UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter endedSeptember 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission number0-23325

Guaranty Federal Bancshares, Inc.
(Exact name of registrant as specified in its charter)

Delaware
43-1792717(State or other jurisdiction of
(IRS Employer Identification No.)incorporation or organization)1341 West BattlefieldSpringfield, Missouri
65807(Address of principal executive offices)
(Zip Code)

Telephone Number:(417) 520-4333

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

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

Yes ___NoX

Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.

Class
Outstanding at November 6, 2003Common Stock, Par Value $0.10
2,991,877 Shares



GUARANTY FEDERAL BANCSHARES, INC.TABLE OF CONTENTSItem


PagePART I. Financial Information1. Financial StatementsConsolidated Financial Statements (Unaudited):Statements of Financial Condition
3Statements of Income

4Statements of Stockholders Equity
5Statements of Cash Flows

7Notes to Condensed Consolidated Financial Statements
82. Managements Discussion and Analysis of Financial Condition and Results of Operations
103. Quantitative and Qualitative Disclosures about Market Risk
154. Controls and Procedures

16PART II. Other Information1. Legal Proceedings

172. Changes in Securities and Use of Proceeds

173. Defaults Upon Senior Securities

174. Submission of Matters to Vote of Common Stockholders
175. Other Information

176. Exhibits and Reports on Form 8-K

17Signatures
2
PART I
Item 1. Financial Statements
GUARANTY FEDERAL BANCSHARES, INC.CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONSEPTEMBER 30, 2003 (UNAUDITED) AND JUNE 30, 2003ASSETS


9/30/03


6/30/03Cash

$
12,257,962


15,242,475Interest-bearing deposits in other financial institutions


2,119,177


3,772,053Cash and cash equivalents


14,377,139


19,014,528Available-for-sale securities


14,061,963


13,271,147Held-to-maturity securities


2,019,722


2,250,894Stock in Federal Home Loan Bank, at cost


4,871,900


8,600,400Mortgage loans held for sale


3,426,994


9,755,102Loans receivable, net of allowance for loan losses;9/30/03 - $2,988,182; 6/30/03 - $2,775,320


328,852,616


327,082,420Accrued interest receivable:Loans


1,285,288


1,357,434Investments


66,126


72,691Prepaid expenses and other assets


2,149,126


1,855,268Foreclosed assets held for sale


172,500


182,064Premises and equipment


6,523,851


6,708,996$
377,807,225


390,150,944LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESDeposits

$
235,717,044


235,677,197Federal Home Loan Bank advances


99,494,789


114,618,894Securities sold under agreements to repurchase


1,368,109


702,024Advances from borrowers for taxes and insurance


1,126,699


950,678Accrued expenses and other liabilities


341,415


311,696Accrued interest payable


663,941


203,237Dividend payable


428,737


415,414Income taxes payable


496,797


220,707Deferred income taxes


781,656


509,285340,419,187


353,609,132STOCKHOLDERS' EQUITYCommon stock:$0.10 par value; authorized 10,000,000 shares;issued; 9/30/03 - 6,426,279 shares, 6/30/03 - 6,416,848 shares


642,628


641,685Additional paid-in capital


51,233,464


51,065,581Unearned ESOP shares


(2,093,930
)

(2,156,930
)Retained earnings, substantially restricted


29,928,744


29,280,784Accumulated other comprehensive incomeUnrealized appreciation on available-for-sale securities,net of income taxes; 9/30/03 - $1,270,634, 6/30/03 - $1,162,865


2,163,512


1,980,01381,874,418


80,811,133Treasury stock, at cost; 9/30/03 - 3,433,185 shares, 6/30/03 - 3,420,375 shares


(44,486,380
)

(44,269,321
)37,388,038


36,541,812$
377,807,225


390,150,944
See Notes to Condensed Consolidated Financial Statements3

GUARANTY FEDERAL BANCSHARES, INC.CONSOLIDATED STATEMENTS OF INCOMETHREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)9/30/03
9/30/02INTEREST INCOMELoans

