**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**




x
            ANNUAL
                REPORT PURSUANT TO SECTION 13****OR
                15(d) OF THE SECURITIESEXCHANGE ACT OF 1934


For
                the fiscal year ended
            December
                31, 2006


**-
      or -**


o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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 or Organization)
            
            (I.R.S.
                Employer Identification No.)




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




Registrant's
      telephone number, including area code: (417)
      520-4333





Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act:





Common
      Stock, par value $.10 per share


(Title
      of
      Class)


Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes o No x





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 o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
                  accelerated fileo
              
              Accelerated
                  filero
              
              Non-accelerated
                  filerx




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





The
      aggregate market value of the voting and non-voting common stock held by
      non-affiliates of the registrant, based on the average bid and asked prices
      of
      the registrant's Common Stock as quoted on the National Market of The NASDAQ
      Stock Market on June 30, 2006 (the last business day of the registrant’s most
      recently completed second quarter) was $66.7 million. As of March 30, 2007
      there
      were 2,902,495 shares of the registrant's Common Stock outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





1.
            Portions
                of the Annual Report to Stockholders(the
                “2006 Annual Report”)for
                thefiscal year ended December 31, 2006 (Parts I and
                II).


2.
            Portions
                of the Proxy Statement for the Annual Meeting of Stockholders(the
                “Proxy Statement”)to
                be held on May 23, 2007 (Part III).


1





**GUARANTY
      FEDERAL BANCSHARES, INC.**





Form
      10-K


TABLE
      OF CONTENTS





Item
            
            
            Page**PART
                I**1
            Business
            
            41A
            Risk
                Factors
            
            271B
            Unresolved
                Staff Comments
            
            292
            Properties
            
            293
            Legal
                Proceedings
            
            294
            Submission
                of Matters to a Vote of Security
                Holders
            
            29**PART
                II**5
            Market
                for Registrant's Common Equity, Related Stockholder Mattersand
                Issuer Purchases of Equity Securities
            
            306
            Selected
                Financial Data
            
            317.
            Management's
                Discussion and Analysis ofFinancial
                Condition and Results of Operations
            
            317A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            
            318
            Financial
                Statements and Supplementary Data
            
            319
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            
            319A.
            Controls
                and Procedures
            
            319B.
            Other
                Information
            
            31**PART
                III**10
            Directors,
                Executive Officers and Corporate
                Governance
            
            3211
            Executive
                Compensation
            
            3212
            Security
                Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters
            
            3213
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            3414
            Principal
                Accountant Fees and Services
            
            34**PART
                IV**15
            Exhibits
                and Financial Statement Schedules
            
            35Signatures




2
 Table
          of Contents


**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





**GUARANTY
      FEDERAL BANCSHARES, INC. (THE "COMPANY") MAY FROM TIME TO TIME MAKE WRITTEN
      OR
      ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN THE
      COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS
      ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), IN ITS REPORTS TO
      STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE MADE IN
      GOOD
      FAITH BY THE COMPANY PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
      SECURITIES LITIGATION REFORM ACT OF 1995.** **WHEN
      USED IN THIS ANNUAL REPORT ON FORM 10-K, WORDS SUCH AS “ANTICIPATES,”
“ESTIMATES,” “BELIEVES,” “EXPECTS,” AND SIMILAR EXPRESSIONS ARE INTENDED TO
      IDENTIFY SUCH FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS OF
      IDENTIFYING SUCH STATEMENTS.**





**THESE
      FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS
      OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS,
      THAT
      ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME OF WHICH ARE
      BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE
      THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE PLANS,
      OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH
      FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
      AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS
      OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
      AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE
      FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY
      FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
      SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND
      SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO
      COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE
      COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES;
      THE
      SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND
      SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS
      AND
      REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
      INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING
      AND SAVING HABITS; THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS RESULTING
      FROM THESE FACTORS; AND** **OTHER
      FACTORS SET FORTH IN REPORTS AND OTHER DOCUMENTS FILED BY THE COMPANY WITH
      THE
      SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME. FOR FURTHER INFORMATION
      ABOUT THESE AND OTHER RISKS, UNCERTAINTIES AND FACTORS, PLEASE REVIEW THE
      DISCLOSURE INCLUDED IN ITEM 1A. OF THIS FORM 10-K.**




**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
 Table
          of Contents


**PART
      I**





**Item
      1. Business**





**Business
      of the Company**





Guaranty
      Federal Bancshares, Inc. (the “Company”) is a Delaware-chartered corporation
      that was created in September 1997 at the direction of Guaranty Federal Savings
      Bank, a federal savings bank (the "Bank"). The Company became a unitary savings
      and loan holding company for the Bank on December 30, 1997, in connection with
      a
      plan of conversion and reorganization involving the Bank and its then existing
      mutual holding company. The mutual holding company structure had been created
      in
      April 1995 at which time more than a majority of the shares of the Bank were
      issued to the mutual holding company and the remaining shares 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. All of the
      shares of the Bank which remained outstanding after the conversion are owned
      by
      the Company. Shares of the Company were issued on December 30,
      1997.




On
      June
      27, 2003, the Bank converted from a federal savings bank to a state-chartered
      trust company with banking powers in Missouri, and the Company became a bank
      holding company. On
      this
      date, the name of
      the Bank was changed from Guaranty Federal Savings Bank to Guaranty Bank. The
      primary activity of the Company is to oversee its investment in the Bank. The
      Company engages in few other activities. For this reason, unless otherwise
      specified, references to the Company include operations of the Bank. Further,
      information in a chart or table based on Bank only data is identical to or
      immaterially different from information that would be provided on a consolidated
      basis. In addition to the Bank, the Company owns Guaranty Statutory Trust I
      and
      Guaranty Statutory Trust II, both Delaware statutory trusts.





In
      2003,
      the Company changed its fiscal year end from June 30 to a calendar year end
      of
      December 31. As a result, the Company reported a six month transition period
      ended December 31, 2003 (the “Transition Period”) in order to change to this new
      calendar year end.




**Business
      of the Bank**





The
      Bank's principal business has been, and continues to be, attracting retail
      deposits from the general public and investing those deposits, together with
      funds generated from operations, in permanent one-to four-family residential
      mortgage loans, multi-family residential mortgage loans, construction loans,
      commercial real estate loans, and consumer and other loans. The Bank also
      invests in mortgage-backed securities, U.S. Government and federal agency
      securities and other marketable securities. The Bank's revenues are derived
      principally from interest on its loans and other investments and fees charged
      for services provided ,
      and
      gains generated from sales of loans and investment securities, and the Bank’s
      results of operations are primarily dependent on net interest margin, which
      is
      the difference between interest income on interest-earning assets and interest
      expense on interest-bearing liabilities .
      The
      Bank's primary sources of funds are: deposits; borrowings; amortization and
      prepayments of loan principal; and amortizations, prepayments and maturities
      of
      mortgage-backed securities.





The
      Bank
      is regulated by the Missouri Division of Finance and its deposits are insured
      by
      the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
      Corporation (the "FDIC"). See discussion under section captioned “Regulation” in
      this report. The Bank is a member of the Federal Home Loan Bank of Des Moines
      (the “FHLB”), which is one of twelve regional Federal Home Loan Banks. As a
      member, the Bank is required to purchase and maintain stock in the FHLB in
      an
      amount equal to 0.12% of its assets plus 4.45% of its outstanding FHLB advances.
      At December 31, 2006, the Bank had $5,382,700 in FHLB stock, which was in
      compliance with this requirement.


4
 Table
          of Contents


Information
      regarding (i) average balances related to interest earning assets and interest
      bearing liabilities and an analysis of net interest earnings for the last three
      fiscal years and (ii) changes in interest income and interest expense resulting
      from changes in average balances and average rates for the last two fiscal
      years
      is provided under the section captioned “Mangement’s Discussion and Analysis of
      Financial Condition and Results of Operation” of the 2006 Annual Report is
      incorporated herein by reference.




**Market
      Area**





The
      Bank's primary market areas are Greene and Christian Counties, which are in
      the
      southwestern corner of Missouri
      and includes the cities of Springfield and Nixa,  Missouri.
      There is a large regional health care presence with two large regional hospitals
      employing over 14,000. There also are four accredited colleges and one major
      university with total enrollment approaching 25,000. Part of the area’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 attracts between five and six million
      tourists each year, many of whom pass through Springfield.





**Lending
      Activities**





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





As
                of December 31,
            
            As
                of June 30,2006
            
            2005
            
            2004
            
            2003
            
            2003$
            
            %
            
            $
            
            %
            
            $
            
            %
            
            $
            
            %
            
            $
            
            %(Dollars
                in Thousands)Mortgage
                loans (includes loans held for sale):One
                to four family
            
            $
            89,650
            
            
            18
            %
            
            103,532
            
            
            23
            %
            
            121,307
            
            
            31
            %
            $
            129,477
            
            
            37
            %
            
            144,404
            
            
            40
            %Multi-family
            
            
            50,366
            
            
            10
            %
            
            53,631
            
            
            12
            %
            
            52,259
            
            
            13
            %
            
            44,242
            
            
            13
            %
            
            41,022
            
            
            11
            %Construction
            
            
            83,967
            
            
            17
            %
            
            70,390
            
            
            16
            %
            
            45,090
            
            
            11
            %
            
            49,814
            
            
            14
            %
            
            64,464
            
            
            18
            %Commercial
                real estate
            
            
            155,801
            
            
            32
            %
            
            122,884
            
            
            28
            %
            
            97,550
            
            
            25
            %
            
            72,105
            
            
            21
            %
            
            71,046
            
            
            19
            %Total
                mortgage loans
            
            
            379,784
            
            
            78
            %
            
            350,437
            
            
            79
            %
            
            316,206
            
            
            80
            %
            
            295,638
            
            
            86
            %
            
            320,936
            
            
            88
            %Commercial
                business loans
            
            
            82,676
            
            
            17
            %
            
            66,370
            
            
            15
            %
            
            55,606
            
            
            14
            %
            
            24,618
            
            
            7
            %
            
            18,967
            
            
            5
            %Consumer
                loans
            
            
            23,708
            
            
            5
            %
            
            24,264
            
            
            6
            %
            
            25,172
            
            
            6
            %
            
            25,441
            
            
            7
            %
            
            25,486
            
            
            7
            %Total
                consumer and other loans
            
            
            106,384
            
            
            22
            %
            
            90,634
            
            
            21
            %
            
            80,778
            
            
            20
            %
            
            50,059
            
            
            14
            %
            
            44,453
            
            
            12
            %Total
                loans
            
            
            486,168
            
            
            100
            %
            
            441,071
            
            
            100
            %
            
            396,984
            
            
            100
            %
            
            345,697
            
            
            100
            %
            
            365,389
            
            
            100
            %Less:Loans
                in process
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            9,425
            
            
            
            
            
            25,539Deferred
                loan fees/costs, net
            
            
            115
            
            
            
            
            
            141
            
            
            
            
            
            106
            
            
            
            
            
            237
            
            
            
            
            
            211Unearned
                discounts
            
            
            -
            
            
            
            
            
            3
            
            
            
            
            
            7
            
            
            
            
            
            19
            
            
            
            
            
            26Allowance
                for loan losses
            
            
            5,784
            
            
            
            
            
            5,400
            
            
            
            
            
            4,537
            
            
            
            
            
            3,886
            
            
            
            
            
            2,775Total
                Loans, Net
            
            $
            480,269
            
            
            
            
            
            435,527
            
            
            
            
            
            392,334
            
            
            
            
            $
            332,130
            
            
            
            
            
            336,838





The
      following table sets forth the maturity of the Bank's loan portfolio as of
      December 31, 2006. 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.




