SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549 
                                   FORM 10-K

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

|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
          
     For the fiscal year ended June 30, 1998 

                                     - or -

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934For the transition period from            to          
                                                        ----------    ---------

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

                        GUARANTY FEDERAL BANCSHARES, INC.
                        ---------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

           Delaware                                        43-1792717
----------------------------------          ------------------------------------
  (State or Other Jurisdiction              (I.R.S. Employer Identification No.)
 of Incorporation or Organization)

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

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

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

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

         Common Stock, par value $.10 per share
         (Title of Class)

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

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant, based on the average bid and asked prices of the Registrant's
Common  Stock as quoted on the  National  Market of The Nasdaq  Stock  Market on
September 23, 1998, was $55.9 million.

         As of September 8, 1998 there were outstanding 5,916,745 shares of
the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the fiscal year ended
     June 30, 1998. (Parts II and IV)
2.   Portions  of  the  Proxy   Statement   for  the  1998  Annual   Meeting  of
     Stockholders. (Part III)
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

                                    Form 10-K

                                TABLE OF CONTENTS

Item     Page

         PART I

         1.       Business

         2.       Properties

         3.       Legal Proceedings

         4.       Submission of Matters to a Vote of Security Holders

         PART II

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

         6.       Selected Financial Data

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

         7A.      Quantitative and Qualitative Disclosures About Market Risk

         8.       Financial Statements and Supplementary Data

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

         PART III

         10.      Directors and Executive Officers of the Registrant

         11.      Executive Compensation

         12.      Security Ownership of Certain Beneficial Owners and Management

         13.      Certain Relationships and Related Transactions

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

Signatures


<PAGE>


PART I

         GUARANTY FEDERAL BANCSHARES, INC. (THE "COMPANY") MAY FROM TIME TO TIME
MAKE  WRITTEN  OR  ORAL  "FORWARD-LOOKING   STATEMENTS",   INCLUDING  STATEMENTS
CONTAINED IN THE COMPANY'S  FILINGS WITH THE SECURITIES AND EXCHANGE  COMMISSION
(INCLUDING  THIS ANNUAL  REPORT ON FORM 10-K AND THE EXHIBITS  THERETO),  IN ITS
REPORTS TO STOCKHOLDERS AND IN OTHER  COMMUNICATIONS  BY THE COMPANY,  WHICH ARE
MADE IN GOOD FAITH BY THE COMPANY  PURSUANT TO THE "SAFE  HARBOR"  PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

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

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



<PAGE>

Item 1.  Business

Business of the Company

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

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

Business of the Bank

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

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

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

Market Area

         The  Bank's  primary  market  area is  Greene  County,  which is in the
southwestern corner of Missouri. While the population of Greene County increased
12.4%  between 1980 and 1990 and its per capita  income grew  approximately  32%
between  1985 and 1990,  the average  per capita  income in 1990 still was lower
than  the  average  per  capita  income  for  Missouri  and the  United  States.
Springfield  has a Metropolitan  Statistical  Area  population of  approximately
250,000.  The local  economy is well  diversified  with the  majority of jobs in
light  manufacturing  and service  industries.  There is a large regional health
care presence with two large regional hospitals employing over 8,000. There also
are four  accredited  colleges and one major  university  with total  enrollment
approaching  25,000.  Part of Greene  County's  growth can be  attributed to its
proximity to Branson,  Missouri,  which has developed a strong tourism  industry
related to country music and entertainment. Branson is located 30 miles south of
Springfield,  and receives between five and six million tourists each year, many
of whom pass through Springfield.
<PAGE>

Lending Activities

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


Composition of Loan Portfolio 
<TABLE>
<CAPTION>
                                                                               At June 30,
                                                                               -----------
                                          1998                 1997               1996                1995                1994
                                          ----                 ----               ----                ----                ----
                                    Dollars   Percent   Dollars   Percent   Dollars   Percent   Dollars   Percent   Dollars  Percent
                                    -------   -------   -------   -------   -------   -------   -------   -------   -------  -------
                                                                         (Dollars in Thousands)
<S>                               <C>         <C>    <C>          <C>     <C>         <C>     <C>         <C>     <C>        <C>   
Mortgage loans (includes loans
held for sale):
  One to four units                $ 148,396   66.27% $ 116,441    68.11%  $ 98,918    68.26%  $ 92,104    71.84%  $ 84,669   73.38%
  Multi-family                        21,536    9.62%    15,457     9.04%    13,701     9.45%    12,169     9.49%    12,306   10.67%
  Construction                        34,729   15.51%    25,149    14.71%    21,729    14.99%    17,887    13.95%    12,895   11.18%
  Commercial real estate              12,721    5.68%     8,323     4.87%     8,739     6.03%     5,162     4.03%     4,746    4.11%
                                   ---------  ------  ---------   ------   --------   ------   --------   ------   --------  ------ 
Total mortgage loans                 217,382   97.08%   165,370    96.73%   143,087    98.73%   127,322    99.30%   114,616   99.34%
                                   ---------  ------  ---------   ------   --------   ------   --------   ------   --------  ------ 
  Commercial business loans              646    0.29%       383     0.22%       255     0.18%       219     0.17%        99    0.09%
  Share loans                            623    0.28%       720     0.42%       530     0.37%       522     0.41%       421    0.36%
  Automobile                           2,018    0.90%     1,765     1.03%     1,005     0.69%       106     0.08%        86    0.07%
  Other                                3,251    1.45%     2,727     1.60%        48     0.03%        45     0.04%       158    0.14%
                                   ---------  ------  ---------   ------   --------   ------   --------   ------   --------  ------ 
Total consumer and other loans         6,538    2.92%     5,595     3.27%     1,838     1.27%       892     0.70%       764    0.66%
                                   ---------  ------  ---------   ------   --------   ------   --------   ------   --------  ------ 
Total loans                          223,920  100.00%   170,965   100.00%   144,925   100.00%   128,214   100.00%   115,380  100.00%
                                              ======              ======              ======              ======             ====== 
Less:
  Loans in process                    15,235             10,476               7,572               6,537               8,498
  Deferred loan fees/costs, net           84                (39)                (22)               (116)                (87)
  Unearned discounts                     190                216                 238                 233                   1
  Allowance for loan losses            2,191              2,177               2,108               1,718               1,703 
                                   ---------          ---------           ---------           ---------           --------- 
Total Loans, Net                   $ 206,220          $ 158,135           $ 135,029           $ 119,842           $ 105,265 
                                   =========          =========           =========           =========           ========= 


</TABLE>

<PAGE>


         The following table sets forth the dollar amount, before deductions for
unearned  discounts,  deferred loan fees/costs and allowance for loan losses, at
June 30, 1998 of all loans due after June 30,  1999,  which have  pre-determined
interest rates and which have adjustable interest rates.


