Bear State Financial 10-Q 2005 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                          to

Commission File Number 0-28312

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

(Exact name of registrant as specified in its charter)

Texas	71-0785261
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
1401 Highway 62-65 North Harrison, Arkansas	72601
(Address of principal executive office)	(Zip Code)

(870) 741-7641

(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    ý   No   o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes    ý   No   o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of July 19, 2005, there were issued and outstanding 5,053,708 shares of the Registrant’s Common Stock, par value $.01 per share.

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

TABLE OF CONTENTS

Part I.	Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Statements of Financial Condition as of June 30, 2005 and December 31, 2004 (unaudited)
	Consolidated Statements of Income for the three and six months ended June 30, 2005 and 2004 (unaudited)
	Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2005 (unaudited)
	Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004 (unaudited)
	Notes to Unaudited Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition  and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II.	Other Information
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
Signatures
Exhibits
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Section 906 Certification of the CEO
32.2	Section 906 Certification of the CFO

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

(Unaudited)

	June 30,			December 31,
	2005			2004
ASSETS:
Cash and cash equivalents	$	14,047		$	16,003
Investment securities held to maturity	55,885			56,660
Federal Home Loan Bank stock	7,124			4,876
Loans receivable, net	685,939			634,217
Accrued interest receivable	5,425			4,427
Real estate acquired in settlement of loans, net	316			563
Office properties and equipment, net	16,707			15,295
Cash surrender value of life insurance	18,286			17,897
Prepaid expenses and other assets	1,642			1,727
TOTAL ASSETS	$	805,371		$	751,665
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits	$	585,018		$	582,424
Federal Home Loan Bank advances	140,051			89,756
Advance payments by borrowers for taxes and insurance	519			757
Other liabilities	3,847			3,427
Total liabilities	729,435			676,364
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized, none issued
Common stock, $.01 par value, 20,000,000 shares authorized, 10,307,502 shares issued, 5,053,208 and 5,094,020 shares outstanding at June 30, 2005 and December 31, 2004, respectively	103			103
Additional paid-in capital	55,440			54,427
Employee stock benefit plans	(361		)	(582		)
Retained earnings-substantially restricted	80,959			78,261
	136,141			132,209
Treasury stock, at cost, 5,254,294 and 5,213,482 shares at June 30, 2005 and December 31, 2004, respectively	(60,205		)	(56,908		)
Total stockholders’ equity	75,936			75,301
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	805,371		$	751,665

See notes to unaudited consolidated financial statements.

1

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2005		2004		2005		2004
INTEREST INCOME:
Loans receivable	$	10,266	$	8,745	$	20,150	$	17,074
Investment securities:
Taxable	532		778		1,050		1,572
Nontaxable	178		172		358		338
Other	25		18		39		110
Total interest income	11,001		9,713		21,597		19,094
INTEREST EXPENSE:
Deposits	3,480		3,107		6,764		6,295
Other borrowings	1,108		326		1,952		645
Total interest expense	4,588		3,433		8,716		6,940
NET INTEREST INCOME	6,413		6,280		12,881		12,154
PROVISION FOR LOAN LOSSES	287		202		536		461
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	6,126		6,078		12,345		11,693
NONINTEREST INCOME:
Deposit fee income	1,105		896		2,114		1,667
Earnings on life insurance policies	191		197		389		407
Gain on sale of loans	182		196		316		322
Other	246		296		475		620
Total noninterest income	1,724		1,585		3,294		3,016
NONINTEREST EXPENSES:
Salaries and employee benefits	3,013		2,758		6,016		5,437
Net occupancy expense	506		510		1,005		1,002
Data processing	412		387		752		795
Professional fees	105		121		220		229
Advertising and public relations	241		304		482		431
Postage and supplies	190		173		380		353
Other	512		571		1,021		1,051
Total noninterest expenses	4,979		4,824		9,876		9,298
INCOME BEFORE INCOME TAXES	2,871		2,839		5,763		5,411
INCOME TAX PROVISION	922		908		1,850		1,720
NET INCOME	$	1,949	$	1,931	$	3,913	$	3,691
EARNINGS PER SHARE:
Basic	$	0.39	$	0.38	$	0.79	$	0.72
Diluted	$	0.37	$	0.36	$	0.75	$	0.68
Cash Dividends Declared	$	0.12	$	0.10	$	0.24	$	0.20

See notes to unaudited consolidated financial statements.

2

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2005

(In thousands, except share data)

(Unaudited)

							Employee
	Issued			Additional			Stock
	Common Stock			Paid-In			Benefit			Retained
	Shares	Amount		Capital			Plans			Earnings
Balance, January 1, 2005	10,307,502	$	103	$	54,427		$	(582	)	$	78,261
Net income										3,913
Release of ESOP shares				792			208
Tax effect of stock compensation plan				472
Treasury shares reissued due to exercise of stock options				(251		)
Purchase of treasury stock, at cost
Vesting of MRP shares							13
Dividends paid										(1,215		)
Balance, June 30, 2005	10,307,502	$	103	$	55,440		$	(361	)	$	80,959

						Total
	Treasury Stock					Stockholders’
	Shares		Amount			Equity
Balance, January 1, 2005	5,213,482		$	(56,908	)	$	75,301
Net income						3,913
Release of ESOP shares						1,000
Tax effect of stock compensation plan						472
Treasury shares reissued due to exercise of stock options	(172,188	)	1,918			1,667
Purchase of treasury stock, at cost	213,000		(5,215		)	(5,215		)
Vesting of MRP shares						13
Dividends paid						(1,215		)
Balance, June 30, 2005	5,254,294		$	(60,205	)	$	75,936

See notes to unaudited consolidated financial statements.

