Back to GetFilings.com

Signatures/Certifications

         GUARANTY FEDERAL BANCSHARES, INC. (THE "COMPANY") MAY FROM TIME TO TIME MAKE WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), IN ITS REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

         THE COMPANY CAUTIONS THAT THE LISTED FACTORS ARE NOT EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

         The Company is a Delaware-chartered corporation that was created in September 1997 at the direction of Guaranty Federal Savings Bank (the "Bank"). The Company became the holding company for the Bank on December 30, 1997, in connection with a plan of conversion and reorganization involving the Bank and its then existing mutual holding company. The mutual holding company structure had been created in April 1995 (the "Conversion") at which time more than a majority of the shares of the Bank were issued to the mutual holding company and the remainder were sold in a public offering. In connection with the conversion and reorganization on December 30, 1997, the shares of the Bank held by the mutual holding company were extinguished along with the mutual holding company and the shares of the Bank held by the public were exchanged for shares of the Company. Shares of the Company were issu ed on December 30, 1997.

         Set forth below is selected data relating to the composition of the Bank's loan portfolio at the dates indicated:

The following table sets forth the dollar amount, before deductions for unearned discounts, deferred loan costs and allowance for loan losses, as of June 30, 2002 of all loans due after June 2003, which have pre-determined interest rates and which have adjustable interest rates.

         Delinquent Loans. As of June 30, 2002, the Bank has three loans 90 days or more past due with a principal balance of $191,003 and twenty five loans between 30 and 89 days past due with total principal balances of $792,923. The Bank generally does not accrue interest on loans past due more than 90 days.

         The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in its loan portfolio and the general economy. Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience, and other factors that warrant recognition in providing for an adequate loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and valuation of foreclosed assets held for sale. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

         The following table shows the amount of the allowance allocated to each loan category and the percent of that loan category to total loans.

         The investment policy of the Company, which is established by the Board of Directors and reviewed by the Investment Committee, is designed primarily to provide and maintain liquidity, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement the Bank's lending activities. The policy currently provides for held-to-maturity and available-for-sale portfolios. The Company has adopted an investment policy which strictly prohibits speculation in investment securities. The Company does not currently engage in trading investment securities and does not anticipate doing so in the future. As of June 30, 2002, the Company has investment securities with a carrying value of $19.7 million and an estimated fair value of $19.9 million. Of those securities $16.5 million, or 84%, of the Company's investment securities portfolio are available-for-sale.

         The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of the Bank's investment securities portfolio as of June 30, 2002:

The following table indicates the approximate amount of the Bank's certificate accounts of $100,000 or more by time remaining until maturity as of June 30, 2002.

         Deposits are the primary source of funds for the Bank's lending activities and other general business purposes. However, during periods when supply of lendable funds cannot meet the demand for such loans, the FHLB System makes available, subject to compliance eligibility standards, a portion of the funds necessary through loans (advances) to its members. The following table presents certain data for Federal Home Loan Bank advances as of June 30 of each year presented.

         The Bank is a subsidiary of the Company. The Bank has one service corporation subsidiary, Guaranty Financial Services of Springfield, Inc. The Bank has an investment of $31,000 in its service corporation as of June 30, 2002. The service corporation sells mutual funds, fixed and variable annuities, unit investment trusts, individual stocks and bonds, and life insurance. Such sales are completed through an agreement with "INVEST" for providing brokerage services. In addition the service corporation sells property and casualty insurance through an agreement with American National Property and Casualty, a Springfield-based insurance company.

         "Management's Discussion and Analysis of Financial Condition and Results of Operations" is based upon the Company's consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. On an on-going basis, management evaluates its estimates and judgments.

         Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. If actual results are different than management's judgements and estimates, the Company's financial results could change, and such change could be material to the Company.

         Substantially, all of the activities of the Company are conducted through the Bank. As of June 30, 2002 the Company has no salaried employees.

         The information contained on pages 11 and 12 under the headings "Asset/Liability Management" and "Interest Rate Sensitivity Analysis" of the 2002 Annual Report is incorporated herein by reference.

_______________

         Pursuant to the requirements of Section 13 or 15(d) 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.

The common stock of Guaranty Federal Bancshares, Inc. is traded in the over-the-counter market and quoted on the NASDAQ National Market. As of September 3, 2002, there were 1,696 stockholders of the 6,365,915 shares of common stock issued and outstanding.

        The following tables include certain information concerning the financial position of Guaranty Federal Bancshares, Inc. (including consolidated data from operations of subsidiaries) as of the dates indicated. Dollar amounts are expressed in thousands except per share data.

        Guaranty Federal Bancshares, Inc. (and with its subsidiary, the "Company") is a Delaware corporation organized on December 30, 1997 for the purpose of becoming the holding company of Guaranty Federal Savings Bank (the "Bank").

        In April 1995, Guaranty Federal Savings & Loan Association reorganized from a federally chartered mutual savings and loan association into a mutual holding company, Guaranty Federal Bancshares, M. H. C. (the "MHC"). Concurrent with the reorganization, Guaranty Federal Savings Bank (the "Bank"), a stock savings bank was chartered. In December 1997, the Company completed the conversion and reorganization of the Bank and the former MHC by selling common stock to depositors of the Bank and a benefit plan of the Bank. In addition, all shares of common stock of the Bank held by public stockholders were exchanged for shares of common stock of the Company.

        On December 6, 2001, the Bank completed its acquisition of the Springfield branch offices of Commercial Federal Bank. The Bank acquired approximately $15.5 million in selected consumer and home equity loans and assumed approximately $41.2 million in deposit liabilities. The Bank also assumed the leases and equipment at all but one of the branches. The acquired locations are located in Dillons Supermarkets in Springfield. The transaction increased the number of "in-store" locations from one to five and total locations from five to nine.

