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. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

For the quarter ended September 30, 2004

OR

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

For the transition period from _______ to _______

Commission number 0-23325

Guaranty Federal Bancshares, Inc.
(Exact name of registrant as specified in its charter)

Delaware
43-1792717
   
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
  
1341 West Battlefield
  
Springfield, Missouri
65807
(Address of principal executive offices)
(Zip Code)

Telephone Number: (417) 520-4333

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

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

Yes ___ No X

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class
Outstanding at November 12, 2004
Common Stock, Par Value $0.10
3,013,154 Shares
   
       
GUARANTY FEDERAL BANCSHARES, INC.
       
TABLE OF CONTENTS
Item
    
Page
PART I. Financial Information
       
1. Financial Statements
Consolidated Financial Statements (Unaudited):
  
 
Statements of Financial Condition
3
 
Statements of Income
  
4
 
Statements of Stockholders’ Equity
5
 
Statements of Cash Flows
  
7
 
Notes to Consolidated Financial Statements
8
       
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
       
3. Quantitative and Qualitative Disclosures about Market Risk
15
       
4. Control and Procedures
  
17
       
PART II. Other Information
       
1. Legal Proceedings
 
18
       
2. Unregistered Sales of Equity Securities and Use of Proceeds
18
       
3. Defaults Upon Senior Securities
  
18
       
4. Submission of Matters to a Vote of Security Holders
18
       
5. Other Information
  
19
       
6. Exhibits
 
19
       
Signatures
      
       
   
       
   


2

     


PART I
Item 1. Financial Statements
GUARANTY FEDERAL BANCSHARES, INC.
  
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  
SEPTEMBER 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003
  
           
ASSETS
    
9/30/04
    
12/31/03
  
Cash
 
$
10,933,840
   
20,686,276
 
Interest-bearing deposits in other financial institutions
   
1,457,955
   
1,970,518
 
Cash and cash equivalents
   
12,391,795
   
22,656,794
 
Available-for-sale securities
   
14,843,279
   
14,863,826
 
Held-to-maturity securities
   
1,421,277
   
1,867,594
 
Stock in Federal Home Loan Bank, at cost
   
5,675,500
   
5,294,200
 
Mortgage loans held for sale
   
2,498,423
   
1,268,064
 
Loans receivable, net of allowance for loan losses of
             
September 30, 2004 - $4,337,309 - December 31, 2003 - $3,886,137
   
384,239,232
   
330,861,875
 
Accrued interest receivable:
             
Loans
   
1,379,596
   
1,242,683
 
Investments
   
68,550
   
63,045
 
Prepaid expenses and other assets
   
2,219,458
   
2,057,195
 
Foreclosed assets held for sale
   
59,000
   
5,975
 
Premises and equipment
   
6,709,806
   
6,576,003
 
   
$
431,505,916
   
386,757,254
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
               
LIABILITIES
             
Deposits
 
$
272,262,236
   
237,130,744
 
Federal Home Loan Bank advances
   
115,086,000
   
108,836,948
 
Securities sold under agreements to repurchase
   
1,398,917
   
738,399
 
Advances from borrowers for taxes and insurance
   
1,050,194
   
259,267
 
Accrued expenses and other liabilities
   
268,293
   
535,992
 
Accrued interest payable
   
284,081
   
200,770
 
Dividend payable
   
449,570
   
432,513
 
Deferred income taxes
   
576,252
   
644,500
 
     
391,375,543
   
348,779,133
 
STOCKHOLDERS' EQUITY
             
Common Stock:
             
$0.10 par value; authorized 10,000,000 shares;
             
issued; September 30, 2004 - 6,489,323 shares;
             
December 31, 2003 - 6,428,902 shares
   
648,932
   
642,890
 
Additional paid-in capital
   
52,240,388
   
51,330,202
 
Unearned ESOP shares
   
(1,857,930
)
  
(2,030,930
)
Retained earnings, substantially restricted
   
31,743,768
   
29,919,695
 
Accumulated other comprehensive income
             
Unrealized appreciation on available-for-sale securities,
             
net of income taxes; September 30, 2004 - $1,558,625;
             
December 31, 2003 - $1,565,830
   
2,653,875
   
2,666,143
 
     
85,429,033
   
82,528,000
 
Treasury stock, at cost; September 30, 2004 - 3,475,283 shares;
             
December 31, 2003 - 3,436,650 shares
   
(45,298,660
)
  
(44,549,879
)
     
40,130,373
   
37,978,121
 
   
$
431,505,916
   
386,757,254
 



GUARANTY FEDERAL BANCSHARES, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
 
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
 
                   
                   
   
Three months ended
 
Nine months ended
 
   
9/30/2004
  
9/30/2003
  
9/30/2004
  
9/30/2003
  
INTEREST INCOME
                         
Loans
 
$
5,054,477
   
4,842,640
   
14,506,636
   
14,944,212
 
Investment securities
   
69,531
   
66,878
   
215,551
   
254,953
 
Other
   
68,326
   
87,575
   
183,413
   
289,452
 
     
5,192,334
   
4,997,093
   
14,905,600
   
15,488,617
 
INTEREST EXPENSE
   
   
             
