UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

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

                    For the quarter ended September 30, 1998

                                       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) 889-2494

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


                  Class                        Outstanding at November 12, 1998
                  -----                        --------------------------------
         Common Stock, Par Value $0.10                 5,916,745 Shares

<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC

                                    Form 10-Q

                                TABLE OF CONTENTS
Item                                                                    Page
                          PART I. Financial Information

1.  Consolidated Financial Statements (Unaudited):
         Statements of Financial Condition                               3

         Statements of Income                                            4

         Statements of Cash Flow                                         5

         Notes to Consolidated Financial Statements                      6

2.  Management's Discussion and Analysis of Financial Condition and      9
         Results of Operations

3. Quantitative and Qualitative Disclosures about Market Risk           16

                           PART II. Other Information

1.  Legal Proceedings                                                   20

2.  Changes in Securities and Use of Proceeds                           20

3.  Defaults Upon Senior Securities                                     20

4.  Submission of Matters to Vote of Security-holders                   20

5.  Other Information                                                   20

6.  Exhibits and Reports on Form 8-K                                    20

Signatures                                                              21


                                       2
<PAGE>

PART I

Item 1.  Financial Statements

                        GUARANTY FEDERAL BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                SEPTEMBER 30, 1998 (UNAUDITED) AND JUNE 30, 1998

                                     ASSETS
<TABLE>
<CAPTION>
                                                                September 30,         June 30,
                                                                    1998                1998    
                                                               ------------       ------------- 
<S>                                                          <C>                 <C>           
Cash                                                         $    1,154,447      $      846,691
Interest-bearing deposits in other financial institutions         4,198,745           6,458,232
                                                               ------------        ------------
         Cash and cash equivalents                                5,353,192           7,304,923

Available-for-sale securities                                     5,311,570           4,765,021
Held-to-maturity securities                                       8,766,345           8,922,389
Mortgage-backed securities, held-to-maturity                     10,572,092          11,948,654
Mortgage-backed securities, available-for-sale                    8,905,766           9,055,658
Mortgage loans held for sale                                      1,382,581             805,183
Loans receivable, net                                           223,458,624         205,414,561
Accrued interest receivable:
         Loans                                                    1,252,297           1,188,162
         Investments                                                119,632             252,865
         Mortgage-backed securities                                 148,784             163,117
Prepaid expenses and other assets                                 3,910,653           2,503,055
Foreclosed assets held for sale                                       7,300             286,000
Premises and equipment                                            7,361,818           7,432,971
                                                               ------------        ------------
                                                             $  276,550,654      $  260,042,559
                                                               ============        ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits                                                     $  134,346,556      $  140,975,336
Federal Home Loan Bank advances                                  72,709,434          45,081,028
Advances from borrowers for taxes and insurance                   1,309,475             870,476
Accrued expenses and other liabilities                            1,657,452             513,943
Accrued interest payable                                            391,681             256,975
Income taxes payable                                                785,249             417,532
Deferred income taxes                                             1,215,737           1,237,171
                                                               ------------        ------------
         Total Liabilities                                      212,415,584         189,352,461
                                                               ------------        ------------

STOCKHOLDERS' EQUITY
Capital Stock
      Common stock, $0.10 par value; authorized
      10,000,000 shares; issued 6,228,035 shares                    622,804             622,804
Additional paid-in capital                                       46,777,412          49,016,992
Unearned ESOP shares                                             (3,444,540)         (3,444,540)
Retained earnings, substantially restricted`                     21,534,374          21,682,950
Accumulated other comprehensive income
      Unrealized appreciation on available-for-sale
      securities, net of income taxes of $1,718,009 
      and $1,651,429 at September 30, 1998 and 
      June 30, 1998, respectively                                 2,925,258           2,811,892
                                                               ------------        ------------
                                                                 68,415,308          70,690,098
      Treasury stock, at cost - 311,290 shares                   (4,280,238)                 --
                                                               -------------       ------------
         Total Stockholders' Equity                              64,135,070          70,690,098
                                                               ------------        ------------
                                                             $  276,550,654      $  260,042,559
                                                               ============        ============
</TABLE>

See Notes to Consolidated Financial Statements

                                       3
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC

                        CONSOLIDATED STATEMENTS OF INCOME

           THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
                                                            1998                1997
                                                         ------------    ------------
<S>                                                     <C>             <C>          
INTEREST INCOME
Loans                                                   $   4,383,216   $   3,451,331
Investment securities                                          84,446          97,250
Mortgage-backed securities                                    348,157         297,898
Other                                                         118,070          93,023
                                                        -------------    ------------
       Total Interest Income                                4,933,889       3,939,502
                                                        -------------    ------------