Fixed and Adjustable Rate Loans by Type

                                                         Adjustable
                                         Fixed Rates       Rates          Total
                                         -----------       -----         -------
                                                    (Dollars in Thousands)
One-to four-family ................        $37,450        106,334        143,784
Multi-family ......................          5,942         14,769         20,711
Construction ......................            678            953          1,631
Commercial real estate ............          4,275          5,864         10,139
Consumer & other loans ............          1,683          2,750          4,433
                                           -------        -------        -------
Total loans (1) ...................        $50,028        130,670        180,698
                                           =======        =======        =======

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

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


Origination, Purchase and Sale of Loans


                                             Year ended June 30,
                                             -------------------
                                      1998          1997           1996
                                      ----          ----           ----
                                           (Dollars in Thousands)
Total gross loans receivable at
     beginning of period          $ 170,965       144,925        127,981 
                                  ---------       -------        ------- 

Loans originated:
   One- to- four-family              66,385        47,942         32,448
   Multi-family                          19         2,259          2,903
   Construction                      35,800        28,863         26,680
   Commercial real estate             7,793         3,398          7,053
   Consumer and other                 6,008         4,499          3,521 
                                  ---------       -------        ------- 
Total loans originated              116,005        86,961         72,605

Loans purchased:                                           
Total loans purchased                     -             -              -

Loans sold:
Whole loans                          (6,364)       (4,134)        (5,319)
Loan principal repayments           (53,684)      (45,924)       (41,867)
other items, net (1)                 (3,002)      (10,863)        (8,475)
                                  ---------       -------        ------- 
Net loan activity                    52,955        26,040         16,944

Total gross loans receivable at
     end of period                $ 223,920       170,965        144,925 
                                  =========       =======        ======= 

(1)  Includes non-cash portion of loan originations.

<PAGE>

         The  following  table  sets  forth  the  maturity  of the  Bank's  loan
portfolio at June 30, 1998. The table shows loans that have  adjustable-rates as
due in the period  during which they  contractually  mature.  The table does not
include  prepayments  or  scheduled  principal  amortization.   Prepayments  and
scheduled principal repayments on loans totaled $53.7 million for the year ended
June 30, 1998.

Loan Maturities

<TABLE>
<CAPTION>
                                                        Due After
                                  Due One Year         One Through          Due After
                                    or Less             Five Years          Five Years             Total
                                    -------             ----------          ----------             -----
                                                             (Dollars in Thousands)
<S>                                 <C>                  <C>                <C>                 <C>    
One to four family                  $  4,612              15,847             127,937             148,396
Multi family                             825               3,949              16,762              21,536
Construction                          18,187                 483               1,148              19,818
Commercial real estate                 2,258               5,247               4,892              12,397
Consumer and other loans               2,105               4,398                  35               6,538 
                                    --------              ------             -------             ------- 
  Total loans (1)                   $ 27,987              29,924             150,774             208,685 
                                    --------              ------             -------             ------- 
Less:
Deferred loan fees/costs                                                                              84
Unearned discounts                                                                                   190
Allowance for loan losses                                                                          2,191
                                                                                                 -------
Loans receivable net                                                                             206,220 
                                                                                                 ======= 
</TABLE>
                                                                   
(1) Includes mortgage loans held for sale.

<PAGE>

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

         As of June 30,  1998,  66.3% of loans  receivable  consisted of one- to
four-family residential loans, of which 73.2% were ARM loans. The Bank currently
offers ARM loans that have fixed  interest  rates for either one,  three or five
years and,  following that initial fixed period,  adjust annually.  The Bank has
also offered ARM loans for which  interest rates adjust every one, three or five
years.  Generally,  ARM loans  provide for limits on the maximum  interest  rate
adjustment  ("caps") that can be made at the end of each  applicable  period and
throughout  the duration of the loan.  ARM loans are originated for a term of up
to 30  years  on  owner-occupied  properties  and  generally  up to 25  years on
non-owner  occupied  properties.   Typically,   interest  rate  adjustments  are
calculated based on U.S. treasury  securities adjusted to a constant maturity of
one  year  (CMT),  plus a 2.5%  to  2.75%  margin.  Interest  rates  charged  on
fixed-rate  loans are  competitively  priced based on market  conditions and the
cost of funds. The Bank's fixed-rate mortgage loans currently are made for terms
of 15 and 30 years.

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

         The Bank generally originates one- to four-family  residential mortgage
loans in amounts up to 80% of the  appraised  value or the selling  price of the
mortgaged  property,  whichever is lower.  However,  mortgage  loans  secured by
non-owner occupied,  one- to four-family residential properties typically do not
exceed  75%  of the  appraised  value  or the  selling  price  of the  mortgaged
property,  whichever is lower.  The Bank may on occasion make loans up to 95% of
appraised  value or the selling  price of the  mortgage  property,  whichever is
lower,  however,  the Bank typically requires private mortgage insurance for the
excess  percentage  over 80% for mortgage  loans with loan to value  percentages
over 80%.

         Multi-Family Mortgage Loans. The Bank originates  multi-family mortgage
loans in its primary lending area. As of June 30, 1998, $21.5 million or 9.6% of
the Bank's total loan portfolio  consisted of  multi-family  residential  loans.
With regard to multi-family mortgage loans, the Bank generally requires personal
guarantees  of the  principals  as well as  security  interest  in real  estate.
Multi-family  mortgage loans are generally originated in amounts of up to 75% of
the appraised value of the property. The loan-to-one-borrower  limitation,  $8.1
million as of June 30, 1998, is the maximum the Bank will lend on a multi-family
real estate loan. Loans above $500,000  require Board of Director  approval on a
case-by-case basis.

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

<PAGE>


         Construction  Loans.  As of June 30, 1998,  construction  loans totaled
$34.7 million or 15.5% of the Bank's total loans outstanding. Construction loans
are made to certain builders for construction of single family homes for resale,
as well as to individuals in connection  with  long-term,  permanent loans to be
made upon completion of the construction.  This portfolio predominantly consists
of speculative  loans i.e. loans to builders who are speculating  that they will
be able to locate a purchaser for the  underlying  property  prior to or shortly
after the time construction has been completed.

         The Bank principally  finances the construction of single-family homes.
Construction  loans  are  made to  contractors  who  have  sufficient  financial
strength and a proven track record,  for the purpose of resale,  as well as on a
"pre-sold"  basis.  Construction  loans made for the purpose of resale generally
provide for interest  only  payments at fixed rates and have terms of six months
to one year. Construction loans on "pre-sold" homes may convert into a permanent
ARM loan upon completion of construction.  Construction  loans to a borrower who
will occupy a home,  or to a builder who has pre-sold the home,  typically  have
loan to value ratios of up to 85%.  Construction loans for speculative purposes,
models, and commercial  properties  typically have loan to value ratios of up to
80%. Loan proceeds are disbursed in increments as construction progresses and as
inspections  warrant.  The Bank  employs  inspectors  rather than  paying  title
companies for construction disbursement purposes.

