UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)      
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

Commission file number 0-30753

FIRST FEDERAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

Delaware	37-1397683
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

109 East Depot Street, Colchester, Illinois 62326
(Address of Principal Executive Offices) (Zip Code)

(309) 776-3225
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes  [ X ]      No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes  [   ]      No  [ X ]

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date.

As of May 13, 2004 the Registrant had outstanding 1,866,291 shares of common stock.

FIRST FEDERAL BANCSHARES, INC.

Form 10-Q Quarterly Report

Index

		Page
PART I — Financial Information
Item 1	Financial Statements	1
Item 2	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	7
Item 3	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4	Controls and Procedures	11
PART II — Other Information
Item 1	Legal Proceedings	12
Item 2	Changes in Securities, Use of Proceeds and Issuers Purchases of Equity Securities	12
Item 3	Defaults Upon Senior Securities	12
Item 4	Submission of Matters to a Vote of Securities Holders	12
Item 5	Other Information	12
Item 6	Exhibits and Reports on Form 8-K	12
SIGNATURES		14

PART I — FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Financial Condition
(in thousands of dollars, except share and per share data)
(unaudited)

	March 31, 2004			December 31, 2003
ASSETS
Cash and cash equivalents	$	33,216		$	29,124
Time deposits in other financial institutions		295			295
Securities available-for-sale		162,968			160,337
Loans receivable, net		128,893			131,935
Real estate owned, net		142			149
Premises and equipment		3,557			3,535
Accrued interest receivable		1,536			1,489
Goodwill		1,340			1,340
Core deposits and other intangibles		278			288
Other assets		640			238
TOTAL ASSETS	$	332,865		$	328,730
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits	$	275,326		$	271,850
Advances from borrowers for taxes and insurance		263			137
Federal Home Loan Bank advances		6,000			6,000
Accrued interest payable		474			484
Other liabilities		691			8,866
Subordinated debt		7,217			—
Total liabilities		289,971			287,337
SHAREHOLDERS’ EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized;
none issued or outstanding		—			—
Common stock, $.01 par value, 4,000,000 shares authorized;
2,242,500 shares issued		22			22
Additional paid-in capital		22,872			22,852
Unearned ESOP shares		(1,166	)		(1,211	)
Unearned stock awards		(677	)		(745	)
Treasury stock (March 31 - 376,209 shares,		(9,592	)		(9,902	)
December 31 - 388,313)
Retained earnings		30,555			30,180
Accumulated other comprehensive income		880			197
Total shareholders’ equity		42,894			41,393
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	332,865		$	328,730

See notes to consolidated financial statements.

1

First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
(in thousands of dollars, except share and per share data)
(unaudited)

	Three Months Ended March 31,
	2004		2003
Interest income
Loans	$	2,072	$	2,628
Securities		1,468		1,337
Other interest income		49		67
Total interest income		3,589		4,032
Interest expense
Deposits		1,408		1,776
Federal Home Loan Bank advances		38		39
Total interest expense		1,446		1,815
Net interest income		2,143		2,217
Provision for loan losses		—		—
Net interest income after provision for loan losses		2,143		2,217
Noninterest income
Service charges		12		47
Loan origination and servicing fees		59		111
Other fee income		79		48
Net gain on sale of securities		380		65
Recovery of impairment loss		25		—
Other income		15		38
Total noninterest income		570		309
Noninterest expense
Compensation and benefits		1,032		857
Occupancy and equipment		140		143
Data processing		166		187
Federal insurance premiums		29		33
Advertising		39		42
Professional fees		93		79
Other noninterest expenses		228		193
Total noninterest expense		1,727		1,534
Income before income taxes		986		992
Provision for income taxes		418		375
Net income	$	568	$	617
Earnings per share
Basic	$	.34	$	.33
Diluted	$	.31	$	.32
Weighted average shares		1,691,921		1,859,419
Comprehensive income	$	1,251	$	605

See notes to consolidated financial statements.