Deposits
   
1,257,353
   
1,204,966
   
3,519,552
   
3,886,236
 
Federal Home Loan Bank advances
   
863,922
   
1,120,549
   
2,584,899
   
3,795,820
 
Other
   
1,948
   
988
   
3,870
   
3,284
 
     
2,123,223
   
2,326,503
   
6,108,321
   
7,685,340
 
NET INTEREST INCOME
   
3,069,111
   
2,670,590
   
8,797,279
   
7,803,277
 
PROVISION FOR LOAN LOSSES
   
225,000
   
212,000
   
638,830
   
617,000
 
NET INTEREST INCOME AFTER
                     
 
PROVISION FOR LOAN LOSSES
   
2,844,111
   
2,458,590
   
8,158,449
   
7,186,277
 
NONINTEREST INCOME
   
   
             
Service charges
   
529,914
   
471,889
   
1,415,050
   
1,366,024
 
Late charges and other fees
   
73,210
   
142,596
   
287,040
   
267,471
 
Gain on sale of investment securities
   
192,799
   
-
   
542,212
   
-
 
Gain on sale of loans
   
116,310
   
559,033
   
314,421
   
1,433,850
 
Income (loss) on foreclosed assets
   
2,498
   
5,234
   
(2,520
)
  
(3,801
)
Other income
   
42,503
   
52,502
   
127,927
   
104,305
 
     
957,234
   
1,231,254
   
2,684,130
   
3,167,849
 
NONINTEREST EXPENSE
   
   
             
Salaries and employee benefits
   
1,142,748
   
1,113,385
   
3,439,661
   
3,431,978
 
Occupancy
   
322,169
   
333,186
   
888,480
   
982,129
 
SAIF deposit insurance premiums
   
8,898
   
9,100
   
26,757
   
27,634
 
Data processing
   
98,411
   
96,140
   
323,748
   
288,950
 
Advertising
   
63,142
   
70,850
   
213,974
   
183,706
 
Other expense
   
408,055
   
372,624
   
1,273,192
   
1,200,551
 
     
2,043,423
   
1,995,285
   
6,165,812
   
6,114,948
 
INCOME BEFORE INCOME TAXES
   
1,757,922
   
1,694,559
   
4,676,767
   
4,239,178
 
PROVISION FOR INCOME TAXES
   
601,548
   
617,862
   
1,536,225
   
1,346,862
 
NET INCOME
 
$
1,156,374
   
1,076,697
   
3,140,542
   
2,892,316
 
     
   
             
BASIC EARNINGS PER SHARE
 
$
0.41
   
0.39
   
1.12
   
1.04
 
DILUTED EARNINGS PER SHARE
 
$
0.40
   
0.38
   
1.08
   
1.02
 


See Notes to Condensed Consolidated Financial Statements

     


GUARANTY FEDERAL BANCSHARES, INC.
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED)
 
           
 
      
 
          
   
Common Stock
 
Additional Paid-In Capital
 
Unearned ESOP Shares
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total
 
Balance, January 1, 2004
 
$
642,890
   
51,330,202
   
(2,030,930
)
  
(44,549,879
)
  
29,919,695
   
2,666,143
   
37,978,121
 
Comprehensive income
                                           
Net income
   
-
   
-
   
-
   
-
   
3,140,542
   
-
   
3,140,542
 
Change in unrealized appreciation
                                           
on available-for-sale securitites, net
                                           
of income taxes of $7,205
   
-
   
-
   
-
   
-
   
-
   
(12,268
)
  
(12,268
)
Total comprehensive income
                                       
3,128,274
 
Dividends ($0.47 per share)
   
-
   
-
   
-
   
-
   
(1,316,469
)
  
-
   
(1,316,469
)
Stock award plans
   
-
   
62,607
   
-
   
-
   
-
   
-
   
62,607
 
Stock options exercised
   
6,042
   
684,242
   
-
   
-
   
-
   
-
   
690,284
 
Release of ESOP shares
   
-
   
163,337
   
173,000
   
-
   
-
   
-
   
336,337
 
Treasury stock purchased
   
-
   
-
   
-
   
(748,781
)
  
-
   
-
   
(748,781
)
Balance, September 30, 2004
 
$
648,932
   
52,240,388
   
(1,857,930
)
  
(45,298,660
)
  
31,743,768
   
2,653,875
   
40,130,373
 















GUARANTY FEDERAL BANCSHARES, INC.
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
NINE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
 
           
 
      
 
          
   
Common Stock
 
Additional Paid-In Capital
 
Unearned ESOP Shares
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total
 
Balance, January 1, 2003
 
$
638,003
   
50,195,997
   
(2,281,070
)
  
(43,193,917
)
  
28,299,337
   
2,609,285
   
36,267,635
 
Net income
   
-
   
-
   
-
   
-
   
2,892,316
   
-
   
2,892,316
 
Change in unrealized appreciation
                                           
on available-for-sale securities, net
                                           
of income taxes of ($261,803)
   
-
   
-
   
-
   
-
   
-
   
(445,773
)
  
(445,773
)
Total comprehensive income
                                       
2,446,543
 
Dividends ($0.455 per share)
   