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

         Commercial  Real Estate.  As of June 30, 1998,  the Bank had commercial
real  estate  loans  totaling  $12.7  million or 5.7% of the  Bank's  total loan
portfolio.  Commercial real estate loans are generally  originated in amounts up
to 75% of the appraised value of the mortgaged  property.  The Bank's commercial
real estate loans are  generally  permanent,  adjustable  rate loans  secured by
improved  property  such as office  buildings,  retail  stores,  small  shopping
centers, medical offices, motels, churches and other non-residential  buildings.
Less than $4 million in  commercial  real estate  loans are located  outside the
Bank's market area.

         To originate  commercial real estate loans, the Bank generally requires
a security interest in the real estate, personal guarantees of the principals, a
security interest in personal  property,  and a standby  assignment of rents and
leases. The Bank has established its loan-to-one borrower limitation,  which was
$8.1 million as of June 30,  1998,  as its maximum  commercial  real estate loan
amount.  Commercial loans above $500,000 require Board of Director approval on a
case-by-case basis.  Because of the small number of commercial real estate loans
made,  and the  relationship  of each  borrower to the Bank,  each such loan has
differing terms and conditions applicable to the particular borrower.

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

         At June 30, 1998, the Bank also included  approximately $2.6 million in
loans to develop land into  residential  lots and loans on completed lots in the
commercial  real estate loan  portfolio.  The Bank utilizes its knowledge of the
local market  conditions  and appraisals to evaluate the  development  cost, and

<PAGE>


estimate   projected  lot  prices  and  absorption  rates  to  assess  loans  on
residential  subdivisions.  The Bank typically  loans up to 70% of the appraised
value over terms up to two years.  Development loans generally involve a greater
degree  of risk  than  residential  mortgage  loans  because  (1) the  funds are
advanced upon the security of the land which has a materially  lower value prior
to completion of the infrastructure required of a subdivision, (2) the cash flow
available for debt repayment is a function of the sale of the  individual  lots,
and (3) the  interest  required  to service  the debt is a function  of the time
required to complete the development and sell the lots.

         Consumer and Other Lending. The Bank also offers other loans, primarily
loans secured by certificates of deposit,  commercial business assets,  consumer
loans,  home equity and automobile  loans.  As of June 30, 1998, $6.5 million or
2.9%,  of the Bank's  loan  portfolio  consisted  of such  loans.  The Bank will
continue to expand its consumer lending as opportunities present themselves.

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

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

Delinquencies and Problem Assets.

         Delinquent Loans. As of June 30, 1998, the Bank had no loans 90 days or
more past due and nine loans with total principal  balances of $389,000  between
30 and 89 days past due. The Bank  generally  does not accrue  interest on loans
past due more than 90 days  unless they are well  secured  and the Bank  expects
that the account will be collected within 30 days.
<PAGE>

         The  following  table sets  forth the Bank's  loans that are 90 days or
more delinquent.

Delinquency Summary
<TABLE>
<CAPTION>
                                                                                        At June 30,
                                                                                        -----------
                                                            1998            1997           1996         1995            1994
                                                            ----            ----           ----         ----            ----
                                                                                 (Dollars in Thousands)
<S>                                                     <C>                 <C>         <C>           <C>            <C>
Loans contractually past due 90 days or more                                                                   
     accounted for on a non-accrual basis:
Mortgage Loans:
     One- to four-family                                 $       -           279              -             -              -
     Multi-family                                                -           286              -             -              -
     Construction                                                -           190            273             -              -
     Commercial real estate                                      -             -              -         1,882          2,013 
                                                         ---------       -------        -------        ------         ------  
Total mortgage loans                                             -           755            273         1,882          2,013 
                                                         ---------       -------        -------        ------         ------  
Non-mortgage loans:
     Commercial loans                                            -             -            120             -              -
     Consumer and other loans                                    -             -              -             -              6 
                                                         ---------       -------        -------        ------         ------  
Total non-mortgage loans                                         -             -            120             -              6 
                                                         ---------       -------        -------        ------         ------  
Total 90 days or more past due non-accrual loans                 -           755            393         1,882          2,019 
                                                         ---------       -------        -------        ------         ------  
Accruing loans which are contractually past
due 90 days or more:
Mortgage Loans:
     One to four family                                          -             -            246             -              -
     Multi family                                                -             -              -             -              -
     Construction                                                -           113          1,047             -              -
     Commercial real estate                                      -             -             91             -              -
                                                         ---------       -------        -------        ------         ------  
Total mortgage loans                                             -           113          1,384             -              -
                                                         ---------       -------        -------        ------         ------  
Non-mortgage loans:                                   
     Commercial loans                                            -             -              -             -              -
     Consumer and other loans                                    -             -              -             -              -
                                                         ---------       -------        -------        ------         ------  
Total non-mortgage loans                                         -             -              -             -              -
                                                         ---------       -------        -------        ------         ------  
Total 90 days or more past due accruing loans                    -           113          1,384             -              -
                                                         ---------       -------        -------        ------         ------  
Total 90 days or more past due loans                     $       -           868          1,777         1,882          2,019 
                                                         =========       =======        =======        ======         ======  
Total 90 days or more past due loans as a percentage
of net loans                                                     -          0.55%          1.32%         1.57%          1.92%
                                                         =========       =======        =======        ======         ======  
Total 90 days or more past due loans as a percentage
of total assets                                                  -          0.44%          0.96%         1.10%          1.27%
                                                         =========       =======        =======        ======         ======  

</TABLE>


<PAGE>

         Non-Performing  Assets.  Loans are reviewed on a regular  basis and are
placed on non-accrual status when, in the opinion of management,  the collection
of additional  interest is doubtful.  Mortgage  loans are placed on  non-accrual
status  generally  when either  principal  or interest is more than 90 days past
due. At June 30, 1998,  management  has  classified  four mortgage loans and six
consumer loans as nonaccrual  although the loans are not contractually  past due
90 days or more.  Interest  accrued  and  unpaid at the time a loan is placed on
nonaccrual status is charged against interest income.

