EXHIBIT 13

<PAGE>
The common stock of Guaranty Federal Bancshares,  Inc., is traded in
the over-the-counter market and quoted on the NASDAQ National
Market.  As of August 25, 1999, there were 2,414 stockholders of the
6,245,775 shares of common stock issued and outstanding.

The company paid cash dividends of $0.16 per share on October 15,
1998, to shareholders of record September 8, 1998, and $0.18
per share on April 15, 1999, to shareholders of record as of March 31,
1999

The table below reflects the dividends paid and the range of common
stock closing prices by quarter since conversion.

Fiscal Year Ended June 30, 1999            HIGH         LOW        DIVIDENDS

Quarter Ended June 30, 1999              $ 11.75        11.00          0.18

Quarter Ended March 31, 1999               11.75        11.06             -

Quarter Ended December 31, 1998            13.38        11.38          0.16

Quarter Ended September 30, 1998           13.13        10.25             -

Fiscal Year Ended June 30, 1998

Quarter Ended June 30, 1998                13.63        12.25          0.15

Quarter Ended March 31, 1998               13.38        12.00             -


                                       1
<PAGE>

Dear Shareholders,

Probably the most difficult task facing financial institutions today is adapting
to the pace of change in the  delivery  of banking  services,  and in  correctly
assessing the current and future needs of bank customers. One thing is for sure,
the ability to adjust quickly and decisively to changing  customer needs,  while
simultaneously  offering real value to the customer,  will provide a substantial
competitive advantage. Guaranty Federal has been in the process of selecting new
core processing  software that will provide  opportunities  for new products and
services  for our  customers  in the  coming  years,  and  will  have  that  new
processing system in place by the end of fiscal 2000.

Intensive  efforts  have been  ongoing  over the last year to test our  existing
computer hardware and software for any problems that might be caused by the year
2000 date change,  sometimes  called  "millennium  bug". We have tested  balance
carry-forwards,  calculations, transfers and payments on various year 2000 dates
and have found only isolated problems,  all of which have been resolved. We have
been in  contact  with all  service  providers  and are  comfortable  that their
systems will be operational.  We have established  operational contingency plans
so that the  day-to-day  operations  of the bank can be  carried  on even in the
event that a service provider experiences a problem. I am confident that January
3, 2000, the first working day in the year, will see operations  proceed just as
any other day.

Fiscal  year 1999 saw the  opening of our first  "in-store"  branch  facility in
Walmart's  Supercenter  in Nixa,  MO., as well as the first  closing of a branch
office at Walnut and Jefferson in  Springfield,  effective  July 2nd. The branch
closing was due to physical  limitations of the site that prevented expansion of
drive-thru  facilities  and parking,  thus limiting the growth  potential of the
office.  The  "in-store"  facility  was opened in late  January and is currently
ahead of projections. We are excited about the prospects for this office and the
opportunities it represents.

In  August,  1998,  we  implemented  a database  marketing  system to aid in the
selection  process for distribution of product  information.  Since that time we
have increased the number of households served from 11,694 to 12,860 at June 30,
1999,  a 9% increase.  In  addition,  we have  increased  the average  number of
services per household.

With 20%  growth  in  assets,  and  earnings  of $0.61 per  share  ($0.60  fully
diluted),  we had a good year. With semiannual  dividends of $0.16 and $0.18 per
share, we hope you had a good year as well. Your Board of Directors,  Management
and Staff are pleased to present the following report.

                                                        Sincerely,

                                                        /s/James E. Haseltine
                                                        ------------------------
                                                        James E. Haseltine
                                                        President


                                       2
<PAGE>

Selected Consolidated Financial and Other Data

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

<TABLE>
<CAPTION>
 Summary Statement of Income                                          Years Ended June 30,
                                                         ------------------------------------------------------
                                                          1999      1998        1997      1996       1995
                                                          ----      ----        ----      ----       ----
<S>                                                     <C>        <C>         <C>       <C>         <C>
Interest income                                          $20,763    17,196      14,711    13,702      11,637
Interest expense                                          10,703     8,743       8,310     8,239       6,595
                                                        --------    -------    -------    -------    -------
Net interest income                                       10,060     8,453       6,401     5,463       5,042
Provision (credit) for loan losses                           180       123        --      (1,212)         16
                                                        --------    -------    -------    -------    -------
Net interest income after provision (credit)
for loan losses                                            9,880     8,330       6,401     6,675       5,026
Noninterest income                                         1,201       953         530       221          71
Noninterest expense                                        5,958     4,823       5,105     4,117       3,077
Income before income taxes                                 5,123     4,460       1,826     2,779       2,020
Provision for income taxes                                 1,765     1,619         664     1,026         690
                                                        --------    -------    -------    -------    -------
Net income                                               $ 3,358     2,841       1,162     1,753       1,330
                                                         =======     =====     =======    =======    =======

Earnings per share, since conversion December 30, 1997
Basic                                                    $  0.61      0.29         n/a       n/a         n/a
Diluted                                                  $  0.60      0.29         n/a       n/a         n/a

 Summary Balance Sheet                                                      As of June 30,
                                                       ------------------------------------------------------
                                                          1999       1998       1997       1996       1995
                                                          ----       ----       ----       ----       ----
ASSETS
Cash and cash equivalents                               $  9,689      7,305      3,817      2,675      4,350
Investment securities                                     24,346     34,691     27,760     37,775     37,973
Loans receivable, net                                    264,269    206,220    158,135    135,029    119,842
Accrued interest receivable                                1,757      1,604      1,312      1,381      1,274
Prepaids and other assets                                  5,672      2,503      1,964      1,913      1,802
Foreclosed assets                                            101        286        210          2        656
Premises and equipment                                     7,365      7,433      6,267      6,392      4,987
                                                        --------    -------    -------    -------    -------
                                                        $313,199    260,042    199,465    185,167    170,884
                                                        ========    =======    =======    =======    =======
LIABILITIES
Deposits                                                $141,137    140,975    151,246    157,008    139,595
Federal Home Loan Bank advances                          104,795     45,081     18,151       --        4,000
Other liabilities                                          3,834      3,296      2,578      1,573      1,245
                                                        --------    -------    -------    -------    -------
                                                         249,766    189,352    171,975    158,581    144,840

STOCKHOLDERS' EQUITY                                      63,433     70,690     27,490     26,586     26,044
                                                        --------    -------    -------    -------    -------
                                                        $313,199    260,042    199,465    185,167    170,884
                                                        ========    =======    =======    =======    =======

 Supplemental Data                                                         As of June 30,
                                                        ------------------------------------------------------
                                                          1999       1998       1997       1996       1995
                                                          ----       ----       ----       ----       ----
Number of full-service offices                                 5          5          4          4          3
Cash dividends per share                                  $ 0.34       0.15        n/a        n/a        n/a
</TABLE>


                                       3
<PAGE>


Management's Discussion and Analysis of Financial Condition
   And Results of Operations

GENERAL

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

         In April 1995, Guaranty Federal Savings & Loan Association  reorganized
from a federally  chartered  mutual savings and loan  association  into a mutual
holding company,  Guaranty Federal Bancshares,  M. H. C. (the "MHC"). Concurrent
with the  reorganization,  Guaranty  Federal Savings Bank (the "Bank"),  a stock
savings  bank was  chartered.  In  December  1997,  the  Company  completed  the
conversion and  reorganization  of the Bank and the former MHC by selling common
stock to depositors of the Bank and a benefit plan of the Bank. In addition, all
shares of common stock of the Bank held by public  stockholders  were  exchanged
for shares of common stock of the Company.  Per share data prior to December 30,
1997 is not presented herein, as the information would not be meaningful.

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

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

FINANCIAL CONDITION

         From  June 30,  1998 to June  30,  1999,  the  Company's  total  assets
increased  $53,156,954  (20%),  liabilities  increased  $60,413,830  (32%),  and
stockholders'  equity  decreased  $7,256,876  (10%).  The ratio of stockholders'
equity to total assets decreased from 27% to 20%.

         Securities   available-for-sale   decreased   $4,869,504   (35%),  from
$13,820,679  as of June 30, 1998 to $8,951,175 as of June 30, 1999.  The Company
continues  to hold  96,000  shares of  Federal  Home Loan  Mortgage  Corporation
("FHLMC")   stock  with  an  amortized   cost  of  $94,000  in  the   securities
available-for-sale  category.  As of June 30, 1999, the gross unrealized gain on
the  stock  was  $5,474,000,  an  increase  of  $1,050,000  over the  $4,424,000
unrealized  gain as of June  30,  1998.  Securities  held-to-maturity  decreased
$5,476,400 (26%), from $20,871,043 as of June 30, 1998 to $15,394,643 as of June
30, 1999.  These decreases are  attributable  to repayments  received during the
year and the  Company's  preference  to invest in loans  versus  lower  yielding
securities.

                                       4
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


         Net loans receivable  increased by $58,085,217 (28%), from $205,414,561
as of June 30, 1998 to  $263,499,778  as of June 30,  1999.  During this period,
permanent  loans secured by both owner and  non-owner  occupied one to four unit
residential real estate increased by $30,320,023,  (21%), multi-family permanent
loans increased by $14,259,413 (66%), construction loans increased by $3,875,808
(11%) and permanent loans secured by commercial real estate increased $8,049,995
(63%).  Loans past maturity and past due 90 days or more increased from $120,681
(0% of net loans) as of June 30, 1998 to  $211,688  (1% of net loans) as of June
30, 1999. As of June 30, 1999 management  considers  $905,728 as impaired with a
related  allowance  for loan losses of $136,287.  Growth in loans  receivable is
anticipated  to continue and  represents a major part of the  Company's  planned
asset growth.

         The Bank increased the allowance for loan losses $157,771(7%) in fiscal
year 1999 and $14,548 (1%) in fiscal year 1998.  During  fiscal year 1999,  loan
charge-offs exceeded recoveries by $22,229. During fiscal year 1998, charge-offs
exceeded  recoveries  by $108,804.  The allowance for loan losses as of June 30,
1999, was 0.89% of net loans outstanding versus 1.07% as of June 30, 1998. As of
June 30, 1999,  the allowance for loan losses was 259% of impaired  loans versus
217% as of June 30, 1998.

         Foreclosed  assets  held  for  sale  as of  June  30,  1999  include  a
single-family  residence  and a car. The Bank carries  these  properties  at the
lower of cost or fair value of $101,546.  Subsequent to June 30, 1999,  the Bank
sold these properties recognizing a minimal gain.

         Premises and equipment  decreased  $67,579 (1%),  from $7,432,971 as of
June 30, 1998 to  $7,365,392 as of June 30, 1999.  During fiscal year 1999,  the
Company  opened a new location in the Wal-Mart  Super Center in Nixa,  Missouri.
Subsequent to June 30, 1999,  the Company  closed its location on East Walnut in
Springfield.  This location was not meeting the Company's  profit  expectations.
During  fiscal  year  2000,  the  Company  expects  to begin  construction  on a
permanent  facility to replace the temporary  facility at the same site on South
National in Springfield.

         Deposits increased $161,818 (0%), from $140,975,336 as of June 30, 1998
to  $141,137,154 as of June 30, 1999.  During this period core deposit  accounts
increased by $9,880,981  (27%) to 33% of total deposits,  while  certificates of
deposit  decreased by $9,719,163 (9%). The majority of this increase in checking
and passbook  accounts can be  attributed to an  aggressive  marketing  campaign
initiated in early 1997  designed to attract  checking  deposit  customers.  The
decrease in certificate  deposits can be attributed to management's  decision to
allow high cost  accounts to run off and replace  these funds with FHLB advances
at a lower marginal cost.

         As a result of the  overall  decrease  in  deposits  and the  continued
increase in loan demand, the Company increased  borrowings from the Federal Home
Loan Bank ("FHLB") by $59,713,612 (132%) from $45,081,028 as of June 30, 1998 to
$104,794,640 as of June 30, 1999. Based on existing  collateral the Bank has the
ability to borrow an additional $75,000,000 from the FHLB in the future.

         Stockholders' equity (including  unrealized  appreciation on securities
available-for-sale,  net of tax) decreased $7,256,876 (10%), from $70,690,098 as
of June 30, 1998 to  $63,433,222  as of June 30,  1999.  Net income for the year
exceeded cash  dividends  paid by $1,553,059.  The Company  repurchased  173,632
shares for  $2,373,065  in order to fund the  restricted  stock plan approved by
stockholders  on July 22,  1998.  The  Company  repurchased  642,127  shares  as
treasury   stock  for   $8,132,375.   Unrealized   appreciation   on  securities
available-for-sale,  net  of  tax,  contributed  $626,934  to  the  increase  in
stockholders' equity. On a per share basis,  stockholders' equity as of June 30,
1999, was $12.01.

