. **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 quarterly period ended June 30, 2005
 
 OR
 
 **[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
 **THE SECURITIES EXCHANGE ACT OF 1934**
 
 For the transition period from _______ to _______
 
 Commission number 0-23325
 
 **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 Battlefield****Springfield, 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.
 
 Yes X No___
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
 
 Yes ___ No X
 
 Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.
 
 Class
Outstanding as of August 15, 2005Common Stock, Par Value $0.10 per share
2,931,937 Shares 
 
 ****
 
 **GUARANTY FEDERAL BANCSHARES, INC.****TABLE OF CONTENTS****Item**


**Page****PART I. Financial Information**1. Financial Statements
Consolidated Financial Statements (Unaudited):Statements of Financial Condition
3Statements of Income

4Statements of Stockholders Equity
5Statements of Cash Flows

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

17**PART II. Other Information**1. Legal Proceedings

182. Unregistered Sales of Equity Securities and Use of Proceeds
183. Defaults Upon Senior Securities

184. Submission of Matters to a Vote of Security Holders
185. Other Information

196. Exhibits

19Signatures 
   2    **PART I**
 **Item 1. Financial Statements**
 **GUARANTY FEDERAL BANCSHARES, INC.****CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION****JUNE 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004****ASSETS**

**6/30/05**

**12/31/04**Cash

$
8,173,998

$
14,087,915Interest-bearing deposits in other financial institutions


1,462,864


1,808,543Cash and cash equivalents


9,636,862


15,896,458Available-for-sale securities


14,585,187


15,101,768Held-to-maturity securities


1,143,589


1,305,158Stock in Federal Home Loan Bank, at cost


6,002,300


5,146,500Mortgage loans held for sale


3,266,756


3,590,536Loans receivable, net of allowance for loan losses ofJune 30, 2005 - $4,944,087 - December 31, 2004 - $4,536,654


418,490,038


388,742,792Accrued interest receivable:Loans


1,824,500


1,500,170Investments


90,475


69,845Prepaid expenses and other assets


1,708,426


1,976,284Foreclosed assets held for sale


22,675


78,150Premises and equipment


7,278,437


7,188,867$
464,049,245

$
440,596,528**LIABILITIES AND STOCKHOLDERS' EQUITY****LIABILITIES**Deposits

$
299,812,603

$
296,387,742Federal Home Loan Bank advances


120,000,000


100,000,000Securities sold under agreements to repurchase


1,726,482


1,264,020Advances from borrowers for taxes and insurance


757,724


271,796Accrued expenses and other liabilities


350,817


234,818Accrued interest payable


402,029


361,516Dividend payable


438,022


450,868Income taxes payable


357,484


220,046Deferred income taxes


45,493


632,459423,890,654


399,823,265**STOCKHOLDERS' EQUITY**Common Stock:$0.10 par value; authorized 10,000,000 shares;issued June 30, 2005 - 6,518,545 shares;December 31, 2004 - 6,493,861 shares


651,855


649,386Additional paid-in capital


52,852,806


52,384,842Unearned ESOP shares


(1,686,930
)

(1,800,930
)Retained earnings, substantially restricted


34,216,088


32,437,131Accumulated other comprehensive incomeUnrealized appreciation on available-for-sale securities,net of income taxes; June 30, 2005 - $1,281,423;December 31, 2004 - $1,653,740


2,181,882


2,815,82888,215,701


86,486,257Treasury stock, at cost; June 30, 2005 - 3,593,816 shares;December 31, 2004 - 3,492,759 shares


(48,057,110
)

(45,712,994
)40,158,591


40,773,263$
464,049,245

$
440,596,528 
 See notes to Condensed Consolidated Financial Statements3
 
 **GUARANTY FEDERAL BANCSHARES, INC.****CONSOLIDATED STATEMENTS OF INCOME****THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)**Three months ended

