SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             ---------------------

                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended     June 30, 1999
                          --------------------

                                     - or -

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

For the transition period from              to
                               -------------  -------------

                         Commission File Number: 0-23325
                                                ---------

                        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
  or Organization)                                           Identification No.)

 1341 West Battlefield, Springfield, Missouri                       65807
--------------------------------------------                     ----------
(Address of Principal Executive Offices)                         (Zip Code)

Registrant's telephone number, including area code:     (417) 889-2494
                                                    ---------------------

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]

     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
September 23, 1999, was $56.4 million (4,908,632 shares at $11.50 per share).

     As of September  23, 1999 there were  outstanding  5,495,246  shares of the
Registrant's Common Stock.
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the fiscal year ended
     June 30, 1999. (Parts II and IV)
2.   Portions  of  the  Proxy   Statement   for  the  1999  Annual   Meeting  of
     Stockholders. (Part III)

                        GUARANTY FEDERAL BANCSHARES, INC.

                                    Form 10-K

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S>      <C>                                                                                                  <C>
Item                                                                                                           Page
----                                                                                                           ----

                                     PART I


         1.       Business.......................................................................................4

         2.       Properties....................................................................................30

         3.       Legal Proceedings.............................................................................30

         4.       Submission of Matters to a Vote of Security Holders...........................................30

                                     PART II

         5.       Market for Registrant's Common Equity and Related Stockholder Matters.........................30

         6.       Selected Financial Data.......................................................................30

         7.       Management's Discussion and Analysis of Financial Condition and Results of Operations.........30

         7A.      Quantitative and Qualitative Disclosures About Market Risk....................................30

         8.       Financial Statements and Supplementary Data...................................................31

         9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........31

                                    PART III

         10.      Directors and Executive Officers of the Registrant............................................31

         11.      Executive Compensation........................................................................31

         12.      Security Ownership of Certain Beneficial Owners and Management

         13.      Certain Relationships and Related Transactions................................................32

         14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................32
</TABLE>

Signatures

<PAGE>

     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.

     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; DISRUPTION DATA PROCESSING CAUSED BY COMPUTER
MALFUNCTIONS  ASSOCIATED  WITH THE YEAR 2000 PROBLEM;  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.

                                       3

<PAGE>

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 the holding  company for the Bank on December 30,  1997,  in
connection with a plan of conversion and  reorganization  involving the Bank and
its then existing mutual holding company.  The mutual holding company  structure
had been  created  in April  1995 (the  "Conversion")  at which time more than a
majority of the shares of the Bank were issued to the mutual holding company and
the remainder were sold in a public offering.  In connection with the conversion
and  reorganization  on December  30,  1997,  the shares of the Bank held by the
mutual holding company were  extinguished  along with the mutual holding company
and the shares of the Bank held by the public were  exchanged  for shares of the
Company. Additional shares of the Company were issued on December 30, 1997.

     The Company is a unitary  savings and loan  holding  company  which,  under
existing laws,  generally is not restricted in the types of business  activities
in which it may  engage  provided  the Bank  retains a  specified  amount of its
assets in housing-related  investments.  The Company is not an operating company
and has not engaged in any  significant  business to date.  As such,  references
herein to the Bank include the Company unless the context otherwise indicates.

Business of the Bank

     The Bank is a  Federally-chartered  stock  savings  bank that  obtained its
current  name in April  1995 at the time it  reorganized  from a mutual  savings
association  known as "Guaranty  Federal  Savings and Loan  Association"  into a
mutual holding company structure.

     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 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.  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 Office of Thrift  Supervision  ("OTS") and its
deposits are insured by the Savings  Association  Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC").

                                       4
<PAGE>

Market Area

     The  Bank's  primary  market  area  is  Greene  County,  which  is  in  the
southwestern corner of Missouri. While the population of Greene County increased
12.4%  between 1980 and 1990 and its per capita  income grew  approximately  32%
between  1985 and 1990,  the average  per capita  income in 1990 still was lower
than  the  average  per  capita  income  for  Missouri  and the  United  States.
Springfield  has a Metropolitan  Statistical  Area  population of  approximately
250,000.  The local  economy is well  diversified  with the  majority of jobs in
light  manufacturing  and service  industries.  There is a large regional health
care presence with two large regional hospitals employing over 8,000. 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
<PAGE>

Lending Activities

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



     The following  table sets forth the dollar  amount,  before  deductions for
unearned  discounts,  deferred loan costs and allowance for loan losses, at June
30,  1999 of all  loans due  after  June 30,  2000,  which  have  pre-determined
interest rates and which have adjustable interest rates.

Composition of Loan Portfolio
<TABLE>
<CAPTION>
                                                                    At June 30,
                                                                    -----------
                                    1999              1998              1997             1996             1995
                                    ----              ----              ----             ----             ----
                              Dollars  Percent  Dollars  Percent  Dollars  Percent Dollars  Percent  Dollars  Percent
                              -------  -------  -------  -------  -------  ------- -------  -------  -------  -------
                                                            (Dollars in Thousands)
Mortgage loans (includes loans held for sale):
<S>                          <C>       <C>     <C>       <C>     <C>       <C>     <C>      <C>      <C>      <C>
  One to four units           $178,680   63.28% $148,396  66.27%  $116,441   68.11% $ 98,918  68.26%  $ 92,104  71.84%
  Multi-family                  35,795   12.68%   21,536   9.62%    15,457    9.04%   13,701   9.45%    12,169   9.49%
  Construction                  38,605   13.67%   34,729  15.51%    25,149   14.71%   21,729  14.99%    17,887  13.95%
  Commercial real estate        20,771    7.36%   12,721   5.68%     8,323    4.87%    8,739   6.03%     5,162   4.03%
                               -------  ------   ------- ------    -------  ------   ------- ------    ------- ------
Total mortgage loans           273,851   96.99%  217,382   97.08%  165,370   96.73%  143,087  98.73%   127,322  99.30%
                               -------  ------   ------- ------    -------  ------   ------- ------    ------- ------
  Commercial business loans        544    0.19%      646   0.29%       383    0.22%      255   0.18%       219   0.17%
  Share loans                      573    0.20%      623   0.28%       720    0.42%      530   0.37%       522   0.41%
  Automobile                     2,016    0.71%    2,018   0.90%     1,765    1.03%    1,005   0.69%       106   0.08%
  Other                          5,389    1.91%    3,251   1.45%     2,727    1.60%       48   0.03%        45   0.04%
                               -------  ------   ------- ------    -------  ------   ------- ------    ------- ------
Total consumer and other loans   8,522    3.01%    6,538   2.92%     5,595    3.27%    1,838   1.27%       892   0.70%
                               -------  ------   ------- ------    -------  ------   ------- ------    ------- ------
Total loans                    282,373  100.00%  223,920 100.00%   170,965  100.00%  144,925 100.00%   128,214 100.00%
                                        ======           ======             ======           ======            ======
Less:
  Loans in process              15,466            15,235            10,476            7,572              6,537
  Deferred loan fees/costs, net    180                84               (39)             (22)              (116)
  Unearned discounts               109               190               216              238                233
  Allowance for loan losses      2,349             2,191             2,177            2,108              1,718
Total Loans, Net              $264,269          $206,220          $158,135         $135,029           $119,842
                               =======           =======           =======          =======            =======
</TABLE>