5
 Table
          of Contents





**Loan
                Maturities**
            
            Due
                in One Year or Less
            
            Due
                After One Through Five Years
            
            Due
                After Five Years
            
            Total(Dollars
                in thousands)One
                to four family
            
            $
            7,133
            
            
            17,437
            
            
            65,080
            
            
            89,650Multi
                family
            
            
            9,294
            
            
            24,213
            
            
            16,859
            
            
            50,366Construction
            
            
            57,740
            
            
            26,227
            
            
            -
            
            
            83,967Commercial
                real estate
            
            
            50,676
            
            
            92,903
            
            
            12,222
            
            
            155,801Commercial
                loans
            
            
            39,549
            
            
            39,358
            
            
            3,769
            
            
            82,676Consumer
                loans
            
            
            1,897
            
            
            5,982
            
            
            15,829
            
            
            23,708Total
                loans (1)
            
            $
            166,289
            
            
            206,119
            
            
            113,759
            
            
            486,168Less:Deferred
                loan fees/costs
            
            
            
            
            
            
            
            
            
            
            
            115Unearned
                discounts
            
            
            
            
            
            
            
            
            
            
            
            -Allowance
                for loan losses
            
            
            
            
            
            
            
            
            
            
            
            5,784Loans
                receivable net
            
            
            
            
            
            
            
            
            
            
            $
            480,269


(1)
            Includes
                mortgage loans held for sale of $3,005




The
      following table sets forth the dollar amount, before deductions for unearned
      discounts, deferred loan fees/costs and allowance for loan losses, as of
      December 31, 2006 of all loans due after December 2007, which have
      pre-determined interest rates and which have adjustable interest
      rates.





**Fixed
                and Adjustable Rate Loans by Type**Fixed
                Rates
            
            Adjustable
                Rates
            
            Total
            
            %
                ARM(Dollars
                in Thousands)One-to
                four-family
            
            $
            22,269
            
            
            60,248
            
            
            82,517
            
            
            73
            %Multi-family
            
            
            23,623
            
            
            17,449
            
            
            41,072
            
            
            42
            %Construction
            
            
            550
            
            
            25,677
            
            
            26,227
            
            
            98
            %Commercial
                real estate
            
            
            38,069
            
            
            67,056
            
            
            105,125
            
            
            64
            %Commercial
                loans
            
            
            5,536
            
            
            37,590
            
            
            43,126
            
            
            87
            %Consumer
                loans
            
            
            5,549
            
            
            16,263
            
            
            21,812
            
            
            75
            %Total
                loans (1)
            
            $
            95,596
            
            
            224,283
            
            
            319,879
            
            
            70
            %


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





**One-
      to Four-Family Mortgage Loans.** The Bank
      offers fixed- and adjustable-rate (“ARM”) 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, attorney referrals, 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.


6
 Table
          of Contents


As
      of
      December 31, 2006, $89.7 million or 18% of the Bank’s total loan portfolio
      consisted of one- to four-family residential loans, of which 74% were ARM loans.
      The Bank currently offers ARM and balloon loans that have fixed interest rate
      periods of one to seven years. Generally, ARM loans provide for limits on the
      maximum interest rate adjustment ("caps") that can be made at the end of each
      applicable period and throughout the duration of the loan. ARM loans are
      originated for a term of up to 30 years on owner-occupied properties and
      generally up to 25 years on non-owner occupied properties. Typically, interest
      rate adjustments are calculated based on U.S. treasury securities adjusted
      to a
      constant maturity of one year (CMT), plus a 2.50% to 2.75% margin. Interest
      rates charged on fixed-rate loans are competitively priced based on market
      conditions and the cost of funds existing at the time the loan is committed.
      The
      Bank's fixed-rate mortgage loans are made for terms of 15 to 30 years which
      are
      currently being sold on the secondary market.





Generally,
      ARM loans pose credit risks different from the risks inherent in fixed-rate
      loans, primarily because as interest rates rise the underlying payments of
      the
      borrower rise, thereby increasing the potential for default. At the same time,
      the marketability of the underlying property may be adversely affected by higher
      interest rates. The Bank does not originate ARM loans that provide for negative
      amortization.





The
      Bank
      generally originates both owner occupied and non-owner occupied one- to
      four-family residential mortgage loans in amounts up to 80% of the appraised
      value or the selling price of the mortgaged property, whichever is lower. The
      Bank on occasion may 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 amount over 80% for mortgage
      loans with loan to value percentages greater than 80%.





**Multi-Family
      Mortgage Loans.** The Bank
      originates multi-family mortgage loans in its primary lending area. As of
      December 31, 2006, $50.4 million or 10% of the Bank's total loan portfolio
      consisted of multi-family residential real estate loans. With regard to
      multi-family mortgage loans, the Bank generally requires personal guarantees
      of
      the principals as well as a security interest in the real estate. Multi-family
      mortgage loans are generally originated in amounts of up to 80% of the appraised
      value of the property. The majority of the Bank’s multi-family mortgage loans
      have been originated with adjustable rates of interest which are quoted at
      a
      spread to the FHLB advance
      rate for the initial fixed rate period with subsequent adjustments based on the
      Wall Street prime rate. The loan-to-one-borrower limitation, $15.7 million
      as of
      December 31, 2006, is the maximum the Bank will lend on a multi-family
      residential real estate loan.




Loans
      secured by multi-family residential real estate generally involve a greater
      degree of credit risk than one- to four-family residential mortgage loans and
      carry larger loan balances. This increased credit risk is a result of several
      factors, including the concentration of principal in a limited number of loans
      and borrowers, the effects of general economic conditions on income producing
      properties, and the increased difficulty of evaluating and monitoring these
      types of loans. Furthermore, the repayment of loans secured by multi-family
      residential real estate is typically dependent upon the successful operation
      of
      the related real estate property. If the cash flow from the project is reduced,
      the borrower's ability to repay the loan may be impaired.





**Construction
      Loans.** As of
      December 31, 2006, construction loans totaled $84 million or 17% of the Bank's
      total loan portfolio. Construction loans originated by the Bank are generally
      secured by permanent mortgage loans for the construction of owner-occupied
      residential real estate or to finance speculative construction secured by
      residential real estate or owner-operated commercial real estate. This portion
      of the Bank’s loan 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.


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 Table
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Construction
      loans are made to contractors who have sufficient financial strength and a
      proven track record, for the purpose of resale, as well as on a "pre-sold"
      basis. Construction loans made for the purpose of resale generally provide
      for
      interest only payments at floating rates and have terms of six months to fifteen
      months. Construction loans to a borrower who will occupy a home, or to a builder
      who has pre-sold the home, typically have loan to value ratios of up to 85%.
      Construction loans for speculative purposes, models, and commercial properties
      typically have loan to value ratios of up to 80%. Loan proceeds are disbursed
      in
      increments as construction progresses and as inspections warrant.





Construction
      lending by its nature entails significant additional risks as compared with
      one-to four-family mortgage lending, attributable primarily to the fact that
      funds are advanced upon the security of the project under construction prior
      to
      its completion. As a result, construction lending often involves the
      disbursement of substantial funds with repayment dependent on the success of
      the
      ultimate project and the ability of the borrower or guarantor to repay the
      loan.
      Because of these factors, the analysis of the prospective construction loan
      projects requires an expertise that is different in significant respects from
      that which is required for residential mortgage lending. The Bank attempts
      to
      address these risks through its underwriting and construction monitoring
      procedures.





**Commercial
      Real Estate Loans.** As of
      December 31, 2006, the Bank has commercial real estate loans totaling $155.8
      million or 32% of the Bank's total loan portfolio. Commercial real estate loans
      are generally originated in amounts up to 80% of the appraised value of the
      mortgaged property. The majority of the Bank’s commercial real estate loans have
      been originated with adjustable rates of interest, the majority of which are
      quoted at a spread to the FHLB advance rate for the initial fixed rate period
      with subsequent adjustments at a spread to the Wall Street prime rate. The
      Bank's commercial real estate loans are generally permanent loans secured by
      improved property such as office buildings, retail stores, small shopping
      centers, medical offices, motels, churches and other non-residential buildings.





To
      originate commercial real estate loans, the Bank generally requires a mortgage
      and security interest in the subject real estate, personal guarantees of the
      principals, a security interest in the related personal property, and a standby
      assignment of rents and leases. The Bank has established its loan-to-one
      borrower limitation, which was $15.7 million as of December 31, 2006, as its
      maximum commercial real estate loan amount. Because of the small number of
      commercial real estate loans and the relationship of each borrower to the Bank,
      each such loan has differing terms and conditions applicable to the particular
      borrower.




Loans
      secured by commercial real estate are generally larger and involve a greater
      degree of risk than residential mortgage loans. Because payments on loans
      secured by commercial real estate are often dependent on successful operation
      or
      management of the properties, repayment of such loans may be subject, to a
      greater extent, to adverse conditions in the real estate market or the economy.
      The Bank seeks to minimize these risks by careful underwriting, requiring
      personal guarantees, lending only to established customers and borrowers
      otherwise known by the Bank, and generally restricting such loans to its primary
      market area.





As
      of
      December 31, 2006, the Bank’s commercial real estate loan portfolio included
      approximately $31 million in loans to develop land into residential lots. The
      Bank utilizes its knowledge of the local market conditions and appraisals to
      evaluate the development cost and estimate projected lot prices and absorption
      rates to assess loans on residential subdivisions. The Bank typically loans
      up
      to 80% of the appraised value over terms up to two years. Development loans
      generally involve a greater degree of risk than residential mortgage loans
      because (1) the funds are advanced upon the security of the land which has
      a
      materially lower value prior to completion of the infrastructure required of
      a
      subdivision, (2) the cash flow available for debt repayment is a function of
      the
      sale of the individual lots, and (3) the amount of interest required to service
      the debt is a function of the time required to complete the development and
      sell
      the lots.


8
 Table
          of Contents




**Commercial
      Business Loans.** As of
      December 31, 2006, the Bank has commercial business loans totaling $82.7 million
      or 17% of the Bank's total loan portfolio. Commercial
      business loans are generally secured by business assets, such as accounts
      receivable, equipment and inventory.  Unlike
      residential mortgage loans, which generally are made on the basis of the
      borrower's ability to make repayment from his or her employment and other income
      and which are secured by real property whose value tends to be more easily
      ascertainable, commercial business loans are of higher risk and typically are
      made on the basis of the borrower's ability to make repayment from the cash
      flow
      of the borrower's business. As a result, the availability of funds for the
      repayment of commercial business loans may be substantially dependent on the
      success of the business itself. Further, the collateral securing the loans
      may
      depreciate over time, may be difficult to appraise and may fluctuate in value
      based on the success of the business. The
      Bank
      expects to continue to expand its commercial business lending as opportunities
      present themselves.





**Consumer
      and Other Loans.** The Bank
      also offers other loans, primarily consisting of loans secured by certificates
      of deposit, consumer loans, home equity loans and automobile loans. As of
      December 31, 2006, the Bank has such loans totaling $23.7 million or 5% of
      the
      Bank’s total loan portfolio. The Bank expects to continue to expand its consumer
      lending as opportunities present themselves.





**Loan
      Approval Authority and Underwriting.** All
      loans to borrowers with aggregate indebtedness exceeding $1.5 million must
      have
      the approval of the members of the Bank’s Loan Committee which consists of eight
      senior officers of the Bank. The Loan Committee meets weekly to review and
      approve loans made within the scope of its authority.





For
      all
      loans originated by the Bank, upon receipt of a completed loan application
      from
      a prospective borrower, a credit report is requested, income, assets, and
      certain other information are verified, and, if necessary, additional financial
      information is requested. An appraisal of the real estate intended to secure
      the
      proposed loan is generally required and 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 and generally are required to advance funds for
      certain items such as real estate taxes, flood insurance and private mortgage
      insurance, when applicable.




**Delinquencies** **,
      Non-Performing** **and Problem Assets.**





Delinquent
      Loans .
      As of
      December 31, 2006, the Bank has twenty-three loans 90 days or more past due
      with
      a principal balance of $2,013,477 and sixty-eight loans between 30 and 89 days
      past due with an aggregate principal balance of $4,407,718. The Bank generally
      does not accrue interest on loans past due more than 90 days.





The
      following table sets forth the Bank's loans that were accounted for on a
      non-accrual basis or 90 days or more delinquent at the dates
      indicated.


