10,606
                                                                      =========

Intangible assets consist primarily of a core deposit intangible, which is being
amortized over 10 years on an accelerated basis. Intangible assets are reported
net of accumulated amortization of $4,000 at December 31, 2002. Estimated
amortization for intangibles for each of the next five years is approximately
$40,000.

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

                                  (Continued)


                                      28.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 2 - ACQUISITION OF PFSB BANCORP, INC. (Continued)

PFSB Bancorp, Inc.'s results of operations have been reflected in the
Corporation's consolidated statements of income beginning as of the acquisition
date. The pro forma total net interest income, total income, net income, and
basic and diluted earnings per share for the years ended December 31, 2002 and
2001 after giving effect to the PFSB Bancorp, Inc. acquisition as if it occurred
on January 1, 2001 are as follows:

                                                              2002        2001
                                                            -------     -------

Net interest income                                         $ 8,799     $ 7,877
Total income                                                  9,238       8,547
Net income                                                    1,928       1,950
Basic earnings per share                                        .98         .86
Diluted earnings per share                                      .96         .86


NOTE 3 - SECURITIES

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

<TABLE>
<CAPTION>
                                                    Estimated      Gross        Gross
                                                      Fair       Unrealized   Unrealized
                                                      Value        Gains        Losses
                                                   ----------    ----------   ----------
<S>                                                <C>           <C>          <C>
2002
----
   U.S. government agency                          $   21,519    $      529   $       --
   SLMA bonds                                           9,480            45          (13)
   Corporate bonds                                      3,000            --           --
   State and municipal obligations                      4,952           207           (5)
                                                   ----------    ----------   ----------
                                                       38,951           781          (18)
   U.S. government agency mortgage-
     backed securities and collateralized
     mortgage obligations
      FHLMC                                            13,238           538           --
      FNMA                                             10,368           774           --
      GNMA                                                653            33           --
                                                   ----------    ----------   ----------
                                                       24,259         1,345           --
   Marketable equity securities
      Mortgage securities fund                         17,236            49           --
      Federal Home Loan Bank stock                      1,119            --           --
      Federal Home Loan Mortgage
        Corporation stock                               1,051         1,012           (2)
      Adjustable rate mortgage securities fund          8,946            46            -
                                                   ----------    ----------   ----------
                                                       28,352         1,107           (2)
                                                   ----------    ----------   ----------

          Total                                    $   91,562    $    3,233   $      (20)
                                                   ==========    ==========   ==========
</TABLE>

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

                                  (Continued)


                                      29.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 3 - SECURITIES (Continued)

<TABLE>
<CAPTION>
                                                    Estimated      Gross         Gross
                                                      Fair       Unrealized    Unrealized
                                                      Value        Gains        Losses
                                                   ----------    ----------   ----------
<S>                                                <C>           <C>          <C>
2001
----
   U.S. government agency                          $    9,068    $       39   $      (85)
   SLMA bonds                                          20,741            25          (19)
   State and municipal obligations                      2,665             6          (49)
                                                   ----------    ----------   ----------
                                                       32,474            70         (153)
   U.S. government agency mortgage-
    backed securities and collateralized
     mortgage obligations
      FHLMC                                            16,756            49         (162)
      FNMA                                             19,440            40         (198)
      GNMA                                                939            31           --
                                                   ----------    ----------   ----------
                                                       37,135           120         (360)
   Marketable equity securities
      Mortgage securities fund                         16,090            --         (278)
      Federal Home Loan Bank stock                      1,010            --           --
      Federal Home Loan Mortgage
        Corporation stock                               1,730         1,699           --
      Adjustable rate mortgage securities fund          8,667            37           --
                                                   ----------    ----------   ----------
                                                       27,497         1,736         (278)
                                                   ----------    ----------   ----------

      Total                                        $   97,106    $    1,926   $     (791)
                                                   ==========    ==========   ==========
</TABLE>


The carrying amount, unrecognized gains and losses, and fair value of securities
held to maturity were as follows:

<TABLE>
<CAPTION>
                                                       Gross           Gross      Estimated
                                        Carrying    Unrealized      Unrealized      Fair
                                         Amount        Gains          Losses        Value
                                        ----------   ----------    ----------   ----------
<S>                                     <C>          <C>           <C>          <C>
2002
----
   U.S. government agency               $    9,690   $       82    $       --   $    9,772
   Corporate bonds                          13,369          166            --       13,535
   State and municipal obligations           1,199           30            --        1,229
                                        ----------   ----------    ----------   ----------
                                            24,258          278            --       24,536
   U.S. government agency mortgage-
    backed securities
      FHLMC                                    141           13            --          154
      FNMA                                      68            2            --           70
      GNMA                                       4           --            --            4
                                        ----------   ----------    ----------   ----------
                                               213           15            --          228
                                        ----------   ----------    ----------   ----------

          Total                         $   24,471   $      293    $       --   $   24,764
                                        ==========   ==========    ==========   ==========
</TABLE>

--------------------------------------------------------------------------------
                                  (Continued)


                                      30.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 3 - SECURITIES (Continued)

<TABLE>
<CAPTION>
                                                        Gross         Gross       Estimated
                                          Carrying    Unrealized    Unrealized      Fair
                                           Amount       Gains        Losses        Value
                                        -----------   ----------    ----------   ----------
<S>                                     <C>           <C>           <C>          <C>
2001
----
   Corporate bonds                      $     8,102   $       26    $      (83)  $    8,045
   State and municipal obligations            1,329           28            --        1,357
                                        -----------   ----------    ----------   ----------
                                              9,431           54           (83)       9,402
   U.S. government agency mortgage-
    backed securities
      FHLMC                                     388           23            --          411
      FNMA                                      209            3            --          212
      GNMA                                        8           --            --            8
                                        -----------   ----------    ----------   ----------
                                                605           26            --          631
                                        -----------   ----------    ----------   ----------

          Total                         $    10,036   $       80    $      (83)  $   10,033
                                        ===========   ==========    ==========   ==========
</TABLE>

Securities with a carrying amount of $9,147,145 and $5,026,256 at December 31,
2002 and 2001 were pledged to secure public deposits and for other purposes as
required by law.

Proceeds from the sale of securities available-for-sale were $22,973,000 and
$19,757,000 at December 31, 2002 and 2001. Gross gains of $68,000 and $819,000
were realized on those sales. There were no security sales for the ten months
ended December 31, 2000.

During the year ended December 31, 2001, the Corporation incurred an impairment
loss of $596,000 related to certificates of deposit purchased through a broker
that has been charged by the SEC with securities fraud in relation to these
certificates of deposit. Recently, correspondence has been received by the
Corporation indicating that a portion of the losses incurred in prior years may
be partially recovered. However, the amount of recovery, if any, is not
determinable at this time.




--------------------------------------------------------------------------------
                                  (Continued)


                                      31.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 3 - SECURITIES (Continued)

The scheduled maturities of securities available-for-sale and securities
held-to-maturity at December 31, 2002 were as follows:

<TABLE>
<CAPTION>
                                            Available-
                                             for-Sale           Held-to-Maturity
                                               Fair         Carrying        Fair
                                               Value         Amount         Value
                                           ----------     ----------     ----------
<S>                                        <C>            <C>            <C>
Due in one year or less                    $       25     $   10,640     $   10,771
Due after one year through five years          15,020         13,568         13,713
Due after five years through ten years         22,374             50             52
Due after ten years                             1,532             --             --
                                           ----------     ----------     ----------
   Subtotal                                    38,951         24,258         24,536
Mortgage-backed securities                     24,259            213            228
Marketable equity securities                   28,352             --             --
                                           ----------     ----------     ----------

   Total                                   $   91,562     $   24,471     $   24,764
                                           ==========     ==========     ==========
</TABLE>


NOTE 4 - LOANS RECEIVABLE

Loans receivable consist of the following:

                                             2002         2001
                                          ---------    ---------
  First mortgage loans
      One-to-four-family                  $ 108,816    $  75,904
      Multi-family and commercial            24,281       19,973
      Construction                            1,221          439
                                          ---------    ---------
           Total first mortgage loans       134,318       96,316
  Commercial loans                            6,136        5,684
  Consumer loans
      Automobile                              4,342        5,055
      Home improvement                        1,823        2,270
      Share loans                             1,279          931
      Other                                   3,400        3,068
                                          ---------    ---------
           Total consumer loans              10,844       11,324
                                          ---------    ---------