3

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Six Months Ended June 30,
	2005			2004
OPERATING ACTIVITIES:
Net income	$	3,913		$	3,691
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	536			461
Provision for real estate losses	24			32
Deferred tax benefit	(91		)	(105		)
Accretion of discounts on investment securities, net	(1		)	(34		)
Federal Home Loan Bank stock dividends	(95		)	(26		)
Gain (loss) on disposition of office properties and equipment	3			(37		)
Gain (loss) on sale of repossessed assets, net	(15		)	2
Originations of loans held for sale	(24,087		)	(26,196		)
Proceeds from sales of loans	23,559			26,876
Gain on sale of loans originated to sell	(316		)	(322		)
Depreciation	585			594
Amortization of deferred loan fees, net	80			26
Release of ESOP shares	1,000			842
MRP compensation expense	13			13
Earnings on life insurance policies	(389		)	(407		)
Changes in operating assets and liabilities:
Accrued interest receivable	(998		)	(180		)
Prepaid expenses and other assets	85			455
Other liabilities	(17		)	125
Net cash provided by operating activities	3,789			5,810
INVESTING ACTIVITIES:
Purchases of investment securities held to maturity	(1,640		)	(83,019		)
Proceeds from maturities/calls of investment securities held to maturity	3,416			86,479
Purchases of FHLB stock	(2,153		)	(225		)
Redemptions of FHLB stock	—			678
Loan participations sold	1,787			2,709
Loan originations, net of repayments	(53,514		)	(69,613		)
Proceeds from sales of repossessed assets	471			426
Proceeds from sales of office properties and equipment	—			576
Purchases of office properties and equipment	(2,000		)	(1,160		)
Net cash used in investing activities	(53,633		)	(63,149		)
FINANCING ACTIVITIES:
Net increase in deposits	2,594			8,061
Advances from FHLB	88,423			21,233
Repayment of advances from FHLB	(38,128		)	(7,298		)
Net decrease in advance payments by borrowers for taxes and insurance	(238		)	(134		)
Purchase of treasury stock	(5,215		)	(5,242		)
Reissued treasury stock	1,667			1,079
Dividends paid	(1,215		)	(1,052		)
Net cash provided by financing activities	47,888			16,647
Net decrease in cash and cash equivalents	(1,956		)	(40,692		)

(Continued)

4

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Six Months Ended June 30,
	2005		2004
CASH AND CASH EQUIVALENTS:
Beginning of period	$	16,003	$	56,201
End of period	$	14,047	$	15,509
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	8,467	$	6,939
Income taxes	$	1,132	$	1,469
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Real estate and other assets acquired in settlement of loans	$	233	$	330
Loans to facilitate sales of real estate owned	$	—	$	197
Investment securities traded, recorded in investments not yet settled in cash	$	1,000	$	425

(Concluded)

See notes to unaudited consolidated financial statements.

5

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation and Principles of Consolidation

First Federal Bancshares of Arkansas, Inc. (the “Company”) is a unitary holding company which owns all of the stock of First Federal Bank of Arkansas, FA (the “Bank”).  The Bank provides a broad line of financial products to individuals and small- to medium-sized businesses in Northwest and Northcentral Arkansas.  The unaudited consolidated financial statements also include the accounts of the Bank’s wholly-owned subsidiary, First Harrison Service Corporation (“FHSC”), which is inactive.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  However, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods.

The accompanying unaudited consolidated financial statements include the accounts of the Company and the Bank.  All material intercompany transactions have been eliminated in consolidation.

The results of operations for the six months ended June 30, 2005, are not necessarily indicative of the results to be expected for the year ending December 31, 2005.  The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2004, contained in the Company’s 2004 Annual Report to Stockholders.

Certain amounts in the June 30, 2004, unaudited consolidated financial statements have been reclassified to conform to the classifications adopted for reporting in 2005.

Note 2 - Earnings per Share

The weighted average number of common shares used to calculate earnings per share for the periods ended June 30, 2005 and 2004 were as follows:

	Three months ended June 30,		Six months ended June 30,
	2005	2004	2005	2004
Basic weighted - average shares	4,975,893	5,113,191	4,981,529	5,129,969
Effect of dilutive securities	250,552	313,711	265,657	329,339
Diluted weighted - average shares	5,226,445	5,426,902	5,247,186	5,459,308

6

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.  In particular, the methodology for the determination of our allowance for loan losses, due to the judgments, estimates and assumptions inherent in that policy, is critical to preparation of our financial statements.  This policy and the judgments, estimates and assumptions are described in greater detail in subsequent sections of Management’s Discussion and Analysis and in the notes to the unaudited financial statements included herein.  We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are appropriate given the factual circumstances at the time.  However, given the sensitivity of our financial statements to this critical accounting policy, the use of other judgments, estimates and assumptions could result in material differences in our financial condition or results of operations.

