**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 SECURITIES
 EXCHANGE
        ACT OF 1934
 
 For
        the
        fiscal year ended December
        31, 2005
 **-
        or -**
 [
        ]  TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
        ACT OF 1934
 
 For
        the
        transition period from   to
        _____________________
  Commission
        File Number: 0-23325
  GUARANTY
                  FEDERAL BANCSHARES, INC.(Exact
                  Name of Registrant as Specified in Its
                  Charter)
  Delaware
              43-1792717(State
                  or Other Jurisdiction of Incorporation
              (I.R.S.
                  Employer Identification No.)or
                  Organization)
  1341
                  West Battlefield, Springfield, Missouri
              65807(Address
                  of Principal Executive Offices)
              (Zip
                  Code)
  Registrant's
        telephone number, including area code: (417)
        520-4333
 
 Securities
        registered pursuant to Section 12(b) of the Act: None
 
 Securities
        registered pursuant to Section 12(g) of the Act:
 
 Common
        Stock, par value $.10 per share
 (Title of Class)
 Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act. Yes ___ 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 ___ 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
        ___
 
 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.[ ]
 
 1
 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 file__
              Accelerated
                  filer ___
              Non-accelerated
                  filer   X
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes ____ 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, 2005 (the last business day of the registrant’s most
        recently completed second quarter), was $52.7 million. As of March 31, 2006
        there were 2,958,147 shares of the registrant's Common Stock
        outstanding.
 
 **DOCUMENTS
          INCORPORATED BY
          REFERENCE**
  1.
                Portions
                    of the Annual Report to Stockholders(the
                    “2005 Annual Report”)for
                    thefiscal period ended December 31, 2005 (Parts I and
                    II).
 2.
                Portions
                    of the Proxy Statement for the Annual Meeting of Stockholders(the
                    “Proxy Statement”)to
                    be held on May 25, 2006 (Part III).
 
 2
 **GUARANTY
                        FEDERAL BANCSHARES, INC.**Form
                        10-KTABLE
                        OF CONTENTSItem
                    
                    
                    Page**PART
                        I**1
                    Business
                    
                    51A
                    Risk
                        Factors
                    
                    301B
                    Unresolved
                        Staff Comments
                    
                    312
                    Properties
                    
                    323
                    Legal
                        Proceedings
                    
                    324
                    Submission
                        of Matters to a Vote of Security
                        Holders
                    
                    32**PART
                        II**5
                    Market
                        for Registrant's Common Equity, Related Stockholder
                        Matters
                    
                    32and
                        Issuer Purchases of Equity Securities346
                    Selected
                        Financial Data7.
                    Management's
                        Discussion and Analysis ofFinancial
                        Condition and Results of Operations
                    
                    347A.
                    Quantitative
                        and Qualitative Disclosures About Market
                        Risk
                    
                    348
                    Financial
                        Statements and Supplementary
                        Data
                    
                    349
                    Changes
                        in and Disagreements with
                        Accountantson
                        Accounting and Financial Disclosure
                    
                    349A.
                    Controls
                        and Procedures
                    
                    349B.
                    Other
                        Information
                    
                    34**PART
                        III**10
                    Directors
                        and Executive Officers of the
                        Registrant
                    
                    3511
                    Executive
                        Compensation
                    
                    3512
                    Security
                        Ownership of Certain Beneficial Owners and
                        Managementand
                        Related Stockholder Matters
                    
                    3513
                    Certain
                        Relationships and Related
                        Transactions
                    
                    3714
                    Principal
                        Accountant Fees and Services
                    
                    37**PART
                        IV**15
                    Exhibits
                        and Financial Statement
                        Schedules
                    
                    37Signatures
 3
 **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.**
 
 4
 
 **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 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, 2005, the Bank had $4,978,800 in FHLB stock, which was in
        compliance with this requirement.
  5
 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 the Transition Period, and (ii) changes in interest income
        and
        interest expense resulting from changes in average balances and average rates
        for the last two fiscal years, including the Transition Period, is provided
        under the section captioned “Average Balances, Interest and Average Yields”
under Item 7 of this report.
 
 
 **Market
        Area**
 
 The
        Bank's primary market area is Greene County, which is in the southwestern
        corner
        of Missouri
        and includes the city of Springfield,  Missouri.
        There is a large regional health care presence with two large regional hospitals
        employing over 14,000. There also are four accredited colleges and one major
        university with total enrollment approaching 25,000. Part of Greene County's
        growth can be attributed to its proximity to Branson, Missouri, which has
        developed a strong tourism industry related to country music and entertainment.
        Branson is located 30 miles south of Springfield, and attracts between five
        and
        six million tourists each year, many of whom pass through
        Springfield.
  6
 **Lending
        Activities**
  Set
        forth
        below is selected data relating to the composition of the Bank’s loan portfolio
        at the dates indicated:
 **Composition
                    of Loan Portfolio**As
                    of December 31,
                
                
                
                
                As
                    of December 31,
                
                
                
                
                As
                    of December 31,
                
                
                
                
                
                As
                    of June  30,
                
                
                
                
                As
                    of June 30,
                
                
                
                
                As
                    of June 30,2005
                
                
                
                
                2004
                
                
                
                
                2003
                
                
                
                
                
                2003
                
                
                
                
                2002
                
                
                
                
                2001$
                
                %
                
                
                $
                
                %
                
                
                $
                
                
                %
                
                
                $
                
                %(Dollars
                    in Thousands)Mortgage
                    loans (includes loans held for sale):One
                    to four family
                $
                103,532
                