               Total loans                  151,298      113,324
  Less
      Unearned discounts                       (241)         (15)
      Deferred loans costs, net                 188          136
      Allowance for loan losses                (976)        (534)
                                          ---------    ---------

           Loans receivable, net          $ 150,269    $ 112,911
                                          =========    =========

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

                                  (Continued)


                                      32.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 4 - LOANS RECEIVABLE (Continued)

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 for the years
ended December 31, 2002 and 2001 and the ten months ended December 31, 2000:

                                                       2002      2001      2000
                                                      ------    ------    ------

Balance at beginning of period                        $  534    $  572    $  483
Provision charged to income                                7       103        71
Charge-offs                                              (25)     (178)       --
Recoveries                                                88        37        18
Acquired allowance for loan losses                       372        --        --
                                                      ------    ------    ------

    Balance at end of year                            $  976    $  534    $  572
                                                      ======    ======    ======

There were no impaired loans as of December 31, 2002. Impaired loans on which
accrual of interest had been discontinued totaled $34,120 as of December 31,
2001. Differences in interest income recorded on the cash basis on nonaccrual
loans for the years ended December 31, 2002 and 2001 and for the ten months
ended December 31, 2000 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.

Loans outstanding to directors, executive officers, and their associates totaled
$398,801 and $134,093 at December 31, 2002 and 2001.




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

                                  (Continued)


                                      33.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 5 - LOAN SERVICING

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

                                                           2002        2001
                                                         --------    --------

FHLMC                                                    $      2    $     56
City of Quincy, Illinois                                      367         600
Federal Home Loan Bank                                     16,303       5,016
                                                         --------    --------

    Total                                                $ 16,672    $  5,672
                                                         ========    ========


NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

                                                           2002        2001
                                                         --------    --------

Land, buildings, and improvements                        $  3,620    $  2,368
Furniture, fixtures, and equipment                          1,797       1,091
                                                         --------    --------
                                                            5,417       3,459
Less accumulated depreciation                               2,694       1,937
                                                         --------    --------
                                                            2,723       1,522
Construction in progress                                      571           -
                                                         --------    --------

     Total                                               $  3,294    $  1,522
                                                         ========    ========

In 2002, the Bank began constructing an addition to the Quincy branch, located
at 101 North 36th Street. Total estimated costs to complete the addition to the
branch are $229,000 at December 31, 2002.


NOTE 7 - DEPOSITS

Certificate of deposit accounts with balances of $100,000 or more totaled
approximately $25,088,000 and $19,885,000 at December 31, 2002 and 2001.
Deposits greater than $100,000 are not federally insured.

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

                                  (Continued)


                                      34.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 7 - DEPOSITS (Continued)

Scheduled maturities of certificates of deposit at December 31, 2002 were as
follows:

                           2003                   $ 119,766
                           2004                      30,371
                           2005                      17,115
                           2006                      10,965
                           2007                      3,912
                                                  --------

                               Total              $ 182,129
                                                  =========


NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES

Advances from the Federal Home Loan Bank consist of:

  Maturity Date       Rate      Rate Adjustment         2002           2001
  -------------       ----      ---------------         ----           ----

November 24, 2003     3.31%           Fixed         $ 2,000,000    $ 2,000,000
January 31, 2005      4.40%           Fixed           2,000,000      2,000,000
                                                    -----------    -----------

                                                    $ 4,000,000    $ 4,000,000
                                                    ===========    ===========

The Bank maintains a collateral pledge agreement covering secured advances
whereby the Bank has agreed to at all times keep on hand, free of all other
pledges, liens, and encumbrances, whole first mortgage loans on improved
residential property not more than 90 days delinquent, aggregating no less than
167% of the outstanding secured advances from the Federal Home Loan Bank of
Chicago.


