. **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 September
      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, including area code: (417)
      520-4333





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





Yes X No___


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





Yes
      ___ No X





Indicate
      by check mark whether the registrant is a shell company (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 November 14, 2005Common
                Stock, par value $0.10 per share
            2,955,747
                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 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
            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
            
            186.
                Exhibits
            
            18Signatures





2


**PART
      I - FINANCIAL INFORMATION**


**Item
      1. Financial Statements**


**GUARANTY
                FEDERAL BANCSHARES, INC.****CONSOLIDATED
                STATEMENTS OF FINANCIAL CONDITION****SEPTEMBER
                30, 2005 (UNAUDITED) AND DECEMBER 31, 2004****ASSETS**
            
            **9/30/05**
            
            **12/31/04**Cash
            
            $
            10,770,254
            
            $
            14,087,915Interest-bearing
                deposits in other financial institutions
            
            
            7,238,686
            
            
            1,808,543Cash
                and cash equivalents
            
            
            18,008,940
            
            
            15,896,458Available-for-sale
                securities
            
            
            13,952,498
            
            
            15,101,768Held-to-maturity
                securities
            
            
            1,094,259
            
            
            1,305,158Stock
                in Federal Home Loan Bank, at cost
            
            
            6,224,800
            
            
            5,146,500Mortgage
                loans held for sale
            
            
            3,209,998
            
            
            3,590,536Loans
                receivable, net of allowance for loan losses ofSeptember
                30, 2005 - $5,205,491 - December 31, 2004 - $4,536,654
            
            
            437,257,336
            
            
            388,742,792Accrued
                interest receivable:Loans
            
            
            1,853,694
            
            
            1,500,170Investments
            
            
            88,984
            
            
            69,845Prepaid
                expenses and other assets
            
            
            1,869,924
            
            
            1,976,284Deferred
                income taxes
            
            
            328,802
            
            
            -Foreclosed
                assets held for sale
            
            
            24,868
            
            
            78,150Premises
                and equipment
            
            
            7,402,278
            
            
            7,188,867$
            491,316,381
            
            $
            440,596,528**LIABILITIES
                AND STOCKHOLDERS' EQUITY****LIABILITIES**Deposits
            
            $
            317,676,391
            
            $
            296,387,742Federal
                Home Loan Bank advances
            
            
            128,000,000
            
            
            100,000,000Securities
                sold under agreements to repurchase
            
            
            1,504,342
            
            
            1,264,020Advances
                from borrowers for taxes and insurance
            
            
            939,425
            
            
            271,796Accrued
                expenses and other liabilities
            
            
            448,323
            
            
            234,818Accrued
                interest payable
            
            
            494,114
            
            
            361,516Dividend
                payable
            
            
            458,330
            
            
            450,868Income
                taxes payable
            
            
            446,654
            
            
            220,046Deferred
                income taxes
            
            
            -
            
            
            632,459449,967,579
            
            
            399,823,265**STOCKHOLDERS'
                EQUITY**Common
                Stock:$0.10
                par value; authorized 10,000,000 shares;issued
                September 30, 2005 - 6,568,516 shares;December
                31, 2004 - 6,493,861 shares
            
            
            656,852
            
            
            649,386Additional
                paid-in capital
            
            
            53,630,419
            
            
            52,384,842Unearned
                ESOP shares
            
            
            (1,629,930
            )
            
            (1,800,930
            )Retained
                earnings, substantially restricted
            
            
            35,344,192
            
            
            32,437,131Accumulated
                other comprehensive incomeUnrealized
                appreciation on available-for-sale securities,net
                of income taxes; September 30, 2005 - $1,046,223;December
                31, 2004 - $1,653,740
            
            
            1,781,407
            
            
            2,815,82889,782,940
            
            
            86,486,257Treasury
                stock, at cost; September 30, 2005 - 3,608,828 shares;December
                31, 2004 - 3,492,759 shares
            
            
            (48,434,138
            )
            
            (45,712,994
            )41,348,802
            
            
            40,773,263$
            491,316,381
            
            $
            440,596,528




See Notes to Condensed Consolidated Financial
        Statements
 3





**GUARANTY
                FEDERAL BANCSHARES, INC.****CONSOLIDATED
                STATEMENTS OF INCOME****THREE
                MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)**Three
                months ended
            