9
 Table
          of Contents





**Delinquency
                Summary**
            
            As
                of
            
            As
                ofDecember
                31,
            
            June
                30,2006
            
            2005
            
            2004
            
            2003
            
            2003(Dollars
                in Thousands)**Loans
                accounted for on a non-accrual basis or contractually past due 90
                days or
                more**Mortgage
                Loans:One-
                to four-family
            
            $
            883
            
            $
            452
            
            
            770
            
            
            703
            
            
            331Multi-family
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            1,780
            
            
            -
            
            
            -
            
            
            -
            
            
            -Commercial
                real estate
            
            
            -
            
            
            131
            
            
            158
            
            
            -
            
            
            -2,663
            
            
            583
            
            
            928
            
            
            703
            
            
            331Non-mortgage
                loans:Commercial
                loans
            
            
            44
            
            
            -
            
            
            -
            
            
            -
            
            
            -Consumer
                and other loans
            
            
            41
            
            
            138
            
            
            79
            
            
            40
            
            
            -85
            
            
            138
            
            
            79
            
            
            40
            
            
            -Total
                non-accrual loans
            
            
            2,748
            
            
            721
            
            
            1,007
            
            
            743
            
            
            331**Accruing
                loans which are contractually past maturity or past due 90 days or
                more:**Mortgage
                Loans:One-
                to four-family
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Multi-family
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Commercial
                real estate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            --
            
            
            -
            
            
            -
            
            
            -
            
            
            -Non-mortgage
                loans:Commercial
                loans
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Consumer
                and other loans
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            --
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                past maturity or past due accruing loans
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                accounted for on a non-accrual basis or contractually past maturity
                or 90
                days or more past due
            
            $
            2,748
            
            $
            721
            
            
            1,007
            
            
            743
            
            
            331Total
                accounted for on a non-accrual basis or contractually past maturity
                or 90
                days or more past due as a percentage of net loans
            
            
            0.58
            %
            
            0.17
            %
            
            0.26
            %
            
            0.22
            %
            
            0.10
            %Total
                accounted for on a non-accrual basis or contractually past maturity
                or 90
                days or more past due as a percentage of total assets
            
            
            0.52
            %
            
            0.15
            %
            
            0.23
            %
            
            0.19
            %
            
            0.08
            %




Non-Performing
      Assets .
      Loans
      are reviewed on a regular basis and are placed on non-accrual status when,
      in
      the opinion of management, the collection of all interest at contractual rates
      becomes doubtful. Included as part of such review, 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.


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 Table
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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 of such
      foreclosed assets are periodically performed by management, and any subsequent
      decline in estimated fair value is charged to operations.





The
      following table shows the principal amount of non-performing assets which are
      not performing under regulatory guidelines and all foreclosed assets, including
      assets acquired in settlement of loans and the resulting impact on interest
      income for the periods then ended.





**Non-Performing
                Assets**
            
            As
                of
            
            As
                ofDecember
                31,
            
            June
                30,2006
            
            2005
            
            2004
            
            2003
            
            2003Non-accrual
                loans:
            
            (Dollars
                in Thousands)Mortgage
                loans:One-
                to four-family
            
            $
            883
            
            $
            452
            
            
            770
            
            
            703
            
            
            331Multi-family
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            1,780
            
            
            -
            
            
            -
            
            
            -
            
            
            -Commercial
                real estate
            
            
            -
            
            
            131
            
            
            158
            
            
            -
            
            
            -2,663
            
            
            583
            
            
            928
            
            
            703
            
            
            331Non-mortgage
                loans:Commercial
                loans
            
            
            44
            
            
            -
            
            
            -
            
            
            -
            
            
            -Consumer
                and other loans
            
            
            41
            
            
            138
            
            
            79
            
            
            40
            
            
            -85
            
            
            138
            
            
            79
            
            
            40
            
            
            -Total
                non-accrual loans
            
            
            2,748
            
            
            721
            
            
            1,007
            
            
            743
            
            
            331Real
                estate and other assets acquired in settlement of loans
            
            
            173
            
            
            27
            
            
            78
            
            
            6
            
            
            182Total
                non-performing assets
            
            $
            2,921
            
            $
            748
            
            
            1,085
            
            
            749
            
            
            513Total
                non-accrual loans as a percentage of net loans
            
            
            0.57
            %
            
            0.17
            %
            
            0.26
            %
            
            0.22
            %
            
            0.10
            %Total
                non-performing assets as a percentage of total assets
            
            
            0.56
            %
            
            0.16
            %
            
            0.25
            %
            
            0.19
            %
            
            0.13
            %Impact
                on interest income for the period:Interest
                income that would have been recorded on non-accruing loans
            
            $
            69
            
            
            8
            
            
            23
            
            
            15
            
            
            13




11
 Table
          of Contents





Problem
      Assets. Federal
      regulations require that the Bank review and classify its assets on a regular
      basis to determine those assets considered to be of lesser quality. In addition,
      in connection with examinations of insured institutions, bank examiners have
      authority to identify problem assets and, if appropriate, require them to be
      classified. There are three classifications for problem assets: substandard,
      doubtful, and loss. "Substandard assets" must have one or more defined
      weaknesses and are characterized by the distinct possibility that the insured
      institution will sustain some loss if the deficiencies are not corrected.
      "Doubtful assets" have the weaknesses of substandard assets with the additional
      characteristic that the weaknesses make collection or liquidation in full on
      the
      basis of currently existing facts, conditions, and values questionable, and
      there is a high possibility of loss. An asset classified "loss" is considered
      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. Federal regulations require the Bank to establish general allowances
      for loan losses from assets classified as substandard or doubtful. If an asset
      or portion thereof is classified as loss, the insured institution must either
      establish specific allowances for loan losses in the amount of 100% of the
      portion of the asset classified loss or charge off such amount. A portion of
      general loss allowances established to cover possible losses related to assets
      classified substandard or doubtful may be included in determining an
      institution's regulatory capital, while specific valuation allowances for loan
      losses generally do not qualify as regulatory capital.





For
      management purposes, the Bank also designates certain loans for additional
      attention. Such loans are called “Special Mention” and have identified
      weaknesses, that if the situation deteriorates, the loans would merit a substandard  classification.





The
      following table shows the aggregate amounts of the Bank's classified assets
      as
      of December 31, 2006.





**Classification
                of Assets**
            
            Special
                Mention
            
            Substandard
            
            Doubtful
            
            Loss
            
            TotalNumber
            
            Amount
            
            Number
            
            Amount
            
            Number
            
            Amount
            
            Number
            
            Amount
            
            Number
            
            Amount(Dollars
                in Thousands)Loans:One-
                to four-family
            
            
            4
            
            $
            444
            
            
            35
            
            $
            1,979
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            39
            
            $
            2,423Multi-family
            
            
            1
            
            
            1,248
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1
            
            
            1,248Construction
            
            
            7
            
            
            681
            
            
            8
            
            
            1,400
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            15
            
            
            2,081Commercial
                real estate
            
            
            3
            
            
            2,288
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3
            
            
            2,288Commercial
            
            
            6
            
            
            3,063
            
            
            11
            
            
            1,530
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17
            
            
            4,593Land
            
            
            -
            
            
            -
            
            
            9
            
            
            380
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9
            
            
            380Other
                loans
            
            
            2
            
            
            5
            
            
            11
            
            
            127
            
            
            1
            
            
            6
            
            
            -
            
            
            -
            
            
            14
            
            
            138Total
                loans
            
            
            23
            
            
            7,730
            
            
            74
            
            
            5,415
            
            
            1
            
            
            6
            
            
            -
            
            
            -
            
            
            98
            
            
            13,150Foreclosed
                assets held-for-sale:One-
                to four-family
            
            
            -
            
            
            -
            
            
            1
            
            
            109
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1
            
            
            109Land
                and other assets
            
            
            -
            
            
            -
            
            
            2
            
            
            63
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2
            
            
            63Total
                foreclosed assets
            
            
            -
            
            
            -
            
            
            3
            
            
            173
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3
            
            
            173Total
            
            
            23
            
            $
            7,730
            
            
            77
            
            $
            5,588
            
            
            1
            
            $
            6
            
            
            -
            
            $
            -
            
            
            101
            
            $
            13,323




12
 Table
          of Contents





**Allowance
      for Loan Losses**





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





As
      of
      December 31, 2006 the Bank's total allowance for loan losses was $5.8 million
      or
      1.19% 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 or problem assets, but also reflects
      the regional economy and the Bank's policy of evaluating the risks inherent
      in
      its loan portfolio.




For
      fiscal years 2001 through 2006, the Bank experienced loan charge offs in excess
      of recoveries, and based on the loan portfolio review discussed above, elected
      to add to the allowance through a provision for loan loss, as shown in the
      table
      below. Management anticipates the need to continue adding to the allowance
      through charges to provision for loan losses as anticipated growth in the loan
      portfolio or other circumstances warrant.


13
 Table
          of Contents




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





**Allowance
                for Loan Losses**
            
            
            
            Year
                ended
            
            
            
            Six
                months ended
            
            Year
                endedDecember
                31,
            
            December
                31,
            
            June
                30,2006
            
            2005
            
            2004
            
            2003
                (1)
            
            2003(Dollars
                in Thousands)**Beginning
                balance**
            
            $
            5,400
            
            
            4,537
            
            
            3,886
            
            
            2,775
            
            
            2,650**Gross
                loan charge offs**Mortgage
                Loans:One-
                to four-family
            
            
            (286
            )
            
            (22
            )
            
            (188
            )
            
            (41
            )
            
            (358
            )Multi-family
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            (29
            )
            
            -
            
            
            -
            
            
            -
            
            
            (11
            )Commercial
                real estate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -(315
            )
            
            (22
            )
            
            (188
            )
            
            (41
            )
            
            (369
            )Non-mortgage
                loans:Commercial
                loans
            
            
            (206
            )
            
            (12
            )
            
            -
            
            
            -
            
            
            -Consumer
                and other loans
            
            
            (126
            )
            
            (119
            )
            
            (43
            )
            
            (14
            )
            
            (168
            )(126
            )
            
            (119
            )
            
            (43
            )
            
            (14
            )
            
            (168
            )Total
                charge offs
            
            
            (647
            )
            
            (153
            )
            
            (231
            )
            
            (55
            )
            
            (537
            )**Recoveries**Mortgage
                Loans:One-
                to four-family
            
            
            109
            
            
            61
            
            
            9
            
            
            1
            
            
            19Multi-family
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Construction
            
            
            29
            
            
            -
            
            
            -
            
            
            1
            
            
            6Commercial
                real estate
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -138
            
            
            61
            
            
            9
            
            
            2
            
            
            25Non-mortgage
                loans:Commercial
                loans
            
            
            103
            
            
            -
            
            
            -
            
            
            -
            
            
            -Consumer
                and other loans
            
            
            40
            
            
            10
            
            
            9
            
            
            2
            
            
            27143
            
            
            10
            
            
            9
            
            
            2
            
            
            27Total
                recoveries
            
            
            281
            
            
            71
            
            
            18
            
            
            4
            
            
            52**Net
                loan charge-offs**
            
            
            (366
            )
            
            (82
            )
            
            (213
            )
            
            (51
            )
            
            (485
            )Provision
                for loan losses charged to expense
            
            
            750
            
            
            945
            
            
            864
            
            
            1,162
            
            
            610**Ending
                balance**
            
            $
            5,784
            
            $
            5,400
            
            
            4,537
            
            
            3,886
            
            
            2,775Net
                charge-offs as a percentage of average loans, net
            
            
            0.08
            %
            
            0.02
            %
            
            0.07
            %
            
            0.02
            %
            
            0.15
            %Allowance
                for loan losses as a percentage of average loans, net
            
            
            1.28
            %
            
            1.29
            %
            
            1.39
            %
            
            1.19
            %
            
            0.85
            %Allowance
                for loan losses as a percentage of total non-performing loans
            
            
            210
            %
            
            749
            %
            
            451
            %
            
            523
            %
            
            838
            %





(1)
      In
      2003, the Company determined to change its fiscal year end from June 30 to
      a
      calendar year end of December 31. As a result, the Company reported a six-month
      transition period ended December 31, 2003 in order to change to this new
      calendar year end.




14
 Table
          of Contents


**Allocation
      of Allowance for Loan Losses**





The
      following table shows the amount of the allowance allocated to the mortgage
      and
      non-mortgage loan categories and the respective percent of that loan category
      to
      total loans.