$
4,842,640


5,488,439Investment securities


66,878


125,994Other


87,575


132,023Total Interest Income


4,997,093


5,746,456INTEREST EXPENSEDeposits


1,204,966


1,616,380Federal Home Loan Bank advances


1,120,549


1,500,718Other


988


3,077Total Interest Expense


2,326,503


3,120,175Net Interest Income


2,670,590


2,626,281Provision for Loan Losses


212,000


100,000Net Interest Income afterProvision for Loan Losses


2,458,590


2,526,281NONINTEREST INCOMEService charges


471,889


440,580Late charges and other fees


142,596


156,851Gain on loans and investment securities


559,033


224,577Gain (loss) on foreclosed assets


5,234


(4,793
)Other income


52,502


46,237Total Noninterest Income


1,231,254


863,452NONINTEREST EXPENSESalaries and employee benefits


1,113,385


1,121,186Occupancy


333,186


336,803SAIF deposit insurance premiums


9,100


9,859Data processing fees


96,140


141,140Advertising


70,850


49,113Other expense


372,624


368,128Total Noninterest Expense


1,995,285


2,026,229Income Before Income Taxes


1,694,559


1,363,504Provision for Income Taxes


617,862


467,458NET INCOME

$
1,076,697


896,046BASIC EARNINGS PER SHARE

$
0.39


0.32DILUTED EARNINGS PER SHARE

$
0.38


0.32
See Notes to Condensed Consolidated Financial Statements4
GUARANTY FEDERAL BANCSHARES, INC.CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYTHREE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)Common Stock
Additional Paid-In Capital
Unearned ESOP Shares
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income
TotalBalance, July 1, 2003

$ 641,685
51,065,581
(2,156,930)
(44,269,321)
29,280,784
1,980,013
36,541,812Comprehensive incomeNet income

-
-
-
-
1,076,697
-
1,076,697Change in unrealized appreciationon available-for-sale securities, netof income taxes of $107,769

-
-
-
-
-
183,499
183,499Total comprehensive income







1,260,196Dividends on common stock,($0.155 per share on 2,766,046 shares)

-
-
-
-
(428,737)
-
(428,737)Stock award plans

-
43,434
-
-
-
-
43,434Stock options exercised

943
81,145
-
-
-
-
82,088Release of ESOP shares

-
43,304
63,000
-
-
-
106,304Treasury stock purchased

-
-
-
(217,059)
-
-
(217,059)Balance, September 30, 2003

$ 642,628
51,233,464
(2,093,930)
(44,486,380)
29,928,744
2,163,512
37,388,038

See Notes to Condensed Consolidated Financial Statements5

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYTHREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)Common Stock
Additional Paid-In Capital
Unearned ESOP Shares
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income
TotalBalance, July 1, 2002

$ 636,540
49,842,032
(2,406,070)
(42,958,147)
27,372,935
2,947,587
35,434,877Comprehensive incomeNet income

-
-
-
-
896,046
-
896,046Change in unrealized appreciationon available-for-sale securities, netof income taxes of ($210,278)

-
-
-
-
-
(358,883)
(358,883)Total comprehensive income







537,163Dividends on common stock,($0.15 per share on 2,781,315 shares)

-
-
-
-
(417,197)
-
(417,197)Stock award plans

-
97,549
-

-
-
97,549Stock options exercised

329
19,506
-

-
-
19,835Release of ESOP shares

-
25,300
62,500
-
-
-
87,800Treasury stock purchased

-
-
-
(45,535)
-
-
(45,535)Balance, September 30, 2002

$ 636,869
49,984,387
(2,343,570)
(44,486,380)
27,806,249
2,588,704
35,714,492


See Notes to Condensed Consolidated Financial Statements6

GUARANTY FEDERAL BANCSHARES, INCCONSOLIDATED STATEMENTS OF CASH FLOWSTHREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)9/30/03


9/30/02CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
1,076,697


896,046Items not requiring (providing) cash:Deferred income taxes


164,602


162,094Depreciation


190,798


200,693Provision for loan losses


212,000


100,000Gain on loans and investment securities


(559,033
)

(224,577
)(Gain) loss on sale of foreclosed assets


(5,234
)

2,973Amortization of deferred income, premiums and discounts


15,546


1,047Stock award plan expense


43,266


89,998Origination of loans held for sale


(24,132,186
)

(15,680,114
)Proceeds from sale of loans held for sale


31,019,327


13,905,115Release of ESOP shares


106,304


87,800Changes in:Accrued interest receivable


78,711


80,858Prepaid expenses and other assets


(293,858
)

