UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 [  ]  ANNUAL REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
 
 For the fiscal year ended
 - or -
 [ X ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
 
 For the transition period from   July 1, 2003 to   December 31, 2003
 
 Commission File Number: 0-23325
 
 **GUARANTY FEDERAL BANCSHARES, INC.**
 (Exact Name of Registrant as Specified in Its Charter)
 
 Delaware
43-1792717(State or Other Jurisdiction of Incorporation
(I.R.S. Employer Identification No.)or Organization)1341 West Battlefield, Springfield, Missouri
65807(Address of Principal Executive Offices)
(Zip Code)
 
 Registrant's telephone number, including area code: (417) 520-4333
 
 Securities registered pursuant to Section 12(b) of the Act: None
 
 Securities registered pursuant to Section 12(g) of the Act:
 
 Common Stock, par value $.10 per share
 (Title of Class)
 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO
 
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ X ]
 
 Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
 YES  NO __X__
 
 The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the average bid and asked prices of the Registrant's Common Stock as quoted on the National Market of The Nasdaq Stock Market on June 30, 2003, was $48.1 million. As of March 30, 2004 there were 2,998,897 shares of the Registrant's Common Stock outstanding.
 
 1
  
 
 DOCUMENTS INCORPORATED BY REFERENCE
 
 1.  Portions of the Annual Report to Stockholders  (the "2003 Annual Report")    for the transition period ended December 31, 2003 (Parts I and II).
 2.  Portions of the Proxy Statement for the Annual Meeting of Stockholders  (the "Proxy Statement")   to be held on May 19, 2004 (Part III).
 
 2   
 GUARANTY FEDERAL BANCSHARES, INC.

Form 10-K

TABLE OF CONTENTS

Item

Page**PART I**1.
Business
52.
Properties
253.
Legal Proceedings
254.
Submission of Matters to a Vote of Security Holders
26**PART II**5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issurer Purchases of Equity Securities
266.
Selected Financial Data
267
Management's Discussion and Analysis of Financial Condition and Results of Operations
267A.
Quantitative and Qualitative Disclosures About Market Risk
268.
Financial Statements and Supplementary Data
269
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
269A.
Controls and Procedures
26**PART III**10.
Directors and Executive Officers of the Registrant
2811.
Executive Compensation
2812.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
2813.
Certain Relationships and Related Transactions
3014.
Principal Accountant Fees and Services**PART IV**15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
30Signatures
 3
 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.  WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, WORDS SUCH AS "ANTICIPATES," "ESTIMATES," "BELIEVES," "EXPECTS," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS.
 
 THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES; THE SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS RESULTING FROM THESE FACTORS.
 
 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.
 
 4   PART I
 
 Item 1. Business
 
 Business 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 a unitary savings and loan 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 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 issued on December 30, 1997.
 
 On June 27, 2003, the Bank converted to a state-chartered trust company with banking powers, and the Company became a  bank holding company.  On this date, the  name of the Bank was changed from Guaranty Federal Savings Bank to Guaranty Bank. The primary activity of the Company is to oversee its investment in the Bank. The Company engages in few other activities. For this reason, unless otherwise specified, references to the Company include operations of the Bank. Further, information in a chart or table based on Bank only data is identical to or immaterially different from information that would be provided on a consolidated basis.
 
 In 2003, the Company determined to change its fiscal year end from June 30 to a calendar year end of December 31. As a result, the Company is reporting a six month transition period ended December 31, 2003 in order to change to this new calendar year end.
 Business of the Bank
 
 The Bank's principal business has been, and continues to be, attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, in both permanent and construction of one-to four-family residential mortgage loans, multi-family residential mortgage loans, commercial real estate loans, and consumer and other loans. The Bank also invests in mortgage-backed securities, U.S. Government and federal agency securities and other marketable securities. The Bank's revenues are derived principally from interest on its loans and other investments and fees charged for services provided , and 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 primary sources of funds are: deposits; borrowings; amortization and prepayments of loan principal; and amortizations, prepayments and maturing of mortgage-backed securities.
 
 
 The Bank is regulated by the Missouri Division of Finance and its deposits are insured by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation (the "FDIC").
 
 Market Area
 
 The Bank's primary market area is Greene County, which is in the southwestern corner of  Missouri and includes the city of Springfield,   Missouri. There is a large regional health care presence with two large regional hospitals employing over 14,000. There also are four accredited colleges and one major university with total enrollment approaching 25,000. Part of Greene County's growth can be attributed to its proximity to Branson, Missouri, which has developed a strong tourism industry related to country music and entertainment. Branson is located 30 miles south of Springfield, and receives between five and six million tourists each year, many of whom pass through Springfield.
 
 5  Lending Activities
 Set forth below is selected data relating to the composition of the Banks loan portfolio at the
 dates indicated:
 Composition of Loan PortfolioAs of December 31,
As of June 30,2003
2003
2002
2001
2000
1999$
%
$
%
$
%
$
%
$
%
$
%(Dollars in Thousands)Mortgage loans (includes loans held for sale):One to four family

$ 129,477
37%
$ 144,404
40%
149,443
44%
189,436
55%
198,155
63%
178,680
63%Multi-family

44,242
13%
41,022
11%
44,055
13%
42,641
12%
39,146
12%
35,795
13%Construction

49,814
14%
64,464
18%
49,807
15%
55,317
16%
41,372
13%
38,605
14%Commercial real estate

72,105
21%
71,046
19%
58,434
17%
43,893
13%
26,559
9%
20,771
7%Total mortgage loans

295,638
86%
320,936
88%
301,739
89%
331,287
96%
305,232
97%
273,851
97%Commercial business loans

24,618
7%
18,967
5%
8,358
2%
5,511
1%
761
0%
544
0%Savings account loans

268
0%
282
0%
367
0%
273
0%
461
0%
573
0%Automobile

3,374
1%
3,438
1%
3,395
1%
2,260
1%
1,941
1%
2,016
1%Other

21,799
6%
21,766
6%
27,313
8%
8,040
2%
7,118
2%
5,389
2%Total consumer and other loans

50,059
14%
44,453
12%
39,433
11%
16,084
4%
10,281
3%
8,522
3%Total loans

345,697
100%
365,389
100%
341,172
100%
347,371
100%
315,513
100%
282,373
100%Less:Loans in process

9,425

25,539

18,326

24,212

16,668

15,466Deferred loan fees/costs, net

237

211

230

268

164

180Unearned discounts

19

26

50

88

108

109Allowance for loan losses

3,886

2,775

2,650

2,697

2,520

2,349Total Loans, Net

$ 332,130

$ 336,838

319,916

320,106

296,053

264,269 
 
 The following table sets forth the dollar amount, before deductions for unearned discounts, deferred loan costs and allowance for loan losses, as of December 31, 2003 of all loans due after December 2004, which have pre-determined interest rates and which have adjustable interest rates.
 Fixed Rates

Adjustable Rates

Total

% ARM(Dollars in Thousands)One-to four-family

$
24,784

91,539

116,323

79
%Multi-family


18,473

22,798

41,271

55
%Construction


657

4,388

5,045

87
%Commercial real estate


14,253

40,787

55,040

74
%Consumer & other loans


11,788

22,744

34,532

66
%Total loans (1)