                23
                %
                
                121,307
                
                31
                %
                
                129,477
                
                
                37
                %
                
                144,404
                
                40
                %
                
                149,443
                
                44
                %
                
                189,436
                
                55
                %Multi-family
                
                53,631
                
                12
                %
                
                52,259
                
                13
                %
                
                44,242
                
                
                13
                %
                
                41,022
                
                11
                %
                
                44,055
                
                13
                %
                
                42,641
                
                12
                %Construction
                
                70,390
                
                16
                %
                
                45,090
                
                11
                %
                
                49,814
                
                
                14
                %
                
                64,464
                
                18
                %
                
                49,807
                
                15
                %
                
                55,317
                
                16
                %Commercial
                    real estate
                
                122,884
                
                28
                %
                
                97,550
                
                25
                %
                
                72,105
                
                
                21
                %
                
                71,046
                
                19
                %
                
                58,434
                
                17
                %
                
                43,893
                
                13
                %Total
                    mortgage loans
                
                350,437
                
                79
                %
                
                316,206
                
                80
                %
                
                295,638
                
                
                86
                %
                
                320,936
                
                88
                %
                
                301,739
                
                89
                %
                
                331,287
                
                96
                %Commercial
                    business loans
                
                66,370
                
                15
                %
                
                55,606
                
                14
                %
                
                24,618
                
                
                7
                %
                
                18,967
                
                5
                %
                
                8,358
                
                2
                %
                
                5,511
                
                1
                %Consumer
                    loans
                
                24,264
                
                6
                %
                
                25,172
                
                6
                %
                
                25,441
                
                
                7
                %
                
                25,486
                
                7
                %
                
                31,075
                
                9
                %
                
                10,573
                
                3
                %Total
                    consumer and other loans
                
                90,634
                
                21
                %
                
                80,778
                
                20
                %
                
                50,059
                
                
                14
                %
                
                44,453
                
                12
                %
                
                39,433
                
                11
                %
                
                16,084
                
                4
                %Total
                    loans
                
                441,071
                
                100
                %
                
                396,984
                
                100
                %
                
                345,697
                
                
                100
                %
                
                365,389
                
                100
                %
                
                341,172
                
                100
                %
                
                347,371
                
                100
                %Less:Loans
                    in process
                
                -
                
                
                
                
                -
                
                
                
                
                9,425
                
                
                
                
                
                25,539
                
                
                
                
                18,326
                
                
                
                
                24,212Deferred
                    loan fees/costs, net
                
                141
                
                
                
                
                106
                
                
                
                
                237
                
                
                
                
                
                211
                
                
                
                
                230
                
                
                
                
                268Unearned
                    discounts
                
                3
                
                
                
                
                7
                
                
                
                
                19
                
                
                
                
                
                26
                
                
                
                
                50
                
                
                
                
                88Allowance
                    for loan losses
                
                5,400
                
                
                
                
                4,537
                
                
                
                
                3,886
                
                
                
                
                
                2,775
                
                
                
                
                2,650
                
                
                
                
                2,697Total
                    Loans, Net
                $
                435,527
                
                
                
                
                392,334
                
                
                
                
                332,130
                
                
                
                
                
                336,838
                
                
                
                
                319,916
                
                
                
                
                320,106
   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, 2005 of all loans due after December 2006, 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
                
                $
                22,157
                
                
                71,428
                
                
                93,585
                
                
                76
                %Multi-family
                
                
                22,892
                
                
                20,047
                
                
                42,939
                
                
                47
                %Construction
                
                
                447
                
                
                15,186
                
                
                15,633
                
                
                97
                %Commercial
                    real estate
                
                
                39,637
                
                
                63,203
                
                
                102,840
                
                
                61
                %Commercial
                    loans
                
                
                3,597
                
                
                26,852
                
                
                30,449
                
                
                88
                %Consumer
                    loans
                
                
                5,596
                
                
                16,441
                
                
                22,037
                
                
                75
                %Total
                    loans (1)
                
                $
                94,326
                
                
                213,157
                
                
                307,483
                
                
                69
                %(1)
                    Before deductions for unearned discounts, deferred loan fees/costs
                    andallowances
                    for loan losses.
  7
 The
        following table sets forth the maturity of the Bank's loan portfolio as of
        December 31, 2005. The table shows loans that have adjustable-rates as due
        in
        the period during which they contractually mature. The table does not include
        prepayments or scheduled principal amortization.
 
 **Loan
                    Maturities**
                
                
                Due
                    in One Year or Less
                
                
                Due
                    After One Through Five Years
                
                
                Due
                    After Five Years
                
                
                Total(Dollars
                    in thousands)One
                    to four family
                
                $
                9,947
                
                
                18,845
                
                
                74,740
                
                
                103,532Multi
                    family
                
                
                10,692
                
                
                22,933
                
                
                20,006
                
                
                53,631Construction
                
                
                54,756
                
                
                15,563
                
                
                71
                
                
                70,390Commercial
                    real estate
                
                
                20,044
                
                
                89,582
                
                
                13,259
                
                
                122,885Commercial
                    loans
                
                
                35,922
                
                
                25,982
                
                
                4,466
                
                
                66,370Consumer
                    loans
                
                
                2,227
                
                
                5,186
                
                
                16,850
                
                
                24,263Total
                    loans (1)
                
                $
                133,588
                
                
                178,091
                
                
                129,392
                
                
                441,071Less:Deferred
                    loan fees/costs
                
                
                
                
                
                
                
                
                
                
                
                141Unearned
                    discounts
                
                
                
                
                
                
                
                
                
                
                
                3Allowance
                    for loan losses
                
                
                
                
                
                
                
                
                
                
                
                5,400Loans
                    receivable net
                
                
                
                
                
                
                
                
                
                
                $
                435,527(1)
                    Includes mortgage loans held for sale of $2,092.
 **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.
 