                                       6
<PAGE>

     The following  table sets forth the dollar  amount,  before  deductions for
unearned  discounts,  deferred loan costs and allowance for loan losses, at June
30, 1999 of all loans due after June 2000,  which have  pre-determined  interest
rates and which have adjustable interest rates.

Fixed and Adjustable Rate Loans by Type

                                               Adjustable
                           Fixed Rates           Rates               Total
                           -----------           -----               -----
                                          (Dollars in Thousands)
One-to four-family           $ 56,568            115,267             171,835
Multi-family                   10,919             23,707              34,626
Construction                      239              2,198               2,437
Commercial real estate          5,151              8,837              13,988
Consumer & other loans          1,349                  -               1,349
                              -------            -------             -------
Total loans (1)              $ 74,226            150,009             224,235

------------------
(1)  Before  deductions  for unearned  discounts,  deferred loan costs,  net and
     allowances for loan losses.

                                       7
<PAGE>

         The following table sets forth the Bank's loan originations, purchases,
sales, and principal repayments.

Origination, Purchase and Sale of Loans

                                                    Year ended June 30,
                                                    -------------------
                                             1999           1998          1997
                                             ----           ----          ----
                                                   (Dollars in Thousands)
Total gross loans receivable at
     beginning of period                  $ 223,920     $ 170,965       144,925

Loans originated:
   One- to- four-family                      66,282        66,385        47,942
   Multi-family                               8,444            19         2,259
   Construction                              44,503        35,800        28,863
   Commercial real estate                    10,440         7,793         3,398
   Consumer and other                         7,643         6,008         4,499
                                           --------       -------       -------
Total loans originated                      137,312       116,005        86,961

Loans purchased:
Total loans purchased                         7,896          --            --

Loans sold:
Whole loans                                 (10,376)       (6,364)       (4,134)
Loan principal repayments                   (61,734)      (53,684)      (45,924)
other items, net (1)                        (14,647)       (3,002)      (10,863)
                                           --------       -------       -------
Net loan activity                            58,451        52,955        26,040
Total gross loans receivable at
     end of period                        $ 282,371     $ 223,920       170,965
                                           ========      ========       =======
--------------------
(1)  Includes non-cash portion of loan originations.

                                       8
<PAGE>

     The following table sets forth the maturity of the Bank's loan portfolio at
June 30, 1999.  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.  Prepayments  and  scheduled
principal  repayments on loans totaled $61.7 million for the year ended June 30,
1999.

Loan Maturities

                                              Due After
                              Due One Year   One Through  Due After
                                 or Less     Five Years   Five Years   Total
                                 -------     ----------   ----------   -----
                                         (Dollars in thousands)
One to four family              $ 6,816         18,896    152,939     178,651
Multi family                      1,169          9,929     24,697      35,795
Construction                     22,344            818      1,619      24,781
Commercial real estate            5,170          5,355      8,633      19,158
Consumer and other loans          7,173          1,293         56       8,522
                                -------        -------    -------     -------
  Total loans (1)              $ 42,672         36,291    187,944     266,907
                                -------        -------    -------     -------
Less:
Deferred loan fees/costs                                                  180
Unearned discounts                                                        109
Allowance for loan losses                                               2,349
                                                                      -------
Loans receivable net                                                  264,269
                                                                      =======

--------------------
(1)  Includes mortgage loans held for sale

     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 June 30, 1999, 63.3% of mortgage loans  receivable  consisted of one-
to  four-family  residential  loans,  of which  65.7% were ARM  loans.  The Bank
currently  offers ARM loans that have fixed interest rates for either one, three
or five years and,  following that initial fixed period,  adjust  annually.  The
Bank has also offered ARM loans for which interest rates adjust every one, three
or five 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 2.5%  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 currently are made for terms of 15 and 30 years.

                                       9
<PAGE>

     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%.

     Multi-Family  Mortgage  Loans.  The Bank originates  multi-family  mortgage
loans in its primary  lending area. As of June 30, 1999,  $35.8 million or 12.7%
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  security  interest  in 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  rate of  interest,  the
majority of which are tied to the Bank's  prime rate.  The  loan-to-one-borrower
limitation,  $8.2 million as of June 30, 1999, is the maximum the Bank will lend
on a  multi-family  real estate  loan.  Loans above  $500,000  require  Board of
Directors approval on a case-by-case basis.

     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 June 30, 1999,  construction loans totaled $38.6
million or 13.7% of the Bank's total loans  outstanding.  Construction loans are
made to certain builders for construction of single family homes for resale,  as
well as to individuals in connection with long-term,  permanent loans to be made
upon completion of the construction.  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.

     The Bank  principally  finances the  construction of  single-family  homes.
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 fixed rates and have terms of six months
to one year. Construction loans on "pre-sold" homes may convert into a permanent
ARM loan upon completion of construction.  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


                                       10
<PAGE>

construction  progresses and as inspections warrant. The Bank employs inspectors
rather than paying title companies for construction disbursement purposes.