$
69,955

182,256

252,211

72
%(1) Before deductions for unearned discounts, deferred loan fees/costs andallowances for loan losses. 
 6
  The following table sets forth the maturity of the Bank's loan portfolio as of December 31, 2003. The table shows loans that have adjustable-rates as due in the period during which they contractually mature. The table does not include prepayments or scheduled principal amortization.
 Loan Maturities


Due in One Year or Less


Due After One Through Five Years


Due After Five Years


Total(Dollars in thousands)One to four family

$
13,154


13,461


102,862


129,477Multi family


2,971


18,687


22,584


44,242Construction


36,898


4,945


100


41,943Commercial real estate


15,511


44,979


10,061


70,551Consumer and other loans


15,527


13,419


21,113


50,059Total loans (1)

$
84,061


95,491


156,720


336,272Less:Deferred loan fees/costs











237Unearned discounts











19Allowance for loan losses











3,886Loans receivable net










$
332,130(1) Includes mortgage loans held for sale of $1,268. 
 One- to Four-Family Mortgage Loans. The Bank offers fixed- and adjustable-rate first mortgage loans secured by one- to four-family residences in the Bank's primary lending area. Typically, such residences are single family homes that serve as the primary residence of the owner. However, there are a significant number of loans originated by the Bank which are secured by non-owner occupied properties. Loan originations are generally obtained from existing or past customers, members of the local community, referrals from attorneys, established builders, and realtors within the Bank's market area. Originated mortgage loans in the Bank's portfolio include due-on-sale clauses which provide the Bank with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Bank's consent.
 
 As of December 31, 2003, $129.5 million or 37% of the Banks total loan portfolio consisted of one- to four-family residential loans, of which 69% were ARM loans. The Bank currently offers ARM and balloon loans that have fixed interest rates for one to seven years. Generally, ARM loans provide for limits on the maximum interest rate adjustment ("caps") that can be made at the end of each applicable period and throughout the duration of the loan. ARM loans are originated for a term of up to 30 years on owner-occupied properties and generally up to 25 years on non-owner occupied properties. Typically, interest rate adjustments are calculated based on U.S. treasury securities adjusted to a constant maturity of one year (CMT), plus a 2.50% to 2.75% margin. Interest rates charged on fixed-rate loans are competitively priced based on market conditions and the cost of funds existing at the time the loan is committed. The Bank's fixed-rate mortgage loans are made for terms of 15 to 30 years which are currently being sold on the secondary market.
 
 Generally, ARM loans pose credit risks different from the risks inherent in fixed-rate loans, primarily because as interest rates rise the underlying payments of the borrower rise, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. The Bank does not originate ARM loans that provide for negative amortization.
 
 The Bank generally originates both owner occupied and non-owner occupied one- to four-family residential mortgage loans in amounts up to 80% of the appraised value or the selling price of the mortgaged property, whichever is lower. The Bank may on occasion make loans up to 95% of appraised value or the selling price of the mortgage property, whichever is lower. However, the Bank typically requires private mortgage insurance for the excess percentage over 80% for mortgage loans with loan to value percentages over 80%.
 
 7
  Multi-Family Mortgage Loans. The Bank originates multi-family mortgage loans in its primary lending area. As of December 31, 2003, $44.2 million or 13% of the Bank's total loan portfolio consisted of multi-family residential loans. With regard to multi-family mortgage loans, the Bank generally requires personal guarantees of the principals as well as a security interest in the real estate. Multi-family mortgage loans are generally originated in amounts of up to 80% of the appraised value of the property. The majority of the Banks multi-family mortgage loans have been originated with adjustable rates of interest which are quoted at a spread to the  Federal Home Loan Bank of Des Moines ("FHLB")  advance rate for the initial fixed rate period with subsequent adjustments based on the Wall Street prime rate. The loan-to-one-borrower limitation, $9.5 million as of December 31, 2003, is the maximum the Bank will lend on a multi-family real estate loan.
 
 Loans secured by multi-family residential real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired.
 
 Construction Loans. As of December 31, 2003, construction loans totaled $49.8 million or 14% of the Bank's total loan portfolio. Construction loans originated by the Bank are generally secured by permanent mortgage loans for the construction of owner-occupied residential real estate or to finance speculative construction secured by residential real estate or owner-operated commercial real estate. This portfolio predominantly consists of speculative loans, i.e.,  loans to builders who are speculating that they will be able to locate a purchaser for the underlying property prior to or shortly after the time construction has been completed.
 Construction loans are made to contractors who have sufficient financial strength and a proven track record, for the purpose of resale, as well as on a "pre-sold" basis. Construction loans made for the purpose of resale generally provide for interest only payments at floating rates and have terms of six months to fifteen months. Construction loans to a borrower who will occupy a home, or to a builder who has pre-sold the home, typically have loan to value ratios of up to 85%. Construction loans for speculative purposes, models, and commercial properties typically have loan to value ratios of up to 80%. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant.
 
 Construction lending by its nature entails significant additional risks as compared with one-to four-family mortgage lending, attributable primarily to the fact that funds are advanced upon the security of the project under construction prior to its completion. As a result, construction lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower or guarantor to repay the loan. Because of these factors, the analysis of the prospective construction loan projects require an expertise that is different in significant respects from that which is required for residential mortgage lending. The Bank has attempted to address these risks through its underwriting and construction monitoring procedures.
 
 Commercial Real Estate. As of December 31, 2003, the Bank has commercial real estate loans totaling $72.1 million or 21% of the Bank's total loan portfolio. Commercial real estate loans are generally originated in amounts up to 80% of the appraised value of the mortgaged property. The majority of the Banks commercial real estate loans have been originated with adjustable rates of interest, the majority of which are quoted at a spread to the FHLB advance rate for the initial fixed rate period with subsequent adjustments at a spread to the Wall Street prime rate. The Bank's commercial real estate loans are generally permanent loans secured by improved property such as office buildings, retail stores, small shopping centers, medical offices, motels, churches and other non-residential buildings.
 
 8
  To originate commercial real estate loans, the Bank generally requires a security interest in the real estate, personal guarantees of the principals, a security interest in personal property, and a standby assignment of rents and leases. The Bank has established its loan-to-one borrower limitation, which was $9.5 million as of December 31, 2003, as its maximum commercial real estate loan amount. Because of the small number of commercial real estate loans and the relationship of each borrower to the Bank, each such loan has differing terms and conditions applicable to the particular borrower.
 
 Loans secured by commercial real estate are generally larger and involve a greater degree of risk than residential mortgage loans. Because payments on loans secured by commercial real estate are often dependent on successful operation or management of the properties, repayment of such loans may be subject, to a greater extent, to adverse conditions in the real estate market or the economy. The Bank seeks to minimize these risks by careful underwriting, requiring personal guarantees, lending only to established customers and borrowers otherwise known to the Bank, and generally restricting such loans to its primary market area.
 
 As of December 31, 2003, the Banks commercial real estate loan portfolio included approximately $15.4 million in loans to develop land into residential lots. The Bank utilizes its knowledge of the local market conditions and appraisals to evaluate the development cost and estimate projected lot prices and absorption rates to assess loans on residential subdivisions. The Bank typically loans up to 80% of the appraised value over terms up to two years. Development loans generally involve a greater degree of risk than residential mortgage loans because (1) the funds are advanced upon the security of the land which has a materially lower value prior to completion of the infrastructure required of a subdivision, (2) the cash flow available for debt repayment is a function of the sale of the individual lots, and (3) the interest required to service the debt is a function of the time required to complete the development and sell the lots.
 