 As
        of
        December 31, 2005, $103.5 million or 23% of the Bank’s total loan portfolio
        consisted of one- to four-family residential loans, of which 75% 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.
 
 8
 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, 2005, $53.6 million or 12% 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, $14.4 million
        as of
        December 31, 2005, 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, 2005, construction loans totaled $70.4 million or 16% 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.
 
 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.
  9
 **Commercial
        Real Estate Loans.** As of
        December 31, 2005, the Bank has commercial real estate loans totaling $122.9
        million or 28% 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 $14.8 million as of December 31, 2005, 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, 2005, the Bank’s commercial real estate loan portfolio included
        approximately $7.9 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.
  **Commercial
        Business Loans.** As of
        December 31, 2005, the Bank has commercial business loans totaling $66.4
        million
        or 15% 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, 2005, the Bank has such loans totaling $24.3 million or 6% of
        the
        Bank’s total loan portfolio. The Bank expects to continue to expand its consumer
        lending as opportunities present themselves.
 
 10
 **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, 2005, the Bank has one loan 90 days or more past due with a
        principal balance of $28,418 and twenty three loans between 30 and 89 days
        past
        due with an aggregate principal balance of $579,852. The Bank generally does
        not
        accrue interest on loans past due more than 90 days.
 
 11
 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.
 **Delinquency
                    Summary**
                
                As
                    of
                
                As
                    of
                
                As
                    of
                
                As
                    of
                
                As
                    of
                
                As
                    ofDecember
                    31,
                
                December
                    31,
                
                December
                    31,
                
                June
                    30,
                
                June
                    30,
                
                June
                    30,2005
                
                2004
                
                2003
                
                2003
                
                2002
                
                2001(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
                $
                452
                
                770
                
                703
                
                331
                
                154
                
                444Multi-family
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -Construction
                
                -
                
                -
                
                -
                
                -
                
                -
                
                1,065Commercial
                    real estate
                
                131
                
                158
                
                -
                
                -
                
                -
                
                668583
                
                928
                
                703
                
                331
                
                154
                
                2,177Non-mortgage
                    loans:Commercial
                    loans
                
                -
                
                -
                
                -
                
                -
                
                -
                
                109Consumer
                    and other loans
                
                138
                
                79
                
                40
                
                -
                
                37
                
                18138
                
                79
                
                40
                
                -
                
                37
                
                127Total
                    non-accrual loans
                
                721
                
                1,007
                
                743
                
                331
                
                191
                
                2,304**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
                $
                721
                
                1,007
                
                743
                
                331
                
                191
                
                2,304Total
                    accounted for on a non-accrual basis or contractually past maturity
                    or 90
                    days or more past due as a percentage of net loans
                
                0.17
                %
                0.26
                %
                0.22
                %
                0.10
                %
                0.06
                %
                0.73Total
                    accounted for on a non-accrual basis or contractually past maturity
                    or 90
                    days or more past due as a percentage of total assets
                
                0.15
                %
                0.23
                %
                0.19
                %
                0.08
                %
                0.05
                %
                0.62
  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.
 
 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.
 
 12
 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
                      of
                  
                  As
                      of
                  
                  As
                      of
                  
                  As
                      of
                  
                  As
                      ofDecember
                      31,
                  
                  December
                      31,
                  
                  December
                      31,
                  
                  June
                      30,
                  
                  June
                      30,
                  
                  June
                      30,2005
                  
                  2004
                  
                  2003
                  
                  2003
                  
                  2002
                  
                  2001Non-accrual
                      loans:
                  
                  
                  
                  
                  
                  
                  
                  (Dollars
                      in Thousands)Mortgage
                      loans:One-
                      to four-family
                  $
                  452
                  
                  770
                  
                  703
                  
                  331
                  
                  659
                  
                  1,358Multi-family
                  
                  -
                  
                  -
                  
                  -
                  
                  -
                  
                  -
                  
                  -Construction
                  
                  -
                  
                  -
                  
                  -
                  
                  -
                  
                  -
                  
                  2,115Commercial
                      real estate
                  
                  131
                  
                  158
                  
                  -
                  
                  -
                  
                  1,017
                  
                  1,396583
                  
                  928
                  
                  703
                  
                  331
                  
                  1,676
                  
                  4,869Non-mortgage
                      loans:Commercial
                      loans
                  
                  -
                  
                  -
                  
                  -
                  
                  -
                  
                  -
                  
                  60Consumer
                      and other loans
                  
                  138
                  
                  79
                  
                  40
                  
                  -
                  
                  75
                  
                  19138
                  
                  79
                  
                  40
                  
                  -
                  
                  75
                  
                  79Total
                      non-accrual loans
                  
                  721
                  
                  1,007
                  
                  743
                  
                  331
                  
                  1,751
                  
                  4,948Real
                      estate and other assets acquired in settlement of loans
                  
                  27
                  
                  78
                  
                  6
                  
                  182
                  
                  683
                  
                  4Total
                      non-performing assets
                  $
                  748
                  
                  1,085
                  
                  749
                  
                  513
                  
                  2,434
                  
                  4,952Total
                      non-accrual loans as a percentage of net loans
                  
                  0.17
                  %
                  0.26
                  %
                  0.22
                  %
                  0.10
                  %
                  0.55
                  %
                  1.55
                  %Total
                      non-performing assets as a percentage of total assets
                  
                  0.16
                  %
                  0.25
                  %
                  0.19
                  %
                  0.13
                  %
                  0.65
                  %
                  1.32
                  %Impact
                      on interest income for the period:Interest
                      income that would have been recorded on non-accruing loans
                  $
                  8
                  
                  23
                  
                  15
                  
                  13
                  
                  21
                  
                  179
 13
 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, 2005. As of December 31, 2005, foreclosed assets held for
        sale
        consists of five vehicles.
 **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
                  