        The Company's principal business consists of attracting deposits from the general public and using such deposits to originate mortgage loans secured by one- to four-family residences, multi-family, construction and commercial real estate loans and consumer and business loans. The Company also uses these funds to purchase loans secured by one- to four-family residences, mortgage-backed securities, US government and agency obligations, and other permissible securities. When cash outflows exceed inflows, the Company uses borrowings and brokered deposits as additional financing sources.

        The Company derives revenues principally from interest earned on loans and investments and, to a lesser extent, from fees charged for services. General economic conditions and policies of the financial institution regulatory agencies, including the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC") significantly influence the Company's operations. Interest rates on competing investments and general market interest rates influence the Company's cost of funds. Lending activities are affected by the interest rates at which such financing may be offered. The Company intends to focus on one- to four-family residential, consumer, and commercial real estate lending throughout southwestern Missouri.

        The discussion set forth below may contain forward-looking comments. Such comments are based upon the information currently available to management of the Company and management's perception thereof as of the date of this report. Actual results of the Company's operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to: changes in demand for banking services; changes in portfolio composition; changes in management strategy; increased competition from both bank and non-bank companies; changes in the general level of interest rates; the effect of regulatory or government legislative changes; technology changes; and fluctuation in inflation.

        From June 30, 2001 to June 30, 2002, the Company's total assets increased $2,846,139 (1%), liabilities increased $17,617,053 (5%), and stockholders' equity decreased $14,770,914 (29%). The ratio of stockholders' equity to total assets decreased from 13% to 9%.

        From June 30, 2001 to June 30, 2002, securities available-for-sale decreased $2,984,432 (15%). The Company currently owns 82,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of $80,294 in the securities available-for-sale category. As of June 30, 2002, the gross unrealized gain on the stock is $5,044,706, a decrease of $1,192,881 from the gross unrealized gain at June 30, 2001. This decrease is primarily due to the sale of 11,000 shares of FHLMC stock during the twelve-month period ending June 30, 2002. From June 30, 2001 to June 30, 2002, securities held-to-maturity decreased $1,326,775 (29%) due to repayments received during the year. There was no change in stock in the Federal Home Loan Bank of Des Moines ("FHLB"). The Bank is required to own stock in the FHLB equal to five percent of its borrowings.

        From June 30, 2001 to June 30, 2002, net loans receivable decreased by $457,993. During this period, permanent loans secured by both owner and non-owner occupied one to four unit residential real estate decreased by $40,260,499, (22%), consumer installment loans increased $20,407,896 (198%), multi-family permanent loans increased by $1,413,584 (3%), construction loans decreased by $5,509,995 (10%) and permanent loans secured by commercial real estate increased $14,540,564 (33%). As a part of the Commercial Federal acquisition, the Company purchased approximately $15.5 million in consumer and home equity loans. During this period the Company increased its emphasis on commercial lending, while selling the majority of conforming loan production on the secondary market. These loan sales allowed the Bank to provide customers with 30-year fixed rate mortgages while retaining a banking relationship with the customer. As a result of these loan sales, loans serviced for others increased by $38,932,904 (76%).

        From June 30, 2001 to June 30, 2002, loans past due 90 days or more decreased $2,113,202 to $191,003 (0.1% of net loans). As of June 30, 2002, management considers loans totaling $1,751,139 as impaired with a related allowance for loan losses of $168,519. An unoccupied office condominium unit secures the primary impaired loan. The borrower has made all loan payments. Subsequent to year-end, the borrower signed a lease with a new tenant. Single-family houses collateralize other impaired loans. The Bank recognizes interest income on impaired loans as payments are received. Management believes the loss allowances on these loans are sufficient to liquidate the collateral without further loss.

        From June 30, 2001 to June 30, 2002, the allowance for loan losses decreased $47,517. Loan charge-offs exceeded recoveries by $338,517 for fiscal year 2002 and $132,557 for fiscal year 2001. The allowance for loan losses as of June 30, 2002 and 2001 was 0.83% of net loans outstanding. As of June 30, 2002, the allowance for loan losses was 151% of impaired loans versus 55% as of June 30, 2001.

        As of June 30, 2002 foreclosed assets held for sale consists of two cars, four single-family houses and a residential building lot. Private mortgage insurance claims are pending for two of the houses. When satisfied, the insurance will either reduce the balance 20% or acquire the property at our cost.

        From June 30, 2001 to June 30, 2002, premises and equipment decreased $401,984 (5%). During fiscal year 2002, the Company acquired the equipment and leasehold improvements of four "in-store" Commercial Federal branches, however this increase was offset by normal depreciation.

        From June 30, 2001 to June 30, 2002, deposits increased $53,004,819 (31%). During this period core deposit accounts increased by $33,425,248 (57%) to 41% of total deposits and certificates of deposit increased by $19,579,571 (17%). As a result of the Commercial Federal acquisition, the Company assumed approximately $41.2 million in deposits. Excluding the acquisition, core deposits increased by $15,557,187 (27%) while certificates of deposit decreased by $3,768,994 (3%). Included in the certificates of deposit total is $22,000,000 in deposits placed by brokers. Management considers brokered deposits to be an effective source of funds that cost less at the margin than increasing rates on retail deposits in our local market.

        As a result of the increase in deposits and the use of alternative funding sources, the Company decreased borrowings from the Federal Home Loan Bank by $35,573,420 (24%).

        Stockholders' equity (including unrealized appreciation on securities available-for-sale, net of tax) decreased $14,770,914 (29%) to $35,434,877 as of June 30, 2002. Net income for the year exceeded cash dividends paid or declared by $1,421,398. The Company repurchased 1,132,139 shares as treasury stock (28% of the outstanding shares as of June 30, 2001) at a cost of $16,826,643 (an average price of $14.86 per share). As of June 30, 2002, 31,709 shares remain to be repurchased under the repurchase plan announced January 5, 2001. The decrease in unrealized appreciation on securities available-for-sale, net of tax, decreased stockholders' equity by $1,000,616. On a per share basis, stockholders' equity decreased $0.51 (4%) from $13.20 as of June 30, 2001 to $12.69 as of June 30, 2002.