Six months ended6/30/2005

6/30/2004

6/30/2005

6/30/2004**INTEREST INCOME**Loans

$
6,357,976


4,733,012


12,084,855


9,452,159Investment securities


102,481


77,838


198,272


146,020Other


100,458


61,299


178,706


115,0876,560,914


4,872,149


12,461,833


9,713,266**INTEREST EXPENSE**


****Deposits


1,698,567


1,108,367


3,257,674


2,262,199Federal Home Loan Bank advances


1,078,599


825,399


1,972,571


1,720,977Other


6,213


1,034


10,342


1,9222,783,379


1,934,800


5,240,587


3,985,098**NET INTEREST INCOME**


3,777,536


2,937,349


7,221,246


5,728,168**PROVISION FOR LOAN LOSSES**


240,000


225,000


465,000


413,830**NET INTEREST INCOME AFTER****PROVISION FOR LOAN LOSSES**


3,537,536


2,712,349


6,756,246


5,314,338**NONINTEREST INCOME**Service charges


412,123


444,541


793,471


885,136Late charges and other fees


49,237


140,200


140,712


213,830Gain on sale of investment securities


187,115


171,456


382,903


349,413Gain on sale of loans


117,173


76,499


259,121


198,111Income (loss) on foreclosed assets


1,389


969


4,190


(5,018
)Other income


74,167


42,968


144,717


85,424841,204


876,633


1,725,114


1,726,896**NONINTEREST EXPENSE**Salaries and employee benefits


1,163,558


1,170,318


2,436,382


2,296,913Occupancy


331,539


287,430


664,748


566,311SAIF deposit insurance premiums


10,330


8,926


19,991


17,859Data processing


91,411


107,389


179,323


225,337Advertising


21,875


72,274


50,570


150,832Other expense


446,984


433,056


895,076


865,1372,065,697


2,079,393


4,246,090


4,122,389**INCOME BEFORE INCOME TAXES**


2,313,042


1,509,589


4,235,270


2,918,845**PROVISION FOR INCOME TAXES**


864,327


494,797


1,571,781


934,677**NET INCOME**

$
1,448,715


1,014,792


2,663,489


1,984,168******BASIC EARNINGS PER SHARE**

$
0.53


0.36


0.96


0.71**DILUTED EARNINGS PER SHARE**

$
0.50


0.35


0.91


0.68 
  See Notes to Condensed Consolidated Financial Statements4    **GUARANTY FEDERAL BANCSHARES, INC.****CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY****SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)**Common Stock

Additional Paid-In Capital

Unearned ESOP Shares

Treasury Stock

Retained Earnings

Accumulated Other Comprehensive Income

Total**Balance, January 1, 2005**

$
649,386


52,384,842


(1,800,930
)

(45,712,994
)

32,437,131


2,815,828


40,773,263Comprehensive incomeNet income


-


-


-


-


2,663,489


-


2,663,489Change in unrealized appreciationon available-for-sale securities, netof income taxes of ($372,317)


-


-


-


-


-


(633,946
)

(633,946
)Total comprehensive income




















2,029,543Dividends ($0.32 per share)


-


-


-


-


(884,532
)

-


(884,532
)Stock award plans


-


11,582


-


-


-


-


11,582Stock options exercised


2,469


303,496


-


-


-


-


305,965Release of ESOP shares


-


152,886


114,000


-


-


-


266,886Treasury stock purchased


-


-


-


(2,344,116
)

-


-


(2,344,116
)**Balance, June 30, 2005**

$
651,855


52,852,806


(1,686,930
)

(48,057,110
)

34,216,088


2,181,882


40,158,591 
 See notes to Condensed Consolidates Financial Statements5
 **GUARANTY FEDERAL BANCSHARES, INC.****CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY****SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)**Common Stock

Additional Paid-In Capital

Unearned ESOP Shares

Treasury Stock

Retained Earnings

Accumulated Other Comprehensive Income

Total**Balance, January 1, 2004**

$
642,890


51,330,202


(2,030,930
)

(44,549,879
)

29,919,695


2,666,143


37,978,121Comprehensive incomeNet income


-


-


-


-


1,984,168


-


1,984,168Change in unrealized appreciationon available-for-sale securitites, netof income taxes of $48,984


-


-


-


-


-


83,406


83,406Total comprehensive income




















2,067,574Dividends ($0.31 per share)


-


-


-


-


(866,767
)

-


(866,767
)Stock award plans


-


38,126


-


-


-


-


38,126Stock options exercised


3,266


371,537


-


-


-


-


374,803Release of ESOP shares


-


110,249


116,000


-


-


-


226,249Treasury stock purchased


-


-


-


(513,474
)

-


-


(513,474
)**Balance, June 30, 2004**

$
646,156


51,850,114


(1,914,930
)

(45,063,353
)