 Consumer and Other Lending. The Bank also offers other loans, primarily loans secured by certificates of deposit, commercial business assets, consumer loans, home equity and automobile loans. As of December 31, 2003, the Bank has such loans totaling $50.1 million or 14% of the Banks total loan portfolio. The Bank expects to continue to expand its consumer and commercial lending as opportunities present themselves.
 
 Loan Approval Authority and Underwriting. All loans to borrowers with aggregate indebtedness exceeding $1.5 million must have the approval of the members of the Banks Loan Committee which consists of eight senior officers. The Loan Committee meets weekly to review and approve loans made within the scope of its authority.
 
 For all loans originated by the Bank, upon receipt of a completed loan application from a prospective borrower, a credit report is requested, income, assets, and certain other information are verified, and, if necessary, additional financial information is requested. An appraisal of the real estate intended to secure the proposed loan is generally required, which currently is performed by certified appraisers. It is the Bank's policy to obtain appropriate insurance protection on all real estate first mortgage loans. Borrowers generally must also obtain hazard insurance prior to closing. Borrowers generally are required to advance funds for certain items such as real estate taxes, flood insurance and private mortgage insurance, when applicable. 9
 Delinquencies  , Non-Performing  and Problem Assets.
 
 Delinquent Loans . As of December 31, 2003, the Bank has six loans 90 days or more past due with a principal balance of $406,960 and twenty six loans between 30 and 89 days past due with total principal balances of $931,727. The Bank generally does not accrue interest on loans past due more than 90 days.
 
 The following table sets forth the Bank's loans that were on non-accrual or 90 days or more delinquent at the dates indicated.
 
 Delinquency Summary

As of

As ofDecember 31,

June 30,2003

2003

2002

2001

2000

1999(Dollars in Thousands)Loans accounted for on a non-accrual basis oror contractually past due 90 days or moreMortgage Loans:One- to four-family
$
703

331

154

444

13

110Multi-family

-

-

-

-

-

-Construction

-

-

-

1,065

84

-Commercial real estate

-

-

-

668

-

-703

331

154

2,177

97

110Non-mortgage loans:Commercial loans

-

-

-

109

-

-Consumer and other loans

40

-

37

18

-

-40

-

37

127

-

-Total non-accrual loans
$
743

331

191

2,304

97

110Accruing loans which are contractually pastmaturity or past due 90 days or more:Mortgage Loans:One- to four-family

-

-

-

-

152

-Multi-family

-

-

-

-

-

-Construction

-

-

-

-

-

102Commercial real estate

-

-

-

-

-

--



-

-

-

152

102Non-mortgage loans:Commercial loans

-

-

-

-

-

-Consumer and other loans

-

-

-

-

-

--



-

-

-

-

-Total past maturity or past due accruing loans

-

-

-

-

152

102Total accounted for on a non-accrual basis or contractually past maturity or 90 days or more past due

743

331

191

2,304

249

212Total accounted for on a non-accrual basis or  contractually past maturity or 90 days or more past due as a percentage of net loans

0.22
%
0.10
%
0.06
%
0.73
%
0.08
%
0.08
%Total accounted for on a non-accrual basis or contractually past maturity or 90 days or more past due as a percentage of total assets

0.19
%
0.08
%
0.05
%
0.62
%
0.07
%
0.07
% 
 
 10  Non-Performing Assets . Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of all interest at contractual rates is doubtful. Mortgage loans are placed on non-accrual status generally when either principal or interest is more than 90 days past due. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.
 
 Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is deemed a foreclosed asset held for sale until such time as it is sold. When a foreclosed asset held for sale is acquired it is recorded at its estimated fair value, less estimated selling expenses. Valuations are periodically performed by management, and any subsequent decline in fair value is charged to operations.
 
 The following table shows the principal amount of non-performing assets and the resulting impact on interest income for the periods then ended.
 Non-Performing Assets
As of
As ofDecember 31,

June 30,2003

2003

2002

2001

2000

1999Non-accrual loans:



(Dollars in Thousands)Mortgage loans:One- to four-family
$
703

331

659

1,358

578

151Multi-family

-

-

-

-

441

751Construction

-

-

-

2,115

84

-Commercial real estate

-

-

1,017

1,396

3,652

-703

331

1,676

4,869

4,755

902Non-mortgage loans:Commercial loans

-

-

-

60

-

-Consumer and other loans

40

-

75

19

2

440

-

75

79

2

4Total non-accrual loans

743

331

1,751

4,948

4,757

906Real estate and other assets acquired in settlement of loans

6

182

683

4

2

102Non-performing loans classified as in-substanceforeclosures

-

-

-

-

-

-Total non-performing assets
$
749

513

2,434

4,952

4,759

1,008Total non-accrual loans as a percentage of net loans

0.22
%
0.10
%
0.55
%
1.55
%
1.61
%
0.34
%Total non-performing assets as a percentage of total assets

0.19
%
0.13
%
0.65
%
1.32
%
1.39
%
0.32
%Impact on interest income for the period:Interest income that would have been recorded on non-accruing loans
$
15

13

21

179

47

10 
 
 11
  
 Problem Assets. Federal regulations require that the Bank review and classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, bank examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful, and loss. "Substandard assets" must have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. "Doubtful assets" have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values questionable, and there is a high possibility of loss. An asset classified "loss" is considered uncollectable and of such little value that continuance as an asset of the institution is not warranted. The regulations have also created a "special mention" category, described as assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving management's close attention. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss or charge off such amount. A portion of general loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution's regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital.
 
 For management purposes, the Bank also designates certain loans for additional attention. Such loans are called "Special Mention" and have identified weaknesses, that if the situation deteriorates, the loans would merit a  substandard   classification.
 
 The following table shows the aggregate amounts of the Bank's classified assets as of December 31, 2003.
 Classification of Assets

Special Mention
Substandard
Doubtful
LossNumber


Amount
Number
Amount
Number
Amount
Number
Amount(Dollars in Thousands)Loans:One- to four-family

40
$          2,281
111
$          6,539
-
$                 -
-
$                 -Multi-family

-
-
-
-
-
-
-
-Construction

1
352
2
158
-
-
-
-Commercial real estate

-
-
3
346
-
-
-
-Land

-
-
-
-
-
-
-
-Other loans

3
74
17
361
3
218
-
-Total loans

44
2,707
133
7,404
3
218
-
-Foreclosed assets held-for-sale:One- to four-family

-
-
-
-
-
-
-
-Land and other assets

-
-
2
6
-
-
-
-Total foreclosed assets

-
-
2
6
-
-
-
-Total

44
$          2,707
135
$          7,410
3
$             218
-
$                 - 
 As of December 31, 2003, foreclosed assets held for sale consists of one car and one motorcycle. Single family houses collaterize the other non-accrual loans.  12
 Allowance for Loan Losses
 
 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.
 