     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 procedures.

     Commercial  Real Estate.  As of June 30, 1999, the Bank had commercial real
estate loans totaling $20.8 million or 7.4% 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  rate of
interest,  the majority of which are tied to the Bank's  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. Less than
$4 million in commercial real estate loans are located outside the Bank's market
area.

     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
$8.2 million as of June 30,  1999,  as its maximum  commercial  real estate loan
amount. Commercial loans above $500,000 require Board of Directors approval on a
case-by-case basis.  Because of the small number of commercial real estate loans
made,  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 guaranty, lending only to established customers and borrowers
otherwise known to the Bank, and generally restricting such loans to its primary
market area.

     At June 30,  1999,  the Bank also  included  approximately  $5.0 million in
loans to develop land into  residential  lots and loans on completed lots in the
commercial  real estate loan  portfolio.  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.

                                       11
<PAGE>

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 June 30, 1999, $8.5 million or 3.1%, of
the Bank's loan  portfolio  consisted of such loans.  The Bank will  continue to
expand its consumer lending as opportunities present themselves.

     Loan Approval Authority and Underwriting.  All loans must have the approval
of the members of the loan committee which consists of six senior officers.  The
loan committee  meets  periodically  to review and approve loans made within the
scope of its  authority.  Real estate loans in excess of $500,000  require prior
approval by the Board of Directors.

     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.

Delinquencies and Problem Assets.

     Delinquent  Loans.  As of June 30, 1999,  the Bank had two loans with total
principal  blances  of  $212,000  that were 90 days or more past due and  twelve
loans with total principal balances of $665,000 between 30 and 89 days past due.
The Bank generally does not accrue interest on loans past due more than 90 days.


                                       12
<PAGE>

     The  following  table sets forth the Bank's loans that were 90 days or more
delinquent at the dates indicated.

Delinquency Summary
<TABLE>
<CAPTION>
                                                                                     At June 30,
                                                                 1999       1998        1997        1996        1995
                                                                 ----       ----        ----        ----        ----
                                                                                (Dollars in Thousands)
<S>                                                            <C>           <C>         <C>       <C>        <C>
Loans contractually past due 90 days or more
     accounted for on a non-accrual basis:
Mortgage Loans:
     One- to four-family                                        $ 110           -         279           -          -
     Multi-family                                                   -           -         286           -          -
     Construction                                                   -           -         190         273          -
     Commercial real estate                                         -           -           -           -      1,882
                                                                 ----        ----        ----       -----      -----
Total mortgage loans                                              110           -         755         273      1,882
                                                                 ----        ----        ----       -----      -----
Non-mortgage loans:
     Commercial loans                                               -           -           -         120          -
     Consumer and other loans                                       -           -           -           -          -
                                                                 ----        ----        ----       -----      -----
Total non-mortgage loans                                            -           -           -         120          -
                                                                 ----        ----        ----       -----      -----
Total 90 days or more past due non-accrual loans                  110           -         755         393      1,882
Accruing loans which are contractually past
due 90 days or more:
Mortgage Loans:
     One to four family                                             -           -           -         246          -
     Multi family                                                   -           -           -           -          -
     Construction                                                 102         121         113       1,047          -
     Commercial real estate                                         -           -           -          91          -
                                                                 ----        ----        ----       -----      -----
Total mortgage loans                                              102         121         113       1,384          -
                                                                 ----        ----        ----       -----      -----
Non-mortgage loans:
     Commercial loans                                               -           -           -           -          -
     Consumer and other loans                                       -           -           -           -          -
Total non-mortgage loans                                            -           -           -           -          -
                                                                 ----        ----        ----       -----      -----
Total 90 days or more past due accruing loans                     102         121         113       1,384          -
                                                                 ----        ----        ----       -----      -----
Total 90 days or more past due loans                            $ 212         121         868       1,777      1,882
                                                                 ====        ====        ====       =====      =====
Total 90 days or more past due loans as a percentage
of net loans                                                     0.08%       0.06%       0.55%       1.32%      1.57%
                                                                 ====        ====        ====       =====      =====
Total 90 days or more past due loans as a percentage
of total assets                                                  0.07%       0.05%       0.44%       0.96%      1.10%
                                                                 ====        ====        ====       =====      =====
</TABLE>
                                       13
<PAGE>

     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
additional interest 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.

     As of July 1, 1995, the Bank implemented  Statement of Financial Accounting
Standards No. 114 (SFAS 114). While implementation had no material effect on net
income, in accordance with the pronouncement,  loans totaling  $851,818,  net of
the  valuation  allowance,  which were  previously  classified  as  in-substance
foreclosures,  and  reported as part of  foreclosed  assets  held-for-sale  were
reclassified   to  loans  along  with   $199,033  of  related   allowances   for
collectibility.

     Prior to the implementation of SFAS 114, the Bank considered collateral for
a loan to be  in-substance  foreclosed  if:  (1) the  borrower  had little or no
equity in the  collateral;  (ii)  proceeds  for  repayment  of the loan could be
expected to come only from the  operation or sale of the  collateral;  and (iii)
the  borrower  had  either  formally  or  effectively  abandoned  control of the
collateral to the Bank, or retained  control of the  collateral but was unlikely
to be able to rebuild  equity in the  collateral or otherwise  repay the loan in
the foreseeable future. Cash flow attributable to in-substance  foreclosures was
used to reduce the carrying value of the collateral.