31,037,096


2,749,549


39,304,632 
 See Notes to Condensed Consolidated Financial Statements6
 
 **GUARANTY FEDERAL BANCSHARES, INC****CONSOLIDATED STATEMENTS OF CASH FLOWS****SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)****6/30/2005**

**6/30/2004****CASH FLOWS FROM OPERATING ACTIVITIES**Net income

$
2,663,489


1,984,168Items not requiring (providing) cash:Deferred income taxes


(214,649
)

(59,475
)Depreciation


393,855


296,287Provision for loan losses


465,000


413,830Gain on loans and investment securities


(642,024
)

(547,524
)Loss on sale of premises and equipment


1,925


3,185(Gain) loss on sale of foreclosed assets


(6,003
)

784Amortization of deferred income, premiums and discounts


(13,223
)

19,012Stock award plan expense


24,064


28,389Origination of loans held for sale


(18,083,680
)

(14,203,603
)Proceeds from sale of loans held for sale


18,666,581


14,105,011Release of ESOP shares


266,886


226,249Changes in:Accrued interest receivable


(344,960
)

(42,791
)Prepaid expenses and other assets


267,858


(391,185
)Accounts payable and accrued expenses


156,512


18,019Income taxes payable


124,956


(181,659
)Net cash provided by (used in) operating activities


3,726,587


1,668,697**CASH FLOWS FROM INVESTING ACTIVITIES**Net increase in loans


(30,507,965
)

(34,664,438
)Principal payments on held-to-maturity securities


161,048


373,090Proceeds from maturities of available-for-sale securities


4,500,000


3,500,000Purchase of premises and equipment


(489,550
)

(83,077
)Proceeds from sale of premises and equipment


4,200


6,000Purchase of available-for-sale securities


(4,962,267
)

(3,486,891
)Proceeds from sale of available-for-sale securities


388,777


355,287Purchase of FHLB stock


(855,800
)

(648,300
)Proceeds from sale of foreclosed assets


337,653


277,261Net cash used in investing activities


(31,423,904
)

(34,371,068
)**CASH FLOWS FROM FINANCING ACTIVITIES**Stock options exercised


305,964


374,803Cash dividends paid


(897,378
)

(866,381
)Cash dividends received on RRP stock


-


217Net increase in demand deposits,NOW accounts and savings accounts


393,728


2,286,311Net increase in certificates of deposit and securities soldunder agreements to repurchase


3,493,595


19,693,596Proceeds from FHLB advances


499,050,000


112,000,000Repayments of FHLB advances


(479,050,000
)

(112,750,948
)Advances from borrowers for taxes and insurance


485,928


513,381Treasury stock purchased


(2,344,116
)

(513,474
)Net cash provided by financing activities


21,437,721


20,737,505**DECREASE IN CASH AND CASH EQUIVALENTS**


(6,259,596
)

(11,964,866
)**CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD**


15,896,458


22,656,794**CASH AND CASH EQUIVALENTS, END OF PERIOD**

$
9,636,862


10,691,928 
 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 2004 filed with the Securities and Exchange Commission. The condensed consolidated statement of financial condition of the Company as of December 31, 2004, 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 stock option and 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. In September of 2003 and March of 2004, the directors of the Company authorized the issuance of 5,000 and 25,000 stock options, respectively, as an employment inducement to new officers of the Bank pursuant to stock option agreements . Stock options awarded under these agreements are considered non-qualified for federal income tax purposes. On May 19, 2004, the Companys stockholders voted to approve a 2004 Stock Option Plan ("2004 SOP"). The purpose of the plan is to attract and retain qualified personnel for positions of substantial responsibility. The aggregate number of shares with respect to options issued under this plan shall not exceed 250,000 shares. To date no options have been granted under this plan. As of June 30, 2005, all of the RRP, RSP, 2000 SCP and 2001 SCP shares have been purchased and awarded. As of June 30, 2005, there are 5,494 shares that are not vested. The Company is amortizing the RRP, RSP and SCP expense over each participants vesting period. The Company recognized $24,064  and $28,839 of  expense under these stock award plans for the six month periods ended June 30, 2005 and 2004, respectively. The SOP, 1998 SOP, 2000 SCP, 2001 SCP and the 2004 SOP authorized stock options on shares to be issued to officers and employees of the Bank. As of June 30, 2005, all options except those on 252,998 shares have been granted. The RRP, RSP, SOP, 1998 SOP, 2000 SCP, 2001 SCP and 2004 SOP vest over a five year period. As of June 30, 2005, there were 381,179 unexercised options that have been granted at prices ranging from $6.02 to $23.50 per share and 258,867 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 June 30,