            Nine
                months ended9/30/2005
            
            9/30/2004
            
            9/30/2005
            
            9/30/2004**INTEREST
                INCOME**Loans
            
            $
            6,935,225
            
            
            5,054,477
            
            
            19,020,080
            
            
            14,506,636Investment
                securities
            
            
            109,108
            
            
            69,531
            
            
            307,380
            
            
            215,551Other
            
            
            47,155
            
            
            68,326
            
            
            225,861
            
            
            183,4137,091,488
            
            
            5,192,334
            
            
            19,553,321
            
            
            14,905,600**INTEREST
                EXPENSE**Deposits
            
            
            1,904,836
            
            
            1,257,353
            
            
            5,162,510
            
            
            3,519,552Federal
                Home Loan Bank advances
            
            
            1,215,982
            
            
            863,922
            
            
            3,188,553
            
            
            2,584,899Other
            
            
            8,869
            
            
            1,948
            
            
            19,211
            
            
            3,8703,129,687
            
            
            2,123,223
            
            
            8,370,274
            
            
            6,108,321**NET
                INTEREST INCOME**
            
            
            3,961,801
            
            
            3,069,111
            
            
            11,183,047
            
            
            8,797,279**PROVISION
                FOR LOAN LOSSES**
            
            
            240,000
            
            
            225,000
            
            
            705,000
            
            
            638,830**NET
                INTEREST INCOME AFTER****PROVISION
                FOR LOAN LOSSES**
            
            
            3,721,801
            
            
            2,844,111
            
            
            10,478,047
            
            
            8,158,449**NONINTEREST
                INCOME**Service
                charges
            
            
            434,380
            
            
            529,914
            
            
            1,227,851
            
            
            1,415,050Late
                charges and other fees
            
            
            37,672
            
            
            73,210
            
            
            178,384
            
            
            287,040Gain
                on sale of investment securities
            
            
            180,669
            
            
            192,799
            
            
            563,572
            
            
            542,212Gain
                on sale of loans
            
            
            210,015
            
            
            116,310
            
            
            469,136
            
            
            314,421Income
                (loss) on foreclosed assets
            
            
            (502
            )
            
            2,498
            
            
            3,688
            
            
            (2,520
            )Other
                income
            
            
            95,558
            
            
            42,503
            
            
            240,275
            
            
            127,927957,792
            
            
            957,234
            
            
            2,682,906
            
            
            2,684,130**NONINTEREST
                EXPENSE**Salaries
                and employee benefits
            
            
            1,184,666
            
            
            1,142,748
            
            
            3,621,048
            
            
            3,439,661Occupancy
            
            
            366,371
            
            
            322,169
            
            
            1,031,119
            
            
            888,480SAIF
                deposit insurance premiums
            
            
            9,935
            
            
            8,898
            
            
            29,926
            
            
            26,757Data
                processing
            
            
            97,719
            
            
            98,411
            
            
            277,042
            
            
            323,748Advertising
            
            
            59,395
            
            
            63,142
            
            
            109,965
            
            
            213,974Other
                expense
            
            
            439,170
            
            
            408,055
            
            
            1,334,246
            
            
            1,273,1922,157,256
            
            
            2,043,423
            
            
            6,403,346
            
            
            6,165,812**INCOME
                BEFORE INCOME TAXES**
            
            
            2,522,337
            
            
            1,757,922
            
            
            6,757,607
            
            
            4,676,767**PROVISION
                FOR INCOME TAXES**
            
            
            935,076
            
            
            601,548
            
            
            2,506,857
            
            
            1,536,225**NET
                INCOME**
            
            $
            1,587,261
            
            
            1,156,374
            
            
            4,250,750
            
            
            3,140,542**BASIC
                EARNINGS PER SHARE**
            
            $
            0.57
            
            
            0.41
            
            
            1.53
            
            
            1.12**DILUTED
                EARNINGS PER SHARE**
            
            $
            0.55
            
            
            0.40
            
            
            1.47
            
            
            1.08


See
      Notes to Condensed Consolidated Financial
      Statements


4





**GUARANTY
                FEDERAL BANCSHARES, INC.****CONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITY****NINE
                MONTHS ENDED SEPTEMBER 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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,250,750
            
            
            -
            
            
            4,250,750Change
                in unrealized appreciationon
                available-for-sale securities, netof
                income taxes of ($607,517)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,034,421
            )
            
            (1,034,421
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,216,329Dividends
                ($0.48 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,343,689
            )
            