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

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

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

<PAGE>

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


Non-Performing Assets
<TABLE>
<CAPTION>
                                                                                                            

                                                                    As of June 30,
                                                                    --------------
                                                     1998      1997      1996      1995      1994
                                                   ------    ------    ------    ------    ------
                                                                 (Dollars in Thousands)
<S>                                               <C>        <C>      <C>       <C>       <C>
Mortgage Loans:
     One-to four-family                            $  213       279        --        --        --
     Multi family                                     775       286        --        --        --
     Construction                                      --       190       273        --        --
     Commercial real estate                            --       502        --     1,882     2,013
                                                   ------    ------    ------    ------    ------
Total mortgage loans                                  988     1,257       273     1,882     2,013
                                                   ------    ------    ------    ------    ------
Non-mortgage loans:
     Commercial loans                                  --        --       120        --        --
     Consumer and other loans                          24        --        --        --         6
                                                   ------    ------    ------    ------    ------
Total non-mortgage loans                               24        --       120        --         6
                                                   ------    ------    ------    ------    ------
Total non-performing loans                          1,012     1,257       393     1,882     2,019
Real estate acquired in settlement of loans           286       210         2         4         6
Non-performing loans classified as in-substance
foreclosures                                           --        --        --       698       846
                                                   ------    ------    ------    ------    ------
Total non-performing assets                        $1,298     1,467       395     2,584     2,871
                                                   ======    ======    ======    ======    ======
Total non-performing loans as a percentage of
 net loans                                           0.63%     0.93%     0.29%     1.57%     1.92%
Total non-performing assets as a percentage of
total assets                                         0.50%     0.74%     0.21%     1.51%     2.02%
Impact on interest income for the period
Interest income that would have been recorded on
non-accruing loans                                 $    4    $   31    $   15    $   --    $   --


</TABLE>



<PAGE>

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

         As of June 30,  1998,  the Bank had  total  classified  assets  of $2.2
million of which $1.4  million were  considered  substandard  and $152,000  were
classified as loss. Special mention assets totaled $693,000 as of June 30, 1998.

                  One borrower had 11 loans past due less than 30 days that were
classified  as special  mention as of June 30, 1998.  These  loans,  aggregating
approximately  $545,000,  were  secured by first  deeds on three  single  family
residences and 13 duplex units.  This borrower also holds loans from the Bank on
nine condominium  units secured by first and second deeds of trust,  aggregating
approximately  $305,000  at June 30,  1998 and  current at that date.  This same
borrower also owes the Bank approximately $469,000 through a first deed of trust
on a  multi-family  dwelling.  This loan was also current at June 30, 1998.  The
Bank  considers the loans  secured by the  condominium  units and  apartments as
impaired.  Based on the information  provided by the borrower,  these properties
did not generate sufficient cash flow to service the debt during 1998.

         As of June 30,  1998,  the Bank had  $286,000 in real  estate  obtained
through  foreclosure.  Subsequently  the  property has been sold with no further
loss.


<PAGE>

         The  following  table  shows  the  aggregate   amounts  of  the  Bank's
classified assets as of June 30, 1998.

Classification of Assets    
<TABLE>
<CAPTION>
                                                                       As of June 30, 1998
                                                                       -------------------
                                         Substandard              Doubtful                   Loss               Special Mention
                                         -----------              --------                   ----               ---------------
                                      Number     Amount      Number       Amount      Number      Amount      Number       Amount
                                      ------     ------      ------       ------      ------      ------      ------       ------
                                                                         (Dollars in Thousands)
<S>                                   <C>      <C>          <C>           <C>         <C>         <C>         <C>          <C>
Loans:
  One- to four-family                    11     $   392           -            -           -           -          13          693
  Multi-family                            2         628           -            -           3         146           -            -
  Commercial real estate                  -           -           -            -           -           -           -            -
  Construction and land                   1           -           -            -           -           -           -            -
  Other loans                             9          75           -            -           5           6           -            - 
                                      -----     -------       -----        -----       -----       -----       -----          --- 
       Total loans                       23     $ 1,095           -            -           8         152          13          693 
                                      =====     =======       =====        =====       =====       =====       =====         ====
Foreclosed assets held-for-sale:
  One- to four-family                     2       $ 286           -            -           -           -           -            -
  Commercial real estate                  -           -           -            -           -           -           -            -
  Land and other loans                    -           -           -            -           -           -           -            - 
                                      -----     -------       -----        -----       -----       -----       -----          --- 
       Total foreclosed assets            2         286           -            -           -           -           -            - 
                                      -----     -------       -----        -----       -----       -----       -----          --- 
       Total                             25     $ 1,381           -            -           8         152          13          693 
                                      =====     =======       =====        =====       =====       =====       =====         ====
</TABLE>

<PAGE>

Allowance for Loan Losses

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

         As of June 30,  1998,  the Bank's total  allowance  for loan losses was
$2.2 million which amounted to 0.98% of total loans. This allowance reflects not
only  management's  determination  to  maintain  an  allowance  for loan  losses
consistent with regulatory  expectations  for  non-performing  assets,  but also
reflects  the  Bank's  policy  of  evaluating  the  risks  inherent  in its loan
portfolio, and the regional economy.

         In  March  1996  the  Bank  had  $1.2  million  of loan  recovery  on a
commercial  loan which was previously  partially  charged off. The loan recovery
represents  amounts  recovered in excess of the carrying  balance of the loan as
reflected  by the original  terms of the loan,  including  accrued  interest and
previously  charged-off  principal.  Consequently,  the Bank determined that the
allowance for loan losses was sufficient prior to the recovery, and credited the
provision for loan losses. During fiscal year 1997, the Bank again experienced a
net recovery and based on a review discussed  above,  elected to make no further
addition to the allowance.  During fiscal year 1998, the Bank  experienced  loan
charge-offs in excess of recoveries of $108,804, and based on a review discussed
above, elected to add $123,352 to the allowance. Management anticipates the need
to continue adding to loss reserves through charges to provision for loan losses
if growth in the loan portfolio continues as anticipated.


<PAGE>

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



Allowance for Loan Losses
<TABLE>
<CAPTION>
                                                                                       Year Ended June 30,
                                                                                 ----------------------------
                                                                 1998          1997           1996          1995          1994
                                                                 ----          ----           ----          ----          ----
                                                                                      (Dollars in Thousands)
<S>                                                           <C>           <C>            <C>            <C>           <C>   
Allowance for loan losses:
Beginning balance                                             $ 2,177         2,108          1,718         1,703         1,687 
                                                              -------         -----          -----         -----         ----- 
Gross loan charge offs
(non-residential commercial
residential one to four-family)                                  (151)          (63)            (4)           (5)           (2)
Recoveries
(residential one to four-family)                                   42           132          1,407             4             4 
                                                              -------         -----          -----         -----         ----- 
Net loans recoveries (charge-offs)                               (109)           69          1,403            (1)            2
Provision (credit) for loan losses
(charged to expense)                                              123             -         (1,212)           16            14
Allowance reclassified to loans which were previously
    classified as insubstance foreclosures                         -             -             199            -             - 
                                                              -------         -----          -----         -----         ----- 
Ending balance                                                $ 2,191         2,177          2,108         1,718         1,703 
                                                              =======         =====          =====         =====         ===== 
Net charge-offs as a percentage
of average loans, net                                           -0.06%         0.05%          1.10%         0.00%         0.00%
Allowance for loan losses as a
percentage of average loans, net                                 1.24%         1.49%          1.66%         1.52%         1.62%
Allowance for loan losses as a
percentage to total non-performing loans                       216.50%       173.19%        536.39%        91.29%        84.35%