400,847Accounts payable and accrued expenses


490,422


(67,329
)Income taxes payable


276,090


305,766Net cash provided by operating activities


8,683,452


261,217CASH FLOWS FROM INVESTING ACTIVITIESNet increase in loans


(2,121,430
)

(1,804,261
)Principal payments on available-for-sale securities


-


101,307Principal payments on held-to-maturity securities


227,879


271,392Proceeds from maturities of available-for-sale securities


1,000,000


3,000,000Purchase of premises and equipment


(5,653
)

(62,413
)Purchase of available-for-sale securities


(1,492,567
)

(2,978,928
)Proceeds from sale of FHLB stock


3,728,500


-Proceeds from sale of foreclosed assets


134,799


724,315Net cash provided by (used in) investing activities


1,471,528


(748,588
)CASH FLOWS FROM FINANCING ACTIVITIESStock options exercised


82,088


19,835Cash dividends paid


(415,414
)

(347,656
)Cash dividends received on RRP stock


168


622Net increase in demand deposits,NOW accounts and savings accounts


343,540


4,563,088Net increase (decrease) in certificates of deposit and securities soldunder agreements to repurchase


362,392


(5,770,780
)Proceeds from FHLB advances


56,000,000


5,000,000Repayments of FHLB advances


(71,124,105
)

(4,170,216
)Advances from borrowers for taxes and insurance


176,021


343,401Treasury stock purchased


(217,059
)

(45,535
)Net used in financing activities


(14,792,369
)

(407,241
)DECREASE IN CASH AND CASH EQUIVALENTS


(4,637,389
)

(894,612
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


19,014,528


16,963,502CASH AND CASH EQUIVALENTS, END OF PERIOD

$
14,377,139


16,068,890
See Notes to Condensed Consolidated Financial Statements7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1: Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.

The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Form 10-K annual report for 2003 filed with the Securities and Exchange Commission. The condensed consolidated balance sheet of the Company as of June 30, 2003, has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Companys annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.

Note 2: Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Guaranty Federal Bancshares, Inc. (the "Company"), its wholly owned subsidiary, Guaranty Bank (the "Bank") and the wholly-owned subsidiary of the Bank, Guaranty Financial Services of Springfield, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.

Note 3: Benefit Plans

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

On October 18, 1995, the Companys stockholders voted to approve both a Recognition and Retention Plan ("RRP") and a Stock Option Plan ("SOP"). On July 22, 1998, the Companys stockholders voted to approve both a 1998 Restricted Stock Plan ("RSP") and a 1998 Stock Option Plan ("1998 SOP"). The RRP and RSP authorized shares to be issued to directors, officers and employees of the Bank. On February 17, 2000, the directors of the Company established the 2000 Stock Compensation Plan (the "2000 SCP") with both a stock award component and a stock option component. On March 22, 2001, the directors of the Company established the 2001 Stock Compensation Plan (the "2001 SCP") with both a stock award component and a stock option component. As of September 30, 2003, all of the RRP, RSP, 2000 SCP and 2001 SCP shares have been purchased and awarded. As of September 30, 2003 there are 13,991 shares that are not vested. The Company is amortizing the RRP, RSP and SCP expense over each participants vesting period. The Company recognized $15,476 and $89,998 of expense under these stock award plans for the three month periods ended September 30, 2003 and 2002, respectively. The SOP, 1998 SOP and the 2000 SCP authorized stock options on shares to be issued to officers and employees of the Bank. As of September 30, 2003 all options except those on 17,063 shares have been granted. The RRP, RSP, SOP, 1998 SOP and 2000 SCP vest over a five year period. As of September 30, 2003, there were 411,545 unexercised options that have been granted at prices ranging from $5.83 to $16.65 per share and 306,076 of these options are exercisable.