In estimating the amount of credit losses inherent in our loan portfolio, various judgments and assumptions are made.  For example, when assessing the condition of the overall economic environment, assumptions are made regarding future market conditions and their impact on the loan portfolio.  In the event the national economy were to sustain a prolonged downturn, the loss factors applied to our portfolios may need to be revised, which may significantly impact the measurement of the allowance for loan losses.  For impaired loans that are collateral-dependent, the estimated fair value of the collateral may deviate significantly from the proceeds received when the collateral is sold.

CHANGES IN FINANCIAL CONDITION

Changes in financial condition between June 30, 2005 and December 31, 2004 are presented in the following table (dollars in thousands).  Material changes between the periods are discussed in the sections which follow the table.

	June 30,			December 31,			Increase			Percentage
	2005			2004			(Decrease)			Change
ASSETS
Cash and cash equivalents	$	14,047		$	16,003		$	(1,956	)	(12.2%	)
Investment securities held to maturity	55,885			56,660			(775		)	(1.4%	)
Loans receivable, net	685,939			634,217			51,722			8.2	%
Federal Home Loan Bank stock	7,124			4,876			2,248			46.1	%
Office properties and equipment, net	16,707			15,295			1,412			9.2	%
Prepaid expenses and other assets	25,669			24,614			1,055			4.3	%
TOTAL	$	805,371		$	751,665		$	53,706		7.1	%
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits	$	585,018		$	582,424		$	2,594		0.4	%
Federal Home Loan Bank advances	140,051			89,756			50,295			56.0	%
Other liabilities	4,366			4,184			182			4.3	%
Total liabilities	729,435			676,364			53,071			7.9	%
STOCKHOLDERS’ EQUITY	75,936			75,301			635			0.8	%
TOTAL	$	805,371		$	751,665		$	53,706		7.1	%
BOOK VALUE PER SHARE	$	15.03		$	14.78
EQUITY TO ASSETS	9.4		%	10.0		%

7

Loans Receivable.  Changes in loan composition between June 30, 2005 and December 31, 2004 are presented in the following table (dollars in thousands).

	June 30,			December 31,			Increase			Percentage
	2005			2004			(Decrease)			Change
One- to four- family residential	$	281,100		$	282,144		$	(1,044	)
Multi-family residential	12,759			9,454			3,305
Commercial real estate	147,503			145,909			1,594
Construction	218,471			159,111			59,360
Total first mortgage loans	659,833			596,618			63,215			10.6	%
Commercial	31,284			27,545			3,739			13.6	%
Home equity and second mortgage	49,365			45,256			4,109
Automobile	17,638			19,101			(1,463		)
Other	12,127			10,685			1,442
Total consumer	79,130			75,042			4,088			5.4	%
Total loans receivable	770,247			699,205			71,042			10.2	%
Less:
Undisbursed loan funds	(82,009		)	(62,661		)	(19,348		)
Unearned discounts and net deferred loan fees	(277		)	(481		)	204
Allowance for loan losses	(2,022		)	(1,846		)	(176		)
Total loans receivable, net	$	685,939		$	634,217		$	51,722		8.2	%

The Bank continued to experience demand for multi-family loans, commercial real estate loans, construction loans, commercial loans, and consumer loans.  Generally, the Bank’s construction loans were for the purpose of constructing single-family residential properties.  The interest rate environment and robust economy of our market area provided continued demand and opportunity for our other loan products as well.  In recent years, the Bank has placed an increased emphasis on commercial real estate lending, construction lending, and commercial lending to diversify its loan portfolio, take advantage of market opportunities in these types of loans, and help the Bank transition to a more full-service community bank, as well as to provide opportunities to cross-sell its other banking products.  The growth in the consumer loan category was primarily within home equity loans.

8

Asset Quality.  The following table sets forth the amounts and categories of the Bank’s nonperforming assets at the dates indicated.

	June 30, 2005			December 31, 2004
	(Dollars in Thousands)
Nonaccrual loans:
One- to four-family residential	$	4,475		$	2,619
Construction loans	845			634
Commercial real estate	744			—
Commercial loans	1,125			186
Consumer loans	583			723
Total nonaccrual loans	7,772			4,162
Restructured loans (1)	3,700			3,790
Real estate owned	316			563
Nonperforming assets	$	11,788		$	8,515
Total nonaccrual and restructured loans as a percentage of total loans receivable	1.49		%	1.14		%
Total nonperforming assets as a percentage of total assets	1.46		%	1.13		%

(1)At June 30, 2005 and December 31, 2004, restructured loans consisted of a group of commercial loans and commercial real estate loans to a single borrower.  Although the loans were not past due more than 90 days at either date, the borrower has used overdraft privileges with the Bank to maintain payments on the loans.  At June 30, 2005 and December 31, 2004, the borrower was overdrawn $234,000 and $151,000, respectively.  It is unlikely that the borrower would be able to keep their loans current without the overdraft privilege and the Bank is currently working with the borrower while they seek alternative financing arrangements.

The increase in one- to four- family residential, commercial real estate, and commercial nonaccrual loans between December 31, 2004 and June 30, 2005 was primarily due to two lending relationships discussed below.  At June 30, 2005, each of the loans in these relationships was reviewed and the value of underlying collateral was estimated, primarily based on appraisals.  For the relationship totaling $1.5 million, the Bank estimates that it will incur no loss.  For the relationship totaling $4.0 million, the Bank has estimated its loss exposure as of June 30, 2005 at approximately $175,000.  This estimated loss is included in the allowance for loan losses as of June 30, 2005.