</TABLE>


Allocation of Allowance for Loan Losses                            

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

<TABLE>
<CAPTION>
                                                                       At June 30, 
                                                                       ----------- 
                                     1998              1997              1996              1995               1994
                                     ----              ----              ----              ----               ----
                               Amount      %      Amount     %     Amount      %     Amount      %       Amount     %
                                                                (Dollars in Thousands)
<S>                          <C>        <C>      <C>      <C>      <C>      <C>      <C>      <C>        <C>     <C>   
Mortgage Loans                $ 2,185    99.08%   2,099    96.73%   2,071    98.73%   1,700    99.30%       -     99.34%
Consumer and other loans            6     2.92%      78     3.27%      37     1.27%      18     0.70%       -      0.66%
                              -------   ------    -----   ------    -----   ------    -----   ------     ------  ------ 
      Total                   $ 2,191   100.00%   2,177   100.00%   2,108   100.00%   1,718   100.00%       -    100.00%
                              =======   ======    =====   ======    =====   ======    =====   ======     ======  ====== 
</TABLE>


<PAGE>

Mortgage-Backed Securities

         The Bank has significant investments in mortgage-backed  securities and
has at times  utilized  such  investments  to  complement  its mortgage  lending
activities.  As of June 30,  1998,  the  Bank  held  mortgage-backed  securities
totaling  $21.0 million or 8.1%, of total  assets.  The estimated  fair value of
such  securities  totaled $21.5  million as of June 30, 1998.  All of the Bank's
mortgage-backed  securities  are insured and are  guaranteed by the Federal Home
Loan Mortgage  Corporation  ("FHLMC"),  the  Government  National  Mortgage Bank
("GNMA"), or the Federal National Mortgage Association ("FNMA").

         The following table sets forth the Bank's mortgage-backed  portfolio by
the  amount  of  such  securities  backed  by  fixed-rate  and   adjustable-rate
mortgages.

Fixed and Adjustable Mortgage-Backed Securities by Type

                                                     At June 30,1998
                                                     ---------------
                                                       Adjustable
                                     Fixed Rates         Rates            Total
                                     -----------         -----            -----
                                                 (Dollars in Thousands)
Held-to-maturity:
GNMA                                 $ 3,106            1,644             4,750
FNMA                                     600              487             1,087
FHLMC                                  2,446            3,665             6,111
                                     -------           ------            ------ 
                                       6,152            5,796            11,948
                                     -------           ------            ------ 

Available-for-sale:
FNMA                                       -            9,056             9,056 
                                     -------           ------            ------ 
Total                                $ 6,152           14,852            21,004 
                                     =======           ======            ====== 

                                                     At June 30,1997
                                                     ---------------
                                                       Adjustable
                                     Fixed Rates         Rates            Total
                                     -----------         -----            -----
                                                 (Dollars in Thousands)
Held-to-maturity:
GNMA                                 $ 3,748            2,194             5,942
FNMA                                     609            1,074             1,683
FHLMC                                  3,014            5,175             8,189 
                                     -------           ------            ------ 
Total                                $ 7,371            8,443            15,814 
                                     =======            =====            ====== 

                                                     At June 30,1996
                                                     ---------------
                                                       Adjustable
                                     Fixed Rates         Rates            Total
                                     -----------         -----            -----
                                                 (Dollars in Thousands)
Held-to-maturity:
GNMA                                 $ 7,317                -             7,317
FNMA                                     925            1,606             2,531
FHLMC                                  3,585            6,634            10,219 
                                     -------           ------            ------ 

Total                                $11,827            8,240            20,067 
                                     =======            =====            ====== 


<PAGE>

         The  following   table  sets  forth  the   composition  of  the  Bank's
mortgage-backed securities portfolio,  indicating the amortized cost, percent of
portfolio and estimated fair value.


Composition of Mortgage-Backed Securities by Cost and Fair Value

                                                    At June 30, 1998
                                                    ----------------
                                                          Percent      Estimated
                                      Amortized              of          Fair
                                        Cost              Portfolio      Value
                                        ----              ---------      -----
Held-to-maturity:                             (Dollars in Thousands)
GNMA                                  $ 4,750               22.62%        5,083
FNMA                                    1,087                5.18%        1,136
FHLMC                                   6,111               29.11%        6,230
                                     --------              ------        ------ 
                                       11,948               56.91        12,449
                                     --------              ------        ------ 

Available-for-sale:                            
FNMA                                    9,048               43.09%        9,056 
                                     --------              ------        ------ 
Total                                $ 20,996              100.00%       21,505 
                                     ========              ======        ====== 

                                                    At June 30, 1997
                                                    ----------------
                                                          Percent     Estimated
                                     Amortized               of          Fair
                                       Cost               Portfolio      Value
                                       ----               ---------      -----
Held-to-maturity:                             (Dollars in Thousands)
GNMA                                  $ 5,942               37.58%        6,312
FNMA                                    1,683               10.64%        1,719
FHLMC                                   8,189               51.78%        8,060 
                                     --------              ------        ------ 
Total                                $ 15,814              100.00%       16,091 
                                     ========              ======        ====== 

                                                     At June 30, 1996
                                                     ----------------
                                                           Percent     Estimated
                                     Amortized               of          Fair
                                        Cost              Portfolio      Value
                                        ----              ---------      -----
Held-to-maturity:                             (Dollars in Thousands)
GNMA                                    7,317               36.47%        7,672
FNMA                                    2,531               12.61%        2,480
FHLMC                                  10,219               50.92%       10,189 
                                     --------              ------        ------ 
Total                                $ 20,067              100.00%       20,341 
                                     ========              ======        ====== 




<PAGE>


         The   following   table  sets  forth  the   maturities  of  the  Bank's
mortgage-backed  securities and the weighted yields of those  securities at June
30, 1998.