NOTE 9 - INCOME TAXES

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

                                        2002        2001      2000
                                        ----       ----       ----

     Current                          $ 1,037    $ 1,132    $   820
     Deferred                              87        (70)       (32)
                                      -------    -------    -------

                                      $ 1,124    $ 1,062    $   788
                                      =======    =======    =======

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

                                  (Continued)


                                      35.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 9 - INCOME TAXES (Continued)

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2002 and
2001 are as follows:

                                                            2002       2001
                                                            ----       ----
Deferred tax assets
    Deferred loan fees                                    $    74    $    50
    Bad debts                                                 354        102
    Purchase accounting adjustments                           115         --
    Stock awards                                               80         35
    Other                                                      17         23
                                                          -------    -------
         Total deferred tax assets                            640        210

Deferred tax liabilities
    Unrealized gains on securities available-for-sale      (1,245)      (440)
    Depreciation                                             (166)       (65)
    Federal Home Loan Bank stock dividends                   (112)       (45)
    Other                                                     (87)       (42)
                                                          -------    -------
         Total deferred tax liabilities                    (1,610)      (592)
                                                          -------    -------

             Net deferred tax liability                   $  (970)   $  (382)
                                                          =======    =======

As a result of the acquisition of PFSB Bancorp, Inc., deferred tax assets
increased approximately $304,000.

A reconciliation of the federal statutory tax rate of 34% for the years ended
December 31, 2002 and 2001 and the ten months ended December 31, 2000 to the
effective tax rate on income before income taxes is as follows:

<TABLE>
<CAPTION>
                                       ----------2002---------     ----------2001---------     ----------2000---------
                                         Amount        Percent       Amount        Percent       Amount        Percent
                                         ------        -------       ------        -------       ------        -------
<S>                                    <C>               <C>       <C>               <C>       <C>               <C>
Tax expense at statutory rate          $    1,041         34.0%    $     990         34.0%     $      762        34.0%
Tax-exempt interest income                    (67)        (2.2)          (43)        (1.5)            (22)       (1.0)
State income taxes, net of federal             82          2.7           101          3.5              25         1.2
ESOP expense                                   50          1.6            --           --              --          --
Other                                          18          0.6            14           .5              23          .9
                                       ----------   ----------     ---------   ----------      ----------   ---------
    Tax expense at effective rate      $    1,124         36.7%    $   1,062         36.5%     $      788        35.1%
                                       ==========   ==========     =========   ==========      ==========   =========
</TABLE>

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

                                  (Continued)


                                      36.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 9 - INCOME TAXES (Continued)

Retained earnings at December 31, 2002 include allocations for federal income
tax purposes representing tax bad debt deductions of approximately $2,300,000
through December 31, 2002, 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 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to fund loans and previously approved
unused lines of credit. The Bank's exposure to credit loss in the event of
nonperformance by the parties to these financial instruments is represented by
the contractual amount of the instruments. The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items. The contract amount of
these financial instruments is summarized as follows:

                                                             2002        2001
                                                             ----        ----

Commitments to extend credit                               $   611     $   682
Unused lines of credit                                       3,520       2,087
Construction loans in process                                  675          70

At December 31, 2002, the Bank did not have any fixed rate commitments to extend
credit. Since many commitments expire without being used, the amounts above do
not necessarily represent future cash commitments. Collateral may be obtained
upon exercise of a commitment. The amount of collateral is determined by
management and may include commercial and residential real estate and other
business and consumer assets.


NOTE 11 - PENSION PLAN

The Corporation participates in a multi-employer defined benefit pension plan.
The plan provides benefits to substantially all of the Corporation's employees.
The plan is funded through contributions to a nationwide plan for savings and
loan associations. Pension expense was $142,500, $120,000, and $24,000 during
the years ended December 31, 2002 and 2001 and the ten months ended December 31,
2000.

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

                                  (Continued)


                                      37.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 12 - STOCK-BASED COMPENSATION PLANS

As part of the conversion transaction, the Corporation established an employee
stock ownership plan (ESOP) for the benefit of substantially all employees. The
ESOP borrowed $1,794,000 from the Corporation and used those funds to acquire
179,400 shares of the Corporation's stock at $10 per share.

Shares issued to the ESOP are allocated to ESOP participants based on principal
and interest repayments made by the ESOP on the loan from the Corporation. The
loan is secured by shares purchased with the loan proceeds and will be repaid by
the ESOP with funds from the Corporation's discretionary contributions to the
ESOP and earnings on the ESOP's assets. Principal payments are scheduled to
occur over a ten-year period. However, in the event the Corporation's
contributions exceed the minimum debt service requirements, additional principal
payments will be made.