                                       5
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

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

<TABLE>
<CAPTION>
                              June 30,  1999   Year Ended June 30, 1999    Year Ended June 30, 1998     Year Ended June 30, 1997
                              --------  ----   ------------------------    ------------------------     ------------------------
                                        Yield/  Average             Yield/   Average            Yield/  Average             Yield/
                             Balance    Cost    Balance   Interest  Cost     Balance   Interest Cost    Balance    Interest Cost
                             -------    ----    -------   --------  ----     -------   -------- ----    -------    -------- ----
<S>                         <C>        <C>    <C>        <C>       <C>     <C>       <C>       <C>    <C>        <C>       <C>
 ASSETS
 Interest-earning:
 Loans                       $ 264,269  7.58%  $ 235,322  $ 18,617  7.91%   $ 177,361 $ 14,875  8.39%   $146,468  $ 12,347   8.43%
 Investment securities          18,008  7.19%     24,634     1,605  6.52%      22,123    1,529  6.91%     26,911     1,964   7.30%
 Other assets                   19,615  3.79%     13,808       541  3.92%      17,010      792  4.66%      8,160       400   4.90%
                             ---------  ----   ---------  --------  ----    --------- --------  ----    --------  --------   ----
 Total interest-earning        301,892  7.31%    273,764    20,763  7.58%     216,494   17,196  7.94%    181,539    14,711   8.10%
 Noninterest-earning            11,307             7,701                       11,334                      8,387
                             ---------         ---------  --------          --------- --------          --------  --------
                             $ 313,199         $ 281,465                    $ 227,828                   $189,926
                             =========         =========                    =========                   ========

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Interest-bearing:
 Savings accounts              $ 8,751  2.23%    $ 8,486       206  2.43%     $ 8,779      241  2.75%   $  9,191       258   2.81%
 Transaction accounts           33,614  2.79%     28,874       789  2.73%      21,950      616  2.81%     13,846       406   2.93%
 Certificates of deposit        94,401  5.04%     95,295     4,985  5.23%     110,786    6,112  5.52%    122,219     6,807   5.57%
 FHLB advances                 104,795  5.71%     79,985     4,723  5.90%      27,630    1,695  6.13%     13,767       839   6.09%
 Other borrowed funds                -  0.00%          -         -  0.00%       2,897       79  2.73%         -          -   0.00%
                             ---------  ----   ---------  --------  ----    --------- --------  ----    --------  --------   ----
 Total interest-bearing        241,561  4.92%    212,640    10,703  5.03%     172,042    8,743  5.08%    159,023     8,310   5.23%
                                        ----              --------  ----              --------  ----              --------   ----
 Noninterest-bearing             8,205             3,562                        6,863                      4,122
                             ---------         ---------                    ---------                   --------
 Total liabilities             249,766           216,202                      178,905                    163,145
 Stockholders' equity           63,433            65,263                       48,923                     26,781
                             ---------         ---------                    ---------                   --------
                             $ 313,199         $ 281,465                    $ 227,828                   $189,926
                             =========         =========                    =========                   ========
 Net earning balance         $  60,331          $ 61,124                    $  44,452                   $ 22,516
                             =========          ========                    =========                   ========
 Earning yield less costing
   rate                                 2.39%                       2.55%                       2.86%                        2.87%
                                        ====                        ====                        ====                         ====
 Net interest income, and
 net yield spread on
 interest-earning assets                3.38%             $ 10,060  3.67%              $ 8,453  3.90%              $ 6,401   3.53%
                                        ====              ========  ====               =======  ====               =======   ====
 Ratio of interest-earning
   assets to interest-
   bearing liabilities            125%              129%                          126%                       114%
                                  ===               ===                           ===                        ===

</TABLE>


                                       6
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


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

<TABLE>
<CAPTION>
                                  Year Ended June 30, 1999 versus 1998        Year Ended June 30, 1998 versus 1997
                                -----------------------------------------   ------------------------------------------
                                                         Rate &                                      Rate &
                                  Balance      Rate      Balance   Total     Balance      Rate       Balance    Total
                                  -------      ----      -------   -----     -------      ----       -------    -----
<S>                             <C>          <C>        <C>       <C>        <C>          <C>        <C>      <C>
Interest income:
Loans                            $ 4,861       (843)      (276)     3,742      2,604        (63)       (13)     2,528
Investment securitites               174        (88)       (10)        76       (349)      (104)        18       (435)
Other assets                        (149)      (126)        24       (251)       434        (20)       (22)       392
                                 -------       ----       ----      -----      -----       ----        ---      -----
Net change in interest income      4,886     (1,057)      (262)     3,567      2,689       (187)       (17)     2,485
                                 -------       ----       ----      -----      -----       ----        ---      -----
Interest expense:
Savings accounts                      (8)       (28)         1        (35)       (12)        (6)         1        (17)
Transaction accounts                 194        (16)        (5)       173        238        (17)       (11)       210
Certificates of deposit             (855)      (317)        45     (1,127)      (637)       (64)         6       (695)
Advances                           3,212        (63)      (121)     3,028        845          6          5        856
Other borrowed funds                 (79)       (79)        79        (79)      --         --           79         79
                                 -------       ----       ----      -----      -----       ----        ---      -----
Net change in interest expense     2,464       (503)        (1)     1,960        434        (81)        80        433
                                 -------       ----       ----      -----      -----       ----        ---      -----
Change in net interest income    $ 2,422       (554)      (261)     1,607      2,255       (106)       (97)     2,052
                                 =======       ====       ====      =====      =====       ====        ===      =====
</TABLE>


RESULTS OF OPERATIONS - COMPARISON OF YEARS ENDED JUNE 30, 1999 AND 1998

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

                                         U.S. Treasury Securities
                                   Average for the Twelve Months Ended
                           ------------------------------------------------
                           Ten-Year Maturity   One-Year Maturity    Spread
                           -----------------   -----------------    ------
June 30, 1999                     5.10%                4.76%         0.34%
June 30, 1998                     5.84%                5.44%         0.40%
                                  ----                 ----          ----
Decrease in interest rates       -0.74%               -0.68%        -0.06%
                                  ====                 ====          ====


         The Company's  principal  assets are single family home mortgage loans.
Fixed rate mortgage loans are typically  priced at a spread over the ten-year U.
S. Treasury securities.  The 74 basis point decline in the ten-year treasury for
fiscal year 1999 in addition to the 76 basis point  decline in the prior year is
indicative of the decline in the fixed-rates on single family mortgage loans. As
a result, borrowers preferred fixed rate mortgages over adjustable and they took
advantage of the relatively low rates to refinance their home mortgages.  During
the year,  the average  yield on loans  decreased  48 basis points from 8.39% to
7.91% and the average yield on all  interest-earning  assets  decreased 36 basis
points from 7.94% to 7.58%.

         The Company's  principal  retail deposit is the certificate of deposit.
Management  attempts  to  price  certificates  so  that  the  marginal  cost  of
attracting  deposits  is  equal  to the  marginal  cost  of FHLB  advances  on a
duration-adjusted  basis.  The average cost of  certificates  decreased 29 basis
points from 5.52% to 5.23%.  During the year,  start-up banks in the market area
paid interest rates on  certificates of deposit well above  comparable  maturity
treasury  rates.  As a result,  the  Company  was  unable to reduce  the cost of
certificates  in line with the overall  decline in the general level of interest
rates. The average cost of transaction accounts

                                       7
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


decreased eight basis points from 2.81% to 2.73%. In total,  the average cost of
all  interest-bearing  liabilities  decreased  five basis  points  from 5.08% to
5.03%.

         The Company's net interest income is materially  impacted by the spread
between  yields  earned  on   longer-term   securities  and  the  cost  paid  on
shorter-term deposit accounts.  At the same time the spread between the ten-year
and one-year  treasury was narrowing by six basis points,  the Company's  spread
between the average  yield on  interest-earning  assets and the average  cost of
interest-bearing liabilities decreased by 31 basis points from 2.86% to 2.55%.

         Interest Income.  Total interest income  increased  $3,566,448 (21%) as
the average balance of  interest-earning  assets  increased  $57,270,000  (26%).
Interest  income did not  increase  in  proportion  to the  increase  in average
balances due to the 36 basis point decline in average  yield.  Interest on loans
increased  $3,742,094  (25%) as the average loan  receivable  balance  increased
$57,961,000  (33%) and the average yield declined 48 basis points. To the extent
possible,  subject to market conditions and competition,  the Company intends to
emphasize   loan   production  and  will  purchase   investment   securities  or
mortgage-backed  securities  only if  spreads  between  the asset  yield and the
liability cost net an arbitrage  profit over a range of potential  interest rate
scenarios.

         Interest Expense.  Total interest expense increased $1,959,663 (22%) as
the average balance of interest-bearing liabilities increased $40,598,000 (24%).
Interest  expense  increased less than the increase in average  balances because
the average cost of interest-bearing  liabilities declined by five basis points.
The average balances of transaction  accounts increased $6,924,000 (32%) and the
average  balances of certificates  of deposit  decreased  $15,491,000  (14%). In
order to fund the  increase  in assets and  decrease  in  deposits,  the Company
borrowed  additional  funds from the FHLB. The average  balance of FHLB advances
increased by $52,355,000 (189%).

         Net  Interest  Income.  The  Company's  net interest  income  increased
$1,606,785 (19%) from $8,452,879 to $10,702,906.  During the year ended June 30,
1999,  the  average  balance of  interest-earning  assets  exceeded  the average
balance of  interest-bearing  liabilities  by  $61,124,000,  an  increase in the
average net earning balance of $16,672,000  (38%) due to the net proceeds of the
December 30, 1997 offering.

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

         During fiscal year 1999, the Company  experienced  loan  charge-offs in
excess of  recoveries  of  $22,229  and based on a review  as  discussed  above,
elected to add $180,000 to the  allowance.  Management  anticipates  the need to
continue  adding to loss reserves  through  charges to provision for loan losses
based on the anticipated growth in the loan portfolio.


         Non-Interest  Income.  Non-interest  income,  which consists of service
charges and other fees,  income  from  foreclosed  assets and gains or losses on
sale of assets,  increased  $247,791  (26%) from  $953,063 to  $1,200,854.  This
increase is primarily due to the $267,903 (44%) increase in service  charges due
to continued growth in the Company's checking accounts.

         Non-Interest Expense.  Non-interest expense increased  $1,134,891(24%),
from $4,822,499 to $5,957,390. Salaries and employee benefits increased $833,496
(36%) due to the operation of the South National  branch for a full year and the
start-up of the Nixa Wal-Mart branch as well as the expenses  related to the new
restricted stock plan and employee stock ownership plan. Data processing expense
increased  $100,252  (25%) due to the new branches  and the overall  increase in
accounts served. Other expenses

                                       8
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


increased  $138,870  (16%) due primarily to legal fees  associated  with the two
special  stockholder  meetings held during the year and the expenses  related to
the new restricted stock plan for the directors.

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

         Cash Dividends Paid. The Company paid cash dividends of $0.16 per share
on October 15, 1998, to the  stockholders of record as of September 8, 1998. The
Company  paid  cash  dividends  of $0.18 per  share on April  15,  1999,  to the
stockholders of record as of March 31, 1999.

RESULTS OF OPERATIONS - COMPARISON OF YEARS ENDED JUNE 30, 1998 AND 1997

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

                                         U.S. Treasury Securities
                                     Average for the Twelve Months Ended
                             -----------------------------------------------
                             Ten-Year Maturity   One-Year Maturity   Spread
                             -----------------   -----------------   ------
June 30, 1998                       5.84%                5.44%        0.40%
June 30, 1997                       6.60%                5.69%        0.91%
                                    ----                 ----         ----
Decrease in interest rates         -0.76%               -0.25%       -0.51%
                                    ====                 ====         ====

         The 76 basis point  decline in the ten-year  treasury is  indicative of
the decline in the fixed-rates on single family mortgage loans. During the year,
the average yield on loans  decreased  four basis points from 8.43% to 8.39% and
the average  yield on  interest-earning  assets  decreased  16 basis points from
8.10% to 7.94%.

         The average cost of certificates decreased five basis points from 5.57%
to 5.52%. During the year, start-up banks in the market area paid interest rates
on certificates of deposit well above comparable  maturity  treasury rates. As a
result,  the Company was unable to reduce the cost of  certificates in line with
the overall decline in the general level of interest rates.  The average cost of
transaction  accounts  decreased 12 basis points from 2.93% to 2.81%.  In total,
the average cost of interest-bearing  liabilities decreased 15 basis points from
5.23% to 5.08%.

         At the same time the spread between the ten-year and one-year  treasury
was narrowing by 51 basis points, the Company's spread between the average yield
on interest-earning assets and the average cost of interest-bearing  liabilities
decreased by one basis point from 2.87% to 2.86%.

         Interest Income.  Total interest income  increased  $2,484,837 (17%) as
the average balance of interest-earning assets increased $34,955,000 (19%). Loan
interest  increased  $2,527,977  (20%) as the average  loan  receivable  balance
increased  $30,893,000 (21%). Average balances of investment securities declined
$4,788,000 (18%) during the year as the Company replaced  securities with higher
yielding loans.

         Interest Expense. Total interest expense increased $433,068 (5%) as the
average balance of interest-bearing  liabilities increased $13,019,000 (8%). The
average  balances of transaction  accounts  increased  $8,104,000  (59%) and the
average balances of certificates of deposit decreased $11,433,000 (9%). In order
to fund the increase in assets and decrease in  deposits,  the Company  borrowed
additional  funds from the FHLB. The average balance of FHLB advances  increased
by $13,863,000 (101%).



         Net  Interest  Income.  The  Company's  net interest  income  increased
$2,051,769  (32%) from $6,401,110 to $8,452,879.  During the year ended June 30,
1998, the average balance of interest-earning

                                       9
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


assets  exceeded  the  average  balance  of   interest-bearing   liabilities  by
$44,452,000, an increase in the average net earning balance of $21,936,000 (97%)
due to the net proceeds of the December 30, 1997 offering.

         Provision  for Loan  Losses.  During  fiscal  year  1998,  the  Company
experienced  loan charge-offs in excess of recoveries of $108,804 and based on a
review as discussed above, elected to add $123,352 to the allowance.

         Non-Interest Income.  Non-interest income increased $423,262 (80%) from
$529,801 to  $953,063.  This  increase is primarily  due to the $340,275  (129%)
increase in service  charges due to continued  growth in the Company's  checking
accounts.