-
   
-
   
-
   
-
   
(1,262,909
)
  
-
   
(1,262,909
)
Stock award plans
   
-
   
404,046
   
-
   
-
   
-
   
-
   
404,046
 
Stock options exercised
   
4,625
   
520,777
   
-
   
-
   
-
   
-
   
525,402
 
Release of ESOP shares
   
-
   
112,644
   
187,140
   
-
   
-
   
-
   
299,784
 
Treasury stock purchased
   
-
   
-
   
-
   
(1,292,463
)
  
-
   
-
   
(1,292,463
)
Balance, September 30, 2003
 
$
642,628
   
51,233,464
   
(2,093,930
)
  
(44,486,380
)
  
29,928,744
   
2,163,512
   
37,388,038
 


See Notes to Condensed Consolidated Financial Statements
     



GUARANTY FEDERAL BANCSHARES, INC
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
 
   
9/30/2004
  
9/30/2003
  
CASH FLOWS FROM OPERATING ACTIVITIES
         
Net income
 
$
3,140,542
   
2,892,316
 
Items not requiring (providing) cash:
             
Deferred income taxes
   
(61,044
)
  
(159,130
)
Depreciation
   
463,212
   
570,233
 
Provision for loan losses
   
638,830
   
617,000
 
Gain on loans and investment securities
   
(856,633
)
  
(1,433,850
)
Loss on sale of premises and equipment
   
2,685
   
37,761
 
Loss on sale of foreclosed assets
   
1,949
   
8,674
 
Amortization of deferred income, premiums and discounts
   
55,147
   
(3,071
)
Stock award plan expense
   
42,690
   
218,460
 
Origination of loans held for sale
   
(20,386,987
)
  
(66,997,626
)
Proceeds from sale of loans held for sale
   
19,471,049
   
70,270,559
 
Release of ESOP shares
   
336,337
   
299,784
 
Changes in:
   
   
 
Accrued interest receivable
   
(142,418
)
  
83,364
 
Prepaid expenses and other assets
   
(162,263
)
  
(168,024
)
Accounts payable and accrued expenses
   
49,077
   
223,557
 
Income taxes payable
   
(213,766
)
  
139,692
 
Net cash provided by (used in) operating activities
   
2,378,407
   
6,599,699
 
CASH FLOWS FROM INVESTING ACTIVITIES
   
       
Net increase in loans
   
(54,543,075
)
  
(10,120,551
)
Principal payments on held-to-maturity securities
   
459,047
   
817,350
 
Proceeds from maturities of available-for-sale securities
   
4,500,000
   
3,500,000
 
Purchase of premises and equipment
   
(606,200
)
  
(42,116
)
Proceeds from sale of premises and equipment
   
6,500
   
-
 
Purchase of available-for-sale securities
   
(4,480,186
)
  
(3,482,010
)
Proceeds from sale of available-for-sale securities
   
551,023
   
-
 
Proceeds from sale of FHLB stock
   
-
   
3,728,500
 
Purchase of FHLB stock
   
(381,300
)
  
-
 
Proceeds from sale of foreclosed assets
   
376,488
   
73,109
 
Purchase of other investments
   
-
   
(106,000
)
Net cash used in investing activities
   
(54,117,703
)
  
(5,631,718
)
CASH FLOWS FROM FINANCING ACTIVITIES
             
Stock options exercised
   
690,284
   
525,403
 
Cash dividends paid
   
(1,299,412
)
  
(1,267,925
)
Cash dividends received on RRP stock
   
217
   
1,233
 
Net increase in demand deposits,
   
   
 
NOW accounts and savings accounts
   
8,553,582
   
10,664,887
 
Net increase (decrease) in certificates of deposit and securities sold
         
-
 
under agreements to repurchase
   
27,238,428
   
(4,541,109
)
Proceeds from FHLB advances
   
156,000,000
   
165,500,000
 
Repayments of FHLB advances
   
(149,750,948
)
  
(170,373,503
)
Advances from borrowers for taxes and insurance
   
790,927
   
802,417
 
Treasury stock purchased
   
(748,781
)
  
(1,113,081
)
Net cash provided by financing activities
   
41,474,297
   
198,322
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(10,264,999
)
  
1,166,303
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
22,656,794
   
13,210,836
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
12,391,795
   
14,377,139
 


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.

The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2003 filed with the Securities and Exchange Commission. The condensed consolidated statement of financial condition of the Company as of December 31, 2003, has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.

Note 2: Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Guaranty Federal Bancshares, Inc. (the "Company"), its wholly owned subsidiary, Guaranty Bank (the "Bank") and the wholly-owned subsidiary of the Bank, Guaranty Financial Services of Springfield, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.
Note 3: Benefit Plans

The Company has established stock option and 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.