8
The Company accounts for its stock option plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.

Three Months ended September 30,2003


2002Net income, as reported

$
1,076,697


896,046Less: Total stock-based employee compensationcost determined under the fair value-basedmethod, net of income taxes


(6,492
)

(43,270
)Pro forma net income

$
1,070,205


852,776Earnings per share:Basic - as reported

$
0.39


0.32Basic - pro forma

$
0.38


0.31Diluted - as reported

$
0.38


0.32Diluted - pro forma

$
0.37


0.30
Note 4: Earnings Per Share
For three months ended September 30, 2003Income Available to Stockholders


Average Shares Outstanding


Per-shareBasic Earnings per Share

$
1,076,697


2,780,720

$
0.39Effect of Dilutive Securities: Stock Options





88,208Diluted Earnings per Share

$
1,076,697


2,868,928

$
0.38For three months ended September 30, 2002Income Available to Stockholders


Average Shares Outstanding


Per-shareBasic Earnings per Share

$
896,046


2,793,044

$
0.32Effect of Dilutive Securities: Stock Options





48,309Diluted Earnings per Share

$
896,046


2,841,353

$
0.32

9

Note 5: Other Comprehensive Income

9/30/03
9/30/02Unrealized gains (losses) on

$
291,268


(569,161
)available-for-sale securitiesTax expense (benefit)


(107,769
)

210,278OTHER COMPREHENSIVE INCOME (LOSS)

$
183,499


(358,883
)
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

General

The primary function of the Company has been to monitor its investment in the Bank. As a result, the results of operations of the Company are derived primarily from operations of the Bank. The Banks results of operations are primarily dependent on net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Banks income is also affected by the level of its noninterest expenses, such as employee salaries and benefits, occupancy expenses and other expenses. The following discussion reviews the financial condition at September 30, 2003, and the results of operations for the three months ended September 30, 2003 and 2002.

The discussion set forth below, as well as other portions of this Form 10-Q, may contain forward-looking comments. Such comments are based upon the information currently available to management of the Company and managements perception thereof as of the date of the Form 10-Q. When used in this Form 10-Q, words such as "anticipates," "estimates," "believes," "expects," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Such statements are subject to risks and uncertainties. Actual results of the Companys operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to: changes in demand for banking services; changes in portfolio composition; changes in management strategy; increased competition from both bank and non-bank companies; changes in the general level of interest rates; and other factors set forth in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time.

Financial Condition

The Companys total assets decreased $12,343,719 (3%) from $390,150,944 as of June 30, 2003, to $377,807,225 as of September 30, 2003.

Interest-bearing deposits in other financial institutions decreased $1,652,876 (44%) from $3,772,053 as of June 30, 2003, to $2,119,177 as of September 30, 2003, as funds from these deposits were used to fund new loans.

Securities available-for-sale increased $790,816 (6%) from $13,271,147 as of June 30, 2003, to $14,061,963 as of September 30, 2003. The Bank continues to hold 82,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of $80,294 in the available-for-sale category. As of September 30, 2003, the gross unrealized gain on the FHLMC stock was $4,212,406, an increase from $4,082,846 as of June 30, 2003.

Securities held-to-maturity decreased primarily due to principal repayments, by $231,172 (10%) from $2,250,894 as of June 30, 2003, to $2,019,722 as of September 30, 2003.

10

Stock in Federal Home Loan Bank (FHLB) decreased by $3,728,500 (43%), due to sale of stock held in excess of FHLB requirements.

Net loans receivable increased by $1,770,196 (1%) from $327,082,420 as of June 30, 2003, to $328,852,616 as of September 30, 2003. During this period the Bank continued its increased emphasis on commercial lending. As a result, commercial loans have increased by $945,654 during this period. In addition the Bank is selling conforming loans on single family residences, while retaining the servicing rights. As a result permanent mortgage loans secured by both owner and non-owner occupied residential real estate decreased by $1,792,307 while residential loans sold increased by $7,405,876. Loans held for sale decreased $6,328,108 (65%) to $3,436,994 at September 30, 2003, compared to $9,755,102 at June 30, 2003. The Bank continued to be active in construction lending. However, construction loans decreased by $4,630,059 during the period due to a decrease in demand for construction loans.See discussion under "Quantitative and Qualitative Disclosure about Market Risk  Asset/Liability Management."Loan growth is anticipated to continue and represents a major part of the Banks planned asset growth.

Allowance for loan losses increased $212,862 (8%) from $2,775,320 as of June 30, 2003 to $2,988,182 as of September 30, 2003. The allowance increased due to the provision for loan losses exceeding net loan charge-offs for the period. The allowance for loan losses as of September 30, 2003 and June 30, 2003 was 0.89% and 0.82%, respectively, of net loans outstanding. As of September 30, 2003, the allowance for loan losses was 576% of impaired loans versus 344% as of June 30, 2003.