            -
            
            
            (1,343,689
            )Stock
                award plans
            
            
            -
            
            
            22,397
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            22,397Stock
                options exercised
            
            
            7,466
            
            
            986,829
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            994,295Release
                of ESOP shares
            
            
            -
            
            
            236,351
            
            
            171,000
            
            
            -
            
            
            -
            
            
            -
            
            
            407,351Treasury
                stock purchased
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,721,144
            )
            
            -
            
            
            -
            
            
            (2,721,144
            )**Balance,
                September 30, 2005**
            
            $
            656,852
            
            
            53,630,419
            
            
            (1,629,930
            )
            
            (48,434,138
            )
            
            35,344,192
            
            
            1,781,407
            
            
            41,348,802




See Notes to Condensed Consolidated Financial
        Statements
 5





**GUARANTY
                FEDERAL BANCSHARES, INC.****CONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITY****NINE
                MONTHS ENDED SEPTEMBER 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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,140,542
            
            
            -
            
            
            3,140,542Change
                in unrealized appreciationon
                available-for-sale securitites, netof
                income taxes of ($7,205)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,268
            )
            
            (12,268
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,128,274Dividends
                ($0.47 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,316,469
            )
            
            -
            
            
            (1,316,469
            )Stock
                award plans
            
            
            -
            
            
            62,607
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            62,607Stock
                options exercised
            
            
            6,042
            
            
            684,242
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            690,284Release
                of ESOP shares
            
            
            -
            
            
            163,337
            
            
            173,000
            
            
            -
            
            
            -
            
            
            -
            
            
            336,337Treasury
                stock purchased
            
            
            -
            
            
            -
            
            
            -
            
            
            (748,781
            )
            
            -
            
            
            -
            
            
            (748,781
            )**Balance,
                September 30, 2004**
            
            $
            648,932
            
            
            52,240,388
            
            
            (1,857,930
            )
            
            (45,298,660
            )
            
            31,743,768
            
            
            2,653,875
            
            
            40,130,373


See Notes to Condensed Consolidated Financial
          Statements


6





**GUARANTY
                FEDERAL BANCSHARES, INC****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****NINE
                MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)****9/30/2005**
            
            **9/30/2004****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            4,250,750
            
            
            3,140,542Items
                not requiring (providing) cash:Deferred
                income taxes
            
            
            (353,743
            )
            
            (61,044
            )Depreciation
            
            
            575,243
            
            
            463,212Provision
                for loan losses
            
            
            705,000
            
            
            638,830Gain
                on loans and investment securities
            
            
            (1,032,708
            )
            
            (856,633
            )Loss
                on sale of premises and equipment
            
            
            1,925
            
            
            2,685(Gain)
                loss on sale of foreclosed assets
            
            
            (6,003
            )
            
            1,949Amortization
                of deferred income, premiums and discounts
            
            
            (101,496
            )
            
            55,147Stock
                award plan expense
            
            
            34,879
            
            
            42,690Origination
                of loans held for sale
            
            
            (33,023,273
            )
            
            (20,386,987
            )Proceeds
                from sale of loans held for sale
            
            
            33,872,947
            
            
            19,471,049Release
                of ESOP shares
            
            
            407,351
            
            
            336,337Changes
                in:Accrued
                interest receivable
            
            
            (372,663
            )
            
            (142,418
            )Prepaid
                expenses and other assets
            
            
            106,360
            
            
            (162,263
            )Accounts
                payable and accrued expenses
            
            
            348,545
            
            
            49,077Income
                taxes payable
            
            
            226,608
            
            
            (213,766
            )Net
                cash provided by operating activities
            
            
            5,639,722
            
            
            2,378,407**CASH
                FLOWS FROM INVESTING ACTIVITIES**Net
                increase in loans
            
            
            (49,452,917
            )
            
            (54,543,075
            )Principal
                payments on held-to-maturity securities
            
            
            210,353
            
            
            459,047Proceeds
                from maturities of available-for-sale securities
            
            
            6,000,000
            
            
            4,500,000Purchase
                of premises and equipment
            
            
            (794,779
            )
            
            (606,200
            )Proceeds
                from sale of premises and equipment
            
            
            4,200
            
            
            6,500Purchase
                of available-for-sale securities
            
            
            (6,444,433
            )
            
            (4,480,186
            )Proceeds
                from sale of available-for-sale securities
            