During 2002, 2001, and 2000, 17,940 shares, 17,940 shares, and 4,485 shares of
stock with an average fair value of $18.03, $15.73, and $12.89 per share were
committed to be released, resulting in ESOP compensation expense of $323,485,
$282,959, and $57,834. During 2002, 71 shares were released from the plan for
terminated employees. Shares held by the ESOP at December 31 are as follows:

                                                   2002          2001
                                                   ----          ----

Allocated shares                                   40,294        22,425
Unallocated shares                                139,035       156,975
                                                ---------     ---------

     Total ESOP shares                            179,329       179,400
                                                =========     =========

Fair value of unallocated shares                $   2,822     $   2,582
                                                =========     =========

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

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

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

                                  (Continued)


                                      38.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 12 - STOCK-BASED COMPENSATION PLANS (Continued)

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

<TABLE>
<CAPTION>
                                              2 0 0 2                    2 0 0 1
                                              -------                    -------
                                                    Weighted                   Weighted
                                                     Average                    Average
                                                    Exercise                   Exercise
                                       Shares          Price       Shares         Price
                                     ---------     ---------     ---------    ---------
<S>                                    <C>         <C>           <C>          <C>
Outstanding at beginning of year       208,549     $   15.10            --    $      --
Granted                                     --            --       208,549        15.10
Exercised                                2,603         18.35            --           --
Options converted*                      47,815          8.52            --           --
                                     ---------     ---------     ---------    ---------

Outstanding at end of year             253,761     $   13.86       208,549    $   15.10
                                     =========     =========     =========    =========

Options exercisable at year-end         86,922                         --

Weighted average fair value of
  options granted during year               --                   $   3.50

Average remaining option term        8.8 years                   10 years
</TABLE>

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

At December 31, 2002, 205,946 shares had an exercise price of $15.10 with an
average remaining life of 9 years and 47,815 shares had an exercise price of
$8.52 with an average remaining life of 8 years.


NOTE 13 - REGULATORY CAPITAL REQUIREMENTS

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

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

                                  (Continued)


                                      39.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 13 - REGULATORY CAPITAL REQUIREMENTS (Continued)

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.

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

<TABLE>
<CAPTION>
                                                                                        To Be Well Capitalized
                                                                     For Capital        Under Prompt Corrective
                                               Actual             Adequacy Purposes        Action Provisions
                                               ------             -----------------        -----------------
                                          Amount      Ratio       Amount      Ratio        Amount     Ratio
                                          ------      -----       ------      -----        ------     -----
<S>                                     <C>           <C>       <C>            <C>      <C>           <C>
As of December 31, 2002
    Total capital (to risk-weighted
      assets)                           $  38,225     25.92%    $  11,796      8.0%     $  14,745     10.0%
    Tier I capital (to risk-weighted
      assets)                              36,757     24.93         5,898      4.0          8,847      6.0
    Tier I (core) capital (to adjusted
      total assets)                        36,757     11.97        12,278      4.0         15,348      5.0

As of December 31, 2001
    Total capital (to risk-weighted
      assets)                           $  34,071     31.40%    $   8,687      8.0%     $  10,858     10.0%
    Tier I capital (to risk-weighted
      assets)                              32,888     30.30         4,343      4.0          6,515      6.0
    Tier I (core) capital (to adjusted
      total assets)                        32,888     14.10         9,309      4.0         11,636      5.0
</TABLE>

On December 8, 1999, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federal mutual savings bank to a federal stock
savings bank with the concurrent formation of a holding company. On September
27, 2000, the Corporation sold 2,242,500 shares of common stock at $10 per share
and received proceeds of $19,530,000 net of conversion expenses of $550,000 and
ESOP shares. Approximately 50% of the net proceeds were used by the Corporation
to acquire all of the capital stock of the Bank.

At the time of conversion, the Bank established a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits.

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

                                  (Continued)


                                      40.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 13 - REGULATORY CAPITAL REQUIREMENTS (Continued)

Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation of the Bank,
each eligible depositor will be entitled to receive a distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The liquidation account balance is
not available for payment of dividends.


NOTE 14 - EARNINGS PER COMMON SHARE

The following is a reconciliation of the numerator and denominator of the
earnings per common share computation for the years ended December 31, 2002 and
2001 and the three-month period ended December 31, 2000. The 2000 reconciliation
represents earnings since September 27, 2000, the date of conversion.