 As of December 31, 2003 the Bank's total allowance for loan losses was $3.9 million or 1.1% of total loans. This allowance reflects not only management's determination to maintain an allowance for loan losses consistent with regulatory expectations for non-performing assets, but also reflects the Bank's policy of evaluating the risks inherent in its loan portfolio, and the regional economy.
   As of December 31, 2003, and pursuant to a regular examination by the Federal Deposit Insurance Corporation, the Bank reclassified a group of approximately 150 loans totaling approximately $9.0 million. These loans had been made to borrowers that used the proceeds to finance the purchase of single family residences and the costs required to bring them into condition for resale. The loans are secured by the properties purchased, and have maturity dates ranging from one to six months. The Bank reclassified the loans because it was deemed that the loan files relating to these loans did not contain sufficient information to effectively evaluate the credits. As a result of the reclassification of this group of loans, the Bank increased the allowance for loan losses by $800,000.
 The bank is closely monitoring each of these loans. To date, all payments on these loan have been paid as agreed. Further, a number of the borrowers pledged additional collateral to secure their respective repayment obligations in the form of certificates of deposit.
 
 For fiscal years 1999 through 2003, the Bank experienced loan charge offs in excess of recoveries, and based on the loan portfolio review discussed above, elected to add to the allowance through a provision for loan loss, as shown in the table below. Management anticipates the need to continue adding to the allowance through charges to provision for loan losses as anticipated growth in the loan portfolio or other circumstances warrant.
 
 
 13
 The following tables set forth certain information concerning the Bank's allowance for possible loan losses for the periods indicated.
 
  Allowance for Loan Losses

Six Months ended

Year EndedDecember 31,

June 30,2003

2003

2002

2001

2000

1999(Dollars in Thousands)Beginning balance
$
2,775

2,650

2,697

2,520

2,349

2,191Gross loan charge offsMortgage Loans:One- to four-family

(41
)
(358
)
(52
)
(5
)
-

-Multi-family

-

-

-

-

-

-Construction

-

(11
)
(235
)
-

-

(3
)Commercial real estate

-

-

(23
)
(115
)
-

-(41
)
(369
)
(310
)
(120
)
-

(3
)Non-mortgage loans:Commercial loans

-

-

-

-

-

-Consumer and other loans

(14
)
(168
)
(28
)
(13
)
(9
)
(26
)(28
)
(13
)
(9
)
(26
)Total charge offs

(55
)
(537
)
(338
)
(133
)
(9
)
(29
)RecoveriesMortgage Loans:One- to four-family

1

19

-

-

-

-Multi-family

-

-

-

-

-

-Construction

1

6

-

-

-

-Commercial real estate

-

-

-

-

-

-2

25

-

-

-

-Non-mortgage loans:Commercial loans

-

-

-

-

-

7Consumer and other loans

2

27

-

-

-

-2

27

-

-

-

7Total recoveries

4

52

-

-

-

7Net loan charge-offs

(51
)
(485
)
(338
)
(133
)
(9
)
(22
)Provision for loan losses charged to expense

1,162

610

291

310

180

180Ending balance
$
3,886

2,775

2,650

2,697

2,520

2,349Net charge-offs as a percentage of average loans, net

0.02
%
0.15
%
0.10
%
0.04
%
0.00
%
0.01
%Allowance for loan losses as a percentage of average loans, net

1.19
%
0.85
%
0.82
%
0.87
%
0.89
%
1.00
%Allowance for loan losses as a percentage of total non-performing loans

523
%
838
%
151
%
55
%
53
%
259
% 
 
 14
  Allocation of Allowance for Loan Losses
  
 The following table shows the amount of the allowance allocated to each loan category and the percent of that loan category to total loans.
 As of
As ofDecember 31,
June 30,2003
2003
2002
2001
2000
1999Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%(Dollars in thousands)Mortgage Loans
$ 3,342
86%
$ 2,442
88%
$ 2,358
89%
$ 2,562
95%
$ 2,439
97%
$ 2,341
100%Non-Mortgage Loans
544
14%
333
12%
292
11%
135
5%
81
3%
8
0%Total
$ 3,886
100%
$ 2,775
100%
$ 2,650
100%
$ 2,697
100%
$ 2,520
100%
$ 2,349
100% Investment Activities
 
 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 December 31, 2003, the Company has investment securities with a carrying value of $16.7 million and an estimated fair value of $16.8 million. Of those securities $14.9 million, or 89%, of the Companys investment securities portfolio are available-for-sale.
 
 The Company has the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, trust preferred securities, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements, and sale of federal funds.
 
 The following tables set forth the amortized cost and approximate fair market values of the available-for-sale securities and held-to-maturity securities:
 Investment Securities

Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Approximate Fair ValueAs of December 31, 2003AVAILABLE-FOR-SALE SECURITIES:Equity Securities:FHLMC stock

$
78,336

4,587,264

-

4,665,600Other stock


2,000,000

-

(326,000
)
1,674,000Debt Securities:Trust preferred securities


6,557,201

11,071

(40,840
)
6,527,432U. S. government agencies


1,996,317

477

-

1,996,794HELD-TO-MATURITY SECURITIES:U. S. government agencies


256,142

78

-

256,220Mortgage-backed securities


1,611,452

81,240

-

1,692,692$
12,499,448

4,680,130

(366,840
)
16,812,738 
 
 15
  
 Investment Securities

Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Approximate Fair ValueAs of June 30, 2003AVAILABLE-FOR-SALE SECURITIES:Equity Securities:FHLMC stock

$
80,294

4,082,846

-

4,163,140Other stock


2,000,000

-

(324,000
)
1,676,000Debt Securities:Trust preferred securities


6,550,357

-

(615,889
)
5,934,468U. S. government agencies


1,497,618

-

(79
)
1,497,539HELD-TO-MATURITY SECURITIES:U. S. government agencies


263,781

952

-

264,733Mortgage-backed securities


1,987,113

149,541

-

2,136,654$
12,379,163

4,233,339

(939,968
)
15,672,534Investment Securities


Amortized Cost

Gross Unrealized Gains

Gross Unrealized (Losses)

Approximate Fair ValueAs of June 30, 2002AVAILABLE-FOR-SALE SECURITIES:Equity Securities:FHLMC stock

$
80,294

5,044,706

-

5,125,000Other stock


2,000,000

-

(48,000
)
1,952,000Debt Securities:Trust preferred securities


6,536,781

-

(316,937
)
6,219,844U. S. government agencies


2,993,109

632

-

2,993,741Mortgage-backed securities


174,563

-

(1,688
)
172,875HELD-TO-MATURITY SECURITIES:U. S. government agencies


301,139

3,629

-

304,768Mortgage-backed securities


2,917,952

204,033

(5,007
)
3,116,978$
15,003,838

5,253,000

(371,632
)
19,885,206 
 16
  Composition of Investment Portfolio
 
 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 December 31, 2003:
 
 Investment Portfolio Maturities and Average Weighted Yields

Amortized Cost

Weighted Average Yield


Approximate Fair ValueDue within one year
$
1,996,317

1.06
%
$
1,996,794Due after ten years (1)

6,813,343

1.87
%

6,783,652Equity securities not due ona single maturity date

2,078,336

0.00
%

6,339,600Mortgage-backed securities not due on asingle maturity date

1,611,452

6.90
%

1,692,692$
12,499,448

2.49
%
$
16,812,738(1) Consists of government agency and trust preferred securities
 
 
 17  Sources of Funds
  General . The Company's primary sources of funds are deposits, borrowings, amortization and prepayments on loans and mortgage-backed securities.
 