        The following tables show (1) the average monthly balances of various categories of interest-earning assets and interest-bearing liabilities, (2) the total interest earned or paid thereon, and (3) the resulting weighted average yields and costs. In addition, the table shows the Company's rate spreads and net yields. Average balances are based on daily balances. Tax-free income is not material; accordingly, interest income and related average yields have not been calculated on a tax equivalent basis. Average loan balances include non-accrual loans.

        Dollar amounts are expressed in thousands.

        The following table sets forth information regarding changes in interest income and interest expense for the periods indicated resulting from changes in average balances and average rates shown in the previous table. For each category of interest-earning assets and interest-bearing liabilities information is provided with respect to changes attributable to: (i) changes in balance (change in balance multiplied by the old rate), (ii) changes in interest rates (change in rate multiplied by the old balance); and (iii) the combined effect of changes in balance and interest rates (change in balance multiplied by change in rate).

        Interest Rates. The Company charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates. The following table sets forth the weekly average interest rates on U.S. Treasury securities for the twelve months ending.

        From July 1, 2001 until the events of September 11, interest rates were relatively stable. In the two weeks following September 11, the one-year Treasury rate fell 83 basis points. From the week ended September 21, 2001 through the week ended June 28, 2002, the one-year treasury security traded in a range from a low of 1.99% to a high of 2.70%. These historically low interest rates encouraged borrowers to refinance their loans and thereby lower our yields. Depositors exhibited a preference for money market deposits over the certificates of deposit.

        Interest Income. Total interest income decreased $1,959,665 (7%) as the average balance of interest-earning assets increased $32,083,000 (9%). The yield on average interest earning assets decreased 121 basis points to 6.76%.

        Interest on loans decreased $1,281,546 (5%) as the average loan receivable balance increased $15,374,000 (5%) while the average yield decreased 78 basis points to 7.35%. The decrease in loan yield is the result of the combination of new loans at lower rates, repayments of higher yielding loans, and the roll down of adjustable rate loans. Interest on investment securities decreased $513,427 (45%) as the average balance decreased $413,000 (3%) and the average yield decreased 326 basis points to 4.18%. As long as interest rates remain at historical low levels, our customers will benefit from loan rates adjusting downward and from refinancing to fixed-rate mortgages to lock-in the rates. These adjustments and refinances will negatively impact portfolio loan yields in future quarters.

        Interest Expense. Total interest expense decreased $2,291,358 (14%) as the average balance of interest-bearing liabilities increased $30,347,000 (10%). The average cost of interest-bearing liabilities decreased 122 basis points to 4.33%.

        Interest expense on deposits increased $298,754 (4%) as the average balance of interest bearing deposits increased $57,754,000 (41%) while the average interest rate paid to depositors decreased 125 basis points to 3.56%. The average balance of interest bearing core deposit accounts increased $22,044,000 (47%) and the average balance of certificates of deposit increased $35,710,000 (38%).

        In order to comply with the Federal Home Loan Bank (the "FHLB") limitation of advances to 35% of assets, the Company decreased borrowings from the FHLB. The average balance of FHLB advances decreased by $28,791,000 (19%) while the average cost of those advances decreased 65 basis points to 5.56%. As of June 30, 2002, FHLB advances are 29% of total assets.

        Net Interest Income. The Company's net interest income increased $331,693 (3%). During the year ended June 30, 2002, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $47,347,000, an increase in the average net earning balance of $1,736,000 (4%). With the treasury stock purchase in the fourth quarter of FY 2002, this net earning balance declined and as of June 30, 2002 is $36,108,000. The Company's spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 1 basis point from 2.42% to 2.43%.

        Provision for Loan Losses. Provisions for loan losses are charged or credited to earnings to bring the total allowance to a level considered adequate by the Company to provide for potential loan losses in the existing portfolio. When making the assessment, the Company considers prior loss experience, volume and type of lending, local banking trends and past due loans in the Company's portfolio. In addition, the Company considers general economic conditions and other factors related to collectability of the Company's portfolio.

        During fiscal year 2002, the Company experienced loan charge-offs in excess of recoveries of $338,517 and based on a review as discussed above, elected to add $291,000 to the allowance. Management anticipates the need to continue adding to the loan loss allowance through charges to provision for loan losses based on the anticipated growth in the loan portfolio and shift in emphasis from primarily single-family to a mix of single-family and commercial loans.

        Non-Interest Income. Non-interest income increased $1,530,537 (73%). This increase is primarily due to the $959,354 increase in gain on sale of loans and investments. The gain on sale of loans ($786,526 for fiscal year 2002) is the result of mortgage banking activities related to the sale of single-family conforming residential loans in the secondary market. The Bank attempts to minimize risk of price changes by committing to sell loans while the loans are in the origination process. The net gain on sale of investments ($780,741 for fiscal year 2002) is primarily a result of the sale of 11,000 shares of FHLMC stock during the twelve-month period ending June 30, 2002. Deposit service charges increased $279,754 (22%) due to the continued growth in the Bank's checking accounts. As of June 30, 2002, the Bank services 16,286 checking accounts up 3,256 (25%) from a year earlier. Late charges and oth er fees increased $141,475 (89%) primarily due to approximately $146,000 in prepayment penalties collected from two commercial borrowers.

        Non-Interest Expense. Non-interest expense increased $1,372,221 (18%). Increases in salaries and employee benefits, occupancy and data processing expense are principally attributable to the Company's recent expansion through branch additions and an overall increase in accounts served. The Company incurred approximately $183,000 in "one-time" costs in connection with the Commercial Federal acquisition and approximately $150,000 in legal and professional expenses in connection with the settlement of a dispute over the repurchase of the Company's stock.