                                       14
<PAGE>

     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
<TABLE>
<CAPTION>
                                                                   As of June 30,
                                                                   --------------
                                                    1999      1998      1997      1996      1995
                                                    ----      ----      ----      ----      ----
                                                                (Dollars in Thousands)
<S>                                                <C>       <C>     <C>         <C>     <C>
Mortgage Loans:
     One-to four-family                            $  151       213       279        --        --
     Multi family                                     751       775       286        --        --
     Construction                                      --        --       190       273        --
     Commercial real estate                            --        --       502        --     1,882
                                                    -----     -----     -----      ----     -----
Total mortgage loans                                  902       988     1,257       273     1,882
                                                    -----     -----     -----      ----     -----
Non-mortgage loans:
     Commercial loans                                  --        --        --       120        --
     Consumer and other loans                           4        24        --        --        --
                                                    -----     -----     -----      ----     -----
Total non-mortgage loans                                4        24        --       120        --
                                                    -----     -----     -----      ----     -----
Total non-performing loans                            906     1,012     1,257       393     1,882
Real estate acquired in settlement of loans           102       286       210         2         2
Non-performing loans classified as in-substance
foreclosures                                           --        --        --        --       698
                                                    -----     -----     -----      ----     -----
Total non-performing assets                        $1,008     1,298     1,467       395     2,584
                                                    =====     =====     =====      ====     =====
Total non-performing loans as a percentage of
 net loans                                           0.34%     0.49%     0.79%     0.29%     1.57%
Total non-performing assets as a percentage of
total assets                                         0.32%     0.50%     0.74%     0.21%     1.51%
Impact on interest income for the period
Interest income that would have been recorded on
non-accruing loans                                 $   10    $   16    $   31    $   15    $   --

</TABLE>

                                       15
<PAGE>

     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,  OTS 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  uncollectible 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.

     As of June 30, 1999, the Bank had total  classified  assets of $2.5 million
of which $1.1 million was considered  substandard and $124,000 was classified as
loss. Special mention assets totaled $1.3 million as of June 30, 1999.

     One borrower is obligated to the Bank on loans  secured by first and second
deeds of trust on nine condominium units aggregating  approximately  $296,000 as
of June 30, 1999. This same borrower also owes the Bank  approximately  $456,000
secured by a first deed of trust on a multi-family dwelling. Each of these loans
was current as of June 30, 1999.  The Bank considers  these as impaired  because
these  properties  have  not  historically  generated  sufficient  cash  flow to
properly maintain the properties and service the debt.

     As of June 30, 1999, the Bank had $98,000 in real estate  obtained  through
foreclosure,  and $3,000 in other repossessed  property.  Subsequent to June 30,
1999 both assets were sold with net proceeds in excess of book value.


                                       16
<PAGE>


     The following  table shows the aggregate  amounts of the Bank's  classified
assets as of June 30, 1999.

Classification of Assets
<TABLE>

                                                        As of June 30, 1999
                                                        --------------------
                                     Substandard        Doubtful        Loss      Special Mention
                                     -----------        --------        ----      ---------------
                                  Number   Amount   Number  Amount  Number  Amount Number  Amount
                                  ------   ------   ------  ------  ------  ------ ------  ------
                                                                (Dollars in Thousands)

Loans:
<S>                                <C>    <C>       <C>      <C>    <C>    <C>     <C>   <C>
  One- to four-family                8      $ 227      -       -       -       -     21    1,182
  Multi-family                       3        680      -       -       3     124      -        -
  Commercial real estate             -          -      -       -       -       -      1      123
  Construction and land              -          -      -       -       -       -      -        -
  Other loans                        7         65      -       -       -       -      -        -
                                  ----       ----   ----    ----    ----    ----   ----    -----
       Total loans                  18      $ 972      -       -       3     124     22    1,305
                                  ====       ====   ====    ====    ====    ====   ====    =====
Foreclosed assets held-for-sale:
  One- to four-family                1       $ 98      -       -       -       -      -        -
  Commercial real estate             -          -      -       -       -       -      -        -
  Land and other loans               1          4      -       -       -       -      -        -
                                  ----       ----   ----    ----    ----    ----   ----    -----
       Total foreclosed assets       2        102      -       -       -       -      -        -
                                  ----       ----   ----    ----    ----    ----   ----    -----
       Total                        20    $ 1,074      -       -       3     124     22    1,305
                                  ====       ====   ====    ====    ====    ====   ====    =====
</TABLE>

                                       17
<PAGE>

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 June 30, 1999,  the Bank's total  allowance  for loan losses was $2.3
million that amounted to 0.83% 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.

     In March 1996 the Bank had $1.2  million of loan  recovery on a  commercial
loan which was previously  partially  charged off. The loan recovery  represents
amounts  recovered in excess of the carrying balance of the loan as reflected by
the  original  terms of the loan,  including  accrued  interest  and  previously
charged-off principal.  Consequently, the Bank determined that the allowance for
loan losses was sufficient prior to the recovery, and credited the provision for
loan losses.  During fiscal year 1997, the Bank again experienced a net recovery
and based on a review  discussed  above,  elected to make no further addition to
the allowance. During fiscal year 1999, the Bank experienced loan charge-offs in
excess of recoveries of $22,000,  and based on a review discussed above, elected
to add $180,000 to the allowance.  Management  anticipates  the need to continue
adding to loss reserves  through  charges to provision for loan losses if growth
in the loan portfolio continues as anticipated.


                                       18

<PAGE>

     The following  tables set forth certain  information  concerning the Bank's
allowance for possible loan losses for the periods indicated.

Allowance for Loan Losses
<TABLE>
<CAPTION>
                                                                                          Year Ended June 30,
                                                                                          -------------------
                                                                       1999          1998        1997         1996      1995
                                                                       ----          ----        ----         ----      ----
                                                                                        (Dollars in Thousands)
Allowance for loan losses:
<S>                                                                <C>            <C>          <C>          <C>        <C>
Beginning balance                                                    $ 2,191        2,177        2,108        1,718     1,703
                                                                      ------        -----        -----        -----     -----
Gross loan charge offs
(non-residential commercial
residential one to four-family)                                          (29)        (151)         (63)          (4)       (5)
Recoveries
(residential one to four-family and commercial)                            7           42          132        1,407         4
                                                                      ------        -----        -----        -----     -----
Net loans recoveries (charge-offs)                                       (22)        (109)          69        1,403        (1)
Provision for loan losses
(charged to expense)                                                     180          123            -       (1,212)       16
Allowance reclassified to loans which were previously
    classified as insubstance foreclosures                                 -            -            -          199         -
                                                                      ------        -----        -----        -----     -----
Ending balance                                                       $ 2,349        2,191        2,177        2,108     1,718
                                                                      ======        =====        =====        =====     =====
Net charge-offs as a percentage
of average loans, net                                                  -0.01%       -0.06%        0.05%        1.10%     0.00%
Allowance for loan losses as a
percentage of average loans, net                                        1.00%        1.24%        1.49%        1.66%     1.52%
Allowance for loan losses as a
percentage to total non-performing loans                              259.35%      216.50%      173.19%      536.39%    91.29%
</TABLE>

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.

Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
                                                                           At June 30,
                                                                           -----------
                                   1999                 1998                  1997                  1996                 1995
                                   ----                 ----                  ----                  ----                 ----
                            Amount        %      Amount        %       Amount        %       Amount       %       Amount       %
                           --------    -------  --------    -------   -------    --------   -------    -------   -------    -------
                             (Dollars in thousands)
<S>                       <C>          <C>       <C>        <C>        <C>       <C>         <C>       <C>        <C>       <C>
Mortgage Loans             $ 2,341      96.99%    2,185      97.08%     2,099      96.73%     2,071      98.73%    1,700      99.30%
Consumer and other loans         8       3.01%        6       2.92%        78       3.27%        37       1.27%       18       0.70%
                            ------     ------     -----     ------      -----     ------      -----     ------     -----     ------
      Total                $ 2,349     100.00%    2,191     100.00%     2,177     100.00%     2,108     100.00%    1,718     100.00%
                            ======     ======     =====     ======      =====     ======      =====     ======     =====     ======
</TABLE>


                                       19
<PAGE>

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 June  30,  1999,  the  Company  had  investment
securities with an estimated fair value of $24.6 million and a carrying value of
$24.3 million.  Of those  securities  $8.9 million,  or 36.8%,  of the Company's
investment securities portfolio was 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,   certain  certificates  of  deposit  of  insured  banks  and  savings
institutions, certain bankers' acceptances,  repurchase agreements, and loans on
federal funds.


                                       20
<PAGE>

     The following  tables set forth the  amortized  cost and  approximate  fair
market  values  of  the   available-for-sale   securities  and  held-to-maturity
securities:

Composition of Investment Portfolio
<TABLE>
<CAPTION>
                                                                           June 30, 1999
                                                                           -------------
                                                                      Gross             Gross
                                                   Amortized        Unrealized         Unrealized      Approximate
                                                      Cost             Gains             (Losses)      Fair Value
                                                   ----------       ----------         -----------    ------------
<S>                                            <C>                  <C>                <C>           <C>
 AVAILABLE-FOR-SALE SECURITIES:
                  FHLMC stock                        $ 94,000         5,474,000                -        5,568,000
                  Other stock                         735,762           106,973           (72,700)        770,035
                  Mortgage-backed securities        2,644,526             7,168           (38,554)      2,613,140

 HELD-TO-MATURITY SECURITIES:
                     U. S. government agencies      7,442,210                32            (6,800)      7,435,442
                  Mortgage-backed securities        7,952,433           300,020           (63,913)      8,188,540
                                                  -----------         ---------          --------      ----------
                                                 $ 18,868,931         5,888,193          (181,967)     24,575,157
                                                  ===========         =========          ========      ==========

                                                                           June 30, 1998
                                                                           -------------
 AVAILABLE-FOR-SALE SECURITIES:
                  FHLMC stock                        $ 94,000         4,424,000                 -       4,518,000
                  Other stock                         215,697            32,522            (1,198)        247,021
                  Mortgage-backed securities        9,047,661             7,997                 -       9,055,658

 HELD-TO-MATURITY SECURITIES:
                     U. S. government agencies      8,922,389            14,358           (75,747)      8,861,000
                  Mortgage-backed securities       11,948,654           522,116           (21,770)     12,449,000
                                                  -----------         ---------          --------      ----------
                                                 $ 30,228,401         5,000,993           (98,715)     35,130,679
                                                  ===========         =========          ========      ==========

                                                                           June 30, 1997
                                                                           -------------
 AVAILABLE-FOR-SALE SECURITIES:
                  FHLMC stock                        $ 94,000         3,266,000                 -       3,360,000

 HELD-TO-MATURITY SECURITIES:
                     U. S. government agencies      8,585,753             5,143          (217,896)      8,373,000
                  Mortgage-backed securities       15,813,890           511,722          (234,612)     16,091,000
                                                  -----------         ---------          --------      ----------
                                                 $ 24,493,643         3,782,865          (452,508)     27,824,000
                                                  ===========         =========          ========      ==========
</TABLE>


                                       21
<PAGE>

     The following table sets forth certain  information  regarding the carrying
values,  weighted  average  yields  and  maturities  of  the  Bank's  investment
securities portfolio at June 30, 1999:

Investment Portfolio Maturities and Average Weighted Yields
<TABLE>
<CAPTION>
                                                           Weighted
                                              Amortized     Average     Approximate
                                                 Cost        Yield       Fair Value
                                              ----------   --------   -------------
<S>                                        <C>               <C>        <C>
 Due in less than one year (1)              $  6,701,362       7.06%      6,694,562
 Due after ten years (1)                         740,848       6.00%        740,880
 Equity securities not due on
      a single maturity date                     829,762       0.00%      6,338,035
 Mortgage-backed securities not due on a
       single maturity date                   10,596,959       7.35%     10,801,680
                                             -----------      -----      ----------
                                            $ 18,868,931       6.87%     24,575,157
                                             ===========      =====      ==========
</TABLE>
--------------------
(1)  Consists of U. S. government agencies

                                       22
<PAGE>

Sources of Funds

     General.  The Bank'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
("IRAs")  and NOW  (checking)  accounts.  The  flow of  deposits  is  influenced
significantly by general economic  conditions,  the  restructuring of the thrift
industry, changes in money market and prevailing interest rates and competition.
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.



                                       23

<PAGE>

     The  following  table sets  forth the  distribution  of the Bank's  deposit
accounts at the dates indicated.