On October 18, 1995, the Company’s stockholders voted to approve both a Recognition and Retention Plan ("RRP") and a Stock Option Plan ("SOP"). On July 22, 1998, the Company’s stockholders voted to approve both a 1998 Restricted Stock Plan ("RSP") and a 1998 Stock Option Plan ("1998 SOP"). The RRP and RSP authorized shares to be issued to directors, officers and employees of the Bank. On February 17, 2000, the directors of the Company established the 2000 Stock Compensation Plan (the "2000 SCP") with both a stock award component and a stock option component. On March 22, 2001, the directors of the Company established the 2001 Stock Compensation Plan (the "2001 SCP") with both a stock award component and a stock option component. In September of 2003 and March of 2004, the directors of the Company authorized the issuance of 5,000 and 25,000 stock options, respectively, as an employment inducement to new officers of the Bank pursuant to stock option agreements. Stock options awarded under these agreements are considered non-qualified for federal income tax purposes. On May 19, 2004, the Company’s stockholders voted to approve a 2004 Stock Option Plan ("2004 SOP"). The purpose of the plan is to attract and ret ain qualified personnel for positions of substantial responsibility. The aggregate number of shares with respect to options issued under this plan shall not exceed 250,000 shares. To date no options have been granted under this plan. As of September 30, 2004, all of the RRP, RSP, 2000 SCP and 2001 SCP shares have been purchased and awarded. As of September 30, 2004, there are 8,319 shares that are not vested. The Company is amortizing the RRP, RSP and SCP expense over each participant’s vesting period. The Company recognized $42,690 and $190,670 of expense under these stock award plans for the nine month periods ended September 30, 2004 and 2003, respectively. The SOP, 1998 SOP, 2000 SCP, 2001 SCP and the 2004 SOP authorized stock options on shares to be issued to officers and employees of the Bank. As of September 30, 2004, all options except those on 294,237 shares have been granted. The RRP, RSP, SOP, 1998 SOP, 2000 SCP, 2001 SCP and 2004 SOP vest over a five year period. As of September 30, 2004, there were 379,401 unexercised options that have been granted at prices ranging from $5.83 to $19.62 per share and 270,914 of these options are exercisable.

The Company accounts for its stock option plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.

   
Three Months ended
 
Nine Months ended
 
   
September 30,
  
September 30,
  
   
2004
  
2003
  
2004
  
2003
  
                   
Net income, as reported
  
$
1,156,374
   
1,076,697
   
3,140,542
   
2,892,316
 
Less: Total stock-based employee compensation
                          
cost determined under the fair value-based
                          
method, net of income taxes
    
(8,882
)
  
(6,492
)
  
(27,414
)
  
(90,954
)
                           
Pro forma net income
  
$
1,147,492
   
1,070,205
   
3,113,128
   
2,801,362
 
                           
Earnings per share:
                          
Basic - as reported
  
$
0.41
   
0.39
   
1.12
   
1.04
 
Basic - pro forma
  
$
0.41
   
0.38
   
1.11
   
1.01
 
Diluted - as reported
  
$
0.40
   
0.38
   
1.08
   
1.01
 
Diluted - pro forma
  
$
0.39
   
0.37
   
1.07
   
0.98
 

Note 4: Earnings Per Share
   
For three months ended September 30, 2004
 
For nine months ended September 30, 2004
 
   
Income Available to Stockholders
 
Average Shares Outstanding
 
Per-share
 
Income Available to Stockholders
 
Average Shares Outstanding
 
Per-share
 
Basic Earnings per Share
 
$
1,156,374
   
2,813,505
 
$
0.41
 
$
3,140,542
   
2,803,065
 
$
1.12
 
Effect of Dilutive Securities:
                                     
Stock Options
         
105,574
   
         
104,602
   
 
Diluted Earnings per Share
 
$
1,156,374
   
2,919,079
 
$
0.40
 
$
3,140,542
   
2,907,667
 
$
1.08
 
                                       
For three months ended September 30, 2003
   
For nine months ended September 30, 2003
Income Available to Stockholders
         
Average Shares Outstanding
   
Per-share
   
Income Available to Stockholders
   
Average Shares Outstanding
   
Per-share
 
Basic Earnings per Share
 
$
1,076,697
   
2,780,720
 
$
0.39
 
$
2,892,316
   
2,787,409
 
$
1.04
 
Effect of Dilutive Securities:
                                 
 
Stock Options
         
88,208
   
         
73,014
       
Diluted Earnings per Share
 
$
1,076,697
   
2,868,928
 
$
0.38
 
$
2,892,316
   
2,860,423
 
$
1.01
 


Note 5: Other Comprehensive Income

   
9/30/2004
  
9/30/2003
  
Unrealized gains (losses) on
 
$
(19,473
)
  
(707,576
)
available-for-sale securities
             
Tax expense (benefit)
   
(7,205
)
  
(261,803
)
OTHER COMPREHENSIVE INCOME (LOSS)
 
$
(12,268
)
  
(445,773
)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The primary function of the Company has been to monitor its investment in the Bank. As a result, the results of operations of the Company are derived primarily from operations of the Bank. The Bank’s results of operations are primarily dependent on net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Bank’s income is also affected by the level of its noninterest expenses, such as employee salaries and benefits, occupancy expenses and other expenses. The following discussion reviews the Company’s financial condition at September 30, 2004, and the results of operations for the three months and nine months ended September 30, 2004 and 2003. In 2003 and in co njunction with the Bank’s conversion to a state-chartered trust company with banking powers, the Company decided to change its fiscal year end from June 30 to a calendar year end of December 31. The Company reported a six-month transition period ended December 31, 2003 in order to change to this new calendar year end.