INTEREST EXPENSE
Deposits                                                    1,586,184       1,830,713
Federal Home Loan Bank advances                               915,979         357,445
                                                        -------------    ------------
       Total Interest Expense                               2,502,163       2,188,158
                                                        -------------    ------------
Net Interest Income                                         2,431,726       1,751,344
Provision for Loan Losses                                      45,000          33,352
                                                        -------------    ------------
Net Interest Income after
       Provision for Loan Losses                            2,386,726       1,717,992
                                                        -------------    ------------

NONINTEREST INCOME (LOSS)
Service charges                                               205,900         120,895
Late charges and other fees                                    25,388          25,262
Gain on loans, investment
    securities and mortgage-backed securities                   9,750          38,131
Expense on foreclosed assets                                   (6,170)            (92)
Other income                                                   36,040          27,270
                                                        -------------    ------------
       Total Noninterest Income                               270,908         211,466
                                                        -------------    ------------

NONINTEREST EXPENSE
Salaries and employee benefits                                773,845         581,274
Occupancy                                                     174,330         163,256
SAIF deposit insurance premiums                                22,374          22,970
Data processing fees                                          116,318          87,312
Advertising                                                   107,896          87,042
Other expense                                                 215,034         178,909
                                                        -------------    ------------
       Total Noninterest Expense                            1,409,797       1,120,763
                                                        -------------    ------------
Income before Income Taxes                                  1,247,837         808,695
Provision for Income Taxes                                    449,734         292,192
                                                        -------------    ------------
NET INCOME                                                    798,103         516,503

OTHER COMPREHENSIVE INCOME
       Unrealized appreciation on available-for-sale
          securities, net of income taxes of  $66,580
          and $8,880 for 1998 and 1997, respectively          113,366          15,120
                                                        -------------    ------------
COMPREHENSIVE INCOME                                    $     911,469   $     531,623
                                                        =============    ============
BASIC AND DILUTED
       EARNINGS PER SHARE                               $        0.14   $         n/a
                                                        =============    ============

</TABLE>

See Notes to Consolidated Financial Statements

                                       4
<PAGE>


                        GUARANTY FEDERAL BANCSHARES, INC

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

           THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
                                                           1998               1997
                                                        ----------        ----------
<S>                                                  <C>               <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                         $    798,103      $    516,503
   Items not requiring (providing) cash:
       Deferred income taxes                               (92,984)            1,192
       Depreciation                                         97,240           109,435
       Gain on loans, investment securities
         and mortgage-backed securities                     (9,750)          (38,131)
       Gain of sale of foreclosed assets                      (138)                0
       Amortization of deferred income, premiums 
          and discounts                                      1,438            (2,318)
       Provision for loan losses                            45,000            33,352
   Origination of loans held for sale                   (2,316,051)       (1,832,623)
   Proceeds from sale of loans held for sale             1,748,403         2,632,509
   RRP/RSP expense                                         133,485            22,247
   Changes in:
       Accrued interest receivable                          83,431            24,397
       Prepaid expenses and other assets                (1,407,598)          (88,030)
       Accounts payable and accrued expenses               331,536           615,276
       Income taxes payable                                367,717           165,913
                                                        ----------      ------------
         Net cash provided by (used in)
           operating activities                           (220,168)        2,159,722
                                                        ----------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Net increase in loans                               (18,073,801)      (10,502,891)
   Principal payments on mortgage-backed securities,
       available-for-sale                                  121,110                 0
   Principal payments on mortgage-backed securities,
       held-to-maturity                                  1,376,562           796,912
   Purchase of premises and equipment                      (26,087)          (78,974)
   Purchase of available-for-sale securities              (345,176)                0
   Proceeds from maturities of
       held-to-maturity securities                         168,369         2,090,310
   Proceeds from sale of foreclosed assets                 262,138                 0
                                                       -----------      ------------
         Net cash used in investing activities         (16,516,885)       (7,694,643)
                                                       ------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Cash dividends paid                                           0          (687,500)
   Cash dividends received on RRP stock                          0             1,842
   Net increase in demand deposits,
       NOW accounts and savings accounts                 1,507,899         3,878,115
   Net decrease in certificates of deposit              (8,136,679)       (8,046,119) 
Proceeds from FHLB advances                             29,840,000        18,000,000
   Repayments of FHLB advances                          (2,211,594)       (4,009,874)
   Advances from borrowers for taxes and insurance         438,999           190,162
   RSP stock purchased                                  (2,373,065)                0
   Treasury stock purchased                             (4,280,238)                0
   Stock options exercised                                       0             1,788
                                                       -----------       -----------
       Net cash provided by financing activities        14,785,322         9,328,414
                                                       -----------      ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        (1,951,731)        3,793,493

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           7,304,923         3,817,351
                                                       -----------       -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD              $  5,353,192      $  7,610,844
                                                      ============      ============