Six Months ended June 30,2005

2004

2005

2004Net income, as reported

$
1,448,715


1,014,792


2,663,489


1,984,168Less: Total stock-based employee compensationcost determined under the fair value-basedmethod, net of income taxes


(9,105
)

(9,266
)

(17,887
)

(18,532
)Pro forma net income

$
1,439,610


1,005,526


2,645,602


1,965,636Earnings per share:Basic - as reported

$
0.53


0.36


0.96


0.71Basic - pro forma

$
0.52


0.36


0.95


0.70Diluted - as reported

$
0.50


0.35


0.91


0.68Diluted - pro forma

$
0.50


0.34


0.91


0.67 
 **Note 4: Earnings Per Share**
 For three months ended June 30, 2005

For six months ended June 30, 2005Income Available to Stockholders

Average Shares Outstanding

Per-share

Income Available to Stockholders

Average Shares Outstanding

Per-shareBasic Earnings per Share

$
1,448,715


2,754,204

$
0.53

$
2,663,489


2,784,843

$
0.96Effect of Dilutive Securities:Stock Options





132,784








135,007Diluted Earnings per Share

$
1,448,715


2,886,988

$
0.50

$
2,663,489


2,919,850

$
0.91For three months ended June 30, 2004


For six months ended June 30, 2004Income Available to Stockholders





Average Shares Outstanding


Per-share


Income Available to Stockholders


Average Shares Outstanding


Per-shareBasic Earnings per Share

$
1,014,792


2,799,313

$
0.36

$
1,984,168


2,797,788

$
0.71Effect of Dilutive Securities:Stock Options





141,044








141,360Diluted Earnings per Share

$
1,014,792


2,940,357

$
0.35

$
1,984,168


2,939,148

$
0.68 
 9
 **Note 5: Other Comprehensive Income**
 6/30/2005

6/30/2004Unrealized gains (losses) on

$
(623,360
)

481,803available-for-sale securitiesLess: Reclassification adjustment forrealized (gains) losses included in income


(382,903
)

(349,413
)Other comprehensive income (loss),before tax effect


(1,006,263
)

132,390Tax expense (benefit)


(372,317
)

48,984**OTHER COMPREHENSIVE INCOME (LOSS)**

$
(633,946
)

83,406 
 **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 Companys financial condition as of June 30, 2005, and the results of operations for the three months and six months ended June 30, 2005 and 2004. In 2003 and in conjunction with the Banks conversion to a state-chartered trust company with banking powers, the Company decided to change its fiscal year end from June 30 to a calendar year end of December 31. The Company reported a six-month transition period ended December 31, 2003 in order to change to this new calendar year end.
 
 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 this 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.
 
 10
 **Financial Condition**
 
 The Companys total assets increased $23,452,717 (5%) from $440,596,528 as of December 31, 2004, to $464,049,245 as of June 30, 2005.
 
 Cash and cash equivalents decreased $6,259,596 (39%) from $15,896,458 as of December 31, 2004, to $9,636,862 as of June 30, 2005. The decrease is primarily due to a smaller amount of uncollected funds on deposit with a correspondent bank as of June 30, 2005, compared to December 31, 2004.
 
 Securities available-for-sale decreased $516,581, (3%) from $15,101,768 as of December 31, 2004, to $14,585,187 as of June 30, 2005. The Bank currently holds 62,000 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of $60,714 in the available-for-sale category. As of June 30, 2005, the gross unrealized gain on the FHLMC stock was $3,963,546, a decrease from $4,945,012 as of December 31, 2004.
 
 Securities held-to-maturity decreased primarily due to principal repayments by $161,569 (12%) from $1,305,158 as of December 31, 2004, to $1,143,589 as of June 30, 2005.
 
 Stock in Federal Home Loan Bank of Des Moines ("FHLB") increased by $855,800 (17%), due to the purchase of such stock necessary to meet FHLB requirements.
 