The first relationship consists of five loans totaling $1.54 million, consisting of $800,000 of one- to four- family residential loans secured by two residential properties and $700,000 of commercial real estate loans secured by an office building.  The Bank has initiated foreclosure proceedings on all three properties as of June 30, 2005.  The Bank is currently in negotiations with a potential buyer who has made a verbal offer to buy the loans for $1.5 million. Negotiations are ongoing and the Bank believes that it will negotiate an agreement to sell these notes for a minimal loss to the Bank.

The second relationship includes 24 loans totaling $4.0 million, consisting of 15 loans or $1.7 million classified as substandard, which are listed in the table above, four loans or $1.5 million classified as special mention, and five loans or $800,000 classified as watch.  These loans include approximately $130,000 in unsecured loans and a collateral shortfall of approximately $45,000 on one of the properties when loan balances were compared to appraised amounts.  The Bank, through its attorney, has sent demand letters to the borrower with a deadline of the end of August to pay the loans in full.  The Bank has received correspondence from the borrower’s attorney that the borrower intends to refinance the loans or sell assets to satisfy all loans with the Bank.

9

Allowance for Loan Losses.  A summary of the activity in the allowance for loan losses is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Balance at beginning of period	$	1,950		$	1,703		$	1,846		$	1,621
Provisions for estimated losses	287			202			536			461
Recoveries	25			25			51			49
Losses charged off	(240		)	(240		)	(411		)	(441		)
Balance at end of period	$	2,022		$	1,690		$	2,022		$	1,690

Changes in the composition of the allowance for loan losses between June 30, 2005 and December 31, 2004 are presented in the following table (in thousands):

	June 30,		December 31,		Increase
	2005		2004		(Decrease)
General	$	1,527	$	1,476	$	51
Specific	319		318		1
Unallocated	176		52		124
	$	2,022	$	1,846	$	176

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as conditions change and more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as loss, doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based primarily on historical loss experience. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The Bank reviews its non-homogeneous loans for impairment on a quarterly basis.  The Bank considers commercial real estate, construction, multi-family, and commercial loans to be non-homogeneous loans.  A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

10

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.  Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.  Homogeneous loans are those that are considered to have common characteristics that provide for evaluation on an aggregate or pool basis.  The Bank considers the characteristics of (1) one- to- four family residential first mortgage loans; (2) unsecured consumer loans; and (3) collateralized consumer loans to permit consideration of the appropriateness of the allowance for losses of each group of loans on a pool basis.  The primary methodology used to determine the appropriateness of the allowance for losses includes segregating certain specific, poorly performing loans based on their performance characteristics from the pools of loans as to type, valuing these loans, and then applying a loss factor to the remaining pool balance based on several factors, including past loss experience, inherent risks, and economic conditions in the primary market areas.

In estimating the amount of credit losses inherent in our loan portfolio, various judgments and assumptions are made.  For example, when assessing the condition of the overall economic environment, assumptions are made regarding future market conditions and their impact on the loan portfolio.  In the event the national economy were to sustain a prolonged downturn, the loss factors applied to our portfolios may need to be revised, which may significantly impact the measurement of the allowance for loan losses.  For impaired loans that are collateral-dependent, the estimated fair value of the collateral may deviate significantly from the proceeds received when the collateral is sold.

Although we consider the allowance for loan losses of approximately $2.0 million appropriate and adequate to cover losses inherent in our loan portfolio at June 30, 2005, no assurance can be given that we will not sustain loan losses that are significantly different from the amount provided, or that subsequent evaluations of the loan portfolio, in light of factors then prevailing, would not result in a significant change in the allowance for loan losses.

Investment Securities.  Changes in the composition of investment securities held to maturity between June 30, 2005 and December 31, 2004 are presented in the following table (in thousands).

	June 30,		December 31,		Increase
	2005		2004		(Decrease)
Certificates of deposit	$	—	$	3,000	$	(3,000	)
U.S. Government and agency obligations	40,042		37,821		2,221
Municipal securities	15,843		15,839		4
Total	$	55,885	$	56,660	$	(775	)

During the first six months of 2005, investment securities totaling $2.6 million were purchased and $3.4 million matured or were called.   The increase in U.S. Government and agency obligations was due to purchases in excess of calls and maturities.

At June 30, 2005, estimated fair values of investment securities held to maturity were as follows (in thousands):

	Amortized Cost		Fair Value
U.S. Government and agency obligations	$	40,042	$	39,803
Municipal securities	15,843		16,105
Total	$	55,885	$	55,908

Federal Home Loan Bank Stock.   Federal Home Loan Bank (“FHLB”) stock increased by approximately $2.2 million due to required purchases related to the increase in FHLB advances.

Office properties and equipment.  The increase in office properties and equipment is due to land purchased for branch expansion, construction costs for new branches in Mountain Home and Springdale, and remodeling of existing branch locations.

11

Deposits.  Changes in the composition of deposits between June 30, 2005 and December 31, 2004 are presented in the following table (dollars in thousands).