</TABLE>

See Notes to Consolidated Financial Statements

                                       5
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1:  Conversion, Reorganization and Stock Issuance

     Guaranty Federal Bancshares, Inc. completed the conversion from a federally
chartered mutual holding company,  (formerly Guaranty Federal Bancshares,  M. H.
C.) to a  Delaware-chartered  stock  corporation on December 30, 1997.  Guaranty
Federal Bancshares,  Inc. exchanged 1,880,710 shares of its common stock for all
the Bank's common stock not held by Guaranty Federal  Bancshares,  M. H. C. This
exchange ratio was 1.931. In addition  4,340,812 shares at $10.00 per share were
sold in the stock  offering,  including  344,454  shares to the  employee  stock
ownership  plan ( the "ESOP").  Costs  related to the stock  issuance  have been
applied  to reduce  the  gross  proceeds,  resulting  in net  proceeds  from the
offering of $39.2 million.  Total shares of common stock  outstanding  following
the offering and exchange was 6,221,522.

         In April  1995  Guaranty  Federal  Savings  and Loan  Association  (the
"Association")  reorganized  from a federally  chartered mutual savings and loan
association into a federal mutual holding company,  Guaranty Federal Bancshares,
M.  H.  C.  (the  "MHC").  As  part  of  the  reorganization,   the  Association
incorporated a de novo federally  chartered stock savings bank, Guaranty Federal
Savings  Bank  (the  "Bank")  and  transferred  most of its  assets  and all its
liabilities  to the Bank. The Bank issued  3,125,000  shares of its common stock
(par value $1.00) of which  972,365  shares were sold to parties  other than the
MHC, thus creating a minority  ownership interest in the Bank. The shares had an
initial public offering price of $8 per share, resulting in gross sales proceeds
of $7,778,920.  Costs related to the stock issuance,  which have been applied to
reduce the gross proceeds,  were $654,388.  Also $100,000 was transferred to the
MHC for the initial capitalization in connection with reorganization.

Note 2:  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.

                                       6
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 2:  Basis of Presentation, continued

           Operating  results for the  three-month  periods ended  September 30,
1998  and  1997,  are not  necessarily  indicative  of the  results  that may be
expected for the full year.  Prior to December 30, 1997, the Company  engaged in
no  significant  business  activity  other than  formation  activities.  Between
December 30, 1997 and September 30, 1998, the Company  engaged in no significant
business  activity  other  than  ownership  of the  common  stock  of the  Bank.
Accordingly, all consolidated financial statements for periods prior to December
30, 1997,  relate solely to the Bank and Guaranty  Financial  Services,  Inc. of
Springfield,  a wholly owned  subsidiary  of the Bank.  For further  information
refer to the  Company's  June 30,  1998,  Form 10-K  which  was  filed  with the
Securities  and  Exchange  Commission  and  includes a  complete  set of audited
financial statements through June 30, 1998.

Note 3:  Principles of Consolidation

         As more fully described in Note 1, the Company is a  Delaware-chartered
stock corporation organized to facilitate the conversion from the mutual holding
company  form of  ownership  of the Bank to the stock  holding  company  form of
ownership  of the  Bank  and  hold all of the  capital  stock  of the  Bank.  In
connection with the conversion, Guaranty Federal Bancshares, M. H. C., which had
owned 69% of the common  stock of the Bank,  was merged  with and into the Bank,
and its shares of the Bank were canceled.

         The  consolidated  financial  statements  include  the  accounts of the
Company,  its  wholly-owned  subsidiary,  Guaranty  Federal Savings Bank and the
wholly-owned subsidiary of the Bank, Guaranty Financial Services of Springfield,
Inc. Significant  intercompany accounts and transactions have been eliminated in
consolidation.

Note 4:  Earnings Per Share

         As more fully  described  in the  preceding  Notes,  the Company had no
operations prior to December 30, 1997 and earnings per share information for the
common stock of the Company for the three months  ended  September  30, 1997 has
not been presented because the information would not be meaningful.

                                       7
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
Note 4: Earnings Per Share,continued
                                      For three months ended September 30, 1998
                                           Income        Shares     Per-share
                                           --------      ------     ---------
Basic EPS
Income available to common stockholders    $798,103      5,683,949    $0.14
                                                                      =====

Effect of Dilutive Securities
Stock options                                               70,265
RRP/RSP shares                                              19,011
                                          ---------       --------
Income available to common stockholders    $798,103      5,773,225    $0.14
                                           ========      =========    =====

Options to purchase  5,000  shares and 436,347  shares of common stock at $12.63
per share and $13.44 per share,  respectively were outstanding  during the three
months ended  September 30, 1998,  but were not included in the  computation  of
diluted EPS because the  options'  exercise  price was greater  than the average
market price of the common shares.