 Deposits. The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank's deposits principally consist of fixed-term certificates, passbook savings, money market, individual retirement accounts, and NOW (checking) accounts. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, local competition, and competition from non-bank financial service providers. The Bank's deposits are typically obtained from the areas in which its offices are located. The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain these deposits.
 
 The Bank seeks to maintain a high level of stable core deposits by providing convenient and high quality service through its offices.
 
 Deposit Accounts Types
 
 The following table sets forth the distribution of the Bank's deposit accounts at the dates indicated.
 Deposit Account TypesAs of December 31,2003Average




PercentInterest




of TotalRate


Amount

DepositsNOW

0.30
%
$
34,257

14
%Savings

0.81
%

17,221

7
%Money Market

1.34
%

42,231

18
%Non-interestbearing demand

0.00
%

23,335

10
%Total




117,044

49
%Certificates of Deposit: (fixed-rate, fixed-term)1-11 months

2.83
%

68,500

29
%12-23 months

2.88
%

23,695

10
%24-35 months

3.03
%

12,052

5
%36-47 months

4.87
%

8,643

4
%48-59 months

4.49
%

4,595

2
%60-71 months

3.90
%

2,541

1
%72-95 months

3.94
%

61

0
%Total




120,087

51
%Total Deposits



$
237,131

100
%
 
 18
  As of June 30,2003
2002
2001Average

Percent
Average

Percent
Average

PercentInterest

of Total
Interest

of Total
Interest

of TotalRate
Amount
Deposits
Rate
Amount
Deposits
Rate
Amount
Deposits(Dollars in Thousands)NOW
0.31%
$ 32,806
14%
0.79%
$ 29,386
13%
1.49%
$ 22,612
13%Savings
0.80%
17,458
7%
1.65%
17,770
8%
1.98%
7,578
4%Money Market
1.31%
37,512
16%
2.07%
34,889
16%
3.70%
21,497
13%Non-interestbearing demand
0.00%
24,651
11%
0.00%
11,657
5%
0.00%
8,110
5%Total

112,427
48%

93,702
42%

59,797
35%Certificates of Deposit: (fixed-rate, fixed-term)1-11 months
3.04%
70,009
30%
3.59%
76,382
34%
5.38%
70,605
41%12-23 months
3.39%
26,161
11%
4.45%
33,889
15%
5.05%
20,158
12%24-35 months
3.02%
5,552
2%
5.05%
10,076
4%
5.32%
14,994
9%36-47 months
3.14%
5,187
2%
5.33%
1,926
1%
6.19%
3,453
2%48-59 months
4.42%
7,409
2%
5.35%
4,744
2%
6.02%
795
0%60-71 months
5.05%
5,620
2%
5.35%
4,565
2%
5.91%
1,998
1%72-95 months
4.25%
3,312
2%
0.00%
-
0%
0.00%
-
0%Total

123,250
52%

131,582
58%

112,003
65%Total Deposits

$ 235,677
100%

$ 225,284
100%

$ 171,800
100%
 19  Maturities of Certificates of Deposit of $100,000 or More
 
 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 December 31, 2003.
 As of December 31, 2003Three months or less
$
2,503Over three through six months

1,138Over six through twelve months

3,288Over twelve months

4,912Total
$
11,841
 
 Borrowings
 
 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  the dates indicated  .
 
 As of

As ofDecember 31,

June 30,2003

2003

2002

2001(Dollars in Thousands)Remaining maturity:Less than one year
$
63,290

60,323

13,334

54,401One to two years

7,850

7,350

26,322

9,690Two to three years

10,500

6,500

5,350

31,114Three to four years

1,000

3,000

6,500

6,285Four to five years

14,950

3,950

3,000

9,587Over five years

11,247

33,496

56,577

35,580Total
$
108,837

114,619

111,083

146,657Weighted average rate at end of period

3.58
%
4.14
%
5.38
%
5.99For the period:Average balance
$
101,841

108,020

126,534

155,325Average interest rate

4.17
%
5.22
%
5.56
%
6.21Maximum outstanding as of any month end
$
109,496

114,619

144,711

171,006  Subsidiary Activity
 
 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 $22,000 in its service corporation as of December 31, 2003. The service corporation  , which has been inactive since February 1, 2003, had agreements with third party providers for the sale of securities and casualty insurance products.
 
 Other information about the Companys business segments is contained  in  the section captioned "Segment Information" in Note 1 to the consolidated financial statements in the December 31, 2003 Annual Report.  This information is incorporated herein by reference.
 20
  Financial Highlights

Six Months Ended

Year EndedDecember 31,

June 30,2003

2003

2002

2001Dividend Payout Ratio

60
%
48
%
63
%
61
%Return on Average Assets (1)

0.45
%
0.95
%
0.93
%
0.92
%Return on Average Equity (1)

4.42
%
9.78
%
7.63
%
6.20
%Stockholders' Equity to Assets

9.82
%
9.37
%
9.40
%
13.42
%EPS Diluted
$
0.52

1.26

1.00

0.77Dividends
$
0.31

0.60

0.63

0.47(1) Annualized for six months ended December 31, 2003 
 Employees
 
 Substantially, all of the activities of the Company are conducted through the Bank. As of December 31,  2003  the Company has no salaried employees.
 
 As of March 30, 2004, the Bank has 88 full-time employees and 50 part-time employees. None of the Bank's employees are represented by a collective bargaining group. The Bank believes that its relationship with its employees is good.
 
 Competition
 
 The Bank experiences substantial competition both in attracting and retaining deposit accounts and in the making of mortgage and other loans.
 
 Direct competition for savings accounts comes from other savings institutions, credit unions, regional bank and thrift holding companies, and commercial banks located in its primary market area. Significant competition for the Bank's other deposit products and services comes from money market mutual funds, brokerage firms, insurance companies, and retail stores. The primary factors in competing for loans are interest rates and loan origination fees and the range of services offered by various financial institutions. Competition for origination of real estate loans normally comes from commercial banks, savings institutions, mortgage bankers, mortgage brokers, and insurance companies.
 
 The Bank's primary competition comprises the financial institutions near each of the Bank's offices. In the Springfield metropolitan area, where the Bank's main office and branch offices are located, primary competition consists of 25 commercial banks, 13 credit unions, and 1 savings institution.
 
 The Bank believes it is able to compete effectively in its primary market area by offering competitive interest rates and loan fees, and a variety of deposit products, and by emphasizing personal customer service.
 
 Regulation
 
 Set forth below is a brief description of certain laws which relate to the regulation of the Company and the Bank.  These laws, and regulations adopted under these laws, are primarily intended for the protection of the Banks customers and depositors and not for the benefit of the stockholders of the Company. The following  description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
 
 21
  Company Regulation
 
 General. The Company is a registered bank holding company subject to regulation and supervision of the Board of Governors of the Federal Reserve System ("FRB") under the Bank Holding Company Act of 1956 ("BHCA").
 
 Capital . The FRB has adopted risk-based capital guidelines for bank holding companies. The minimum guideline for the ratio ("Risk-Based Capital Ratio") of total capital ("Total Capital") to risk-weighted assets (including certain off-balance-sheet commitments such as standby letters of credit) is 8%. At least one-half of Total Capital must be composed of Tier 1 Capital which generally consists of common shareholders' equity, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock and certain nonfinancial equity investments, less goodwill and certain other intangible assets. The remainder, denominated "Tier 2 Capital," generally consists of limited amounts of subordinated debt, qualifying hybrid capital instruments, other preferred stock, loan loss reserves and unrealized gains on certain equity securities.
 