                  3
                  
                  $
                  224
                  
                  
                  43
                  
                  $
                  2,181
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  46
                  
                  $
                  2,405Multi-family
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Construction
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Commercial
                      real estate
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Land
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Other
                      loans
                  
                  6
                  
                  
                  178
                  
                  
                  15
                  
                  
                  2,418
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  21
                  
                  
                  2,596Total
                      loans
                  
                  9
                  
                  
                  402
                  
                  
                  58
                  
                  
                  4,599
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  67
                  
                  
                  5,001Foreclosed
                      assets held-for-sale:One-
                      to four-family
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Land
                      and other assets
                  
                  -
                  
                  
                  -
                  
                  
                  5
                  
                  
                  27
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5
                  
                  
                  27Total
                      foreclosed assets
                  
                  -
                  
                  
                  -
                  
                  
                  5
                  
                  
                  27
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5
                  
                  
                  27Total
                  
                  9
                  
                  $
                  402
                  
                  
                  63
                  
                  $
                  4,626
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  72
                  
                  $
                  5,028
  14
 **Allowance
        for Loan Losses**
  
 
 As
        of
        December 31, 2005 the Bank's total allowance for loan losses was $5.4 million
        or
        1.2% 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 2005, 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.
  15
 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
              
              Year
                  ended
              
              Six
                  months ended
              
              Year
                  ended
              
              Year
                  ended
              
              Year
                  endedDecember
                  31,
              
              December
                  31,
              
              December
                  31,
              
              June
                  30,
              
              June
                  30,
              
              June
                  30,2005
              
              2004
              
              2003
              
              2003
              
              2002
              
              2001(Dollars
                  in Thousands)**Beginning
                  balance**
              $
              4,537
              
              3,886
              
              2,775
              
              2,650
              
              2,697
              
              2,520**Gross
                  loan charge offs**Mortgage
                  Loans:One-
                  to four-family
              
              (22
              )
              (188
              )
              (41
              )
              (358
              )
              (52
              )
              (5
              )Multi-family
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -Construction
              
              -
              
              -
              
              -
              
              (11
              )
              (235
              )
              -Commercial
                  real estate
              
              -
              
              -
              
              -
              
              -
              
              (23
              )
              (115
              )(22
              )
              (188
              )
              (41
              )
              (369
              )
              (310
              )
              (120
              )Non-mortgage
                  loans:Commercial
                  loans
              
              (12
              )
              -
              
              -
              
              -
              
              -
              
              -Consumer
                  and other loans
              
              (119
              )
              (43
              )
              (14
              )
              (168
              )
              (28
              )
              (13
              )(119
              )
              (43
              )
              (14
              )
              (168
              )
              (28
              )
              (13
              )Total
                  charge offs
              
              (153
              )
              (231
              )
              (55
              )
              (537
              )
              (338
              )
              (133
              )**Recoveries**Mortgage
                  Loans:One-
                  to four-family
              
              61
              
              9
              
              1
              
              19
              
              -
              
              -Multi-family
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -Construction
              
              -
              
              -
              
              1
              
              6
              
              -
              
              -Commercial
                  real estate
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -61
              
              9
              
              2
              
              25
              
              -
              
              -Non-mortgage
                  loans:Commercial
                  loans
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -Consumer
                  and other loans
              
              10
              
              9
              
              2
              
              27
              
              -
              
              -10
              
              9
              
              2
              
              27
              
              -
              
              -Total
                  recoveries
              
              71
              
              18
              
              4
              
              52
              
              -
              
              -**Net
                  loan charge-offs**
              
              (82
              )
              (213
              )
              (51
              )
              (485
              )
              (338
              )
              (133
              )Provision
                  for loan losses charged to expense
              
              945
              
              864
              
              1,162
              
              610
              
              291
              
              310**Ending
                  balance**
              $
              5,400
              
              4,537
              
              3,886
              
              2,775
              
              2,650
              
              2,697Net
                  charge-offs as a percentage of average loans, net
              
              0.02
              %
              0.07
              %
              0.02
              %
              0.15
              %
              0.10
              %
              0.04
              %Allowance
                  for loan losses as a percentage of average loans, net
              
              1.29
              %
              1.39
              %
              1.19
              %
              0.85
              %
              0.82
              %
              0.87
              %Allowance
                  for loan losses as a percentage of total non-performing loans
              
              749
              %
              451
              %
              523
              %
              838
              %
              151
              %
              55
              %
  
 16
 **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.
 
 As
                    of
                
                
                
                
                As
                    of
                
                
                
                
                As
                  of
                
                
                
                
                As
                    of
                
                
                
                
                As
                  of
                
                
                
                
                As
                  ofDecember
                    31,
                
                
                
                
                December
                  31,
                
                
                
                
                December
                  31,
                
                
                
                
                June
                    30,
                
                
                
                
                June
                  30,
                
                
                
                
                June
                  30,2005
                
                
                
                
                2004
                
                
                
                
                2003
                
                
                
                
                2003
                
                
                
                
                2002
                
                
                
                
                2001Amount
                
                %
                %
                
                
                
                Amount
                %
                
                
                
                Amount
                %
                
                
                
                Amount
                %
                
                
                
                Amount
                %
                
                
                
                Amount
                %(Dollars
                    in thousands)Mortgage
                    Loans
                $
                4,266
                