**Allocation
      of Allowance for Loan Losses**





As
                of
            
            As
                ofDecember
                31,
            
            June
                30,2006
            
            2005
            
            2004
            
            2003
            
            2003Amount
            
            %
            
            Amount
            
            %
            
            Amount
            
            %
            
            Amount
            
            %
            
            Amount
            
            %(Dollars
                in thousands)Mortgage
                Loans
            
            $
            4,512
            
            
            78
            %
            $
            4,266
            
            
            79
            %
            $
            3,630
            
            
            80
            %
            $
            3,342
            
            
            86
            %
            $
            2,442
            
            
            88
            %Non-Mortgage
                Loans
            
            
            1,272
            
            
            22
            %
            
            1,134
            
            
            21
            %
            
            907
            
            
            20
            %
            
            544
            
            
            14
            %
            
            333
            
            
            12
            %Total
            
            $
            5,784
            
            
            100
            %
            $
            5,400
            
            
            100
            %
            $
            4,537
            
            
            100
            %
            $
            3,886
            
            
            100
            %
            $
            2,775
            
            
            100
            %





**Investment
      Activities**





The
      investment policy of the Company, which is established by the Company’s Board of
      Directors and reviewed by the Investment Committee of the Company’s Board of
      Directors, 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 investment
      security portfolios. The Company has adopted an investment policy which strictly
      prohibits speculation in investment securities. The Company does not currently
      engage in trading investment securities and does not anticipate doing so in
      the
      future. As of December 31, 2006, the Company has investment securities with
      a
      carrying value of $8.7 million and an estimated fair value of $8.7 million.
      See
      Note 1 of Notes to Consolidated Financial Statements for description of
      accounting policy for investments. Based on the carrying value of these
      securities, $7.9 million, or 90.8%, of the Company’s investment securities
      portfolio are available-for-sale.





The
      Company has the authority to invest in various types of liquid assets, including
      United States Treasury obligations, securities of various federal agencies,
      trust preferred securities, certain certificates of deposit of insured banks
      and
      savings institutions, certain bankers' acceptances, repurchase agreements,
      and
      sale of federal funds.


15
 Table
          of Contents





**Composition
      of Investment Securities Portfolio**





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





Amortized
                Cost
            
            Gross
                Unrealized Gains
            
            Gross
                Unrealized (Losses)
            
            Approximate
                Fair Value**As
                of December 31, 2006**AVAILABLE-FOR-SALE
                SECURITIES:Equity
                Securities:FHLMC
                stock
            
            $
            35,847
            
            
            2,449,293
            
            
            -
            
            
            2,485,140Debt
                Securities:U.
                S. government agencies
            
            
            4,870,979
            
            
            1,346
            
            
            (12,074
            )
            
            4,860,251Mortgage-backed
                securities
            
            
            563,704
            
            
            -
            
            
            (2,774
            )
            
            560,930HELD-TO-MATURITY
                SECURITIES:U.
                S. government agencies
            
            
            158,661
            
            
            -
            
            
            (481
            )
            
            158,180Mortgage-backed
                securities
            
            
            604,364
            
            
            31,920
            
            
            -
            
            
            636,284$
            6,233,555
            
            
            2,482,559
            
            
            (15,329
            )
            
            8,700,785





Amortized
                Cost
            
            Gross
                Unrealized Gains
            
            Gross
                Unrealized (Losses)
            
            Approximate
                Fair Value**As
                of December 31, 2005**AVAILABLE-FOR-SALE
                SECURITIES:Equity
                Securities:FHLMC
                stock
            
            $
            47,595
            
            
            3,128,415
            
            
            -
            
            
            3,176,010Debt
                Securities:U.
                S. government agencies
            
            
            3,579,513
            
            
            2,021
            
            
            (397
            )
            
            3,581,137HELD-TO-MATURITY
                SECURITIES:U.
                S. government agencies
            
            
            189,974
            
            
            -
            
            
            (2,478
            )
            
            187,496Mortgage-backed
                securities
            
            
            754,750
            
            
            39,550
            
            
            -
            
            
            794,300$
            4,571,832
            
            
            3,169,986
            
            
            (2,875
            )
            
            7,738,943




16
 Table
          of Contents




Amortized
                Cost
            
            Gross
                Unrealized Gains
            
            Gross
                Unrealized (Losses)
            
            Approximate
                Fair Value**As
                of December 31, 2004**AVAILABLE-FOR-SALE
                SECURITIES:Equity
                Securities:FHLMC
                stock
            
            $
            66,588
            
            
            4,945,012
            
            
            -
            
            
            5,011,600Other
                stock
            
            
            2,000,000
            
            
            -
            
            
            (560,000
            )
            
            1,440,000Debt
                Securities:Trust
                preferred securities
            
            
            6,570,814
            
            
            84,468
            
            
            -
            
            
            6,655,282U.
                S. government agencies
            
            
            1,994,798
            
            
            88
            
            
            -
            
            
            1,994,886HELD-TO-MATURITY
                SECURITIES:U.
                S. government agencies
            
            
            228,807
            
            
            375
            
            
            -
            
            
            229,182Mortgage-backed
                securities
            
            
            1,076,351
            
            
            77,737
            
            
            -
            
            
            1,154,088$
            11,937,358
            
            
            5,107,680
            
            
            (560,000
            )
            
            16,485,038





The
      following table sets forth certain information regarding the weighted average
      yields and maturities of the Bank's investment securities portfolio as of
      December 31, 2006:





**Investment
                Portfolio Maturities and Average Weighted Yields**
            
            Amortized
                Cost
            
            Weighted
                Average Yield
            
            Approximate
                Fair ValueDue
                within one year
            
            $
            996,506
            
            
            4.81
            %
            $
            994,219Due
                within five years
            
            
            3,874,473
            
            
            4.31
            %
            
            4,426,962Due
                after ten years
            
            
            158,661
            
            
            4.25
            %
            
            158,180Equity
                securities not due on a single maturity date
            
            
            35,847
            
            
            0.00
            %
            
            2,485,140Mortgage-backed
                securities not due on a single maturity date
            
            
            1,168,068
            
            
            5.65
            %
            
            636,284$
            6,233,555
            
            
            4.62
            %
            $
            8,700,785




17
 Table
          of Contents


**Sources
      of Funds**





**General** .
      The
      Company's primary sources of funds are deposits, borrowings (including issuances
      of subordinated debentures), amortization and prepayments of loans and
      amortization, prepayments and maturities of 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 of deposit,
      savings, money market, individual retirement accounts, and NOW (checking)
      accounts. The flow of deposits is influenced significantly by general economic
      conditions, changes in money market and prevailing interest rates, local
      competition, and competition from non-bank financial service providers. The
      Bank's deposits are typically obtained from the areas in which its offices
      are
      located. The Bank relies primarily on customer service and long-standing
      relationships with customers to attract and retain these deposits.





The
      Bank
      seeks to maintain a high level of stable core deposits by providing high quality
      service through its employees and its convenient office and branch locations.





**Deposit
      Account Types**





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





**Deposit
                Account Types**As
                of December 31,
            
            As
                of December 31,
            
            As
                of December 31,2006
            
            2005
            
            2004Average
            
            
            
            Percent
            
            Average
            
            
            
            Percent
            
            Average
            
            
            
            PercentInterest
            
            
            
            of
                Total
            
            Interest
            
            
            
            of
                Total
            
            Interest
            
            
            
            of
                TotalRate
            
            Amount
            
            Deposits
            
            Rate
            
            Amount
            
            Deposits
            
            Rate
            
            Amount
            
            DepositsNOW
            
            
            1.18
            %
            $
            35,469
            
            
            10
            %
            
            0.33
            %
            $
            35,864
            
            
            11
            %
            
            0.53
            %
            $
            34,605
            
            
            12
            %Savings
            
            
            2.67
            %
            
            14,316
            
            
            4
            %
            
            1.80
            %
            
            14,298
            
            
            5
            %
            
            1.08
            %
            
            15,153
            
            
            5
            %Money
                Market
            
            
            3.38
            %
            
            52,314
            
            
            15
            %
            
            2.47
            %
            
            43,897
            
            
            14
            %
            
            1.81
            %
            
            52,010
            
            
            18
            %Non-interest
                bearing demand
            
            
            0.00
            %
            
            26,894
            
            
            8
            %
            
            0.00
            %
            
            36,194
            
            
            11
            %
            
            0.00
            %
            
            25,583
            
            
            9
            %Total
            
            
            
            
            
            128,993
            
            
            37
            %
            
            
            
            
            130,253
            
            
            41
            %
            
            
            
            
            127,351
            
            
            44
            %Certificates
                of Deposit: (fixed-rate, fixed-term)1-11
                months
            
            
            4.81
            %
            
            167,852
            
            
            48
            %
            
            3.56
            %
            
            125,336
            
            
            39
            %
            
            2.32
            %
            
            89,389
            
            
            30
            %12-23
                months
            
            
            5.02
            %
            
            35,424
            
            
            10
            %
            
            3.74
            %
            
            48,149
            
            
            15
            %
            
            2.81
            %
            
            42,019
            
            
            14
            %24-35
                months
            
            
            4.93
            %
            
            11,930
            
            
            3
            %
            
            4.20
            %
            
            9,670
            
            
            3
            %
            
            3.49
            %
            
            26,608
            
            
            9
            %36-47
                months
            
            
            4.82
            %
            
            3,724
            
            
            1
            %
            
            3.94
            %
            
            4,248
            
            
            1
            %
            
            4.16
            %
            
            6,012
            
            
            2
            %48-59
                months
            
            
            5.24
            %
            
            2,847
            
            
            1
            %
            
            4.14
            %
            
            1,851
            
            
            1
            %
            
            3.92
            %
            
            3,982
            
            
            1
            %60-71
                months
            
            
            5.41
            %
            
            1,171
            
            
            0
            %
            
            4.64
            %
            
            552
            
            
            0
            %
            
            3.98
            %
            
            1,013
            
            
            0
            %72-95
                months
            
            
            5.44
            %
            
            289
            
            
            0
            %
            
            0.00
            %
            
            -
            
            
            0
            %
            
            4.06
            %
            
            13
            
            
            0
            %Total
            
            
            
            
            
            223,237
            
            
            63
            %
            
            
            
            
            189,806
            
            
            59
            %
            
            
            
            
            169,036
            
            
            56
            %Total
                Deposits
            
            
            
            
            $
            352,230
            
            
            100
            %
            
            
            
            $
            320,059
            
            
            100
            %
            
            
            
            $
            296,387
            
            
            100
            %




18
 Table
          of Contents


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





The
      following table indicates the approximate amount of the Bank's certificate
      of
      deposit accounts of $100,000 or more by time remaining until maturity as of
      December 31, 2006.





(Dollars
                in thousands)As
                of December 31, 2006Three
                months or less
            
            $
            40,712Over
                three through six months
            
            
            12,638Over
                six through twelve months
            
            
            19,114Over
                twelve months
            
            
            15,331Total
            
            $
            87,796





**Borrowings**





The
      Company’s borrowings consist primarily of FHLB advances and issuances of junior
      subordinated debentures.





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, to which the Bank is
      a
      member of, makes available, subject to compliance eligibility standards, a
      portion of the funds necessary through loans (advances) to its members. The
      following table presents certain data for FHLB advances as of the
      dates
      indicated .





**Selected
                Data for Federal Home Loan Bank Advances**As
                ofDecember
                31,2006
            
            2005
            
            2004(Dollars
                in Thousands)Remaining
                maturity:Less
                than one year
            
            $
            85,414
            
            $
            72,414
            
            $
            61,264One
                to two years
            
            
            13,650
            
            
            3,000
            
            
            12,500Two
                to three years
            
            
            386
            
            
            16,650
            
            
            3,000Three
                to four years
            
            
            3,000
            
            
            386
            
            
            16,650Four
                to five years
            
            
            -
            
            
            3,000
            
            
            386Over
                five years
            
            
            5,550
            
            
            4,550
            
            
            6,200Total
            
            $
            108,000
            
            $
            100,000
            
            $
            100,000Weighted
                average rate at end of period
            
            
            5.35
            %
            
            4.55
            %
            
            3.62
            %For
                the period:Average
                outstanding balance
            
            $
            110,810
            
            
            111,104
            
            $
            111,169Weighted
                average interest rate
            
            
            5.16
            %
            
            4.04
            %
            
            3.17
            %Maximum
                outstanding as of any month end
            
            $
            124,000
            
            
            132,000
            
            $
            120,086




19
 Table
          of Contents


Junior
      Subordinated Debentures: On
      December 15, 2005, the Company completed an offering of $15 million of “Trust
      Preferred Securities” (defined hereinafter). The Company formed two wholly-owned
      subsidiaries, each a Delaware statutory trust (each a “Trust”, and collectively,
      the “Trusts”), for the purpose of issuing the $15 million of Trust Preferred
      Securities. The proceeds of the sale of Trust
      Preferred Securities ,
      together with the proceeds of the Trusts’ sale of their common securities to the
      Company, were used by each Trust to purchase certain debentures from the
      Company. The Company issued 30-year junior subordinated deferrable interest
      debentures to the Trusts in the principal amount of $5,155,000 (“Trust I
      Debentures”) and $10,310,000 (“Trust II Debentures”, and together with the Trust
      I Debentures, the “Debentures”) pursuant to the terms of Indentures dated
      December 15, 2005 by and between the Company and Wilmington Trust Company,
      as
      trustee. The Trust I Debentures bear interest at a fixed rate of 6.92%, payable
      quarterly. The Trust II Debentures bear interest at a fixed rate of 6.47% for
      5
      years, payable quarterly, after issuance and thereafter at a floating rate
      equal
      to the three month LIBOR plus 1.45%. The interest payments by the Company to
      the
      Trusts will be used to pay the dividends payable by the Trusts to the holders
      of
      the Trust Preferred Securities.