        Income Taxes. The change in income tax is a direct result of changes in the Company's taxable income.

        Cash Dividends Paid. The Company paid cash dividends of $0.25 per share on October 15, 2001, to the stockholders of record as of September 4, 2001 and $0.25 per share on April 12, 2002, to the stockholders of record as of April 1, 2002. The Company declared a cash dividend of $0.125 per share on June 27, 2002, to be paid on July 19, 2002, to stockholders of record on July 8, 2002. Effective with this dividend the Company anticipates paying dividends on a quarterly basis rather than on a semi-annual basis.

        Interest Rates. The following table sets forth the weekly average interest rates on U.S. Treasury securities for the twelve months ending.

        For the first six months of fiscal year 2001, interest rates were relatively stable at levels comparable to the prior fiscal year. In January 2001 the Federal Reserve began lowering targeted interest rates. The Federal funds rate for the six months ended December 2000 averaged 6.52%. The following six months ended June 2001, the federal funds rate averaged 4.99% and the rate for the week ended June 27, 2001 averaged 3.91%. The 72 basis point decrease in the ten-year treasury for fiscal year 2001 is indicative of the decrease in the fixed-rates on single-family mortgage loans. As a result of this decrease in the level of interest rates borrowers refinanced their adjustable rate mortgage loans into long-term fixed rate mortgages. Mortgage recordings in Greene County were down 7% the first six months of fiscal year 2001 and up 28% in the second six months reflecting the level of loan activity generated by the decline in interest rates.

        Interest Income. Total interest income increased $3,618,300 (15%) as the average balance of interest-earning assets increased $32,726,000 (11%). The yield on average interest earning assets increased 32 basis points to 7.97% as the Company continued shifting the asset mix from lower yielding investments to loans.

        Interest on loans increased $3,103,699 (14%) as the average loan receivable balance increased $27,521,000 (10%) and the average yield increased 31 basis points to 8.13%. The increase in loan yield is the result of the impact of higher loan rates during the prior fiscal year and the first six months of this fiscal year. Interest on investment securities increased $265,640 (31%) as the average balance increased $2,870,000 (23%) and the average yield increased 43 basis points to 7.44%.

        Interest Expense. Total interest expense increased $3,449,102 (27%) as the average balance of interest-bearing liabilities increased $42,900,000 (17%). Interest expense increased more than the increase in average balances because the average cost of interest-bearing liabilities increased by 43 basis points to 5.55%.

        Interest expense on deposits increased $567,569 (9%) as the average balance of interest costing deposits increased $1,348,000 (1%) and the average interest rate paid to depositors increased 37 basis points to 4.82%. The average balance of interest costing core deposit accounts increased $2,698,000 (6%) and the average balance of certificates of deposit decreased $1,350,000 (1%).

        In order to fund the increase in assets and purchase of treasury stock, the Company borrowed additional funds from the FHLB. The average balance of FHLB advances increased by $41,201,000 (36%) while the average cost of those advances increased 27 basis points to 6.21%.

        Net Interest Income. The Company's net interest income increased $169,198 (2%). During the year ended June 30, 2001, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $45,611,000, a decrease in the average net earning balance of $10,174,000 (18%). The Company's spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities decreased by 11 basis points from 2.53% to 2.42%.

        Provision for Loan Losses. During fiscal year 2001, the Company experienced loan charge-offs in excess of recoveries of $132,557 and elected to add $310,000 to the allowance.

        Non-Interest Income. Non-interest income consists of service charges and other fees, income or loss from foreclosed assets and gains or losses on sale of assets, increased $685,034 (48%). This increase is primarily due to the $557,420 increase in gain on sale of loans and investments. Gains on sale of single-family loan production increased significantly in the second half of the fiscal year reflecting the volume of 30-year fixed-rate loans sold in the secondary market. Deposit service charges increased $168,803 (15%) due to the continued growth in the Bank's checking accounts. As of June 30, 2001, the Bank serviced 13,030 checking accounts up 1,799 (16%) from a year earlier.

        Income Taxes. The change in income tax is a direct result of changes in the Company's taxable income.

        Cash Dividends Paid. The Company paid cash dividends of $0.23 per share on October 15, 2000, to the stockholders of record as of September 9, 2000 and $0.24 per share on April 12, 2001, to the stockholders of record as of March 28, 2001.

        The goal of the Bank's asset/liability policy is to manage interest rate risk so as to maximize net interest income over time in changing interest rate environments. Management monitors the Bank's net interest spreads (the difference between yields received on assets and paid on liabilities) and, although constrained by market conditions, economic conditions, and prudent underwriting standards, it offers deposit rates and loan rates that maximize net interest income. Management also attempts to fund the Bank's assets with liabilities of a comparable duration to minimize the impact of changing interest rates on the Bank's net interest income. This matching is especially difficult because the residential mortgage loans that comprise the majority of the Bank's assets give the borrower the right to prepay at any time. These borrowers act in their economic self-interest and refinance higher rate loans when rates are low. Since the relative spread between financial assets and liabilities is constantly changing, the Bank's current net interest income may not be an indication of future net interest income.

        The Bank's efforts to manage interest rate risk include an adjustable rate mortgage loan ("ARM"). As of June 30, 1997, ARMs constituted 75% of the Bank's mortgage loan portfolio. However during fiscal years 1998 and 1999, the general level of long-term interest rates dropped and borrowers opted for fixed rate mortgages. As long-term interest rates increased during fiscal year 2000, borrowers shifted their preference to ARM loans. When long-term interest rates decreased during fiscal year 2001 and 2002, borrowers again shifted their preference to fixed rate loans. As of June 30, 2002, ARMs, net of loans in process, represent 59% of the loan portfolio. Of the ARMs originated during the past three fiscal years, borrower's preferred initial fixed rate periods of three or five years. Because of the historically low market rates for single-family mortgage loans, the Bank intends to sell new loan production on a service-retained basis in the secondary mortgage market. This will allow the Bank to serve the customer's needs and retain a banking relationship without the risk of carrying a long-term fixed-rate loan on the books.