The discussion set forth below, as well as other portions of this Form 10-Q, 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 Form 10-Q. When used in this Form 10-Q, words such as "anticipates," "estimates," "believes," "expects," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Such statements are subject to risks and uncertainties. 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; and other factors set forth in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time.

Financial Condition

The Company’s total assets increased $44,748,662 (12%) from $386,757,254 as of December 31, 2003, to $431,505,916 as of September 30, 2004.

Interest-bearing deposits in other financial institutions decreased $512,563 (26%) from $1,970,518 as of December 31, 2003, to $1,457,955 as of September 30, 2004, as funds from these deposits were used to fund new loans.

Securities available-for-sale decreased $20,547, (0.1%) from $14,863,826 as of December 31, 2003, to $14,843,279 as of September 30, 2004. The Bank continues to hold 71,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of $70,504 in the available-for-sale category. As of September 30, 2004, the gross unrealized gain on the FHLMC stock was $4,632,040, an increase from $4,587,264 as of December 31, 2003.

Securities held-to-maturity decreased primarily due to principal repayments by $446,317 (24%) from $1,867,594 as of December 31, 2003, to $1,421,277 as of September 30, 2004.

Stock in Federal Home Loan Bank of Des Moines ("FHLB") increased by $381,300 (7%), due to the purchase of such stock necessary to meet FHLB requirements.

Net loans receivable increased by $53,377,357 (16%) from $330,861,875 as of December 31, 2003, to $384,239,232 as of September 30, 2004. Commercial loans increased by $43,233,479 (45%) from $96,723,175 as of December 31, 2004, to $139,956,654 as of September 30, 2004. The Bank plans to continue its emphasis on commercial lending. In addition, the Bank is selling conforming loans on single family residences, while in some cases retaining the servicing rights. As a result, permanent mortgage loans secured by both owner and non-owner occupied residential real estate decreased by $11,280,671 (9%), while residential loans sold decreased by $1,381,313 (1%). Loans held for sale increased $1,230,359 (97%) to $2,498,423 at September 30, 2004, compared to $1,268,064 at December 31, 2003. The Bank continued to be active in construction lending. Construction loans, however, decreased by $2,469,375 (5%) to $47,344,942 at September 30, 2004, compared to $49,814,316 at December 31, 2003. See discussion under "Quantitative and Qualitative Disclosure about Market Risk - Asset/Liability Management." Loan growth is anticipated to continue and represents a major part of the Bank’s planned asset growth.

Allowance for loan losses increased $451,172 (12%) from $3,886,137 as of December 31, 2003 to $4,337,309 as of September 30, 2004. The allowance increased due to the provision for loan losses of $638,830 recorded during this period exceeding net loan charge-offs of $187,558 during this period. Management of the Company decided to increase the allowance for loan losses by this provision charge primarily as a result of the continued growth of the Bank’s loan portfolio, particularly its commercial loan portfolio. See discussion under "Results of Operations - Comparison of Three Month and Nine Month Periods Ended September 30, 2004 and 2003 - Provision for Loan Losses." < FONT style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman, serif">The allowance for loan losses as of September 30, 2004 and December 31, 2003 was 1.21% and 1.17%, respectively, of average net loans outstanding. As of September 30, 2004, the allowance for loan losses was 66% of impaired loans versus 54% as of December 31, 2003.

Premises and equipment increased $133,803 (2%) from $6,576,003, as of December 31, 2003 to $6,709,806 as of September 30, 2004, primarily due to the purchase of new equipment in excess of depreciation recognized on these assets.
Deposits increased $35,131,492 (15%) from $237,130,744 as of December 31, 2003, to $272,262,236 as of September 30, 2004. For the nine months ended September 30, 2004, checking and savings accounts increased by $8,553,582 (7%) while certificates of deposits increased by $26,577,910 (22%). The increase in certificates of deposit was primarily due to an increase in brokered deposits of $31,847,369 (134%) during the period. See also the discussion under "Quantitative and Qualitative Disclosure about Market Risk - Asset/Liability Management."

FHLB advances increased by $6,249,052 (6%) from $108,836,948 as of December 31, 2003, to $115,086,000 as of September 30, 2004, due to new advances exceeding the repayments. These funds were primarily used to fund new loans.
As a part of management’s review of available funding, management continually evaluates the cost of FHLB advances and the cost of the national brokered certificate of deposit market versus retail certificate of deposits in the local market. The aggregate of brokered certificate of deposits include both the cost of the interest paid to the depositor and the fee paid to the broker. At times, the all-inclusive cost of brokered certificate of deposits is less that the marginal cost of increasing local retail certificate of deposits. Management believes a combination of these three sources of funds will provide the lowest cost long-term funding.