  Maturities and Average Weighted Yields of Mortgage-Backed Securities
<TABLE>
<CAPTION>
                              One               After One Year    After Five Years to         After
                          Year or Less           to Five Years         Ten Years            Ten Years     Total Amounts
                          ------------           -------------         ---------            ---------     -------------
  
                      Carrying               Carrying               Carrying            Carrying        Carrying  
                       Amount      Yield      Amount    Yield        Amount   Yield      Amount   Yield  Amount     Yield
                       ------      -----      ------    -----        ------   -----      ------   -----  ------     -----
                                                                                        
                                                                   (Dollars in Thousands)       
<S>                     <C>       <C>         <C>      <C>            <C>    <C>        <C>      <C>    <C>         <C>  
Held-to-maturity:                                                                       
GNMA                     $ -       0.00%           -    0.00%          -      0.00%       4,750   8.75%   4,750      8.75%
FNMA                       -       0.00%           -    0.00%          -      0.00%       1,087   6.50%   1,087      6.50%
FHLMC                      -       0.00%       1,552    6.00%          4      8.10%       4,555   7.75%   6,111      7.31%
Available-for-sale:                                                                                              
FNMA                       -       0.00%           -    0.00%         --      0.00%       9,056   6.46%   9,056      6.46%
                         ----      ----        -----    ----         ---      ----       ------   ----   ------      ----
Total                    $ -       0.00%       1,552    6.00%          4      8.10%      19,448   7.32%  21,004      7.23%
                         ====      ====        =====    ====          ==      ====       ======   ====   ======      ==== 
</TABLE>
                                                                           
<PAGE>


         The following  table sets forth the Bank's  mortgage-backed  securities
purchases, sales and principal repayments.

Mortgage-Backed Securities Activity
<TABLE>
<CAPTION>
                                                                   1998            1997            1996
                                                                   ----            ----            ----
                                                                       (Dollars in Thousands)
<S>                                                             <C>              <C>             <C>   
Beginning balance                                               $ 15,814          20,067          13,855
                                                                                              
Purchases                                                          9,063               -          10,834

Sales                                                                  -               -               -

Principal payments                                                (3,881)         (4,300)         (4,628)

Unrealized appreciation on
      available for sale mortgage backed securities                    8

Amortization and accretion, net                                       -               47               6 
                                                                --------          ------          ------ 
     Ending balance                                             $ 21,004          15,814          20,067 
                                                                ========          ======          ====== 

</TABLE>



<PAGE>

Investment Activities

         The investment policy of the Bank, which is established by the Board of
Directors and reviewed by the  Investment  Committee,  is designed  primarily to
provide and maintain  liquidity,  to generate a favorable  return on investments
without  incurring  undue  interest rate and credit risk,  and to complement the
Bank's lending  activities.  The policy currently provides for  held-to-maturity
and  available-for-sale  portfolios.  The Bank has adopted an investment  policy
which strictly prohibits speculation in investment securities. The Bank does not
currently engage in trading investment  securities and does not anticipate doing
so in the future.  As of June 30, 1998, the investment  policy of the Company is
not as  restrictive  and  allows  for  the  purchase  and  retention  of  equity
securities. At June 30, 1998 the investment securities portfolio of the Company,
on an  unaggregated  basis,   consisted of $247,000 of securities classified  as
available-for-sale.  On an  aggregate  basis (the  Company  and the  Bank),  the
Company had investment  securities with an estimated fair value of $13.6 million
and a carrying value of $13.7  million.  Of those  securities  $4.8 million were
classified as available- for-sale.

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

         The  following  table  sets  forth  the  composition  of the  Company's
investment securities portfolio.

Composition of Investment Securities
<TABLE>
<CAPTION>

                                                                                 At June 30,
                                                                                 -----------
                                                                     1998             1997             1996        
                                                                     ----             ----             ----        
                                                                            (Dollars in Thousands)
<S>                                                               <C>               <C>              <C>           
Investment Securities:
U. S. Treasury and government securities                           $ 8,922            8,586           15,656       
Obligations of state and political subdivisions                          -                -                -       
Corporate notes and  bonds                                               -                -                -       
Other securities (1)                                                 4,765            3,360            2,052       
                                                                  --------           ------           ------       
     Total Investment Securities                                    13,687           11,946           17,708       
Interest Bearing Deposits                                            6,458            3,400            2,373       
FHLB Stock                                                           2,254            1,734            1,734       
                                                                  --------           ------           ------       
     Total Investments                                            $ 22,399           17,080           41,882       
                                                                  ========           ======           ======       

</TABLE>


(1) Consists of FHLMC stock and various other equities.


<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
carrying values, weighted average yields and maturities of the Bank's investment
securities portfolio at June 30, 1998.

Investment Portfolio Maturities and Average Weighted Yields
<TABLE>
<CAPTION>
                                                                 As of June 30, 1998
                                                                 -------------------
                       One year or less After One to Five Years After Five to Ten Years After Ten Years  Total Investment Securities
                       ---------------- ----------------------- ----------------------- ---------------  ---------------------------
                    Carrying Average    Carrying       Average  Carrying       Average  Carrying  Average  Carrying Average   Market
                     Amount   Yield      Amount         Yield    Amount         Yield    Amount    Yield    Amount   Yield     Value
                     ------   -----      ------         -----    ------         -----    ------    -----    ------   -----     -----
                                                                   (Dollars in Thousands)
<S>                    <C>    <C>       <C>             <C>        <C>          <C>     <C>         <C>    <C>        <C>    <C>  
U. S. Treasury and                                                                         
government agencies    $ -      -       $ 7,784         6.12%      $ -             -    $ 1,138     6.50%  $ 8,922    6.17%  $ 8,861
                       --     ---       -------         ----       ---           ---    -------     ----   -------    ----   -------
                                                                                           
Total                  $ -      -       $ 7,784         6.12%      $ -           ---    $ 1,138     6.50%  $ 8,922    6.17%  $ 8,861
                       ===    ===       =======         ====       ===          ====    =======     ====   =======    ====   =======