            
            572,383
            
            
            551,023Purchase
                of FHLB stock
            
            
            (1,078,300
            )
            
            (381,300
            )Proceeds
                from sale of foreclosed assets
            
            
            337,653
            
            
            376,488Net
                cash used in investing activities
            
            
            (50,645,840
            )
            
            (54,117,703
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Stock
                options exercised
            
            
            994,295
            
            
            690,284Cash
                dividends paid
            
            
            (1,351,151
            )
            
            (1,299,412
            )Cash
                dividends received on RRP stock
            
            
            -
            
            
            217Net
                increase (decrease) in demand deposits,NOW
                accounts and savings accounts
            
            
            (700,424
            )
            
            8,553,582Net
                increase in certificates of deposit and securities soldunder
                agreements to repurchase
            
            
            22,229,395
            
            
            27,238,428Proceeds
                from FHLB advances
            
            
            897,050,000
            
            
            156,000,000Repayments
                of FHLB advances
            
            
            (869,050,000
            )
            
            (149,750,948
            )Advances
                from borrowers for taxes and insurance
            
            
            667,629
            
            
            790,927Treasury
                stock purchased
            
            
            (2,721,144
            )
            
            (748,781
            )Net
                cash provided by financing activities
            
            
            47,118,600
            
            
            41,474,297**INCREASE
                (DECREASE) IN CASH AND CASH EQUIVALENTS**
            
            
            2,112,482
            
            
            (10,264,999
            )**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            15,896,458
            
            
            22,656,794**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            18,008,940
            
            
            12,391,795




See
      Notes to Condensed Consolidated Financial
      Statements


7


**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 this 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
      September 30, 2005, all of the RRP, RSP, 2000 SCP and 2001 SCP shares have
      been
      purchased and awarded. As of September 30, 2005, there are 3,447 shares that
      are
      not vested. The Company is amortizing the RRP, RSP and SCP expense over each
      participant’s vesting period. The Company recognized $34,879  and
      $42,690 of  expense
      under these stock award plans for the nine month periods ended September 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 September 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 September 30, 2005, there were 332,708
      unexercised options that have been granted at prices ranging from $6.02 to
      $26.50 per share and 225,503 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,
            
            Nine
                Months ended September 30,2005
            
            2004
            
            2005
            
            2004Net
                income, as reported
            
            $
            1,587,261
            
            
            1,156,374
            
            
            4,250,750
            
            
            3,140,542Less:
                Total stock-based employee compensationcost
                determined under the fair value-basedmethod,
                net of income taxes
            
            
            (9,361
            )
            
            (8,882
            )
            
            (27,248
            )
            
            (27,414
            )Pro
                forma net income
            
            $
            1,577,900
            
            
            1,147,492
            
            
            4,223,502
            
            
            3,113,128Earnings
                per share:Basic
                - as reported
            
            $
            0.57
            
            
            0.41
            
            
            1.53
            
            
            1.12Basic
                - pro forma
            
            $
            0.57
            
            
            0.41
            
            
            1.52
            
            
            1.11Diluted
                - as reported
            
            $
            0.55
            
            
            0.40
            
            
            1.47
            
            
            1.08Diluted
                - pro forma
            
            $
            0.54
            
            
            0.39
            
            
            1.46
            
            
            1.07





**Note
      4: Earnings Per Share**


For
                three months ended September 30, 2005
            
            For
                nine months ended September 30, 2005Income
                Available to Stockholders
            
            Average
                Shares Outstanding
            
            Per-share
            
            Income
                Available to Stockholders
            
            Average
                Shares Outstanding
            
            Per-shareBasic
                Earnings per Share
            
            $
            1,587,261
            
            
            2,764,303
            
            $
            0.57
            
            $
            4,250,750
            
            
            2,777,946
            
            $
            1.53Effect
                of Dilutive Securities:Stock
                Options
            
            
            
            
            
            134,696
            
            
            
            
            
            
            
            
            121,263Diluted
                Earnings per Share
            
            $
            1,587,261
            
            
            2,898,999
            
            $
            0.55
            
            $
            4,250,750
            
            
            2,899,209
            
            $
            1.47For
                three months ended September 30, 2004
            For
                nine months ended September 30, 2004Income
                Available to Stockholders
            
            
            
            
            