         Non-Interest  Expense.  Non-interest  expense decreased  $282,132 (6%),
from  $5,104,631  to  $4,822,499.  This  decrease was primarily due to a special
one-time  assessment  in fiscal year 1997 of  $931,989  by the  Federal  Deposit
Insurance  Corporation ("FDIC") on all assessable deposits as of March 31, 1995.
Beginning  January 1, 1997  deposit  premiums  declined  from an average of 23.4
basis points to an average of 6.4 basis points.  Non-interest expense other than
this special assessment increased $649,857 (16%). In general,  this increase can
be attributed to the overall  increase in accounts  served,  the addition of our
South National location,  and the expenses associated with the December 30, 1997
offering.  Salaries and employee benefits  increased  $280,664 (14%).  Occupancy
expense  increased  $115,985  (18%) due primarily to the opening of a new branch
location in October 1997. Data processing expense increased $38,165 (11%) due to
the increased volume of transactions  handled.  Advertising  expenses  increased
$77,641  (24%) which  reflects a full year of  promoting  our  checking  account
programs. All other expenses increased $254,003 (42%). More specifically,  legal
expense increased $44,153 and office supplies increased $69,683.

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

         Cash Dividends Paid.  Guaranty Federal Savings Bank paid cash dividends
of $687,500  (3,125,000  shares at $0.22 per share) on October 18, 1997,  to the
stockholders of record as of September 12, 1997. The Company paid cash dividends
of  $933,842  (6,225,610  shares at $0.15 per share) on April 30,  1998,  to the
stockholders of record as of April 3, 1998.

ASSET / LIABILITY MANAGEMENT

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

         The  Bank's  initial  efforts  to manage  interest  rate risk  included
implementing an adjustable  rate mortgage loan ("ARM") program  beginning in the
early 1980s. The ARMs have met with excellent  customer  acceptance.  As of June
30, 1997, ARMs  constituted  75% of the Bank's mortgage loan portfolio.  However
during fiscal years 1998 and 1999, the general level of long term interest rates
dropped and borrowers opted for fixed rate mortgages.  As of June 30, 1999, ARMs
represent 60% of the loan portfolio.  Of the ARMs originated during the past two
fiscal years,  borrower's  preferred initial fixed rate periods of three or five
years.  In  response to this shift in customer  preference,  the Bank  started a
program of borrowing longer-term

                                       10
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


funds from the FHLB.  FHLB advances with  maturities  over five years  increased
$27,133,275  from  $25,705,115 as of June 30, 1998 to $52,838,390 as of June 30,
1999.

         The Bank is also  managing  interest  rate risk by the  origination  of
construction  loans.  As of June 30, 1999,  such loans made up 15% of the Bank's
loan portfolio.  In general, these loans have higher yields, shorter maturities,
and greater interest rate sensitivity than other real estate loans.

         The Bank  constantly  monitors  its  deposits  in an effort to decrease
their interest rate sensitivity.  Rates of interest paid on deposits at the Bank
are priced competitively in order to meet the Bank's asset/liability  management
objectives  and spread  requirements.  As of June 30, 1998,  the Bank's  savings
accounts,   checking  accounts,   and  money  market  deposit  accounts  totaled
$36,855,202 or 26% of its total  deposits.  As of June 30, 1999,  these accounts
totaled  $46,736,183  or 33% of  total  deposits.  The Bank  believes,  based on
historical  experience,  that a substantial  portion of such accounts represents
non-interest rate sensitive, core deposits.

         The value of the Bank's loan  portfolio  will change as interest  rates
change.  Rising  interest  rates will decrease the Bank's net  portfolio  value,
while falling interest rates increase the value of that portfolio.

INTEREST RATE SENSITIVITY ANALYSIS

         The following table sets forth as of June 30, 1999, the OTS estimate of
the projected  changes in net portfolio  value ("NPV") in the event of 100, 200,
and 300 basis point ("bp")  instantaneous and permanent  increases and decreases
in market interest rates.
Dollar amounts are expressed in thousands.

                Estimated Net Portfolio Value        NPV as % of PV of Assets
BP Change     --------------------------------       ------------------------
in Rates      $ Amount     $ Change   % Change       NPV Ratio      BP Change
--------      --------     --------   --------       ---------      ---------
  +300          60,719      (4,307)       -7%          20.5%         -18 bp
  +200          63,314      (1,712)       -3%          20.9%         +22 bp
  +100          64,873        (153)        0%          21.0%         +31 bp
    NC          65,026                                 20.7%
  -100          63,517      (1,509)       -2%          19.9%         -75 bp
  -200          60,740      (4,286)       -7%          18.9%        -184 bp
  -300          57,751      (7,275)      -11%          17.7%        -298 bp


         Computations  of  prospective  effects of  hypothetical  interest  rate
changes are  calculated  by the OTS from data provided by the Bank and are based
on numerous  assumptions,  including  relative  levels of market interest rates,
loan  repayments  and  deposit  run-offs,  and  should  not be  relied  upon  as
indicative of actual results.  Further,  the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.

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

         The Bank's Board of Directors is  responsible  for  reviewing the asset
and liability  policies.  The Board meets quarterly to review interest rate risk
and trends, as well as liquidity and capital ratios and requirements.

                                       11
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


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

LIQUIDITY AND CAPITAL RESOURCES

         The Bank is required by OTS  regulations to maintain  minimum levels of
specified liquid assets equal to 4% of deposits and short-term  borrowings.  The
Bank's liquidity ratio as of June 30, 1999, was 19.4%.

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

         The Company's most liquid assets are cash and cash  equivalents,  which
are cash on hand, amounts due from financial  institutions,  and certificates of
deposit  with other  financial  institutions  that have an original  maturity of
three  months or less.  The levels of such  assets are  dependent  on the Bank's
operating, financing, and investment activities at any given time. The Company's
cash and cash equivalents totaled $9,689,121 as of June 30, 1999. The variations
in levels of cash and cash  equivalents  are  influenced  by  deposit  flows and
anticipated future deposit flows.

         As of June 30, 1999, the Bank had  conditional  commitments in the form
of a letter of credit in the amount of $263,000.  Outstanding  loan  commitments
were  $6,593,000.  As of June 30,  1999,  the Bank had granted  unused  lines of
credit to  borrowers  aggregating  approximately  $316,000  and  $6,945,000  for
commercial lines and open-end consumer lines, respectively. As of June 30, 1999,
the Bank had  $65,131,748  in  certificates  of deposit which were  scheduled to
mature  in one year or  less.  It is  anticipated  that  the  majority  of these
certificates will be renewed in the normal course of operations.

         The Bank's capital  position of $55,973,000 is 18.0% of total assets as
of June 30,  1999.  The Bank has an  excess  of  $47,961,000,  $40,303,000,  and
$38,840,000  of required  regulatory  levels of tangible,  core,  and risk-based
capital, respectively.
Under current regulatory guidelines, the Bank is classified as well capitalized.

         During fiscal year 1999, the Company purchased 815,759 shares of common
stock in open  market  transactions  with the intent to grant  stock  awards for
173,632 shares of common stock in accordance  with the Bank's  Restricted  Stock
Plan and to place  642,127  shares in a  treasury  stock  account.  The  Company
intends to monitor the common stock price and with regulatory  approval may from
time to time initiate  further  treasury stock  transactions in order to improve
the Company's long-term earnings per share while at the same time maintaining an
adequate level of stockholders' equity.

IMPACT OF INFLATION AND CHANGING PRICES

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

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

                                       12
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


interest rate  environment,  liquidity and the maturity  structure of the Bank's
assets and liabilities are critical to the maintenance of acceptable performance
levels.

impact of new accounting pronouncements

         During the year ended June 30,  1999,  the  Company  adopted  SFAS 130,
"Reporting  Comprehensive  Income".  This  Statement  establishes  standards for
reporting and display of  comprehensive  income and its components in a full set
of financial statements.

         During the year ended June 30,  1999,  the  Company  adopted  SFAS 131,
"Disclosures  about  Segments of an Enterprise  and Related  Information."  This
Statement  establishes  standards for the way that public  business  enterprises
report  information  about operating  segments.  The Statement also  establishes
standards for related disclosures about products and services,  geographic areas
and major customers.

Impact of Year 2000

         Rapid  and  accurate  data   processing  is  essential  to  the  Bank's
operations.  Many  computer  programs  that can only  distinguish  the final two
digits of the year  entered (a common  programming  practice in prior years) may
read  entries  for the  year  2000 as the  year  1900 or as the  year  1980  and
incorrectly attempt to compute payments,  interest,  delinquency and other data.
The Bank has been evaluating both information  technology (computer systems) and
non-information  technology  systems  (e.g.,  telephone  systems,  vault timers,
security  systems and elevator  controls).  We have  evaluated our risk in three
areas:  (1) our own  computers,  (2) computers of others used by our  borrowers,
depositors,  and business  partners,  and (3) computers of others who provide us
with data processing services.

         Our own computers.  The Bank spent approximately $175,000 ($140,000 for
hardware  and  $35,000 for  software)  to upgrade our  computer  systems.  These
upgrades are expected to eliminate  the Year 2000 risk in our  computers.  We do
not expect to have material costs to address this risk area after June 30, 1999.
We believe all of our own computers are Year 2000 compliant.

         Computers  of  others  used  by  borrowers,  depositors,  and  business
partners.  The Bank has evaluated most of our material  borrowers and depositors
and does not believe that the Year 2000 problem should,  on an aggregate  basis,
impact their  ability to make  payments or deposits to the Bank. We believe that
most of our residential  customers are not dependent on their home computers for
income and that none of our  commercial  customers are so large that a Year 2000
problem  would  render  them  unable to collect  revenue  or rent and,  in turn,
continue to do business with the Bank. We have  solicited our material  business
partners  regarding their Year 2000 readiness and have received  representations
as to their Year 2000 readiness.

         Computers of others who provide us with data processing services.  This
risk is primarily  focused on one,  third party service bureau that provides all
of the Bank's  core data  processing.  This  service  bureau  tells us they have
completed  program  changes  required  for Year 2000  processing.  We acted as a
proxy-testing  site for testing those  systems.  As a result of those tests,  we
have no reason not to believe the core  processing  system  will  operate in the
Year 2000. If this core processing  system does develop problems due to the year
2000, we would likely  experience  significant  delays,  mistakes,  or failures.
These  delays,  mistakes,  or failures  could have a  significant  impact on our
financial condition and results of operations.  To mitigate any such problem, we
have developed  business  resumption  contingency  plans to operate  without the
benefit of our core processing system until the system can be repaired.

                                       13
<PAGE>
Management's Discussion and Analysis of Financial Condition
   And Results of Operations


         Contingency  Plan. We have identified  potential  points of failure for
each of our  mission  critical  systems.  For  each  potential  failure  we have
identified  contingency plans. We have tested these plans and intend to evaluate
and update  these plans as more  information  becomes  available  regarding  the
potential risks of the Year 2000 event. Such plans are  labor-intensive  causing
us to be much  less  efficient.  However,  we  believe  that we would be able to
operate in this  manner,  with  reduced  levels of customer  service,  until our
existing  service bureau,  or their  replacement,  is able to again provide data
processing  services.  If very few  financial  institution  service  bureaus are
operating in the year 2000, our replacement  costs,  assuming we could negotiate
an agreement, could be material.

         This discussion of the impact of the Year 2000 is a Year 2000 readiness
disclosure within the meaning of the Year 2000 Readiness and Disclosure Act.

Summary of Unaudited Operating Results




 Summary of Unaudited Quarterly Operating Results
<TABLE>
<CAPTION>
                                                                 Fiscal Year 1999
                                                ---------------------------------------------------
                                                September-98  December-98    March-99    June-99
                                                ------------  -----------    --------    -------
<S>                                              <C>           <C>          <C>          <C>
Interest income                                  $4,933,889    5,182,991    5,245,700    5,399,990
Interest expense                                  2,502,163    2,689,717    2,672,703    2,838,323
                                                 ----------    ---------    ---------    ---------
Net interest income                               2,431,726    2,493,274    2,572,997    2,561,667
Provision for loan losses                            45,000       45,000       45,000       45,000
Gain on loans and investment securities               9,750       28,953        8,535       20,984
Other noninterest income, net                       261,158      274,467      262,247      334,760
Noninterest expense                               1,409,797    1,505,103    1,516,608    1,525,882
                                                 ----------    ---------    ---------    ---------
Income before income taxes                        1,247,837    1,246,591    1,282,171    1,346,529
Provision for income taxes                          449,734      426,162      458,548      430,556
                                                 ----------    ---------    ---------    ---------
Net income                                       $  798,103      820,429      823,623      915,973
                                                 ==========    =========    =========    =========
Basic earnings per share                         $     0.14         0.15         0.15         0.17
                                                 ==========    =========    =========    =========
Diluted earnings per share                       $     0.14         0.14         0.15         0.17
                                                 ==========    =========    =========    =========
</TABLE>


<TABLE>
<CAPTION>
                                                                Fiscal Year 1998
                                                --------------------------------------------------
                                                September-97  December-97    March-98    June-98
                                                ------------  -----------    --------    -------
<S>                                              <C>           <C>          <C>          <C>
Interest income                                  $3,939,502    4,210,294    4,383,799    4,662,527
Interest expense                                  2,188,158    2,318,489    2,028,113    2,208,483
                                                 ----------    ---------    ---------    ---------
Net interest income                               1,751,344    1,891,805    2,355,686    2,454,044
Provision for loan losses                            33,352       30,000       30,000       30,000
Gain (loss) on loans and investment securities       38,131       19,240       12,295         (799)
Other noninterest income, net                       173,335      219,932      240,180      250,749
Noninterest expense                               1,120,763    1,138,416    1,245,480    1,317,840
                                                 ----------    ---------    ---------    ---------
Income before income taxes                          808,695      962,561    1,332,681    1,356,154
Provision for income taxes                          292,192      367,773      489,438      469,597
                                                 ----------    ---------    ---------    ---------
Net income                                       $  516,503      594,788      843,243      886,557
                                                 ==========    =========   ==========      =======
Basic earnings per share (since conversion)             n/a          n/a   $     0.14         0.15
                                                                           ==========   ==========
Diluted earnings per share (since conversion)           n/a          n/a   $     0.14         0.15
                                                                           ==========   ==========
</TABLE>
                                       14
<PAGE>