Note 5:  Benefit Plans

         On October 18, 1995,  the Bank'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 the 1998 Restricted Stock
Plan  ("  RSP")  and  1998  Stock  Option  Plan  ("1998  SOP").  The RRP and RSP
authorized shares to be issued to directors, officers and employees of the Bank.
As of September 30, 1998,  all of the RRP and RSP shares have been purchased and
all except 9,338 shares have been awarded.  The Bank is  amortizing  the RRP and
RSP expense over each participant's  vesting period and the financial statements
reflect RRP and RSP expense of $133,485 and $22,247 for the three month  periods
ended September 30, 1998 and 1997, respectively. The SOP and 1998 SOP authorized
stock  options on shares to be issued to officers and  employees of the Bank. As
of September  30,  1998,  all options  except  those on 32,295  shares have been
granted.  The RRP,  RSP, SOP and 1998 SOP vest over a five year period.  The RRP
and SOP have been adjusted to reflect the conversion,  reorganization  and stock
issuance  described in Note 1 with all vesting periods remaining  unchanged.  At
September  30,  1998,  there were  579,756  unexercised  options  that have been
granted at prices ranging from $5.83 to $13.44 per share and 213,612 RRP and RSP
shares were unvested.

Note 6:  New Accounting Pronouncements

         During the quarter ending  September 30, 1998, the Company adopted SFAS
130, "Reporting  Comprehensive Income." This Statement establishes standards for
reporting and display of comprehensive income and its components in a set of
financial statements.


                                       8
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

General

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

         However,  because the conversion,  reorganization and stock issuance of
the  Company,  the Bank and related  entities  did not occur until  December 30,
1997,  all results  prior to that date  reflect the accounts of the Bank and its
subsidiary.  The Company  realized  approximately  $39.2 million in net proceeds
from the stock issuance of which the Company  provided $19.9 million to the Bank
as capital and the Company provided a loan of $3.44 million to fund the purchase
of stock for the  employee  stock  ownership  plan.  Other than the loan for the
ESOP, most of the funds received have been invested in loans.

         The primary  function of the Company has been to monitor its investment
in the Bank,  as a result,  the results of  operation 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  salary and  benefits,  occupancy
expenses and other  expenses.  The  following  discussion  reviews the financial
condition at September  30, 1998,  and the results of  operations  for the three
months ended September 30, 1998 and 1997.

         The discussion set forth below,  as well as other portions of this Form
10-Q,  may contain  forward-looking  comments.  Such comments are based upon the
information  currently  available to management of the Company and  management's
perception  thereof  as of the  date of the Form  10-Q.  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 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;  and the ability to discover
and correct potential Year 2000 problem, which is discussed later.


                                       9
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Financial Condition

         The  Company's  total  assets  increased  $16,508,095,  or  6.3%,  from
$260,042,559 as of June 30, 1998, to $276,550,654 as of September 30, 1998.

         Interest-bearing  deposits in other  financial  institutions  decreased
$2,259,487,  or 35.0% from  $6,458,232  as of June 30, 1998, to $4,198,745 as of
September  30,  1998.  This was due to funds being  invested  in other  interest
earning assets, primarily loans.

         Securities   available-for-sale   increased  $546,549,  or  11.5%  from
$4,765,021  as of June  30,  1998,  to  $5,311,570  as of  September  30,  1998,
primarily  due  to  the  purchase  of  various  equity  securities.   Securities
held-to-maturity  decreased due to principal  repayments,  by $156,044, or 1.7%,
from $8,922,389 as of June 30, 1998 to
 $8,766,345 as of September 30, 1998.  The Bank  continues to hold 96,000 shares
of  Federal  Home Loan  Corporation  ("FHLMC")  stock with a  amortized  cost of
$94,000 in the available-for-sale  category. As of September 30, 1998, the gross
unrealized  gain on the stock was  $4,652,240 an increase from  $4,424,000 as of
June 30, 1998.

         Mortgage-backed securities, held-to-maturity,  decreased $1,376,562, or
11.5%, from $11,948,654 as of June 30, 1998, to $10,572,092, as of September 30,
1998.  Mortgage-backed  securities,  available-for-sale,  decreased $149,892, or
1.7% from  $9,055,658  as of June 30, 1998,  to  $8,905,766  as of September 30,
1998. The decrease is attributable  to prepayments  received on various pools of
mortgage-backed securities during the three months ending September 30, 1998.

         Net  loans   receivable   increased  by  $18,044,063,   or  8.8%,  from
$205,414,561,  as of June 30, 1998, to  $223,458,624,  as of September 30, 1998,
and loans  held-for-sale  increased by $577,398,  or 71.7%,  from $805,183 as of
June 30, 1998 to $1,382,581 as of September 30, 1998. Growth consisted primarily
of loans secured by both owner and non-owner  occupied  residential real estate,
which  increased by  $14,096,000.  Growth in loans  receivable is anticipated to
continue and represents a major part of the Bank's planned assets growth.