2

First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Shareholders’ Equity
Three months ended March 31, 2003 and 2004
(in thousands of dollars, except share data)
(unaudited)

	Common Stock		Additional Paid-in Capital			Unearned ESOP Shares			Unearned Stock Awards			Treasury Stock			Retained Earnings			Accumulated Other Compre- hensive Income			Total Stock- holders’ Equity
Balance at December 31, 2002	$	22	$	22,629		$	(1,390	)	$	(1,016	)	$	(3,272	)	$	28,090		$	1,968		$	47,031
Options exercised (4,534 shares)		—		(39	)		—			—			81			—			—			42
ESOP shares earned		—		46			44			—			—			—			—			90
Stock awards earned		—		—			—			68			—			—			—			68
Dividends declared ($.08 per share)		—		—			—			—			—			(154	)		—			(154	)
Comprehensive income
Net income		—		—			—			—			—			617			—			617
Change in fair value of securities classified
as available-for-sale, net of reclassification
and tax effects		—		—			—			—			—			—			(12	)		(12	)
Total comprehensive income																						605
Balance at March 31, 2003	$	22	$	22,636		$	(1,346	)	$	(948	)	$	(3,191	)	$	28,553		$	1,956		$	47,682
Balance at December 31, 2003	$	22	$	22,852		$	(1,211	)	$	(745	)	$	(9,902	)	$	30,180		$	197		$	41,393
Options exercised (12,104 shares)		—		(88	)		—			—			310			—			—			222
ESOP shares earned		—		108			45			—			—			—			—			153
Stock awards earned		—		—			—			68			—			—			—			68
Dividends declared ($.11 per share)		—		—			—			—			—			(193	)		—			(193	)
Comprehensive income
Net income		—		—			—			—			—			568			—			568
Change in fair value of securities classified
as available-for-sale, net of reclassification
and tax effects		—		—			—			—			—			—			683			683
Total comprehensive income																						1,251
Balance at March 31, 2004	$	22	$	22,872		$	(1,166	)	$	(677	)	$	(9,592	)	$	30,555		$	880		$	42,894

See notes to consolidated financial statements.

3

First Federal Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(in thousands of dollars)
(unaudited)

	Three Months Ended March 31,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	568		$	617
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for depreciation		65			53
Loss (gain) on sale of real estate owned		(7	)		5
Net amortization of premiums and discounts		62			11
ESOP compensation expense		153			90
Stock award compensation expense		68			68
Amortization of intangible assets		10			10
Provision for loan losses		—			—
Dividend reinvestments		(250	)		(233	)
Federal Home Loan Bank stock dividends		(23	)		(31	)
Gain on sale of securities		(380	)		(65	)
Net changes in
Accrued interest receivable and other assets		(437	)		(425	)
Deferred loan costs		164			(36	)
Accrued interest payable and other liabilities		383			(232	)
Net cash provided from operating activities		376			(168	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale		(37,120	)		(29,940	)
Purchase of securities held-to-maturity		—			(2,000	)
Principal paydowns on mortgage-backed securities		3,731			3,247
Redemption of Federal Home Loan Bank stock		20			—
Proceeds from maturities of securities		5,175			16,200
Proceeds from sale of securities available-for-sale		18,269			2,089
Purchase of loans		(428	)		(1,021	)
Net decrease in loans receivable		3,242			10,790
Proceeds from sale of real estate owned		78			165
Purchase of property and equipment		(87	)		(299	)
Net cash from investing activities		(7,120	)		(769	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		3,476			1,552
Net change in advances from borrowers for taxes and insurance		126			127
Proceeds from subordinated debt		7,217			—
Dividends paid		(205	)		(165	)
Options exercised		222			42
Net cash from financing activities		10,836			1,556
Net change in cash and cash equivalents		4,092			619
Cash and cash equivalents
Beginning of period		29,124			42,827
End of period	$	33,216		$	43,446
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest	$	1,456		$	1,829
Taxes, net of refunds		(2	)		—
Transfers to real estate owned		64			26

See notes to consolidated financial statements.