Guaranty Federal Bancshares, Inc.
Consolidated Balance Sheets
June 30, 1999 and 1998
<TABLE>
<CAPTION>

                            ASSETS                                  1999                1998
                            ------                                  ----                ----
<S>                                                              <C>                 <C>
 Cash                                                             $  1,656,648             846,691
 Interest-bearing deposits in other financial institutions           8,032,473           6,458,232
                                                                  ------------         -----------
 Cash and cash equivalents                                           9,689,121           7,304,923
 Available-for-sale securities                                       8,951,175          13,820,679
 Held-to-maturity securities                                        15,394,643          20,871,043
 Mortgage loans held for sale                                          769,074             805,183
 Loans receivable, net                                             263,499,778         205,414,561
 Accrued interest receivable:
 Loans                                                               1,459,508           1,188,162
 Investments                                                           297,431             415,982
 Prepaid expenses and other assets                                   5,671,845           2,503,055
 Foreclosed assets held for sale                                       101,546             286,000
 Premises and equipment                                              7,365,392           7,432,971
                                                                  ------------         -----------
                                                                  $313,199,513         260,042,559
                                                                  ============         ===========
             LIABILITIES AND STOCKHOLDERS' EQUITY
             ------------------------------------

 LIABILITIES
 Deposits                                                        $ 141,137,154         140,975,336
 Federal Home Loan Bank advances                                   104,794,640          45,081,028
 Advances from borrowers for taxes and insurance                     1,195,545             870,476
 Accrued expenses and other liabilities                                499,221             513,943
 Accrued interest payable                                              543,641             256,975
 Income taxes payable                                                  235,587             417,532
 Deferred income taxes                                               1,360,503           1,237,171
                                                                  ------------         -----------
                                                                   249,766,291         189,352,461
                                                                  ------------         -----------

 STOCKHOLDERS' EQUITY Common Stock:
 $0.10 par value; authorized 10,000,000 shares;
 issued; 1999 - 6,245,775 shares, 1998 - 6,228,035 shares              624,578             622,804
 Additional paid-in capital                                         47,366,264          49,016,992
 Unearned ESOP shares                                               (3,100,080)         (3,444,540)
 Retained earnings, substantially restricted                        23,236,009          21,682,950
 Accumulated other comprehensive income
         Unrealized appreciation on available-for-sale securities,
      net of income taxes; 1999 - $2,026,448, 1998 - $1,651,429      3,438,826           2,811,892
                                                                  ------------         -----------
                                                                    71,565,597          70,690,098
 Treasury stock, at cost - 642,127 shares in 1999                   (8,132,375)                 -
                                                                  ------------         -----------
                                                                    63,433,222          70,690,098
                                                                  ------------         -----------
                                                                  $313,199,513         260,042,559
                                                                  ============         ===========
</TABLE>

See Notes to Consolidated Financial Statements

                                       15
<PAGE>
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Income
Years Ended June 30, 1999, 1998, and 1997
<TABLE>
<CAPTION>
                                                  1999          1998          1997
                                                  ----          ----          ----
<S>                                           <C>            <C>           <C>
INTEREST INCOME
Loans                                          $18,616,891    14,874,797    12,346,820
Investment securities                            1,604,972     1,528,929     1,964,043
Other                                              540,707       792,396       400,422
                                               -----------     ---------     ---------
                                                20,762,570    17,196,122    14,711,285
                                               -----------     ---------     ---------
INTEREST EXPENSE
Deposits                                         5,979,900     6,969,284     7,471,093
Federal Home Loan Bank advances                  4,723,006     1,694,916       839,082
Other                                                 --          79,043          --
                                               -----------     ---------     ---------
                                                10,702,906     8,743,243     8,310,175
                                               -----------     ---------     ---------
NET INTEREST INCOME                             10,059,664     8,452,879     6,401,110
PROVISION FOR LOAN LOSSES                          180,000       123,352          --
                                               -----------     ---------     ---------
NET INTEREST INCOME AFTER
    PROVISION FOR LOAN LOSSES                    9,879,664     8,329,527     6,401,110
                                               -----------     ---------     ---------
NONINTEREST INCOME
Service charges                                    872,827       604,924       264,649
Late charges and other fees                        113,490       109,200        85,673
Gain on loans and investment securities             68,222        68,867        61,468
Income on foreclosed assets                         11,488        14,127        17,896
Other income                                       134,827       155,945       100,115
                                               -----------     ---------     ---------
                                                 1,200,854       953,063       529,801
                                               -----------     ---------     ---------
NONINTEREST EXPENSE
Salaries and employee benefits                   3,144,373     2,310,877     2,030,213
Occupancy                                          789,095       769,836       653,851
SAIF deposit insurance:
Special assessment                                    --            --         931,989
Insurance premiums                                  84,172        92,558       209,159
Data processing                                    497,820       397,568       359,403
Advertising                                        448,203       396,803       319,162
Other expense                                      993,727       854,857       600,854
                                               -----------     ---------     ---------
                                                 5,957,390     4,822,499     5,104,631
                                               -----------     ---------     ---------
INCOME BEFORE INCOME TAXES                       5,123,128     4,460,091     1,826,280
PROVISION FOR INCOME TAXES                       1,765,000     1,619,000       664,500
                                               -----------     ---------     ---------
NET INCOME                                       3,358,128     2,841,091     1,161,780
OTHER COMPREHENSIVE INCOME
          Unrealized appreciation on
               available-for-sale securities       626,934       754,312       798,169
                                               -----------     ---------     ---------
COMPREHENSIVE INCOME                           $ 3,985,062     3,595,403     1,959,949
                                               ===========     =========     =========
BASIC EARNINGS PER SHARE                       $      0.61          0.29(1)        n/a
                                               ===========     =========     =========
DILUTED EARNINGS PER SHARE                     $      0.60          0.29(1)        n/a
                                               ===========     =========     =========
</TABLE>



(1) Since conversion December 30, 1997

See Notes to Consolidated Financial Statements

                                       16
<PAGE>
Guaranty Federal Bancshares. Inc.
Consolidated Statements of Cash Flows
Years Ended June 30, 1999, 1998, and 1997

<TABLE>
<CAPTION>



                                                            1999            1998            1997
                                                            ----            ----            ----
<S>                                                  <C>                <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                            $  3,358,128       2,841,091       1,161,780
Items not requiring (providing) cash:
Deferred income taxes                                     (251,687)        (22,258)         22,000
Depreciation                                               444,467         469,532         441,367
Provision for loan losses                                  180,000         123,352            --
Gain on loans and investment securities                    (68,222)        (68,867)        (61,468)
Gain on sale of premises and equipment                        --              --            (5,169)
(Gain) loss on sale of foreclosed assets                     4,820         (15,231)         (9,921)
Amortization of deferred income,
premiums and discounts                                      14,181         (77,945)       (220,135)
RRP/RSP expense                                            510,286          92,407         106,197
Origination of loans held for sale                     (10,271,583)     (6,152,677)     (6,626,148)
Proceeds from sale of loans held for sale               10,375,914       6,364,053       4,134,389
   Release of ESOP shares                                  414,385            --              --
Changes in:
Accrued interest receivable                               (152,795)       (292,583)         69,448
Prepaid expenses and other assets                         (183,090)       (539,181)        (11,357)
Accrued expenses and other liabilities                     271,944         (26,754)        283,466
Income taxes payable                                      (158,391)        113,685         131,141
                                                         ---------       ---------        --------
Net cash provided by (used in) operating activities      4,488,357       2,808,624        (584,410)
                                                         ---------       ---------        --------
</TABLE>


                                       17


<PAGE>
Guaranty Federal Bancshares, Inc.
Consolidated Statements of Cash Flows (continued)
Years Ended June 30, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                 1999            1998            1997
                                                                 ----            ----            ----
<S>                                                      <C>             <C>             <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of loans                                            (7,895,901)           --              --
Net increase in loans                                       (50,158,557)    (48,620,302)    (20,918,542)
Principal payments on held-to-maturity securities             3,992,371       3,881,091       4,300,576
Principal payments on available-for-sale securities           6,413,840            --              --
Purchase of available-for-sale securities                      (520,065)    (13,875,905)           --
Purchase of premises and equipment                             (376,888)       (406,548)       (337,112)
Proceeds from sale of premises and equipment                       --              --            25,500
Proceeds from sales of available-for-sale securities               --              --         5,318,175
Proceeds from maturitites of held-to-maturity securities      1,385,715       4,345,229       1,739,461
Purchase of FHLB stock                                       (2,985,700)           --              --
Proceeds from sale of foreclosed assets                          30,690         317,855         362,900
Capitalized costs on foreclosed assets                             --              --           (90,167)
                                                           ------------       ---------       ---------
 Net cash used in investing activities                      (50,114,495)    (54,358,580)     (9,599,209)
                                                           ------------       ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net                            --        39,216,426            --
Stock options exercised                                         106,792          58,971            --
Cash dividends paid                                          (1,805,069)     (1,621,342)     (1,187,500)
Cash dividends received on RRP Stock                             13,554          15,780          11,987
Net increase in demand deposits,
      NOW accounts and savings accounts                       9,880,981       8,738,851       4,944,356
Net decrease in certificates of deposit                      (9,719,163)    (18,497,200)    (10,705,764)
Proceeds from FHLB advances                                  64,092,500      61,050,000      31,163,750
Repayments of FHLB advances                                  (4,378,888)    (34,119,816)    (13,012,906)
Advances from borrowers for taxes and insurance                 325,069         195,858          99,132
Reduction of shares in RRP Trust                                   --              --            13,358
RSP stock purchased                                          (2,373,065)           --              --
Treasury stock purchased                                     (8,132,375)           --              --
                                                           ------------       ---------       ---------
 Net cash provided by financing activities                   48,010,336      55,037,528      11,326,413
                                                           ------------       ---------       ---------
INCREASE IN CASH
AND CASH EQUIVALENTS                                          2,384,198       3,487,572       1,142,794

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR                                             7,304,923       3,817,351       2,674,557
                                                           ------------       ---------       ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR                                                $  9,689,121       7,304,923       3,817,351
                                                           ============       =========       =========
</TABLE>
See Notes to Consolidated Financial Statements
                                                      18

<PAGE>
Guaranty Federal Bancshares, Inc.
Consolidated  Statements of Change in Stockholder's  Equity Years Ended June 30,
1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                                   Accumulated Other
                                                                                                 Comprehensive Income -
                                             Additional      Unearned                            Unrealized Appreciation
                                               Paid-In         ESOP       Treasury    Retained     Available-for-Sale
                               Common Stock    Capital        Shares        Stock     Earnings       Securities, Net      Total
                               ------------    -------        ------        -----     --------   ---------------------  ----------
<S>                            <C>           <C>        <C>           <C>           <C>               <C>              <C>
 Balance, June 30, 1996         $ 3,125,000   3,555,814           -             -    18,645,939        1,259,411        26,586,164
 Net income                               -           -           -             -     1,161,780                -         1,161,780
 Dividends on common stock,
   ($0.38 per share)                      -           -           -             -    (1,187,500)               -        (1,187,500)
 Recognition and Retention
   Plan  ("RRP") expense                  -     106,197           -             -             -                -           106,197
 Dividends received on RRP
   stock                                  -      11,987           -             -             -                -            11,987
 Reduction of shares in
   RRP Trust                              -      13,358           -             -             -                -            13,358
 Change in unrealized
 appreciation on
 available-for-sale
 securitites, net of
 income taxes of $468,000                 -           -           -             -             -          798,169           798,169
                                 ----------  ----------   ----------    ----------   ----------        ---------        ----------
 Balance, June 30, 1997           3,125,000   3,687,356           -             -    18,620,219        2,057,580        27,490,155
 Net income                               -           -           -             -     2,841,091                -         2,841,091
 Dividends on common stock,
   ($0.22 per share on
   3,125,000 shares &
   $0.15 per share on
   6,225,610 shares)                      -           -           -             -    (1,621,342)               -        (1,621,342)
 Dividends received on
   RRP stock                              -      15,780           -             -             -                -            15,780
 Recognition and Retention
   Plan expense                           -      92,407           -             -             -                -            92,407
 Stock redeemed and stock
   issued under plan
   of conversion to stock
   ownership, net                (2,502,868) 45,130,921  (3,444,540)            -             -                -        39,183,513
 Transfer from MHC                        -           -           -             -     1,842,982                -         1,842,982
 Stock options exercised                672      58,299           -             -             -                -            58,971
 Tax benefit of RRP shares                -      32,229           -             -             -                -            32,229
 Change in unrealized
   appreciation on
   available-for-sale
   securitites, net of
   income taxes of $443,429               -           -           -             -             -          754,312           754,312
                                 ----------  ----------   ----------    ----------   ----------        ---------        ----------
 Balance, June 30, 1998             622,804  49,016,992  (3,444,540)            -    21,682,950        2,811,892        70,690,098
 Net income                               -           -           -             -     3,358,128                -         3,358,128
 Dividends on common stock,
   ($0.34 per share)                      -           -           -             -    (1,805,069)               -        (1,805,069)
 Dividends received on
   RRP stock                              -      13,554           -             -             -                -            13,554
 Recognition and Retention
   Plan & Restricted
   Stock Plan ("RSP")expense              -     510,286           -             -             -                -           510,286
 Stock options exercised              1,774     105,018           -             -             -                -           106,792
 RSP stock purchased                         (2,373,065)          -             -             -                -        (2,373,065)
 Treasury stock purchased                 -           -           -    (8,132,375)            -                -        (8,132,375)
 Release of ESOP shares                   -      69,925     344,460             -             -                -           414,385
 Tax benefit of RRP shares                -      23,554           -             -             -                -            23,554
 Change in unrealized
   appreciation on
   available-for-sale
   securitites, net of
   income taxes of $375,019               -           -           -             -             -          626,934           626,934
                                 ----------  ----------   ----------    ----------   ----------        ---------        ----------
 Balance, June 30, 1999          $  624,578  47,366,264   (3,100,080)   (8,132,375)  23,236,009        3,438,826        63,433,222
                                 ==========  ==========   ==========    ==========   ==========        =========        ==========

</TABLE>




                                       19
<PAGE>
Notes to Consolidated Financial Statements


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

Organization
------------
         In April 1995, Guaranty Federal Savings & Loan Association  reorganized
from a federally  chartered  mutual savings and loan  association  into a mutual
holding company,  Guaranty Federal Bancshares,  M. H. C. (the "MHC"). Concurrent
with the  reorganization,  Guaranty  Federal Savings Bank (the "Bank"),  a stock
savings bank was chartered.  The Bank issued 3,125,000 shares of common stock in
connection with the reorganization,  the majority of which were owned by the MHC
(see Note 15).