        The Bank is also managing interest rate risk by the origination of construction loans. As of June 30, 2002, such loans, net of loans in process, make up 16% of the Bank's loan portfolio. In general, these loans have higher yields, shorter maturities, and greater interest rate sensitivity than other real estate loans.

        The Bank constantly monitors its deposits in an effort to decrease their interest rate sensitivity. Rates of interest paid on deposits at the Bank are priced competitively in order to meet the Bank's asset/liability management objectives and spread requirements. As of June 30, 2001, the Bank's savings accounts, checking accounts, and money market deposit accounts totaled $58,644,912 or 34% of its total deposits. As of June 30, 2002, these accounts totaled $92,070,160 or 41% of total deposits. The weighted average rate paid on these accounts decreased 84 basis points from 2.19% on June 30, 2001 to 1.35% on June 30, 2002. The Bank believes, based on historical experience, that a substantial portion of such accounts represents non-interest rate sensitive, core deposits.

        In the year ending June 30, 2003, the Bank has the option to prepay $15.7 million of FHLB advances with a remaining average life of 5.5 years and a weighted average rate of 6.09%. The current FHLB advance rate with a similar average life is 4.59%, a 150 basis point savings. In the year ending June 30, 2004, the Bank has the option of prepaying an additional $15.9 million in advances with a weighted average rate of 5.84%. Also in the year ending June 30, 2004, the FHLB has the option to call $11.0 million of advances with a weighted average rate of 5.40% and a remaining life of five years.

        The following table sets forth as of June 30, 2002, the OTS estimate of the projected changes in net portfolio value ("NPV") in the event of 100, 200, and 300 basis point ("bp") instantaneous and permanent increases and a 100 basis point instantaneous and permanent decrease in market interest rates. Dollar amounts are expressed in thousands.

        With interest rates at historically low levels, the table demonstrates the negative impact of further declines in rates. The reduction in interest revenue due to loan prepayments and ARM rate adjustments would be more significant than declines in cost of funds. With an average core deposit rate of 1.35%, only certificate and FHLB advance rates would reflect the full impact of further rate reductions.

        Computations of prospective effects of hypothetical interest rate changes are calculated by the OTS from data provided by the Bank and are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit run-offs, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates.

        Management cannot predict future interest rates or their effect on the Bank's NPV in the future. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. Additionally, certain assets, such as adjustable rate loans, which represent the Bank's primary loan product, have an initial fixed rate period typically from one to five years and over the remaining life of the asset changes in the interest rate are restricted. In addition, the proportion of adjustable rate loans in the Bank's portfolio could decrease in future periods due to refinancing activity if market interest rates remain constant or decrease in the future. Further, in the event of a change in interest rates, prepayment and ear ly withdrawal levels could deviate significantly from those assumed in the table. Finally, the ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.

        The Bank's Board of Directors is responsible for reviewing the asset and liability policies. The Bank's management is responsible for administering the policies and determinations of the Board of Directors with respect to the Bank's asset and liability goals and strategies. Management expects that the Bank's asset and liability policies and strategies will continue as described above so long as competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in recent years.

        The Company's principal sources of funds for investments and operations are net income, deposits from its primary market area, principal and interest payments on loans and mortgage-backed securities, and proceeds from maturing investment securities. The Company considers deposits and FHLB advances as primary sources of funds.

        The Company's most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, and certificates of deposit with other financial institutions that have an original maturity of three months or less. The levels of such assets are dependent on the Bank's operating, financing, and investment activities at any given time. The Company's cash and cash equivalents totaled $16,963,502 as of June 30, 2002. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

        As of June 30, 2002, the Bank has conditional commitments in the form of letters of credit in the amount of $24,000. Outstanding loan commitments are $9,485,000. The Bank has granted unused lines of credit to borrowers aggregating approximately $12,472,000 and $11,205,000 for commercial lines and open-end consumer lines, respectively. The Bank has $81,586,808 in certificates of deposit that are scheduled to mature in one year or less. Management anticipates that the majority of these certificates will renew in the normal course of operations.

        Based on existing collateral as well as the Federal Home Loan Bank's limitation of advances to 35% of assets, the Bank has the ability to borrow an additional $20,846,000 from the FHLB. The Bank plans to maintain its Federal Home Loan Bank borrowings to a level that will provide a borrowing capacity sufficient to provide for contingencies.

        The Bank's capital position of $34,620,000 is 9.2% of total assets as of June 30, 2002. The Bank has an excess of $24,123,000, $16,692,000, and $13,145,000 of required regulatory levels of tangible, core, and risk-based capital, respectively. Under current regulatory guidelines, the Bank is classified as well capitalized.

        During fiscal year 2001, the Company purchased 824,754 shares of common stock in open market transactions with the intent to grant stock awards for 7,125 shares of common stock in accordance with the Bank's Restricted Stock Plan and to place 817,629 shares in the treasury stock account. During fiscal year 2002, the Company purchased 42,500 shares of common stock in open market transactions and 1,089,639 shares of common stock in private transactions to place in the treasury stock account. The Company intends to monitor the common stock price and, with regulatory approval, may from time to time initiate further treasury stock transactions in order to improve the Company's long-term earnings per share while at the same time maintaining an adequate level of stockholders' equity.

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

        Unlike most companies, the assets and liabilities of a financial institution are primarily monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation. In the current interest rate environment, liquidity and the maturity structure of the Bank's assets and liabilities are critical to the maintenance of acceptable performance levels.