	June 30,		December 31,		Increase			Percentage
	2005		2004		(Decrease)			Change
DDA and NOW accounts	$	114,689	$	109,772	$	4,917		4.5	%
Money Market accounts	81,057		106,063		(25,006		)	(23.6	)%
Savings accounts	32,631		31,611		1,020			3.2	%
Certificates of deposit	356,641		334,978		21,663			6.5	%
Total deposits	$	585,018	$	582,424	$	2,594		0.4	%

The Bank experienced a shift in the mix of deposits from money market accounts to certificates of deposit during the six month period ended June 30, 2005.  Certificates of deposit increased as interest rates began to rise.  Further, the Bank has advertised several CD products with special rates and terms ranging from 7 to 40 months.  The cost of deposit funds increased from 2.26% at December 31, 2004 to 2.46% at June 30, 2005.  The Bank will continue to aggressively promote checking accounts and expand its promotion of checking accounts by targeting small- and medium-sized business accounts with its direct mail campaign and “thank you” gifts which began in the second quarter of 2005.  Checking accounts are an attractive source of funds for the Bank as they offer low-interest deposits, fee income potential, and the opportunity to cross-sell other financial services.

Federal Home Loan Bank Advances.   The Bank experienced growth of $50.3 million or 56.0% in FHLB of Dallas advances during the first six months of 2005.  The advances were used to fund loan growth during the year.  The balance of advances at June 30, 2005 of $140.1 million consisted of $91.9 million of fixed rate advances with an average cost of 3.8% and $48.2 million of floating rate advances with an average cost of 3.3%.

Other Liabilities.  Other liabilities increased primarily due to an increase in accrued interest payable on FHLB advances related to an increase in the balance of FHLB advances.

Stockholders’ Equity.  Stockholders’ equity increased $635,000 from December 31, 2004 to June 30, 2005.  The increase in stockholders’ equity was primarily due to net income of $3.9 million and the issuance of treasury stock due to proceeds received from the exercise of stock options of $1.7 million offset by the purchase of treasury stock totaling $5.2 million during the first six months of 2005.  In addition, during the six months ended June 30, 2005, cash dividends of $1.2 million were paid.  See the Unaudited Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2005 for more detail.

12

Average Balance Sheets

The following table sets forth certain information relating to the Company’s average balance sheets and reflects the average yield on assets and average cost of liabilities for the periods indicated and the yields earned and rates paid at June 30, 2005.  Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented and outstanding balances at June 30, 2005.  Average balances are based on daily balances during the period.

			Three Months Ended June 30,
			2005						2004
	June 30,						Average						Average
	2005		Average				Yield/		Average				Yield/
	Yield/Cost		Balance		Interest		Cost		Balance		Interest		Cost
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable(1)	6.24	%	$	678,547	$	10,266	6.05	%	$	558,359	$	8,745	6.26	%
Investment securities(2)	4.57		61,237		710		4.64		87,979		950		4.32
Other interest-earning assets	3.27		3,529		25		2.86		8,294		18		0.89
Total interest-earning assets	6.10		743,313		11,001		5.92		654,632		9,713		5.94
Noninterest-earning assets			52,997						48,107
Total assets			$	796,310					$	702,739
Interest-bearing liabilities:
Deposits	2.46		589,009		3,480		2.36		580,472		3,107		2.14
FHLB advances	3.58		126,229		1,108		3.51		41,727		326		3.13
Total interest-bearing liabilities	2.67		715,238		4,588		2.57		622,199		3,433		2.21
Noninterest-bearing liabilities			5,155						4,867
Total liabilities			720,393						627,066
Stockholders’ equity			75,917						75,673
Total liabilities and stockholders’ equity			$	796,310					$	702,739
Net interest income					$	6,413					$	6,280
Net earning assets			$	28,075					$	32,433
Interest rate spread	3.43	%					3.35	%					3.73	%
Net interest margin							3.45	%					3.84	%
Ratio of interest-earning assets to interest-bearing liabilities							103.93	%					105.21	%

	Six Months Ended June 30,
	2005						2004
	Average Balance		Interest		Average Yield/  Cost		Average Balance		Interest		Average Yield/  Cost
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable(1)	$	665,064	$	20,150	6.06	%	$	539,633	$	17,074	6.33	%
Investment securities(2)	61,510		1,408		4.58		88,015		1,910		4.34
Other interest-earning assets	2,939		39		2.64		24,676		110		0.89
Total interest-earning assets	729,513		21,597		5.92		652,324		19,094		5.85
Noninterest-earning assets	51,956						47,534
Total assets	$	781,469					$	699,858
Interest-bearing liabilities:
Deposits	585,715		6,764		2.31		579,150		6,295		2.17
FHLB advances	114,886		1,952		3.40		40,109		645		3.22
Total interest-bearing liabilities	700,601		8,716		2.49		619,259		6,940		2.24
Noninterest-bearing liabilities	5,164						5,030
Total liabilities	705,765						624,289
Stockholders’ equity	75,704						75,569
Total liabilities and stockholders’ equity	$	781,469					$	699,858
Net interest income			$	12,881					$	12,154
Net earning assets	$	28,912					$	33,065
Interest rate spread					3.43	%					3.61	%
Net interest margin					3.53	%					3.73	%
Ratio of interest-earning assets to interest-bearing liabilities					104.13	%					105.34	%

(1)  Includes nonaccrual loans.

(2)  Includes FHLB of Dallas stock.

13

Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by prior rate); (ii) changes in rate (change in rate multiplied by prior average volume); (iii) changes in rate-volume (changes in rate multiplied by the change in average volume); and (iv) the net change.