<TABLE>
<CAPTION>
                                                            2002           2001           2000
                                                            ----           ----           ----
<S>                                                      <C>            <C>            <C>
Earnings per common share
   Net income                                            $     1,937    $     1,851    $     1,456
   Less net income of the Bank prior to conversion                --             --            998
                                                         -----------    -----------    -----------

      Net income attributable to common shareholders     $     1,937    $     1,851    $       458
                                                         ===========    ===========    ===========

   Total weighted average common shares outstanding        1,776,719      2,031,347      2,065,343
                                                         -----------    -----------    -----------

      Basic earnings per share                           $      1.09    $       .91    $       .22
                                                         ===========    ===========    ===========


Diluted
   Net income attributable to common shareholders        $     1,937    $     1,851    $       458
                                                         ===========    ===========    ===========

   Weighted average common shares outstanding
     for basic earnings per common share                   1,776,719      2,031,347      2,065,343
   Add:  dilutive effects of assumed exercises of
     stock options and stock awards                           38,821          2,350             --
                                                         -----------    -----------    -----------

   Average shares and dilutive potential common
     shares                                                1,815,540      2,033,697      2,065,343
                                                         ===========    ===========    ===========

   Diluted earnings per common share                     $      1.07    $       .91    $       .22
                                                         ===========    ===========    ===========
</TABLE>

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

                                  (Continued)


                                      41.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The approximate carrying amount and estimated fair value of financial
instruments as of December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                         -----------2002----------       -----------2001-----------
                                                    ----                            ----
                                         Approximate      Estimated      Approximate      Estimated
                                          Carrying          Fair          Carrying          Fair
                                           Amount           Value          Amount           Value
                                           ------           -----          ------           -----
<S>                                      <C>             <C>             <C>             <C>
Financial assets
   Cash and cash equivalents             $   42,827      $   42,827      $   18,249      $   18,249
   Time deposits in other financial
     institutions                               295             295             588             588
   Securities available-for-sale             91,562          91,562          97,106          97,106
   Securities held-to-maturity               24,471          24,764          10,036          10,033
   Loans receivable, net                    150,269         151,451         112,911         113,011
   Accrued interest receivable                1,473           1,473           1,445           1,445

Financial liabilities
   Deposits                              $  263,834      $  266,281      $  192,784      $  194,024
   Advance payments by borrowers
     for taxes and insurance                    167             167             157             157
   Federal Home Loan Bank advances            4,000           4,095           4,000           3,989
   Accrued interest payable                     606             606             536             536
</TABLE>

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

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

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

                                  (Continued)


                                      42.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 16 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows:

<TABLE>
<CAPTION>
                                                                                       Ten Months
                                                                                          Ended
                                                                  --December 31--      December 31,
                                                                  2002        2001        2000
                                                                  ----        ----        ----
<S>                                                             <C>         <C>         <C>
Unrealized holdings gains on securities available-for-sale      $  2,146    $    655    $  1,474
Reclassification adjustments for gains recognized in income          (68)       (819)          -
                                                                --------    --------    --------
Net unrealized gains (losses)                                      2,078        (164)      1,474
Tax effect                                                          (805)         63        (573)
                                                                --------    --------    --------

Other comprehensive income (loss)                               $  1,273    $   (101)   $    901
                                                                ========    ========    ========
</TABLE>


NOTE 17 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

                             CONDENSED BALANCE SHEET
                           December 31, 2002 and 2001

                                                  2002       2001
                                                -------    -------
ASSETS
Cash and cash equivalents                       $ 2,815    $ 1,017
Securities available-for-sale                     2,307      7,594
ESOP loan                                         1,524      1,652
Investment in bank subsidiary                    40,528     33,565
Accrued interest receivable and other assets          8         48
                                                -------    -------

                                                $47,182    $43,876
                                                =======    =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities          $   151    $   175
Shareholders' equity                             47,031     43,701
                                                -------    -------

                                                $47,182    $43,876
                                                =======    =======

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

                                  (Continued)


                                      43.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 17 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)

                          CONDENSED STATEMENT OF INCOME
                 For the years ended December 31, 2002 and 2001
                  and the three months ended December 31, 2000