         Guaranty  Federal  Bancshares,   Inc.  (the  "Company")  completed  the
conversion from a federally chartered mutual holding company, (formerly Guaranty
Federal  Bancshares,  M. H. C.) to a  Delaware-chartered  stock  corporation  on
December 30, 1997. In connection  with the  conversion and  reorganization,  the
shares of the Bank held by the mutual holding  company were  extinguished  along
with the mutual  holding  company  and the shares of the Bank held by the public
were exchanged for shares of the Company.  Additional shares of the Company were
issued as of December 30, 1997 (see Note 16).

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

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

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

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

         Management  believes  that the  allowances  for  losses  on  loans  and
valuation of foreclosed assets held for sale are adequate. While management uses
available  information to recognize losses on loans and value foreclosed  assets
held for sale, changes in economic conditions may necessitate  revision of these
estimates in future  years.  In addition,  various  regulatory  agencies,  as an
integral  part of their  examination  process,  periodically  review  the Bank's
allowances for losses on loans and valuation of foreclosed assets held for sale.
Such agencies may require the Bank to recognize additional losses based on their
judgments of information available to them at the time of their examination.

                                       20
<PAGE>


Notes to Consolidated Financial Statements


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)

Cash and Investments in Debt and Equity Securities
--------------------------------------------------
         Regulations  require the Bank to  maintain  an amount  equal to 4.0% of
savings deposits (net of loans on savings  deposits) plus short-term  borrowings
in cash and U. S. government and other approved securities.

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

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

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

Mortgage Loans Held for Sale
----------------------------
         Mortgage  loans held for sale are  carried at the lower of cost or fair
value,  determined  using an  aggregate  basis.  Write-downs  to fair  value are
recognized  as a charge to  earnings  at the time the  decline in value  occurs.
Forward  commitments  to sell mortgage  loans are  sometimes  acquired to reduce
market risk on mortgage loans in the process of  origination  and mortgage loans
held for sale.  Gains and  losses  resulting  from sales of  mortgage  loans are
recognized when the respective loans are sold to investors. Gains and losses are
determined  by the  difference  between  the  selling  price  plus the  value of
retained  servicing  rights for loans  originated  after  July 1, 1996,  and the
carrying  amount of the  loans  sold,  net of  discounts  collected  or paid and
considering a normal  servicing  rate. Fees received from borrowers to guarantee
the funding of mortgage loans held for sale and fees paid to investors to ensure
the ultimate  sale of such  mortgage  loans are  recognized as income or expense
when the loans are sold or when it becomes  evident that the commitment will not
be used.


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

Loan Servicing
--------------
         The cost of originated  mortgage-servicing rights is amortized over the
shorter of the actual or contractual loan life. Impairment of mortgage-servicing
rights is  assessed  based on the fair value of those  rights.  Fair  values are
estimated  using  discounted  cash flows  based on a current  market  rate.  For
purposes  of  measuring  impairment,  the  rights  are  stratified  based on the
prepayment  risk   characteristics  of  the  underlying  loan.  The  predominant
characteristic  currently used for stratification is type of loan. The amount of
impairment  recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.

                                       21
<PAGE>


Notes to Consolidated Financial Statements


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses
-------------------------
         The  allowance  for loan losses is increased by  provisions  charged to
expense and reduced by provisions credited to expense and loans charged off, net
of  recoveries.  The allowance is maintained at a level  considered  adequate to
provide for potential  loan losses,  based on the Bank's  evaluation of the loan
portfolio,  as well as on prevailing  and  anticipated  economic  conditions and
historical  losses by loan category.  General  allowances have been established,
based upon the  aforementioned  factors,  and allocated to the  individual  loan
categories.  Allowances are accrued on specific  loans  evaluated for impairment
for  which the basis of each  loan,  including  accrued  interest,  exceeds  the
discounted  amount of expected future  collections of interest and principal or,
alternatively, the fair value of loan collateral.

         A loan is  considered  impaired  when it is probable that the Bank will
not receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent  ninety days or more  (nonaccrual  loans) and
certain  other  loans   identified  by   management.   Accrual  of  interest  is
discontinued,  and  interest  accrued  and unpaid is  removed,  at the time such
amounts are delinquent ninety days.  Interest is recognized for nonaccrual loans
only upon receipt.

Foreclosed Assets Held for Sale
-------------------------------
         Assets  acquired by  foreclosure  or in settlement of debt and held for
sale are valued at  estimated  fair value as of the date of  foreclosure,  and a
related valuation  allowance is provided for estimated costs to sell the assets.
Management  evaluates the value of foreclosed  assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Changes in the  valuation  allowance  and  gains/losses  on sales of  foreclosed
assets are included in noninterest income.


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

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

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

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

                                       22
<PAGE>


Notes to Consolidated Financial Statements


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)

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

         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy  require the Bank to maintain  minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the  regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to adjusted
tangible assets (as defined). Management believes, as of June 30, 1999, that the
Bank meets all capital adequacy requirements to which it is subject.

         As of June 30, 1999,  the most recent  notification  from the Office of
Thrift Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt  corrective  action.  To be categorized as well capitalized
the Bank must maintain  minimum total  risk-based,  Tier I risk-based and Tier I
leverage ratios as set forth in the following table.  There are no conditions or
events since that notification that management  believes have changed the Bank's
category.

                                       23
<PAGE>


Notes to Consolidated Financial Statements


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)

         The Bank's actual capital  amounts and ratios are also presented in the
table.  No amount was  deducted  from  capital for  interest-rate  risk.  Dollar
amounts are expressed in thousands.

<TABLE>
<CAPTION>
                                                                                                   To Be Well Capitalized
                                                                            For Capital            Under Prompt Corrective
                                            Actual                       Adequacy Purposed           Action Provisions
                                            ------                       -----------------           -----------------
                                            Amount       Ratio          Amount        Ratio          Amount       Ratio
                                            ------       -----          ------        -----          ------       -----
<S>                                       <C>              <C>         <C>               <C>       <C>              <C>
As of June 30, 1999:
Stockholders' equity,
and ratio to total assets                  $ 55,973         18.0%
Unrealized appreciation on
available-for-sale securities                (3,417)
                                           --------
Tangible capital,
and ratio to adjusted total assets         $ 52,556         17.2%        $ 4,595          1.5%
                                           ========         ====         =======          ===

Tier 1 (core) capital,
and ratio to adjusted total assets         $ 52,556         17.2%       $ 12,253          4.0%      $ 15,316          5.0%
                                           ========         ====        ========          ===       ========          ===

Tier 1 (core) capital,
and ratio to risk-weighted assets          $ 52,556         26.3%                                   $ 11,956          6.0%
                                                                                                    ========          ===
Allowance for loan losses -
Tier 2 capital                                2,225
                                           --------
Total risk-based capital,
and ratio to risk-weighted assets          $ 54,781         27.5%       $ 15,941          8.0%      $ 19,926         10.0%
                                           ========         ====        ========          ===       ========         ====
Total assets                               $311,761
                                           ========
Adjusted total assets                      $306,318
                                           ========
Risk-weighted assets                       $199,261
                                           ========
</TABLE>


                                       24
<PAGE>
Notes to Consolidated Financial Statements


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)

<TABLE>
<CAPTION>
                                                                                                   To Be Well Capitalized
                                                                            For Capital            Under Prompt Corrective
                                            Actual                        Adequacy Purposed           Action Provisions
                                            ------                        -----------------           -----------------
                                            Amount       Ratio          Amount        Ratio          Amount       Ratio
                                            ------       -----          ------        -----          ------       -----
<S>                                       <C>              <C>         <C>               <C>       <C>               <C>
As of June 30, 1998:
Stockholders' equity,
and ratio to total assets                  $ 51,908         20.1%
Unrealized appreciation on
available-for-sale securities                (2,792)
                                           --------
Tangible capital,
and ratio to adjusted total assets         $ 49,116         19.3%        $ 3,812          1.5%
                                           ========         ====         =======          ===
Tier 1 (core) capital,
and ratio to adjusted total assets         $ 49,116         19.3%       $ 10,166          4.0%      $ 12,707          5.0%
                                           ========         ====        ========          ===       ========          ===
Tier 1 (core) capital,
and ratio to risk-weighted assets          $ 49,116         30.5%                                    $ 9,648          6.0%
                                                                                                     =======          ===
Allowance for loan losses -
Tier 2 capital                                2,010
                                           --------
Total risk-based capital,
and ratio to risk-weighted assets          $ 51,126         31.8%       $ 12,864          8.0%      $ 16,080         10.0%
                                           ========         ====        ========          ===       ========         ====
Total assets                               $258,566
                                           ========
Adjusted total assets                      $254,142
                                           ========
Risk-weighted assets                       $160,804
                                           ========
</TABLE>

         The  amount of  dividends  that the Bank may pay is  subject to various
regulatory  limitations.  As of June  30,  1999,  approximately  $4,903,000  was
available from the Bank's retained earnings,  without regulatory  approval,  for
distribution as dividends.


                                       25
<PAGE>
Notes to Consolidated Financial Statements


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)

Earnings Per Share
------------------
         As more fully  described in the Note 16, the Company had no  operations
prior to December  30, 1997 and earnings  per share  information  for the common
stock  of the Bank  prior  to this  date  has not  been  presented  because  the
information would not be meaningful.

         The computation for earnings per share for the year ended June 30, 1999
and for the six-month period ended June 30, 1998 since conversion is as follows:
<TABLE>
<CAPTION>
                                                               For year ended June 30, 1999
                                                  -----------------------------------------------------------
                                                  Income                  Shares               Per-share
<S>                                              <C>                       <C>                      <C>
Basic EPS
Income available to common stockholders           $ 3,358,128               5,507,285                $ 0.61

Effect of Dilutive Securities
Stock Options                                                                  56,865
                                                  -----------               ---------
Income available to common stockholders           $ 3,358,128               5,564,150                $ 0.60
                                                  ===========               =========                ======
</TABLE>

<TABLE>
<CAPTION>
                                                                 For six months ended June 30, 1998
                                                  ------------------------------------------------------------
                                                  Income                  Shares               Per-share
<S>                                              <C>                       <C>                      <C>
Basic EPS
Income available to common stockholders           $ 1,729,800               5,879,791                $ 0.29

Effect of Dilutive Securities
Stock Options                                                                  73,341
                                                  -----------               ---------
Income available to common stockholders           $ 1,729,800               5,953,132                $ 0.29
                                                  ===========               =========                ======

</TABLE>


Reclassifications
-----------------
         Certain 1998 and 1997 amounts have been  reclassified to conform to the
1999 financial statements presentation. These reclassifications had no effect on
net income.

Impact of Recent Accounting Pronouncements
------------------------------------------
         During the year ended June 30,  1999,  the  Company  adopted  SFAS 130,
"Reporting  Comprehensive  Income".  This  Statement  establishes  standards for
reporting and display of  comprehensive  income and its components in a full set
of financial statements.

         During the year ended June 30,  1999,  the  Company  adopted  SFAS 131,
"Disclosures  about  Segments of an Enterprise  and Related  Information."  This
Statement  establishes  standards for the way that public  business  enterprises
report  information  about operating  segments.  The Statement also  establishes
standards for related disclosures about products and services,  geographic areas
and major customers.

         The  FASB  recently  adopted  SFAS  133,   "Accounting  for  Derivative
Financial  Instruments  and  Hedging  Activities."  This  Statement  establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts,  and for hedging activities.
SFAS 133 is effective for all fiscal  quarters of fiscal years  beginning  after
June 15, 2000, may be adopted early for periods  beginning after issuance of the
Statement and may not be applied  retroactively.  The Company does not expect to
adopt SFAS 133 early. Management believes that the adoption of SFAS 133 will not
have a material impact on the Company's financial statements.