 Net loans receivable increased by $29,747,246 (8%) from $388,742,792 as of December 31, 2004, to $418,490,038 as of June 30, 2005. Commercial real estate loans increased by $17,262,985 (18%) from $97,549,770 as of December 31, 2004, to $114,812,755 as of June 30, 2005. The Bank plans to continue its emphasis on commercial lending. In addition, the Bank is selling conforming loans on single family residences, while in some cases retaining the servicing rights. Permanent mortgage loans secured by both owner and non-owner occupied residential real estate decreased by $13,083,453 (11%), while residential loans sold decreased by $5,189,138 (4%). Loans held for sale decreased $323,780 (9%) to $3,266,756 as of June 30, 2005, compared to $3,590,536 at December 31, 2004. The Bank continued to be active in construction lending. Construction loans increased by $17,499,010 (39%) to $62,589,268 as of June 30, 2005, compared to $45,090,258 as of December 31, 2004. See also the 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 $407,433 (9%) from $4,536,654 as of December 31, 2004 to $4,944,087 as of June 30, 2005. The allowance increased primarily due to the provision for loan losses of $465,000 recorded during this period exceeding net loan charge-offs of $22,356 during this period. Management of the Company decided to increase the allowance for loan losses by this provision charge primarily as a result of the continued growth of the Banks loan portfolio, particularly its commercial loan portfolio. See also the discussion under "Results of Operations - Comparison of Three Month and Six Month Periods Ended June 30, 2005 and 2004 - Provision for Loan Losses." The allowance for loan losses as of June 30, 2005 and December 31, 2004 was 1.22% and 1.16%, respectively, of average net loans outstanding. As of June 30, 2005, the allowance for loan losses was 99% of impaired loans compared to 75% as of December 31, 2004.
 
 Premises and equipment increased $89,570 (1%) from $7,188,867, as of December 31, 2004 to $7,278,437 as of March 31, 2005, primarily due to the construction of a new branch facility, which was partially offset by depreciation recognized on these assets.
 
 
 Deposits increased $3,424,861 (1%) from $296,387,742 as of December 31, 2004, to $299,812,603 as of June 30, 2005. For the six months ended June 30, 2005, checking and savings accounts increased by $393,727 and certificates of deposits increased by $3,031,133 (2%). The increase in certificates of deposit was primarily due to an increase in internet certificates of deposit of $2,247,500 (25%) during the period. See also the discussion under "Quantitative and Qualitative Disclosure about Market Risk - Asset/Liability Management."
 
 11
 FHLB advances increased by $20,000,000 (20%) from $100,000,000 as of December 31, 2004, to $120,000,000 as of June 30, 2005, due to new advances exceeding repayments. These funds were primarily used to fund new loans.
 
 As a part of managements review of available funding, management continually evaluates the cost of FHLB advances and the cost of the national brokered certificate of deposit market versus retail certificates of deposit in the local market. The aggregate of brokered certificates of deposit include both the cost of the interest paid to the depositor and the fee paid to the broker. At times, the all-inclusive cost of brokered certificates of deposit is less than the marginal cost of increasing local retail certificate of deposits. Management believes a combination of these three sources of funds will provide the lowest cost long-term funding.
 
 Advances from borrowers for taxes and insurance increased $485,928 (179%) from $271,796 as of December 31, 2004, to $757,724 as of June 30, 2005 due to the timing of payment of real estate taxes.
 
 Stockholders equity (including unrealized appreciation on securities available-for-sale, net of tax) decreased $614,672 (2%) from $40,773,263 as of December 31, 2004, to $40,158,591 as of June 30, 2005. This decrease was due to several factors. T he Company s net income during this period was $2,663,489 which was partially offset by dividends in the amount of $884,532 which were declared on March 16, 2005 and paid on April 14, 2005, to stockholders of record as of March 30, 2005 and declared of June 16, 2005 and paid on July 15, 2005, to stockholders of record as of July 1, 2005. In addition, the increase in stockholders equity was further offset as the Company repurchased 101,057 shares of treasury stock at an aggregate cost of $2,344,116 (an average cost of $23.20 per share) and a decrease in unrealized appreciation on available for sale securities, net of taxes, of $633,946 during this period. As of June 30, 2005, 84,028 shares of the Companys common stock remain to be repurchased under the repurchase plan announced by the Company on November 22, 2002. On a per share basis, stockholders equity increased from $14.45 as of December 31, 2004 to $14.57 as of June 30, 2005.
 