4

FIRST FEDERAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(table amounts in thousands of dollars, except share data)

Note 1 – Basis of Presentation

The accompanying interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America are not included herein. These interim statements should be read in conjunction with the Company’s Annual Report on Form 10-K. The December 31, 2003 balance sheet presented herein has been derived from the audited financial statements included in the Company’s Annual Report on Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Interim statements are subject to possible adjustment in connection with the annual audit of the Company for the year ending December 31, 2004. In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Note 2 – Subordinated Debt and Trust Preferred Securities

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

Under new accounting guidance, FASB Interpretation No. 46, as revised in December 2003, the trust is not consolidated with the Company. Accordingly, the Company does not report the securities issued by the trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by the trust, as these are no longer eliminated in consolidation.

Note 3 – Earnings Per Share

For purposes of per share calculations, the Company had 1,866,291 and 2,066,477 shares of common stock outstanding at March 31, 2004 and 2003. Basic earnings per share for the three months ended March 31, 2004 and 2003 were computed by dividing net income by the weighted average number of shares outstanding. Diluted earnings per share for the three months ended March 31, 2004 and 2003 were computed by dividing net income by the weighted average number of shares outstanding, adjusted for the dilutive effect of the outstanding stock options and stock awards. Computations for basic and diluted earnings per share are provided below.

5

	For the three months ended March 31,
	2004		2003
	(in thousands, except per share data)
Basic
Net income	$	568	$	617
Weighted average common shares
outstanding		1,691,921		1,859,419
Basic earnings per common share	$	.34	$	.33
Diluted
Net income	$	568	$	617
Weighted average common shares
outstanding		1,691,921		1,859,419
Dilutive effect of stock options		107,700		67,425
Dilutive effect of stock awards		16,031		9,970
Diluted average common shares		1,815,652		1,936,813
Diluted earnings per common share	$	.31	$	.32

Note 4 – Stock Options

The Company 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 Company’s net income and earnings per share would have been reduced to the pro forma amounts in the table below. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options’ vesting period.

	Three Months Ended March 31, 2004		Three Months Ended March 31, 2003
Net income as reported	$	568	$	617
Pro forma net income		545		595
Earnings per share as reported
Basic		.34		.33
Diluted		.31		.32
Pro forma earnings per share
Basic		.32		.32
Diluted		.30		.31

6

Pursuant to its 2001 stock-based incentive plan, the Company awarded 89,700 shares of restricted stock during 2001. These shares vest over a five-year period. The unamortized cost of shares not yet earned (vested) is reported as a reduction of shareholders’ equity.

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 as amended, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and its wholly-owned subsidiaries include, but are not limited to, changes in: interest rates; general economic conditions; legislative/regulatory provisions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company’s market area; and accounting principles, policies, and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

The following discussion compares the financial condition of First Federal Bancshares, Inc. (Company) and its wholly owned subsidiary, First Federal Bank (Bank), at March 31, 2004 to its financial condition at December 31, 2003 and the results of its operations for the three-month period ended March 31, 2004 to the same period in 2003. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

FINANCIAL CONDITION

Total assets were $332.9 million at March 31, 2004 and $328.7 million at December 31, 2003. During the three months ended March 31, 2004, cash and cash equivalents increased $4.1 million, which reflects excess operating cash resulting from the timing of loan prepayments and an increase in customer deposits. Loans decreased $3.0 million primarily as a result of portfolio loans refinancing into the Federal Home Loan Bank Mortgage Partnership Finance fixed rate program and also to other competitors due to the lower interest rate environment. Securities available-for-sale increased $2.6 million to $163.0 million primarily due to the timing of securities purchased and sold during the quarter.