	Three Months Ended June 30, 2005 vs. 2004
	Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Total Increase (Decrease)
	(In Thousands)
Interest income:
Loans receivable	$	1,882		$	(297	)	$	(64	)	$	1,521
Investment securities	(289		)	70			(21		)	(240		)
Other interest-earning assets	(11		)	41			(23		)	7
Total interest-earning assets	1,582			(186		)	(108		)	1288
Interest expense:
Deposits	46			323			4			373
FHLB advances	661			40			81			782
Total interest-bearing liabilities	707			363			85			1,155
Net change in net interest income	$	875		$	(549	)	$	(193	)	$	133

	Six Months Ended June 30, 2005 vs. 2004
	Increase (Decrease) Due to
	Volume			Rate			Rate/ Volume			Total Increase (Decrease)
	(In Thousands)
Interest income:
Loans receivable	$	3,968		$	(724	)	$	(168	)	$	3,076
Investment securities	(575		)	105			(32		)	(502		)
Other interest-earning assets	(97		)	216			(190		)	(71		)
Total interest-earning assets	3,296			(403		)	(390		)	2,503
Interest expense:
Deposits	71			394			4			469
FHLB advances	1,203			36			68			1,307
Total interest-bearing liabilities	1,274			430			72			1,776
Net change in net interest income	$	2,022		$	(833	)	$	(462	)	$	727

14

CHANGES IN RESULTS OF OPERATIONS

The table below presents a comparison of results of operations for the three months ended June 30, 2005 and 2004 (dollars in thousands).  Specific changes in captions are discussed in the sections which follow the table.

	Three Months Ended June 30,						Increase  (Decrease)			Percentage Change
	2005			2004			2005 vs 2004			2005 vs 2004
Interest income:
Loans receivable	$	10,266		$	8,745		$	1,521
Investment securities	710			950			(240		)
Other	25			18			7
Total interest income	11,001			9,713			1,288			13.3	%
Interest expense:
Deposits	3,480			3,107			373
Other borrowings	1,108			326			782
Total interest expense	4,588			3,433			1,155			33.6	%
Net interest income before provision for loan losses	6,413			6,280			133
Provision for loan losses	287			202			85			42.1	%
Net interest income after provision for loan losses	6,126			6,078			48			0.8	%
Noninterest income:
Deposit fee income	1,105			896			209
Gain on sale of loans	182			196			(14		)
Other	437			493			(56		)
Total noninterest income	1,724			1,585			139			8.8	%
Noninterest expenses:
Salaries and employee benefits	3,013			2,758			255
Net occupancy expense	506			510			(4		)
Advertising and public relations	241			304			(63		)
Other	1,219			1,252			(33		)
Total noninterest expenses	4,979			4,824			155			3.2	%
Income before income taxes	2,871			2,839			32
Provision for income taxes	922			908			14
Net income	1,949			1,931			18			0.9	%
Basic earnings per share	$	0.39		$	0.38		$	0.01		2.6	%
Diluted earnings per share	$	0.37		$	0.36		$	0.01		2.8	%
Interest rate spread	3.35		%	3.73		%
Net interest margin	3.45		%	3.84		%
Full-time equivalents	261.5			246.3
Full-service offices	15			15

15

The table below presents a comparison of results of operations for the six months ended June 30, 2005 and 2004 (dollars in thousands).  Specific changes in captions are discussed in the sections which follow the table.

	Six Months Ended June 30,						Increase (Decrease)			Percentage Change
	2005			2004			2005 vs 2004			2005 vs 2004
Interest income:
Loans receivable	$	20,150		$	17,074		$	3,076
Investment securities	1,408			1,910			(502		)
Other	39			110			(71		)
Total interest income	21,597			19,094			2,503			13.1	%
Interest expense:
Deposits	6,764			6,295			469
Other borrowings	1,952			645			1,307
Total interest expense	8,716			6,940			1,776			25.6	%
Net interest income before provision for loan losses	12,881			12,154			727
Provision for loan losses	536			461			75			16.3	%
Net interest income after provision for loan losses	12,345			11,693			652			5.6	%
Noninterest income:
Deposit fee income	2,114			1,667			447
Gain on sale of loans	316			322			(6		)
Other	864			1,027			(163		)
Total noninterest income	3,294			3,016			278			9.2	%
Noninterest expenses:
Salaries and employee benefits	6,016			5,437			579
Net occupancy expense	1,005			1,002			3
Advertising and public relations	482			431			51
Other	2,373			2,428			(55		)
Total noninterest expenses	9,876			9,298			578			6.2	%
Income before income taxes	5,763			5,411			352
Provision for income taxes	1,850			1,720			130
Net income	3,913			3,691			222			6.0	%
Basic earnings per share	$	0.79		$	0.72		$	0.07		9.7	%
Diluted earnings per share	$	0.75		$	0.68		$	0.07		10.3	%
Interest rate spread	3.43		%	3.61		%
Net interest margin	3.53		%	3.73		%
Full-time equivalents	254.4			248.9
Full-service offices	15			15

16

Net Interest Income.  Net interest income is determined by the Company’s interest rate spread (i.e., the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.

INTEREST INCOME AND INTEREST EXPENSE

Dollar changes in interest income and interest expense for the comparison periods are presented in the rate/volume analysis table which appears on page 14.