                                       26

<PAGE>
Notes to Consolidated Financial Statements


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)

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

NOTE 2:  INVESTMENTS IN DEBT AND EQUITY SECURITIES

         The amortized cost and  approximate  fair values of  available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
                                                                   Gross                Gross
                                            Amortized           Unrealized           Unrealized         Approximate
                                               Cost                Gains               (Losses)          Fair Value
                                            ---------           ----------           ----------         -----------
<S>                                      <C>                    <C>                   <C>               <C>
 As of June 30, 1999:
 Equity Securities:
 FHLMC stock                                 $ 94,000            5,474,000                    -           5,568,000
 Other stock                                  735,762              106,973              (72,700)            770,035
 Debt Securities:
 Mortgage-backed securities                 2,644,526                7,168              (38,554)          2,613,140
                                          -----------            ---------               ------          ----------
                                          $ 3,474,288            5,588,141             (111,254)          8,951,175
                                          ===========            =========             ========           =========

 As of June 30, 1998:
 Equity Securities:
 FHLMC stock                              $    94,000            4,424,000                    -           4,518,000
 Other stock                                  215,697               32,522               (1,198)            247,021
 Debt Securities:
 Mortgage-backed securities                 9,047,661                7,997                    -           9,055,658
                                          -----------            ---------               ------          ----------
                                          $ 9,357,358            4,464,519               (1,198)         13,820,679
                                          ===========            =========               ======          ==========
</TABLE>

         Maturities of available-for-sale debt securities as of June 30, 1999:

                                            Amortized          Approximate
                                               Cost            Fair Value
                                               ----            ----------

Mortgage-backed securities not due on a
    single maturity date                   $2,644,526           $2,613,140
                                           ==========           ==========






                                       27
<PAGE>

Notes to Consolidated Financial Statements

NOTE 2:  INVESTMENTS IN DEBT AND EQUITY SECURITIES, (Continued)

         The  amortized  cost and  approximate  fair values of  held-to-maturity
securities are as follows:
<TABLE>
<CAPTION>
                                                                   Gross                Gross
                                            Amortized           Unrealized           Unrealized       Approximate
                                               Cost                Gains               (Losses)        Fair Value
                                            ---------           ----------           ----------       -----------
<S>                                      <C>                    <C>                  <C>             <C>
 As of June 30, 1999:
 Debt Securities:
 U. S. government agencies                $ 7,442,210                   32              (6,800)         7,435,442
 Mortgage-backed securities                 7,952,433              300,020             (63,913)         8,188,540
                                          -----------              -------             -------         ----------
                                          $15,394,643              300,052             (70,713)        15,623,982
                                          ===========              =======             =======         ==========

 As of June 30, 1998:
 Debt Securities:
 U. S. government agencies                $ 8,922,389               14,358             (75,747)         8,861,000
 Mortgage-backed securities                11,948,654              522,116             (21,770)        12,449,000
                                          -----------              -------             -------         ----------
                                          $20,871,043              536,474             (97,517)        21,310,000
                                          ===========              =======             =======         ==========
</TABLE>


         Maturities of held-to-maturity securities as of June 30, 1999:

                                            Amortized          Approximate
                                               Cost            Fair Value
                                          ------------         -----------
 Due in less than one year                $ 6,701,362            6,694,562
 Due after ten years                          740,848              740,880
 Mortgage-backed securities not due on a
      single maturity date                  7,952,433            8,188,540
                                         ------------           ----------
                                         $ 15,394,643           15,623,982
                                         ============           ==========

         There  were no sales of  available-for-sale  securities  for the  years
ended  June 30,  1999  and  1998.  Proceeds  from  sales  of  available-for-sale
securities  were  $5,318,175  for the year ended June 30, 1997,  with  resultant
gross gains of $27,897 and gross losses of $102.

         Included in mortgage-backed securities at June 30, 1999, are certain U.
S. Government agency derivative  securities with an amortized cost of $4,645,000
and an  approximate  fair  value of  $4,606,000.  The yield on these  derivative
securities  varies  with  the  level  of  certain   published   interest  rates,
principally LIBOR.

                                       28
<PAGE>


Notes to Consolidated Financial Statements


NOTE 3:  LOANS AND ALLOWANCE FOR LOAN LOSSES

         Categories of loans at June 30, 1999 and 1998, include:

                                                1999             1998
                                                ----             ----
Real estate - residential mortgage:
One to four family units                  $ 177,910,309      147,590,286
Multi-family                                 35,795,361       21,535,948
Real estate - construction                   38,605,137       34,729,329
Real estate - commercial                     20,771,388       12,721,393
Commercial loans                                543,923          646,156
Installment loans                             7,404,534        5,268,955
Loans on savings accounts                       573,151          622,916
                                          -------------      -----------
                                            281,603,803      223,114,983
Undisbursed portion of loans-in-process     (15,465,766)     (15,234,620)
Allowance for loan losses                    (2,349,328)      (2,191,557)
Unearned discounts                             (109,040)        (190,594)
Deferred loan fees/costs, net                  (179,891)         (83,651)
                                          -------------      -----------
                                          $ 263,499,778      205,414,561
                                          =============      ===========


         Transactions in the allowance for loan losses were as follows:

                                       1999           1998           1997
                                       ----           ----           ----
Balance, beginning of year        $ 2,191,557      2,177,009      2,108,059
Provision charged to operations       180,000        123,352           --
Loans charged off                     (29,229)      (150,649)       (62,768)
Recoveries                              7,000         41,845        131,718
                                  -----------      ---------      ---------
Balance, end of year              $ 2,349,328      2,191,557      2,177,009
                                  ===========      =========      =========


         The weighted  average  interest rate on loans at June 30, 1999 and 1998
was 7.58% and 7.95%, respectively.

         The Bank serviced  mortgage loans for others  amounting to $21,402,788,
$15,970,974 and $14,165,126 as of June 30, 1999, 1998 and 1997, respectively.

         Impaired loans totaled  $905,728 as of June 30, 1999, and $1,011,873 as
of June 30,  1998 with a related  allowance  for loan  losses  of  $136,287  and
$151,965,  respectively.  As of June 30, 1999 and 1998,  respectively,  impaired
loans of $0 and $220,488 had no related allowance for loan losses.

         Interest of $72,078,  $111,950  and $66,676 was  recognized  on average
impaired loans of $895,131  $1,290,853  and  $1,342,217 for 1999,  1998 and 1997
respectively.  Interest of $64,827,  $96,622 and $0 was  recognized  on impaired
loans on a cash basis during 1999, 1998 and 1997, respectively.

                                       29
<PAGE>


Notes to Consolidated Financial Statements


NOTE 4:  FORECLOSED ASSETS HELD FOR SALE

         Foreclosed assets held for sale consist of the following:

                               1999           1998           1997
                               ----           ----           ----
Foreclosed real estate       $101,546        286,000        210,155
Valuation allowance              --             --             --
                             --------        -------        -------
                             $101,546        286,000        210,155
                             ========        =======        =======


NOTE 5:  PREMISES AND EQUIPMENT

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

                                        1999           1998
                                        ----           ----
Land                                $ 2,222,243      2,222,243
Buildings and improvements            5,361,945      5,357,027
Furniture, fixtures and equipment     1,850,224      1,607,647
Leasehold improvements                  129,393           --
Automobiles                              20,243         20,243
                                    -----------      ---------
                                      9,584,048      9,207,160
Accumulated depreciation             (2,218,656)    (1,774,189)
                                    -----------      ---------
                                    $ 7,365,392      7,432,971
                                    ===========      =========


         Depreciation expense was $444,467,  $469,532 and $441,367 for the years
ended June 30, 1999, 1998 and 1997, respectively.



                                       30
<PAGE>


Notes to Consolidated Financial Statements


 NOTE 6: DEPOSITS

<TABLE>
<CAPTION>

                                 June 30, 1999                             June 30, 1998
                      -------------------------------------    -----------------------------------------
                        Weighted                Percentage       Weighted                   Percentage
                      Average Rate   Balance    of Deposits    Average Rate     Balance     of Deposits
                      ------------   -------    -----------    ------------     -------     -----------
Core Deposits:
<S>                    <C>        <C>              <C>           <C>        <C>              <C>
Demand                  0.00%      $ 4,370,785       3.1%          0.00%      $ 3,142,007       2.2%
NOW                     1.91%       18,067,755      12.8%          2.24%       14,468,104      10.3%
Money market            3.81%       15,546,291      11.0%          3.64%       10,587,222       7.5%
Passbook savings        2.23%        8,751,353       6.2%          2.68%        8,657,869       6.1%
                                  ------------     -----                     ------------     -----
                        2.43%       46,736,183      33.1%          2.55%       36,855,202      26.1%
                                  ------------     -----                     ------------     -----
Certificates:
     0% - 3.99%         3.94%          662,967       0.5%                               -       0.0%
4.00% - 5.99%           4.91%       85,833,748      60.8%          5.35%       95,138,774      67.5%
6.00% - 7.99%           6.50%        7,904,256       5.6%          6.35%        8,981,360       6.4%
                                  ------------     -----                     ------------     -----
                        5.04%       94,400,971      66.9%          5.44%      104,120,134      73.9%
                                  ------------     -----                     ------------     -----
Total Deposits          4.17%     $141,137,154     100.0%          4.68%     $140,975,336     100.0%
                                  ============     =====                     ============     =====

</TABLE>

         The aggregate  amount of certificates of deposit with a minimum balance
of $100,000 was approximately  $7,239,000 and $5,872,000 as of June 30, 1999 and
1998, respectively.

         A summary of  certificates  of deposit by maturity as of June 30, 1999,
is as follows:

Fiscal year ending:
June 30, 2000                                            $ 65,131,748
June 30, 2001                                              19,826,374
June 30, 2002                                               5,971,321
June 30, 2003                                               1,791,532
June 30, 2004                                               1,385,636
Thereafter                                                    294,360
                                                         ------------
                                                         $ 94,400,971
                                                         ============


         A summary of interest expense on deposits is as follows:

                                     1999           1998           1997
NOW and Money Market accounts   $   789,474        615,928        406,025
Savings accounts                    205,362        241,176        258,143
Certificate accounts              5,007,616      6,131,573      6,823,212
Early withdrawal penalties          (22,552)       (19,393)       (16,287)
                                -----------      ---------      ---------
                                $ 5,979,900      6,969,284      7,471,093
                                ===========      =========      =========


                                       31
<PAGE>




Notes to Consolidated Financial Statements


NOTE 7:  FEDERAL HOME LOAN BANK ADVANCES

         Federal Home Loan Bank advances consist of the following:
<TABLE>
<CAPTION>
                                                June 30, 1999                         June 30, 1998
                                      --------------------------------     ----------------------------------
                                        Weighted                                Weighted
   Maturity Date                      Average Rate           Amount           Average Rate          Amount
   -------------                      ------------           ------           ------------          ------
<S>                                     <C>            <C>                      <C>           <C>
Fiscal Year 1999                             -                      -             6.20%         $ 3,972,255
Fiscal Year 2000                         5.56%          $  21,823,050             6.11%           8,561,864
Fiscal Year 2001                         5.91%              7,507,286             6.05%           2,098,240
Fiscal Year 2002                         5.67%             10,334,577             6.15%           3,102,475
Fiscal Year 2003                         5.94%              3,168,192             6.03%           1,641,079
Fiscal Year 2004                         5.42%             22,233,473             6.13%           1,319,327
Thereafter                               5.91%             39,728,062             6.05%          24,385,788
                                                         ------------                           -----------
                                         5.71%           $104,794,640             6.08%         $45,081,028
                                                         ============                           ===========

</TABLE>

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

NOTE 8:  INCOME TAXES

         The  Company  files  a  consolidated  federal  income  tax  return.  In
computing federal income taxes for taxable years prior to July 1, 1996, the Bank
has been allowed an 8% deduction  from  otherwise  taxable income as a statutory
bad debt deduction,  subject to limitations based on aggregate loans and savings
balances.  In August 1996 this  statutory bad debt deduction was repealed and is
no longer  available for thrifts.  In addition,  bad debt  reserves  accumulated
after 1987, which are presently  included as a component of the net deferred tax
liability,  must be recaptured  over a six-year  period  beginning in 1999.  The
amount of the deferred tax liability  which must be recaptured is $281,000 as of
June 30, 1999.

         As of June 30, 1999, and 1998, retained earnings included approximately
$5,075,000 for which no deferred income tax liability has been recognized.  This
amount  represents  an  allocation  of  income  to bad debt  deductions  for tax
purposes only. Reduction of amounts so allocated for purposes other than tax bad
debt losses or adjustments  arising from carryback of net operating losses would
create income for tax purposes only,  which would be subject to the then current
corporate  income tax rate. The unrecorded  deferred income tax liability on the
above amount was approximately $1,878,000 at June 30, 1999 and 1998.

         The provision for income taxes consists of:


                              1999           1998           1997
                              ----           ----           ----
Taxes currently payable   $ 2,016,687      1,641,258        642,500
Deferred income taxes        (251,687)       (22,258)        22,000
                          -----------      ---------        -------
                          $ 1,765,000      1,619,000        664,500
                          ===========      =========        =======

                                       32
<PAGE>


Notes to Consolidated Financial Statements


NOTE 8:  INCOME TAXES (Continued)

         The tax effects of  temporary  differences  related to  deferred  taxes
shown on the June 30, 1999 and 1998, balance sheets are:
<TABLE>
<CAPTION>
                                                               1999           1998
                                                               ----           ----
<S>                                                       <C>             <C>
Deferred tax assets:
Allowances for loan and foreclosed asset losses            $   869,251        783,885
Accrued compensated absences                                    14,349         23,945
Unrealized loss on loans held for sale                          49,237         69,942
Accrued ESOP expense                                              --           52,379
RRP expense                                                    217,884         30,365
Deferred loan fees/costs                                        66,619         30,951
                                                           -----------     ----------
                                                             1,217,340        991,467
                                                           -----------     ----------
Deferred tax liabilities:
FHLB stock dividends                                          (206,867)      (206,867)
Tax bad debt reserves in excess of base year                  (281,361)      (337,633)
Mortgage servicing rights                                      (63,167)       (32,709)
Unrealized appreciation on available-for-sale securities    (2,026,448)    (1,651,429)
                                                           -----------     ----------
                                                            (2,577,843)    (2,228,638)
                                                           -----------     ----------
Net deferred tax liability                                 $(1,360,503)    (1,237,171)
                                                           ===========     ==========
</TABLE>


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

                                                    1999       1998       1997
                                                    ----       ----       ----
Computed at statutory rate                          34.0%      34.0%      34.0%
Increase (reduction) in taxes resulting from:
State financial institution tax                      2.9%       3.1%       3.3%
ESOP                                                (2.3%)       --         --
Other                                               (0.1%)     (0.8%)     (0.9%)
                                                    ----       ----       ----
Actual tax provision                                34.5%      36.3%      36.4%
                                                    ====       ====       ====


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

         Deferred income taxes related to the change in unrealized  appreciation
on available-for-sale  securities, shown in stockholders' equity, were $375,019,
$443,429 and $468,000 for 1999, 1998 and 1997, respectively.