 In addition, the FRB has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets less goodwill ("Leverage Ratio") of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 4%. The guidelines also provide that bank holding companies anticipating or experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance upon intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a "tangible Tier 1 Leverage Ratio" (after deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities.
 
 The Bank is subject to Risk-Based and Leverage Capital Ratio requirements adopted by the FDIC, which are substantially similar to those adopted by the FRB. See "Regulation of the Bank  Prompt Corrective Action." A bank's capital classifications may affect a bank's activities. For example, under regulations adopted by the FDIC governing the receipt of brokered deposits, a bank may not lawfully accept, roll over or renew brokered deposits unless either (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC.
 
 As of December 31, 2003, the Company and the Bank met their minimum capital adequacy guidelines, and the Bank was categorized as well capitalized. Applicable capital and ratio information is contained under the section titled "Regulatory Matters" in Note 1 to the consolidated financial statements in the 2003 Annual Report.
 
 Dividend Restrictions and Share Repurchases .  The Companys source of cash flow (including cash flow to pay dividends to stockholders) is dividends paid to it by the Bank. The right of the Company to receive dividends or other distributions from the Bank is subject to the prior claims of creditors of the Bank, including depositors.
 
 There are statutory and regulatory limitations on the payment of dividends to the Company by the Bank. See discussion under "Regulation of the Bank  Dividend Limitations." Future dividends will depend primarily upon the level of earnings of the Bank. Banking regulators also have the authority to prohibit banks and bank holding companies from paying a dividend if they should deem such payment to be an unsafe or unsound practice.
 
 22
  Unless a bank holding company is well capitalized immediately before and after the repurchase of its equity securities, is well managed and is not subject to any unresolved supervisory issues, it must notify the FRB prior to the purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration (gross consideration paid minus the gross consideration received from the sale of equity securities) paid by the Company during the preceding twelve months, is equal to 10% or more of the Companys consolidated net worth. The FRB may disapprove of the purchase or redemption if it determines, among other things, that the proposal would constitute an unsafe or unsound business practice.
 
 Support of Banking Subsidiaries. Under FRB policy, the Company is expected to act as a source of financial strength to the Bank and, where required, to commit resources to support the Bank. Moreover, if the Bank should become undercapitalized, the Company would be required to guarantee the Bank's compliance with its capital restoration plan in order for such plan to be accepted by the FDIC.
 
 Acquisitions . Under the BHCA, the Company must obtain the prior approval of the FRB before it may acquire all or substantially all of the assets of any bank, acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, or merge or consolidate with any other bank holding company. The BHCA also restricts the Companys ability to acquire direct or indirect ownership or control of 5% or more of any class of voting shares of any nonbanking corporation. The FRB is required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy. Consideration of convenience and needs issues includes the involved institutions performance under the Community Reinvestment Act of 1977 (the CRA), as amended. Under the CRA, all financial institutions have a continuing and affirmative obligation consistent with safe and sound operation to help meet the credit needs of their entire communities, including low-to-moderate income neighborhoods. Based on its most recent CRA compliance examinations, the Bank has received a "satisfactory" CRA rating.
 
 Transactions With Affiliates. There are various legal restrictions on the extent to which a bank holding company may borrow or otherwise obtain credit from or sell assets or affiliate securities to its bank subsidiary. In general, covered transactions with a bank subsidiary must be on nonpreferential terms and cannot exceed, as to any one of the holding company or the holding company's nonbank subsidiaries, 10% of the bank's capital stock and surplus, and as to the holding company and all of its nonbank subsidiaries in the aggregate, 20% of such capital stock and surplus. Special collateral requirements also apply to covered extensions of credit.
 
 Regulation of the Bank
 
 General . The Bank is regulated and supervised by the Missouri Division of Finance, and its deposits are insured by the Savings Association Insurance Fund ("SAIF") of the FDIC. Lending activities and other investments must comply with various federal statutory and regulatory requirements. The Bank is also subject to certain reserve requirements promulgated by the FRB.
 
 The Missouri Division of Finance, in conjunction with the FDIC, will regularly examine the Bank and provide reports to the Bank's Board of Directors on any deficiencies that are found in the Bank's operations. The Bank's relationship with its depositors and borrowers is also regulated to a great extent by federal and state law, especially in such matters as the ownership of savings accounts and the form and content of the Bank's mortgage documents.
 
 The Bank must file reports with the Missouri Division of Finance and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other banks or savings institutions. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the SAIF and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
 
 23
  Insurance of Deposit Accounts. The deposit accounts held by the Bank are insured by the SAIF to a maximum of $100,000 for each insured depositor (as defined by law and regulation). Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institution's primary regulator.
 
 The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to its deposit insurance fund. Under this system, SAIF members pay within a range of 0 cents to 27 cents per $100 of domestic deposits, depending upon the institution's risk classification. Risk classification is based on an institution's capital group and supervisory subgroup assignment. In addition, all FDIC-insured institutions are required to pay assessments to the FDIC at an annual rate of approximately .0172% of insured deposits to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017.
 
 Prompt Corrective Action.  The FDIC is required to take prompt corrective action if a depository institution for which it is the regulator, including the Bank, does not meet its minimum capital requirements. A depository institution is considered to be significantly undercapitalized if it has a Total Capital Ratio of less than 6.0%; a Tier I Capital ratio of less than 3.0%; or a Leverage Ratio of less than 3.0%. An institution that has a tangible equity capital to assets ratio equal to or less than 2.0% is deemed to be critically undercapitalized. "Tangible equity" includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards, plus the amount of outstanding cumulative perpetual preferred stock (including related surplus), minus all intangible assets, with certain exceptions.
 
 The FDIC may, under certain circumstances, reclassify a well capitalized insured depository institution as adequately capitalized. It is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution. An institution may be reclassified if the FDIC determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice.
 
 Safety and Soundness Standards . Federal bank regulators are required to prescribe standards, by regulations or guidelines, relating to the internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest-rate-risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits and such other operational and managerial standards as the agencies may deem appropriate. The federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards, which require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.
 
 Anti-Terrorism Legislation . The USA Patriot Act of 2001 contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. U.S. financial institutions are required to adopt policies and procedures to combat money laundering  and the Treasury Secretary  is granted  broad authority to establish regulations and to impose requirements and restrictions on financial institutions' operations.
 
 Dividend Limitations . In the event the Bank would fail to meet federal minimum capital adequacy guidelines, its ability to pay dividends to the Company would be restricted. In addition, under Missouri law dividends paid by banks are restricted by a statutory formula, which provides for the maintenance of a surplus fund and prohibits the payment of dividends which would impair the surplus fund.
 
 24
  Legislative and Regulatory Initiatives
 
 Proposals to change the laws governing the financial institutions industry may be introduced in the United States Congress and in state legislatures, and the various banking agencies often modify existing regulations or adopt new regulations. It cannot be determined what impact future legislation or regulations will have on the financial institutions industry generally or on the Company and the Bank.
 
 
 Executive Officers of the Registrant
 
 Set forth below is information concerning the three executive officers of the Company.
 