            Average
                Shares Outstanding
            
            
            Per-share
            
            
            Income
                Available to Stockholders
            
            
            Average
                Shares Outstanding
            
            
            Per-shareBasic
                Earnings per Share
            
            $
            1,156,374
            
            
            2,813,505
            
            $
            0.41
            
            $
            3,140,542
            
            
            2,803,065
            
            $
            1.12Effect
                of Dilutive Securities:Stock
                Options
            
            
            
            
            
            105,574
            
            
            
            
            
            
            
            
            104,602Diluted
                Earnings per Share
            
            $
            1,156,374
            
            
            2,919,079
            
            $
            0.40
            
            $
            3,140,542
            
            
            2,907,667
            
            $
            1.08


Options
      to purchase 1,500, 11,500, 25,000 and 25,000 shares of common stock were
      outstanding during the three-month and nine-month periods ended September 30,
      2005 and 2004, respectively, but were not included in the computation of diluted
      earnings per share because the options’ exercise price was greater that the
      average market price of the common shares.





9


**Note
      5: Other Comprehensive Income**


9/30/2005
            
            9/30/2004Unrealized
                gains (losses) on
            
            $
            (1,078,366
            )
            
            522,739available-for-sale
                securitiesLess:
                Reclassification adjustment forrealized
                (gains) losses included in income
            
            
            (563,572
            )
            
            (542,212
            )Other
                comprehensive income (loss),before
                tax effect
            
            
            (1,641,938
            )
            
            (19,473
            )Tax
                expense (benefit)
            
            
            (607,517
            )
            
            (7,205
            )**OTHER
                COMPREHENSIVE INCOME (LOSS)**
            
            $
            (1,034,421
            )
            
            (12,268
            )





**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
      the 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 September 30, 2005, and the results of operations for the three months and
      nine months ended September 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 $50,719,853 (12%) from $440,596,528 as of
      December 31, 2004, to $491,316,381 as of September 30, 2005.





Cash
      and
      cash equivalents increased $2,112,482 (13%) from $15,896,458 as of December
      31,
      2004, to $18,008,940 as of September 30, 2005. The increase is primarily due
      to
      a larger amount of uncollected funds on deposit with a correspondent bank as
      of
      September 30, 2005, compared to December 31, 2004.




Securities
      available-for-sale decreased $1,149,270 (8%) from $15,101,768 as of December
      31,
      2004, to $13,952,948 as of September 30, 2005. The Bank currently holds 59,000
      shares of Federal Home Loan Mortgage Corporation (“FHLMC”) stock with an
      amortized cost of $57,777 in the available-for-sale category. As of September
      30, 2005, the gross unrealized gain on the FHLMC stock was $3,273,363, a
      decrease from $4,945,012 as of December 31, 2004.





Securities
      held-to-maturity decreased primarily due to principal repayments by $210,899
      (16%) from $1,305,158 as of December 31, 2004, to $1,094,259 as of September
      30,
      2005.





Stock
      in
      Federal Home Loan Bank of Des Moines (“FHLB”) increased by $1,078,300 (21%), due
      to the purchase of such stock necessary to meet FHLB requirements.





Net
      loans
      receivable increased by $48,514,544 (12%) from $388,742,792 as of December
      31,
      2004, to $437,257,336 as of September 30, 2005. Commercial real estate loans
      increased by $22,339,255 (23%) from $97,549,770 as of December 31, 2004, to
      $119,889,025 as of September 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 $11,153,317 (9%), while residential loans
      sold decreased by $10,133,338 (8%). Loans held for sale decreased $380,538
      (11%)
      to $3,209,998 as of September 30, 2005, compared to $3,590,536 at December
      31,
      2004. The Bank continued to be active in construction lending. Construction
      loans increased by $23,453,447 (52%) to $68,543,705 as of September 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 $668,837 (15%) from $4,536,654 as of December 31,
      2004
      to $5,205,491 as of September 30, 2005. The allowance increased primarily due
      to
      the provision for loan losses of $705,000 recorded during this period exceeding
      net loan charge-offs of $36,163 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 Nine Month Periods Ended September
      30, 2005 and 2004 - Provision for Loan Losses.” The
      allowance for loan losses as of September 30, 2005 and December 31, 2004 was
      1.26% and 1.16%, respectively, of average net loans outstanding. As of September
      30, 2005, the allowance for loan losses was 155% of impaired loans compared
      to
      75% as of December 31, 2004.