                79
                %
                $
                3,630
                
                80
                %
                $
                3,342
                
                86
                %
                $
                2,442
                
                88
                %
                $
                2,358
                
                89
                %
                $
                2,562
                
                95
                %Non-Mortgage
                    Loans
                
                1,134
                
                21
                %
                
                907
                
                20
                %
                
                544
                
                14
                %
                
                333
                
                12
                %
                
                292
                
                11
                %
                
                135
                
                5
                %Total
                $
                5,400
                
                100
                %
                $
                4,537
                
                100
                %
                $
                3,886
                
                100
                %
                $
                2,775
                
                100
                %
                $
                2,650
                
                100
                %
                $
                2,697
                
                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, 2005, the Company has investment securities with
        a
        carrying value of $7.7 million and an estimated fair value of $7.7 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, $6.8 million, or 88%, 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.
  17
 **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:
 **Investment
                      Securities**
                  
                  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**Investment
                      Securities**
                  
                  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
 **Investment
                    Securities**
                
                Amortized
                    Cost
                
                Gross
                    Unrealized Gains
                
                Gross
                    Unrealized (Losses)
                
                Approximate
                    Fair Value**As
                    of December 31, 2003**AVAILABLE-FOR-SALE
                    SECURITIES:Equity
                    Securities:FHLMC
                    stock
                $
                78,336
                
                4,587,264
                
                -
                
                4,665,600Other
                    stock
                
                2,000,000
                
                -
                
                (326,000
                )
                1,674,000Debt
                    Securities:Trust
                    preferred securities
                
                6,557,201
                
                11,071
                
                (40,840
                )
                6,527,432U.
                    S. government agencies
                
                1,996,317
                
                477
                
                -
                
                1,996,794HELD-TO-MATURITY
                    SECURITIES:U.
                    S. government agencies
                
                256,142
                
                78
                
                -
                
                256,220Mortgage-backed
                    securities
                
                1,611,452
                
                81,240
                
                -
                
                1,692,692$
                12,499,448
                
                4,680,130
                
                (366,840
                )
                16,812,738
 18
 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, 2005:
 
 **Investment
                    Portfolio Maturities and Average Weighted Yields**
                
                Amortized
                    Cost
                
                Weighted
                    Average Yield
                
                
                Approximate
                    Fair ValueDue
                    within one year
                $
                499,512
                
                3.52
                %
                $
                499,429Due
                    within five years
                
                3,269,975
                
                5.05
                %
                
                3,269,204Equity
                    securities not due ona
                    single maturity date
                
                47,595
                
                0.00
                %
                
                3,176,010Mortgage-backed
                    securities not due on asingle
                    maturity date
                
                754,749
                
                7.11
                %
                
                794,300$
                4,571,831
                
                5.23
                %
                $
                7,738,943
 19
 **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,
        passbook savings, money market, individual retirement accounts, and NOW
        (checking) accounts. The flow of deposits is influenced significantly by
        general
        economic conditions, changes in money market and prevailing interest rates,
        local competition, and competition from non-bank financial service providers.
        The Bank's deposits are typically obtained from the areas in which its offices
        are located. The Bank relies primarily on customer service and long-standing
        relationships with customers to attract and retain these deposits.
 
 The
        Bank
        seeks to maintain a high level of stable core deposits by providing high
        quality
        service through its employees and its convenient office and branch locations.
 
 **Deposit
        Accounts Types**
 
 The
        following table sets forth the distribution of the Bank's deposit accounts
        at
        the dates indicated.
 As
                    of December 31,
                
                As
                    of December 31,
                
                As
                    of December 31,2005
                
                2004
                
                2003Average
                
                
                
                
                Percent
                
                Average
                
                
                
                
                Percent
                
                Average
                
                
                
                
                PercentInterest
                
                
                
                
                of
                    Total
                
                Interest
                
                
                
                
                of
                    Total
                
                Interest
                
                
                
                
                of
                    TotalRate
                
                
                Amount
                
                Deposits
                
                Rate
                
                
                Amount
                
                Deposits
                
                Rate
                
                
                Amount
                
                DepositsNOW
                0.33
                %
                $
                35,864
                
                11
                %
                0.53
                %
                $
                34,605
                
                12
                %
                0.30
                %
                $
                34,257
                
                14
                %Savings
                1.80
                %
                
                14,298
                
                5
                %
                1.08
                %
                
                15,153
                
                5
                %
                0.81
                %
                
                17,221
                
                7
                %Money
                    Market
                2.47
                %
                
                43,897
                
                14
                %
                1.81
                %
                
                52,010
                
                18
                %
                1.34
                %
                
                42,231
                
                18
                %Non-interestbearing
                    demand
                0.00
                %
                
                36,194
                
                11
                %
                0.00
                %
                
                25,583
                
                9
                %
                0.00
                %
                
                23,335
                
                10
                %Total
                
                
                
                130,253
                
                41
                %
                
                
                
                127,351
                
                44
                %
                
                
                
                117,044
                
                49
                %Certificates
                    of Deposit: (fixed-rate, fixed-term)1-11
                    months
                3.56
                %
                
                125,336
                
                39
                %
                2.32
                %
                
                89,389
                
                30
                %
                2.83
                %
                
                68,500
                
                29
                %12-23
                    months
                3.74
                %
                
                48,149
                
                15
                %
                2.81
                %
                
                42,019
                
                14
                %
                2.88
                %
                
                23,695
                
                10
                %24-35
                    months
                4.20
                %
                
                9,670
                
                3
                %
                3.49
                %
                
                26,608
                
                9
                %
                3.03
                %
                
                12,052
                
                5
                %36-47
                    months
                3.94
                %
                
                4,248
                
                1
                %
                4.16
                %
                
                6,012
                
                2
                %
                4.87
                %
                
                8,643
                
                4
                %48-59
                    months
                4.14
                %
                
                1,851
                
                1
                %
                3.92
                %
                
                3,982
                
                1
                %
                4.49
                %
                
                4,595
                
                2
                %60-71
                    months
                4.64
                %
                
                552
                
                0
                %
                3.98
                %
                
                1,013
                
                0
                %
                3.90
                %
                
                2,541
                
                1
                %72-95
                    months
                0.00
                %
                