         Allowance for loan losses increased  $56,693 or 2.6% from $2,191,557 as
of June 30,  1998,  to  $2,248,250  as of  September  30,  1998.  The  allowance
increased  due to an  increase  in the  provision  for loan  losses,  as well as
experiencing  recoveries in excess of charge-offs for the period.  The allowance
for loan losses as of  September  30, 1998 and June 30, 1998 was 1.0%,  and 1.1%
respectively,  of net loans outstanding. As of September 30, 1998, the allowance
for loan losses was 281.4% of  nonperforming  loans versus 216.6% as of June 30,
1998.


                                       10
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Financial Condition, continued

         Fair value of foreclosed  assets  held-for-sale  decreased  $278,700 or
97.4% from  $286,000 as of June 30, 1998,  to $7,300 as of  September  30, 1998.
This decrease was due to the sale of three duplexes and a partially  constructed
single-family residence. These properties were sold at their book value.

         Premises and equipment  decreased $71,153,  or 1.0%, from $7,432,971 as
of June 30, 1998, to  $7,361,818 as of September 30, 1998,  primarily due to the
depreciation recorded for the period ended September 30, 1998.

         Deposits  decreased  $6,628,780,  or 4.7%, from $140,975,336 as of June
30, 1998, to  $134,346,556 as of September 30, 1998. For the three months ending
September 30, 1998,  checking and passbook accounts increased by $1,507,899,  or
4.1%,  while  certificates  of deposits  decreased by  $8,136,679,  or 7.8%. The
majority of this increase in checking and passbook accounts can be attributed to
an  aggressive  marketing  campaign  initiated in early 1997 designed to attract
checking  deposit  customers.  The  decrease in  certificates  of deposit can be
attributed to management's  decision to allow high cost  certificates of deposit
accounts  to run off and replace  these  funds with FHLB  advances at an overall
lower marginal cost.

         As a result of the decrease in deposits,  and the continued increase in
loan demand,  FHLB advances increased  $27,628,406 or 61.3%, from $45,081,028 as
of June 30, 1998, to  $72,709,434  as of September 30, 1998. As of September 30,
1998,  the Bank had the ability to borrow an  additional  $70.0 million from the
FHLB.

         Accrued expenses and other liabilities  increased  $1,143,509 or 222.5%
from $513,943 as of June 30, 1998,  to $1,657,452 as of September 30, 1998.  The
majority  of this  increase  is due to a $0.16 per  share  dividend  payable  on
October 15, 1998 to stockholders of record September 8, 1998, totaling $946,679.

         Stockholders' equity (including  unrealized  appreciation on securities
available-for-sale,  net of tax) decreased $6,555,028, or 9.3%, from $70,690,098
as of June 30, 1998, to $64,135,070 as of September 30, 1998.  This decrease was
due to several factors.  In connection with the RSP,  $2,373,065 was contributed
to  purchase  173,632  shares of Company  stock,  which was  accounted  for as a
reduction of  stockholders'  equity.  In addition,  a total of 311,290 shares of
treasury  stock  were  purchased  in the open  market  at a cost of  $4,280,238.
Finally,  dividends in the amount of $946,679 ($0.16 per share) were declared as
discussed  above.  On a per share basis,  stockholders'  equity  decreased  from
$12.01 as of June 30, 1998 to $11.51 as of September 30, 1998.



                                       11
<PAGE>


                        GUARANTY FEDERAL BANCSHARES, INC.

Results of Operations - Comparison of Three Month Periods
Ended September 30, 1998 and 1997

         Net income for the three months ended  September 30, 1998 was $798,103,
as compared to net income of $516,503 for the three months ended  September  30,
1997 which  represents  a increase in earnings of  $281,600,  or 54.5%,  for the
three month period.

Interest Income

         Total  interest  income for the three months ended  September 30, 1998,
increased  $994,387 or 25.2% as compared to the three months ended September 30,
1997. For the three month period,  the average yield on interest  earning assets
decreased 52 basis points to 7.71% and the average balance outstanding increased
$64,541,000.

Interest Expense

         Total interest  expense for the three months ended  September 30, 1998,
increased  $314,005 or 14.4% when  compared to the three months ended  September
30,  1997.  For the three month  period,  the average  cost of interest  bearing
liabilities  decreased  4 basis  points  to  5.18%  while  the  average  balance
outstanding increased $25,399,000.