The Financial Accounting Standards Board (FASB) recently adopted SFAS 141, "Business Combinations." This Statement establishes new standards for financial accounting and reporting for business combinations. This Statement eliminates the pooling-of-interests method and requires that all business combinations be accounted for using the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001 and to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. Initial adoption of SFAS 141 had no effect on the Company's financial statements.

        In April 1995, Guaranty Federal Savings & Loan Association reorganized from a federally chartered mutual savings and loan association into a mutual holding company, Guaranty Federal Bancshares, M. H. C. (the "MHC"). Concurrent with the reorganization, Guaranty Federal Savings Bank (the "Bank"), a stock savings bank was chartered. The Bank issued 3,125,000 shares of common stock in connection with the reorganization, the majority of which were owned by the MHC.

        On December 30, 1997, the MHC converted to Guaranty Federal Bancshares, Inc. (the "Company"), a Delaware-chartered stock corporation. In connection with the conversion and reorganization, the shares of the Bank held by the mutual holding company were extinguished along with the mutual holding company and the shares of the Bank held by the public were exchanged for 1,880,710 shares of the Company. Additional shares of the Company were sold to certain depositors of the Bank and to the trust of the employee stock ownership plan of the Bank as of December 30, 1997.

        The Company operates as a unitary savings and loan holding company. The Bank is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers in southwest Missouri. The Bank's subsidiary provides other services, such as insurance, annuities, and securities brokerage. The Bank is subject to competition from other financial institutions. The Company and the Bank are also subject to the regulation of certain federal agencies and undergo periodic examinations by those regulatory authorities.

        The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank, and the Bank's wholly-owned subsidiary, Guaranty Financial Services of Springfield, Inc. All significant intercompany profits, transactions and balances have been eliminated in consolidation.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties.

        Available-for-sale securities, which include any security for which the Company or the Bank has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the specific security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' equity. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity.

        Held-to-maturity securities, which include any security for which the Company or the Bank has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity.

        Interest and dividends on investments in debt and equity securities are included in income when earned.

        Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs. Forward commitments to sell mortgage loans are sometimes acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price plus the value of retained servicing rights and the carrying amount of the loans sold, net of discounts collected or paid and considering a normal servicing rate. Fees received from borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage lo ans are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used.

        Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance.

        The cost of originated mortgage-servicing rights is amortized over the shorter of the actual or contractual loan life. Impairment of mortgage-servicing rights is assessed based on the fair value of those rights. Fair values are estimated by discounting expected cash flows. For purposes of measuring impairment, the rights are stratified based on the loan type, remaining term to maturity and interest rate. The key assumptions used in the valuation include discount rates, prepayment speeds and servicing costs. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights exceeds their fair value.

        The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

        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, 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 more information becomes available.

        Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

        Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line and accelerated methods over the estimated useful lives of the assets.

        Loan origination fees, net of direct origination costs, are recognized as income over the term of the loan using the level-yield method. Loan servicing income represents fees earned for servicing real estate mortgage loans owned by various investors.

        Deferred tax liabilities and assets are recognized for the tax effect of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

        The Company considers all highly liquid interest-bearing deposits in other financial institutions with an initial maturity of three months or less to be cash equivalents.

        The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct and material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

        Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to adjusted tangible assets (as defined). Management believes, as of June 30, 2002, that the Bank meets all capital adequacy requirements.

        As of June 30, 2002, the most recent notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank's category.

        The Bank's actual capital amounts and ratios are also presented in the table. No amount was deducted from capital for interest-rate risk. Dollar amounts are expressed in thousands.

        The amount of dividends that the Bank may pay is subject to various regulatory limitations. As of June 30, 2002, no amounts were available from the Bank's retained earnings, without regulatory approval, for distribution as dividends.

        The computation for earnings per share for the years ended June 30, 2002, 2001 and 2000 is as follows:

        Options to purchase 15,000, 415,949 and 452,187 shares of common stock were outstanding during the years ended June 30, 2002, 2001 and 2000, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares.

        The Financial Accounting Standards Board (FASB) recently adopted SFAS 141, "Business Combinations." This Statement establishes new standards for financial accounting and reporting for business combinations. This Statement eliminates the pooling-of-interests method and requires that all business combinations be accounted for using the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001 and to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. Initial adoption of SFAS 141 had no effect on the Company's financial statements.

        The FASB recently adopted SFAS 142, "Goodwill and Other Intangible Assets". This Statement establishes new financial accounting and reporting standards for acquired goodwill and other intangible assets. The Statement addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. It also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company will first apply SFAS 142 in the first quarter of its fiscal year ending June 30, 2003. Adoption of SFAS 142 as of that date will have no initial effect on the Company's financial statements.

        The FASB recently adopted SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement addresses how and when to measure impairment on long-lived assets and how to account for long-lived assets that an entity plans to dispose of either through sale, abandonment, exchange or distribution to owners. The Statement also requires expected future operating losses from discontinued operations to be recorded in the period in which the losses are incurred rather than at the measurement date. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company will first apply SFAS 144 in the first quarter of its fiscal year ending June 30, 2003. Initial adoption SFAS 144 will have no effect on the Company's financial statements.

        The principal business of the Company is overseeing the business of the Bank. The Company has no significant assets other than its investment in the Bank. The banking operation is the Company's only reportable segment. The banking segment is principally engaged in the business of originating mortgage loans secured by one-to-four family residences and, to a lesser extent, multi-family, construction, commercial and consumer loans. These loans are funded primarily through the attraction of deposits from the general public, borrowings from the Federal Home Loan Bank and brokered deposits. Selected information is not presented separately for the Company's reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements.

        The amortized cost and approximate fair values of securities classified as available-for-sale securities are as follows:

        Maturities of available-for-sale debt securities as of June 30, 2002:

        The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $1,485,620 as of June 30, 2002 and $3,267,570 as of June 30, 2001. The approximate fair value of pledged securities amounted to $1,441,700 as of June 30, 2002 and $3,048,160 as of June 30, 2001.