Premises and equipment decreased $185,145 (3%) from $6,708,996, as of June 30, 2003 to $6,523,851 as of September 30, 2003, primarily due to the depreciation recognized on these assets.

Deposits increased $39,847 from $235,677,197 as of June 30, 2003, to $235,717,044 as of September 30, 2002. For the three months ended September 30, 2003, checking and savings accounts increased by $343,540 (0.3%) while certificates of deposits decreased by $303,693 (0.3%).

Federal Home Loan Bank advances decreased by $15,124,105 (13%) from $114,618,894 as of June 30, 2003, to $99,494,789 as of September 30, 2003,due to repayments of advances exceeding new advances.

Advances from borrowers for taxes and insurance increased $176,021 (19%) from $950,678 of June 30, 2003, to $1,126,699 as of September 30, 2003.

Stockholders equity (including unrealized appreciation on securities available-for-sale, net of tax) increased $846,226 (2%) from $36,541,812 as of June 30, 2003, to $37,388,038 as of September 30, 2003. This increase was due to several factors, including an increase in the unrealized appreciation on available-for-sale securities of $183,499 (net of tax). Another factor wasthe Companysnet incomeduring this period of$1,076,697 which was partially offset by dividends in the amount of $428,737 ($0.155 per share) which were declared prior to September 30, 2003 and paid on October 17, 2003, to stockholders of record as of October 3, 2003. In addition,the increase in stockholders equity was further offset asthe Company repurchased 12,810 shares of treasury stock at a cost of $217,059 (an average cost of $16.94 per share). As of September 30, 2003, 244,659 shares remain to be repurchased under the repurchase plan announced November 22, 2002. On a per share basis, stockholders equity increased from $13.14 as of June 30, 2003 to $13.43 as of September 30, 2003.

Average Balances, Interest and Average Yields

The Companys profitability is primarily dependent upon net interest income, which represents the difference between interest and fees earned on loans and debt and equity securities, and the cost of deposits and borrowings. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Non-interest income, non-interest expense, and income taxes also impact net income.

The following table sets forth certain information relating to the Companys average consolidated statements of financial condition and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense annualized by the average balance of assets or liabilities, respectively, for the periods shown. Average balances were derived from average daily balances. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include fees which are considered adjustments to yields. All dollar amounts are in thousands.

11

Three Months ended 9/30/2003
Three Months ended 9/30/2002Average Balance


Interest


Yield / Cost


Average Balance


Interest


Yield / CostASSETSInterest-earning:Loans

$
336,079


4,843


5.76
%
$
322,643


5,488


6.80
%Investment securities


9,626


67


2.78
%

12,404


126


4.06
%Other assets


13,977


87


2.49
%

25,460


132


2.07
%Total interest-earning


359,682


4,997


5.56
%

360,507


5,746


6.38
%Noninterest-earning


20,717








14,224$
380,399







$
374,731LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing:Savings accounts

$
17,460


35


0.80
%
$
17,685


74


1.67
%Transaction accounts


73,173


159


0.87
%

65,621


244


1.49
%Certificates of deposit


122,888


1,011


3.29
%

128,318


1,298


4.05
%FHLB Advances


103,604


1,121


4.33
%

109,350


1,501


5.49
%Other Borrowed Funds


-


-


-


-


-


-Other borrowed funds


953


1


0.42
%

1,014


3


1.18
%Total interest-bearing


318,078


2,327


2.93
%

321,988


3,120


3.88
%Noninterest-bearing


24,830








16,455Total liabilities


342,908








338,443Stockholders equity


37,491








36,288$
380,399







$
374,731Net earning balance

$
41,604







$
38,519Earning yield less costing rate








2.63
%







2.50
%Net interest income, and net yield spreadon interest earning assets




$
2,670


2.97
%



$
2,626


2.91
%Ratio of interest-earning assets tointerest-bearing liabilities





113
%







112
%
12

Results of Operations - Comparison of Three Month Periods Ended September 30,
2003 and 2002

Income for the three months ended September 30, 2003 was $1,076,697 ($0.39 per share) as compared to $896,046, ($0.32 per share) for the three months ended September 30, 2002, which represents an increase in earnings of $180,651 (20%) for the three month period ended September 30, 2003, compared to the same period in 2002.