Premises
      and equipment increased $213,411 (3%) from $7,188,867, as of December 31, 2004
      to $7,402,278 as of September 30, 2005, primarily due to the construction of
      a
      new branch facility, which was partially offset by depreciation recognized
      on
      these assets.




Deposits
      increased $21,288,649 (7%) from $296,387,742 as of December 31, 2004, to
      $317,676,391 as of September 30, 2005. For the nine months ended September
      30,
      2005, checking and savings accounts increased by $700,424 and certificates
      of
      deposits increased by $21,989,072(2%). The increase in certificates of deposit
      was primarily due to an increase in retail certificates of deposit of
      $17,426,542 (19%) and internet certificates of deposit of $4,049,882 (47%)
      during the period. See also the discussion under “Quantitative
      and Qualitative Disclosure about Market Risk - Asset/Liability
      Management.”





FHLB
      advances increased by $28,000,000 (28%) from $100,000,000 as of December 31,
      2004, to $128,000,000 as of September 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.





11


Advances
      from borrowers for taxes and insurance increased $667,629 (246%) from $271,796
      as of December 31, 2004, to $939,425 as of September 30, 2005 due to the
      difference in timing between the collection of taxes and insurance from
      borrowers and the subsequent payment of real estate taxes and insurance
      premiums.





Stockholders’
      equity (including unrealized appreciation on securities available-for-sale,
      net
      of tax) increased $575,539 (1%) from $40,773,263 as of December 31, 2004, to
      $41,348,802 as of September 30, 2005. This increase was primarily due to several
      factors. T he
      Company ’s net
      income during
      this period was $4,250,750, which was partially offset by dividends in the amount of $1,343,689
      which were (i) declared on March 16, 2005 and paid on April 14, 2005, to
      stockholders’ of record as of March 30, 2005, (ii) declared on June 16, 2005 and
      paid on July 15, 2005, to stockholders’ of record as of July 1, 2005, and (iii)
      declared on September 23, 2005 and paid on October 14, 2005 to stockholders’ of
      record as of October 1, 2005. In addition, the
      increase in stockholders’ equity was further increased by the exercise of stock
      options previously issued to the Company’s officers, employees and directors
      under its various stock plans and further offset by the
      Company’s repurchase of 116,069 shares of treasury stock at an aggregate cost of
      $2,721,144 (an average cost of $23.44 per share) and a decrease in unrealized
      appreciation on available-for-sale securities, net of taxes, of $1,034,421
      during this period. As of September 30, 2005, 69,016 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 $14.78 as of September 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


Nine
                months ended 9/30/2005
            
            Nine
                months ended 9/30/2004Average
                Balance
            
            Interest
            
            Yield
                / Cost
            
            Average
                Balance
            
            Interest
            
            Yield
                / Cost**ASSETS**Interest-earning:Loans
            
            $
            413,648
            
            
            19,020
            
            
            6.13
            %
            $
            357,839
            
            
            14,507
            
            
            5.41
            %Investment
                securities
            
            
            9,963
            
            
            307
            
            
            4.11
            %
            
            10,102
            
            
            216
            
            
            2.85
            %Other
                assets
            
            
            12,189
            
            
            226
            
            
            2.47
            %
            
            14,694
            
            
            183
            
            
            1.66
            %Total
                interest-earning
            
            
            435,800
            
            
            19,553
            
            
            5.98
            %
            
            382,635
            
            
            14,906
            
            
            5.19
            %Noninterest-earning
            
            
            19,329
            
            
            
            
            
            
            
            
            20,664$
            455,129
            
            
            
            
            
            
            
            $
            403,299**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Interest-bearing:Savings
                accounts
            
            $
            15,117
            
            
            141
            
            
            1.24
            %
            $
            16,946
            
            
            102
            
            
            0.80
            %Transaction
                accounts
            
            
            86,668
            
            
            966
            
            
            1.49
            %
            
            78,363
            
            
            545
            
            
            0.93
            %Certificates
                of deposit
            
            
            174,199
            
            
            4,055
            
            
            3.10
            %
            
            132,883
            
            
            2,872
            
            
            2.88
            %FHLB
                Advances
            
            
            109,576
            
            
            3,189
            
            
            3.88
            %
            
            111,443
            
            
            2,585
            
            
            3.09
            %Other
                borrowed funds
            
            
            1,239
            
            
            19
            
            
            2.04
            %
            
            959
            
            
            4
            
            
            0.56
            %Total
                interest-bearing
            
            
            386,799
            
            
            8,370
            
            
            2.89
            %
            
            340,594
            
            
            6,108
            
            
            2.39
            %Noninterest-bearing
            
            
            27,568
            
            
            