</TABLE>

<PAGE>

Sources of Funds

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

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

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


<PAGE>

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

Deposit Account Types
<TABLE>
<CAPTION>

                                                                                 As of June 30,
                                          ------------------------------------------------------------------------------------------
                                                     1998                           1997                            1996
                                                     ----                           ----                            ----
                                          Average            Percentage  Average             Percentage   Average         Percentage
                                          Interest            of Total   Interest             of Total   Interest           of Total
Category                   Term             Rate     Amount   Deposits     Rate     Amount    Deposits     Rate    Amount   Deposits
--------                   ----             ----     ------   --------     ----     ------    --------     ----    ------   --------
                                                                       (Dollars in Thousands)
<S>                       <C>              <C>    <C>         <C>         <C>    <C>          <C>        <C>     <C>        <C>  
NOW accounts               None             2.24%  $ 14,468    10.26%      2.05%  $  9,386      6.21%      2.05%    6,625     4.22%
Savings accounts           None             2.68%     8,658     6.14%      2.80%     8,621      5.70%      2.80%   10,262     6.54%
Money Market accounts      None             3.64%    10,587     7.51%      2.98%     8,288      5.48%      2.98%    5,264     3.35%
Non-interest bearing                                                                               
     demand accounts       None             0.00%     3,142     2.23%      0.00%     2,334      1.54%      0.00%    1,534     0.98%
                                                  ---------   ------               -------    ------              -------   ------ 
        Total                                        36,855    26.14%               28,629     18.93%              23,685    15.09%
                                                  ---------   ------               -------    ------              -------   ------ 
Certificate of Deposit:
Fixed-rate, fixed-term     1-11 months      5.00%    14,169    10.05%      4.96%    16,846     11.14%      4.96%   33,300    21.21%
Fixed-rate, fixed-term     12-23 months     5.19%    38,059    27.00%      5.29%    47,682     31.53%      5.29%   44,699    28.47%
Fixed-rate, fixed-term     24-35 months     5.64%    26,415    18.74%      5.63%    28,485     18.83%      5.63%   24,684    15.72%
Fixed-rate, fixed-term     36-47 months     5.71%    10,147     7.20%      5.77%    12,013      7.94%      5.77%   12,474     7.94%
Fixed-rate, fixed-term     48-59 months     5.98%     1,789     1.27%      5.87%     1,718      1.14%      5.87%    1,818     1.16%
Fixed-rate, fixed-term     60-71 months     6.04%     8,354     5.93%      5.92%    10,615      7.02%      5.92%   11,205     7.14%
Fixed-rate, fixed-term     72-95 months     6.28%     5,187     3.68%      5.92%     5,258      3.48%      5.92%    5,143     3.28%
                                                  ---------   ------               -------    ------              -------   ------ 
Total                                               104,120    73.86%              122,617     81.07%             133,323    84.91%
                                                  ---------   ------               -------    ------              -------   ------ 
Total Deposits (2)                                $ 140,975   100.00%              151,246    100.00%             157,008   100.00%
                                                  =========   ======               =======    ======              =======   ====== 

</TABLE>

<PAGE>


         The  following  table  indicates the  approximate  amount of the Bank's
certificate  accounts of $100,000 or more by time remaining until maturity as of
June 30, 1998.


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

                                                      At June 30, 1998
                                                      ----------------
Maturity Period                                   (Dollars in Thousands)

Three months or less                                    $ 1,491,286
Over three through six months                             1,103,188
Over six through twelve months                            1,562,404
Over twelve months                                        1,715,256 
                                                        ----------- 
Total                                                   $ 5,872,134 
                                                        =========== 



<PAGE>

Borrowings

         Deposits  are the  primary  source  of  funds  for the  Bank's  lending
activities and other general  business  purposes.  However,  during periods when
supply of lendable funds cannot meet the demand for such loans,  the FHLB System
makes available,  subject to compliance  eligibility standards, a portion of the
funds necessary through loans (advances) to its members.

         As of June 30, 1998, 1997 and 1996 there were $45.1,  $18.2 million and
$0  outstanding  advances  from the FHLB,  respectively.  The  weighted  average
interest  rate on such  advances  at June 30, 1998 and 1997 was 6.08% and 6.12%,
respectively.  The average balance of outstanding advances during 1998, 1997 and
1996,  was $27.6  million,  $13.8  million and $690,000,  respectively,  and the
approximate  average  interest  rate was 6.13%,  6.09% and 5.65%,  respectively.
During 1998,  1997 and 1996, the maximum outstanding at any month end was $45.1,
$21.2 million and $3.0 million, respectively.

Subsidiary Activity

         The Bank is a  subsidiary  of the  Company.  The  Bank has one  service
corporation,  Guaranty Financial  Services of Springfield,  Inc. The Bank had an
investment  of $55,000  in its  service  corporation  as of June 30,  1998.  The
service  corporation  sells mutual  funds,  fixed and variable  annuities,  unit
investment  trusts,  individual stocks and bonds and life insurance.  Such sales
are  completed  through an  agreement  with  "INVEST"  for  providing  brokerage
services. In addition,  the service corporation acts as a real estate broker for
properties owned by the Bank.

Employees

         Substantially,  all of the  activities  of the  Company  are  conducted
through the Bank. At June 30, 1998, the Company had no salaried employees.

         As of June 30, 1998, the Bank had 71 full-time employees and 12
part  time  employees.  None  of  the  Bank's  employees  are  represented  by a
collective  bargaining  group. The Bank believes that its relationship  with its
employees is good.

Competition

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


<PAGE>

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

         The Bank's  primary  competition  comprises the financial  institutions
near each of the Bank's branch offices.  In  Springfield,  where the Bank's main
office and three branch  offices are located,  primary  competition  consists of
one thrift institution, 20 commercial banks and 13 credit unions.

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

Regulation

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

Company Regulation

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

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


<PAGE>

Regulation of the Bank

         General. As a federally  chartered,  SAIF-insured  savings association,
the Bank is subject to extensive  regulation by the OTS and the Federal  Deposit
Insurance  Corporation  ("FDIC").  Lending activities and other investments must
comply with various federal statutory and regulatory  requirements.  The Bank is
also  subject  to  certain  reserve  requirements  promulgated  by the  Board of
Governors of the Federal Reserve System.

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

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

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

         As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum  of 0.23% of its  total  deposits.  The FDIC  also  maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial  bank deposits.  In 1996, the annual  insurance  premium for most BIF
members  was lowered to $2,000.  The lower  insurance  premiums  for BIF members
placed SAIF members at a competitive disadvantage to BIF members.

         Effective  September  30,  1996,  federal  law was revised to mandate a
one-time  special  assessment on SAIF members such as the Bank of  approximately
 .657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance  assessment  for most SAIF members was reduced to .064% of deposits on
an annual basis  through the end of 1999.  During this same period,  BIF members
will be assessed  approximately .013% of deposits.  After 1999,  assessments for
BIF and SAIF members  should be the same. It is expected  that these  continuing
assessments  for both  SAIF and BIF  members  will be used to repay  outstanding
Financing Corporation bond obligations.  As a result of these changes, beginning
January 1, 1997,  the rate of deposit  insurance  assessed the Bank  declined by
approximately 70%.


<PAGE>

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings  associations to meet three capital  standards:  (1) a tangible  capital
requirement  of 1.5% of  total  adjusted  assets,  (2) a  leverage  ratio  (core
capital) requirement of 3% of total adjusted assets and (3) a risk-based capital
requirement equal to 8% of total risk-weighted assets.

         Dividend and Other Capital  Distribution  Limitations.  OTS regulations
require  the  Bank  to  give  the OTS 30 days  advance  notice  of any  proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory  powers to prohibit  the payment of  dividends  to the  Company.  In
addition,  the Bank may not declare or pay a cash  dividend on its capital stock
if the  effect  thereof  would be to reduce the  regulatory  capital of the Bank
below the amount required for the liquidation  account established in connection
with the conversion from mutual to stock form.