Advances from borrowers for taxes and insurance increased $790,927 (305%) from $259,267 as of December 31, 2003, to $1,050,194 as of September 30, 2004 due to the timing of payment of real estate taxes.
Stockholders’ equity (including unrealized appreciation on securities available-for-sale, net of tax) increased $2,152,252 (6%) from $37,978,121 as of December 31, 2003, to $40,130,373 as of September 30, 2004. This increase was due to several factors. The Company’s net income during this period was $3,140,542 which was partially offset by dividends in the amount of $434,069 ($0.155 per share) which were paid on April 14, 2004, to stockholders’ of record as of March 30, 2004, $432,698 ($0.155 per share) which were declared on June 24, 2004 and paid on July 15, 2004, to stockholders’ of record as of July 1, 2004, and $449,570 ($0.16 per share) which were declared prior to September 30, 2004 and paid on October 15, 2004, to stockholders’ of record as of October 1, 2004. In addition, the increase in stockholders’ equity was further offset as the Company repurchased 38,633 shares of treasury stock at an aggregate cost of $748,781 (an average cost of $19.38 per share). As of September 30, 2004, 202,961 shares remain to be repurchased under the repurchase plan announced by the Company on November 22, 2002. On a per share basis, stockholders’ equity increased from $13.62 as of December 31, 2003 to $14.19 as of September 30, 2004.

Average Balances, Interest and Average Yields

The Company’s profitability is primarily dependent upon net interest income, which represents the difference between interest and fees earned on loans and debt and equity securities, and the cost of deposits and borrowings. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Non-interest income, non-interest expense, and income taxes also impact net income.

The following table sets forth certain information relating to the Company’s average consolidated statements of financial condition and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense annualized by the average balance of assets or liabilities, respectively, for the periods shown. Average balances were derived from average daily balances. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include fees which are considered adjustments to yields. All dollar amounts are in thousands.
   
Nine months ended 9/30/2004
  
Nine months ended 9/30/2003
  
   
Average Balance
 
Interest
 
Yield / Cost
 
Average Balance
 
Interest
 
Yield / Cost
 
ASSETS
                         
Interest-earning:
 
 
          
 
          
Loans
 
$
357,839
   
14,507
   
5.41
%
$
331,812
   
14,944
   
6.01
%
Investment securities
   
10,102
   
216
   
2.85
%
  
10,008
   
255
   
3.40
%
Other assets
   
14,694
   
183
   
1.66
%
  
16,417
   
290
   
2.36
%
Total interest-earning
   
382,635
   
14,906
   
5.19
%
  
358,237
   
15,489
   
5.76
%
Noninterest-earning
   
20,664
               
19,967
             
   
$
403,299
             
$
378,204
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
                       
Interest-bearing:
                                     
Savings accounts
 
$
16,946
   
102
   
0.80
%
$
17,334
   
124
   
0.95
%
Transaction accounts
   
78,363
   
545
   
0.93
%
  
69,900
   
513
   
0.98
%
Certificates of deposit
   
132,883
   
2,872
   
2.88
%
  
124,633
   
3,249
   
3.48
%
FHLB Advances
   
111,443
   
2,585
   
3.09
%
  
106,808
   
3,796
   
4.74
%
Other borrowed funds
   
959
   
4
   
0.56
%
  
779
   
3
   
0.51
%
Total interest-bearing
   
340,594
   
6,108
   
2.39
%
  
319,454
   
7,685
   
3.20
%
Noninterest-bearing
   
23,259
               
21,710
             
Total liabilities
   
363,853
               
341,164
             
Stockholders’ equity
   
39,446
               
37,040
             
   
$
403,299
             
$
378,204
             
Net earning balance
 
$
42,041
             
$
38,783
             
Earning yield less costing rate
               
2.80
%
              
2.56
%
Net interest income, and net yield spread
                             
on interest earning assets
       
$
8,798
   
3.07
%
      
$
7,804
   
2.90
%
Ratio of interest-earning assets to
                             
interest-bearing liabilities
         
112
%
              
112
%
      

Results of Operations - Comparison of Three Month and Nine Month Periods Ended September 30,
2004 and 2003

Net income for the three months and nine months ended September 30, 2004 was $1,156,374 and $3,140,542, respectively, as compared to $1,076,697 and $2,892,316, respectively, for the three months and nine months ended September 30, 2003, which represents an increase in earnings of $79,677 (7%) for the three month period, and an increase in earnings of $248,226 (9%) for the nine month period.

Interest Income

Total interest income for the three months and nine months ended September 30, 2004, increased $195,241
(4%) and decreased $583,017 (4%), respectively, as compared to the three months and nine months ended September 30, 2003. For the three month and nine month periods ended September 30, 2004 compared to the same periods in 2003, the average yield on interest earning assets decreased 36 basis points to 5.20% and 57 basis points to 5.19%, respectively, while the average balance of interest earning assets increased $39,976,000 and $24,398,000, respectively.

Interest Expense

Total interest expense for the three months and nine months ended September 30, 2004, decreased $203,280 (9%) and $1,577,019 (21%), respectively, when compared to the three months and nine months ended September 30, 2003. For the three month and nine month periods ended September 30, 2004 compared to the same periods in 2003, the average cost of interest bearing liabilities decreased 54 basis points to 2.39% and 81 basis points to 2.39%, respectively, while the average balance increased $37,707,000 and $21,140,000, respectively. The Company prepaid long-term fixed rate FHLB advances during 2004, resulting in a decrease in average cost of FHLB advances of 116 basis points for the three month period and 165 basis points for the nine month period ended September 30, 2004 compared to the same periods in 2003.