            
            
            
            
            
            23,259Total
                liabilities
            
            
            414,367
            
            
            
            
            
            
            
            
            363,853Stockholders’
                equity
            
            
            40,762
            
            
            
            
            
            
            
            
            39,446$
            455,129
            
            
            
            
            
            
            
            $
            403,299Net
                earning balance
            
            $
            49,001
            
            
            
            
            
            
            
            $
            42,041Earning
                yield less costing rate
            
            
            
            
            
            
            
            
            3.09
            %
            
            
            
            
            
            
            
            2.80
            %Net
                interest income, and net yield spreadon
                interest earning assets
            
            
            
            
            $
            11,183
            
            
            3.42
            %
            
            
            
            $
            8,798
            
            
            3.07
            %Ratio
                of interest-earning assets tointerest-bearing
                liabilities
            
            
            
            
            
            113
            %
            
            
            
            
            
            
            
            112
            %





**Results
      of Operations - Comparison of Three Month and Nine Month Periods Ended September
      30,**


**2005
      and 2004**





Net
      income for the three months and nine months ended September 30, 2005 was
      $1,587,261 and $4,250,750, respectively, as compared to $1,156,374 and
      $3,140,542, respectively, for the three months and nine months ended September
      30, 2004, which represents an increase in earnings of $430,887 (37%) for the
      three month period, and an increase in earnings of $1,110,208 (35%) for the
      nine
      month period.




13


**Interest
      Income**





Total
      interest income for the three months and nine months ended September 30, 2005,
      increased $1,899,154 (37%) and $4,647,721 (31%), respectively, as compared
      to
      the three months and nine months ended September 30, 2004. For the three month
      and nine month periods ended September 30, 2005 compared to the same periods
      in
      2004, the average yield on interest earning assets increased 109 basis points
      to
      6.29% and increased 79 basis points to 5.98%, respectively, and the average
      balance of interest earning assets increased $50,244,000 and $53,165,000,
      respectively.





**Interest
      Expense**





Total
      interest expense for the three months and nine months ended September 30, 2005,
      increased $1,006,464 (47%) and $2,261,953 (37%), respectively, when compared
      to
      the three months and nine months ended September 30, 2004. For the three month
      and nine month periods ended September 30, 2005 compared to the same periods
      in
      2004, the average cost of interest bearing liabilities increased 75 basis points
      to 3.14% and 50 basis points to 2.89%, respectively, and the average balance
      increased $43,208,000 and $46,205,000, respectively.





**Net
      Interest Income**





As
      a
      result of the interest income and interest expense for the three months and
      nine
      months ended September 30, 2005 as discussed above , net interest income for
      the
      three months and nine months ended September 30, 2005 increased $892,690 (29%)
      an $2,385,768 (27%), 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 $705,000 for
      the
      three months and nine months ended September 30, 2005, respectively, compared
      to
      $225,000 and $638,830 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 increased $558 and decreased $1,224 for the three months and nine months
      ended September 30, 2005, respectively, when compared to the three months and
      nine months ended September 30, 2004.





Service
      charges on transaction accounts decreased by $95,534 (18%) and $187,199 (13%)
      during the three months and nine months ended September 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 nine 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 nine month period ended September 30, 2005,
      compared to the same period in 2004.




Late
      charges and other fees decreased $35,538 (49%) and $108,656 (38%) for the three
      months and nine months ended September 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 nine month periods ended
      September 30, 2005, compared to the same period in 2004.





14


During
      the three months and nine months ended September 30, 2005, gain on sale of
      investments was $180,669 and $563,572, respectively, compared to gains of
      $192,799 and $542,212, 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
      $56.19 per share to $67.42 during the nine month period ended September 30,
      2005, compared to $56.76 per share to $67.63 per share during the same period
      in
      2004.





Gain
      on
      sale of loans increased $93,705 (81%) and $154,715 (49%) for the three months
      and nine months ended September 30, 2005, respectively, when compared to the
      same periods in 2004, which was the result of an increase in mortgage loans
      sold
      on the secondary market.