 Don M. Gibson has been President and Chief Executive Officer of the Company and the Bank since January 2002. Prior to joining the Company, Mr. Gibson was a retired banking executive. From March 2000 to July 2000 Mr. Gibson was President of Sinclair National Bank, Gravette, Arkansas. Prior to that, Mr. Gibson was at Great Southern Bank, a subsidiary of Great Southern Bancorp, Inc., Springfield, Missouri, holding various positions since September 1975 with his last being Vice Chairman.
 
 William B. Williams joined the Bank in 1995 as Executive Vice President and Chief Operating Officer. Mr. Williams has held the same positions with the Company since its formation in September 1997. Prior to joining the Bank, Mr. Williams worked as a consultant to Midland Loan Services, L.P., a commercial mortgage banker in Kansas City, Missouri. From 1987 to 1994, Mr. Williams worked for North American Savings Bank in Grandview, Missouri, most recently as Executive Vice President and Chief Financial Officer. Mr. Williams received a BSBA degree from the University of Arkansas in 1969 and after serving as an officer in the U.S. Navy, he received a MBA degree from Tulane University in 1974. He is a CPA.
 
 Bruce Winston is Senior Vice President and Chief Financial Officer of the Bank. He joined the Bank in 1992. Mr. Winston has held the same positions with the Company since its formation in September 1997. Prior to joining the Bank, he served in various other capacities with two other financial institutions over a period of 20 years. He is a graduate of Southwest Missouri State University.
 
 As of December 31, 2003, the years of age of these individuals was 60 for Mr. Gibson, 56 for Mr. Williams and 55 for Mr. Winston.
 
 Item 2. Properties
 The offices of the Company are located in the main office of the Bank.
 
 The Bank's office facilities currently consist of the main office in Springfield, Greene County, Missouri, three full-service branch offices in Springfield, four in-store branches located in the Dillons Supermarkets in Springfield and one in-store branch located in the Walmart Supercenter in Nixa, Christian County, Missouri. The Bank has a relatively new main office building, which provides the Bank with a modern office for customer services and projects a favorable image for the Bank in the local marketplace.
 
 Item 3. Legal Proceedings
 
 (a)  Litigation
 
 The Company and the Bank, from time to time, may be parties to ordinary routine litigation, which arises in the normal course of business, such as claims to enforce liens, and condemnation proceedings, on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the business of the Company and the Bank. As of December 31, 2003, there were no claims or lawsuits pending or known to be contemplated against the Company or the Bank that would have had a material effect on the Company or the Bank.
 
 (b)  Proceedings Terminated During the  Last  Quarter of the Fiscal Year Covered by This Report
 
 Not applicable.
 
 25
  Item 4. Submission of Matters to a Vote of Security Holders
 No matter was submitted to a vote of security holders during the  last  quarter of the fiscal year ended December 31, 2003.
 
 PART II
 
 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 The information contained in the section captioned "Common Stock Prices and Dividends" on page 1 of the 2003 Annual Report  is incorporated herein by reference.  Information under the section captioned "Cash  Dividends  Paid"  on pages  11  and  13  of the 2003 Annual Report is incorporated herein by reference.
 
 With respect to  the equity compensation plan  information  required by this item,  see  " Item 12.  Security Ownership of Certain Owners and Management  and  Related  Stockholder  Matters"  in this report.
 
 
 Item 6. Selected Financial Data
 
 The information contained on page 3 of the  2003 Annual Report is incorporated herein by reference.
 
 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 The information contained on pages 4 through  16   of the  2003 Annual Report is incorporated herein by reference.
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 
 The information contained on pages  13  and   14  under the sections captioned "Asset/Liability Management" and "Interest Rate Sensitivity Analysis" of the  2003 Annual Report is incorporated herein by reference.
 
 Item 8. Financial Statements and Supplementary Data
 
 The financial statements set forth on pages  17  to  45  of the  2003 Annual Report   and the  financial information contained under the section captioned  "Summary of Unaudited Quarterly Operating Results" set forth on page  16  of the  2003 Annual Report  are incorporated herein by reference.
 
 Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure
 
 Not applicable.
 
 Item 9A. 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 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.
 
 26  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 Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on the foregoing evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of December 31, 2003.
 
 (b) There have been no changes in the Companys internal control over financial reporting during the fiscal quarter ending December 31, 2003 that have materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.
 
 27
  PART III
 
 Item 10. Directors and Executive Officers of the Registrant
 
 The information contained under the section captioned "First Proposal: Election of Directors"  on pages 3 to 5 (excluding any information contained under the section captioned "Meetings and Committees of the Board of Directors") of  the Proxy Statement is incorporated herein by reference.
 
 The Company has adopted a Code of Conduct and Ethics, and it applies to all of the members of the board of directors, officers and employees of the Company (including the Bank), with special emphasis on compliance by the directors of the Company and the Companys Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller and persons performing similar functions for the Company. The Companys Code of Conduct and Ethics is available on the Companys website at www.gfed.com and may be accessed by logging onto the Companys website and clicking on the "About Us" link and then the "Code of Conduct" link. You will then be able to click on, and access, the Companys Code of Conduct and Ethics. Amendments to, and waivers granted under, the Companys Code of Conduct and Ethics, if any, will be posted to the Companys website as well.
 
 The information required by Item 10 regarding an audit committee financial expert and the identification of audit committee members is contained under the section captioned "Report of the Audit Committee" of the Proxy Statement and is incorporated herein by reference.
 Additional information  required by this item  is   contained  in the Proxy Statement  under  the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" and  is incorporated herein by reference and  under  the section captioned  "Executive Officers of the Registrant" in Item 1 of this report.
 
 
 Item 11. Executive Compensation
 
 The information contained in the  Proxy Statement under the  sections captioned "Directors Compensation", "Compensation Committee Interlocks and Insider Participation",  "Compensation Committee Report of Executive Compensation",  "Summary Compensation Table" ,  "Employment Agreements" , "Option Grants in Last Fiscal Year",  "Aggregated Option/SAR Exercises  In Last Fiscal Year  and Fiscal Year  End  Option/SAR Values"  and "Stock Performance Graph"  is incorporated herein by reference.
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
 Except as set forth below, information required by this item is  contained under  the  section captioned "Voting Securities and Principal Holders Thereof" in the Proxy Statement  and is  incorporated herein by reference .
 
 28
  Equity Compensation Plan Information(c)Number of securitiesremaining available(a)

(b)

for future issuanceNumber of securities to be

Weighted-average

under equityissued upon exercise of

exercise price of

compensation plansoutstanding options,

outstanding options,

(excluding securitiesPlan category
warrants and rights

warrants and rights

reflected in column (a))Equity compensation plans
391,047

13.40

17,063approved by security holdersEquity compensation plans not
22,875

11.96

14,761approved by security holdersTotals
413,922

13.32

31,824
  
 
 29
  Description of Stock Plans Not Approved by Stockholders
 
 2000 Stock Compensation Plan . 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.  A committee of the Banks Board of Directors (the "Committee") administers this plan and the 2001 SCP (discussed below).  Stock options awarded under the plan are considered non-qualified for federal income tax purposes. Officers, directors and employees of the Company and its subsidiaries are eligible under the plan.  S tock awards and stock options vest at the rate of 20% per year over a five year period and  become fully vested in the event of a "change in control" as defined in the plan . In addition, the price of the stock options may not be less than the market value of the Companys common stock on the date of grant, and the stock options expire no later than ten years from the date of grant . Under the stock award component of this plan, the Committee awarded 7,125 restricted shares of the Companys common stock. As of December 31,   2003,  there are 1,425 restricted shares in this plan that are not vested. There  have been  17,875 options granted  under    this  plan at  an exercise price of  $10.50 per share. The maximum number of shares of the Companys common stock permitted to be awarded under this plan have been awarded.
 
