**UNITED STATES**


**SECURITIES AND EXCHANGE COMMISSION**


**Washington, D.C. 20549**


**_____________**


**FORM 10-K**


**FOR ANNUAL AND TRANSITION REPORTS**


**PURSUANT TO SECTIONS 13 OR 15(d) OF THE**


**SECURITIES EXCHANGE ACT OF 1934**





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





For the fiscal year ended June 30, 2003





- or -




o
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 or Organization)

(I.R.S. Employer Identification No.)





1341 West Battlefield, Springfield, Missouri

65807(Address of Principal Executive Offices)

(Zip Code)





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





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





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





Common Stock, par value $.10 per share


(Title of Class)





Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o





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





Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).


YES o  NO x





The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the average bid and asked prices of the Registrant's Common Stock as quoted on the National Market of The Nasdaq Stock Market on December 31, 2002, was $37.9 million. As of September 26, 2003 there were 2,991,917 shares of the Registrant's Common Stock outstanding.











DOCUMENTS INCORPORATED BY REFERENCE




1. Portions of the Annual Report to Stockholders  (the "2003 Annual Report")  for the fiscal year ended June 30, 2003 (Parts I and II).


2. Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on October 22, 2003 (Part III).








2




GUARANTY FEDERAL BANCSHARES, INC.





Form 10-K





TABLE OF CONTENTS





Item

Page**PART I**1.
Business
52.
Properties
243.
Legal Proceedings
244.
Submission of Matters to a Vote of Security Holders
24**PART II**5.
Market for Registrant's Common Equity and Related Stockholder Matters
236.
Selected Financial Data
237
Management's Discussion and Analysis of Financial Condition and Results of Operations
237A.
Quantitative and Qualitative Disclosures About Market Risk
258.
Financial Statements and Supplementary Data
259
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
259A.
Controls and Procedures
25**PART III**10.
Directors and Executive Officers of the Registrant
2611.
Executive Compensation
2612.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
2713.
Certain Relationships and Related Transactions
2714.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
27Signatures


3





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





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







THE COMPANY CAUTIONS THAT THE LISTED FACTORS ARE NOT EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.




4






PART I





Item 1. Business





Business of the Company





The Company is a Delaware-chartered corporation that was created in September 1997 at the direction of Guaranty Federal Savings Bank (the "Bank"). The Company became a unitary savings and loan holding company for the Bank on December 30, 1997, in connection with a plan of conversion and reorganization involving the Bank and its then existing mutual holding company. The mutual holding company structure had been created in April 1995 at which time more than a majority of the shares of the Bank were issued to the mutual holding company and the remainder were sold in a public offering. In connection with the conversion and reorganization on December 30, 1997, the shares of the Bank held by the mutual holding company were extinguished along with the mutual holding company and the shares of the Bank held by the public were exchanged for shares of the Company. Shares of the Company were issued on December 30, 1997.





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





Business of the Bank





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





On December 6, 2001, the Bank completed its acquisition of the Springfield branch offices of Commercial Federal Bank. The Bank acquired approximately $15.5 million in selected consumer and home equity loans and assumed approximately $41.2 million in deposit liabilities. The Bank also assumed the leases and acquired the equipment at all but one of the branches. The acquired locations are located in Dillons Supermarkets in Springfield. The transaction increased the number of "in-store" locations from one to five and total locations from five to nine.





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").




5


Market Area


The Bank's primary market area is Greene County, which is in the southwestern corner of of  Missouri and includes the city of Springfield,  Missouri. There is a large regional health care presence with two large regional hospitals employing over 14,000. There also are four accredited colleges and one major university with total enrollment approaching 25,000. Part of Greene County's growth can be attributed to its proximity to Branson, Missouri, which has developed a strong tourism industry related to country music and entertainment. Branson is located 30 miles south of Springfield, and receives between five and six million tourists each year, many of whom pass through Springfield.




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 PortfolioAs of June 30,2003

2002

2001

2000

1999$

%

$

%

$


%

$


%

$
%(Dollars in Thousands)Mortgage loans (includes loans held for sale):One to four family

$
144,404


40
%

149,443


44
%

189,436


55
%

198,155


63
%

178,680


63
%Multi-family


41,022


11
%

44,055


13
%

42,641


12
%

39,146


12
%

35,795


13
%Construction


64,464


18
%

49,807


15
%

55,317


16
%

41,372


13
%

38,605


14
%Commercial real estate


71,046


19
%

58,434


17
%

43,893


13
%

26,559


9
%

20,771


7
%Total mortgage loans


320,936


88
%

301,739


89
%

331,287


96
%

305,232


97
%

273,851


97
%Commercial business loans


18,967


5
%

8,358


2
%

5,511


1
%

761


0
%

544


0
%Share loans


282


0
%

367


0
%

273


0
%

461


0
%

573


0
%Automobile


3,438


1
%

3,395


1
%

2,260


1
%

1,941


1
%

2,016


1
%Other


21,766


6
%

27,313


8
%

8,040


2
%

7,118


2
%

5,389


2
%Total consumer and other loans


44,453


12
%

39,433


11
%

16,084


4
%

10,281


3
%

8,522


3
%Total loans


365,389


100
%

341,172


100
%

347,371


100
%

315,513


100
%

282,373


100
%Less:Loans in process


25,539





18,326





24,212





16,668





15,466Deferred loan fees/costs, net


211





230





268





164





180Unearned discounts


26





50





88





108





109Allowance for loan losses


2,775





2,650





2,697





2,520





2,349Total Loans, Net

$
336,838





319,916





320,106





296,053





264,269





The following table sets forth the dollar amount, before deductions for unearned discounts, deferred loan costs and allowance for loan losses, as of June 30, 2003 of all loans due after June 2004, which have pre-determined interest rates and which have adjustable interest rates.




Fixed Rates
AdjustableRates
Total(Dollars in Thousands)One-to four-family

$
36,804


98,786

$
135,590Multi-family


16,585


22,126


38,711Construction


121


10,464


10,585Commercial real estate


21,027


35,611


56,638Consumer & other loans


13,259


15,854


29,113Total loans (1)

$
87,796

$
182,841

$
270,637(1)   Before deductions for unearned discounts, deferred loan fees/costs, net and allowances for loan losses.





The following table sets forth the maturity of the Bank's loan portfolio as of June 30, 2003. The table shows loans that have adjustable-rates as due in the period during which they contractually mature. The table does not include prepayments or scheduled principal amortization.





7




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

$
8,804


9,904


125,686


144,394Multi family


2,311


15,243


23,468


41,022Construction


31,318


10,584


-


41,902Commercial real estate


11,441


36,605


20,033


68,079Consumer and other loans


15,339


9,490


19,624


44,453Total loans (1)

$
69,213


81,826


188,811


339,850Less:Deferred loan fees/costs











211Unearned discounts











26Allowance for loan losses











2,775Loans receivable net










$
336,838(1) Includes mortgage loans held for sale of $9,755.





One- to Four-Family Mortgage Loans. The Bank offers fixed- and adjustable-rate first mortgage loans secured by one- to four-family residences in the Bank's primary lending area. Typically, such residences are single family homes that serve as the primary residence of the owner. However, there are a significant number of loans originated by the Bank which are secured by non-owner occupied properties. Loan originations are generally obtained from existing or past customers, members of the local community, referrals from attorneys, established builders, and realtors within the Bank's market area. Originated mortgage loans in the Bank's portfolio include due-on-sale clauses which provide the Bank with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Bank's consent.





As of June 30, 2003, $144.4 million or 40% of the Banks total loan portfolio consisted of one- to four-family residential loans, of which 69% were ARM loans. The Bank currently offers ARM and balloon loans that have fixed interest rates for one to seven years. Generally, ARM loans provide for limits on the maximum interest rate adjustment ("caps") that can be made at the end of each applicable period and throughout the duration of the loan. ARM loans are originated for a term of up to 30 years on owner-occupied properties and generally up to 25 years on non-owner occupied properties. Typically, interest rate adjustments are calculated based on U.S. treasury securities adjusted to a constant maturity of one year (CMT), plus a 2.50% to 2.75% margin. Interest rates charged on fixed-rate loans are competitively priced based on market conditions and the cost of funds existing at the time the loan is committed. The Bank's fixed-rate mortgage loans are made for terms of 15 to 30 years which are currently being sold on the secondary market.





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





The Bank generally originates both owner occupied and non-owner occupied one- to four-family residential mortgage loans in amounts up to 80% of the appraised value or the selling price of the mortgaged property, whichever is lower. The Bank may on occasion make loans up to 95% of appraised value or the selling price of the mortgage property, whichever is lower. However, the Bank typically requires private mortgage insurance for the excess percentage over 80% for mortgage loans with loan to value percentages over 80%.






8




Multi-Family Mortgage Loans. The Bank originates multi-family mortgage loans in its primary lending area. As of June 30, 2003, $41.0 million or 11% of the Bank's total loan portfolio consisted of multi-family residential loans. With regard to multi-family mortgage loans, the Bank generally requires personal guarantees of the principals as well as a security interest in the real estate. Multi-family mortgage loans are generally originated in amounts of up to 80% of the appraised value of the property. The majority of the Banks multi-family mortgage loans have been originated with adjustable rates of interest which are quoted at a spread to the  Federal Home Loan Bank of Des Moines ("FHLB")   advance rate for the initial fixed rate period with subsequent adjustments based on the Wall Street prime rate. The loan-to-one-borrower limitation, $9.2 million as of June 30, 2003, is the maximum the Bank will lend on a multi-family real estate loan.





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





Construction Loans. As of June 30, 2003, construction loans totaled $64.5 million or 18% of the Bank's total loan portfolio. Construction loans originated by the Bank are generally secured by permanent mortgage loans for the construction of owner-occupied residential real estate or to finance speculative construction secured by residential real estate or owner-operated commercial real estate. This portfolio predominantly consists of speculative loans, i.e.,  loans to builders who are speculating that they will be able to locate a purchaser for the underlying property prior to or shortly after the time construction has been completed.





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





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





Commercial Real Estate. As of June 30, 2003, the Bank has commercial real estate loans totaling $71.0 million or 19% 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.




9




To originate commercial real estate loans, the Bank generally requires a security interest in the real estate, personal guarantees of the principals, a security interest in personal property, and a standby assignment of rents and leases. The Bank has established its loan-to-one borrower limitation, which was $9.2 million as of June 30, 2003, as its maximum commercial real estate loan amount. Because of the small number of commercial real estate loans and the relationship of each borrower to the Bank, each such loan has differing terms and conditions applicable to the particular borrower.





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





As of June 30, 2003, the Banks commercial real estate loan portfolio included approximately $16.4 million in loans to develop land into residential lots. The Bank utilizes its knowledge of the local market conditions and appraisals to evaluate the development cost and estimate projected lot prices and absorption rates to assess loans on residential subdivisions. The Bank typically loans up to 80% of the appraised value over terms up to two years. Development loans generally involve a greater degree of risk than residential mortgage loans because (1) the funds are advanced upon the security of the land which has a materially lower value prior to completion of the infrastructure required of a subdivision, (2) the cash flow available for debt repayment is a function of the sale of the individual lots, and (3) the interest required to service the debt is a function of the time required to complete the development and sell the lots.





Consumer and Other Lending. The Bank also offers other loans, primarily loans secured by certificates of deposit, commercial business assets, consumer loans, home equity and automobile loans. As of June 30, 2003, the Bank has such loans totaling $44.5 million or 12% of the Banks total loan portfolio. The Bank expects to continue to expand its consumer and commercial lending as opportunities present themselves.





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





For all loans originated by the Bank, upon receipt of a completed loan application from a prospective borrower, a credit report is requested, income, assets, and certain other information are verified, and, if necessary, additional financial information is requested. An appraisal of the real estate intended to secure the proposed loan is generally required, which currently is performed by certified appraisers. It is the Bank's policy to obtain appropriate insurance protection on all real estate first mortgage loans. Borrowers generally must also obtain hazard insurance prior to closing. Borrowers generally are required to advance funds for certain items such as real estate taxes, flood insurance and private mortgage insurance, when applicable.







10




Delinquencies and Problem Assets.





Delinquent Loans . As of June 30, 2003, the Bank has six loans 90 days or more past due with a principal balance of $330,971 and thirty one loans between 30 and 89 days past due with total principal balances of $1,236,262. The Bank generally does not accrue interest on loans past due more than 90 days.





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







Delinquency Summary

As of June 30,2003
2002
2001
2000
1999(Dollars in Thousands)Loans contractually past maturity or past due 90 days or more andaccounted for on a non-accrual basis:Mortgage Loans:One- to four-family

$
331


154


444


13


110Multi-family


-


-


-


-


-Construction


-


-


1,065


84


-Commercial real estate


-


-


668


-


-331


154


2,177


97


110Non-mortgage loans:Commercial loans


-


-


109


-


-Consumer and other loans


-


37


18


-


--


37


127


-


-Total non-accrual loans


331


191


2,304


97


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


-


-


-


152


-Multi-family


-


-


-


-


-Construction


-


-


-


-


102Commercial real estate


-


-


-


-


--


-


152


102Non-mortgage loans:


-Commercial loans


-


-


-


-


-Consumer and other loans


-


-


-


-


--


-


-


-


-Total past maturity or past due accruing loans


-


-


-


152


102Total contractually past maturity or 90 days or more past due

$
331


191


2,304


249


212Total contractually past maturity or 90 days or more past due as a percentage of net loans


0.10
%

0.06
%

0.73
%

0.08
%

0.08
%Total contractually past maturity or 90 days or more past due as a percentage of total assets


0.08
%

0.05
%

0.62
%

0.07
%

0.07
%





11





Non-Performing Assets . Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of all interest at contractual rates is doubtful. Mortgage loans are placed on non-accrual status generally when either principal or interest is more than 90 days past due. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.





Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is deemed a foreclosed asset held for sale until such time as it is sold. When a foreclosed asset held for sale is acquired it is recorded at its estimated fair value, less estimated selling expenses. Valuations are periodically performed by management, and any subsequent decline in fair value is charged to operations.





The following table shows the principal amount of non-performing assets and the resulting impact on interest income for the periods then ended.





Non-Performing Assets

As of June 30,2003


2002


2001


2000


1999Non-accrual loans:

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

$
331


659


1,358


578


151Multi-family


-


-


-


441


751Construction


-


-


2,115


84


-Commercial real estate


-


1,017


1,396


3,652


-331


1,676


4,869


4,755


902Non-mortgage loans:Commercial loans


-


-


60


-


-Consumer and other loans


-


75


19


2


4-


75


79


2


4Total non-accrual loans


331


1,751


4,948


4,757


906Real estate and other assets acquired in settlement of loans


182


683


4


2


102Non-performing loans classified as in-substanceforeclosures


-


-


-


-


-Total non-performing assets

$
513


2,434


4,952


4,759


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


0.10
%

0.55
%

1.55
%

1.61
%

0.34
%Total non-performing assets as a percentage of total assets


0.13
%

0.65
%

1.32
%

1.39
%

0.32
%Impact on interest income for the period:Interest income that would have been recorded on non-accruing loans

$
13


21


179


47


10








12




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





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 deterioriates the loans would merit a Substandard classification.





The following table shows the aggregate amounts of the Bank's classified assets as of June 30, 2003.




Classification of Assets

Special Mention
Substandard
Doubtful
LossNumber

Amount

Number

Amount

Number

Amount

Number

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


14

$
581


10

$
927


-

$
-


-

$
-Multi-family


-


-


-


-


-


-


-


-Construction


1


352


4


393


-


-


-


-Commercial real estate


3


991


-


-


-


-


-


-Land


-


-


1


121


-


-


-


-Other loans


3


76


10


264


-


-


-


-Total loans


21


2,000


25


1,705


-


-


-


-Foreclosed assets held-for-sale:One- to four-family


-


-


3


171


-


-


-


-Land and other assets


-


-


2


11


-


-


-


-Total foreclosed assets


-


-


5


182


-


-


-


-Total


21

$
2,000


30

$
1,887


-

$
-


-

$
-





As of June 30, 2003, foreclosed assets held for sale consists of two cars and three single-family houses. Single family houses collaterize the other non-accrual loans.


13





Allowance for Loan Losses





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





As of June 30, 2003 the Bank's total allowance for loan losses was $2.8 million or 0.76% of total loans. This allowance reflects not only management's determination to maintain an allowance for loan losses consistent with regulatory expectations for non-performing assets, but also reflects the Bank's policy of evaluating the risks inherent in its loan portfolio, and the regional economy.





For fiscal years 1999 through 2003, the Bank experienced loan charge offs in excess of recoveries, and based on the loan portfolio review discussed above, elected to add to the allowance through a provision for loan loss, as shown in the table below. Management anticipates the need to continue adding to the allowance through charges to provision for loan losses as anticipated growth in the loan portfolio or other circumstances warrant.











14





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




Allowance for Loan Losses

Year Ended June 30,2003


2002


2001


2000


1999(Dollars in Thousands)Beginning balance

$
2,650


2,697


2,520


2,349


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


(358
)

(52
)

(5
)

-


-Multi-family


-


-


-


-


-Construction


(11
)

(235
)

-


-


(3
)Commercial real estate


-


(23
)

(115
)

-


-(369
)

(310
)

(120
)

-


(3
)Non-mortgage loans:Commercial loans


-


-


-


-


-Consumer and other loans


(168
)

(28
)

(13
)

(9
)

(26
)(28
)

(13
)

(9
)

(26
)Total charge offs


(537
)

(338
)

(133
)

(9
)

(29
)RecoveriesMortgage Loans:One- to four-family


19


-


-


-


-Multi-family


-


-


-


-


-Construction


6


-


-


-


-Commercial real estate


-


-


-


-


-25


-


-


-


-Non-mortgage loans:Commercial loans


-


-


-


-


7Consumer and other loans


27


-


-


-


-27


-


-


-


7Total recoveries


52


-


-


-


7Net loan charge-offs


(485
)

(338
)

(133
)

(9
)

(22
)Provision for loan losses charged to expense


610


291


310


180


180Ending balance

$
2,775


2,650


2,697


2,520


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


0.15
%

0.10
%

0.04
%

0.00
%

0.01
%Allowance for loan losses as a percentage of average loans, net


0.85
%

0.82
%

0.87
%

0.89
%

1.00
%Allowance for loan losses as a percentage of total non-performing loans


838
%

151
%

55
%

53
%

259
%




15





Allocation of Allowance for Loan Losses





The following table shows the amount of the allowance allocated to each loan category and the percent of that loan category to total loans.





As of June 30,2003
2002
2001
2000
1999Amount

%

Amount

%

Amount

%

Amount

%

Amount

%(Dollars in thousands)Mortgage Loans

$
2,442


88
%
$
2,358


89
%
$
2,562


95
%
$
2,439


97
%
$
2,341


100
%Consumer and other loans


333


12
%

292


11
%

135


5
%

81


3
%

8


0
%Total

$
2,775


100
%
$
2,650


100
%
$
2,697


100
%
$
2,520


100
%
$
2,349


100
%





Investment Activities





The investment policy of the Company, which is established by the Board of Directors and reviewed by the Investment Committee, is designed primarily to provide and maintain liquidity, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement the Bank's lending activities. The policy currently provides for held-to-maturity and available-for-sale portfolios. The Company has adopted an investment policy which strictly prohibits speculation in investment securities. The Company does not currently engage in trading investment securities and does not anticipate doing so in the future. As of June 30, 2003, the Company has investment securities with a carrying value of $15.5 million and an estimated fair value of $15.7 million. Of those securities $13.3 million, or 86%, of the Companys investment securities portfolio are available-for-sale.





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





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




Investment Securities

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

$
80,294


4,082,846


-


4,163,140Other stock


2,000,000


-


(324,000
)

1,676,000Debt Securities:Trust preferred securities


6,550,357


-


(615,889
)

5,934,468U. S. government agencies


1,497,618


-


(79
)

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


263,781


952


-


264,733Mortgage-backed securities


1,987,113


149,541


-


2,136,654$
12,379,163


4,233,339


(939,968
)

15,672,534




16




Investment Securities

Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Approximate Fair ValueAs of June 30, 2002AVAILABLE-FOR-SALE SECURITIES:Equity Securities:FHLMC stock

$
80,294


5,044,706


-


5,125,000Other stock


2,000,000


-


(48,000
)

1,952,000Debt Securities:Trust preferred securities


6,536,781


-


(316,937
)

6,219,844U. S. government agencies


2,993,109


632


-


2,993,741Mortgage-backed securities


174,563


-


(1,688
)

172,875HELD-TO-MATURITY SECURITIES:U. S. government agencies


301,139


3,629


-


304,768Mortgage-backed securities


2,917,952


204,033


(5,007
)

3,116,978$
15,003,838


5,253,000


(371,632
)

19,885,206Investment Securities


AmortizedCost


GrossUnrealizedGains


GrossUnrealized(Losses)


Approximate Fair ValueAs of June 30, 2001AVAILABLE-FOR-SALE SECURITIES:Equity Securities:FHLMC stock

$
91,063


6,237,587


-


6,328,650Other stock


2,653,339


142,061


(350
)

2,795,050Debt Securities:Trust preferred securities


6,523,205


-


(104,405
)

6,418,800U. S. government agencies


1,993,423


2,896


-


1,996,319Mortgage-backed securities


1,919,871


-


(10,798
)

1,909,073HELD-TO-MATURITY SECURITIES:U. S. government agencies


405,369


3,337


-


408,706Mortgage-backed securities


4,140,497


165,426


(13,371
)

4,292,552$
17,726,767


6,551,307


(128,924
)

24,149,150




17




Composition of Investment Portfolio





The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of the Bank's investment securities portfolio as of June 30, 2003:





Investment Portfolio Maturities and Average Weighted Yields

Amortized Cost
Weighted Average Yield
Approximate Fair ValueDue after one through five years

$
1,497,618


1.20
%
$
1,497,539Due after ten years (1)


6,814,138


1.82
%

6,199,201Equity securities not due on a single maturity date


2,080,294


0.00
%

5,839,140Mortgage-backed securities not due on a single maturity date


1,987,113


7.68
%

2,136,654$
12,379,163


2.38
%
$
15,672,534(1)  Consists of government agency and trust preferred securities





18


Sources of Funds





General . The Company's primary sources of funds are deposits, borrowings, amortization and prepayments on loans and mortgage-backed securities.





Deposits. The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank's deposits principally consist of fixed-term certificates, passbook savings, money market, individual retirement accounts, and NOW (checking) accounts. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, local competition, and competition from non-bank financial service providers. The Bank's deposits are typically obtained from the areas in which its offices are located. The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain these deposits.





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





Deposit Accounts Types





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




As of June 30,2003
2002
2001Average

Percent
Average

Percent
Average

PercentInterest

of Total
Interest

of Total
Interest

of TotalRate
Amount
Deposits
Rate
Amount
Deposits
Rate
Amount
Deposits(Dollars in Thousands)NOW


0.31
%
$
32,806


14
%

0.79
%
$
29,386


13
%

1.49
%
$
22,612


13
%Savings


0.80
%

17,458


7
%

1.65
%

17,770


8
%

1.98
%

7,578


4
%Money Market


1.31
%

37,512


16
%

2.07
%

34,889


16
%

3.70
%

21,497


13
%Non-interestbearing demand


0.00
%

24,651


11
%

0.00
%

11,657


5
%

0.00
%

8,110


5
%Total





112,427


48
%




93,702


42
%




59,797


35
%Certificates of Deposit: (fixed-rate, fixed-term)1-11 months


3.04
%

70,009


30
%

3.59
%

76,382


34
%

5.38
%

70,605


41
%12-23 months


3.39
%

26,161


11
%

4.45
%

33,889


15
%

5.05
%

20,158


12
%24-35 months


3.02
%

5,552


2
%

5.05
%

10,076


4
%

5.32
%

14,994


9
%36-47 months


3.14
%

5,187


2
%

5.33
%

1,926


1
%

6.19
%

3,453


2
%48-59 months


4.42
%

7,409


2
%

5.35
%

4,744


2
%

6.02
%

795


0
%60-71 months


5.05
%

5,620


2
%

5.35
%

4,565


2
%

5.91
%

1,998


1
%72-95 months


4.25
%

3,312


2
%

0.00
%

-


0
%

0.00
%

-


0
%Total





123,250


52
%




131,582


58
%




112,003


65
%Total Deposits




$
235,677


100
%



$
225,284


100
%



$
171,800


100
%







19





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





The following table indicates the approximate amount of the Bank's certificate accounts of $100,000 or more by time remaining until maturity as of June 30, 2003.




As of June 30, 2003(Dollars in Thousands)Three months or less

$
3,095Over three through six months


2,316Over six through twelve months


2,721Over twelve months


4,126Total

$
12,258





Borrowings





Deposits are the primary source of funds for the Bank's lending activities and other general business purposes. However, during periods when supply of lendable funds cannot meet the demand for such loans, the FHLB System makes available, subject to compliance eligibility standards, a portion of the funds necessary through loans (advances) to its members. The following table presents certain data for Federal Home Loan Bank advances as of June 30 of each year presented.





Selected Data for Federal Home Loan Bank Advances2003
2002
2001(Dollars in Thousands)Remaining maturity as of June 30:Less than one year

$
60,323


13,334


54,401One to two years


7,350


26,322


9,690Two to three years


6,500


5,350


31,114Three to four years


3,000


6,500


6,285Four to five years


3,950


3,000


9,587Over five years


33,496


56,577


35,580Total

$
114,619


111,083


146,657Weighted average rate as of June 30


4.14
%

5.38
%

5.99
%For the year ended June 30:Average balance

$
108,020


126,534


155,325Average interest rate


5.22
%

5.56
%

6.21
%Maximum outstanding as of any month end

$
114,619


144,711


171,006





Subsidiary Activity





The Bank is a subsidiary of the Company. The Bank has one service corporation subsidiary, Guaranty Financial Services of Springfield, Inc. The Bank has an investment of $22,000 in its service corporation as of June 30, 2003. The service corporation , which has been inactive since February 1, 2003, had agreements with third party providers for the sale of securities and casualty insurance products.





Other information about the Companys business segments is contained the section captioned "Segment Information" in Note 1 to the consolidated financial statements in the 2003 Annual Report.  This information is incorporated herein by reference  .




20




Critical Accounting Policies





"Managements Discussion and Analysis of Financial Condition and Results of Operations" 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 of the  c onsolidated financial statements in the 2003 Annual Report  .




21




Financial HighlightsYear Ended June 30,2003


2002


2001Dividend Payout Ratio


48
%

63
%

61
%Return on Average Assets


0.95
%

0.93
%

0.92
%Return on Average Equity


9.78
%

7.63
%

6.20
%Stockholders' Equity to Assets


9.37
%

9.40
%

13.42
%





Employees





Substantially, all of the activities of the Company are conducted through the Bank. As of June 30, 2003 the Company has no salaried employees.





As of September 12, 2003, the Bank has 88 full-time employees and 50 part-time employees. None of the Bank's employees are represented by a collective bargaining group. The Bank believes that its relationship with its employees is good.





Competition





The Bank experiences substantial competition both in attracting and retaining deposit accounts and in the making of mortgage and other loans.





Direct competition for savings accounts comes from other savings institutions, credit unions, regional bank and thrift holding companies, and commercial banks located in its primary market area. Significant competition for the Bank's other deposit products and services comes from money market mutual funds, brokerage firms, insurance companies, and retail stores. The primary factors in competing for loans are interest rates and loan origination fees and the range of services offered by various financial institutions. Competition for origination of real estate loans normally comes from commercial banks, savings institutions, mortgage bankers, mortgage brokers, and insurance companies.





The Bank's primary competition comprises the financial institutions near each of the Bank's offices. In the Springfield metropolitan area, where the Bank's main office and branch offices are located, primary competition consists of 25 commercial banks, 13 credit unions, and 1 savings institution.





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





Regulation





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





22





Company Regulation





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








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





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





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





As of June 30, 2003, the Company and the Bank met their minimum capital adequacy guidelines, and the Bank was categorized as well capitalized. Applicable capital and ratio information is contained under the section titled "Regulatory Matters" in Note 1 to the consolidated financial statements in the 2003 Annual Report.





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





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





23




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





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





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





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





Regulation of the Bank





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





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





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





24




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





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





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





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





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





Anti-Terrorism Legislation . The USA Patriot Act of 2001 contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. U.S. financial institutions are required to adopt policies and procedures to combat money laundering  an  d 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.





Legislative and Regulatory Initiatives





25




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




















Executive Officers of the Registrant





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





Don M. Gibson has been President and Chief Executive Officer of the Company and the Bank since January 2002. Prior to joining the Company, Mr. Gibson was a retired banking executive. From March 2000 to July 2000 Mr. Gibson was President of Sinclair National Bank, Gravette, Arkansas. Prior to that, Mr. Gibson was at Great Southern Bank, a subsidiary of Great Southern Bancorp, Inc., Springfield, Missouri, holding various positions since September 1975 with his last being Vice Chairman.





William B. Williams joined the Bank in 1995 as Executive Vice President and Chief Operating Officer. Mr. Williams has held the same positions with the Company since its formation in September 1997. Prior to joining the Bank, Mr. Williams worked as a consultant to Midland Loan Services, L.P., a commercial mortgage banker in Kansas City, Missouri. From 1987 to 1994, Mr. Williams worked for North American Savings Bank in Grandview, Missouri, most recently as Executive Vice President and Chief Financial Officer. Mr. Williams received a BSBA degree from the University of Arkansas in 1969 and after serving as an officer in the U.S. Navy, he received a MBA degree from Tulane University in 1974. He is a CPA.





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





As of June 30, 2003, the years of age of these individuals was 59 for Mr. Gibson, 56 for Mr. Williams and 55 for Mr. Winston.





Item 2. Properties





The offices of the Company are located in the main office of the Bank.





The Bank's office facilities currently consist of the main office in Springfield, Greene County, Missouri, three full-service branch offices in Springfield, four in-store branches located in the Dillons Supermarkets in Springfield and one in-store branch located in the Walmart Supercenter in Nixa, Christian County, Missouri. The Bank has a relatively new main office building, which provides the Bank with a modern office for customer services and projects a favorable image for the Bank in the local marketplace.





Item 3. Legal Proceedings








(a)  Litigation





The Company and the Bank, from time to time, may be parties to ordinary routine litigation, which arises in the normal course of business, such as claims to enforce liens, and condemnation proceedings, on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the business of the Company and the Bank. As of June 30, 2003, there were no claims or lawsuits pending or known to be contemplated against the Company or the Bank that would have had a material effect on the Company or the Bank.




26







(b)  Proceedings Terminated During the Fourth 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 fourth quarter of the fiscal year ended June 30, 2003.








PART II





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





The information contained in the section captioned "Common Stock Prices and Dividends" on page 1 of the Annual Report to Stockholders of the Registrant for the fiscal year ended June 30, 2003 (the "2003 Annual Report") is incorporated herein by reference.  Information under the section captioned "Cash  Dividends  Paid"  on pages 9 and 10 of the 2003 Annual Report is incorporated herein by reference.





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





Item 6. Selected Financial Data





The information contained on page 3 of the 2003 Annual Report is incorporated herein by reference.





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





The information contained on pages 4 through 14 of the 2003 Annual Report is incorporated herein by reference.





Item 7A. Quantitative and Qualitative Disclosures About Market Risk





The information contained on pages 11 and 12 under the sections captioned "Asset/Liability Management" and "Interest Rate Sensitivity Analysis" of the 2003 Annual Report is incorporated herein by reference.





Item 8.Financial Statements and Supplementary Data





The financial statements set forth on pages 16 to 42 of the 2003 Annual Report   and the  financial information contained under the section captioned  "Summary of Unaudited Quarterly Operating Results" set forth on page 15 of the 2003 Annual Report  are incorporated herein by reference.





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





Not applicable.





Item 9A. Controls and Procedures





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




27




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 June 30, 2003.





(b) There have been no changes in the Companys internal control over financial reporting during the fiscal quarter ending June 30, 2003 that have materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.





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 for the Annual Meeting of Stockholders to be held  on  October 22, 2003 (the "Proxy Statement") is incorporated herein by reference.





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








Item 11.Executive Compensation





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





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





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





28




**Equity Compensation Plan Information**
****
****
****
********
****
****
****
**(c)******
****
****
****
**Number of securities******
****
****
****
**remaining available******
****
**(a)**
**(b)**
**for future issuance******
****
**Number of securities to be**
**Weighted-average under**
**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 approved by security holders


353,101


12.79


67,063Equity compensation plans not approved by security holders


17,875


10.50


14,761Totals


370,976


12.68


81,824






Description of Stock Plans Not Approved by Stockholders





2000 Stock Compensation Plan . During the year ended June 30, 2000, the directors of the Company established the Stock Compensation Plan (the "2000 SCP") with both a stock award component and a stock option component.  A committee of the Banks Board of Directors (the "Committee") administers this plan and the 2001 SCP (discussed below). Stock options awarded under the plan are considered non-qualified for federal income tax purposes. Officers, directors and employees of the Company and its subsidiaries are eligible under the plan.  S tock awards and stock options vest at the rate of 20% per year over a five year period and become fully vested in the event of a "change in control" as defined in the plan  . In addition, the price of the stock options may not be less than the market value of the Companys common stock on the date of grant, and the stock options expire no later than ten years from the date of grant . Under the stock award component of this plan, the Committee awarded 7,125 restricted shares of the Companys common stock. As of June 30,  2003, there are 2,850 restricted shares in this plan that are not vested. There  have been 17,875 options granted  under   this plan at  an exercise price of  $10.50 per share. The maximum number of shares of the Companys common stock permitted to be awarded under this plan have been awarded.





29




2001 Stock Compensation Plan . During the year ended June 30, 2001, the directors of the Company established the Stock Compensation Plan (the "2001 SCP") with both a stock award component and a stock option component. Stock options awarded under the plan are considered non-qualified for federal income tax purposes. Officers, directors and employees of the Company and its subsidiaries are eligible under the plan.  Stock awards and stock options vest at the rate of 20% per year over a five year period and become fully vested in the event of a "change in control" as defined in the plan.  In addition, the price of the stock options may not be less than the market value of the Companys common stock on the date of grant, and the stock options expire no later than ten years from the date of grant. Under the stock award component of this plan, the Committee awarded 10,239 restricted  shares of the Companys common stock. As of June 30, 2003, 8,190 of the  shares in this plan are vested. No options  have been granted  under this plan  . The maximum number of shares of the Companys common stock permitted to be awarded under this plan is 25,000 shares .





Item 13. Certain Relationships and Related Transactions





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





Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K





(a) The following documents are filed as a part of this report:





1. The following financial statements and the report of independent accountants included in the 2003 Annual Report are incorporated herein by reference.





Independent Accountants Report





Consolidated Balance Sheets as of June 30, 2003 and 2002.





Consolidated Statements of Income for the Years Ended June 30, 2003, 2002, and 2001.





Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 2003, 2002, and 2001.





Consolidated Statements of Cash Flows for the Years Ended June 30, 2003, 2002, and 2001.





Notes to Consolidated Financial Statements.





2.  Financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and therefore have been omitted.


3. The following exhibits are included in this Report or incorporated herein by reference:





3(i) Certificate of Incorporation of Guaranty Federal Bancshares, Inc. (1)


3(ii) Bylaws of Guaranty Federal Bancshares, Inc. (1)


4     Rights Agreement dated January 20, 1999 concerning the issuance of preferred sock and related rights. (2)


10.1 1994 Stock Option Plan (3)


10.2 Recognition and Retention Plan (4)


10.3 1998 Stock Option Plan (5)


10.4 Restricted Stock Plan (6)


10.5 Change in Control Severance Agreement (7)


10.6 2000 Stock Compensation Plan (7)


10.7 2001 Stock Compensation Plan (7)








30




11 Computation of per share earnings is set forth in Note 1 of the Notes to the consolidated financial statements under the section captioned "Earnings Per Share" in the 2003 Annual Report.


13 Annual Report to Stockholders for the fiscal year ended June 30,  2003 (only those portions incorporated by reference in this document are deemed "filed")


21 Subsidiaries of the Registrant ( See Item 1. Business  Subsidiary Activity)


23 Consent of BKD, LLP


31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


32.1 CEO certification pursuant to  18 U.S.C. Section 1350, as adopted  pursuant to  Section 906 of the Sarbanes-Oxley Act 0f 2002


32.2 CFO certification pursuant to  18 U.S.C. Section 1350, as adopted  pursuant to  Section 906 of the Sarbanes-Oxley Act 0f 2002





(b)  Reports on Form 8  -  K





1. Filed on April 15, 2003 relating to the registrants earnings release for the third quarter ended March 31, 2003; and announcing shares remaining to be repurchased to complete the repurchase plan announced November 22, 2002 .





2. Filed on June 27, 2003 relating to the registrants press release announcing the conversion of the Bank to a Missouri chartered trust company with banking powers, and the name change of the Bank to Guaranty Bank.


_____________________


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


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


(3) Filed as Exhibit 10.1 of the Registration Statement on Form S-1 filed by the Registrant on September 22, 1997 (SEC File No. 333-36141) and incorporated herein by reference.


(4) Filed as Exhibit 10.2 of the Registration Statement on Form S-1 filed by the Registrant on September 22, 1997 (SEC File No. 333-36141) and incorporated herein by reference.


(5) Filed as Exhibit A of the proxy statement for a special meeting of stockholders held on July 22, 1998 (SEC File No. 0-23325) and incorporated herein by reference.


(6) Filed as Exhibit B of the proxy statement for a special meeting of stockholders held on July 22, 1998 (SEC File No. 0-23325) and incorporated herein by reference.


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




31






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: September 29, 2003
By:
/s/ Don M. GibsonDon M. GibsonPresident 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/ Don M. Gibson

By:
/s/ Tim RosenburyDon M. Gibson


Tim RosenburyPresident and Chief Executive Officer


Directorand Director

Date:
September 26, 2003(Principal Executive Officer)Date:
September 26, 2003By:
/s/ Bruce Winston

By:
/s/ Gary LipscombBruce Winston


Gary LipscombSVP and Chief Financial Officer


Director(Principal Accounting and Financial Officer)

Date:
September 26, 2003Date:
September 26, 2003By:
/s/ Wayne V. Barnes

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


Jack L. BarhamDirector


Chairman of the Board and DirectorDate:
September 26, 2003

Date:
September 26, 2003By:
/s/ Gregory V. Ostergren

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


James L.. Sivils, IIIDirector


DirectorDate:
September 26, 2003

Date:
September 26, 2003By:
/s/ Kurt D. HellwegKurt D. HellwegDirectorDate:
September 26, 2003




32