**Noninterest
      Expense**





Noninterest
      expense increased $113,833 (6%) and $237,534 (4%) for the three months and
      nine
      months ended September 30, 2005 when compared to the three months and nine
      months ended September 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 $333,528 (55%) and $970,632 (63%) in the provision for income
      taxes for the three months and nine months ended September 30, 2005,
      respectively, as compared to the same periods in 2004. These increases were
      due
      to an increase in before tax income of $764,415 and $2,080,840 for the three
      months and nine months ended September 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 September 30, 2005, was
      $5,205,491 or 1.3% of average net loans receivable. Total assets classified
      as
      substandard, doubtful or loss as of September 30, 2005, were $5,258,728 or
      1.1%
      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 September 30, 2005, $2,191,465 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.





9/30/2005
            
            12/31/2004
            
            12/31/2003Nonperforming
                loans
            
            $
            1,133
            
            
            1,007
            
            
            743Real
                estate acquired in settlement of loans
            
            
            25
            
            
            78
            
            
            6Total
                nonperforming assets
            
            $
            1,158
            
            
            1,085
            
            
            749Total
                nonperforming assets as a percentage of total assets
            
            
            0.24
            %
            
            0.25
            %
            
            0.19
            %Allowance
                for loan losses
            
            $
            5,205
            
            
            4,537
            
            
            3,886Allowance
                for loan losses as a percentage of average net loans
            
            
            1.26
            %
            
            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 September 30, 2005, the Bank had
      approximately $4,470,000 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 September 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 September 30, 2005, these accounts totaled
      $126,650,872 or 39% 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.


16





**Interest
      Rate Sensitivity Analysis**





The
      following table sets forth as of September 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.





BP
                Change
            
            Estimated
                Net Portfolio Value
            
            NPV
                as % of PV of Assetsin
                Rates
            
            $
                Amount
            
            $
                Change
            
            %
                Change
            
            NPV
                Ratio
            
            Change+300
            
            $
            32,857
            
            $
            (8,194
            )
            
            -20
            %
            
            8.75
            %
            
            -0.88
            %+200
            
            
            36,750
            
            
            (4,301
            )
            
            -10
            %
            
            9.34
            %
            
            -0.28
            %+100
            
            
            39,724
            
            
            (1,327
            )
            
            -3
            %
            
            9.69
            %
            
            0.06
            %NC
            
            
            41,051
            
            
            -
            
            
            -
            
            
            9.62
            %
            
            --100
            
            
            41,534
            
            
            483
            
            
            1
            %
            
            9.43
            %
            
            -0.20
            %-200
            
            
            41,569
            
            
            518
            
            
            1
            %
            
            9.21
            %
            
            -0.42
            %-300
            
            
            41,256
            
            
            205
            
            
            0
            %
            
            9.02
            %
            
            -0.61
            %





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, including such disclosure controls and procedures designed to ensure
      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
      September 30, 2005.





(b)
      There
      have been no changes
      in the Company’s internal control
      over financial reporting during the quarter ended September 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 third quarter ended September 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
                ProgramsJuly
                1, 2005 to July 31, 2005
            
            
            9,653
            
            
            24.54
            
            
            9,653
            
            
            74,375August
                1, 2005 to August 31, 2005
            
            
            5,359
            
            
            26.15
            
            
            5,359
            
            
            69,016September
                1, 2005 to September 30, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            69,016Total
            
            
            15,012
            
            
            25.12
            
            
            15,012





(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 Security Holders**


Not
      applicable.





**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. (Filed as Exhibit 10.18 to he Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2005 filed by the registrant
      on August 15, 2005 (SEC File No. 0-23325) and incorporated herein by
      reference)


10.19
            Written
                Description of Compensatory Arrangement with Carter
                Peters


10.20
            Resignation
                and Separtion Agreement and Release of All Claims between the Bank
                and
                Eldon Erwin dated September 23, 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


32.1CEO
      certification pursuant to Rule 13a - 14(b) and18
      U.S.C.
      Section 1350


32.2CFO
                certification pursuant to Rule 13a - 14(b) and18
                U.S.C. Section 1350





18





**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   November
      14, 2005


Shaun
      A.
      Burke


President
      and Chief Executive Officer


(Principal
      Executive Officer and Duly Authorized Officer)











/s/
      Bruce Winston  November
      14, 2005


Bruce
      Winston


Senior
      Vice President and Chief Financial Officer


(Principal
      Financial and Accounting Officer)


19