 **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.
 12
 Six months ended 6/30/2005

Six months ended 6/30/2004Average Balance

Interest

Yield / Cost

Average Balance

Interest

Yield / Cost**ASSETS**Interest-earning:Loans

$
405,957


12,085


5.95
%
$
348,867


9,452


5.42
%Investment securities


9,876


198


4.01
%

10,083


146


2.90
%Other assets


12,219


179


2.93
%

15,094


115


1.52
%Total interest-earning


428,052


12,462


5.82
%

374,044


9,713


5.19
%Noninterest-earning


19,483








20,089$
447,535







$
394,133**LIABILITIES AND STOCKHOLDERS EQUITY**Interest-bearing:Savings accounts

$
15,291


91


1.19
%
$
17,112


67


0.78
%Transaction accounts


87,470


623


1.42
%

76,323


334


0.88
%Certificates of deposit


171,507


2,543


2.97
%

126,015


1,861


2.95
%FHLB advances


105,242


1,973


3.75
%

112,629


1,721


3.06
%Other borrowed funds


1,090


10


1.83
%

835


2


0.48
%Total interest-bearing


380,600


5,240


2.75
%

332,914


3,985


2.39
%Noninterest-bearing


26,413








22,197Total liabilities


407,013








355,111Stockholders equity


40,522








39,022$
447,535







$
394,133Net earning balance

$
47,452







$
41,130Earning yield less costing rate








3.07
%







2.80
%Net interest income, and net yield spreadon interest earning assets




$
7,222


3.37
%



$
5,728


3.06
%Ratio of interest-earning assets tointerest-bearing liabilities





112
%







112
% 
 **Results of Operations - Comparison of Three Month and Six Month Periods Ended June 30,**
 **2005 and 2004**
 
 Net income for the three months and six months ended June 30, 2005 was $1,448,715 and $2,663,489, respectively, as compared to $1,014,792 and $1,984,168, respectively, for the three months and six months ended June 30, 2004, which represents an increase in earnings of $433,923 (43%) for the three month period, and an increase in earnings of $679,321 (34%) for the six month period.
 
 13
 **Interest Income**
 
 Total interest income for the three months and six months ended June 30, 2005, increased $1,688,765
 (35%) and $2,748,567 (28%), respectively, as compared to the three months and six months ended June 30, 2004. For the three month and six month periods ended June 30, 2005 compared to the same periods in 2004, the average yield on interest earning assets decreased 91basis points to 5.99% and increased 63 basis points to 5.82%, respectively, while the average balance of interest earning assets increased $54,362,000 and $54,008,000, respectively.
 
 **Interest Expense**
 
 Total interest expense for the three months and six months ended June 30, 2005, increased $848,579 (44%) and $1,255,489 (32%), respectively, when compared to the three months and six months ended June 30, 2004. For the three month and six month periods ended June 30, 2005 compared to the same periods in 2004, the average cost of interest bearing liabilities increased 59 basis points to 2.86% and 36 basis points to 2.75%, respectively, while the average balance increased $48,766,000 and $47,686,000, respectively.
 
 **Net Interest Income**
 
 As a result of the interest income and interest expense for the three months and six months ended June 30, 2005 as discussed above , net interest income for the three months and six months ended June 30, 2005 increased $840,187 (29%) and $1,493,078 (26%), respectively, when compared to the same periods in 2004.
 
 **Provision for Loan Losses**
 
 Based primarily on the continued growth of the commercial loan portfolio, management decided to record a provision for loan losses of $240,000 and $465,000 for the three months and six months ended June 30, 2005, respectively, compared to $225,000 and $413,830 for the same periods in 2004. 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 loan 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 loan loss provisions.
 
 **Noninterest Income**
 
 Noninterest income decreased $35,429 (4%) and $1,782 for the three months and six months ended June 30, 2005, respectively, when compared to the three months and six months ended June 30, 2004. The decreases for the three months and six months ended June 30, 2005, were primarily due to decreases in service charges and in late charges and other fees, which were partially offset by increases in gain on sale of loans and gain on sale of investments as discussed below.
 
 Service charges on transaction accounts decreased by $32,418 (7%) and $91,665 (10%) during the three months and six months ended June 30, 2005, respectively, when compared to the same period in 2004. This is a result of a decrease in the amount of "non-sufficient funds" and overdraft fees collected during this three month and six month period when compared to the same period in 2004. This decrease is a result of fewer "non-sufficient funds" checks presented per account during the three month and six month period ended June 30, 2005, compared to the same period in 2004.
 