Net Interest Income

As a result of the interest income and interest expense for the three months and nine months ended September 30, 2004 as discussed above, net interest income for the three months and nine months ended September 30, 2004 increased $398,521 (15%) and $994,002 (13%), respectively, when compared to the same periods in 2003.

Provision for Loan Losses

Based primarily on the continued growth of the commercial loan portfolio, management decided to record a provision for loan losses of $225,000 and $638,830 for the three months and nine months ended September 30, 2004, respectively, compared to $212,000 and $617,000 for the same periods in 2003. The Bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions. Although the Bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential losses, there can be no assurance that future loan losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the es tablishment of additional loan loss provisions.

Noninterest Income

Noninterest income decreased $274,020 (22%) and $483,719 (15%) for the three months and nine months ended September 30, 2004, respectively, when compared to the three months and nine months ended September 30, 2003. The decrease for the three months and nine months ended September 30, 2004 was primarily due to decreases in gain on sale of loans, which were partially offset by increases in gain on sale of investment securities, and changes in late charges and other fees as discussed below.

Gain on sale of loans decreased $442,723 (79%) and $1,119,429 (78%) for the three months and nine months ended September 30, 2004, respectively, when compared to the same periods in 2003, which was a result of a decrease in mortgage refinance activity due to an increase in interest rates.

During the three months and nine months ended September 30, 2004, gain on sale of investments was $192,799 and $542,212, respectively. These gains resulted from the sale of 1,000 shares of FHLMC stock each month. The sale price ranged from $56.76 per share to $67.63 per share during this period. During the same periods in 2003, there were no gains on sale of investments as no sales of shares of FHLMC occurred during these periods.

Late charges and other fees decreased $69,386 (49%) for the three months ended September 30, 2004, and increased $19,569 (7%) for the nine months ended September 30, 2004, when compared to the same periods in 2003. During the three month and nine month periods ended September 30, 2004, the Bank’s originated mortgage servicing rights ("OMSR") amortization expense was $58,535 and $184,658, respectively, compared to $201,556 and $479,268 during the same periods in 2003. During the three month and nine month periods ended September 30, 2004, OMSR impairment loss adjustment was a recovery of $0 and $48,478, respectively, compared to a recovery of $52,047 and $211,249 during the same periods in 2003. In addition, during the three month and nine month periods ended Septe mber 30, 2004, the Bank collected prepayment penalties of $15,114 and $84,395, respectively, on loan payoffs, compared to $25,886 and $384,006, respectively, collected during the same periods in 2003.
 
Noninterest Expense

Noninterest expense increased $48,138 (2%) and $50,864 (0.8%) for the three months and nine months ended September 30, 2004 when compared to the three months and nine months ended September 30, 2003. These insigificant increases are attributed to the Company’s emphasis on controlling expenses. There was no significant change in any individual expense category.

Provision for Income Taxes

There was a decrease of $16,314 (3%) and an increase of $189,363 (14%) in the provision for income taxes for the three months and nine months ended September 30, 2004, respectively, as compared to the same periods in 2003. The insignificant decrease in taxes for the three months ended September 30, 2004 when compared to the same period in 2003 was primarily due to state tax credits. The increase in taxes for the nine months ended September 30, 2004, compared to the same period in 2003 was due to an increase in before tax income during that period.
 
Nonperforming Assets
 
The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Bank’s existing loan portfolio. When making such evaluation, management considers such factors as the repayment status of its loans, the estimated net realizable value of the underlying collateral, borrowers’ intent (to the extent known by the Bank) and ability to repay the loan, local economic conditions and the Bank’s historical loss ratios. The Bank’s allowance for loan losses as of September 30, 2004, was $4,337,309 or 1.21% of average net loans receivable. Total assets classified as substandard, doubtful or loss as of September 30, 2004, were $7,017,307 or 1.6% of total assets. In connection with a normal reg ulatory examination by the Federal Deposit Insurance Corporation in February 2004, the Bank identified and reclassified a group of approximately 150 loans secured by single family residences, totaling approximately $9.4 million, because it was deemed that the loan files relating to these loans did not contain sufficient information to effectively evaluate the credits. As of September 30, 2004, $4,970,865 of the assets classified as substandard were attributed to this group of loans. Management considered nonperforming and total classified assets in evaluating the adequacy of the Bank’s allowance for loan losses.

The ratio of nonperforming assets to total assets is another useful tool in evaluating exposure to credit risk. Nonperforming assets of the Bank include nonperforming loans (nonaccruing loans) and assets which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. All dollar amounts are in thousands.
   