Deposit Account Types
<TABLE>
<CAPTION>
                                                                                As of June 30,
                                        -------------------------------------------------------------------------------------------
                                                     1999                            1998                          1997
                                                     ----                            ----                          ----
                                        Average               Percentage  Average            Percentage Average          Percentage
                                        Interest               of Total   Interest            of Total  Interest          of Total
Category                  Term            Rate      Amount     Deposits     Rate    Amount    Deposits   Rate     Amount  Deposits
--------                 ------                                             (Dollars in Thousands)
<S>                                      <C>      <C>          <C>       <C>    <C>          <C>       <C>       <C>      <C>
NOW accounts              None             1.91%    $ 18,068     12.80%    2.24%  $ 14,468     10.26%    2.05%     9,386    6.21%
Savings accounts          None             2.23%       8,751      6.20%    2.68%     8,658      6.14%    2.80%     8,621    5.70%
Money Market accounts     None             3.81%      15,546     11.01%    3.64%    10,587      7.51%    2.98%     8,288    5.48%
Non-interest bearing
     demand accounts      None             0.00%       4,371      3.10%    0.00%     3,142      2.23%    0.00%     2,334    1.54%
                                                     -------     -----             -------    ------             -------  ------
        Total                                         46,736     33.11%             36,855     26.14%             28,629   18.93%
                                                     -------     -----             -------    ------             -------  ------
Certificate of Deposit:
Fixed-rate, fixed-term    1-11 months      4.40%     $15,041     10.66%    5.00%    14,169     10.05%    4.96%    16,846   11.14%
Fixed-rate, fixed-term    12-23 months     4.71%      34,874     24.71%    5.19%    38,059     27.00%    5.29%    47,682   31.53%
Fixed-rate, fixed-term    24-35 months     5.14%      21,545     15.27%    5.64%    26,415     18.74%    5.63%    28,485   18.83%
Fixed-rate, fixed-term    36-47 months     5.48%       8,862      6.28%    5.71%    10,147      7.20%    5.77%    12,013    7.94%
Fixed-rate, fixed-term    48-59 months     5.73%       1,784      1.26%    5.98%     1,789      1.27%    5.87%     1,718    1.14%
Fixed-rate, fixed-term    60-71 months     6.09%       7,752      5.49%    6.04%     8,354      5.93%    5.92%    10,615    7.02%
Fixed-rate, fixed-term    72-95 months     6.24%       4,543      3.22%    6.28%     5,187      3.68%    5.92%     5,258    3.48%
                                                     -------     -----             -------    ------             -------  ------
Total                                                 94,401     66.89%            104,120     73.86%            122,617   81.07%
                                                     -------     -----             -------    ------             -------  ------
Total Deposits                                     $ 141,137    100.00%            140,975    100.00%            151,246  100.00%
                                                     =======    ======             =======    ======             =======  ======
</TABLE>

                                       24
<PAGE>

     The  following  table  indicates  the  approximate  amount  of  the  Bank's
certificate  accounts of $100,000 or more by time remaining until maturity as of
June 30, 1999.

Maturities of Certificates of Deposit of $100,000 or More


                                 At June 30, 1999
                              ----------------------
Maturity Period               (Dollars in Thousands)
---------------
Three months or less                $ 1,679
Over three through six months           835
Over six through twelve months        2,448
Over twelve months                    2,277
                                     ------
Total                               $ 7,239
                                     ======

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.

     As of June 30,  1999,  1998 and 1997 there were  $104.8,  $45.1,  and $18.2
million outstanding advances from the FHLB,  respectively.  The weighted average
interest rate on such advances at June 30, 1999 was 5.71%.  The average  balance
of outstanding  advances  during 1999,  1998 and 1997, was $80.0 million,  $27.6
million and $13.8 million,  respectively,  and the approximate  average interest
rate was 5.90%, 6.13% and 6.09%,  respectively.  During 1999, 1998 and 1997, the
maximum  outstanding  at any  month  end was  $104.8,  $45.1  million  and $21.2
million, respectively.

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 had an  investment  of $44,000 in its  service  corporation  as of June 30,
1999. The service  corporation sells mutual funds, fixed and variable annuities,
unit investment  trusts,  individual  stocks and bonds and life insurance.  Such
sales are completed  through an agreement with "INVEST" for providing  brokerage
services. In addition,  the service corporation acts as a real estate broker for
properties owned by the Bank.

                                       25
<PAGE>

Financial Highlights

                                       Year Ended June 30,
                                       -------------------
                                    1999       1998       1997
                                    ----       ----       ----

Dividend Payout Ratio
   Since conversion December 1997     56%        52%        n/a

Return of Average Assets            1.19%      1.25%      0.60%

Return of Average Equity            5.15%      5.81%      4.30%

Stockholders' Equity to Assets     20.25%     27.20%     13.80%


Employees

     Substantially,  all of the activities of the Company are conducted  through
the Bank. At June 30, 1999 the Company had no salaried employees.

     As of June 30, 1999,  the Bank had 72 full-time  employees and 22 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 other savings institutions,
commercial banks, mortgage bankers, mortgage brokers and insurance companies.

     The Bank's primary  competition  comprises the financial  institutions near
each of the Bank's branch offices.  In the Springfield  metropolitan area, where
the Bank's main office and four branch offices are located,  primary competition
consists of one thrift institution and 25 commercial banks and 13 credit unions.

     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.

                                       26
<PAGE>

Regulation

     Set forth below is a brief  description of certain laws which relate to the
regulation of the Company and the Bank. The  description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.

Company Regulation

     General.  The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation  and  examination  by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings  bank  subsidiaries,  which  also  permits  the OTS to  restrict  or
prohibit  activities  that are determined to be a serious risk to the subsidiary
savings  bank.  This  regulation  and  oversight is intended  primarily  for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Company.

     Qualified  Thrift  Lender  Test.  As a  unitary  savings  and loan  holding
company, the Company generally is not subject to activity restrictions, provided
the Bank  satisfies  the  Qualified  Thrift  Lender  ("QTL")  test or a somewhat
similar  test for  domestic  building  and  loan  associations.  If the  Company
acquires  control of another savings  association as a separate  subsidiary,  it
would become a multiple savings and loan holding company,  and the activities of
the  Company  and any of its  subsidiaries  (other  than the  Bank or any  other
SAIF-insured   savings   association)   would  become  subject  to  restrictions
applicable to bank holding  companies unless such other  associations  each also
qualifies as a QTL or domestic  building and loan  association and were acquired
in a supervisory  acquisition.  See "- Regulation of the Bank - Qualified Thrift
Lender Test."