The
      Debentures mature on February 23, 2036. Subject to prior approval by the Federal
      Reserve Board, the Debentures and the Trust Preferred Securities are each
      callable by the Company or the Trusts, respectively and as applicable, at its
      option after five years from issuance, and sooner in the case of a special
      redemption at a special redemption price ranging up to 103.2% of the principal
      amount thereof, and upon the occurrence of certain events, such as a change
      in
      the regulatory capital treatment of the Trust Preferred Securities, either
      Trust
      being deemed an investment company or the occurrence of certain adverse tax
      events. In addition, the Company and the Trusts may defer interest and dividend
      payments, respectively, for up to five consecutive years without resulting
      in a
      default. An event of default may occur if the Company declares bankruptcy,
      fails
      to make the required payments within 30 days or breaches certain covenants
      within the Debentures. The Debentures are subordinated to the prior payment
      of
      any other indebtedness of the Company.





Pursuant
      to two guarantee agreements by and between the Company and Wilmington Trust
      Company, the Company issued a limited, irrevocable guarantee of the obligations
      of each Trust under the Trust Preferred Securities whereby the Company has
      guaranteed any and all payment obligations of the Trusts related to the Trust
      Preferred Securities including distributions on, and the liquidation or
      redemption price of, the Trust Preferred Securities to the extent each Trust
      does not have funds available.





The
      Company used the proceeds of the sale of the Trust Preferred Securities for
      general corporate purposes by investing in the Bank. Including funding of the
      Bank’s loan portfolio growth, restructuring of the Bank’s investment portfolio
      and repaying the Bank’s FHLB advances.





The
      following table sets forth certain information as to the Company's subordinated
      debentures issued to the Trusts a t
      the
      dates indicated .





As
                ofDecember
                31,2006
            
            2005
            
            2004(Dollars
                in Thousands)Subordinated
                debentures
            
            $
            15,465
            
            $
            15,465
            
            
            -Weighted
                average interest rate of subordinated debentures
            
            
            6.62
            %
            
            6.62
            %
            
            -




20
 Table
          of Contents


**Subsidiary
      Activity and Segment Information**





The
      Company has three wholly-owned subsidiaries: (i) the Bank, the Company’s
      principal subsidiary and a state-chartered trust company with banking powers
      in
      Missouri; (ii) Guaranty Statutory Trust I, a Delaware statutory trust (“Trust
      I”); and (ii) Guaranty Statutory Trust II, a Delaware statutory trust (“Trust
      II”, and together with Trust I, the “Trusts”). Trust I and Trust II were formed
      in December 2005 for the exclusive purpose of issuing trust preferred securities
      to acquire junior subordinated debentures issued by the Company. Those
      debentures are the sole assets of the Trusts. The interest payments by the
      Company on the debentures are the sole revenues of the Trusts and are used
      by
      the Trusts to pay the dividends to the holders of the trust preferred
      securities. T he
      Company has guaranteed any and all payment obligations of the Trusts related
      to
      the trust preferred securities.





The
      Bank
      has one service corporation subsidiary, Guaranty Financial Services of
      Springfield, Inc., a Missouri corporation. This service corporation, which
      has
      been inactive since February 1, 2003, had agreements with third party providers
      for the sale of securities and casualty insurance products.





The
      Company’s banking operation conducted through its principal subsidiary, the
      Bank, is the Company’s only reportable segment. Other information about the
      Company’s business segments is contained in the
      section captioned “Segment Information” in Note 1 to the consolidated financial
      statements in the 2006 Annual Report. This information is incorporated herein
      by
      reference.





**Critical
      Accounting Policies**




“Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”
contained in Item 8 of this report is based upon the Company’s consolidated
      financial statements and the notes thereto, which have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America. The preparation of these financial statements requires management
      to
      make estimates and judgments that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements and the reported amounts of revenues and expenses
      during the reported periods. On an on-going basis, management evaluates its
      estimates and judgments.





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





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





The
      Company has identified the accounting policies for the allowance for loan losses
      and related significant estimates and judgments as critical to its business
      operations and the understanding of its results of operations. For a detailed
      discussion on the application of these significant estimates and judgments
      and
      our accounting policies, also see Note
      1 to
      the Consolidated Financial Statements in the 2006 Annual Report.




21
 Table
          of Contents


**Return
      on Equity and Assets**





The
      following table sets forth certain dividend, equity and asset ratios of the
      Company for the periods indicated.





Year
                ended
            
            Year
                ended
            
            Year
                endedDecember
                31,
            
            December
                31,
            
            December
                31,2006
            
            2005
            
            2004Dividend
                Payout Ratio
            
            
            28
            %
            
            32
            %
            
            43
            %Return
                on Average Assets
            
            
            1.33
            %
            
            1.28
            %
            
            1.04
            %Return
                on Average Equity
            
            
            14.66
            %
            
            15.08
            %
            
            10.74
            %Stockholders'
                Equity to Assets
            
            
            8.55
            %
            
            8.75
            %
            
            9.25
            %EPS
                Diluted
            
            $
            2.34
            
            
            2.03
            
            
            1.47Dividends
            
            $
            0.67
            
            
            0.65
            
            
            0.63





**Employees**





As
      of
      March 21, 2007, the Bank has 114 full-time employees and 44 part-time employees.
      As of December 31, 2006 the Company had no salaried 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 and other loans normally comes from commercial banks, savings
      institutions, mortgage bankers, mortgage brokers, and insurance
      companies.





The
      Bank's primary competition comprises the financial institutions near each of
      the
      Bank's offices. In the Springfield metropolitan area, where the Bank's main
      office and branch offices are located, primary competition consists of 23
      commercial banks, 12 credit unions, and 1 savings institution.





The
      Bank
      believes it is able to compete effectively in its primary market area by
      offering competitive interest rates and loan fees, and a variety of deposit
      products, and by emphasizing personal customer service.




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**Website**





The
      Company maintains a website at the following internet address: www.gbankmo.com .





**Regulation**





Set
      forth
      below is a brief description of certain laws which relate to the regulation
      of
      the Company and the Bank. These
      laws, and regulations adopted under these laws, are primarily intended for
      the
      protection of the Bank’s customers and depositors and not for the benefit of the
      stockholders of the Company. The following description does not purport to be complete and is qualified in its entirety
      by
      reference to the applicable laws and regulations.





**Regulation
      of the Company**





**General.** The
      Company is a registered bank holding company subject to regulation and
      supervision of the Board of Governors of the Federal Reserve System (“FRB”)
      under the Bank Holding Company Act of 1956 (“BHCA”).




**Capital** .
      The FRB
      has adopted risk-based capital guidelines for bank holding companies. The
      minimum guideline for the ratio (“Risk-Based Capital Ratio”) of total capital
      (“Total Capital”) to risk-weighted assets (including certain off-balance-sheet
      commitments such as standby letters of credit) is 8%. At least one-half of
      Total
      Capital must be composed of Tier 1 Capital which generally consists of common
      shareholders' equity, minority interests in the equity accounts of consolidated
      subsidiaries, noncumulative perpetual preferred stock, a limited amount of
      cumulative perpetual preferred stock and certain nonfinancial equity
      investments, less goodwill and certain other intangible assets. The remainder,
      denominated "Tier 2 Capital," generally consists of limited amounts of
      subordinated debt, qualifying hybrid capital instruments, other preferred stock,
      loan loss reserves and unrealized gains on certain equity securities.





In
      addition, the FRB has established minimum leverage ratio guidelines for bank
      holding companies. These guidelines provide for a minimum ratio of Tier 1
      Capital to average total assets less goodwill (“Leverage Ratio”) of 3% for bank
      holding companies that meet certain specified criteria, including those having
      the highest regulatory rating. All other bank holding companies generally are
      required to maintain a Leverage Ratio of at least 4%. The guidelines also
      provide that bank holding companies anticipating or experiencing internal growth
      or making acquisitions are expected to maintain strong capital positions
      substantially above the minimum supervisory levels without significant reliance
      upon intangible assets. Furthermore, the FRB has indicated that it will consider
      a "tangible Tier 1 Leverage Ratio" (after deducting all intangibles) and other
      indicia of capital strength in evaluating proposals for expansion or new
      activities.





The
      Bank
      is subject to Risk-Based Capital and Leverage Ratio requirements adopted by
      the
      FDIC, which are substantially similar to those adopted by the FRB. See
“Regulation of the Bank - Prompt Corrective Action.” In addition, a bank's
      capital classifications may affect a bank's activities. For example, under
      regulations adopted by the FDIC governing the receipt of brokered deposits,
      a
      bank may not lawfully accept, roll over or renew brokered deposits unless either
      (i) it is well capitalized or (ii) it is adequately capitalized and receives
      a
      waiver from the FDIC.





As
      of
      December 31, 2006, the Company and the Bank met their minimum capital adequacy
      guidelines, and the Bank was categorized as well capitalized. Applicable capital
      and ratio information is contained under the section titled “Regulatory Matters”
in Note 1 to the Consolidated Financial Statements in the 2006 Annual
      Report.


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**Dividend
      Restrictions and Share Repurchases** . ** The
      Company’s source of cash flow (including cash flow to pay dividends to
      stockholders) is dividends paid to it by the Bank. The right of the Company
      to
      receive dividends or other distributions from the Bank is subject to the prior
      claims of creditors of the Bank, including depositors.





There
      are
      statutory and regulatory limitations on the payment of dividends to the Company
      by the Bank. See discussion under “Regulation of the Bank - Dividend
      Limitations.” Future dividends will depend primarily upon the level of earnings
      of the Bank. Banking regulators also have the authority to prohibit banks and
      bank holding companies from paying a dividend if they should deem such payment
      to be an unsafe or unsound practice.





Unless
      a
      bank holding company is well capitalized immediately before and after the
      repurchase of its equity securities, is well managed and is not subject to
      any
      unresolved supervisory issues, it must notify the FRB prior to the purchase
      or
      redemption of its outstanding equity securities if the gross consideration
      for
      the purchase or redemption, when combined with the net consideration (gross
      consideration paid minus the gross consideration received from the sale of
      equity securities) paid by the Company during the preceding twelve months,
      is
      equal to 10% or more of the Company’s consolidated net worth. The FRB may
      disapprove of the purchase or redemption if it determines, among other things,
      that the proposal would constitute an unsafe or unsound business
      practice.





**Support
      of Banking Subsidiaries.** Under
      FRB policy, the Company is expected to act as a source of financial strength
      to
      the Bank and, where required, to commit resources to support the Bank. Moreover,
      if the Bank should become undercapitalized, the Company would be required to
      guarantee the Bank's compliance with its capital restoration plan in order
      for
      such plan to be accepted by the FDIC.