        Proceeds from sales of available-for-sale securities were $2,945,061, $587,734 and $299,472 for the years ended June 30, 2002, 2001 and 2000, respectively, with resultant gains of $784,557, $198,118 and $38,798, and resultant losses of $3,816 in June 30, 2002. There were no losses as a result of sales for the years ended June 30, 2001 and June 30, 2000.

        Impaired loans totaled $1,751,139 as of June 30, 2002, and $4,947,916 as of June 30, 2001, with a related allowance for loan losses of $168,519 and $413,409, respectively. As of June 30, 2002 and 2001, respectively, impaired loans of $663,587 and $1,980,928 had no related allowance for loan losses.

        Interest of $475,190, $586,156, and $182,182 was recognized on average impaired loans of $3,165,567, $5,929,505 and $1,458,934 for 2002, 2001, and 2000, respectively. Interest of $262,402, $339,220, and $127,819 was recognized on impaired loans on a cash basis during 2002, 2001, and 2000, respectively.

        The weighted average interest rate on loans as of June 30, 2002 and 2001 was 6.62% and 7.76%, respectively.

        The Bank serviced mortgage loans for others amounting to $90,384,363, $51,451,459, and $21,554,961 as of June 30, 2002, 2001, and 2000, respectively. The Bank serviced commercial loans for others amounting to $4,877,246 and $976,594 as of June 30, 2002 and 2001, respectively.

        Depreciation expense was $1,020,070, $622,855, and $497,086 for the years ended June 30, 2002, 2001, and 2000, respectively

        The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately $15,107,000 and $12,313,000 as of June 30, 2002 and 2001, respectively.

        A summary of certificates of deposit by maturity as of June 30, 2002, is as follows:

        A summary of interest expense on deposits is as follows:

        The Bank utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits was approximately $22,000,000 and $20,558,000 as of June 30, 2002 and June 30, 2001, respectively.

        Federal Home Loan Bank advances consist of the following:

        As of June 30, 2002, the Bank had advances equal to $11,000,000 with a weighted average rate of 5.40% callable between July 30, 2003 and October 20, 2003 at the FHLB's option with a maturity date between July 30, 2008 and October 20, 2008.

        The FHLB requires the Bank to maintain collateral equal to outstanding balances of advances. For collateral purposes, the FHLB values mortgage loans free of other pledges, liens and encumbrances at 80% of their fair value, and investment securities free of other pledges, liens and encumbrances at 95% of their fair value.

        The Company files a consolidated federal income tax return. In computing federal income taxes for taxable years prior to July 1, 1996, the Bank has been allowed an 8% deduction from otherwise taxable income as a statutory bad debt deduction, subject to limitations based on aggregate loans and savings balances. In August 1996 this statutory bad debt deduction was repealed and is no longer available for thrifts. In addition, bad debt reserves accumulated after 1987, which are presently included as a component of the net deferred tax liability, must be recaptured over a six-year period beginning in 1999. The amount of the deferred tax liability which must be recaptured is $112,000 and $169,000 as of June 30, 2002 and 2001, respectively.

        As of June 30, 2002, and 2001, retained earnings included approximately $5,075,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $1,878,000 as of June 30, 2002 and 2001.

        The provision for income taxes consists of:

        The tax effects of temporary differences related to deferred taxes shown on the June 30, 2002 and 2001, balance sheets are:

        A reconciliation of income tax expense at the statutory rate to income tax expense at the Company's effective rate is shown below:

        Missouri law provides that savings banks will be taxed based on an annual privilege tax of 7% of net income. The privilege tax is included in provision for income taxes.

        Deferred tax liabilities decreased $587,664 for 2002, increased $909,880 for 2001 and decreased $617,542 for 2000, as the result of changes in unrealized appreciation on available-for-sale securities, shown in stockholders' equity.

        The following table presents estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

        The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

        The carrying amounts reported in the balance sheets for cash and cash equivalents approximate those assets' fair value.

        Fair values for investment securities equal quoted market prices, if available. If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities.

        The carrying amount of accrued interest receivable approximates its fair value.

        Fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

        The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics are aggregated for purposes of the calculations.

        The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

        Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate fair value of existing advances.

        For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

        The carrying amounts of accrued interest payable and dividend payable approximates their fair value.

        The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

        Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the footnote regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk.

        The Company has established four stock award plans for the benefit of certain directors, officers and employees of the Bank and its subsidiary. The plans provide a proprietary interest in the Company in a manner designed to encourage these individuals to remain with the Bank. A Committee of the Bank's Board of Directors administers the plans. The Company accounts for the cost of share purchases under the plans as a reduction of stockholders' equity. The awards vest at the rate of 20% per year over a five-year period. Compensation expense is recognized based on the Company's stock price on the date the shares are awarded to employees.

        At the annual stockholders' meeting on October 18, 1995, the Bank's stockholders approved the Recognition and Retention Plan (the "RRP"). Following approval of the Plan, the Bank contributed $464,643 to a separate trust to purchase the 75,106 shares of the Company's common stock in the RRP. As of June 30, 2002, there are 2,849 shares in this plan that are not vested and 2,131 that are unallocated.

        At a special stockholders' meeting on July 22, 1998, the Company's stockholders approved the Restricted Stock Plan (the "RSP"). Following approval of the Plan, the Company contributed $2,373,065 to a separate trust to purchase the 173,632 shares in the RSP. As of June 30, 2002 there are 56,576 shares in this plan that are not vested and 5,706 that are unallocated.

        During the year ended June 30, 2000, the directors of the Company established the Stock Compensation Plan (the "2000 SCP") with both a stock award component and a stock option component. Under the stock award component of this plan, the Committee awarded 7,125 shares of the Company's common stock. Following approval of the Plan, the Company contributed $85,945 to a separate trust to purchase the 7,125 shares in the SCP. As of June 30, 2002 there are 4,275 shares in this plan that are not vested.