                -
                
                0
                %
                4.06
                %
                
                13
                
                0
                %
                3.94
                %
                
                61
                
                0
                %Total
                
                
                
                189,806
                
                59
                %
                
                
                
                169,036
                
                56
                %
                
                
                
                120,087
                
                51
                %Total
                    Deposits
                
                
                $
                320,059
                
                100
                %
                
                
                $
                296,387
                
                100
                %
                
                
                $
                237,131
                
                100
                %
 
 
 20
  As
                    of June 30,2003Average
                
                
                
                
                
                PercentInterest
                
                
                
                
                
                of
                    TotalRate
                
                
                Amount
                
                
                Deposits(Dollars
                    in Thousands)NOW
                0.31
                %
                $
                32,806
                
                
                14
                %Savings
                0.80
                %
                
                17,458
                
                
                7
                %Money
                    Market
                1.31
                %
                
                37,512
                
                
                16
                %Non-interestbearing
                    demand
                0.00
                %
                
                24,651
                
                
                11
                %Total
                
                
                
                112,427
                
                
                48
                %Certificates
                    of Deposit: (fixed-rate, fixed-term)1-11
                    months
                3.04
                %
                
                70,009
                
                
                30
                %12-23
                    months
                3.39
                %
                
                26,161
                
                
                11
                %24-35
                    months
                3.02
                %
                
                5,552
                
                
                2
                %36-47
                    months
                3.14
                %
                
                5,187
                
                
                2
                %48-59
                    months
                4.42
                %
                
                7,409
                
                
                2
                %60-71
                    months
                5.05
                %
                
                5,620
                
                
                2
                %72-95
                    months
                4.25
                %
                
                3,312
                
                
                2
                %Total
                
                
                
                123,250
                
                
                52
                %Total
                    Deposits
                
                
                $
                235,677
                
                
                100
                %
 21
  **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, 2005, excluding brokered deposits.
  (Dollars
                    in thousands)December
                    31, 2005Three
                    months or less
                $
                5,109Over
                    three through six months
                
                11,451Over
                    six through twelve months
                
                7,481Over
                    twelve months
                
                6,263Total
                $
                30,305
   **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 of
                  
                  As
                      ofDecember
                      31,
                  
                  June
                      30,2005
                  
                  2004
                  
                  2003
                  
                  2003(Dollars
                      in Thousands)Remaining
                      maturity:Less
                      than one year
                  $
                  72,414
                  
                  61,264
                  
                  63,290
                  
                  60,323One
                      to two years
                  
                  3,000
                  
                  12,500
                  
                  7,850
                  
                  7,350Two
                      to three years
                  
                  16,650
                  
                  3,000
                  
                  10,500
                  
                  6,500Three
                      to four years
                  
                  386
                  
                  16,650
                  
                  1,000
                  
                  3,000Four
                      to five years
                  
                  3,000
                  
                  386
                  
                  14,950
                  
                  3,950Over
                      five years
                  
                  4,550
                  
                  6,200
                  
                  11,247
                  
                  33,496Total
                  $
                  100,000
                  
                  100,000
                  
                  108,837
                  
                  114,619Weighted
                      average rate at end of period
                  
                  4.55
                  %
                  3.62
                  %
                  3.58
                  %
                  4.14
                  %For
                      the period:Average
                      balance
                  $
                  111,104
                  
                  111,169
                  
                  101,841
                  
                  108,020Average
                      interest rate
                  
                  4.04
                  %
                  3.17
                  %
                  4.17
                  %
                  5.22
                  %Maximum
                      outstanding as of any month end
                  $
                  132,000
                  
                  120,086
                  
                  109,496
                  
                  114,619
  22
 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 for [$465,000], 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 intends to use the proceeds of the sale of the Trust Preferred
        Securities for general corporate purposes which may include investment in
        the
        Bank (including funding of the Bank’s loan portfolio growth), acquisitions,
        investments, payment of dividends and repurchases of its outstanding Common
        Stock.
 
 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
                    31,2005
                
                2004
                
                2003(Dollars
                    in Thousands)Subordinated
                    debentures
                $
                15,465
                
                -
                
                -Weighted
                    average interestrate
                    of subordinated debentures
                
                6.62
                %
                -
                
                -
  23
 **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.
 
 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 2005 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. In connection
        with
        the determination of the allowance for loan losses, 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 December 31, 2005 Annual
        Report.
 
 
 24
 **Financial
                    Highlights**
                Year
                    ended
                
                Year
                    ended
                Six
                    Months Ended
                Year
                    EndedDecember
                    31,
                
                December
                    31,
                December
                    31,
                June
                    30,2005
                
                2004
                2003
                2003Dividend
                    Payout Ratio
                
                32
                %
                43
                %
                60
                %
                48
                %Return
                    on Average Assets (1)
                
                1.28
                %
                1.04
                %
                0.45
                %
                0.95
                %Return
                    on Average Equity (1)
                
                15.08
                %
                10.74
                %
                4.42
                %
                9.78
                %Stockholders'
                    Equity to Assets
                
                8.75
                %
                9.25
                %
                9.82
                %
                9.37
                %EPS
                    Diluted
                $
                2.03
                
                1.47
                
                0.52
                
                1.26Dividends
                $
                0.65
                
                0.63
                
                0.31
                
                0.60(1)
                    Annualized for six months ended December 31, 2003
  **Employees**
  Substantially,
        all of
        the activities of the Company are conducted through the Bank. As of December
        31, 2005 the
        Company has no salaried employees.
 
 As
        of
        March 8, 2006, the Bank has 105 full-time employees and 37 part-time employees.
        None of the Bank's employees are represented by a collective bargaining group.
        The Bank believes that its relationship with its employees is good.
 
 **Competition**
 
 The
        Bank
        experiences substantial competition both in attracting and retaining deposit
        accounts and in the making of mortgage and other loans.
 
 Direct
        competition for savings accounts comes from other savings institutions, credit
        unions, regional bank and thrift holding companies, and commercial banks
        located
        in its primary market area. Significant competition for the Bank's other
        deposit
        products and services comes from money market mutual funds, brokerage firms,
        insurance companies, and retail stores. The primary factors in competing
        for
        loans are interest rates and loan origination fees and the range of services
        offered by various financial institutions. Competition for origination of
        real
        estate 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.
  25
 **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, 2005, 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 2005 Annual
        Report.
 
 **Dividend
        Restrictions and Share Repurchases** . ** The
        Company’s source of cash flow (including cash flow to pay dividends to
        stockholders) is dividends paid to it by the Bank. The right of the Company
        to
        receive dividends or other distributions from the Bank is subject to the
        prior
        claims of creditors of the Bank, including depositors.
 
 26
 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.
 
 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.
 
 27
 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.
 
 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,
        2005. Applicable capital and ratio information is contained under the section
        titled “Regulatory Matters” in Note 1 to the consolidated financial statements
        in the 2005 Annual Report.
 
  28
 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”) will be 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
        the 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 will be 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 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.




29


**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 CEO. Mr. Burke was appointed president
      and CEO 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 Operations Officer of the Bank. He joined
      the
      Bank in 2005. Mr. Peters has over 13 years of experience in the financial
      services and public accounting industries. 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 also a member of the
      advisory committee for Families for Children, a project of the Council of
      Churches of the Ozarks.


**Bruce
      Winston** is
      Senior Vice President and Chief Financial Officer of the Bank. He joined the
      Bank in 1992. Mr. Winston has held the same positions with the Company since
      its
      formation in September 1997. Prior to joining the Bank, he served in various
      other capacities with two other financial institutions over a period of 20
      years. He is a graduate of Missouri State University.





As
      of
      December 31, 2005, the age of these individuals was 42 for Mr. Burke, 35 for
      Mr. Peters, and 57 for Mr. Winston.





**Item
      1A. Risk Factors**




An
      investment in shares of the Company’s common stock involves certain risks. The
      following risks and other information in this report are 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” incorporated by reference in this report,
      should be carefully considered in the evaluation of the Company before investing
      in shares of its common stock. 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
      report 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•
            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






30




**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.
 
 **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.


31




**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, four full-service branch
      offices in Springfield, 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
      maintains a network of Automated Teller Machines ("ATMs"). A total of 19 ATMs
      are located at various branches and primarily convenience stores located in
      Greene Christian Counties in Missouri. In addition, the Bank is a member of
      the
      Privileged Status ATM network, which provides its customers surcharge free
      access to over 60 area ATMs and over 1,000 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, 2005, there were no claims or lawsuits pending or
      known
      to be contemplated against the Company or the Bank that would have had a
      material effect on the Company or the Bank.




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





Not
      applicable.





**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, 2005.


**PART
        II**
 
 **Item
        5. Market for Registrant's Common Equity****,****Related Stockholder Matters****and Issuer Purchases of Equity Securities**
 
 The
        information contained
        in the section captioned “Common Stock Prices and Dividends” on page
        1 of the 2005 Annual Report is incorporated herein by reference. Information
        under the section captioned “Cash Dividends Paid” on pages 12 and 13 of the
        2005 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.


32




**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, 2005.


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, 2005 to October 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            69,016November
                1, 2005 to November 30, 2005
            
            
            18,473
            
            
            27.45
            
            
            18,473
            
            
            50,543December
                1, 2005 to December 31, 2005
            
            
            12,000
            
            
            27.88
            
            
            12,000
            
            
            38,543Total
            
            
            30,473
            
            
            27.62
            
            
            30,473




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





The
      information included under the caption “Junior Subordinated Debentures” in Item
      1 of Part 1 of this Report, as such information 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.





33


**Item
      6. Selected Financial Data**





The
      information contained on pages 3 and 4 under the section captioned “Selected
      Consolidated Financial and Other Data” of the 2005 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 5 through 22 under
      the section captioned “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations” of
      the
      2005 Annual Report is incorporated herein by reference.





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





The
      information contained on pages 16 and 17 under
      the sections captioned “Asset/Liability Management” and “Interest Rate
      Sensitivity Analysis” of the 2005 Annual Report is incorporated herein by
      reference.





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





The
      financial statements set forth on pages 23 to 54 of the
      2005 Annual Report and
      the
      financial information contained under the section captioned “Summary of
      Unaudited Quarterly Operating Results” set forth on page 22 of the
      2005 Annual Report is
      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
      design and operation of the Company’s disclosure controls and procedures. Based
      on the foregoing evaluation, the Company’s Chief Executive Officer and Chief
      Financial Officer concluded that the Company’s disclosure controls and
      procedures were effective as of December 31, 2005.





(b)
      There
      have been no changes in the Company’s internal control over financial reporting
      during the fourth quarter ending December 31, 2005 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.





34





**PART
      III**





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





The
      information contained under the section captioned "First Proposal: Election
      of
      Directors" on
      pages
      3 to 5 (excluding any information contained under the section captioned
“Meetings and Committees of the Board of Directors”) of the
      Proxy Statement is incorporated herein by reference.





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





The
      information required by Item 10 regarding an audit committee financial expert
      and the identification of audit committee members is contained under the section
      captioned “Report of the Audit Committee” of the Proxy Statement and is
      incorporated herein by reference.