<TABLE>
<CAPTION>
                                                            2002        2001        2000
                                                          -------     -------     -------
<S>                                                       <C>         <C>         <C>
Income
     Securities                                           $   178     $   402     $   105
     ESOP loan                                                153         164          44
     Deposits in other financial institutions                  62          48          15
     Dividend income from bank subsidiary                   7,000       3,500          --
     Gain on sale of securities                                 8          59          --
     Other operating income                                    --           8          --
                                                          -------     -------     -------
         Total income                                       7,401       4,181         164

Other expenses
     Other operating expenses                                 186         224          34
                                                          -------     -------     -------

INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
 EARNINGS OF BANK SUBSIDIARY                                7,215       3,957         130

Income taxes                                                   82         151          50
                                                          -------     -------     -------

INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF BANK
 SUBSIDIARY                                                 7,133       3,806          80

Equity in undistributed (over distributed) earnings of
  bank subsidiary                                          (5,196)     (1,955)        378
                                                          -------     -------     -------

NET INCOME                                                $ 1,937     $ 1,851     $   458
                                                          =======     =======     =======
</TABLE>



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

                                  (Continued)


                                      44.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 17 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)

                        CONDENSED STATEMENT OF CASH FLOWS
                  For the year ended December 31, 2002 and 2001
                  and the three months ended December 31, 2000

<TABLE>
<CAPTION>
                                                                    2002         2001         2000
                                                                  --------     --------     --------
OPERATING ACTIVITIES
<S>                                                               <C>          <C>          <C>
     Net income                                                   $  1,937     $  1,851     $    458
     Adjustments to reconcile net income to net cash
       provided by operating activities
         Equity in (undistributed) earnings of bank subsidiary       5,196        1,955         (378)
         Net accretion                                                  (3)         (30)         (38)
         Dividend reinvestments                                        (34)         (60)          (9)
         Gain on sale of securities                                     (8)         (59)          --
         Change in other assets and liabilities                        401          (37)          33
                                                                  --------     --------     --------
              Net cash provided by operating activities              7,489        3,620           66

INVESTING ACTIVITIES
     Purchase of bank subsidiary stock                                  --           --      (10,662)
     Purchase of securities available-for-sale                          --       (6,778)      (4,932)
     Purchase of securities held-to-maturity                            --           --       (2,952)
     Paydowns on mortgage-backed securities                            581          422            8
     Proceeds from sales of securities available-for-sale            3,785        3,864           --
     Maturities of securities available-for-sale                     1,000           --           --
     Maturities of securities held-to-maturity                          --        3,000           --
     Capital contribution to subsidiary                             (5,009)         (51)          (9)
                                                                  --------     --------     --------
         Net cash provided by (used in) investing activities           357          457      (18,547)

FINANCING ACTIVITIES
     Net proceeds from sale of common stock                             --           --       19,530
     Payment received on loan to ESOP                                  128          116           26
     Purchase of treasury stock                                     (5,572)      (3,677)          --
     Exercise of options                                                43           --           --
     Dividends paid                                                   (647)        (574)          --
                                                                  --------     --------     --------
         Net cash provided by (used in) financing activities        (6,048)      (4,135)      19,556
                                                                  --------     --------     --------

Net change in cash and cash equivalents                              1,798          (58)       1,075

Cash and cash equivalents at beginning of period                     1,017        1,075           --
                                                                  --------     --------     --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                        $  2,815     $  1,017     $  1,075
                                                                  ========     ========     ========
</TABLE>

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


                                      45.
<PAGE>


                         FIRST FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
             (Tables in thousands, except share and per share data)

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


NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)

                                         Net
                         Interest      Interest       Net        Earnings
                          Income        Income      Income      Per Share
                          ------        ------      ------      ---------
2002
     First quarter      $   3,276     $  1,739     $    517     $   0.28
     Second quarter         3,240        1,751          485         0.26
     Third quarter          3,183        1,704          497         0.30
     Fourth quarter         3,393        1,744          438         0.25

2001
     First quarter      $   4,112     $  1,727     $    553     $   0.27
     Second quarter         4,022        1,666          564         0.27
     Third quarter          3,883        1,572          467         0.23
     Fourth quarter         3,400        1,317          267         0.14