        During the year ended June 30, 2001, the directors of the Company established the Stock Compensation Plan (the "2001 SCP") with both a stock award component and a stock option component. Under the stock award component of this plan, the Committee awarded 10,239 shares of the Company's common stock. The shares for this plan were taken from forfeited shares in the RSP. As of June 30, 2002, none of the shares in this plan are vested.

        The Bank recognized $401,403, $464,032, and $496,320 of expense under these stock award plans in the years ended June 30, 2002, 2001, and 2000 respectively.

        The Company has established four stock option plans for the benefit of certain directors, officers and employees of the Bank and its subsidiary. A committee of the Company's Board of Directors administers the plans. The stock options under these plans may be either incentive stock options or nonqualified stock options. Incentive stock options can be granted only to participants who are employees of the Bank or its subsidiary. The option price must not be less than the market value of the Company stock on the date of grant. All options expire no later than ten years from the date of grant. The options vest at the rate of 20% per year over a five-year period.

        At the annual stockholders' meeting on October 18, 1995, the Bank's stockholders approved the 1994 Stock Option and Incentive Plan for the benefit of certain directors, officers and employees of the Bank and its subsidiary. Under this Plan, the Committee may grant stock options for up to 187,764 shares of the Company's common stock.

        At a special stockholders' meeting on July 22, 1998, the Company's stockholders approved the 1998 Stock Option and Incentive Plan. Under this plan, the Committee may grant stock options for up to 434,081 shares of the Company's common stock.

        Under the stock option component of the 2000 SCP, the Committee granted nonqualified stock options for 17,875 shares of the Company's common stock.

        Under the stock option component of the 2001 SCP, the Committee had granted no nonqualified stock options as of June 30, 2002.

        The table below summarizes transactions under the Company's stock option plans:

        The fair value of each option granted is estimated on the date of the grant using the Black-Scholes pricing model with the following weighted-average assumptions:

        The following table summarizes information about stock options under the plans outstanding as of June 30, 2002:

        The Company applies APB Opinion 25 and related Interpretations in accounting for its plans, and no compensation cost has been recognized for the plans. Had compensation cost for the plans been determined based on the fair value at the dates using Statement of Financial Accounting Standards No. 123, the Company's net income would have decreased by $174,142, $200,548, and $184,117 for the years ended June 30, 2002, 2001, and 2000, respectively. Earnings per share basic and diluted would have decreased by $0.05 for the year ended June 30, 2002, $0.05 for the year ended June 30, 2001 and $0.04 for the year ended June 30, 2000. The effects of applying this Statement for either recognizing compensation cost or providing pro forma disclosures are not likely to be representative of the effects on reported net income for future years because options vest over several years and additional awards generally are made ea ch year.

        The Bank sponsors an internally-leveraged Employee Stock Ownership Plan (ESOP). All employees are eligible to participate after they attain age twenty-one and complete twelve consecutive months of service during which they work at least 1,000 hours. The ESOP borrowed $3,444,540 from the Company and purchased 344,454 shares of the common stock of the Company. The ESOP debt is secured by shares of the Company. The loan will be repaid from contributions to the ESOP as approved annually by the Bank's Board of Directors. As the debt is repaid, shares are released from collateral and allocated to employees' accounts. The shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. When shares are committed for release, the shares become outstanding for earnings per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earn ings and may be paid directly to participants or credited to their account; dividends on unallocated ESOP shares are recorded as a reduction of the unearned ESOP shares and accrued interest. Compensation expense is recognized ratably based on the average fair value of shares committed to be released. Compensation expense attributed to the ESOP was $319,275, $268,624, and $248,742 for the years ended June 30, 2002, 2001,and 2000 respectively.

        The following is a summary of ESOP shares as of June 30, 2002:

        Certain directors and executive officers of the Company and the Bank were customers of and had transactions with the Bank in the ordinary course of business. As of June 30, 2002 and 2001, loans outstanding to these directors and executive officers amounted to $302,518 and $471,709, respectively.

        In management's opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management's opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

        Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate.

        Forward commitments to sell mortgage loans are obligations to deliver loans at a specified price on or before a specified date. The Bank acquires such commitments to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. As of June 30, 2002 and 2001 the Bank had approximately $4,793,000 and $3,896,000, respectively, of commitments outstanding.

        Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

        The Bank had total outstanding letters of credit amounting to $24,000 and $37,000 as of June 30, 2002 and 2001, respectively, with terms ranging from 30 days to 2 years.

        Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer's credit worthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on balance sheet instruments.

        As of June 30, 2002, unused lines of credit to borrowers aggregated approximately $12,472,000 for commercial lines and $11,205,000 for open-end consumer lines. As of June 30, 2001, unused lines of credit to borrowers aggregated approximately $12,836,000 for commercial lines and $8,991,000 for open-end consumer lines.

        The condensed balance sheets as of June 30, 2002 and 2001, and statements of income and cash flows for the years ended June 30, 2002, 2001 and 2000, for the parent company, Guaranty Federal Bancshares, Inc., are as follows:

Board of Directors
Guaranty Federal Bancshares, Inc.
Springfield, Missouri

We consent to the incorporation by reference in Registration Statement Nos. 333-47241, 333-31196, 333-65544 and 333-83822 on Forms S-8 of Guaranty Federal Bancshares, Inc. of our report dated July 24, 2002, relating to the consolidated balance sheets of Guaranty Federal Bancshares, Inc. as of June 30, 2002 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2002, which report appears in the Annual Report on Form 10-K of Guaranty Federal Bancshares, Inc. for the year ended June 30, 2002.

/s/ BKD, LLP

In connection with the Annual Report of Guaranty Federal Bancshares, Inc. (the "Company") on Form 10-K for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bruce Winston, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: