EXHIBIT 13


**CONTENTS**





1

Investor Information2

Presidents Message3

Selected Consolidated Financial and other Data4

Managements Discussion and Analysis of Financial Condition and Results of Operations16

Consolidated Financial Statements43

Independent Accountants Report








COMMON STOCK PRICES & DIVIDENDS





The common stock of Guaranty Federal Bancshares, Inc. is traded in the over-the-counter market and quoted on the NASDAQ National Market. As of August 20, 2003, there were 1,690 stockholders. At that date the Company had 6,421,700 shares of common stock issued and 2,995,055 shares of common stock outstanding.





The Company paid cash dividends of $0.15 per share on October 18, 2002 to stockholders of record as of October 4, 2002, and $0.15 per share on January 24, 2003, to stockholders of record as of January 10, 2003 and $0.15 per share on April 14, 2003 to stockholders of record as of March 31, 2003. The Company declared a cash dividend of $0.15 per share on June 27, 2003, that was paid on July 15, 2003, to stockholders of record on July 1, 2003. The Companys Board of Directors anticipates paying dividends on comparable dates in fiscal year 2004 to the payment dates in fiscal year 2003. Such future dividends, if any, will be at the discretion of the Companys Board of Directors and will depend on, among other things, the Companys results of operations, cash requirements and surplus, financial condition and other factors that the Companys Board of Directors may consider relevant.





The table below reflects the range of common stock closing prices by quarter.




Fiscal Year endedJune 30, 2003

June 30, 2002High


Low


High


LowQuarter ended:June 30

$
16.40


15.15


14.35


13.01March 31


15.73


14.90


14.37


12.65December 31


15.75


13.35


14.73


12.31September 30


14.50


13.81


14.36


10.72





INVESTOR INFORMATION





ANNUAL MEETING OF STOCKHOLDERS: The Annual Meeting of Stockholders will be held Wednesday, October 22, 2003 at 6:00 p.m., at the Clarion Hotel, 3333 S. Glenstone, Springfield, Missouri.





ANNUAL REPORT ON FORM 10-K: Copies of the Guaranty Federal Bancshares Form 10-K Report to the Securities and Exchange Commission are available without charge upon written request to: Lorene Thomas, Secretary, Guaranty Federal Bancshares, Inc., 1341 W. Battlefield St., Springfield, MO 65807-4181.





TRANSFER AGENT: Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016





STOCK TRADING INFORMATION: Over-the Counter Symbol: GFED





SPECIAL LEGAL COUNSEL: Blackwell Sanders Peper Martin, LLP, 901 St. Louis St., Suite 1900, Springfield, MO 65806





INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS: BKD, LLP, 901 St. Louis St., PO Box 1190, Springfield, MO 65801-1190




STOCKHOLDER AND FINANCIAL INFORMATION: Bruce Winston, Senior Vice President, Chief Financial Officer 417-520-0206




1




Dear Stockholders,





As anticipated, the Company reached record high year-end levels for assets, loans, and deposits for our fiscal year ending June 30, 2003. Assets totaled $390.2 million, loans grew to $336.8 million, and deposits increased to $235.6 million. Earnings experienced a 27% annualized growth rate to $1.28 per share, and return on average shareholders equity increased from 7.6% in 2002 to 9.8% in 2003, also a record high.





In FY 2003, our shareholders received four quarterly dividends of $0.15 per share. Our stock price closed at $16.04 at June 30, 2003, which represented a 16% increase over the previous year-end price per share. Recently, on August 26, 2003, our stock price reached an all-time high of $17.17.





The Banks conversion from a federally chartered savings bank to a state chartered trust company with banking powers was completed June 27, 2003. The change was implemented to assist with our mission to become a full service commercial bank and to increase the overall value of our franchise. Our new name is "Guaranty Bank", but we are still the same people you know and trust.





Guaranty Bank is currently the leader in dollar volume of real estate recordings in Greene County in 2003. Our mortgage department continues to set the pace for real estate loan closings in Greene County, and our emphasis on commercial lending continues to be more successful than anticipated.





During the next year, we anticipate increasing our network of branch banking facilities to better serve our customers and increase our market share. In addition, we plan to continue our emphasis on technology and will be introducing check imaging to our customers, which follows our well-received on-line banking product introduced last year. The new imaging product will also allow us to process checks internally, which should generate significant savings for the bank.





Guaranty Bank has a strong 90-year banking history, but we are even more excited about our future. As we continue to expand our product lines through technology and branches, increase our operating efficiencies, and focus on exceptional customer service, we expect to continue our trend of balance sheet and earnings growth. I look forward to reporting our results to you for the next fiscal year.




Sincerely,Don M. Gibson
President and CEO




2




***Guaranty Federal Bancshares, Inc.***
 *Selected Consolidated Financial and Other Data*







The following tables include certain information concerning the financial position of Guaranty Federal Bancshares, Inc. (including consolidated data from operations of subsidiaries) as of the dates indicated. Dollar amounts are expressed in thousands except per share data.




Summary Statement of Income

Years Ended June 30,2003


2002


2001


2000


1999Interest income

$
21,782


25,223


27,182


23,564


20,763Interest expense


11,445


14,087


16,378


12,929


10,703Net interest income


10,337


11,136


10,804


10,635


10,060Provision for loan losses


610


291


310


180


180Net interest income after provisionfor loan losses


9,727


10,845


10,494


10,455


9,880Noninterest income


3,688


3,634


2,103


1,418


1,201Noninterest expense


8,179


8,994


7,621


6,420


5,958Income before income taxes


5,236


5,485


4,976


5,453


5,123Provision for income taxes


1,656


1,892


1,743


1,947


1,765Net income

$
3,580


3,593


3,233


3,506


3,358Basic

$
1.28


1.01


0.78


0.71


0.61Diluted

$
1.26


1.00


0.77


0.70


0.60Summary Balance Sheet

As of June 30,2003


2002


2001


2000


1999ASSETSCash and cash equivalents

$
19,015


16,964


10,314


9,157


9,689Investment securities


15,522


19,683


23,994


20,414


24,346Loans receivable, net


336,838


319,916


320,106


296,053


264,269Accrued interest receivable


1,430


1,655


2,148


1,826


1,757Prepaids and other assets


10,455


10,293


9,769


7,605


5,672Foreclosed assets


182


683


4


1


101Premises and equipment


6,709


7,356


7,758


6,800


7,365$
390,151


376,550


374,093


341,856


313,199LIABILITIESDeposits

$
235,677


225,284


170,648


144,607


141,137Federal Home Loan Bank advances


114,619


111,083


146,657


136,507


104,795Other liabilities


3,313


4,748


6,583


4,157


3,834353,609


341,115


323,888


285,271


249,766Common stock


624


624


624


624


624Additional paid-in capital


47,366


47,366


47,366


47,366


47,366Unearned ESOP shares


(3,100
)

(3,100
)

(3,100
)

(3,100
)

(3,100
)Retained earnings


23,236


23,236


23,236


23,236


23,236Unrealized appreciation on available-for-sale securities, net


3,439


3,439


3,439


3,439


3,439Treasury stock


(8,132
)

(8,132
)

(8,132
)

(8,132
)

(8,132
)STOCKHOLDERS' EQUITY


36,542


35,435


50,205


56,585


63,433$
390,151


376,550


374,093


341,856


313,199Supplemental Data

As of June 30,2003


2002


2001


2000


1999Number of full-service offices


9


9


5


5


5Cash dividends per share

$
0.60


0.63


0.47


0.42


0.34





3




***Guaranty Federal Bancshares, Inc.***


*Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*









GENERAL





Guaranty Federal Bancshares, Inc. (and with its subsidiary, the "Company") is a Delaware corporation organized on December 30, 1997 for the purpose of becoming the holding company of Guaranty Federal Savings Bank.





In April 1995, Guaranty Federal Savings & Loan Association reorganized from a federally chartered mutual savings and loan association into a mutual holding company, Guaranty Federal Bancshares, M. H. C. (the "MHC"). Concurrent with the reorganization, Guaranty Federal Savings Bank (the "Bank"), a stock savings bank was chartered. In December 1997, the Company completed the conversion and reorganization of the Bank and the former MHC by selling common stock to depositors of the Bank and a benefit plan of the Bank. In addition, all shares of common stock of the Bank held by public stockholders were exchanged for shares of common stock of the Company.





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 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.





On June 27, 2003, the Bank converted to a state-chartered trust company with banking powers, and the Company became a one-bank holding company. The name of the Bank was changed from Guaranty Federal Savings Bank to Guaranty Bank.





The Companys principal business consists of attracting deposits from the general public and using such deposits to originate mortgage loans secured by one- to four-family residences, multi-family, construction and commercial real estate loans and consumer and business loans. The Company also uses these funds to purchase loans secured by one- to four-family residences, mortgage-backed securities, US government and agency obligations, and other permissible securities. When cash outflows exceed inflows, the Company uses borrowings and brokered deposits as additional financing sources.





The Company derives revenues principally from interest earned on loans and investments and, to a lesser extent, from fees charged for services. General economic conditions and policies of the financial institution regulatory agencies, including the Missouri Division of Finance and the Federal Deposit Insurance Corporation ("FDIC") significantly influence the Companys operations. Interest rates on competing investments and general market interest rates influence the Companys cost of funds. Lending activities are affected by the interest rates at which such financing may be offered. The Company intends to focus on one- to four-family residential, consumer, and commercial real estate lending throughout southwestern Missouri.





The discussion set forth below may contain forward-looking comments. Such comments are based upon the information currently available to management of the Company and managements perception thereof as of the date of this report. When used in this document, words such as "anticipates," "estimates," "believes," "expects," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Such statements are subject to risks and uncertainties. Actual results of the Companys operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to: changes in demand for banking services; changes in portfolio composition; changes in management strategy; increased competition from both bank and non-bank companies; changes in the general level of interest rates; and other factors set forth in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time.





FINANCIAL CONDITION





From June 30, 2002 to June 30, 2003, the Companys total assets increased $13,600,537 (4%), liabilities increased $12,493,602 (4%), and stockholders' equity increased $1,106,935 (3%). The ratio of stockholders equity to total assets remained at 9% during this period.








From June 30, 2002 to June 30, 2003, securities available-for-sale decreased $3,192,313 (19%). The Company currently owns 82,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of $80,294 in the securities available-for-sale category. As of June 30, 2003, the gross unrealized gain on the stock is $4,082,846, a decrease of $961,860 from the gross unrealized gain at June 30, 2002. This decrease is due to the decline in the stock price of FHLMC stock from $62.50 per share as of June 30, 2002 to $50.77 per share as of June 30, 2003. From June 30, 2002 to June 30, 2003, securities held-to-maturity decreased $968,197 (30%) due to repayments received during the year. There wasno change in stock in the Federal Home Loan Bank of Des Moines ("FHLB"). The Bank is required to own stock in the FHLB equal to five percent of its borrowings.








4




***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*


From June 30, 2002 to June 30, 2003, net loans receivable increased by $10,297,302 (3%). During this period, permanent loans secured by both owner and non-owner occupied one to four unit residential real estate decreased by $11,662,684, (8%), consumer installment loans decreased $5,503,729 (18%), multi-family permanent loans decreased by $3,033,015 (7%), construction loans increased by $14,656,291 (29%), permanent loans secured by commercial real estate increased $12,612,341 (22%) and other commercial loans increased $10,608,925 (127%). During this period the Company continued to increase its emphasis on commercial lending, while selling the majority of conforming single family loan production on the secondary market. These loan sales allowed the Bank to provide customers with 30-year fixed rate mortgages while retaining a banking relationship with the customer. As a result of these loan sales, loans serviced for others increased by $25,799,494 (28%).





From June 30, 2002 to June 30, 2003, loans past due 90 days or more increased $139,968 to $330,971 (0.1% of net loans). As of June 30, 2003, management considers loans totaling $623,856 as impaired with a related allowance for loan losses of $81,029. Single-family homes collateralize the majority of the impaired loans. The Bank recognizes interest income on impaired loans as payments are received. Management believes the loss allowances on these loans are sufficient to liquidate the collateral without further loss.





From June 30, 2002 to June 30, 2003, the allowance for loan losses increased $125,448. Loan charge-offs exceeded recoveries by $484,552 for fiscal year 2003 and $338,517 for fiscal year 2002. The allowance for loan losses as of June 30, 2003 and 2002 was 0.85% and 0.83% of net loans outstanding, respectively. As of June 30, 2003, the allowance for loan losses was 445% of impaired loans versus 151% as of June 30, 2002.





As of June 30, 2003 foreclosed assets held for sale consists of two automobiles and three single-family homes.





From June 30, 2002 to June 30, 2003, premises and equipment decreased $647,102 (9%). This decrease is primarily due to depreciation.





From June 30, 2002 to June 30, 2003, deposits increased $10,393,203 (5%). During this period core deposit accounts increased by $18,725,158 (20%) to 48% of total deposits and certificates of deposit decreased by $8,331,955 (6%). Included in the certificates of deposit total is $25,000,000 in deposits placed by brokers. Management considers brokered deposits to be an effective source of funds that cost less at the margin than increasing rates on retail deposits in our local market.





Due to historically low interest rates, the Company increased borrowings from the Federal Home Loan Bank by $3,535,731 (3%).





Stockholders equity (including unrealized appreciation on securities available-for-sale, net of tax) increased $1,106,935 (3%) to $36,541,812 as of June 30, 2003. Net income for the year exceeded cash dividends paid or declared by $1,907,849. The Company repurchased 87,286 shares as treasury stock at a cost of $1,311,174 (an average price of $15.02 per share). As of June 30, 2003, 257,469 shares remain to be repurchased under the repurchase plan announced November 22, 2002. The decrease in unrealized appreciation on securities available-for-sale, net of tax, decreased stockholders equity by $967,574. On a per share basis, stockholders equity increased $0.45 (4%) from $12.69 as of June 30, 2002 to $13.14 as of June 30, 2003.


5
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*







AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS





The following tables show (1) the average monthly balances of various categories of interest-earning assets and interest-bearing liabilities, (2) the total interest earned or paid thereon, and (3) the resulting weighted average yields and costs. In addition, the table shows the Companys rate spreads and net yields. Average balances are based on daily balances. Tax-free income is not material; accordingly, interest income and related average yields have not been calculated on a tax equivalent basis. Average loan balances include non-accrual loans. Dollar amounts are expressed in thousands.





June 30, 2003
Year Ended June 30, 2003
Year Ended June 30, 2002
Year Ended June 30, 2001Balance

Yield /
Cost

Average Balance

Interest

Yield / Cost

AverageBalance

Interest

Yield / Cost

Average Balance

Interest

Yield / CostASSETSInterest-earning:Loans

$
336,838


5.72
%
$
326,441

$
20,928


6.41
%
$
324,796

$
23,876


7.35
%
$
309,422

$
25,157


8.13
%Investment securities


9,683


3.04
%

11,103


419


3.77
%

14,824


619


4.18
%

15,237


1,133


7.44
%Other assets


18,212


2.25
%

18,864


434


2.30
%

33,362


727


2.18
%

16,240


892


5.49
%Total interest-earning


364,733


5.47
%

356,408


21,781


6.11
%

372,982


25,222


6.76
%

340,899


27,182


7.97
%Noninterest-earning


25,418





19,368








12,833








11,013$
390,151




$
375,776







$
385,815







$
351,912LIABILITIES AND STOCKHOLDERS' EQUITYInterest-bearing:Savings accounts

$
17,458


0.80
%
$
17,390


221


1.27
%
$
13,732


241


1.76
%
$
7,677


199


2.59
%Transaction accounts


70,318


0.85
%

67,614


814


1.20
%

54,916


934


1.70
%

38,927


1,162


2.99
%Certificates of deposit


123,250


3.33
%

126,376


4,768


3.77
%

128,718


5,842


4.54
%

93,008


5,357


5.76
%FHLB advances


114,619


4.14
%

108,020


5,634


5.22
%

126,534


7,039


5.56
%

155,325


9,646


6.21
%Other borrowed funds


702


0.38
%

832


7


0.84
%

1,735


30


1.73
%

351


14


3.99
%Total interest-bearing


326,347


2.94
%

320,232


11,444


3.57
%

325,635


14,086


4.33
%

295,288


16,378


5.55
%Noninterest-bearing


27,262





18,946








13,060








4,463Total liabilities


353,609





339,178








338,695








299,751Stockholders' equity


36,542





36,598








47,120








52,161$
390,151




$
375,776







$
385,815







$
351,912Net earning balance

$
38,386




$
36,176







$
47,347







$
45,611Earning yield less costing rate

2.53
%







2.54
%







2.43
%







2.42
%Net interest income, andnet yield spread oninterest-earning assets





2.84
%



$
10,337


2.90
%



$
11,136


2.99
%



$
10,804


3.17
%Ratio of interest-earning assets tointerest-bearing liabilities


112
%




111
%







115
%







115
%




6
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*





The following table sets forth information regarding changes in interest income and interest expense for the periods indicated resulting from changes in average balances and average rates shown in the previous table. For each category of interest-earning assets and interest-bearing liabilities information is provided with respect to changes attributable to: (i) changes in balance (change in balance multiplied by the old rate), (ii) changes in interest rates (change in rate multiplied by the old balance); and (iii) the combined effect of changes in balance and interest rates (change in balance multiplied by change in rate).





Year Ended June 30, 2003 versus 2002
Year Ended June 30, 2002 versus 2001Average Balance
Interest Rate
Rate & Balance
Total
Average Balance
Interest Rate
Rate & Balance
TotalInterest income:Loans

$
121


(3,053
)

(15
)

(2,947
)

1,250


(2,411
)

(120
)

(1,281
)Investment securitites


(155
)

(61
)

16


(200
)

(31
)

(497
)

14


(514
)Other assets


(316
)

40


(17
)

(293
)

941


(538
)

(568
)

(165
)Net change in interest income


(350
)

(3,074
)

(16
)

(3,440
)

2,160


(3,446
)

(674
)

(1,960
)Interest expense:Savings accounts


64


(67
)

(17
)

(20
)

157


(64
)

(51
)

42Transaction accounts


216


(274
)

(62
)

(120
)

477


(500
)

(205
)

(228
)Certificates of deposit


(106
)

(991
)

23


(1,074
)

2,057


(1,136
)

(436
)

485Advances


(1,029
)

(430
)

54


(1,405
)

(1,788
)

(1,005
)

186


(2,607
)Other borrowed funds


(16
)

(15
)

8


(23
)

55


(8
)

(31
)

16Net change in interest expense


(871
)

(1,777
)

6


(2,642
)

958


(2,713
)

(537
)

(2,292
)Change in net interest income

$
521


(1,297
)

(22
)

(798
)

1,202


(733
)

(137
)

332






RESULTS OF OPERATIONS - COMPARISON OF YEARS ENDED JUNE 30, 2003 AND 2002






U.S. Treasury SecuritiesAverage for the Twelve Months EndedTen-Year Maturity


One-Year Maturity


SpreadJune 30, 2003


3.96
%

1.46
%

2.50
%June 30, 2002


4.99
%

2.56
%

2.43
%Decrease in interest rates


-1.03
%

-1.10
%

0.07
%





Interest Rates . The Company charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates. The following table sets forth the weekly average interest rates on U.S. Treasury securities for the twelve months ending.





Interest rates trended downward during the twelve months ended June 30, 2003. The Federal Reserve Open Market Committee reduced the discount rate 50 basis points in November 2002 and 25 basis points in June 2003. The last week in June 2003, the ten-year treasury averaged 3.42%, and the one-year treasury averaged 1.02%. The widely quoted bank prime rate fell from 4.75% to 4.00% during the twelve months ended June 30, 2003. As a result, loan customers continued to refinance their loans to lower rates.


7
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*


Interest Income . Total interest income decreased $3,440,712 (14%) as the average balance of interest-earning assets decreased $16,574,000 (4%). The yield on average interest earning assets decreased 65 basis points to 6.11%.





Interest on loans decreased $2,947,361 (12%) as the average loan receivable balance increased $1,645,000 (1%) while the average yield decreased 94 basis points to 6.41%. The decrease in loan yield is the result of the combination of new loans at lower rates, repayments of higher yielding loans, and the roll down of adjustable rate loans. Interest on investment securities decreased $199,904 (32%) as the average balance decreased $3,721,000 (25%) and the average yield decreased 41 basis points to 3.77%. As long as interest rates remain at historical low levels, our customers will benefit from loan rates adjusting downward and from refinancing to fixed-rate mortgages to lock-in the rates. These adjustments and refinances will negatively impact portfolio loan yields in future quarters.





Interest Expense . Total interest expense decreased $2,642,273 (19%) as the average balance of interest-bearing liabilities decreased $5,403,000 (2%). The average cost of interest-bearing liabilities decreased 76 basis points to 3.57%.





Interest expense on deposits decreased $1,214,839 (17%) as the average balance of interest bearing deposits increased $14,014,000 (7%) while the average interest rate paid to depositors decreased 81 basis points to 2.75%. The average balance of interest bearing core deposit accounts increased $16,356,000 (24%) and the average balance of certificates of deposit decreased $2,342,000 (2%).





In order to comply with the Federal Home Loan Bank (the "FHLB") limitation of advances to 35% of assets, the Company decreased borrowings from the FHLB. The average balance of FHLB advances decreased by $18,514,000 (15%) while the average cost of those advances decreased 34 basis points to 5.22%. As of June 30, 2003, FHLB advances are 29% of total assets.





Net Interest Income . The Companys net interest income decreased $798,439 (7%). During the year ended June 30, 2003, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $36,176,000, a decrease in the average net earning balance of $11,171,000 (24%). The Companys spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 11 basis points from 2.43% to 2.54%.





Provision for Loan Losses . Provisions for loan losses are charged or credited to earnings to bring the total allowance to a level considered adequate by the Company to provide for potential loan losses in the existing portfolio. When making the assessment, the Company considers prior loss experience, volume and type of lending, local banking trends and past due loans in the Companys portfolio. In addition, the Company considers general economic conditions and other factors related to collectability of the Companys portfolio.





During fiscal year 2003, the Company experienced loan charge-offs in excess of recoveries of $484,552 and based on a review as discussed above, elected to add $610,000 to the allowance. Management anticipates the need to continue adding to the loan loss allowance through charges to provision for loan losses based on the anticipated growth in the loan portfolio and shift in emphasis from primarily single-family to a mix of single-family and commercial loans.





Non-Interest Income . Non-interest income increased $54,493 (1%). The gain on sale of loans of $1,544,037 for fiscal year 2003 is the result of mortgage banking activities related to the sale of single-family conforming residential loans in the secondary market. The Bank attempts to minimize risk of price changes by committing to sell loans while the loans are in the origination process. There were no profits on sale of investments for fiscal year 2003. Deposit service charges increased $223,910 (14%) due to the continued growth in the Banks checking accounts. These increases were partially offset by amortization expense associated with the Banks originated mortgage servicing rights and the recording of a loss on impairment. The amortization expense on originated mortgage servicing rights increased $295,808. A loss on impairment of these rights of $239,543 was recognized based on the Banks fair value assessment of such rights. There





8
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*


was no loss impairment recognized during the same periods in 2002. Decreases in fair value of these rights is primarily due to increased prepayment speeds on loans being serviced for others. The increase in prepayment speed is attributable to significant increases in refinancing in a historically low interest rate environment. In addition late charges and other fees decreased $111,088 (37%).





Non-Interest Expense . Non-interest expense decreased $813,613 (9%). Decreases in salaries and employee benefits, occupancy, advertising and data processing expense are principally attributable to the Companys aggressive approach to lowering operating costs. In the same period one year ago the Company incurred approximately $183,000 in "one-time" costs in connection with the Commercial Federal acquisition and approximately $150,000 in legal and professional expenses in connection with the settlement of a dispute over the repurchase of the Companys stock.





Income Taxes . The change in income tax is a direct result of changes in the Companys taxable income.





Cash Dividends Paid. The Company paid cash dividends of $0.15 per share on October 18, 2002, to the stockholders of record as of October 4, 2002 and $0.15 per share on January 24, 2003, to the stockholders of record as of January 10, 2003 and $0.15 per share on April 14, 2003 to stockholders of record as of March 31, 2003. The Company declared a cash dividend of $0.15 per share on June 27, 2003, to be paid on July 15, 2003, to stockholders of record on July 1, 2003.





RESULTS OF OPERATIONS - COMPARISON OF YEARS ENDED JUNE 30, 2002 AND 2001





Interest Rates . The following table sets forth the weekly average interest rates on U.S. Treasury securities for the twelve months ending.







U.S. Treasury SecuritiesAverage for the Twelve Months EndedTen-Year Maturity
One-Year Maturity
SpreadJune 30, 2002


4.99
%

2.56
%

2.43
%June 30, 2001


5.45
%

5.10
%

0.35
%Decrease in interest rates


-0.46
%

-2.54
%

2.08
%





From July 1, 2001 until the events of September 11, interest rates were relatively stable. In the two weeks following September 11, the one-year Treasury rate fell 83 basis points. From the week ended September 21, 2001 through the week ended June 28, 2002, the one-year treasury security traded in a range from a low of 1.99% to a high of 2.70%. These historically low interest rates encouraged borrowers to refinance their loans and thereby lower our yields. Depositors exhibited a preference for money market deposits over the certificates of deposit.





Interest Income . Total interest income decreased $1,959,665 (7%) as the average balance of interest-earning assets increased $32,083,000 (9%). The yield on average interest earning assets decreased 121 basis points to 6.76%.





Interest on loans decreased $1,281,546 (5%) as the average loan receivable balance increased $15,374,000 (5%) while the average yield decreased 78 basis points to 7.35%. The decrease in loan yield is the result of the combination of new loans at lower rates, repayments of higher yielding loans, and the roll down of adjustable rate loans. Interest on investment securities decreased $513,427 (45%) as the average balance decreased $413,000 (3%) and the average yield decreased 326 basis points to 4.18%.




9
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*


Interest Expense . Total interest expense decreased $2,291,358 (14%) as the average balance of interest-bearing liabilities increased $30,347,000 (10%). The average cost of interest-bearing liabilities decreased 122 basis points to 4.33%.





Interest expense on deposits increased $298,754 (4%) as the average balance of interest bearing deposits increased $57,754,000 (41%) while the average interest rate paid to depositors decreased 125 basis points to 3.56%. The average balance of interest bearing core deposit accounts increased $22,044,000 (47%) and the average balance of certificates of deposit increased $35,710,000 (38%).





In order to comply with the Federal Home Loan Bank (the "FHLB") limitation of advances to 35% of assets, the Company decreased borrowings from the FHLB. The average balance of FHLB advances decreased by $28,791,000 (19%) while the average cost of those advances decreased 65 basis points to 5.56%. As of June 30, 2002, FHLB advances are 29% of total assets.





Net Interest Income . The Companys net interest income increased $331,693 (3%). During the year ended June 30, 2002, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $47,347,000, an increase in the average net earning balance of $1,736,000 (4%). With the treasury stock purchase in the fourth quarter of FY 2002, this net earning balance declined and as of June 30, 2002 is $36,108,000. The Companys spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 1 basis point from 2.42% to 2.43%.





Provision for Loan Losses . Provisions for loan losses are charged or credited to earnings to bring the total allowance to a level considered adequate by the Company to provide for potential loan losses in the existing portfolio. When making the assessment, the Company considers prior loss experience, volume and type of lending, local banking trends and past due loans in the Companys portfolio. In addition, the Company considers general economic conditions and other factors related to collectability of the Companys portfolio.





During fiscal year 2002, the Company experienced loan charge-offs in excess of recoveries of $338,517 and based on a review as discussed above, elected to add $291,000 to the allowance.





Non-Interest Income . Non-interest income increased $1,530,537 (73%). This increase is primarily due to the $959,354 increase in gain on sale of loans and investments. The gain on sale of loans ($786,526 for fiscal year 2002) is the result of mortgage banking activities related to the sale of single-family conforming residential loans in the secondary market. The net gain on sale of investments ($780,741 for fiscal year 2002) is primarily a result of the sale of 11,000 shares of FHLMC stock during the twelve-month period ending June 30, 2002. Deposit service charges increased $279,754 (22%) due to the continued growth in the Banks checking accounts. As of June 30, 2002, the Bank services 16,286 checking accounts up 3,256 (25%) from a year earlier. Late charges and other fees increased $141,475 (89%) primarily due to approximately $146,000 in prepayment penalties collected from two commercial borrowers.





Non-Interest Expense . Non-interest expense increased $1,372,221 (18%). Increases in salaries and employee benefits, occupancy and data processing expense are principally attributable to the Companys recent expansion through branch additions and an overall increase in accounts served. The Company incurred approximately $183,000 in "one-time" costs in connection with the Commercial Federal acquisition and approximately $150,000 in legal and professional expenses in connection with the settlement of a dispute over the repurchase of the Companys stock.





Income Taxes . The change in income tax is a direct result of changes in the Companys taxable income.





Cash Dividends Paid. The Company paid cash dividends of $0.25 per share on October 15, 2001, to the stockholders of record as of September 4, 2001 and $0.25 per share on April 12, 2002, to the stockholders of record as of April 1, 2002. The Company declared a cash dividend of $0.125 per share on June 27, 2002, to be paid on July 19, 2002, to stockholders of record on July 8, 2002. Effective with this dividend the Company anticipates paying dividends on a quarterly basis rather than on a semi-annual basis.





10
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*




ASSET / LIABILITY MANAGEMENT





The goal of the Banks asset/liability policy is to manage interest rate risk so as to maximize net interest income over time in changing interest rate environments. Management monitors the Banks net interest spreads (the difference between yields received on assets and paid on liabilities) and, although constrained by market conditions, economic conditions, and prudent underwriting standards, it offers deposit rates and loan rates that maximize net interest income. Management also attempts to fund the Banks assets with liabilities of a comparable duration to minimize the impact of changing interest rates on the Banks net interest income. This matching is especially difficult because the residential mortgage loans that comprise the majority of the Banks assets give the borrower the right to prepay at any time. These borrowers act in their economic self-interest and refinance higher rate loans when rates are low. Since the relative spread between financial assets and liabilities is constantly changing, the Banks current net interest income may not be an indication of future net interest income.





As a part of its asset and liability management strategy, the Bank implemented an adjustable rate mortgage loan ("ARM") program beginning in the early 1980s. Throughout the past several years, the Bank has continued to emphasize the origination of adjustable-rate, one- to four-family residential loans and adjustable-rate or relatively short-term commercial real estate, construction, commercial business, home equity and consumer loans, while originating fixed-rate, one- to four-family residential loans primarily for immediate resale in the secondary market on a service-retained basis. This allows the Bank to serve the customers needs and retain a banking relationship without the risk of carrying a long-term fixed-rate loan on the books.





The Bank is also managing interest rate risk by the origination of construction loans. As of June 30, 2003, such loans, net of loans in process, make up 20% of the Banks loan portfolio. In general, these loans have higher yields, shorter maturities, and greater interest rate sensitivity than other real estate loans.





The Bank constantly monitors its deposits in an effort to decrease their interest rate sensitivity. Rates of interest paid on deposits at the Bank are priced competitively in order to meet the Banks asset/liability management objectives and spread requirements. As of June 30, 2002, the Banks savings accounts, checking accounts, and money market deposit accounts totaled $93,701,835 or 41% of its total deposits. As of June 30, 2003, these accounts totaled $112,426,993 or 48% of total deposits. The weighted average rate paid on these accounts decreased 70 basis points from 1.35% on June 30, 2002 to 0.65% on June 30, 2003. The Bank believes, based on historical experience, that a substantial portion of such accounts represents non-interest rate sensitive, core deposits.





During the year ending June 30, 2004, the Bank has the option to prepay $15.9 million of FHLB advances with a remaining average life of 5.1 years and a weighted average rate of 5.84%. The current FHLB advance rate with a similar average life is 3.61%, a 223 basis point savings. Also in the year ending June 30, 2004, the FHLB has the option to call $11.0 million of advances with a weighted average rate of 5.40% and a remaining life of five years.





11
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*


**INTEREST RATE SENSITIVITY ANALYSIS**





The following table sets forth as of June 30, 2003, managements estimates of the projected changes in net portfolio value ("NPV") in the event of 100, 200, and 300 basis point ("bp") instantaneous and permanent increases and a 100 basis point instantaneous and permanent decrease in market interest rates. Dollar amounts are expressed in thousands.




BP Change

Estimated Net Portfolio Value
NPV as % of PV of Assetsin Rates

$ Amount
$ Change
% Change
NPV Ratio
Change+300


34,060


(3,043
)

-8
%

8.84
%

-0.57
%+200


34,996


(2,107
)

-6
%

9.01
%

-0.39
%+100


35,986


(1,117
)

-3
%

9.20
%

-0.21
%NC


37,103








9.41
%-100


39,052


1,949


5
%

9.80
%

0.39
%








Computations of prospective effects of hypothetical interest rate changes are based on an internally generated model using actual maturity and repricing schedules for the Banks loans and deposits, and are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit run-offs, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates.





Management cannot predict future interest rates or their effect on the Banks NPV in the future. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. Additionally, certain assets, such as adjustable rate loans, which represent the Banks primary loan product, have an initial fixed rate period typically from one to five years and over the remaining life of the asset changes in the interest rate are restricted. In addition, the proportion of adjustable rate loans in the Banks portfolio could decrease in future periods due to refinancing activity if market interest rates remain constant or decrease in the future. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in the table. Finally, the ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.





The Banks Board of Directors is responsible for reviewing the asset and liability policies. The Banks management is responsible for administering the policies and determinations of the Board of Directors with respect to the Banks asset and liability goals and strategies. Management expects that the Banks asset and liability policies and strategies will continue as described above so long as competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in recent years.




12
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*




**LIQUIDITY AND CAPITAL RESOURCES**





The Companys principal sources of funds for investments and operations are net income, deposits from its primary market area, principal and interest payments on loans and mortgage-backed securities, and proceeds from maturing investment securities. The Company considers deposits and FHLB advances as primary sources of funds.





The Companys most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, and certificates of deposit with other financial institutions that have an original maturity of three months or less. The levels of such assets are dependent on the Banks operating, financing, and investment activities at any given time. The Companys cash and cash equivalents totaled $19,014,528 as of June 30, 2003. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.





As of June 30, 2003, the Bank has conditional commitments in the form of letters of credit in the amount of $1,671,000. Outstanding loan commitments are $23,835,000. The Bank has granted unused lines of credit to borrowers aggregating approximately $17,955,000 and $13,397,000 for commercial lines and open-end consumer lines, respectively. The Bank has $76,058,653 in certificates of deposit that are scheduled to mature in one year or less. Management anticipates that the majority of these certificates will renew in the normal course of operations.





Based on existing collateral as well as the FHLBs limitation of advances to 35% of assets, the Bank has the ability to borrow an additional $21,937,000 from the FHLB, as of June 30, 2003.. The Bank plans to maintain its FHLB borrowings to a level that will provide a borrowing capacity sufficient to provide for contingencies.





The Companys capital position of $36,542,000 is 9.4% of total assets as of June 30, 2003. The Company has an excess of $19,350,000, $22,812,000, and $15,636,000 of required regulatory levels of tangible, core, and risk-based capital, respectively. Under current regulatory guidelines, the Bank is classified as well capitalized.





During fiscal year 2002, the Company purchased 42,500 shares of common stock in open market transactions and 1,089,639 shares of common stock in private transactions to place in the treasury stock account. During fiscal year ended 2003, the Company purchased 74,240 shares of common stock in open market transactions and 13,046 from the RRP to place in the treasury account. The Company intends to monitor the common stock price and, with regulatory approval, may from time to time initiate further treasury stock transactions in order to improve the Companys long-term earnings per share while at the same time maintaining an adequate level of stockholders equity.





IMPACT OF INFLATION AND CHANGING PRICES





The Company prepared the consolidated financial statements and related data presented herein in accordance with accounting principles generally accepted in the United States of America which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.





Unlike most companies, the assets and liabilities of a financial institution are primarily monetary in nature. As a result, interest rates have a more significant impact on a financial institutions performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation. In the current interest rate environment, liquidity and the maturity structure of the Banks assets and liabilities are critical to the maintenance of acceptable performance levels.




13
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*


IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS







The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. This statement is effective for contracts entered into or modified after July 1, 2003, and is not expected to have a material effect on the Companys financial statements.





The FASB recently issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards on the classification and measurement of certain financial instruments with characteristics of both debt and equity. The Company adopted SFAS No. 150 on July 1, 2003, with no impact to the financial statements of the Company.








14
  ***Guaranty Federal Bancshares, Inc.***
 *Managements Discussion and Analysis of Financial Condition*
 *And Results of Operations*











Fiscal Year 2003, Quarter endedSeptember-02
December-02
March-03
June-03Interest income

$
5,746,456


5,543,740


5,304,477


5,187,047Interest expense


3,120,175


2,965,401


2,778,498


2,580,339Net interest income


2,626,281


2,578,339


2,525,979


2,606,708Provision for loan losses


100,000


105,000


255,000


150,000Gain on sale of loans and investment securities


224,577


444,643


403,633


471,184Other noninterest income, net


638,875


443,639


688,873


372,905Noninterest expense


2,026,229


2,033,749


2,050,978


2,069,031Income before income taxes


1,363,504


1,327,872


1,312,507


1,231,766Provision for income taxes


467,458


459,888


427,824


300,830Net income

$
896,046


867,984


884,683


930,936Basic earnings per share

$
0.32


0.31


0.32


0.33Diluted earnings per share

$
0.32


0.30


0.31


0.33Fiscal Year 2002, Quarter endedSeptember-01


December-01


March-02


June-02Interest income

$
6,741,476


6,496,607


6,150,640


5,833,709Interest expense


3,952,844


3,681,011


3,326,906


3,125,925Net interest income


2,788,632


2,815,596


2,823,734


2,707,784Provision for loan losses


75,000


75,000


66,000


75,000Gain on sale of loans and investment securities


342,498


542,354


376,111


306,304Other noninterest income, net


447,238


476,161


472,680


670,490Noninterest expense


2,006,291


2,379,399


2,364,640


2,243,270Income before income taxes


1,497,077


1,379,712


1,241,885


1,366,308Provision for income taxes


527,997


447,024


424,328


492,651Net income

$
969,080


932,688


817,557


873,657Basic earnings per share

$
0.25


0.25


0.22


0.31Diluted earnings per share

$
0.25


0.24


0.21


0.31





15
  ***Guaranty Federal Bancshares, Inc.***
 *Consolidated Balance Sheets*
 June 30, 2003 and 2002


2003
2002ASSETSCash

$
15,242,475


8,530,060Interest-bearing deposits in other financial institutions


3,772,053


8,433,442Cash and cash equivalents


19,014,528


16,963,502Available-for-sale securities


13,271,147


16,463,460Held-to-maturity securities


2,250,894


3,219,091Stock in Federal Home Loan Bank, at cost


8,600,400


8,600,400Mortgage loans held for sale


9,755,102


3,131,138Loans receivable, net of allowance for loan losses of$2,775,320 and $2,649,872 in 2003 and 2002, respectively


327,082,420


316,785,118Accrued interest receivable:Loans


1,357,434


1,569,260Investments


72,691


85,251Prepaid expenses and other assets


1,855,268


1,693,760Foreclosed assets held for sale


182,064


683,329Premises and equipment


6,708,996


7,356,098$
390,150,944


376,550,407LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESDeposits

$
235,677,197


225,283,994Federal Home Loan Bank advances


114,618,894


111,083,163Securities sold under agreements to repurchase


702,024


1,093,074Advances from borrowers for taxes and insurance


950,678


1,048,297Accrued expenses and other liabilities


311,696


103,993Accrued interest payable


203,237


759,099Dividend payable


415,414


347,656Income taxes payable


220,707


163,897Deferred income taxes


509,285


1,232,357353,609,132


341,115,530STOCKHOLDERS' EQUITYCommon Stock:$0.10 par value; authorized 10,000,000 shares;issued; 2003 - 6,416,848 shares, 2002 - 6,365,404 shares


641,685


636,540Additional paid-in capital


51,065,581


49,842,032Unearned ESOP shares


(2,156,930
)

(2,406,070
)Retained earnings, substantially restricted


29,280,784


27,372,935Accumulated other comprehensive incomeUnrealized appreciation on available-for-sale securities,net of income taxes; 2003 - $1,162,865, 2002 - $1,731,122


1,980,013


2,947,58780,811,133


78,393,024Treasury stock, at cost;2003 - 3,420,375 shares, 2002 - 3,333,089 shares


(44,269,321
)

(42,958,147
)36,541,812


35,434,877$
390,150,944


376,550,407




See Notes to Consolidated Financial Statements




16
  ***Guaranty Federal Bancshares, Inc.***
 *Consolidated Statements of Income*
 Years Ended June30, 2003, 2002, and 2001







INCOME STATEMENT2003
2002
2001INTEREST INCOMELoans

$
20,928,391


23,875,752


25,157,298Investment securities


419,145


619,049


1,132,476Other


434,184


727,631


892,32321,781,720


25,222,432


27,182,097INTEREST EXPENSEDeposits


5,802,445


7,017,284


6,718,530Federal Home Loan Bank advances


5,634,484


7,039,115


9,645,741Other


7,484


30,287


13,77311,444,413


14,086,686


16,378,044NET INTEREST INCOME


10,337,307


11,135,746


10,804,053PROVISION FOR LOAN LOSSES


610,000


291,000


310,000NET INTEREST INCOME AFTERPROVISION FOR LOAN LOSSES


9,727,307


10,844,746


10,494,053NONINTEREST INCOMEService charges


1,778,267


1,554,357


1,274,603Late charges and other fees


190,113


301,201


159,726Gain on sale of investment securities


-


780,741


198,118Gain on sale of loans


1,544,037


786,526


409,795Income (loss) on foreclosed assets


10,830


(13,369
)

(80,189
)Other income


165,082


224,380


141,2463,688,329


3,633,836


2,103,299NONINTEREST EXPENSESalaries and employee benefits


4,557,376


4,610,235


4,088,038Occupancy


1,322,790


1,324,043


1,024,400SAIF deposit insurance premiums


37,950


35,855


28,724Data processing


487,786


783,051


642,460Advertising


217,066


331,446


392,930Other expense


1,557,019


1,908,970


1,444,8278,179,987


8,993,600


7,621,379INCOME BEFORE INCOME TAXES


5,235,649


5,484,982


4,975,973PROVISION FOR INCOME TAXES


1,656,000


1,892,000


1,743,000NET INCOME

$
3,579,649


3,592,982


3,232,973BASIC EARNINGS PER SHARE

$
1.28


1.01


0.78DILUTED EARNINGS PER SHARE

$
1.26


1.00


0.77




See Notes to Consolidated Financial Statements


17
  ***Guaranty Federal Bancshares, Inc.***
 *Consolidated Statements of Cash Flow*
 Years Ended June30, 2003, 2002, and 2001









2003
2002
2001CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
3,579,649


3,592,982


3,232,973Items not requiring (providing) cash:Deferred income taxes


(154,815
)

211,201


48,395Depreciation


783,933


1,020,070


622,855Provision for loan losses


610,000


291,000


310,000Gain on sale of loans and investment securities


(1,544,037
)

(1,567,267
)

(607,913
)(Gain) loss on sale of premises and equipment


37,761


28,970


(2,392
)(Gain) loss on sale of foreclosed assets


(12,310
)

1,712


81,481Amortization of deferred income,premiums and discounts


(99,192
)

(188,793
)

91,652Stock award plan expense


353,004


401,403


464,032Origination of loans held for sale


(77,775,788
)

(63,372,364
)

(38,604,806
)Proceeds from sale of loans held for sale


72,695,861


63,890,546


37,147,094Release of ESOP shares


373,724


319,595


268,071Changes in:Accrued interest receivable


224,386


572,430


(322,870
)Prepaid expenses and other assets


(55,508
)

(695,042
)

(84,105
)Accrued expenses and other liabilities


(348,159
)

557,279


507,415Income taxes payable


69,278


(124,777
)

(214,057
)Net cash provided by (used in) operating activities


(1,262,213
)

4,938,945


2,937,825CASH FLOWS FROM INVESTING ACTIVITIESNet (increase) decrease in loans


(11,171,690
)

14,833,382


(25,590,545
)Principal payments on held-to-maturity securities


995,693


1,319,992


2,211,435Principal payments on available-for-sale securities


172,835


1,738,299


345,309Purchase of available-for-sale securities


(4,968,371
)

(9,387,524
)

(4,079,079
)Purchase of premises and equipment


(174,592
)

(500,569
)

(1,584,669
)Proceeds from sale of premises and equipment


-


47,281


6,322Proceeds from sales of available-for-sale securities


-


2,945,061


587,734Proceeds from maturities of available-for-sale securities


6,500,000


7,000,000


-Purchase of FHLB stock


-


-


(1,725,000
)Proceeds from sale of foreclosed assets


801,677


282,423


2,931,555Purchase of other investments


(106,000
)

(200,000
)

(355,656
)Cash acquired in purchase of branches


-


25,556,972


-Net cash provided by (used in) investing activities


(7,950,448
)

43,635,317


(27,252,594
)




See Notes to Consolidated Financial Statements


18
  ***Guaranty Federal Bancshares, Inc.***
 *Consolidated Statements of Income (continued)*
 Years Ended June30, 2003, 2002, and 2001







2003
2002
2001CASH FLOWS FROM FINANCING ACTIVITIESStock options exercised


556,869


924,677


110,510Cash dividends paid


(1,604,042
)

(1,823,928
)

(1,936,401
)Cash dividends received on RRP Stock


2,387


2,942


6,652Net increase in demand deposits,NOW accounts and savings accounts


18,725,158


15,557,187


5,546,434Net increase (decrease) in certificates of deposit andsecurities sold under agreements to repurchase


(8,723,005
)

(3,940,368
)

21,758,276Proceeds from FHLB advances


121,500,000


46,500,000


80,924,742Repayments of FHLB advances


(117,964,269
)

(82,073,420
)

(70,775,306
)Advances from borrowers for taxes and insurance


(97,619
)

(244,765
)

(91,169
)Reduction of shares in RRP Trust


-


-


-Stock purchased for stock awards


-


-


(85,945
)Treasury stock purchased


(1,131,792
)

(16,826,643
)

(9,986,737
)Net cash provided by (used in) financing activities


11,263,687


(41,924,318
)

25,471,056INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS


2,051,026


6,649,944


1,156,287CASH AND CASH EQUIVALENTS,BEGINNING OF YEAR


16,963,502


10,313,558


9,157,271CASH AND CASH EQUIVALENTS,END OF YEAR

$
19,014,528


16,963,502


10,313,558Supplemental Cash Flows InformationReal estate acquired in settlement of loans

$
368,296


963,264


3,015,611Interest paid

$
12,000,275


14,278,261


16,304,274Income taxes paid

$
1,742,466


1,662,886


1,928,539Dividend declared and unpaid

$
415,414


347,656


-The Bank acquired the Springfield, Missouri branchoffices of another financial institution in 2002.In conjunction with the acquisition, assets wereacquired and liabilities were assumed as follows:Fair value of liabilities assumed


-


41,615,456


-Fair value of assets acquired


-


(16,058,484
)

-Cash received


-


25,556,972


-





See Notes to Consolidated Financial Statements


19
  ***Guaranty Federal Bancshares, Inc.***
 *Consolidated Statements of Stockholders' Equity*
 Years Ended June30, 2003, 2002, and 2001







Common Stock
Additional Paid-In Capital
Unearned ESOP Shares
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income
TotalBalance, July 1, 2000

$
625,004


47,921,681


(2,870,440
)

(16,144,767
)

24,654,965


2,398,947


56,585,390Comprehensive incomeNet income


-


-


-


-


3,232,973


-


3,232,973Change in unrealized appreciationon available-for-sale securitites, netof income taxes of $909,880


-


-


-


-


-


1,549,256


1,549,256Total comprehensive income




















4,782,229Dividends ($0.47 per share)


-


-


-


-


(1,936,401
)

-


(1,936,401
)Stock award plans


-


468,674


-


-


-


-


468,674Stock purchased for stock awards





(85,945
)

-


-


-


-


(85,945
)Stock options exercised


1,836


108,674


-


-


-


-


110,510Release of ESOP shares


-


38,431


229,640


-


-


-


268,071Treasury stock purchased


-


-


-


(9,986,737
)

-


-


(9,986,737
)Balance, June 30, 2001


626,840


48,451,515


(2,640,800
)

(26,131,504
)

25,951,537


3,948,203


50,205,791Comprehensive incomeNet income


-


-


-


-


3,592,982


-


3,592,982Change in unrealized appreciationon available-for-sale securitites, netof income taxes of ($587,664)


-


-


-


-


-


(1,000,616
)

(1,000,616
)Total comprehensive income




















2,592,366Dividends ($0.625 per share)


-


-


-


-


(2,171,584
)

-


(2,171,584
)Stock award plans


-


390,675


-


-


-


-


390,675Stock options exercised


9,700


914,977


-


-


-


-


924,677Release of ESOP shares


-


84,865


234,730


-


-


-


319,595Treasury stock purchased


-


-


-


(16,826,643
)

-


-


(16,826,643
)Balance, June 30, 2002


636,540


49,842,032


(2,406,070
)

(42,958,147
)

27,372,935


2,947,587


35,434,877Comprehensive incomeNet income


-


-


-


-


3,579,649


-


3,579,649Change in unrealized appreciationon available-for-sale securitites, netof income taxes of ($568,257)


-


-


-


-


-


(967,574
)

(967,574
)Total comprehensive income




















2,612,075Dividends ($0.60 per share)


-


-


-


-


(1,671,800
)

-


(1,671,800
)Stock award plans


-


547,241


-


-


-


-


547,241Stock options exercised


5,145


551,724


-


-


-


-


556,869Release of ESOP shares


-


124,584


249,140


-


-


-


373,724Treasury stock purchased


-


-


-


(1,311,174
)

-


-


(1,311,174
)Balance, June 30, 2003

$
641,685


51,065,581


(2,156,930
)

(44,269,321
)

29,280,784


1,980,013


36,541,812





See Notes to Consolidated Financial Statements


20
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*







NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Organization


In April 1995, Guaranty Federal Savings & Loan Association reorganized from a federally chartered mutual savings and loan association into a mutual holding company, Guaranty Federal Bancshares, M. H. C. (the "MHC"). Concurrent with the reorganization, Guaranty Federal Savings Bank (the "Bank"), a stock savings bank was chartered. The Bank issued 3,125,000 shares of common stock in connection with the reorganization, the majority of which were owned by the MHC.





On December 30, 1997, the MHC converted to Guaranty Federal Bancshares, Inc. (the "Company"), a Delaware-chartered stock corporation. In connection with the conversion and reorganization, 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 1,880,710 shares of the Company. Additional shares of the Company were sold to certain depositors of the Bank and to the trust of the employee stock ownership plan of the Bank as of December 30, 1997.





On June 27, 2003, the Bank converted to a state-chartered trust company with banking powers, and the Company became a one-bank holding company. The name of the Bank was changed from Guaranty Federal Savings Bank to Guaranty Bank.





Nature of Operations


The Company operates as a one-bank holding company. The Bank is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers in southwest Missouri. The Banks subsidiary provides other services, such as insurance, annuities, and securities brokerage. The Bank is subject to competition from other financial institutions. The Company and the Bank are also subject to the regulation of certain federal and state agencies and receive periodic examinations by those regulatory authorities.





Principles of Consolidation


The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank, and the Banks wholly-owned subsidiary, Guaranty Financial Services of Springfield, Inc. All significant intercompany profits, transactions and balances have been eliminated in consolidation.





Use of Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.





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





Investments in Debt and Equity Securities


Available-for-sale securities, which include any security for which the Company or the Bank has no immediate plan to sell but which may be sold in the future, are carried at fair value. Realized gains and losses, based on specifically identified amortized cost of the specific security, are included in other income. Unrealized gains and losses are recorded, net of related income tax effects, in stockholders' equity. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity.





Held-to-maturity securities, which include any security for which the Company or the Bank has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized and accreted, respectively, to interest income using the level-yield method over the period to maturity.




21
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


Interest and dividends on investments in debt and equity securities are included in income when earned.





Mortgage Loans Held for Sale


Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis. Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs. Forward commitments to sell mortgage loans are sometimes acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors. Gains and losses are determined by the difference between the selling price plus the value of retained servicing rights and the carrying amount of the loans sold, net of discounts collected or paid and considering a normal servicing rate. Fees received from borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage loans are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used.





Loans


Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance.





Loan Servicing


The cost of originated mortgage-servicing rights is amortized over the shorter of the actual or contractual loan life. Impairment of mortgage-servicing rights is assessed based on the fair value of those rights. Fair values are estimated by discounting expected cash flows. For purposes of measuring impairment, the rights are stratified based on the loan type, remaining term to maturity and interest rate. The key assumptions used in the valuation include discount rates, prepayment speeds and servicing costs. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights exceeds their fair value.





Allowance for Loan Losses


The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.




The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.





A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and





22
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price or the fair value of the collateral if the loan is collateral dependent.




Foreclosed Assets Held for Sale


Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.





Premises and Equipment


Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line and accelerated methods over the estimated useful lives of the assets.





Fee Income


Loan origination fees, net of direct origination costs, are recognized as income over the term of the loan using the level-yield method. Loan servicing income represents fees earned for servicing real estate mortgage loans owned by various investors.





Income Taxes


Deferred tax liabilities and assets are recognized for the tax effect of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.





Cash Equivalents


The Company considers all highly liquid interest-bearing deposits in other financial institutions with an initial maturity of three months or less to be cash equivalents.





Regulatory Matters


The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct and material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.





Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to adjusted tangible assets (as defined). Management believes, as of June 30, 2003, that the Company and the Bank meet all capital adequacy requirements.





As of June 30, 2003, the most recent notification from the Missouri Division of Finance categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Companys or the Banks category.




23
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


The Companys and the Bank's actual capital amounts and ratios are also presented in the table. At June 30, 2003, the Company is a one-bank holding company and, as such, subject to the capital ratios presented in the table. At June 30, 2002, the Company was a unitary savings and loan holding company and, as such, not required to disclose consolidated capital ratios. No amount was deducted from capital for interest-rate risk. Dollar amounts are expressed in thousands.





To Be Well CapitalizedFor Capital
Under Prompt CorrectiveActual
Adequacy Purposes
Action ProvisionsAmount


Ratio


Amount


Ratio


Amount


RatioAs of June 30, 2003Tier 1 (core) capital, andratio to adjusted total assetsCompany

$
34,454


9.1
%
$
15,104


4.0
%

n/a


n/aBank

$
33,931


9.0
%
$
15,084


4.0
%
$
18,855


5.0
%Tier 1 (core) capital, andratio to risk-weighted assetsCompany

$
34,454


11.8
%
$
11,642


4.0
%

n/a


n/aBank

$
33,931


11.7
%
$
11,623


4.0
%
$
17,435


6.0
%Total risk-based capital, andratio to risk-weighted assetsCompany

$
38,920


13.4
%
$
23,284


8.0
%

n/a


n/aBank

$
38,397


13.2
%
$
23,246


8.0
%
$
29,058


10.0
%To Be Well CapitalizedFor Capital
Under Prompt CorrectiveActual
Adequacy Purposes
Action ProvisionsAmount


Ratio


Amount


Ratio


Amount


RatioAs of June 30, 2002Tangible capital, andratio to adjusted total assetsBank

$
31,555


8.5
%

7,432


2.0
%Tier 1 (core) capital, andratio to adjusted total assetsBank

$
31,555


8.5
%
$
14,863


4.0
%
$
18,579


5.0
%Tier 1 (core) capital, andratio to risk-weighted assetsBank

$
31,555


10.8
%
$
11,654


4.0
%
$
17,482


6.0
%Total risk-based capital, andratio to risk-weighted assetsBank

$
36,454


12.5
%
$
23,309


8.0
%
$
29,136


10.0
%





24
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*





The amount of dividends that the Bank may pay is subject to various regulatory limitations. As of June 30, 2003 and 2002, the Bank exceeded their minimum capital requirements. The Bank may not pay dividends which would reduce capital below the minimum requirements shown above.





Earnings Per Share





The computation for earnings per share for the years ended June 30, 2003, 2002 and 2001 is as follows:




Year Ended
Year Ended
Year EndedJune 30, 2003
June 30, 2002
June 30, 2001Net income

$
3,579,649


3,592,982


3,232,973Average common shares outstanding


2,794,032


3,549,172


4,125,778Effect of stock options outstanding


57,525


38,728


47,778Average diluted shares outstanding


2,851,557


3,587,900


4,173,556Earnings per share - basic

$
1.28


1.01


0.78Earnings per share - diluted

$
1.26


1.00


0.77





Options to purchase 10,000, 15,000 and 415,949 shares of common stock were outstanding during the years ended June 30, 2003, 2002 and 2001, respectively, but were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common shares.





Stock Option Plans





The Company accounts for its stock option plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.





Year Ended
Year Ended
Year EndedJune 30, 2003
June 30, 2002
June 30, 2001Net income, as reported

$
3,579,649


3,592,982


3,232,973Less: Total stock-based employee compensationcost determined under the fair value-basedmethod, net of income taxes


(174,412
)

(174,142
)

(200,548
)Pro forma net income

$
3,405,237


3,418,840


3,032,425Earnings per share:Basic - as reported

$
1.28


1.01


0.78Basic - pro forma

$
1.22


0.96


0.73Diluted - as reported

$
1.26


1.00


0.77Diluted - pro forma

$
1.19


0.95


0.72





25
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


Impact of Recent Accounting Pronouncements





The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. This statement is effective for contracts entered into or modified after July 1, 2003, and is not expected to have a material effect on the Companys financial statements.





The FASB recently issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards on the classification and measurement of certain financial instruments with characteristics of both debt and equity. The Company adopted SFAS No. 150 on July 1, 2003, with no impact to the financial statements of the Company.





Segment Information


The principal business of the Company is overseeing the business of the Bank. The Company has no significant assets other than its investment in the Bank. The banking operation is the Companys only reportable segment. The banking segment is principally engaged in the business of originating mortgage loans secured by one-to-four family residences and, to a lesser extent, multi-family, construction, commercial and consumer loans. These loans are funded primarily through the attraction of deposits from the general public, borrowings from the Federal Home Loan Bank and brokered deposits. Selected information is not presented separately for the Companys reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements.





Reclassifications


Certain reclassifications have been made to the 2002 financial statements to conform to the 2003 financial statement presentation. These reclassifications had no effect on net income.





26
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*





NOTE 2:  INVESTMENTS IN DEBT AND EQUITY SECURITIES





The amortized cost and approximate fair values of securities classified as available-for-sale securities are as follows:





Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Approximate Fair ValueAs of June 30, 2003Equity 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
)

1,497,539$
10,128,269


4,082,846


(939,968
)

13,271,147As of June 30, 2002Equity 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
)

172,875$
11,784,747


5,045,338


(366,625
)

16,463,460Held-to-maturity





Maturities of available-for-sale debt securities as of June 30, 2003:




Amortized Cost
Approximate Fair ValueWithin one year

$
1,497,618


1,497,539After ten years


6,550,357


5,934,468$
8,047,975


7,432,007





27
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


The amortized cost and approximate fair values of securities classified as held to maturity are as follows:





Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Approximate
Fair ValueAs of June 30, 2003Debt Securities:U. S. government agencies

$
263,781


952


-


264,733Mortgage-backed securities


1,987,113


149,541


-


2,136,654$
2,250,894


150,493


-


2,401,387As of June 30, 2002Debt Securities:U. S. government agencies

$
301,139


3,629


-


304,768Mortgage-backed securities


2,917,952


204,033


(5,007
)

3,116,978$
3,219,091


207,662


(5,007
)

3,421,746











Maturities of held-to-maturity securities as of June 30, 2003:


Amortized
Cost
Approximate
Fair ValueAfter ten years

$
263,781


264,733Mortgage-backed securities not due on asingle maturity date


1,987,113


2,136,654$
2,250,894


2,401,387





The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $51,075 as of June 30, 2003 and $1,485,620 as of June 30, 2002. The approximate fair value of pledged securities amounted to $51,036 as of June 30, 2003 and $1,441,700 as of June 30, 2002.





Proceeds from sales of available-for-sale securities were $0, $2,945,061 and $587,734 for the years ended June 30, 2003, 2002 and 2001, respectively, with resultant gains of $0, $784,557 and $198,118, and resultant losses of $3,816 in June 30, 2002. There were no losses as a result of sales for the years ended June 30, 2003 and June 30, 2001.





28
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


NOTE 3:  LOANS AND ALLOWANCE FOR LOAN LOSSES





Categories of loans at June 30, 2003 and 2002, include:




2003
2002Real estate - residential mortgage:One to four family units

$
134,649,480


146,312,164Multi-family


41,021,909


44,054,924Real estate - construction


64,463,839


49,807,548Real estate - commercial


71,046,133


58,433,792Commercial loans


18,966,677


8,357,752Installment loans


25,204,105


30,707,834Loans on savings accounts


282,336


366,555Total loans


355,634,479


338,040,569Less:Undisbursed portion of loans-in-process


(25,539,102
)

(18,325,897
)Allowance for loan losses


(2,775,320
)

(2,649,872
)Unearned discounts


(26,356
)

(50,070
)Deferred loan fees/costs, net


(211,281
)

(229,612
)Net loans

$
327,082,420


316,785,118





Impaired loans totaled $623,856 as of June 30, 2003, and $1,751,139 as of June 30, 2002, with a related allowance for loan losses of $81,029 and $168,519, respectively. As of June 30, 2003 and 2002, respectively, impaired loans of $330,971 and $663,587 had no related allowance for loan losses.





Interest of $198,196, $475,190, and $586,156 was recognized on average impaired loans of $661,746, $3,165,567 and $5,929,505 for 2003, 2002, and 2001, respectively. Interest of $191,040, $262,402, and $339,220 was recognized on impaired loans on a cash basis during 2003, 2002, and 2001,


respectively.





Activity in the allowance for loan losses was as follows:




2003
2002
2001Balance, beginning of year

$
2,649,872


2,697,389


2,519,946Provision charged to expense


610,000


291,000


310,000Losses charged off net of recoveries of $52,015 for2003, $482 for 2002 and $0 for 2001


(484,552
)

(338,517
)

(132,557
)Balance, end of year

$
2,775,320


2,649,872


2,697,389





The weighted average interest rate on loans as of June 30, 2003 and 2002 was 5.72% and 6.62%, respectively.





The Bank serviced mortgage loans for others amounting to $116,183,857, $90,384,363, and $51,451,459 as of June 30, 2003, 2002, and 2001, respectively. The Bank serviced commercial loans for others amounting to $1,221,432, $4,877,246 and $976,594 as of June 30, 2003, 2002 and 2001, respectively.





29
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*





NOTE 4:  PREMISES AND EQUIPMENT





Major classifications of premises and equipment, stated at cost, are as follows:




2003
2002Land

$
1,250,789


1,250,789Buildings and improvements


6,303,142


6,287,443Furniture, fixtures and equipment


3,645,301


3,701,686Leasehold improvements


204,069


204,06911,403,301


11,443,987Less accumulated depreciation


(4,694,305
)

(4,087,889
)Net premises and equipment

$
6,708,996


7,356,098





Depreciation expense was $783,933, $1,020,070, and $622,855 for the years ended June 30, 2003, 2002, and 2001, respectively.





NOTE 5:  OTHER COMPREHENSIVE INCOME (LOSS)





Other comprehensive income (loss) components and related taxes were as follows:





2003
2002
2001Unrealized gains (losses) onavailable-for-sale securities

$
(1,535,831
)

(807,538
)

2,657,254Less: Reclassification adjustment forrealized (gains) losses included in income


-


(780,742
)

(198,118
)Other comprehensive income (loss), before tax effect


(1,535,831
)

(1,588,280
)

2,459,136Tax expense (benefit)


(568,257
)

(587,664
)

909,880Other comprehensive income (loss)

$
(967,574
)

(1,000,616
)

1,549,256











30
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*




NOTE 6:  DEPOSITS





June 30, 2003
June 30, 2002Weighted Average Rate


Balance


Percentage of Deposits


Weighted Average Rate


Balance


Percentage of DepositsDemand


0.00
%
$
24,650,393


10.5
%

0.00
%

11,656,950


5.2
%NOW


0.31
%

32,806,352


13.2
%

0.79
%

29,386,101


13.0
%Money market


1.31
%

37,511,932


15.9
%

2.07
%

34,889,127


15.5
%Passbook savings


0.80
%

17,458,316


7.4
%

1.65
%

17,769,657


7.9
%0.65
%

112,426,993


47.7
%

1.35
%

93,701,835


41.6
%Certificates:0% - 3.99%


2.40
%

81,797,903


34.7
%

2.84
%

60,129,356


26.7
%4.00% - 5.99%


4.98
%

36,483,700


15.5
%

4.86
%

59,760,493


26.5
%6.00% - 7.99%


6.44
%

4,968,601


2.1
%

6.39
%

11,692,310


5.2
%3.33
%

123,250,204


52.3
%

4.07
%

131,582,159


58.4
%Total Deposits


2.05
%
$
235,677,197


100.0
%

2.95
%

225,283,994


100.0
%





The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately $12,258,000 and $15,107,000 as of June 30, 2003 and 2002, respectively.





A summary of certificates of deposit by maturity as of June 30, 2003, is as follows:




Fiscal year ending:June 30, 2004

$
76,058,653June 30, 2005


21,800,481June 30, 2006


9,463,112June 30, 2007


7,758,566June 30, 2008


5,344,429Thereafter


2,824,963$
123,250,204





A summary of interest expense on deposits is as follows:


2003
2002
2001NOW and Money Market accounts

$
813,619


934,165


1,162,486Savings accounts


221,264


241,553


198,793Certificate accounts


4,792,812


5,860,915


5,383,870Early withdrawal penalties


(25,250
)

(19,349
)

(26,619
)$
5,802,445


7,017,284


6,718,530





The Bank utilizes brokered deposits as an additional funding source. The aggregate amount of brokered deposits was approximately $25,000,000 and $22,000,000 as of June 30, 2003 and 2002, respectively.





31
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*





NOTE 7:  FEDERAL HOME LOAN BANK ADVANCES





Federal Home Loan Bank advances consist of the following:




June 30, 2003
June 30, 2002Maturity Date


Amount


Weighted Average Rate


Amount


Weighted Average RateFiscal Year 2003

$
-


-


13,333,600


4.20
%Fiscal Year 2004


60,322,500


2.79
%

26,322,500


4.68
%Fiscal Year 2005


7,350,000


4.86
%

5,350,000


5.95
%Fiscal Year 2006


6,500,000


5.84
%

6,500,000


5.84
%Fiscal Year 2007


3,000,000


5.34
%

3,000,000


5.34
%Fiscal Year 2008


3,950,000


5.91
%

4,250,000


5.91
%Thereafter


33,496,394


5.77
%

52,327,063


5.88
%$
114,618,894


4.14
%
$
111,083,163


5.38
%





In the year ending June 30, 2004, the Bank has the option to prepay $15.9 million of FHLB advances with a remaining average life of 5.1 years and a weighted average rate of 5.84%. The current FHLB advance rate with a similar average life is 3.61%, a 223 basis point savings. Also in the year ending June 30, 2004, the Bank had advances equal to $11,000,000 with a weighted average rate of 5.40% callable between July 30, 2003 and October 20, 2003 at the FHLBs option with a maturity date between July 30, 2008 and October 20, 2008.





The FHLB requires the Bank to maintain collateral equal to outstanding balances of advances. For collateral purposes, the FHLB values mortgage loans free of other pledges, liens and encumbrances at 80% of their fair value, and investment securities free of other pledges, liens and encumbrances at 95% of their fair value.





32
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*





NOTE 8:  INCOME TAXES





The Company files a consolidated federal income tax return. In computing federal income taxes for taxable years prior to July 1, 1996, the Bank has been allowed an 8% deduction from otherwise taxable income as a statutory bad debt deduction, subject to limitations based on aggregate loans and savings balances. In August 1996 this statutory bad debt deduction was repealed and is no longer available for thrifts. In addition, bad debt reserves accumulated after 1987, which are presently included as a component of the net deferred tax liability, must be recaptured over a six-year period beginning in 1999. The amount of the deferred tax liability which must be recaptured is $56,000 and $112,000 as of June 30, 2003 and 2002, respectively.







As of June 30, 2003, and 2002, retained earnings included approximately $5,075,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount was approximately $1,878,000 as of June 30, 2003 and 2002.





The provision for income taxes consists of:





2003
2002
2001Taxes currently payable

$
1,810,815


1,680,799


1,694,605Deferred income taxes


(154,815
)

211,201


48,395$
1,656,000


1,892,000


1,743,000





The tax effects of temporary differences related to deferred taxes shown on the June 30, 2003 and 2002, balance sheets are:





2003
2002Deferred tax assets:Allowances for loan and foreclosed asset losses

$
1,026,868


980,453Accrued compensated absences and bonuses


21,021


21,267Unrealized loss on loans held for sale


9,752


18,526RRP expense


116,325


136,541Deferred loan fees/costs


78,174


84,956State tax credits


117,658


-Other


13,790


4,9481,383,588


1,246,691Deferred tax liabilities:FHLB stock dividends


(206,867
)

(206,867
)Tax bad debt reserves in excess of base year


(56,271
)

(112,543
)Mortgage servicing rights


(261,471
)

(284,816
)Unrealized appreciation on available-for-sale securities


(1,162,865
)

(1,731,122
)Accumulated depreciation


(125,532
)

(112,630
)Other


(79,867
)

(31,070
)(1,892,873
)

(2,479,048
)Net deferred tax liability

$
(509,285
)

(1,232,357
)





33
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


A reconciliation of income tax expense at the statutory rate to income tax expense at the Companys effective rate is shown below:




2003
2002
2001Computed at statutory rate


34.0
%

34.0
%

34.0
%Increase (reduction) in taxes resulting from:State financial institution tax


-2.4
%

2.0
%

2.3
%ESOP


1.0
%

-0.2
%

0.8
%Other


-1.0
%

-1.3
%

-2.1
%Actual tax provision


31.6
%

34.5
%

35.0
%





Missouri law provides that banks will be taxed based on an annual privilege tax of 7% of net income. The privilege tax is included in provision for income taxes.





Deferred tax liabilities decreased $568,257 for 2003, decreased $587,664 for 2002 and increased $909,880 for 2001, as the result of changes in unrealized appreciation on available-for-sale securities, shown in stockholders' equity.





NOTE 9:  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS





The following table presents estimated fair values of the Companys financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.




June 30, 2003
June 30, 2002Carrying Amount


Fair Value


Carrying Amount


Fair ValueFinancial assets:Cash and cash equivalents

$
19,014,528


19,014,528

$
16,963,502


16,963,502Available-for-sale securities


13,271,147


13,271,147


16,463,460


16,463,460Held-to-maturity securities


2,250,894


2,401,387


3,219,091


3,421,746Mortgage loans held-for-sale


9,755,102


9,755,102


3,131,138


3,131,138Loans, net


327,082,420


331,370,000


316,785,118


316,895,000Federal Home Loan Bank stock


8,600,400


8,600,400


8,600,400


8,600,400Interest receivable


1,430,125


1,430,125


1,654,511


1,654,511Financial liabilities:Deposits


235,677,197


237,602,000


225,283,994


225,475,675Federal Home Loan Bank advances


114,618,894


116,470,000


111,083,163


117,481,000Securities sold under agreementsto repurchase


702,024


702,024


1,093,074


1,093,074Interest payable


203,237


203,237


759,099


759,099Dividend payable


415,414


415,414


347,656


347,656Unrecognized financial instruments(net of contractual value):Commitments to extend credit


-


-


-


-Unused lines of credit


-


-


-


-





34
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


The following methods and assumptions were used to estimate the fair value of each class of financial instruments:





Cash and Cash Equivalents and Federal Home Loan Bank Stock


The carrying amounts reported in the balance sheets for cash and cash equivalents approximate those assets' fair value.





Investment Securities


Fair values for investment securities equal quoted market prices, if available. If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities.





Accrued Interest Receivable


The carrying amount of accrued interest receivable approximates its fair value.





Mortgage Loans Held for Sale


Fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.





Loans


The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics are aggregated for purposes of the calculations.





Deposits


The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.








Federal Home Loan Bank Advances


Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate fair value of existing advances.





Securities Sold under Agreements to Repurchase


For these short-term instruments, the carrying amount is a reasonable estimate of fair value.





Accrued Interest and Dividend Payable


The carrying amounts of accrued interest payable and dividend payable approximates their fair value.





Commitments to Extend Credit, Letters of Credit and Lines of Credit


The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.





NOTE 10: SIGNIFICANT ESTIMATES AND CONCENTRATIONS





Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the footnote regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk.


35
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*








NOTE 11:  EMPLOYEE BENEFIT PLANS





Stock Award Plans


The Company has established four stock award plans for the benefit of certain directors, officers and employees of the Bank and its subsidiary. The plans provide a proprietary interest in the Company in a manner designed to encourage these individuals to remain with the Bank. A Committee of the Banks Board of Directors administers the plans. The Company accounts for the cost of share purchases under the plans as a reduction of stockholders' equity. The awards vest at the rate of 20% per year over a five-year period. Compensation expense is recognized based on the Companys stock price on the date the shares are awarded to employees.





At the annual stockholders meeting on October 18, 1995, the Banks stockholders approved the Recognition and Retention Plan (the "RRP"). Following approval of the Plan, the Bank contributed $464,643 to a separate trust to purchase the 75,106 shares of the Companys common stock in the RRP. As of June 30, 2003, there are 1,119 shares in this plan that are not vested.





At a special stockholders meeting on July 22, 1998, the Companys stockholders approved the Restricted Stock Plan (the "RSP"). Following approval of the Plan, the Company contributed $2,373,065 to a separate trust to purchase the 173,632 shares in the RSP. As of June 30, 2003 there are 25,346 shares in this plan that are not vested.





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. Under the stock award component of this plan, the Committee awarded 7,125 shares of the Companys common stock. Following approval of the Plan, the Company contributed $85,945 to a separate trust to purchase the 7,125 shares in the SCP. As of June 30, 2003 there are 2,850 shares in this plan that are not vested.





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. Under the stock award component of this plan, the Committee awarded 10,239 shares of the Companys common stock. The shares for this plan were taken from forfeited shares in the RSP. As of June 30, 2003 there are 8,190 shares in this plan that are not vested.





The Bank recognized $353,004, $401,403 and $464,032 of expense under these stock award plans in the years ended June 30, 2003, 2002, and 2001 respectively.





Stock Option Plans


The Company has established four stock option plans for the benefit of certain directors, officers and employees of the Bank and its subsidiary. A committee of the Companys Board of Directors administers the plans. The stock options under these plans may be either incentive stock options or nonqualified stock options. Incentive stock options can be granted only to participants who are employees of the Bank or its subsidiary. The option price must not be less than the market value of the Company stock on the date of grant. All options expire no later than ten years from the date of grant. The options vest at the rate of 20% per year over a five-year period.





At the annual stockholders meeting on October 18, 1995, the Banks stockholders approved the 1994 Stock Option and Incentive Plan for the benefit of certain directors, officers and employees of the Bank and its subsidiary. Under this Plan, the Committee may grant stock options for up to 187,764 shares of the Companys common stock.





At a special stockholders meeting on July 22, 1998, the Companys stockholders approved the 1998 Stock Option and Incentive Plan. Under this plan, the Committee may grant stock options for up to 434,081 shares of the Companys common stock.




36ODY>
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


Under the stock option component of the 2000 SCP, the Committee granted nonqualified stock options for 17,875 shares of the Companys common stock.





Under the stock option component of the 2001 SCP, the Committee had granted no nonqualified stock options as of June 30, 2003.





The table below summarizes transactions under the Companys stock option plans:





Number of sharesIncentive Stock Option

Non-Qualified Options to Directors

Weighted Average Exercise PriceBalance outstanding as of July 1, 2000


430,375


156,589


11.83Granted, in FY 2001


26,000


-


12.06Exercised, in FY 2001


(18,357
)

-


6.02Forfeited, in FY 2001


(29,821
)

(23,402
)

13.12Balance outstanding as of June 30, 2001


408,197


133,187


11.92Granted, in FY 2002


15,000


25,533


13.01Exercised, in FY 2002


(97,010
)

-


9.53Forfeited, in FY 2002


(54,850
)

-


13.24Balance outstanding as of June 30, 2002


271,337


158,720


12.39Granted, in FY 2003


10,000


-


15.31Exercised, in FY 2003


(19,698
)

(31,746
)

10.82Forfeited, in FY 2003


(4,277
)

(13,360
)

12.47Balance outstanding as of June 30, 2003


257,362


113,614


12.68Options exercisable as of June 30, 2003


186,421


72,001


12.49





The fair value of each option granted is estimated on the date of the grant using the Black-Scholes pricing model with the following weighted-average assumptions:




June 30, 2003
June 30, 2002
June 30, 2001Dividends per share

$
0.68

$
0.50

$
0.47Risk-free interest rate


3.00
%

4.54
%

5.24
%Expected life of options


5 years


5 years


5 yearsWeighted-average fair value of options granted during year

$
0.57

$
1.77

$
2.09




37
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*







The following table summarizes information about stock options under the plans outstanding as of June 30, 2003:




Exercise Price

Number Outstanding

Number Exercisable

Remaining Contractual Life$                5.83

3,823

3,823

3.5 years6.02

16,249

16,249

2.5 years6.08

6,547

6,547

3.0 years9.94

1,600

-

6.8 years10.25

4,000

2,400

6.6 years10.50

17,875

10,725

6.6 years11.05

2,000

800

8.0 years12.13

3,000

1,200

7.7 years12.50

25,533

5,107

8.1 years12.75

8,000

3,200

7.6 years13.44

257,349

205,371

5.1 years13.89

15,000

3,000

8.6 years15.31

10,000

-

9.6 years





Employee Stock Ownership Plan


The Bank sponsors an internally-leveraged Employee Stock Ownership Plan (ESOP). All employees are eligible to participate after they attain age twenty-one and complete twelve consecutive months of service during which they work at least 1,000 hours. The ESOP borrowed $3,444,540 from the Company and purchased 344,454 shares of the common stock of the Company. The ESOP debt is secured by shares of the Company. The loan will be repaid from contributions to the ESOP as approved annually by the Banks Board of Directors. As the debt is repaid, shares are released from collateral and allocated to employees accounts. The shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. When shares are committed for release, the shares become outstanding for earnings per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings and may be paid directly to participants or credited to their account; dividends are not paid on unallocated ESOP shares. Compensation expense is recognized ratably based on the average fair value of shares committed to be released. Compensation expense attributed to the ESOP was $373,724, $319,275, and $268,624 for the years ended June 30, 2003, 2002,and 2001 respectively.





The following is a summary of ESOP shares as of June 30, 2003:





Beginning ESOP shares


344,454Released shares


(116,347
)Shares committed for release


(12,414
)Unreleased shares


215,693Fair value of unreleased shares

$
3,459,716





38
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*







NOTE 12:  RELATED PARTY TRANSACTIONS





Certain directors and executive officers of the Company and the Bank were customers of and had transactions with the Bank in the ordinary course of business. As of June 30, 2003 and 2002, loans outstanding to these directors and executive officers amounted to $463,323 and $302,518, respectively.





In management's opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management's opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.





NOTE 13:  COMMITMENTS AND CREDIT RISK





Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate.





As of June 30, 2003 and 2002, the Bank had outstanding commitments to originate loans of approximately $23,835,000 and $9,485,000, respectively. The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period. As of June 30, 2003 and 2002, commitments of $16,397,000 and $3,910,000, respectively, were at fixed rates and $7,438,000 and $5,575,000, respectively, were at floating market rates.





Forward commitments to sell mortgage loans are obligations to deliver loans at a specified price on or before a specified date. The Bank acquires such commitments to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale. As of June 30, 2003 and 2002 the Bank had approximately $13,551,000 and $4,793,000, respectively, of commitments outstanding.





Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.





The Bank had total outstanding letters of credit amounting to $1,671,000 and $24,000 as of June 30, 2003 and 2002, respectively, with terms ranging from 30 days to 2 years.





Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer's credit worthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on balance sheet instruments.





39
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*


As of June 30, 2003, unused lines of credit to borrowers aggregated approximately $17,955,000 for commercial lines and $13,397,000 for open-end consumer lines. As of June 30, 2002, unused lines of credit to borrowers aggregated approximately $12,472,000 for commercial lines and $11,205,000 for open-end consumer lines.





NOTE 14:  CONDENSED PARENT COMPANY STATEMENTS





The condensed balance sheets as of June 30, 2003 and 2002, and statements of income and cash flows for the years ended June 30, 2003, 2002 and 2001, for the parent company, Guaranty Federal Bancshares, Inc., are as follows:





Balance Sheets

As of June 30,2003


2002AssetsCash

$
465,350


362,187Due from subsidiary


9,405


17,484Investment in subsidiary


36,019,229


34,620,317Loans receivable, net


-


290,580Accrued interest receivable


-


3,377Prepaid expenses and other assets


437,385


418,441Refundable income taxes


37,195


116,209$
36,968,564


35,828,595LiabilitiesAccrued expenses and other liabilities

$
11,338


46,062Due to holding company


-


-Deferred income taxes


-


-Dividend payable


415,414


347,656Stockholders' equityCommon stock


641,685


636,540Additional paid-in capital


51,065,581


49,842,032Unearned ESOP shares


(2,156,930
)

(2,406,070
)Retained earnings


29,280,784


27,372,935Unrealized appreciation on available-for-sale securities, net


1,980,013


2,947,587Treasury stock


(44,269,321
)

(42,958,147
)$
36,968,564


35,828,595





40
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*












Income Statements

For the years endedJune 30, 2003


June 30, 2002


June 30, 2001IncomeDividends from subsidiary bank

$
1,750,468


17,310,694


11,260,000Interest income:Related party


121,542


163,665


268,602Other


-


21,001


79,617Other


-


66,138


8,5841,872,010


17,561,498


11,616,803ExpenseOccupancy


2,400


2,400


2,400Other


190,491


401,242


170,940192,891


403,642


173,340Income before income taxes and equity inundistributed earnings of subsidiary


1,679,119


17,157,856


11,443,463Provision (credit) for income taxes


(26,487
)

(56,739
)

68,108Income before equityin undistributed earnings of subsidiary


1,705,606


17,214,595


11,375,355Equity in undistributed earnings of subsidiary


1,874,043


(13,621,613
)

(8,142,382
)Net income

$
3,579,649


3,592,982


3,232,973







41
  ***Guaranty Federal Bancshares, Inc.***
 *Notes to Consolidated Financial Statements*










Statements of Cash Flows

For the years endedJune 30, 2003


June 30, 2002


June 30, 2001Cash Flows From Operating ActivitiesNet income

$
3,579,649


3,592,982


3,232,973Items not requiring (providing) cash:Equity in undistributed earnings of subsidiary


(1,874,043
)

-


-Gain on sale of available-for-sale securities


-


(66,138
)

(8,574
)Release of ESOP shares


249,140


234,730


229,640Changes in:Accrued interest receivable


3,377


(3,377
)

-Prepaid expenses and other assets


(18,944
)

(67,506
)

(75,541
)Income taxes payable/refundable


79,014


(67,194
)

(4,794
)Accrued expenses


(34,724
)

50,642


(47,853
)Net cash provided by operating activities


1,983,469


3,674,139


3,325,851Cash Flows From Investing ActivitiesInvestment in subsidiaryLoan to ESOP


-


-


-Purchase of loans


-


(291,402
)

-Net collections of loans


-


822


-Purchase of land


-


-


-Proceeds from sale of loans


290,580


-


-Proceeds from sale of available-for-sale securities


-


719,476


395,253Purchase of available-for-sale securities


-


-


(102,012
)Net (increase) decrease in advance to subsidiary


8,079


(4,442
)

8,635Distribution in excess of net income of subsidiary


-


13,621,613


8,142,382Net cash provided by investing activities


298,659


14,046,067


8,444,258Cash Flows From Financing ActivitiesProceeds from sale of common stock, net


-


-


-Stock options exercised


556,869


924,677


110,510Cash dividends received on RRP shares


-


-


-Cash dividends paid


(1,604,042
)

(1,823,928
)

(1,936,401
)Treasury stock purchased


(1,131,792
)

(16,826,643
)

(9,986,737
)Net cash used in financing activities


(2,178,965
)

(17,725,894
)

(11,812,628
)Increase (decrease) in cash


103,163


(5,688
)

(42,519
)Cash, beginning of year


362,187


367,875


410,394Cash, end of year

$
465,350


362,187


367,875







42











Independent Accountants Report











Board of Directors


Guaranty Federal Bancshares, Inc.


Springfield, Missouri








We have audited the accompanying balance sheets of Guaranty Federal Bancshares, Inc. as of June 30, 2003 and 2002, and the related statements of income, stockholders equity and cash flows for each of the three years in the period ended June 30, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.




We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.




In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Guaranty Federal Bancshares, Inc. as of June 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2003, in conformity with accounting principles generally accepted in the United States of America.





/s/ BKD, LLP


July 24, 2003


Springfield, Missouri














43