Interest Income

Total interest income for the three months ended September 30, 2003, decreased $749,363 (13%) as compared to the three months ended September 30, 2002. For the three month period ended September 30, 2003 compared to the same period in 2002, the average yield on interest earning assets decreased 82 basis points to 5.56%, while the average balance of interest earnings assets decreased $825,000.

Interest Expense

Total interest expense for the three months ended September 30, 2003, decreased $793,672 (25%) when compared to the three months ended September 30, 2002. For the three month period ended September 30, 2003, the average cost of interest bearing liabilities decreased 95 basis points to 2.93% while the average balance decreased $3,910,000 when compared to the same period in 2002.

Net Interest Income

Net interest income for the three months ended September 30, 2003, increased $44,309 (2%) when compared to the same period in 2002. The average balance of interest bearing liabilities decreased $3,085,000 more than the average balance in interest earning assets. For the three month period ended September 30, 2003, the earning yield minus the costing rate spread increased 13 basis points to 2.63% compared to the same period in 2002.

Provision for Loan Losses

Based primarily on the continued growth of the commercial loan portfolio, management decided to increase the allowance for loan losses through a provision for loan loss of $212,000 for the three months ended September 30, 2003, and of $100,000 for the same period in 2002. The Bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions. Although the Bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential losses, there can be no assurance that future losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loss provisions.

Noninterest Income

Noninterest income increased $367,802 (43%) for the three months ended September 30, 2003, when compared to the three months ended September 30, 2002. The primary reason for the increase in income this quarter when compared to the same period one year ago was the Banks mortgage banking activities. During the quarter ended September 30, 2003, the Bank originated and sold over $31 in million residential loans, resulting in $559,000 in profits on loans sold, compared to $225,000 in profits on loans sold during the same period one year ago. Due to this large amount of activity, along with an increase in interest rates and a slowing of prepayment speeds, the amortization and valuation of originated mortgage service rights resulted in net income of $9,700 for the quarter ended September 30, 2003, compared to a net expense of $67,000 for the same period one year ago.
13

Noninterest Expense

Noninterest expense decreased $30,944 (1%) for the three months ended September 30, 2003, when compared to the three months ended September 30, 2002. This small decrease can be attributed to the Companys aggressive approach to controlling expenses. There was no significant change in any individual expense category.

Provision for Income Taxes

The provision for income taxes increased $150,404 (32%) for the three months ended September 30, 2003, as compared to the same period in 2002. This increase was due to the increase in before tax income for the three months ended September 30, 2003, compared to the same period in 2002.

Nonperforming Assets

The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the various types and quality of the loans. Management considers such factors as the repayment status of a loan, the estimated net realizable value of the underlying collateral, the borrowers intent and ability to repay the loan, local economic conditions and the Banks historical loss ratios. The Banks allowance for loan losses as of September 30, 2003, was $2,988,182 or 0.9% of loans receivable. Total assets classified as substandard or loss as of September 30, 2003, were $1,737,105 or 0.5% of total assets. Management has considered nonperforming and total classified assets in evaluating the adequacy of the Banks allowance for loan losses.

The ratio of nonperforming assets to total assets is another useful tool in evaluating exposure to credit risk. Nonperforming assets of the Bank include nonperforming loans (nonaccruing loans) and assets which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. All dollar amounts are in thousands.
9/30/03
6/30/03
6/30/02Nonperforming loans

$
407


331


1,751Real estate acquired in settlement of loans


110


182


683Total nonperforming assets

$
517


513


2,434Total nonperforming assets as a percentage of total assets


0.14
%

0.13
%

0.65
%Allowance for loan losses

$
2,988


2,775


2,650Allowance for loan losses as a percentage of average net loans


0.89
%

0.85
%

0.82
%

Liquidity and Capital Resources

The Banks primary sources of funds are deposits, principal and interest payments on loans and securities and extensions of credit from the Federal Home Loan Bank of Des Moines. While scheduled loan and security repayments and the maturity of short-term investments are somewhat predictable sources of funding, deposit flows are influenced by many factors, which make their cash flows difficult to anticipate.