 2001 Stock Compensation Plan . 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. Stock options awarded under the plan are considered non-qualified for federal income tax purposes. Officers, directors and employees of the Company and its subsidiaries are eligible under the plan.  Stock awards and stock options vest at the rate of 20% per year over a five year period and  become fully vested in the event of a "change in control" as defined in the plan.  In addition, the price of the stock options may not be less than the market value of the Companys common stock on the date of grant, and the stock options expire no later than ten years from the date of grant.  Under the stock award component of this plan, the Committee awarded 10,239 restricted  shares of the Companys common stock. As of December 31, 2003, 6,141 of the  shares in this plan are not vested. No  options  have been  granted  under  this plan . The maximum number of shares of the Companys common stock permitted to be awarded under this plan is 25,000 shares .
 
 2003 Stock  Option Agreement  . During the period ended December 31, 2003, the independent directors of the Company  authorized  the  issuance of 5,000 stock options as an employment inducement to a new officer of  the   Bank pursuant to  a stock option   agreement  . Stock options awarded under  this    agreement  are considered non-qualified for federal income tax purposes  , vest at the rate of 20% per year over a five year period, become fully vested in the event of a "change in control" as defined in the  agreement  and expire no later than ten years from the date of grant . In addition, pursuant to the term of the stock option agreement which requires that the price of the stock options granted thereunder may not be less than the market value of the Companys common stock on the date of grant, a  ll of these  options were granted at an exercise price of $17.20 per share.
 
 Item 13. Certain Relationships and Related Transactions
 
 The information required by this item is  contained under  the section captioned "Transactions with Certain Related Persons" in the Proxy Statement  and is  incorporated herein by reference .
 
 Item 14. Principal Accountant Fees and Services
 
 The information required by this item is contained under the section captioned ****"Principal Accountant Fees and Services" in the Proxy Statement and is incorporated herein by reference.
 
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
 
 (a)  The following documents are filed as a part of this report:
 
 1.  The following financial statements and the report of independent accountants included in the December 31, 2003 Annual Report are incorporated herein by reference.
 
 30
 Independent Accountants Report
 
 Consolidated Balance Sheets as of December 31, 2003 and June 30, 2003 and 2002.
 
 Consolidated Statements of Income for the  Six Months Ended December 31, 2003 and
 2002 and for the  Years Ended June 30, 2003, 2002, and 2001.
 
 Consolidated Statements of Stockholders' Equity  for the Six Months Ended December 31, 2003 and  for the Years Ended June 30, 2003, 2002, and 2001.
 
 Consolidated Statements of Cash Flows  for the Six Months Ended December 31, 2003 and
 2002 and  for the Years Ended June 30, 2003, 2002, and 2001.
 
 Notes to Consolidated Financial Statements.
 
 2. Financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and therefore have been omitted.
 
 3. The following exhibits are included in this Report or incorporated herein by reference:
 
 3(i) Certificate of Incorporation of Guaranty Federal Bancshares, Inc. (1)
 3(ii) Bylaws of Guaranty Federal Bancshares, Inc. (1), as amended on October 16, 2003
 4 Rights Agreement dated January 20, 1999 concerning the issuance of preferred stock and related rights. (2)
 10.1 1994 Stock Option Plan *(3)
 10.2 Recognition and Retention Plan *(4)
 10.3 1998 Stock Option Plan *(5)
 10.4 Restricted Stock Plan *(6)
 10.5  Change in Control Severance Agreement *(7)
 10.6  2000 Stock Compensation Plan *(7)
 10.7  2001 Stock Compensation Plan *(7)
 10.8 2003 Stock Option Agreement *
 11 Computation of per share earnings is set forth in Note 1 of the Notes to the consolidated financial statements under the section captioned            "Earnings Per Share" in the 2003 Annual Report.
 13 December 31, 2003 Annual Report to Stockholders for the transition period ended  December 31,    2003 (only those portions incorporated by      reference in this document are deemed "filed")
 21 Subsidiaries of the Registrant ( See Item 1. Business  Subsidiary Activity)
 23  Consent of BKD, LLP
 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 0f 2002
 32.2  CFO certification pursuant to  18 U.S.C. Section 1350, as adopted  pursuant to  Section 906 of the Sarbanes-Oxley Act 0f 2002
 
 * Management contract or compensatory plan or arrangement
 
 31
  
 
 
 (b)  Reports on Form 8 - K
 
 1.   Furnished  on  October  15, 2003 relating to the registrants earnings release for the  first   quarter ended  September    30,  2003; and announcing shares remaining to be repurchased to complete the repurchase plan announced November 22, 2002.
 
 _____________________
 (1)  Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (SEC File No. 0-23325) and incorporated herein by reference.
 (2)  Filed as an exhibit to the Form 8A filed by Registrant on January 22, 1999 and incorporated herein by reference.
 (3)  Filed as Exhibit 10.1 of the Registration Statement on Form S-1 filed by the Registrant on September 22, 1997 (SEC File No. 333-36141) and incorporated herein by reference.
 (4)  Filed as Exhibit 10.2 of the Registration Statement on Form S-1 filed by the Registrant on September 22, 1997 (SEC File No. 333-36141) and incorporated herein by reference.
 (5)  Filed as Exhibit A of the proxy statement for a special meeting of stockholders held on July 22, 1998 (SEC File No. 0-23325) and incorporated herein by reference.
 (6)  Filed as Exhibit B of the proxy statement for a special meeting of stockholders held on July 22, 1998 (SEC File No. 0-23325) and incorporated herein by reference.
 (7)  Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (SEC File No. 0-23325) and incorporated herein by reference.
 32   SIGNATURES

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.

**GUARANTY FEDERAL BANCSHARES, INC.**Date: March 30, 2004
By:
/s/ Don M. GibsonDon M. GibsonPresident and Chief Executive Officer(Duly Authorized Representative)

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. By:
/s/ Don M. Gibson

By:
/s/ Tim RosenburyDon M. Gibson


Tim RosenburyPresident and Chief Executive Officer


Directorand Director

Date:
March 30, 2004(Principal Executive Officer)Date:
March 30, 2004By:
/s/ Bruce Winston

By:
/s/ Gary LipscombBruce Winston


Gary LipscombSVP and Chief Financial Officer


Director(Principal Accounting and Financial Officer)

Date:
March 30, 2004Date:
March 30, 2004By:
/s/ Wayne V. Barnes

By:
/s/ Jack L. BarhamWayne V. Barnes


Jack L. BarhamDirector


Chairman of the Board and DirectorDate:
March 30, 2004

Date:
March 30, 2004By:
/s/ Gregory V. Ostergren

By:
/s/ James L.. Sivils, IIIGregory V. Ostergren


James L.. Sivils, IIIDirector


DirectorDate:
March 30, 2004

Date:
March 30, 2004By:
/s/ Kurt D. HellwegKurt D. HellwegDirectorDate:
March  30, 2004
 33