Additional
      information required
      by this item is contained (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 sections
      captioned "Directors Compensation", “Compensation Committee Interlocks and
      Insider Participation”, “Summary Compensation Table” , “Employment
      Agreements” ,
“Option
      Grants During 2005 Fiscal Year”, and
“Aggregated Option Exercises in
      the
      Last Fiscal Year and
      Fiscal Year End Option
      Values” 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 .





35


**Equity
                  Compensation Plan Information****(c)****Number
                  of securities****remaining
                  available****(a)**
              
              **(b)**
              
              **for
                  future issuance****Number
                  of securities to be**
              
              **Weighted-average**
              
              **under
                  equity****issued
                  upon exercise of**
              
              **exercise
                  price of**
              
              **compensation
                  plans****outstanding
                  options,**
              
              **outstanding
                  options,**
              
              **(excluding
                  securities****Plan
                  category**
              
              **warrants
                  and rights**
              
              **warrants
                  and rights**
              
              **reflected
                  in column (a))**Equity
                  compensation plans
              
              
              305,001
              
              
              15.56
              
              
              230,000approved
                  by security holdersEquity
                  compensation plans notapproved
                  by security holders
              
              
              34,875
              
              
              16.50
              
              
              1,498Totals
              
              
              339,876
              
              
              15.66
              
              
              231,498




**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, 2005, 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. If, however, a previously issued
      award expires, becomes unexercisable, or is forfeited prior to its exercise,
      then new awards may be granted under the plan for the number of shares which
      were subject to such expired or forfeited awards.







36


**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 andbecome
        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
        restrictedshares
        of
        the Company’s common stock. As of December 31, 2005, 2,047 of the shares in this
        plan are not vested.Nooptionshave
        beengrantedunderthis
        plan.
        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 which expire, become unexercisable, or are forfeited prior
        to
        their exercise may be granted as new awards for the number of shares which
        were
        subject to such expired or forfeited awards.
  **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**





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




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





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


**PART
        IV**
 **Item
        15.****Exhibits and Financial Schedules**
 
  1.  The
        following financial statements and the report of independent registered public
        accounting firm included in the 2005 Annual Report are filed as part of this
        Report and incorporated herein by reference.


37





Report
      of
      Independent Registered Public Accounting Firm





Consolidated
      Balance Sheets as of December
      31, 2005, 2004 and 2003.





Consolidated
      Statements of Income for the Years Ended December 31, 2005 and 2004, the Six
      Months Ended December 31, 2003 and 2002 and the Year
      Ended June 30, 2003.





Consolidated
      Statements of Stockholders' Equity for
      the
      Years Ended December 31, 2005 and 2004, the Six Months Ended December 31, 2003
      and  the
      Year
      Ended June 30, 2003.





Consolidated
      Statements of Cash Flows for
      the
      Years Ended December 31, 2005 and 2004, the Six Months Ended December 31, 2003
      and 2002 and the Year
      Ended June 30, 2003.





Notes
      to
      Consolidated Financial Statements.





38


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


Exhibit


Number    Exhibit
      Description





3(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
      of Change
      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)


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
                *


10.19
            Written
                Description of Compensatory Arrangement with Chief Operating Officer
                *(15)


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 2005 Annual
                  Report.
 13
              Annual
                Report to Stockholders for the fiscal period endedDecember
                31,2005
                (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, LLP




39


31.1
            Certification
                of the Principal Executive Officer pursuant to Rule 13a-14(a) of
                the
                Exchange Act


31.2
            Certification
                of the Principal Financial Officer pursuant to Rule 13a-14(a) of
                the
                Exchange Act


32.1
            CEO
                certification pursuant to Rule 13a-14(b) of the Exchange Act and18
                U.S.C. Section 1350, as adopted****pursuant
                toSection
                906 of the Sarbanes-Oxley Act


32.2
            CFO
                certification pursuant to Rule 13a-14(b) of the Exchange Act and18
                U.S.C. Section 1350, as adopted****pursuant
                toSection
                906 of the Sarbanes-Oxley Act





*
      Management contract or compensatory plan or arrangement








_____________________


(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.








40





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





**GUARANTY
      FEDERAL BANCSHARES, INC.**





Date: 
                March 31, 2006
              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/  Bruce WinstonShaun
                    A. BurkePresident and Chief Executive Officer and
                    Director
                  (Principal
                    Executive Officer)
                  
                  Date: 
                    March 31, 2006
                
                
                Bruce
                    WinstonSVP/Chief Financial Officer
                  (Principal Accounting and Financial
                    Officer)
                  
                  Date:  March 31,
                    2006
 By:
                  /s/  Don
                  M. Gibson
                
                
                By:
                  /s/  Jack
                  L. BarhamDon
                    M.
                    GibsonChairman
                    of
                    the Board and Director
                  Date: 
March
                    31, 2006
                
                
                Jack
                    L.
                    BarhamDirector
                  
                  Date:  March 31,
                    2006
 By:
                  /s/ Wayne V.
                  Barnes
                
                
                By:
                  /s/ Gary
                  LipscombWayne
                    V. BarnesDirector
                  
                  March 31, 2006
                
                
                Gary
                    LipscombDirector
                  
                  March 31, 2006
 By:
                  /s/
                  Greg V. Ostergren
                
                
                By:
                  /s/ Kurt D.
                  HellwegGreg
                    V.
                    Ostergren
                  Director
                  
                  Date:  March 31, 2006
                
                
                Kurt
                    D.
                    HellwegDirector
                  
                  Date:  March 31,
                    2006
 By:
                  /s/ Tim
                  Rosenbury
                
                
                By:
                  /s/ James L.
                  Sivils, IIITim
                    RosenburyDirector
                  
                  Date:  March 31, 2006
                
                
                James
                    L. Sivils, IIIDirector
                  
                  Date:  March 31,
                    2006
 41