                                       33
<PAGE>


Notes to Consolidated Financial Statements


NOTE 9:  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

Accrued Interest Receivable
---------------------------
         The carrying amount of accrued interest approximates its fair value.

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

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

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

Accrued Interest Payable
------------------------
         The carrying amount of accrued interest approximates its fair value.

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

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

                                       34
<PAGE>


Notes to Consolidated Financial Statements


NOTE 9:  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

         The following  table  presents  estimated  fair values of the Company's
financial  instruments.  The fair  values of certain of these  instruments  were
calculated by discounting expected cash flows, which method involves significant
judgments by management and uncertainties. Fair value is the estimated amount at
which  financial  assets  or  liabilities   could  be  exchanged  in  a  current
transaction between willing parties, other than in a forced or liquidation sale.
Because no market exists for certain of these financial  instruments and because
management does not intend to sell these financial instruments, the Company does
not know  whether the fair  values  shown  below  represent  values at which the
respective financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
                                            June 30, 1999                June 30, 1998
                                     --------------------------     --------------------------
                                        Carrying                      Carrying
                                         Amount      Fair Value        Amount      Fair Value
                                         ------      ----------        ------      ----------
<S>                                 <C>             <C>            <C>            <C>
Financial assets:
Cash and cash equivalents            $  9,689,121      9,689,121      7,304,923      7,304,923
Available-for-sale securities           8,951,175      8,951,175     13,820,679     13,820,679
Held-to-maturity securities            15,394,643     15,394,643     20,871,043     21,310,000
Mortgage loans held-for-sale              769,074        769,074        805,183        805,183
Loans, net                            263,499,778    276,295,000    205,414,561    208,964,000
Interest receivable                     1,756,939      1,756,939      1,604,144      1,604,144
Financial liabilities:
Deposits                              141,137,154    141,336,000    140,975,336    141,230,000
Federal Home Loan Bank advances       104,794,640    105,341,075     45,081,028     45,348,000
Interest payable                          543,641        543,641        256,975        256,975
Unrecognized financial instruments
(net of contractual value):
Commitments to extend credit                 --             --             --             --
Unused lines of credit                       --             --             --             --

</TABLE>

NOTE 10: SIGNIFICANT ESTIMATES AND CONCENTRATIONS

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

Year 2000 Issue
---------------

         Like all entities,  the Company is exposed to risks associated with the
Year 2000 Issue, which affects computer software and hardware; transactions with
customers,  vendors and other entities;  and equipment  dependent on microchips.
The  Company is in the final  stages of a  comprehensive  project to address the
Year 2000 Issue and  believes  that the project will be  substantially  complete
during the quarter ending  September 30, 1999. It is not possible for any entity
to guarantee the results of its own remediation efforts or to accurately predict
the impact of the Year 2000 Issue on third  parties  with which the Company does
business.  If remediation  efforts of the Company or third parties with which it
does  business are not  successful,  the Year 2000 problem  could have  negative
effects on the  Company's  financial  condition and results of operations in the
near term.



                                       35
<PAGE>
Notes to Consolidated Financial Statements


NOTE 11: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>

                                                   1999          1998          1997
                                                   ----          ----          ----
<S>                                          <C>            <C>           <C>
Noncash Investing and Financing Activities:
Loans held for sale transferred to
loans receivable portfolio                    $      --       4,950,891          --
Loans receivable transferred to foreclosed
assets held for sale                              123,056       689,550       471,440
Foreclosed assets held for sale transferred
to loans receivable                               342,000       311,500          --
Additional Cash Payment Information:
Interest paid                                  10,416,241     8,632,457     8,198,629
Income taxes paid                               2,198,156     1,497,087       582,319
</TABLE>

NOTE 12: EMPLOYEE BENEFIT PLANS

Pension Plan
------------
         The Bank has participated in a multi-employer pension plan covering all
employees who met minimum service requirements.  As a member of a multi-employer
pension  plan,  disclosures  of  plan  assets  and  liabilities  for  individual
employers are not required or  practicable.  Pension plan expense was $5,063 and
$128,785 for the years ended June 30, 1998 and 1997 respectively.  This plan was
terminated effective December 12, 1997.

Recognition and Retention Plan and 1998 Restricted Stock Plan
-------------------------------------------------------------
         In conjunction with the  reorganization  discussed in Note 15, the Bank
has  established  a  Recognition  and  Retention  Plan (RRP) for the  benefit of
directors,  officers  and  employees  of the  Bank and its  subsidiary.  The RRP
provides  directors,  officers  and  employees  of the Bank  with a  proprietary
interest in the Company in a manner designed to encourage  these  individuals to
remain with the Bank.

         A  Committee  consisting  of members of the Bank's  Board of  Directors
administers  the  Plan.  Under the Plan,  the  Committee  can award up to 75,106
shares  of the  Company's  common  stock to  selected  directors,  officers  and
employees. As of June 30, 1999, all shares have been awarded. The awards vest at
the  rate of 20% per year  over a  five-year  period.  Compensation  expense  is
recognized  based on the  Company's  stock  price on the  date the  shares  were
awarded to  employees.  Shares to be issued under the RRP were  purchased on the
open market by a separate RRP Trust. The Bank contributed  $464,643 to the Trust
for stock purchases during the year ended June 30, 1996.

         In conjunction  with the conversion  discussed in Note 16, the Bank has
established a Restricted Stock Plan (RSP) for the benefit of directors, officers
and employees of the Bank and its subsidiary.  The RSP was voted on and approved
by the  Company's  stockholders  at the July  22,  1998,  special  stockholders'
meeting.  The RSP provides directors,  officers and employees of the Bank with a
proprietary  interest in the Company in a manner  designed  to  encourage  these
individuals to remain with the Bank.

         A  Committee  consisting  of members of the Bank's  Board of  Directors
administers  the Plan.  Under the Plan,  the  Committee  can award up to 173,632
shares  of the  Company's  common  stock to  selected  directors,  officers  and
employees.  Following  approval of the Plan,  164,950  shares were granted.  The
awards  vest at the rate of 20% per year over a five-year  period.  Compensation
expense is recognized  based on the  Company's  stock price on the date the Plan
was ratified by  stockholders,  which was $13.44 per share.  Shares to be issued
under the RSP are  purchased  on the open  market by a separate  RSP Trust.  The
Company  contributed  $2,373,065  to the  Trust for  stock  purchased  following
approval of the Plan. These contributions have been accounted for as a reduction
of stockholders' equity for the year ended June 30, 1999.

         The Bank recognized $510,286, $92,407 and $106,197 of expense under the
RRP and RSP in 1999, 1998 and 1997, respectively.

                                       36
<PAGE>
Notes to Consolidated Financial Statements


NOTE 12: EMPLOYEE BENEFIT PLANS (Continued)

Stock Option and Incentive Plan and 1998 Stock Option and Incentive Plan
------------------------------------------------------------------------
         In  conjunction  with the  reorganization  discussed  in Note  15,  the
Company has established the 1994 Stock Option and Incentive Plan for the benefit
of certain directors, officers and employees of the Bank and its subsidiary. The
Plan is  administered  by the Company's  Option  Committee.  Under the Plan, the
Option  Committee may grant stock  options or awards of up to 187,764  shares of
the Company's common stock.

         In conjunction  with the  conversion  discussed in Note 16, the Company
has  established  the 1998 Stock  Option and  Incentive  Plan for the benefit of
certain  directors,  officers and employees of the Bank and its subsidiary.  The
Plan was voted on and approved by  stockholders  at the July 22,  1998,  special
stockholders'  meeting.  The Company's  Option  Committee  administers the Plan.
Under the Plan, the Option  Committee may grant stock options or awards of up to
434,081 shares of the Company's  common stock.  Following  approval of the Plan,
options for 402,377 shares were granted.

         The stock  options  under  both  plans may be  either  incentive  stock
options or  nonqualified  stock options.  Incentive stock options can be granted
only to participants who are employees of the Bank or its subsidiary. The option
price must not be less than the market value of the Company stock on the date of
grant.  All options  expire no later than ten years from the date of grant.  The
options vest at the rate of 20% per year over a five-year period.

         The table  below  summarizes  transactions  under the  Company's  stock
option plans:
<TABLE>
<CAPTION>
                                                                    Number of shares of
                                                        ---------------------------------------------
                                                          Incentive     Non-Qualified   Weighted
                                                        Stock Option    Options to       Average
                                                           Shares       Directors     Exercise Price
                                                           ------       ---------     --------------
<S>                                                     <C>            <C>           <C>
Balance outstanding at July 1, 1997                        84,375           --        $   11.62
Granted, in FY 97                                           6,640           --            11.55
Exercised, in FY 97                                          --             --          --
Forfeited, in FY 97                                       (12,305)          --            11.62
                                                          -------        -------
Balance outstanding at June 30, 1997                       78,710           --            11.61
                                                          =======        =======
Balance outstanding at June 30, 1997, converted           151,990          --              6.02
Granted, FY 98                                              5,000           --            12.63
Exercised, in FY 98                                        (9,794)          --             6.02
Forfeited, in FY 98                                        (3,196)          --             6.02
                                                          -------        -------
Balance outstanding at June 30, 1998                      144,000           --             6.25
                                                          =======        =======
Granted, in FY 99                                         317,637        117,010          13.44
Exercised, in FY 99                                       (17,740)          --             6.02
Forfeited, in FY 99                                        (8,072)          --            10.35
                                                          -------        -------
Balance outstanding at June 30, 1999                      435,825        117,010          11.86
                                                          =======        =======
Options exercisable at June 30, 1999                       60,973           --        $    6.02
                                                          =======        =======      =========

</TABLE>


(1) Stock  options were  originally  for Bank stock.  This Plan was converted to
Company stock at the exchange ratio of 1.931. See Note 16.

                                       37
<PAGE>
Notes to Consolidated Financial Statements

NOTE 12: EMPLOYEE BENEFIT PLANS (Continued)

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

                                                                  June 30, 1999        June 30, 1998       June 30, 1997
                                                                  -------------        -------------       -------------
<S>                                                                   <C>                  <C>                 <C>
 Dividends per share                                                    $ 0.34               $ 0.30              $ 0.33
 Risk-free interest rate                                                 5.88%                5.46%               6.36%
 Expected life of options                                              5 years              5 years             5 years
 Weighted-average fair value of options granted during year             $ 2.69               $ 2.07              $ 2.51
</TABLE>

         The following table  summarizes  information  about stock options under
the plans outstanding at June 30, 1999:
<TABLE>
<CAPTION>
                                      Options Outstanding                Options Exercisable
                                --------------------------------     -----------------------------
         Range of Exercise        Number          Remaining             Number         Exercisable
              Prices            Outstanding     Contractual Life     Exercisable         Price
              ------            -----------     ----------------     -----------         -----
<S>         <C>                  <C>             <C>                  <C>             <C>
             $  5.83                5,098           7.5 years            2,040           $  5.83
             $  6.02              104,371           6.5 years           54,843           $  6.02
             $  6.08                7,724           7.0 years            3,090           $  6.08
             $ 12.63                5,000           8.7 years            1,000           $ 12.63
             $ 13.44              430,642           9.1 years                -           $ 13.44
</TABLE>

         The  Company  applies APB  Opinion 25 and  related  Interpretations  in
accounting for its plans,  and no compensation  cost has been recognized for the
plans.  Had  compensation  cost for the plans been determined  based on the fair
value at the dates using  Statement of Financial  Accounting  Standards No. 123,
the Company's net income would have  decreased by $177,719,  $33,007 and $32,187
for 1999,  1998 and 1997,  respectively.  Earnings  per share  basic and diluted
would have  decreased to $0.58 and $0.57,  respectively  for 1999.  Earnings per
share since conversion would be unchanged for 1998. The effects of applying this
Statement  for  either  recognizing  compensation  cost or  providing  pro forma
disclosures are not likely to be  representative  of the effects on reported net
income for future years because  options vest over several years and  additional
awards generally are made each year.



