 
 Late charges and other fees decreased $90,963 (65%) and $73,118 (34%) for the three months ended June 30, 2004 and six months ended June 30, 2005, respectively, when compared to the same periods in 2004. These decreases were primarily due to fewer prepayment penalties paid on loans in the three month and six month periods ended June 30, 2005, compared to the same period in 2004.
 
 14
 During the three months and six months ended June 30, 2005, gain on sale of investments was $187,115 and $382,903, respectively, compared to gains of $171,456 and $349,413, for the same periods in 2004. These gains resulted from the sale of 1,000 shares of FHLMC stock each month. The sale price ranged from $60.92 per share to $67.42 during the six month period ended June 30, 2005, compared to $56.76 per share to $63.10 per share during the same period in 2004.
 
 Gain on sale of loans increased $40,674 (53%) and $61,010 (31%) for the three months and six months ended June 30, 2005, respectively, when compared to the same periods in 2004, which was a result of an increase in
 mortgages loans sold on the secondary market.
 
 **Noninterest Expense**
 
 Noninterest expense decreased $13,696 (1%) and increased $123,701 (3%) for the three months and six months ended June 30, 2005 when compared to the three months and six months ended June 30, 2004. These small changes are attributed to the Companys emphasis on controlling expenses. There was no significant change in any individual expense category.
 
 **Provision for Income Taxes**
 
 There was an increase of $369,530 (75%) and $637,104 (68%) in the provision for income taxes for the three months and six months ended June 30, 2005, respectively, as compared to the same periods in 2004. These increases were due to an increase in before tax income of $803,453 and $1,316,425 for the three months and six months ended June 30, 2005, respectively, compared to the same period in 2004.
 
 **Nonperforming Assets**
 
 The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Banks existing loan portfolio. When making such evaluation, management considers such factors as the repayment status of its loans, the estimated net realizable value of the underlying collateral, borrowers intent (to the extent known by the Bank) 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 June 30, 2005, was $4,944,087 or 1.2% of average net loans receivable. Total assets classified as substandard, doubtful or loss as of June 30, 2005, were $4,174,327 or 0.9% of total assets. In connection with a normal regulatory examination by the Federal Deposit Insurance Corporation in February 2004, the Bank identified and reclassified a group of approximately 150 loans secured by single family residences, totaling approximately $9.0 million, because it was deemed that the loan files relating to these loans did not contain sufficient information to effectively evaluate the credits. As of June 30, 2005, $2,973,772 of the assets classified as substandard were attributed to this group of loans. Management 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.
 
 6/30/2005

12/31/2004

12/31/2003Nonperforming loans

$
616


1,007


743Real estate acquired in settlement of loans


23


78


6Total nonperforming assets

$
639


1,085


749Total nonperforming assets as a percentage of total assets


0.14
%

0.25
%

0.19
%Allowance for loan losses

$
4,944


4,537


3,886Allowance for loan losses as a percentage of average net loans


1.22
%

1.16
%

1.17
% 
 15
 **Liquidity and Capital Resources**
 
 The Banks primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, proceeds from maturing investment securities and extensions of credit from FHLB. 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 June 30, 2005, the Bank had approximately $38,111,000 in commitments to originate mortgage and commercial 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.
 
 **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 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 with respect to such fixed-rate residential loans, while limiting its exposure to the risk associated with carrying a long-term fixed-rate loan in its loan portfolio.
 
 The Bank is also managing interest rate risk by the origination of construction loans. As of June 30, 2005, such loans made up 15.0% of the net loans receivable and continue to account for a larger portion of the Banks existing 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 December 31, 2004, the Banks savings accounts, checking accounts, and money market deposit accounts totaled $127,351,296 or 43% of its total deposits. As of June 30, 2005, these accounts totaled $127,745,023 or 43% of its 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 June 30, 2005 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 100, 200 and 300 basis point instantaneous and permanent decreases in market interest rates. Dollar amounts are expressed in thousands.
 