The Bank uses its liquidity resources principally to satisfy its ongoing commitments which include funding loan commitments, funding maturing certificates of deposit as well as deposit withdrawals, maintaining liquidity, purchasing investments, and meeting operating expenses. As of September 30, 2003, the Bank had approximately $5,304,000 in commitments to originate mortgage loans and $17,414,000 in loans-in-process on mortgage loans. These commitments will be funded through existing cash balances, cash flow from operations and, if required, FHLB advances . Management believes that anticipated cash flows and deposit growth will be adequate to meet the Banks liquidity needs.

14

Item 3. Quantitative and Qualitative Disclosures about Market Risk
****
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, the Bank offers deposit rates and loan rates designed to 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. Since the relative spread between financial assets and liabilities is constantly changing, the Banks current net interest income may not be an indication of future net interest income.

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

The Bank is also managing interest rate risk by the origination of construction loans. As of September 30, 2003, such loans made up 18.0% of the net loans receivable. 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, 2003, the Banks savings accounts, checking accounts, and money market deposit accounts totaled $112,426,993 or 48% of its total deposits. As of September 30, 2003, these accounts totaled $112,770,533 or 48% of total deposits. The Bank believes, based on historical experience, that a substantial portion of such accounts represents non-interest rate sensitive core deposits.

Interest Rate Sensitivity Analysis

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

BP Change

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

$
Amount

$
Change


% Change


NPV Ratio


Change+300

$
32,937

$
(5,155
)

-14
%

8.88
%

-1.10
%+200


34,827


(3,265
)

-9
%

9.30
%

-0.68
%+100


36,670


(1,422
)

-4
%

9.69
%

-0.29
%NC


38,092


-


-


9.98
%

--100


40,886


2,794


7
%

10.58
%

0.60
%

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

15

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 steady 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. 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.

Item 4. Controls and Procedures
****
(a) The Company maintains disclosure controls and procedures(as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934)that are designed to ensure that information required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures. Based on the foregoing, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures wereeffectiveas of September 30, 2003.

(b) There have been nochanges in the Companys internalcontrol over financial reporting during the quarter ended September 30, 2003 that have materially affected, or is reasonably likely to materially affect,the Companysinternal control over financial reporting.


16
PART II

Item 1. Legal Proceedings
None.

Item 2. Changes in Securities and Use of Proceeds
Not applicable.

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Submission of Matters to Vote of Common Stockholders

The annual meeting of stockholders of the registrant was held on October 22, 2003. At the meeting the stockholders elected Kurt D. Hellweg and Gary Lipscomb to three-year terms as directors of the Company, while Jack L. Barham, Wayne V. Barnes, Don M. Gibson, Gregory V. Ostergren, Tim Rosenbury and James L. Sivils, III, continue to serve as directors. Also at that meeting, BKD, LLP was ratified asthe CompanysIndependent Certified Public Accountants. These same entities serve in identical capacities forGuaranty Bank,the subsidiary bank of theCompany.

The results of voting are shown for each matter considered.

Director election:

Nominee
Votes For
Votes withheldKurt D. Hellweg
2,466,869
144,666Gary Lipscomb
2,506,361
105,174Auditor ratification:Votes for
2,582,684Votes against
15,855Abstentions
15,296

Item 5. Other Information
None.

Item 6. Exhibits and Reports on Form 8-K
a) List of Exhibits

11. Statement re computation of per share earnings (set forth in "Note 4: Earnings Per Share" of
the Notes to condensed financial statements (unaudited))
31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1CEO certification pursuant to18 U.S.C. Section 1350, as adopted pursuant toSection 906 of
the Sarbanes-Oxley Act of 2002
32.2CFO certification pursuant to18 U.S.C. Section 1350, as adopted pursuant toSection 906 of
the Sarbanes-Oxley Act of 2002

b) Reports on Form 8-K


Furnished on July 16, 2003 relating to the registrants earnings release for the fourth quarter ended
June 30, 2003, and announcing the repurchase of additional shares of common stock and quarterly
dividend information.
17SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Guaranty Federal Bancshares, Inc.



Signature and Title Date

/s/ Don M. Gibson November 6,2003
Don M. Gibson
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)



/s/ Bruce Winston November 6, 2003
Bruce Winston
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18