Net Interest Income

         Net  interest  income for the three months  ended  September  30, 1998,
increased  $680,382,  or 38.8% when compared to the three months ended September
30,  1997.  The  increase in net  interest  income was the result of the greater
increase in interest earning assets of $64,541,000,  compared to the increase in
interest bearing  liabilities of $25,399,000.  This difference was primarily due
to the inflow of cash from the stock conversion, which was converted to interest
earning  assets,  primarily in the form of loans  originated  by the Bank.  This
resulted in an increase in net interest income even though the yield on interest
earning assets decreased by 52 basis points, compared to the decrease of 4 basis
points on interest bearing liabilities.


                                       12

<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Provision for Loan Losses

          Based  primarily  on  the  continued  growth  of the  loan  portfolio,
management  decided to increase  the loan loss reserve  through a provision  for
loan loss of $45,000 for the three months ended September 30, 1998,  compared to
$33,352 for the three months ended September 30, 1997. The Bank will continue to
monitor  its  allowance  for loan  losses  and make  future  additions  based on
economic and  regulatory  conditions.  Although the Bank maintains its allowance
for loan losses at a level which it  considers to be  sufficient  to provide for
potential  losses,  there can be no assurance that future losses will not exceed
internal estimates.  In addition, the amount of the allowance for loan losses is
subject to review by regulatory  agencies which can order the  establishment  of
additional loss provisions.

Noninterest Income

         Noninterest  income  increased  $59,442  for  the  three  months  ended
September  30, 1998, or 28.1%  compared to the three months ended  September 30,
1997.  The  increase  was  primarily  due to the  increase in  checking  account
customers  which has resulted in more service charge income.  Service charges on
checking  accounts  increased  $85,005 for the three months ended  September 30,
1998, or 70.3% compared to the three months ended September 30, 1997.

Noninterest Expense

         Noninterest  expense  increased  $289,034  for the three  months  ended
September  30, 1998, or 25.8%,  as compared to the three months ended  September
30, 1997. In general this increase can be attributed to the overall  increase in
accounts served, in addition to the added costs associated with the ESOP and RSP
that were formed in connection with the conversion.

          Salaries and employee benefits increased $192,571 for the three months
ended  September 30, 1998,  or 33.1%,  when compared to the same period in 1997.
This  included an increase in RRP/RSP  expense of $111,238  for the three months
ended  September 30, 1998, or 500.0%,  when compared to the same period in 1997,
as well as the  addition  of  $70,410  for the ESOP  expense.  There was no ESOP
expense for the same period in 1997. Data processing expenses increased $29,006,
or 33.2%, and advertising  expense  increased  $20,854,  or 24.0%, for the three
months ended September 30, 1998, when compared to the same period in 1997. These
increases  in data  processing  and  advertising  expenses  for the period  were
primarily  due to the  increased  volume of  transactions  handled and increased
promotional activities, respectively.

                                       13
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Provision for Income Taxes

         There was a $157,542 increase in the provision for income taxes for the
three months ended  September  30, 1998, as compared to the same period in 1997.
This  increase was due to the increase in before tax income for the three months
ended September 30, 1998, compared to the same period in 1997.

Nonperforming Assets

         The allowance for loan losses is calculated based upon an evaluation of
pertinent  factors  underlying  the  various  types and  quality  of the  loans.
Management  considers  such  factors  as the  repayment  status  of a loan,  the
estimated net  realizable  value of the  underlying  collateral,  the borrower's
intent and ability to repay the loan,  local economic  conditions and the Bank's
historical loss ratios. The Bank's allowance for loan losses as of September 30,
1998, was  $2,248,250 or 1.0% of loans  receivable.  Total assets  classified as
substandard or loss as of September 30, 1998,  were  $1,455,645 or 0.5% of total
assets.  Management has considered  nonperforming and total classified assets in
evaluating the adequacy of the Bank's allowance for loan losses.

         The ratio of  nonperforming  assets to total  assets is another  useful
tool in  evaluating  exposure to credit risk.  Nonperforming  assets of the Bank
include  nonperforming  loans  (nonaccruing  loans) and  assets  which have been
acquired as a result of foreclosure or deed-in-lieu of foreclosure.
         .
                                           9/30/98      6/30/98      6/30/97
                                           -------      -------      -------
                                                  (Dollars In Thousands)
   Nonperforming loans                    $   799       $  1,012     $   1,257
   Real estate acquired in
   settlement of loans                          7            286           210
                                           -------       --------      ------- 

   Total Nonperforming Assets             $   806       $  1,298     $   1,467
                                          =======        =======       =======
   Total Nonperforming Assets
   as a Percentage of Total
   Assets                                    0.29%          0.50%          .74%
   Allowance for loan losses              $ 2,248       $  2,191     $   2,177
   Allowance for loan losses as a
   Percentage of average loans, net          1.04%          1.24%         1.49%



                                       14
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Asset/Liability Management

         The goal of the  Bank's  asset/liability  policy is to manage  interest
rate risk so as to maximize net interest  income over time in changing  interest
rate  environments.  Management  monitors the Bank's net  interest  spreads (the
difference  between  yields  received  on assets and paid on  liabilities)  and,
although  constrained by market  conditions,  economic  conditions,  and prudent
underwriting standards, it offers deposit rates and loan rates that maximize net
interest  income.  Management  also  attempts  to fund the  Bank's  assets  with
liabilities of a comparable duration to minimize the impact of changing interest
rates on the Bank's net  interest  income.  Since the  relative  spread  between
financial assets and liabilities is constantly changing,  the Bank's current net
interest income may not be an indication of future net interest income.