Regulation of the Bank

     General. As a federally chartered,  SAIF-insured  savings association,  the
Bank is subject  to  extensive  regulation  by the OTS and the  Federal  Deposit
Insurance  Corporation  ("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  Board of
Governors of the Federal Reserve System.

     The OTS, in  conjunction  with the FDIC,  regularly  examines  the Bank and
prepares  reports for the  consideration of 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 OTS 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 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.  Any change in such regulations,  whether by the OTS, the

                                       27
<PAGE>

FDIC, or the Congress could have a material  adverse impact on the Company,  the
Bank, and their operations.

     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 member (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.

     As a member of the SAIF,  the Bank paid an  insurance  premium  to the FDIC
equal to a minimum  of 0.23% of its  total  deposits.  The FDIC  also  maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial  bank deposits.  In 1996, the annual  insurance  premium for most BIF
members  was lowered to $2,000.  The lower  insurance  premiums  for BIF members
placed SAIF members at a  competitive  disadvantage  to BIF  members.  Effective
September  30,  1996,  federal  law was  revised to  mandate a one-time  special
assessment on SAIF members such as the Bank of  approximately  .657% of deposits
held on March 31,  1995.  Beginning  January  1,  1997,  the  deposit  insurance
assessment  for most SAIF  members was reduced to .064% of deposits on an annual
basis  through the end of 1999.  During this same  period,  BIF members  will be
assessed  approximately .013% of deposits.  After 1999,  assessments for BIF and
SAIF  members  should  be  the  same.  It  is  expected  that  these  continuing
assessments  for both  SAIF and BIF  members  will be used to repay  outstanding
Financing Corporation bond obligations.  As a result of these changes, beginning
January 1, 1997,  the rate of deposit  insurance  assessed the Bank  declined by
approximately 70%.

     Regulatory Capital  Requirements.  OTS capital  regulations require savings
associations to meet three capital standards: (1) a tangible capital requirement
of  1.5%  of  total  adjusted  assets,  (2)  a  leverage  ratio  (core  capital)
requirement  of 4% of  total  adjusted  assets  and  (3)  a  risk-based  capital
requirement equal to 8% of total risk-weighted  assets.  Regulations that enable
the OTS to take  prompt  and  corrective  action  against  savings  associations
effectively impose higher capital requirements on savings associations.

     Dividend and Other Capital Distribution Limitations. The Bank must give the
OTS 30 days  advance  notice of any  proposed  declaration  of  dividends to the
Company,  and the OTS has the authority under its supervisory powers to prohibit
the payment of dividends to the Company.  In addition,  the Bank may not declare
or pay a cash dividend on its capital stock if the dividend would (1) reduce the
regulatory  capital of the Bank below the amount  required  for the  liquidation
account  established in connection with the conversion from mutual to stock form
or (2) reduce the amount of capital of the Bank below the  amounts  required  in
accordance  with other OTS  regulations.  In  contrast,  the  Company  has fewer
restrictions on the payment of dividends.

     Qualified Thrift Lender Test. Savings institutions must meet either the QTL
test pursuant to OTS  regulations or the  definition of a domestic  building and
loan association in section 7701 of the Internal  Revenue Code (the "Code").  If
the Bank  maintains  an  appropriate  level  of  certain  specified  investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities)  and  otherwise  qualifies  as a QTL or a domestic
building  and  loan  association,  it will  continue  to  enjoy  full  borrowing
privileges from the FHLB of Des Moines. The required percentage of


                                       28
<PAGE>

investments  under  the QTL  test  is 65% of  assets  while  the  Code  requires
investments of 60% of assets.  A bank must be in compliance with the QTL test or
definition of domestic  building and loan association on a monthly basis in nine
out of every 12 months.

     Federal  Reserve  System.  The Board of  Governors  of the Federal  Reserve
System  requires all depository  institutions to maintain  non-interest  bearing
reserves at specified  levels  against  their  transaction  accounts  (primarily
checking, NOW, and Super NOW checking accounts) and non-personal time deposits.

Executive Officers of the Registrant

     Set forth below is information  concerning the three executive  officers of
the Company.

     James E.  Haseltine  joined the Bank in 1983,  and has served as  Director,
president and Chief  Executive  Officer since 1990.  Mr.  Haseltine has held the
same  positions  with the Company since its formation in September  1997.  After
graduating Drury College in 1968, he entered military service with the U.S. Army
and served in the  Republic of Vietnam.  He has served as a founding  member and
Chairman  of the  Affordable  Housing  Action  Board of  Springfield,  Inc.,  an
organization  serving low to moderate  income  families.  He is a licensed  real
estate broker.

     He is a past  president  of the  Rotary  Club  of  Springfield,  serves  as
director  of the  Springfield  Business  and  Development  Corporation  and  the
Springfield  Finance  and  Development  Corporation  (not for  profit  community
organizations), and is a member of First and Calvary Presbyterian Church.

     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 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, and
is a member of First  Presbyterian  Church,  where he has served as an Elder and
Treasurer.

     At June 30,  1999,  the  years of age of these  individuals  was 52 for Mr.
Haseltine, 52 for Mr. Williams and 51 for Mr. Winston.


                                       29
<PAGE>

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 and three full-service  branch offices 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

Item 3. Legal Proceedings
-------------------------

     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,  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. At June 30, 1999,  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.

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

     No matter was  submitted  to a vote of security  holders  during the fourth
quarter of the fiscal year.

                                     PART II

Item  5.  Market for Registrant's Common Equity and Related Stockholder Matters
--------------------------------------------------------------------------------

     The  information  on page 1 of the  Annual  Report to  Stockholders  of the
Registrant for the fiscal year ended June 30, 1999 (the "1999 Annual Report") is
incorporated herein by reference.