**Acquisitions** .
      Under
      the BHCA, the Company must obtain the prior approval of the FRB before it may
      acquire all or substantially all of the assets of any bank, acquire direct
      or
      indirect ownership or control of more than 5% of the voting shares of any bank,
      or merge or consolidate with any other bank holding company. The BHCA also
      restricts the Company’s ability to acquire direct or indirect ownership or
      control of 5% or more of any class of voting shares of any nonbanking
      corporation. The FRB is required to consider the financial and managerial
      resources and future prospects of the bank holding companies and banks concerned
      and the convenience and needs of the community to be served. Consideration
      of
      financial resources generally focuses on capital adequacy. Consideration of
      convenience and needs issues includes the involved institutions’ performance
      under the Community Reinvestment Act of 1977, as amended (the “CRA”). Under the
      CRA, all financial institutions have a continuing and affirmative obligation
      consistent with safe and sound operation to help meet the credit needs of their
      entire communities, including low-to-moderate income neighborhoods. Based on
      its
      most recent CRA compliance examinations, the Bank has received a "satisfactory"
      CRA rating.





**Transactions
      With Affiliates.** There
      are various legal restrictions on the extent to which a bank holding company
      may
      borrow or otherwise obtain credit from or sell assets or affiliate securities
      to
      its bank subsidiary. In general, covered transactions with a bank subsidiary
      must be on nonpreferential terms and cannot exceed, as to any one of the holding
      company or the holding company's nonbank subsidiaries, 10% of the bank's capital
      stock and surplus, and as to the holding company and all of its nonbank
      subsidiaries in the aggregate, 20% of such capital stock and surplus. Special
      collateral requirements also apply to covered extensions of credit.





**Regulation
      of the Bank**





**General** .
      The
      Bank is regulated and supervised by the Missouri Division of Finance, and its
      deposits are insured by the Savings Association Insurance Fund (“SAIF”) of the
      FDIC. Lending activities and other investments must comply with various federal
      statutory and regulatory requirements. The Bank is also subject to certain
      reserve requirements promulgated by the FRB.


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The
      Missouri Division of Finance, in conjunction with the FDIC, will regularly
      examine the Bank and provide reports to the Bank's Board of Directors on any
      deficiencies that are found in the Bank's operations. The Bank's relationship
      with its depositors and borrowers is also regulated to a great extent by federal
      and state law, especially in such matters as the ownership of savings accounts
      and the form and content of the Bank's mortgage documents.





The
      Bank
      must file reports with the Missouri Division of Finance and the FDIC concerning
      its activities and financial condition, in addition to obtaining regulatory
      approvals prior to entering into certain transactions such as mergers with
      or
      acquisitions of other banks or savings institutions. This regulation and
      supervision establishes a comprehensive framework of activities in which an
      institution can engage and is intended primarily for the protection of the
      SAIF
      and depositors. The regulatory structure also gives the regulatory authorities
      extensive discretion in connection with their supervisory and enforcement
      activities and examination policies, including policies with respect to the
      classification of assets and the establishment of adequate loan loss reserves
      for regulatory purposes.





**Insurance
      of Deposit Accounts.** The
      deposit accounts held by the Bank are insured by the SAIF to a maximum of
      $100,000 for each insured depositor (as defined by law and regulation).
      Insurance of deposits may be terminated by the FDIC upon a finding that the
      institution has engaged in unsafe or unsound practices, is in an unsafe or
      unsound condition to continue operations or has violated any applicable law,
      regulation, rule, order or condition imposed by the FDIC or the institution's
      primary regulator.





The
      FDIC
      charges an annual assessment for the insurance of deposits based on the risk
      a
      particular institution poses to its deposit insurance fund. Under this system,
      SAIF members pay within a range of 0 cents to 27 cents per $100 of domestic
      deposits, depending upon the institution's risk classification. Risk
      classification is based on an institution's capital group and supervisory
      subgroup assignment. In addition, all FDIC-insured institutions are required
      to
      pay assessments to the FDIC at an annual rate of approximately .0172% of insured
      deposits to fund interest payments on bonds issued by the Financing Corporation
      ("FICO"), an agency of the Federal government established to recapitalize the
      predecessor to the SAIF. These assessments will continue until the FICO bonds
      mature in 2017.





See
      “Recent Legislation and Legislative and Regulatory Initiatives” below for recent
      legislation which affects insurance on deposit accounts and other
      matters.





**Prompt
      Corrective Action.** ** The
      FDIC
      is required to take prompt corrective action if a depository institution for
      which it is the regulator, including the Bank, does not meet its minimum capital
      requirements. A depository institution is considered to be significantly
      undercapitalized if it has a Total Capital Ratio of less than 6.0%; a Tier
      I
      Capital ratio of less than 3.0%; or a Leverage Ratio of less than 3.0%. An
      institution that has a tangible equity capital to assets ratio equal to or
      less
      than 2.0% is deemed to be critically undercapitalized. "Tangible equity"
      includes core capital elements counted as Tier 1 Capital for purposes of the
      risk-based capital standards, plus the amount of outstanding cumulative
      perpetual preferred stock (including related surplus), minus all intangible
      assets, with certain exceptions.





The
      FDIC
      may, under certain circumstances, reclassify a well capitalized insured
      depository institution as adequately capitalized. It is also permitted to
      require an adequately capitalized or undercapitalized institution to comply
      with
      the supervisory provisions as if the institution were in the next lower category
      (but not treat a significantly undercapitalized institution as critically
      undercapitalized) based on supervisory information other than the capital levels
      of the institution. An institution may be reclassified if the FDIC determines
      (after notice and opportunity for hearing) that the institution is in an unsafe
      or unsound condition or deems the institution to be engaging in an unsafe or
      unsound practice.


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As
      stated
      previously, the Company and the Bank met their minimum capital adequacy
      guidelines, and the Bank was categorized as well capitalized, as of December
      31,
      2006. Applicable capital and ratio information is contained under the section
      titled “Regulatory Matters” in Note 1 to the Consolidated Financial Statements
      in the 2006 Annual Report.





**Safety
      and Soundness Standards** .
      Federal
      bank regulators are required to prescribe standards, by regulations or
      guidelines, relating to the internal controls, information systems and internal
      audit systems, loan documentation, credit underwriting, interest-rate-risk
      exposure, asset growth, asset quality, earnings, stock valuation and
      compensation, fees and benefits and such other operational and managerial
      standards as the agencies may deem appropriate. The federal bank regulatory
      agencies have adopted guidelines prescribing safety and soundness standards,
      which require, among other things, appropriate systems and practices to identify
      and manage the risks and exposures specified in the guidelines.





**Anti-Terrorism
      Legislation** *.* The
      USA
      Patriot Act of 2001 contains anti-money laundering measures affecting insured
      depository institutions, broker-dealers and certain other financial
      institutions. U.S. financial institutions are required to adopt policies and
      procedures to combat money laundering and the
      Treasury Secretary is
      granted broad
      authority to establish regulations and to impose requirements and restrictions
      on financial institutions' operations.





**Dividend
      Limitations** .
      In the
      event the Bank would fail to meet federal minimum capital adequacy guidelines,
      its ability to pay dividends to the Company would be restricted. In addition,
      under Missouri law dividends paid by banks are restricted by a statutory
      formula, which provides for the maintenance of a surplus fund and prohibits
      the
      payment of dividends which would impair the surplus fund.





**Recent
      Legislation and Legislative and Regulatory Initiatives**




On
      February 8, 2006, the Federal Deposit Insurance Reform Act of 2005 (“FDIRA”) was
      signed into law as part of the Deficit Reduction Act of 2005 (conforming
      amendments are contained in the Federal Deposit Insurance Conforming Amendments
      Act of 2005 signed into law on February 15, 2006). Under FDIRA, the SAIF and
      the
      FDIC’s Bank Insurance Fund (“BIF”) was merged into the new Deposit Insurance
      Fund (“DIF”). In addition, while general coverage remains at $100,000, beginning
      April 1, 2010 and the first day of each subsequent five year period the coverage
      is subject to increases for inflation, and FDRIA increases the deposit insurance
      coverage for individual retirement accounts and certain other employee benefit
      plan accounts to $250,000, subject to increases for inflation, and provides
      pass-through coverage for employee benefit plans. FDRIA also authorizes the
      FDIC
      to set deposit insurance premium assessments for depository institutions in
      amounts the FDIC determines to be necessary or appropriate, taking into
      consideration certain factors, including the estimated operating expenses of
      the
      DIF, the estimated case resolution expenses and income of the DIF, the projected
      effects on the capital and earnings of depository institutions, the risk factors
      taken into consideration under the risk-based assessment system and any other
      factors deemed by the FDIC to be appropriate. Further, FDRIA establishes the
      DIF’s reserve ratio to range from 1.15% to 1.50%, the ratio to be determined
      annually by the FDIC regulations, and requires the FDIC to declare dividends
      payable to depository institutions equal to 100% of the amount of the reserve
      in
      excess of 1.50% and 50% of the amount of the reserve between 1.35% and 1.50%.
      Other than the merger of the SAIF and the BIF, which was effective July 1,
      2006,
      the foregoing and other provisions of FDRIA will be effective upon the FDIC
      prescribing final regulations implementing the provisions, which shall not
      be
      later than 270 days after enactment of FDRIA.





Additional
      proposals to change the laws governing the financial institutions industry
      may
      be introduced in the United States Congress and in state legislatures, and
      the
      various banking agencies often modify existing regulations or adopt new
      regulations. It cannot be determined what impact future legislation or
      regulations will have on the financial institutions industry generally or on
      the
      Company and the Bank.


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 Table
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**Executive
      Officers of the Registrant**





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





**Shaun
      A. Burke** joined
      the Bank in March 2004 as president and Chief Executive Officer. Mr. Burke
      was
      appointed president and Chief Executive Officer of the Company on February
      28,
      2005. Mr. Burke was previously with Signature Bank for seven years where he
      served as executive vice president, senior credit officer, and was a member
      of
      the board of directors. Mr. Burke has a total of 22 years banking experience.
      Mr. Burke is also a past member of the United Way Allocations and Agency
      Relations Executive Committee, Salvation Army Board, and Big Brothers Big
      Sisters Board.




**Carter
      Peters** is
      Executive Vice President and Chief Financial Officer and Chief Operations
      Officer of the Bank and the Company. He joined the Bank and the Company in
      August 2005 as Executive Vice President and Chief Operations Officer and was
      appointed as the Chief Financial Officer of the Bank and the Company on February
      12, 2007. Mr. Peters has over 14 years of experience in the financial services
      and public accounting industries. Prior to joining the Company, Mr. Peters
      served as the Chief Financial Officer of Southern Missouri Bank for
      approximately two years and was employed by BKD, LLP, a certified public
      accounting and advising firm, for approximately eleven years. He is a Certified
      Public Accountant with a Bachelor of Science Degree in Accounting from Missouri
      State University. He is a member of the American Institute of Certified Public
      Accountants and the Missouri Society of Certified Public Accountants. He is
      a
      current Board member of the local Make-A-Wish Foundation and a member of the
      advisory committee for Families for Children, a project of the Council of
      Churches of the Ozarks.




**H.
      Michael Mattson** is
      Executive Vice President and Chief Lending Officer of the Bank. He joined the
      Bank in June 2006. Mr. Mattson has over 28 years of commercial banking
      experience. He was previously with Liberty Bank for six years, including four
      as
      Senior Loan Officer. Mr. Mattson is currently Board President of Ozarks Food
      Harvest, Inc., member of the Springfield Area Chamber of Commerce and has served
      on its board nominating committee and venture capital committee. He is a member
      of Leadership Springfield Class XI and a graduate of Rockhurst University and
      the Graduate School of Banking of The South at Baton Rouge, LA.





As
      of
      December 31, 2006, the age of these individuals was 44 for Mr. Burke, 37 for
      Mr. Peters, and 53 for Mr. Mattson.





**Item
      1A. Risk Factors**




The
      Company’s business and operations are subject to, and may be adversely affected
      by, certain risks and uncertainties. The following risks and other information
      in this report that is incorporated in this report by reference, including
      the
      Company’s consolidated financial statements and related notes and “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”,
      should be carefully considered. These risks are not the only ones facing the
      Company. Additional risks and uncertainties that management is not aware of
      or
      focused on may also adversely affect the Company’s business and operation. This
      Form 10-K is qualified in its entirety by all these risk factors.