         The  Bank's  initial  efforts  to manage  interest  rate risk  included
implementing an adjustable  rate mortgage loan ("ARM") program  beginning in the
early 1980s. The ARMs have met with excellent  customer  acceptance.  As of June
30, 1998, ARMs constituted 71.0% of the Bank's mortgage loan portfolio.  However
during the first  quarter of fiscal year 1999,  the general  level of  long-term
interest  rates  dropped and  borrowers  opted for fixed rate  mortgages.  As of
September 30, 1998,  ARMs  represent  66.9% of the loan  portfolio.  Of the ARMs
originated  during the first  quarter of fiscal year 1999,  borrowers  preferred
initial fixed rate periods of three or five years.  In response to this shift in
customer preference,  the Bank has continued a program of borrowing  longer-term
funds from the FHLB.

         The Bank is also  managing  interest  rate risk by the  origination  of
construction  loans.  As of September 30, 1998,  such loans made up 14.9% of the
Bank's loan  portfolio.  In general,  these  loans have higher  yields,  shorter
maturities and greater interest rate sensitivity than other real estate loans.

         The Bank  constantly  monitors  its  deposits  in an effort to decrease
their interest rate sensitivity.  Rates of interest paid on deposits at the Bank
are priced competitively in order to meet the Bank's asset/liability  management
objectives  and spread  requirements.  As of June 30, 1998,  the Bank's  savings
accounts,   checking  accounts,   and  money  market  deposit  accounts  totaled
$36,855,202  or 26.1% of its total  deposits.  As of September  30, 1998,  these
accounts  totaled  $38,363,101  or 28.5% of total  deposits.  The Bank believes,
based on  historical  experience,  that a  substantial  portion of such accounts
represents non-interest rate sensitive, core deposits.

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


                                       15
<PAGE>


                       GUARANTY FEDERAL BANCSHARES, INC.
Interest Rate Sensitivity Analysis

         The  following  table sets forth as of June 30,  1998 (the most  recent
available), OTS estimate of the projected changes in net portfolio value ("NPV")
in the event of 100,  200,  300,  and 400 basis point ("bp")  instantaneous  and
permanent  increases and decreases in market interest rates.  Dollar amounts are
expressed in thousands.

BP Change       Estimated Net Portfolio Value        NPV as % of PV Assets
in Rates       $ Amount   $ Change    % Change       NPV Ratio  BP Change
----------     --------    --------    --------      ---------  ---------

+400 bp      $   49,632  $ (7,222)     -13%            20.4%     -122 bp
+300             52,616    (4,238)      -7%            21.2%      -48 bp
+200             54,977    (1,877)      -3%            21.7%        0 bp
+100             56,440      (414)      -1%            21.8%      +18 bp
NC               56,854                                21.7%
-100             56,296      (558)      -1%            21.2%      -48 bp
-200             54,719    (2,135)      -4%            20.4%     -131 bp
-300             53,423    (3,431)      -6%            19.6%     -206 bp
-400             52,107    (4,747)      -8%            18.8%     -283 bp

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

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

                                       16
<PAGE>

                       GUARANTY FEDERAL BANCSHARES, INC.

Interest Rate Sensitivity Analysis, continued

         The Bank's Board of Directors is  responsible  for  reviewing the asset
and liability  policies.  The Board meets quarterly to review interest rate risk
and trends, as well as liquidity and capital ratios and requirements. The Bank's
management is responsible for administering  the policies and  determinations of
the Board of Directors with respect to the Bank's asset and liability  goals and
strategies.  Management expects that the Bank's asset and liability policies and
strategies  will  continue  as  described  above  so  long  as  competitive  and
regulatory  conditions in the financial institution industry and market interest
rates continue as they have in recent years.

Liquidity and Capital Resources

         The  Bank's  primary  sources  of funds  are  deposits,  principal  and
interest  payments on loans,  and  securities  and extensions of credit from the
Federal  Home  Loan  Bank of Des  Moines.  While  scheduled  loan  and  security
repayments and the maturity of short-term  investments are somewhat  predictable
sources of funding,  deposit  flows are  influenced  by many factors  which make
their  cash  flows  difficult  to  anticipate.   Office  of  Thrift  Supervision
regulations  require the Bank to maintain  cash and eligible  investments  in an
amount equal to at least 4% of customer  accounts and  short-term  borrowings to
assure its ability to meet demands for  withdrawals  and repayment of short-term
borrowings.  As of September  30, 1998,  the Bank's  liquidity  ratio was 17.6%,
which exceeded the minimum regulatory requirement.