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


                                      46.
<PAGE>


                             DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
Directors of First Federal
Bancshares, Inc. and First                      Principal Officers of            Principal Officers of
      Federal Bank                         First Federal Bancshares, Inc.         First Federal Bank
      ------------                         ------------------------------         ------------------
<S>                                        <C>                                 <C>
GERALD L. PRUNTY                           JAMES J. STEBOR                     JAMES J. STEBOR
    CHAIRMAN OF THE BOARD,                     PRESIDENT AND                       PRESIDENT AND CHIEF
    FIRST FEDERAL BANK                         CHIEF EXECUTIVE OFFICER             EXECUTIVE OFFICER
    RETIRED PRESIDENT,
    FIRST FEDERAL BANK                     CATHY D. PENDELL                    CATHY D. PENDELL
                                               TREASURER                           SR. VICE PRESIDENT AND
FRANKLIN M. HARTZELL                                                               CHIEF FINANCIAL OFFICER
    CHAIRMAN OF THE BOARD,                 PEGGY L. HIGGINS
    FIRST FEDERAL BANCSHARES, INC.             ASSISTANT TREASURER             PEGGY L. HIGGINS
    PARTNER IN LAW FIRM HARTZELL,                                                  SR. VICE PRESIDENT AND
    GLIDDEN, TUCKER & HARTZELL             RONALD A. FELD                          TREASURER
                                               CORPORATE SECRETARY
MURREL HOLLIS                                                                  MILLIE R. SHIELDS
    EX-PARTNER AND RETIRED PRESIDENT                                               SR. VICE PRESIDENT
    OF MARTIN-HOLLIS FUNERAL HOME
                                                                               RONALD A. FELD
DR. STEPHAN L. ROTH                                                                VICE PRESIDENT, SECRETARY
    RETIRED FAMILY PHYSICIAN                                                       AND BRANCH MANAGER

JAMES J. STEBOR                                                                MARK TYRPIN
    PRESIDENT AND CHIEF EXECUTIVE                                                  VICE PRESIDENT
    OFFICER

RICHARD D. STEPHENS
    RETIRED ATTORNEY SERVING AS
    COUNSEL TO THE LAW FIRM OF FLACK,
    MCRAVEN & STEPHENS

B. BRADFORD BILLINGS
    PRESIDENT AND CHIEF EXECUTIVE
    OFFICER OF BLESSING CORPORATE
    SERVICES, INC.

ELDON R. METTE
    RETIRED PRESIDENT AND CHIEF
    EXECUTIVE OFFICER, PFSB
    BANCORP, INC. AND PALMYRA
    SAVINGS

Director Emeritus of First Federal
    Bancshares, Inc. and First
        Federal Bank
        ------------

ELDON M. SNOWDEN
    RETIRED GENERAL MANAGER AND
    CHIEF OPERATING OFFICER OF
    MCDONOUGH TELEPHONE COOPERATIVE
</TABLE>


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


                                      47.
<PAGE>


                       INVESTOR AND CORPORATE INFORMATION

ANNUAL MEETING

The annual meeting of stockholders will be held at 2:00 p.m., on May 27, 2003 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:

                                                                      Dividend
    Quarter Ended                      High            Low            Declared
    -------------                      ----            ---            --------

March 31, 2001                      $    15.50      $   13.125       $      .05
June 30, 2001                            17.30          14.375              .08
September 30, 2001                       17.03          15.60               .08
December 31, 2001                        16.69          14.83               .08
March 31, 2002                           17.00          16.01               .08
June 30, 2002                            18.48          16.60               .08
September 30, 2002                       19.85          17.50               .08
December 31, 2002                        20.75          17.60               .08

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, 2002 was $20.30.

At March 11, 2003, there were 2,061,943 shares of First Federal Bancshares, Inc.
common stock outstanding (including unallocated ESOP shares) and there were 616
holders of record.

STOCKHOLDERS AND GENERAL INQUIRIES               TRANSFER AGENT

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

ANNUAL AND OTHER REPORTS

A copy of the First Federal Bancshares, Inc.'s Annual Report on Form 10-K
without exhibits for the year ended December 31, 2002, as filed with the
Securities and Exchange Commission, may be obtained without charge by contacting
Cathy D. Pendell, First Federal Bancshares, Inc., 109 East Depot Street,
Colchester, Illinois 62326.


                                      48.