The allowance for loan losses was $948,000 at March 31, 2004 and $963,000 at December 31, 2003. There were no impaired loans at either date. The allowance for loan losses represented .73% of total loans and 80.88% of nonperforming loans at March 31, 2004 compared to .72% of total loans and 83.52% of nonperforming loans at December 31, 2003. Nonperforming assets totaled $1.4 million at March 31, 2004 and December 31, 2003. The ratio of non-performing assets to total assets was .42% at both March 31, 2004 and December 31, 2003.

7

Total liabilities at March 31, 2004 were $290.0 million compared to $287.3 million at December 31, 2003, an increase of $2.6 million. The increase in total liabilities primarily reflects an increase in customer deposits of $3.5 million and the addition of $7.2 million of subordinated debt in connection with the issuance of trust preferred securities. The increases in total liabilities were offset by a decrease in other liabilities of $8.2 million primarily due to the payment and settlement of amounts due to broker for the purchase of securities available for sale.

Shareholders’ equity at March 31, 2004 was $42.9 million compared to $41.4 million at December 31, 2003, an increase of $1.5 million. The increase primarily reflects net income of $568,000 and an increase in the fair value of securities available-for-sale, net of tax, of $683,000. The Company anticipates a decrease in its equity resulting from the repurchase of stock through the pending tender offer as further discussed on page nine.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003

Net income decreased $49,000 to $568,000 for the quarter ended March 31, 2004 compared to the same period in 2003. The decrease in net income was primarily a result of a decrease in net interest income and increases in non-interest expense and the income tax provision, partially offset by an increase in noninterest income.

Net interest income was $2.1 million for the quarter ended March 31, 2004 compared to $2.2 million for the same prior year period. The slight decrease in net interest income was primarily a result of small decreases in the net interest spread and the net interest margin to 2.42% and 2.67%, respectively, for the quarter ended March 31, 2004 from 2.56% and 2.90%, respectively, for the quarter ended March 31, 2003. The average yield on interest-earning assets decreased to 4.48% for the quarter ended March 31, 2004 from 5.27% for the same quarter in 2003, while the average yield on interest-bearing liabilities decreased to 2.06% for the quarter ended March 31, 2004 from 2.71% for the same period in 2003. The decreased net interest margin reflects a slight decrease in the ratio of average interest-earning assets to average interest-bearing liabilities to 114.18% from 114.28% for the three-month periods respectively. The issuance of the trust preferred securities, combined with the use of cash on hand to purchase shares in the pending tender offer, is expected to decrease net interest income in future periods.

The provision for loan losses was zero for both quarters ended March 31, 2004 and 2003 due to the overall stability in the amount of nonperforming loans during the quarter.

On a quarterly basis, management of the Company meets to review the allowance for loan losses. Management classifies loans in compliance with regulatory classifications. Classified loans are individually reviewed to arrive at specific reserves for those loans. Once the specific portion of the allowance is calculated, management calculates a historical portion for each loan category based on loan loss history, peer data, current economic conditions and trends in the portfolio, including delinquencies and impairments, as well as changes in the composition of the loan portfolio. Although management believes that the allowance for loan losses reflected probable incurred losses on existing loans at March 31, 2004, there can be no assurance that such losses will not exceed estimated amounts. Future adjustments to the allowance may be necessary due to economic, operating, regulatory and other conditions that may be beyond the Company’s control. The allowance for loan losses as of March 31, 2004 was maintained at a level that represents management’s best estimate of losses in the loan portfolio and such losses were both probable and reasonably estimatable.

Noninterest income was $570,000 for the three-month period ended March 31, 2004 compared to $309,000 for the same period in 2003. The increase in noninterest income was primarily a result of a $315,000 increase in net gains on the sale of securities, and a $25,000 increase in recovery of impairment loss related to certificates of deposit purchased through a broker who was charged by the SEC with securities fraud in relation to these certificates. The increases in noninterest income were partially offset by small decreases in service charges, loan origination and servicing fees, and other income during the quarter.