Interest Income.  The increases in interest income for both the three and six month comparative periods were primarily due to an increase in the average balance of loans, partially offset by a decrease in the average yield earned on loans and a decrease in the average balance of investment securities.  The decrease in the average yield earned on loans was primarily due to an increase in nonaccrual loans and an increase in construction loans, which typically have lower rates at origination than those charged for permanent loans due to their shorter-term nature.  The average balance of loans increased primarily due to increased construction loan origination activity.  The average balance of investment securities decreased due to calls and maturities.

Interest Expense.   The increases in interest expense for both the three and six month comparative periods were primarily due to an increase in the average balance of FHLB advances and an increase in the average rate paid on deposits.  The average balance of FHLB advances increased due to advances being used to fund loan growth.

Provision for Loan Losses.  The provision for loan losses includes charges to maintain an allowance for loan losses adequate to cover probable credit losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that have been incurred as of the balance sheet date.  Such provision and the adequacy of the allowance for loan losses is evaluated quarterly by management of the Bank based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current economic conditions.

The increase in the provision for loan losses in both the three and six month comparative periods was due primarily to the increase in nonperforming loans and, to a lesser degree, growth in the loan portfolio.

Noninterest Income.  Deposit fee income increased for both the three and six month comparative periods as a result of the Bank’s continued promotion of Bounce Protection^TM overdraft service as well as an increase in the number of checking accounts.  The number of checking accounts increased approximately 6.6% from June 30, 2004 to June 30, 2005.  The Bank plans to continue to aggressively promote checking accounts in 2005 through direct mail campaigns to expand its checking accounts and increase deposit fee income.

The decreases in other noninterest income for both the three and six month comparative periods were primarily due to a decrease in loan fees collected.

17

Noninterest Expense

Salaries and Employee Benefits.  The changes in the composition of this line item are presented below (in thousands):

	Three Months Ended June 30,				Increase (Decrease)		Six Months Ended June 30,				Increase (Decrease)
	2005		2004		2005 vs 2004		2005		2004		2005 vs 2004
Salaries	$	2,027	$	1,894	$	133	$	4,005	$	3,762	$	243
Payroll taxes	174		158		16		408		379		29
Insurance	153		148		5		300		292		8
ESOP expense (1)	495		394		101		975		804		171
MRP expense (2)	7		7		—		13		13		—
Defined benefit plan contribution	122		122		—		245		113		132
Other	35		35		—		70		74		(4		)
Total	$	3,013	$	2,758	$	255	$	6,016	$	5,437	$	579

(1)Employee Stock Ownership Plan

(2)Management Recognition and Retention Plan

The increase in salaries for the three and six months ended June 30 was due primarily to an increase in the number of employees and normal salary and merit increases.  Payroll taxes increased during both periods due to the increase in salaries.  The increase in employee stock ownership plan expense during both comparison periods was due to an increase in the Company’s average stock price in 2005 compared to the same periods in 2004.  Defined benefit plan expense increased in the six month comparative period due to the unusual credit during the first quarter of 2004.

The loan to the ESOP matures on March 31, 2006 and will be repaid in full at such time. Absent further leveraged purchases by the ESOP, expenses related to the ESOP will decrease subsequent to March 31, 2006.

Advertising and public relations.  Advertising and public relations decreased for the second quarter of 2005 compared to the same period in 2004 primarily due to costs associated with the start-up of the checking account marketing program in the 2004 quarter.

Advertising and public relations increased for the six months ended June 30, 2005, compared to the same period in 2004, primarily due to a full six months of costs in 2005 associated with the new checking account marketing program, including direct mail, “thank you” gifts, marketing brochures, posters and billboards, compared to only three months in the previous year.  The marketing program began in April 2004.

Other expenses.  The changes in the composition of this line item are presented below (in thousands):

	Three Months Ended June 30,				Increase (Decrease)			Six Months Ended June 30,				Increase (Decrease)
	2005		2004		2005 vs 2004			2005		2004		2005 vs 2004
Consultant and management fees	$	44	$	109	$	(65	)	$	70	$	201	$	(131	)
Other	1,175		1,143		32			2,303		2,227		76
Total	$	1,219	$	1,252	$	(33	)	$	2,373	$	2,428	$	(55	)

Other expenses decreased in the three and six month comparative periods primarily due to a decrease in consultant and management fees.  These fees decreased primarily due to fees paid to a consulting firm for assistance in promotion of checking accounts in 2004.

18

Income Taxes.

The increase in income tax expense for the three and six month comparable periods ended June 30 was primarily due to an increase in taxable income and, to a lesser extent, an increase in the effective tax rate.

OFF-BALANCE SHEET ARRANGEMENTS

The Company, in the normal course of business, makes commitments to buy or sell assets or to incur or fund liabilities.  Commitments include, but are not limited to:

•the origination, purchase or sale of loans;

•the fulfillment of commitments under letters-of-credit, extensions of credit on home equity lines of credit, construction loans, and predetermined overdraft protection limits; and

•the commitment to fund withdrawals of certificates of deposit at maturity.

At June 30, 2005, the Bank’s off-balance sheet arrangements principally included lending commitments, which are described below.  At June 30, 2005, the Company had no interests in non-consolidated special purpose entities.

At June 30, 2005, commitments included:

•total approved commitments to originate loans amounting to $9.6 million, including $1.2 million of loans committed to sell;

•rate lock agreements with customers of $6.7 million, all of which have been locked with an investor;

•funded mortgage loans committed to sell of $2.5 million;

•unadvanced portion of construction loans of $82.0 million;

•unused lines of credit of $27.1 million;

•outstanding standby letters of credit of $960,000;

•total predetermined overdraft protection limits of $10.5 million; and

•certificates of deposit scheduled to mature in one year or less totaling $159.0 million.