         OTS regulations  impose  limitations upon all capital  distributions by
savings  institutions,  such  as  cash  dividends,  payments  to  repurchase  or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out  merger and other  distributions  charged against  capital.  The rule
establishes  three tiers of  institutions,  based primarily on an  institution's
capital  level.  An  institution  that  exceeds  all  fully  phased-in   capital
requirements  before  and  after  a  proposed  capital   distribution  ("Tier  1
institution")  and has not  been  advised  by the OTS that it is in need of more
than the normal  supervision can, after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the  calendar  year plus the amount
that would reduce by one-half its "surplus  capital  ratio" (the excess  capital
over its fully phased-in capital  requirements) at the beginning of the calendar
year,  or (ii) 75% of its net income over the most recent four  quarter  period.
Any additional capital  distributions  require prior regulatory approval.  As of
June 30,  1998,  the Bank was a Tier 1  institution.  In the  event  the  Bank's
capital fell below its fully  phased-in  requirement or the OTS notified it that
it was in need of more than  normal  supervision,  the  Bank's  ability  to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed  capital  distribution  by any  institution,  which would  otherwise be
permitted by the regulation,  if the OTS determines that such distribution would
constitute an unsafe or unsound practice.

         Finally,  a savings  association  is  prohibited  from making a capital
distribution if, after making the distribution, the savings association would be
undercapitalized   (not  meet  any  one  of  its  minimum   regulatory   capital
requirements). In contrast, the Company has fewer restrictions on dividends.

         Qualified Thrift Lender Test. Savings institutions must meet either the
QTL test pursuant to OTS  regulations or the  definition of a domestic  building
and loan  association in section 7701 of the Internal Revenue Code (the "Code").
If the Bank  maintains an  appropriate  level of certain  specified  investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities)  and  otherwise  qualifies  as a QTL or a domestic
building  and  loan  association,  it will  continue  to  enjoy  full  borrowing
privileges from the FHLB of Des Moines.  The required  percentage of investments
under the QTL test is 65% of assets while the Code requires  investments  of 60%
of  assets.  A bank must be in  compliance  with the QTL test or  definition  of
domestic  building and loan  association on a monthly basis in nine out of every
12 months.


<PAGE>

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

Executive Officers of the Registrant

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

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

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

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

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

         At June 30, 1998, the years of age of these  individuals was 51 for Mr.
Haseltine, 51 for Mr. Williams and 50 for Mr. Winston.

Item 2. Properties

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

         The Bank's office  facilities  currently  consist of the main office in
Springfield,  Greene County,  Missouri and four  full-service  branch offices in
Springfield. The Bank constructed a new main office building, which provides the
Bank with a modern office for customer  services and projects a favorable  image
for the Bank in the local  marketplace.  Guaranty  has also  recently  completed
additional  investment  in certain of the branch  offices to upgrade and improve
the facilities.


<PAGE>

Item 3. Legal Proceedings

         The Company and the Bank, from time to time, may be parties to ordinary
routine  litigation,  which  arises in the normal  course of  business,  such as
claims to enforce liens,  condemnation  proceedings,  on properties in which the
Bank holds security interests, claims involving the making and servicing of real
property loans, and other issues incident to the business of the Company and the
Bank. At June 30, 1998,  there were no claims or lawsuits pending or known to be
contemplated  against  the  Company  or the Bank that  would have had a material
effect on the Company or the Bank.

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

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

         PART II

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

         The  information on page 2 of the Annual Report to  Stockholders of the
Registrant for the fiscal year ended June 30, 1998 (the "1998 Annual Report") is
incorporated herein by reference.

Item 6.  Selected Financial Data

         The  information  contained  on page 4 of the  1998  Annual  Report  is
incorporated herein by reference.

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

         The  information  contained  on pages 5 through  16 of the 1998  Annual
Report is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         The information contained on pages 11 and 12 under the headings "ASSET/
LIABILITY  MANAGEMENT"  and  "INTEREST  RATE  SENSITIVITY  ANALYSIS" of the 1998
Annual Report is incorporated herein by reference.

Item  8.  Financial Statements and Supplementary Data

         The financial statements set forth on pages 17 to 46 of the 1998 Annual
Report,  are incorporated  herein by reference.  

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

         Not applicable.



<PAGE>

         PART III

Item 10.  Directors and Executive Officers of the Registrant

         The information  contained under the section captioned "First Proposal,
Election  of  Directors"  in the  proxy  statement  for the  Annual  Meeting  of
Stockholders to be held October 28, 1998 (the "Proxy Statement") is incorporated
herein by reference.

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

Item 11.  Executive Compensation

         The  information  contained  on pages  6-8 and  page 10  of  the  Proxy
Statement is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         (a)      Security Ownership of Certain Beneficial Owners

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

         (b)      Security Ownership of Management

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

         (c)      Not applicable.

Item 13.  Certain Relationships and Related Transactions

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

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

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

                  1.  The  following  financial  statements  and the  report  of
independent  accountants  included  in the 1998 Annual  Report are  incorporated
herein by reference and also in Item 8 of this report.


<PAGE>

         Independent Accountants' Report

         Consolidated Balance Sheets as of June 30, 1998 and 1997.

         Consolidated  Statements  of Income for the Years Ended June 30,  1998,
1997, and 1996.

         Consolidated  Statements  of  Changes in  Stockholders'  Equity for the
Years Ended June 30, 1998, 1997, and 1996.

         Consolidated  Statements  of Cash  Flows for the Years  Ended  June 30,
1998, 1997, and 1996.

         Notes to Consolidated Financial Statements.

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

              3. The   following  exhibits  are  included  in  this  Report   or
incorporated herein by reference:
<TABLE>
<CAPTION>
                 <S>     <C>
                 
                  (a)      List of Exhibits:

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

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

                  10.1     1994 Stock Option Plan*

                  10.2     Recognition and Retention Plan**

                  10.3     1998 Stock Option Plan**

                  10.4     Restricted Stock Plan**

                  13       Annual Report to Stockholders for the fiscal year ended June 30, 1998

                  21       Subsidiaries of the Registrant

                  23       Consent of Baird Kurtz & Dobson
</TABLE>

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


---------------------
*    Incorporated  by  reference  to the  identically  numbered  Exhibit  of the
     Registration Statement on Form S-1 filed by the Registrant on September 22,
     1997 (SEC file number 333-36141).
**   Incorporated  by reference to the exhibits to the proxy  statement filed by
     the Registrant on June 15, 1998 (SEC file number 0-23325).


<PAGE>


                                   SIGNATURES

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

                                           GUARANTY FEDERAL BANCSHARES, INC.



Dated: September 24, 1998         By:      /s/James E. Haseltine
                                           James E. Haseltine
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

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

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

Date:    September 24, 1998                          Date:  September 24, 1998


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

Date:    September 24, 1998                          Date:  September 24, 1998


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

Date:    September 24, 1998                          Date:  September 24, 1998


By:      /s/George L. Hall
         George L. Hall
         Director

Date:    September 24, 1998                        

</TABLE>