         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. At September 30, 1998,
the Bank had approximately $4,568,000 in commitments to originate mortgage loans
and $14,785,000 in loans-in-process on mortgage loans. These commitments will be
funded  through  existing  cash  balances,  cash flow from  operations  and,  if
required,  FHLB advances . Management  believes that  anticipated cash flows and
deposit growth will be adequate to meet the Bank's liquidity needs.

                                       17

<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Impact of Year 2000

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

         Our own  computers.  The Bank expects to spend  approximately  $190,000
($137,000  for hardware,  $38,000 for software and $15,000 in  consulting  fees)
through  June 30, 1999 to upgrade  our  computer  systems.  These  upgrades  are
expected to eliminate the Year 2000 risk in our  computers.  We do not expect to
have  material  costs to address this risk area after  December 31, 1998.  As of
September  30,  1998,  the Bank has spent  approximately  $25,500  ($22,500  for
hardware  and $3,000 for  software) to fix Year 2000  problems.  We expect to be
Year 2000 compliant in this risk area by June 30, 1999.

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

         Computers of others who provide us with data processing services.  This
risk is primarily focused on one third-party service bureau that provides all of
the  Bank's  core data  processing.  This  service  bureau  advises  that it has
completed  program changes required for Year 2000  processing.  If these program
changes are not correct before the year 2000,  the Bank would likely  experience
significant delays,  mistakes, or failures.  These delays, mistakes, or failures
could have a significant impact on the Bank's financial condition and results of
operations.

                                       18

<PAGE>



                        GUARANTY FEDERAL BANCSHARES, INC.

Impact of Year 2000, continued

         Contingency Plan. The Bank is monitoring our service bureau to evaluate
whether our data  processing  system will fail. We are serving as a "proxy" Year
2000 test site for other financial  institutions on the same system.  Such tests
are scheduled to end before October 31, 1998.  After our  experience  with these
tests,  we will develop a  contingency  plan  including a range of  alternatives
depending  on the  results  of the  tests.  The  alternatives  could  range from
shifting to a compliant  system to back-up for unforeseen  contingencies  on our
current system.  We currently  utilize many spreadsheet  programs to compute and
store  data.  Should  our core  system  fail,  we will  enter  deposit  and loan
transactions in spreadsheets in order to conduct  business until the core system
is corrected. If this labor-intensive approach is necessary,  management and our
employees will become much less efficient.  However, we believe that we would be
able to operate in this  manner  until our  existing  service  bureau,  or their
replacement,  is able to again  provide data  processing  services.  If very few
financial  institution  service  bureaus  are  operating  in the year 2000,  our
replacement costs, assuming we could negotiate an agreement, could be material.



                                       19

<PAGE>


                        GUARANTY FEDERAL BANCSHARES, INC.

                                     PART II

Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities and Use of Proceeds

         Not applicable.

Item 3.  Defaults Upon Senior Securities

         Not applicable.

Item 4.  Submission of Matters to Vote of Common Stockholders

          A  special  meeting  of  stockholders  was  held on July  22,  1998 to
          consider two benefit plans. At the meeting,  stockholders approved the
          Guaranty Federal Bancshares,  Inc. 1998 Stock Option Plan by a vote of
          3,375,805   shares  for,   819,786  shares   against,   63,992  shares
          abstaining,  with 13,731 broker non-votes.  Stockholders also approved
          the Guaranty  Federal Savings Bank Restricted  Stock Plan by a vote of
          3,268,072   shares  for,   930,887  shares   against,   73,355  shares
          abstaining, with no broker non-votes.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

         a)       Exhibits

                  None.

         b)       Reports on Form 8-K

                  None.




                                       20

<PAGE>



                        GUARANTY FEDERAL BANCSHARES, INC.

                                   SIGNATURES

         In accordance with the  requirements of the Securities  Exchange Act of
1934,  the  registrant  has  this  report  to be  signed  on its  behalf  by the
undersigned, thereunto duly authorized.
                                            Guaranty Federal Bancshares, Inc.



              Signatures                                 Date
              ----------                                 ----

 \S\  James E. Haseltine                              November 12, 1998         
--------------------------------------        ----------------------------------
James E. Haseltine
President and Chief Executive Officer
(Principal Executive Officer)



\S\  Bruce Winston                                    November 12, 1998         
--------------------------------------        ----------------------------------
Bruce Winston
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


                                       21