 16
 BP Change

Estimated Net Portfolio Value

NPV as % of PV of Assetsin Rates

$ Amount

$ Change

% Change

NPV Ratio

Change+300

$
37,385

$
(2,574
)

-6
%

8.26
%

-0.36
%+200


39,114


(845
)

-2
%

8.54
%

-0.07
%+100


40,013


54


0
%

8.75
%

0.14
%NC


39,959


-


-


8.61
%

--100


39,399


(560
)

-1
%

8.45
%

-0.17
%-200


38,490


(1,469
)

-4
%

8.21
%

-0.40
%-300


37,588


(2,371
)

-6
%

7.98
%

-0.63
% 
 Computations of prospective effects of hypothetical interest rate changes are based on an internally generated model using actual maturity and repricing schedules for the Banks loans and deposits, and are based on numerous assumptions, including relative levels of market interest rates, loan repayments and deposit run-offs, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Bank may undertake in response to changes in interest rates.
 
 Management cannot predict future interest rates or their effect on the Banks NPV in the future. Certain shortcomings are inherent in the method of analysis presented in the computation of NPV. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, 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 (the "Board") is responsible for reviewing the Banks 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 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 (the "Exchange Act") ) that are designed to ensure that information required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission 's rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), 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 CEO and CFO, of the effectiveness of the Companys disclosure controls and procedures. Based on the foregoing, the Companys CEO and CFO concluded that the Companys disclosure controls and procedures were effective  as of June 30, 2005.
 
 (b) There have been no changes in the Companys internal control over financial reporting during the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company s internal control over financial reporting .
 
 17
 **PART II**
 
 **Item 1.**  **Legal Proceedings**
 None.
 
 **Item 2.**  **Unrestricted Sales of Equity Securities and Use of Proceeds**
 
 The following table summarizes the repurchase activity of the Companys common stock during the Companys second quarter ended June 30, 2005.
 
 **ISSUER PURCHASE OF EQUITY SECURITIES**
 
 Period

(a) Total Number of Shares Purchased

(b) Average Price Paid per Share

(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)

(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or ProgramsApril 1, 2005 to April 30, 2005


31,249


23.01


31,249


84,128May 1, 2005 to May 31, 2005


100


22.27


100


84,028June 1, 2005 to June 30, 2005


-


-


-


84,028Total


31,349


23.00


31,349 
 (1)
The Company has a repurchase plan which was announced on November 22, 2002. This plan authorizes the purchase by the Company of 300,000 shares of the Companys common stock. There is no expiration date for this plan. There are no other repurchase plans in effect at this time. 
 **Item 3.**  **Defaults Upon Senior Securities**
 Not applicable.
 
 **Item 4.**  **Submission of Matters to a Vote of Common Security Holders**
 
 The annual meeting of stockholders of the registrant was held on May 25, 2005. At the meeting the stockholders elected Wayne V. Barnes, Gregory V. Ostergren and James L. Sivils, III to three-year terms as directors of the Company, while Jack L. Barham, Shaun A. Burke, Don M. Gibson, Kurt D. Hellweg, Gary Lipscomb and Tim Rosenbury, continue to serve as directors. Also at that meeting, BKD, LLP was ratified as the Companys independent auditors for the fiscal year ending December 31, 2005.
 18
 The results of voting are shown for each matter considered.
 
 **Director election:**
 Nominee

Votes For

Votes WithheldWayne V. Barnes


2,473,879


146,182Gregory V. Ostergren


2,521,750


98,311James L. Sivils, III


2,557,619


62,442**Auditor Ratification:**Votes for


2,557,926Votes against


41,320Abstentions


815 
 **Item 5.**  **Other Information**
 None.
 
 **Item 6.**  **Exhibits**
 
 10.18 Resignation and Separation Agreement and Release of All Claims between the Company, the Bank
 and William B. Williams dated July 29, 2005
 11. Statement re computation of per share earnings (set forth in "Note 4: Earnings Per Share" of
 the Notes to Condensed Consolidated Financial Statements (unaudited))
 31(i).1 Certification of the Principal Executive Officer pursuant to Rule 13a -14(a) of the Exchange Act
 31(i).2 Certification of the Principal Financial Officer pursuant to Rule 13a - 14(a) of the Exchange Act
 32.1 CEO certification pursuant to Rule 13a - 14(b) and 18 U.S.C. Section 1350
 32.2CFO certification pursuant to Rule 13a - 14(b) and18 U.S.C. Section 1350  
 19
 **SIGNATURES**
 
 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/ Shaun A. Burke  August 15,  2005
 
 Shaun A. Burke
 President and Chief Executive Officer
 (Principal Executive Officer and Duly Authorized Officer)
 
 /s/ Bruce Winston August 15,  2005
 
 Bruce Winston
 Senior Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)
 
  20