Total unfunded commitments to originate loans for sale and the related commitments to sell of $6.7 million meet the definition of a derivative financial instrument.  The related asset and liability are considered immaterial at June 30, 2005.

Historically, a very small percentage of predetermined overdraft limits have been used.  At June 30, 2005, overdrafts of accounts with Bounce Protection^TM represented usage of 2.9% of the limit.  We expect utilization of these overdraft limits to remain at comparable levels in the future.

Based on historical experience, management believes that a significant portion of maturing deposits will remain with the Bank.  We anticipate that we will continue to have sufficient funds, through repayments, deposits and borrowings, to meet our current commitments.

LIQUIDITY AND CAPITAL RESOURCES

The Bank’s liquidity, represented by cash and cash equivalents and eligible investment securities, is a product of its operating, investing and financing activities.  The Bank’s primary sources of funds are deposits, borrowings, collections on outstanding loans, maturities and calls of investment securities and other short-term investments and funds provided from operations.  While scheduled loan amortization and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.  The Bank manages the pricing of its deposits to maintain a steady deposit balance.  In addition, the Bank invests excess funds in overnight deposits and other short-term interest-earning assets which provide liquidity to meet lending requirements.  During 2005, the use of FHLB advances increased due to increased demand for the Bank’s loan products.  At June 30, 2005, available borrowing capacity with the FHLB was in excess of $135 million.

19

Liquidity management is both a daily and long-term function of business management.  Excess liquidity is generally invested in short-term investments such as overnight deposits and certificates of deposit.  On a longer-term basis, the Bank maintains a strategy of investing in various lending products.  The Bank uses its sources of funds primarily to meet its ongoing commitments, to pay maturing savings certificates and savings withdrawals, to repay maturing FHLB of Dallas advances, and to fund loan commitments.

As of June 30, 2005, the Bank’s regulatory capital was in excess of all applicable regulatory requirements.  At June 30, 2005, the Bank’s tangible, core and risk-based capital ratios amounted to 9.15%, 9.15% and 12.67%, respectively, compared to regulatory requirements of 1.5%, 4.0% and 8.0%, respectively.

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation.

Unlike most industrial companies, virtually all of the Bank’s assets and liabilities are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution’s performance than does the effect of inflation.

FORWARD-LOOKING STATEMENTS

The Company’s Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management.  In addition, in this document, the words “anticipate”, “believe,” “estimate,”“expect,” “intend,” “should” and similar expressions, or the negative thereof, as they relate to the Company or the Company’s management, are intended to identify forward-looking statements.  Such statements reflect the current views of the Company with respect to future looking events and are subject to certain risks, uncertainties and assumptions.  Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended.  The Company does not intend to update these forward-looking statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

For a discussion of the Company’s asset and liability management policies as well as the potential impact of interest rate changes upon the market value of the Bank’s portfolio equity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2004 Annual Report to Stockholders.  There has been no material change in the Company’s asset and liability position or the market value of the Bank’s portfolio equity since December 31, 2004.

CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Securities Exchange Act) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

20

FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

Part II

Item 1.Legal Proceedings

Neither the Company nor the Bank is involved in any pending legal proceedings other than non-material legal proceedings occurring in the ordinary course of business.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES
	(a) Total Number of Shares  Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, to April 30, 2005	—	—		—	—
May 1, to May 31, 2005	55,000	$	24.93	55,000	109,792
June 1, to June 30, 2005	22,000	$	25.16	22,000	87,792

The Company is in its 17th announced repurchase program, which was approved by the board of directors on November 30, 2004, and publicly announced on February 8, 2005.  Total shares approved to be purchased in this program are 251,801, of which 164,009 have been purchased as of June 30, 2005.  All treasury stock purchases are made under publicly announced repurchase programs.

Item 3.Defaults Upon Senior Securities

Not applicable.

Item 4.Submission of Matters to a Vote of Security Holders

On April 27, 2005, the Corporation held an annual meeting of stockholders for the following purposes:

(1)To elect one director for a term of three years; and

(2)To ratify the appointment by the Board of Directors of Deloitte and Touche LLP as the Corporation’s independent auditors for the year ending December 31, 2005.

The results of the voting are set forth below:

Proposal One (Election of Director):

NAME	FOR	AGAINST/ WITHHELD	NOT VOTED
Kenneth C. Savells	4,547,793	3,600	522,015

Proposal Two (Ratification of Auditors):

FOR	AGAINST	ABSTAIN	NOT VOTED
4,535,910	1,548	13,935	522,015

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Item 5.Other Information

None.

Item 6.Exhibits

Exhibit 31.1 – Certification of Chief Executive Officer,

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

Exhibit 31.2 – Certification of Chief Financial Officer,

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

Exhibit 32.1 – Certification of Chief Executive Officer,

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

Exhibit 32.2 – Certification of Chief Financial Officer,

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

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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 OF ARKANSAS, INC.

Date: July 28, 2005	By:	/s/Larry J. Brandt
		Larry J. Brandt
		President/CEO
Date: July 28, 2005	By:	/s/Sherri R. Billings
		Sherri R. Billings
		EVP/CFO

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