Item 6.  Selected Financial Data
--------------------------------

     The  information  contained  on  page  3  of  the  1999  Annual  Report  is
incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
--------------------------------------------------------------------------------

     The  information  contained on pages 4 through 14 of the 1999 Annual Report
is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------

     The   information   contained  on  pages  10  and  11  under  the  headings
"Asset/Liability  Management"  and "Interest Rate  Sensitivity  Analysis" of the
1999  Annual  Report is  incorporated  herein by  reference.

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

                                       30
<PAGE>

     The  financial  statements  set forth on pages 15 to 44 of the 1999  Annual
Report, are incorporated herein by reference.

Item  9.  Changes  in and  Disagreements  with  Accountants  On  Accounting  and
Financial Disclosure
--------------------------------------------------------------------------------

     Not applicable.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

     The information  contained  under the section  captioned  "First  Proposal,
Election  of  Directors"  in the  proxy  statement  for the  Annual  Meeting  of
Stockholders to be held October 27, 1999 (the "Proxy Statement") is incorporated
herein by reference.

     Additional  information  concerning  executive  officers  and  directors is
included  in  the  Proxy  Statement  in the  section  captioned  "Section  16(a)
Beneficial Ownership Reporting  Compliance" and under "Executive Officers of the
Registrant" in Item 1 of this report.

Item 11.  Executive Compensation
--------------------------------

     The   information   contained   in  the   sections   captioned   "Directors
Compensation",  "Executive Compensation"  "Compensation Committee Interlocks and
Insider   Participation",    "Compensation   Committee   Report   on   Executive
Compensation,"  "Summary  Compensation Table," "Employment  Agreements," "Option
/SAR Grants in Last  Fiscal  Year," and  "Aggregated  Option/SAR  Exercises  and
Fiscal Year end  Option/SAR  Values,"  in the Proxy  Statement  is  incorporated
herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners

          Information  required by this item is incorporated herein by reference
          to the section  captioned  "Voting  Securities  and Principal  Holders
          Thereof" in the Proxy Statement.

     (b)  Security Ownership of Management

          Information  required by this item is incorporated herein by reference
          to the second chart in the section  captioned  "Voting  Securities and
          Principal Holders Thereof" in the Proxy Statement.

     (c)  Not applicable.

                                       31
<PAGE>

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section  captioned  "Certain  Transactions  with Related  Persons" in the
Proxy Statement.


Item 14. 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 1999  Annual  Report  are  incorporated  herein by
reference and also in Item 8 of this report.

          Independent Accountants' Report

          Consolidated Balance Sheets as of June 30, 1999 and 1998.

          Consolidated  Statements  of Income for the Years Ended June 30, 1999,
          1998 and 1997.

          Consolidated  Statements  of Changes in  Stockholders'  Equity for the
          Years Ended June 30, 1999, 1998 and 1997.

          Consolidated  Statements  of Cash  Flows for the Years  Ended June 30,
          1999, 1998 and 1997.

          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:

          (a)  List of Exhibits:

          3(i) Certificate  of  Incorporation  of Guaranty  Federal  Bancshares,
               Inc.*

          3(ii) Bylaws of Guaranty Federal Bancshares, Inc.*

          10.1 1994 Stock Option Plan**

          10.2 Recognition and Retention Plan***

          10.3 1998 Stock Option Plan****

          10.4 Restricted Stock Plan*****

                                       32
<PAGE>

          10.5 Employment Agreements

          13   Annual Report to Stockholders  for the fiscal year ended June 30,
               1999

          21   Subsidiaries of the Registrant*

          23   Consent of Baird Kurtz & Dobson

          27   Financial Data Schedule (Electronic Filing only)

     (b)  No  reports  on Form 8-K were  filed  during  the last  quarter of the
          period covered by this report.

---------------------

*    Incorporated by reference to the identically numbered exhibit of the Annual
     Report on Form  10-K for the  fiscal  year  ended  June 30,  1998 (SEC file
     number 0-23325).
**   Incorporated by reference to Exhibit 10.1 of the Registration  Statement on
     Form S-1 filed by the  Registrant  on  September  22, 1997 (SEC file number
     333-36141).
***  Incorporated by reference to Exhibit 10.2 of the Registration  Statement on
     Form S-1 filed by the  Registrant  on  September  22, 1997 (SEC file number
     333-36141).
**** Incorporated by reference to Exhibit A of the proxy statement for a special
     meeting of stockholders held on July 22, 1998 (SEC file number 0-23325).
*****Incorporated  by  reference  to  Exhibit  B of the  proxy  statement  for a
     special  meeting of  stockholders  held on July 22,  1998 (SEC file  number
     0-23325).


                                       33
<PAGE>
                                   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.



Dated:  September 23, 1999         By: /s/James E. Haseltine
                                       -----------------------------------------
                                       James E. Haseltine
                                       President and Chief Executive Officer
                                       (Duly Authorized Representative)

     Pursuant to the  requirement of the Securities  Exchange Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

<S>     <C>                                       <C>
By:      /s/James E. Haseltine                       By:      /s/Ivy L. Rogers
   -------------------------------------                ---------------------------------
         James E. Haseltine                                   Ivy L. Rogers
         President and Chief Executive Officer                Director
         (Principal Executive Officer)

Date:    September 23, 1999                                   Date:    September 23, 1999

By:      /s/Bruce Winston                            By:      /s/Gary Lipscomb
   -------------------------------------                ---------------------------------
         Bruce Winston                                        Gary Lipscomb
         Vice President and Chief Financial Officer           Director
         (Principal Accounting and
         Financial Officer)

Date:    September 23, 1999                                   Date:    September 23, 1999

By:      /s/Wayne V. Barnes                          By:      /s/Jack L. Barham
   -------------------------------------                ---------------------------------
         Wayne V. Barnes                                      Jack L. Barham
         Director                                             Chairman of the Board and Director

Date:    September 23, 1999                                   Date:    September 23, 1999

By:      /s/George L. Hall                           By:      /s/Raymond D. Tripp
   -------------------------------------                ---------------------------------
         George L. Hall                                       Raymond D. Tripp
         Director                                             Director

Date:    September 23, 1999                                   Date:    September 23, 1999

By:      /s/Gregory V. Ostergren
   -------------------------------------
         Gregory V. Ostergren
         Director

Date:    September 23, 1999

</TABLE>