The
      market price of the Company’s common stock may fluctuate significantly in
      response to a number of factors, including:




•
            Changes
                in securities analysts’ estimates of financial
                performance





•
            Volatility
                of stock market prices and volumes





•
            Rumors
                or erroneous information


27
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•
            Changes
                in market valuations of similar
                companies





•
            Changes
                in interest rates





•
            New
                developments in the banking
                industry





•
            Variations
                in quarterly or annual operating
                results





•
            New
                litigation or changes in existing
                litigation





•
            Regulatory
                actions





•
            Changes
                in accounting policies or procedures as may be required by the Financial
                Accounting Standards Board or other regulatory
                agencies





**Geographical
      Risk**





The
      Company’s main markets are in Greene and Christian counties in southwest
      Missouri. Since the Company does not have significant presence in other parts
      of
      the country, a prolonged economic downturn in these markets could negatively
      impact the Company.





**Industry
      Risk**





The
      Company operates in the financial services industry, a rapidly changing
      environment having numerous competitors including other banks and insurance
      companies, securities dealers, brokers, trust and investment companies and
      mortgage bankers. The pace of consolidation among financial service providers
      is
      accelerating and there are many new changes in technology, product offerings
      and
      regulation.


The
      Company must continue to make investments in its products and delivery systems
      to stay competitive with the industry as a whole or its financial performance
      may suffer.





**Regulatory
      Risk**





The
      Company and its subsidiaries are subject to extensive state and federal
      regulation, supervision and legislation that govern nearly every aspect of
      its
      operations. Changes to these laws could affect the Company’s ability to deliver
      or expand its services and diminish the value of its business.





**Interest
      Rate Risk**





The
      Company’s net interest income is the largest source of overall revenue to the
      Company and is mainly based on the difference between interest earned on loans
      and investment securities, and the interest paid on deposits and other
      borrowings. Interest rates are beyond the Company’s control, and they fluctuate
      in response to general economic conditions and the policies of various
      governmental and regulatory agencies, in particular, the Federal Reserve Board.
      Changes in monetary policy, including changes in interest rates, will influence
      the origination of loans, the purchase of investments, the generation of
      deposits, and the rates received on loans and investment securities and paid
      on
      deposits.





**Lending
      Risk**





There
      are
      inherent risks associated with the Company’s lending activities. Changes in
      economic conditions and changes in interest rates among other things could
      impact borrowers’ capabilities to repay the Company outstanding loans. For a
      complete discussion of the risk elements of the Company’s loan portfolio, please
      refer to page 7.


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 Table
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**Litigation
      Risk**





From
      time
      to time, the Company is subject to claims and litigation from customers and
      other individuals. Whether such claims and legal action are founded or
      unfounded, if such claims and legal actions are not resolved in a manner
      favorable to the Company, they may result in significant financial liability
      and/or adversely affect the market perception of the Company and its products
      and services. Any financial liability or reputation damage could have a material
      adverse effect on the Company’s business and financial performance.





**Item
      1B. Unresolved Staff Comments**





Not
      applicable.





**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 its main office located at 1341
      W.
      Battlefield in Springfield, Greene County, Missouri, six full-service branch
      offices in Springfield and one full-service branch and one in-store branch
      located in the Wal-Mart Supercenter in Nixa, Christian County, Missouri. The
      Bank has a relatively new main office building, which provides the Bank with
      a
      modern office for customer services and projects a favorable image for the
      Bank
      in the local marketplace. The Bank also leases facilities in West Plains,
      Mountain Grove and Marshfield, Missouri for recently established loan production
      offices.





The
      Bank
      maintains a network of Automated Teller Machines ("ATMs"). A total of 20 ATMs
      are located at various branches and primarily convenience stores located in
      Greene and Christian Counties in Missouri. In addition, the Bank is a member
      of
      the TransFund ATM network which provides its customers surcharge free access
      to
      over 80 area ATMs and over 700 ATMs nationwide. The Bank will evaluate and
      relocate existing ATMs as needed.





**Item
      3. Legal Proceedings**





(a)
            Material
                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, and condemnation proceedings, on properties in which the Bank
      holds security interests, claims involving the making and servicing of real
      property loans, and other issues incident to the business of the Company and
      the
      Bank. As of December 31, 2006, there were no claims or lawsuits pending or
      known
      to be contemplated against the Company or the Bank that would have had a
      material effect on the Company or the Bank.





(b)
            Proceedings
                Terminated During theLastQuarter of the Fiscal Year Covered by This
                Report





Not
      applicable.





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





No
      matter
      was submitted to a vote of security holders during the last quarter
      of the fiscal year ended December 31, 2006.




29
 Table
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**PART
      II**





**Item
      5. Market for Registrant's Common
      Equity** **,** **Related Stockholder Matters** **and Issuer Purchases of Equity Securities**





The
      information contained
      in the section captioned “Investor Information-Common Stock Prices and
      Dividends” on page
      1 of the 2006 Annual Report is incorporated herein by reference.





With
      respect to the
      equity compensation plan information required
      by this item, see “ Item
      12.
      Security Ownership of Certain Owners and Management and Related Stockholder Matters” in this
      report.








**Issuer
      Purchase of Equity Securities**





The
      following table summarizes the repurchase activity of the Company’s Common Stock
      during the Company’s fourth quarter ended December 31, 2006.


Period
              (a)
                  Total Number of Shares Purchased
              (b)
                  Average Price Paid per Share
              (c)
                  Total Number of Shares Purchased as Part of Publicly Announced
                  Plans or
                  Programs (1)
              (d)
                  Maximum Number of Shares that May Yet Be Purchased Under the Plans
                  or
                  ProgramsOctober
                  1, 2006 to October 31, 2006
              500
              28.57
              500
              200,977November
                  1, 2006 to November 30, 2006
              18,400
              28.47
              18,400
              182,577December
                  1, 2006 to December 31, 2006
              19,100
              28.65
              19,100
              163,477Total
              38,000
              -
              38,000





(1) The
      Company has a repurchase plan which was announced on July 25, 2006. This plan
      authorizes the purchase by the Company of 250,000 shares of the Company’s common
      stock. There is no expiration date for this plan. There are no other repurchase
      plans in effect at this time.




The
      information included under the caption “Junior Subordinated Debentures” in Item
      1 of Part 1 of this Report, which relates to the offer and sale of certain
      trust
      preferred securities, is incorporated herein by reference. The securities were
      offered and sold in a private placement in reliance upon the exemption set
      forth
      in Section 4(2) of the Securities Act of 1933, as amended (the “Act”), to a
      selected group of institutional purchasers who are “accredited investors” within
      the meaning of Section 501(a) of Regulation D under the Act. The Company paid
      $30,000 in legal fees on this offering.




30
 Table
          of Contents


**Item
      6. Selected Financial Data**





The
      information contained on page 4 under the section captioned “Selected
      Consolidated Financial and Other Data” of the 2006 Annual Report is incorporated
      herein by reference.





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





The
      information contained on pages 6 through 20 under
      the section captioned “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations” of
      the
      2006 Annual Report is incorporated herein by reference.





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





The
      information contained on page 14 and 15
      under the sections captioned “Asset/Liability Management” and “Interest Rate
      Sensitivity Analysis” of the 2006 Annual Report is incorporated herein by
      reference.





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





The
      financial statements set forth on pages 21 to 48 of the 2006 Annual Report and
      the
      financial information contained under the section captioned “Summary of
      Unaudited Quarterly Operating Results” set forth on page 20 of the 2006 Annual
      Report are
      incorporated herein by reference.




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





Not
      applicable.





**Item
      9A. Controls and Procedures**





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




The
      Company carried out an evaluation, under the supervision and with the
      participation of the Company’s management, including the Company’s Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      Company’s disclosure controls and procedures. Based on the foregoing evaluation,
      the Company’s Chief Executive Officer and Chief Financial Officer concluded that
      the Company’s disclosure controls and procedures were effective as of December
      31, 2006.





(b)
      There
      have been no changes in the Company’s internal control over financial reporting
      during the fourth quarter ending December 31, 2006 that have materially
      affected, or are reasonably likely to materially affect, the Company’s internal
      controls over financial reporting.





**Item
      9B. Other Information**





Not
      applicable.


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 Table
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**PART
      III**





**Item
      10. Directors, Executive Officers and Corporate
      Governance**





The
      information contained under the section captioned "First Proposal: Election
      of
      Directors" (excluding any information contained under the section captioned “Meetings and
      Committees of the Board of Directors”) of the
      Proxy Statement is incorporated herein by reference.





The
      Company has adopted a Code of Conduct and Ethics, and it applies to all of
      the
      members of the board of directors, officers and employees of the Company
      (including the Bank), with special emphasis on compliance by the directors
      of
      the Company and the Company’s Chief Executive Officer, Chief Financial Officer,
      Principal Accounting Officer or Controller or persons performing similar
      functions for the Company. The Company’s Code of Conduct and Ethics is available
      on the Company’s website at www.gbankmo.com and may
      be accessed by logging onto the Company’s website and clicking on the “About Us”
link and then the “Code of Conduct” link. You will then be able to click on, and
      access, the Company’s Code of Conduct and Ethics. Amendments to, and waivers
      granted under, the Company’s Code of Conduct and Ethics, if any, will be posted
      to the Company’s website as well.





The
      information required by Item 10 regarding an audit committee financial expert
      and the identification of the members of the audit committee, a separately
      designated committee of the Company’s board of directors established in
      accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934,
      is
      contained under the section captioned “Report of the Audit Committee” of the
      Proxy Statement and is incorporated herein by reference.





Additional
      information required
      by this item is contained (i) in
      the Proxy Statement under the
      section captioned "Section 16(a) Beneficial Ownership Reporting Compliance"
      and is
      incorporated herein by reference, and (ii) under the
      section captioned "Executive Officers of the Registrant" in Item 1 of this report.




**Item
      11. Executive Compensation**





The
      information contained in the Proxy
      Statement under the section
      captioned "Report of the Compensation Committee” is incorporated herein by
      reference.





**Item
      12. Security Ownership of Certain Beneficial Owners and
      Management** **and Related Stockholder Matters**





Except
      as
      set forth below, information required by this item is contained
      under the section
      captioned "Voting Securities and Principal Holders Thereof" in the Proxy
      Statement and is incorporated
      herein by reference .




32
 Table
          of Contents





**Equity
                Compensation Plan Information****Plan
                category**
            
            **(a)**
              **Number
                of securities to be****issued
                upon exercise of**
              **outstanding
                options,**
              **warrants****and
                rights**
            
            **(b)**
              **Weighted-average****exercise
                price of****outstanding
                options,**
              **warrants****and
                rights**
            
            **(c)**
              **Number
                of securities****remaining
                available****for
                future issuance****under
                equity****compensation
                plans****(excluding
                securities****reflected**
              **in
                column (a))**Equity
                compensation plans approved by security holders
            
            
            231,559
            
            
            16.59
            
            
            215,582Equity
                compensation plans not approved by security holders
            
            
            39,138
            
            
            18.44
            
            
            3,498Totals
            
            
            270,697
            
            
            16.86
            
            
            219,080





**Description
      of Stock Plans Not Approved by Stockholders**





**2000
      Stock Compensation Plan** .
      During
      the year ended June 30, 2000, the directors of the Company established the
      2000
      Stock Compensation Plan (the “2000 SCP”) with both a stock award component and a
      stock option component for a term of ten years. A
      committee of the Bank’s Board of Directors (the “Committee”) administers this
      plan and the 2001 SCP (discussed below). Stock
      options awarded under the plan are considered non-qualified for federal income
      tax purposes. Officers, directors and employees of the Company and its
      subsidiaries are eligible under the plan. S tock
      awards and stock options vest at the rate of 20% per year over a five year
      period and become
      fully vested in the event of a “change in control” as defined in the
      plan .
      In
      addition, the price of the stock options may not be less than the market value
      of the Company’s common stock on the date of grant, and the stock options expire
      no later than ten years from the date of grant .
      Under
      the stock award component of this plan, the Committee awarded 7,125 restricted
      shares of the Company’s common stock. As of December 31, 2006, there
      are no restricted shares in this plan that are not vested. There have
      been 17,875
      options granted under  this plan at an
      exercise price of $10.50
      per share. The
      maximum number of shares of the Company’s common stock permitted to be awarded
      under this plan (25,000) have been awarded. Previously issued awards or options
      which expire, become unexercisable, or are forfeited prior to their exercise
      may
      be granted as new awards or options under the plan for the number of shares
      which were subject to such expired or forfeited awards or options.