NOTE 12: EMPLOYEE BENEFIT PLANS (Continued)

Employee Stock Ownership Plan
-----------------------------
         In  conjunction  with the  conversion  discussed  in Note 16,  the Bank
established an  internally-leveraged  Employee Stock Ownership Plan (ESOP).  All
employees are eligible to  participate  after they attain age 21 and complete 12
consecutive  months of service during which they work at least 1,000 hours.  The
ESOP borrowed  $3,444,540  from the Company and purchased  344,454 shares of the
common stock of the Company. The ESOP

                                       38
<PAGE>
Notes to Consolidated Financial Statements


debt is  secured  by  shares  of the  Company.  The  loan  will be  repaid  from
contributions to the ESOP as approved annually by the Bank's Board of Directors.
As the debt is repaid,  shares are released  from  collateral  and  allocated to
employees'  accounts.  The shares pledged as collateral are reported as unearned
ESOP shares in the  consolidated  balance  sheet.  When shares are released from
collateral,  the shares become outstanding for Earnings Per Share  computations.
Dividends  on  allocated  ESOP shares are  recorded  as a reduction  of retained
earnings and may be paid directly to  participants or credited to their account;
dividends on unallocated ESOP shares are recorded as a reduction of the unearned
ESOP shares and accrued  interest.  Compensation  expense is recognized  ratably
based on the average fair value of shares committed to be released. Compensation
expense  attributed  to the ESOP was  $268,234  and $141,566 for the years ended
June 30, 1999 and June 30,  1998,  respectively.  The  following is a summary of
ESOP shares at June 30, 1999:

 Allocated shares                                      22,964
 Shares committed for release                          11,484
 Unreleased shares                                    310,006
                                                  -----------
 Total ESOP shares                                    344,454
                                                  ===========

 Fair value of unreleased shares                  $ 3,642,570
                                                  ===========


Employment Agreements
---------------------
         The  Bank  has  entered  into  employment   agreements  with  James  E.
Haseltine,  President and Chief  Executive  Officer and certain other  executive
officers of the Bank. Mr. Haseltine's  employment agreement covers a term of two
years. The agreements will be terminable by the Bank for "just cause" as defined
in the agreements.  If the Bank terminates the employee  without just cause, the
employee will be entitled to a continuation  of the  employee's  salary from the
date of termination through the remaining term of the agreement. Mr. Haseltine's
employee  agreement  contains  a  provision  stating  that in the  event  of the
termination of employment in connection with any future change in control of the
Bank, as defined in the agreement,  Mr.  Haseltine will be paid in a lump sum as
amount  equal to 1.99 times Mr.  Haseltine's  five year average  annual  taxable
compensation.  In addition, the Bank has entered into employment agreements with
eight other officers,  which will provide a severance  payment upon  termination
without  just  cause in the  event of a change in  control,  as  defined  in the
agreements.  The  agreements  may be renewed  annually by the Board of Directors
upon a  determination  of  satisfactory  performance  within  the  Board's  sole
discretion.

NOTE 13: TRANSACTION WITH RELATED PARTIES

         Certain  directors and  executive  officers of the Company and the Bank
were customers of and had  transactions  with the Bank in the ordinary course of
business. As of June 30, 1999 and 1998, loans outstanding to these directors and
executive  officers  amounted  to  $593,762  and  $485,224,   respectively.   In
management's  opinion,  such loans and other  extensions  of credit and deposits
were made in the ordinary course of business and were made on substantially  the
same terms (including  interest rates and collateral) as those prevailing at the
time for comparable  transactions with other persons.  Further,  in management's
opinion,  these loans did not involve more than normal risk of collectability or
present other unfavorable features.





NOTE 14: COMMITMENTS AND CREDIT RISK

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

                                       39
<PAGE>
Notes to Consolidated Financial Statements


counterparty.  Collateral  held  varies  but may  include  accounts  receivable,
inventory,  property and equipment,  commercial real estate and residential real
estate.

         As of June 30, 1999 and 1998, the Bank had  outstanding  commitments to
originate loans of approximately $6,593,000 and $12,741,000,  respectively.  The
commitments  extend  over  varying  periods  of time  with  the  majority  being
disbursed within a thirty-day period. As of June 30, 1999 and 1998,  commitments
of $5,071,000 and $11,568,000,  respectively, were at fixed rates and $1,522,000
and $1,173,000, respectively, were at floating market rates.

         Forward  commitments to sell mortgage loans are  obligations to deliver
loans at a specified price on or before a specified date. The Bank acquires such
commitments  to  reduce  market  risk  on  mortgage  loans  in  the  process  of
origination  and mortgage  loans held for sale. As of June 30, 1999 and June 30,
1998, there were no such commitments outstanding.

         Letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper and similar  transactions.  The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to
customers. The Bank had outstanding letters of credit of $263,000 and $29,000 as
of June 30, 1999 and 1998, respectively.

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

         As of June 30, 1999,  unused  lines of credit to  borrowers  aggregated
approximately $316,000 for commercial lines and $6,945,000 for open-end consumer
lines.  As of June 30,  1998,  unused  lines of credit to  borrowers  aggregated
approximately $173,000 for commercial lines and $5,247,000 for open-end consumer
lines.

         Although  the Bank  grants  consumer  loans,  the  majority of its loan
originations are single or multi-family  residential real estate in Springfield,
Missouri,  and the surrounding area. As of June 30, 1999 the Bank had thirty-one
borrowers with balances in excess of $1,000,000 each,  aggregating  $77,311,000,
for which the collateral is primarily single-family and multi-family residential
rental real estate and commercial real estate. As of June 30, 1998, the Bank had
eighteen  borrowers  with  balances in excess of  $1,000,000  each,  aggregating
$49,304,000,   for  which  the   collateral  is  primarily   single-family   and
multi-family residential rental real estate and commercial real estate. Also, as
of  June  30,  1999  and  1998,  the  Bank  had  $29,563,000  and   $25,848,000,
respectively,  in  construction  loans to or guaranteed by builders of primarily
residential property.




NOTE 15: REORGANIZATION TO A MUTUAL HOLDING COMPANY

         In connection with the  Reorganization in April 1995,  Guaranty Federal
Savings and Loan  Association (the  "Association")  reorganized from a federally
chartered  mutual  savings and loan  association  into a federal  mutual holding
company,  Guaranty  Federal  Bancshares,  M. H. C. (the  "MHC").  As part of the
reorganization, the Association incorporated a de novo federally chartered stock
savings bank, Guaranty Federal Savings Bank (the "Bank") and transferred most of
its assets and all its liabilities to the Bank. The Bank issued 3,125,000 shares
of its common  stock  (par value  $1.00) of which  972,365  shares  were sold to
parties other than the MHC, thus creating a minority  ownership  interest in the
Bank. The shares had an initial public offering price of $8 per

                                       40
<PAGE>
Notes to Consolidated Financial Statements


share,  resulting in gross sales  proceeds of  $7,778,920.  Costs related to the
stock  issuance,  which have been  applied to reduce  the gross  proceeds,  were
$654,388. Also $100,000 was transferred to the MHC for initial capitalization in
connection with Reorganization.  The net proceeds of $7,024,532 were included in
common stock and capital surplus of the Bank.

         As long as they remain depositors of the Bank, persons who prior to the
reorganization  had  liquidation  rights with  respect to the  Association  will
continue to have such rights with respect to the Bank.

NOTE 16: CONVERSION TO STOCK FORM OF OWNERSHIP

         On December 30, 1997, Guaranty Federal  Bancshares,  Inc. completed the
conversion and  reorganization  of Guaranty  Federal Savings Bank and its former
mutual holding  company by selling  4,340,812  shares of common stock to certain
depositors  of the Bank and a benefit  plan of the Bank at a price of $10.00 per
share.  In  addition  all  shares  of  common  stock of the Bank  held by public
stockholders  were exchanged for 1,880,710 shares of common stock of the Company
at an exchange ratio of 1.931. The only class of securities  registered pursuant
to the offering was common stock,  par value $0.10 per share,  and all 6,221,522
shares registered were issued.

         Of the 6,221,522  shares  registered and issued:  (1) 3,996,358  shares
were sold (at $10.00 per share),  resulting  in cash  proceeds to the Company of
$39,963,580,  (2) 344,454 shares were sold (at $10.00 per share) to the trust of
the  employee  stock  ownership  plan of the Bank (the  "ESOP")  and funded by a
direct  loan (with  proceeds  used from the  offering)  from the  Company to the
trust,  an  affiliate  of the  Company,  in the  amount of  $3,444,540,  and (3)
1,880,710  shares (minus a certain de minimus  number of  fractional  shares for
which cash was paid) were issued in exchange for the common stock of the Bank.

         The expenses for the offering were  $780,067  resulting in net proceeds
of $42,628,053 of which  $19,943,834  was directly  contributed to the Bank, and
$22,684,219  was retained by the Company.  The proceeds  retained by the Company
were used for various investments,  including  interest-bearing  advances to the
Bank.

                                       41
<PAGE>



NOTE 17: CONDENSED PARENT COMPANY STATEMENTS

         The  condensed  balance  sheet  as of  June  30,  1999  and  1998,  and
statements  of income and cash flows for the year ended June 30,  1999,  and for
the period December 30, 1997 to June 30, 1998, for the parent company,  Guaranty
Federal Bancshares, Inc., are as follows:


<TABLE>
<CAPTION>
Balance Sheets                                                               As of June 30,
--------------                                                       -----------------------------
                                                                           1999            1998
                                                                     -------------    ------------
<S>                                                                 <C>             <C>

Assets
     Cash                                                            $     84,261          51,587
     Due from subsidiary                                                5,717,734      17,523,918
     Investment in subsidiary                                          55,972,802      51,908,392
     Land                                                               1,228,799       1,228,799
     Available-for sale securities                                        770,035         247,021
     Prepaid expenses and other assets                                    165,187            --
     Deferred income taxes                                                  8,380           9,471
                                                                     ------------      ----------
                                                                     $ 63,947,198      70,969,188
                                                                     ============      ==========
Liabilities and Stockholders' Equity
     Accrued expenses and other liabilities                          $       --             7,090
     Income taxes payable                                                 513,976         272,000
Stockholders' equity
     Common stock                                                         624,578         622,804
     Additional paid-in capital                                        47,366,264      49,016,992
     Unearned ESOP shares                                              (3,100,080)     (3,444,540)
     Retained earnings                                                 23,236,009      21,682,950
     Unrealized appreciation on available-for-sale securities, net      3,438,826       2,811,892
     Treasury stock                                                    (8,132,375)           --
                                                                     ------------      ----------
                                                                     $ 63,947,198      70,969,188
                                                                     ============      ==========
</TABLE>


<TABLE>
<CAPTION>
Statements of Income                                                 For the year end For six months ended
                                                                     June 30, 1999      June 30, 1998
                                                                     -------------      -------------
<S>                                                                  <C>              <C>
Income
     Interest income:
          Related party                                              $    922,842         734,464
          Other                                                            10,104             508
     Other                                                                   --               550
          Total income                                                    932,946         735,522
Expense
     Occupancy                                                              9,190           4,500
     Other                                                                 71,061          17,355
          Total expense                                                    80,251          21,855
Income before income taxes and equity in
     undistributed earnings of subsidiary                                 852,695         713,667
Provision for income taxes                                                316,584         272,000
Income before equity
     in undistributed earnings of subsidiary                              536,111         441,667
Equity in undistributed earnings of subsidiary                          2,822,017       1,288,133
                                                                     ------------       ---------
Net income                                                           $  3,358,128       1,729,800
                                                                     ============       =========
</TABLE>


NOTE 17: CONDENSED PARENT COMPANY STATEMENTS (Continued)

                                       42
<PAGE>
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

Statements of Cash Flows                                         For the year ended For six months ended
------------------------                                             June 30, 1999     June 30, 1998
                                                                 ------------------ --------------------
<S>                                                                 <C>               <C>
Cash Flows From Operating Activities
     Net income                                                      $  3,358,128       1,729,800
     Items not providing cash:
          Undistributed earnings of net income
              of subsidiary                                            (2,822,017)     (1,288,133)
          Release of ESOP shares                                          344,460            --
     Changes in:
          Prepaid expenses and other assets                              (165,187)           --
          Income taxes payable                                            241,976         272,000
          Accrued expenses                                                 (7,090)          7,090
                                                                     ------------    ------------
               Net cash provided by operating activities                  950,270         720,757
                                                                     ------------    ------------
Cash Flows From Investing Activities
     Investment in subsidiary                                                --       (19,943,834)
     Loan to ESOP                                                            --        (3,444,540)
     Purchase of land                                                        --        (1,228,799)
     Purchase of available-for-sale securities                           (520,065)       (272,619)
     Net (increase) decrease in advance to subsidiary                  11,806,186     (17,523,918)
                                                                     ------------    ------------
               Net cash provided by (used in) investing activities     11,286,121     (42,413,710)
                                                                     ------------    ------------
Cash Flows From Financing Activities
     Proceeds from sale of common stock, net                                 --        42,628,053
     Stock options exercised                                              106,792          40,454
     Cash dividends received on RRP shares                                   --             9,875
     Cash dividends paid                                               (1,805,069)       (933,842)
     RSP stock purchased                                               (2,373,065)           --
     Treasury stock purchased                                          (8,132,375)           --
                                                                     ------------    ------------
               Net cash provided by (used in) financing activities    (12,203,717)     41,744,540
                                                                     ------------    ------------
Increase in cash                                                           32,674          51,587

Cash, beginning of period                                                  51,587            --
                                                                     ------------    ------------
Cash, end of period                                                  $     84,261          51,587
                                                                     ============    ============
Noncash Investing and Financing Activities
     Acquisition of Guaranty Federal Savings Bank
          through stock conversion                                   $       --        30,316,999
                                                                     ============    ============
</TABLE>

                                       43

<PAGE>
<TABLE>
<CAPTION>
<S>                           <C>                                    <C>                               <C>
Baird                          Hammons Tower
Kurtz &                        901 E. St. Louis Street, Suite 1000    1034 W. Main Street
Dobson                         P.O. Box 1190                          P.O. Box 1277                     http://www.bkd.com
Certified Public Accountants   Springfield, MO 65801-1190             Branson, MO 65615-1277
                               417 865-8701      Fax: 417 865-0682    417 334-5165   Fax: 417 334-3823  Member of
                                                                                                        Moores Rowland International
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                        Independent Accountants' Report

Board of Directors
Guaranty Federal Bancshares, Inc.
Springfield, Missouri

     We have audited the  accompanying  consolidated  balance sheets of GUARANTY
FEDERAL  BANCSHARES,  INC.  as of June  30,  1999  and  1998,  and  the  related
consolidated  statements  of income,  changes in  stockholders'  equity and cash
flows for each of the three  years in the  period  ended  June 30,  1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of GUARANTY FEDERAL BANCSHARES,
INC. as of June 30, 1999 and 1998,  and the  results of its  operations  and its
cash  flows for each of the three  years in the period  ended June 30, 1999,  in
conformity with generally accepted accounting principles.


                              /s/Baird, Kutz & Dobson

July 23, 1999
Springfield, Missouri