8

Noninterest expense was $1.7 million and $1.5 million for the quarters ended March 31, 2004 and 2003. The increase in noninterest expense primarily reflects an increase in compensation and benefits expense of $175,000 associated with an increase in salaries of $29,000 and an increase of $137,000 in employee benefit expenses, including health insurance and retirement funds. Occupancy and equipment expense, data processing expense, federal insurance premiums, and advertising expense all experienced slight decreases, while professional fees and other noninterest expenses experienced small increases during the period.

The Company’s federal income tax expense increased $43,000 to $418,000 for the quarter ended March 31, 2004 compared to $375,000 during the same period in 2003. Income tax expense was approximately 42% and 38% of pretax income in both periods, respectively. The increase in the effective tax rate is largely due to an increase in nondeductible ESOP expense as a result of the increase in the market value of the Company’s common stock.

LIQUIDITY

The Company must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund loan originations and deposit withdrawals, to satisfy other financial commitments, and to take advantage of investment opportunities. The Company invests excess funds in overnight deposits and other short-term interest-bearing assets to provide liquidity to meet these needs. At March 31, 2004, cash and cash equivalents totaled $33.2 million. The Company anticipates a reduction in its cash and cash equivalents resulting from the purchase of treasury stock through the pending tender offer as discussed below. At March 31, 2004, the Company had commitments to fund loans of $790,000. At the same time, certificates of deposit which are scheduled to mature in one year or less totaled $111.4 million. Management believes, based on past experience that a significant portion of those deposits will remain with the Company. Based on the foregoing, in addition to the Company’s high level of core deposits and capital, the Company considers its liquidity and capital resources sufficient to meet its outstanding short-term and long-term needs.

CAPITAL RESOURCES

The Bank is subject to capital-to-asset requirements in accordance with bank regulations. The following table summarizes the Bank’s regulatory capital requirements versus actual capital as of March 31, 2003:

	ACTUAL					REQUIRED					EXCESS
	AMOUNT		%			AMOUNT		%			AMOUNT		%
Core capital	$	28,668		9.17	%	$	12,505		4.00	%	$	16,163		5.17	%
(to adjusted total assets)
Risk-based capital		29,713		22.12			10,745		8.00			18,968		14.12
(to risk-weighted assets)

SUBSEQUENT EVENTS

On April 16, 2004, the Company commenced a tender offer for up to 560,000 of its common shares, at a price not greater than $34.00 nor less than $31.00 per share, net to the seller in cash. The Company has reserved the right to purchase up to an additional 37,300 shares if they are tendered pursuant to the offer, but it is not obligated to do so. The offer is scheduled to expire at 5:00 pm, Mountain time, on May 21, 2004, unless the Company elects to extend the offer. The complete terms and conditions of the offer are filed as exhibits to a Tender Offer Statement on Schedule TO that was filed by the Company on April 16, 2004, as amended, which is available free of charge by accessing the Securities and Exchange Commission site on the World Wide Web, www.sec.gov.

9

Assuming the Company purchases the maximum of 560,000 shares that it is obligated to purchase pursuant to the offer at a purchase price of $34.00 per share, the Company expects the aggregate cost of such purchase to be approximately $19,290,000, including estimated fees and expenses of approximately $250,000.

The tender offer is being financed with the proceeds of trust preferred securities issued by the Company in a private placement, cash on hand and a $ 6.0 million capital distribution from First Federal Bank.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Company has used the following strategies to manage interest rate risk: (1) emphasizing the origination of adjustable-rate and balloon loans and not originating long-term, fixed-rate loans for retention in its portfolio; (2) emphasizing shorter term consumer loans; (3) introducing floating-rate commercial business loans tied to the prime rate; (4) maintaining a high quality securities portfolio that provides adequate liquidity and flexibility to take advantage of opportunities that may arise from fluctuations in market interest rates, the overall maturity of which is monitored in relation to the repricing of its loan portfolio; and (5) using Federal Home Loan Bank advances to better structure maturities of its interest rate sensitive liabilities. The Company currently does not participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments.