9/30/2004
  
12/31/2003
  
12/31/2002
  
Nonperforming loans
 
$
1,321
   
743
   
396
 
Real estate acquired in settlement of loans
   
59
   
6
   
8
 
Total nonperforming assets
 
$
1,380
   
749
   
404
 
                     
Total nonperforming assets as a percentage of total assets
   
0.31
%
  
0.19
%
  
0.11
%
Allowance for loan losses
 
$
4,337
   
3,886
   
2,640
 
Allowance for loan losses as a percentage of average net loans
   
1.21
%
  
1.17
%
  
0.82
%

Liquidity and Capital Resources

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, proceeds from maturing investment securities and extensions of credit from FHLB. While scheduled loan and security repayments and the maturity of short-term investments are somewhat predictable sources of funding, deposit flows are influenced by many factors, which make their cash flows difficult to anticipate.

The Bank uses its liquidity resources principally to satisfy its ongoing commitments which include funding loan commitments, funding maturing certificates of deposit as well as deposit withdrawals, maintaining liquidity, purchasing investments, and meeting operating expenses. As of September 30, 2004, the Bank had approximately $7,446,000 in commitments to originate mortgage and commercial loans and $165,000 in loans-in-process on mortgage loans. These commitments will be funded through existing cash balances, cash flow from operations and, if required, FHLB advances . Management believes that anticipated cash flows and deposit growth will be adequate to meet the Bank’s liquidity needs.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset/Liability Management

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, the Bank offers deposit rates and loan rates designed to 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. Since the relative spread between financial assets and liabilities is constantly changing, the B ank’s current net interest income may not be an indication of future net interest income.

As a part of its asset and liability management strategy, the Bank implemented an adjustable rate mortgage loan program beginning in the early 1980s. Throughout the past several years, the Bank has continued to emphasize the origination of adjustable-rate, one- to four-family residential loans and adjustable-rate or relatively short-term commercial real estate, commercial business and consumer loans, while originating fixed-rate, one- to four-family residential loans primarily for immediate resale in the secondary market on either a service-retained basis or service-released basis. This allows 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 September 30, 2004, such loans made up 12.3% of the net loans receivable and continue to account for a larger portion of the Bank’s existing 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 December 31, 2003, the Bank’s savings accounts, checking accounts, and money market deposit accounts totaled $117,044,097 or 49% of its total deposits. As of September 30, 2004, these accounts totaled $123,914,680 or 46% of total deposits. The Bank believes, based on historical experience, that a substantial portion of such accounts represents non-interest rate sensitive core deposits.

Interest Rate Sensitivity Analysis

The following table sets forth as of September 30, 2004 management’s estimates 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.

BP Change
  
Estimated Net Portfolio Value
 
NPV as % of PV of Assets
 
in Rates
 
$ Amount
 
$ Change
 
% Change
 
NPV Ratio
 
Change
 
+300
  
$
34,437
 
$
(4,603
)
  
-12
%
  
8.14
%
  
-0.86
%
+200
    
37,325
   
(1,715
)
  
-4
%
  
8.72
%
  
-0.27
%
+100
    
38,568
   
(472
)
  
-1
%
  
8.94
%
  
-0.05
%
NC
    
39,040
   
-
   
-
   
9.00
%
  
-
 
-100
    
38,791
   
(249
)
  
-1
%
  
8.89
%
  
-0.10
%

Computations of prospective effects of hypothetical interest rate changes are based on an internally generated model using actual maturity and repricing schedules for the Bank’s loans and deposits, 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 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 steady in the future. Further, in the event of a change in interest rates, prepayment and early 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 (the "Board") is responsible for reviewing the Bank’s asset and liability policies. The Board meets quarterly to review interest rate risk and trends, as well as liquidity and capital ratios and requirements. The Bank’s management is responsible for administering the policies and determinations of the Board with respect to the Bank’s asset and liability goals and strategies.

Item 4. Controls and Procedures

(a) The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2004.

(b) There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2004 that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.











































PART II

Item 1.    Legal Proceedings
None.

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

The following table summarizes the repurchase activity of the Company’s common stock during the Company’s third quarter ended September 30, 2004.

ISSUER PURCHASE OF EQUITY SECURITIES

Period
  
(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 (1)
 
(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
 
July 1, 2004 to July 31, 2004
    
3,184
   
19.44
   
3,184
   
211,474
 
August 1, 2004 to August 31, 2004
    
933
   
19.52
   
933
   
210,541
 
September 1, 2004 to September 30, 2004
    
7,980
   
19.45
   
7,980
   
202,561
 
Total
    
12,097
   
19.45
   
12,097
   
202,561
 

(1)   The Company has a repurchase plan which was announced on November 22, 2002. This plan authorizes the purchase by the Company of 300,000 shares of the Company’s common stock. There is no expiration date for this plan. There are no other repurchase plans in effect at this time.

Item 3.    Defaults Upon Senior Securities
Not applicable.

Item 4.    Submission of Matters to a Vote of Common Security Holders
None.

Item 5.    Other Information
None.

Item 6.    Exhibits and Reports on Form 8-K
 
    11. Statement re computation of per share earnings (set forth in "Note 4: Earnings Per Share" of
    the Notes to condensed financial statements (unaudited))
    31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    32.1 CEO certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    32.2 CFO certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002

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.
Guaranty Federal Bancshares, Inc.


Signature and Title    Date

/s/ Don M. Gibson     November 12, 2004 
       
Don M. Gibson
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)



/s/ Bruce Winston    November 12, 2004
               
Bruce Winston       
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)