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 Table
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**2001
      Stock Compensation Plan** .
      During
      the year ended June 30, 2001, the directors of the Company established the
      2001
      Stock Compensation Plan (the “2001 SCP”) with both a stock award component and a
      stock option component for a term of ten years. Stock options awarded under
      the
      plan are considered non-qualified for federal income tax purposes. Officers,
      directors and employees of the Company and its subsidiaries are eligible under
      the plan. Stock
      awards and stock options vest at the rate of 20% per year over a five year
      period and become
      fully vested in the event of a “change in control” as defined in the plan. In
      addition, the price of the stock options may not be less than the market value
      of the Company’s common stock on the date of grant, and the stock options expire
      no later than ten years from the date of grant. Under
      the
      stock award component of this plan, the Committee awarded 10,239
      restricted **** shares
      of
      the Company’s common stock. As of December 31, 2006, all restricted shares in
      this plan are vested. There have been 13,236 options granted under this plan
      at
      an exercise price of $23.61 per share. The maximum number of shares of the
      Company’s Common Stock permitted to be awarded under this plan is 25,000 shares.
      Previously issued awards or options which expire, become exercisable, or are
      forfeited prior to their exercise may be granted as new awards or options under
      the plan for the number of shares which were subject to such expired or
      forfeited awards or options .





**2003
      Stock** **Option
      Agreement** **.** During
      the period ended December 31, 2003, the independent directors of the Company authorized the issuance
      of 5,000 stock options as an employment inducement to a new officer of the Bank
      pursuant to an
      individual stock option agreement .
      Stock
      options awarded under this  agreement are
      considered non-qualified for federal income tax purposes, vest
      at
      the rate of 20% per year over a five year period, become
      fully vested in the event of a “change in control” as defined in the agreement
      and expire no later than ten years from the date of grant . In
      addition, pursuant to the term of the stock option agreement which requires
      that
      the price of the stock options granted thereunder may not be less than the
      market value of the Company’s common stock on the date of grant, a ll
      of
      these  options
      were granted at an
      exercise price of $17.20
      per share.





**2004
      Stock** **Option
      Agreement** **.** Pursuant
      to the authorization of the independent directors of the Company, 25,000
      stock options were issued by the Company on March 9, 2004 as an employment
      inducement to a new officer (Shaun Burke) of the Bank
      under an individual stock
      option agreement .
      Stock
      options awarded under this  agreement are
      considered non-qualified for federal income tax purposes, vest
      at
      the rate of 20% per year over a five year period, become
      fully vested in the event of a “change in control” as defined in the agreement
      and expire no later than ten years from the date of grant . In
      addition, pursuant to the term of the stock option agreement which requires
      that
      the price of the stock options granted thereunder may not be less than the
      market value of the Company’s common stock on the date of grant, a ll
      of
      these  options
      were granted at an
      exercise price of $19.62
      per share.





**Item
      13. Certain Relationships and Related Transactions, and
      Director Independence**





The
      information required by this item is contained
      under the
      sections captioned "Indebtedness of Management and Directors and Transactions
      with Certain Related Persons" and “Director Independence” in the Proxy
      Statement and is incorporated
      herein by reference .





**Item
      14.** **Principal Accountant Fees and Services**





The
      information required by this item is contained under the section
      captioned **"** Principal
      Accountant Fees and Services" in the Proxy Statement and is incorporated herein
      by reference.




34
 Table
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**PART
      IV**





**Item
      15.** **Exhibits and Financial Schedules**




1.
            The
                following financial statements and the report of independent registered
                public accounting firm included in the 2006 Annual Report are filed
                as
                part of this Report and incorporated herein by reference.





Report
      of
      Independent Registered Public Accounting Firm





Consolidated
      Balance Sheets as of December
      31, 2006 and 2005.





Consolidated
      Statements of Income for the Years Ended December 31, 2006, 2005 and 2004.





Consolidated
      Statements of Stockholders' Equity for
      the
      Years Ended December 31, 2006, 2005 and 2004 .





Consolidated
      Statements of Cash Flows for
      the
      Years Ended December 31, 2006, 2005 and 2004 .





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 filed with this Report or incorporated herein
                by
                reference:





Index
      to Exhibits




ExhibitNumber
            
            Exhibit
                Description3(i)
            
            Restated
                Certificate of Incorporation of Guaranty Federal Bancshares, Inc.
                (1)3(ii)
            
            Bylaws
                of Guaranty Federal Bancshares, Inc., as amended (7)4
            
            Rights
                Agreement dated January 20, 1999 concerning the issuance of preferred
                stock and related rights. (2)The
                Company hereby agrees to furnish the SEC upon request, copies of
                the
                instruments defining the rights of the holders of each issue of its
                junior
                subordinated debentures.10.1
            
            1994
                Stock Option Plan *(3)10.2
            
            Recognition
                and Retention Plan *(4)10.3
            
            1998
                Stock Option Plan *(5)10.4
            
            Restricted
                Stock Plan *(6)10.5
            
            Form
                ofChange
                in Control Severance Agreement *(6)10.6
            
            2000
                Stock Compensation Plan *(6)10.7
            
            2001
                Stock Compensation Plan *(6)10.8
            
            2003
                Stock Option Agreement*(8)10.9
            
            Employment
                Agreement effective as of March 9, 2004 by and between the Bank and
                Shaun
                A. Burke *(9)


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 Table
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10.10
            
            2004
                Stock Option Agreement dated March 9, 2004 between the Company and
                Shaun
                A. Burke *(10)10.11
            
            2004
                Stock Option Plan *(11)10.12
            
            Form
                of Incentive Stock Option Agreement under the 2004 Stock Option Plan
                *10.13
            
            Form
                of Non-Incentive Stock Option Agreement under the 2004 Stock Option
                Plan
                *10.14
            
            Form
                of Incentive Stock Option Agreement under the 1994 Stock Option Plan
                *(12)10.15
            
            Form
                of Non-Incentive Stock Option Agreement under the 1994 Stock Option
                Plan
                *(13)10.16
            
            Incentive
                Stock Option Agreement dated March 17, 2005 between the Company and
                Shaun
                A. Burke(issued
                pursuant to the 2001 Stock Option Plan)*(14)10.17
            
            Resignation
                and Separation Agreement and Release of All Claims effective as of
                October
                1, 2005 between the Bank and Eldon Erwin *10.18
            
            Resignation
                and Separation Agreement and Release of All Claims effective as of
                August
                6, 2005 between the Company, the Bank and William B. Williams
                *(15)10.19
            
            Written
                Description of Compensatory Arrangement with Chief Operating Officer
                and
                Chief Financial Officer *11
            
            Computation
                of per share earnings is set forth in Note 1 of the Notes to the
                Consolidated Financial Statements under the section captioned “Earnings
                Per Share” in the 2006 Annual Report.13
            
            Annual
                Report to Stockholders for the fiscal period endedDecember
                31,2006
                (only those portions incorporated by reference in this document are
                deemed
                “filed”)21
            
            Subsidiaries
                of the Registrant ( See Item 1. Business - Subsidiary and Segment
                Information)23
            
            Consent
                of BKD, LLP31(i).1
            
            Certification
                of the Principal Executive Officer pursuant to Rule 13a-14(a) of
                the
                Exchange Act31(i).2
            
            Certification
                of the Principal Financial Officer pursuant to Rule 13a-14(a) of
                the
                Exchange Act32.1
            
            CEO
                certification pursuant to18
                U.S.C. Section 135032.2
            
            CFO
                certification pursuant to 18
                U.S.C. Section 1350





*
      Management contract or compensatory plan or arrangement


36
 Table
          of Contents





(1)
            Filed
                as an exhibit to the Annual Report on Form 10-K for the fiscal year
                ended
                June 30, 1998 (SEC File No. 0-23325) and incorporated herein by
                reference.


(2)
            Filed
                as an exhibit to the Form 8A filed by Registrant on January 22, 1999
                and
                incorporated herein by reference.


(3)
            Filed
                as Exhibit 10.1 of the Registration Statement on Form S-1 filed by
                the
                Registrant on September 23, 1997 (SEC File No. 333-36141) and incorporated
                herein by reference.


(4)
            Filed
                as Exhibit 10.2 of the Registration Statement on Form S-1 filed by
                the
                Registrant on September 23, 1997 (SEC File No. 333-36141) and incorporated
                herein by reference.


(5)
            Filed
                as Exhibit 4 to the Form S-8 Registration Statement filed by the
                Registrant on March 6, 2002 (SEC File No. 333-83822) and incorporated
                herein by reference.


(6)
            Filed
                as an exhibit to the Annual Report on Form 10-K for the fiscal year
                ended
                June 30, 2001 (SEC File No. 0-23325) and incorporated herein by
                reference.


(7)
            Filed
                as Exhibit 3(ii) to the Quarterly Report on Form 10-Q for the quarter
                ended June 30, 2004 filed by the Registrant on August 10, 2004 (SEC
                File
                No. 0-23325) and incorporated herein by
                reference.


(8)
            Filed
                as Exhibit 10.8 to the Annual Report on Form 10-K for the transition
                period ended December 31, 2003 filed by the Registrant on March 30,
                2004
                (SEC File No. 0-23325) and incorporated herein by
                reference.


(9)
            Filed
                as Exhibit 10.9 to the Current Report on Form 8-K filed by the Registrant
                on January 24, 2005 (SEC File No. 0-23325) and incorporated herein
                by
                reference.


(10)
            Filed
                as Exhibit 10.10 to the Current Report on Form 8-K filed by the Registrant
                on January 24, 2005 (SEC File No. 0-23325) and incorporated herein
                by
                reference.


(11)
            Filed
                as Appendix A to the proxy statement for the annual meeting of
                stockholders held on May 19, 2004 (SEC File No. 0-23325) and incorporated
                herein by reference.


(12)
            Filed
                as Exhibit 4.2 to the Form S-8 Registration Statement filed by the
                Registrant on March 3, 1998 (SEC File No. 333-47241) and incorporated
                herein by reference.


(13)
            Filed
                as Exhibit 4.3 to the Form S-8 Registration Statement filed by the
                Registrant on March 3, 1998 (SEC File No. 333-47241) and incorporated
                herein by reference.


(14)
            Filed
                as Exhibit 10.16 to the Current Report on Form 8-K filed by the Registrant
                on March 22, 2005 (SEC File No. 0-23325) and incorporated herein
                by
                reference.


(15)
            Filed
                as Exhibit 10.18 to the Quarterly Report on Form 10-Q for the quarter
                ended June 30, 2005 filed by the Registrant on August 15, 2005 (SEC
                File
                No. 0-23325) and incorporated herein by
                reference.




37
 Table
          of Contents


**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:
                March 31, 2007
            
            By:
            /s/
                Shaun A. BurkeShaun
                A. BurkePresident
                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.








By:
            /s/
                Shaun A. Burke
            
            By:
            /s/
                Tim RosenburyShaun
                A. Burke
            
            
            Tim
                RosenburyPresident
                and Chief Executive Officer
            
            
            Directorand
                Director
            
            Date:
            March
                31, 2007(Principal
                Executive Officer)Date:
            March
                31, 2007





By:
            /s/
                Carter Peters
            
            By:
            /s/
                James R. BattenCarter
                Peters
            
            
            James
                R. BattenEVP
                and Chief Financial Officer
            
            
            Director(Principal
                Accounting and Financial Officer)
            
            Date:
            March
                31, 2007Date:
            March
                31, 2007By:
            /s/
                Wayne V. Barnes
            
            By:
            /s/
                Don M. GibsonWayne
                V. Barnes
            
            
            Don
                M. GibsonDirector
            
            
            Chairman
                of the Board and DirectorDate:
            March
                31, 2007
            
            Date:
            March
                31, 2007By:
            /s/
                Gregory V. Ostergren
            
            By:
            /s/
                James L. Sivils, IIIGregory
                V. Ostergren
            
            
            James
                L.Sivils, IIIDirector
            
            
            DirectorDate:
            March
                31, 2007
            
            Date:
            March
                31, 2007By:
            /s/
                Kurt D. Hellweg
            
            By:
            /s/
                Jack L. BarhamKurt
                D. Hellweg
            
            
            Jack
                L. BarhamDirector
            
            
            DirectorDate:
            March
                31, 2007
            
            Date:
            March
                31, 2007






38