Quantitative Aspects of Market Risk.   The Company primarily utilizes an interest sensitivity analysis prepared by the Office of Thrift Supervision to review the level of interest rate risk of the Bank. This analysis measures interest rate risk by computing changes in the net portfolio value of the Bank’s cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or decrease in market interest rates with no effect given to any steps that management might take to counter the effect of that interest rate movement. The following table, which is based on information provided to the Bank by the Office of Thrift Supervision, presents the change in the Bank’s net portfolio value at December 31, 2003, the latest date for which information is available, that would occur upon an immediate change in interest rates based on Office of Thrift Supervision assumptions, but without giving effect to any steps that management might take to counteract that change. The Company expects March’s net portfolio value to be similar to that of December 2003 as shown below. All model outputs associated with the –300 and –200 bp scenarios are not applicable because of the abnormally low prevailing interest rate environment.

10

Change in Interest Rates in Basis Points (Rate Shock)	Net Portfolio Value								NPV as % of Portfolio Value of Assets
	Amount		$ Change			% Change			NPV Ratio			Basis Point Change
	(Dollars in thousands)
300	$	17,380		(17,357	)		(50	)%		5.59	%		(480	)bp
200		23,133		(11,604	)		(33	)		7.26			(313	)bp
100		28,708		(6,029	)		(17	)		8.80			(159	)bp
Static		34,737		—			—			10.39			—	bp
(100)		39,110		4,373			13			11.48			109	bp
(200)		N/A		N/A			N/A			N/A			N/A
(300)		N/A		N/A			N/A			N/A			N/A

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

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

ITEM 4:   CONTROLS AND PROCEDURES

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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PART II — OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

Periodically, there have been various claims and lawsuits involving the Company, such as claims to enforce liens, condemnation proceedings on properties in which the Company holds security interest, claims involving the making and servicing of real property loans and other issues incident to the Company’s business. In the opinion of management, after consultation with the Company’s legal counsel, no significant loss is expected from any of such pending claims or lawsuits. The Company is not a party to any material pending legal proceedings.

ITEM 2.   CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUERS PURCHASES OF EQUITY SECURITIES

On March 25, 2004, FFBI Capital Trust I (the “Trust”), a Delaware statutory trust sponsored by the Company, issued $7.0 million in the form of fixed/floating rate capital securities through a pooled trust preferred securities offering. The proceeds from this issuance, along with the Company’s $217,000 capital contribution for the Trust’s common securities, were used to acquire $7.2 million aggregate principal amount of the Company’s fixed/floating rate junior subordinated deferrable interest debentures due 2034 (the “Debentures”), which constitute the sole asset of the Trust. The Company has the right, at one or more times, unless an event of default exists under the Debentures, to defer interest payments on the Debentures for up to 20 consecutive quarterly periods. During this time, the Corporation will be prohibited from declaring or paying cash dividends on its common stock.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

None

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

None

ITEM 5.   OTHER INFORMATION.

None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

31.1 Rule 13a – 14(a)/15d – 14(a) Certification of the Chief Executive Officer.

31.2 Rule 13a – 14(a)/15d – 14(a) Certification of the Chief Financial Officer.

32.1 Section 1350 Certification of the Chief Executive Officer.

32.2 Section 1350 Certification of the Chief Financial Officer.

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(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K on January 23, 2004 announcing the date of its annual meeting of stockholders. The press release was included as an exhibit to the Form 8-K.

The Company furnished a Current Report on Form 8-K on February 20, 2004 announcing results for the quarter and year ended December 31, 2003. The press release was included as an exhibit to the Form 8-K.

The Company furnished a Current Report on Form 8-K on March 31, 2004 announcing corrected financial results for the quarter and year ended December 31, 2003. The press release was included as an exhibit to the Form 8-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST FEDERAL BANCSHARES, INC.
Date:   May 17, 2004			/s/   James J. Stebor
		James J. Stebor President and Chief Executive Officer
Date:   May 17, 2004			/s/   Cathy D. Pendell
		Cathy D. Pendell Treasurer

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