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 March 31, 1999
                                            --------------
                                       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 May 14, 1999
-----                                       ---------------------------

Common Stock, Par Value $0.10                    5,638,648 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 Changes in Stockholders' Equity                     5
         Statements of Cash Flow                                           7

         Notes to Consolidated Financial Statements                        8

2.  Management's Discussion and Analysis of Financial Condition and       11
         Results of Operations

3.  Quantitative and Qualitative Disclosures about Market Risk            20

                           PART II. Other Information
                           --------------------------

1.  Legal Proceedings                                                     24

2.  Changes in Securities and Use of Proceeds                             24

3.  Defaults Upon Senior Securities                                       24

4.  Submission of Matters to Vote of Security-holders                     24

5.  Other Information                                                     25

6.  Exhibits and Reports on Form 8-K                                      25

    Signatures                                                            26


                                       2

<PAGE>

PART I

Item 1.  Financial Statements
         --------------------
                        GUARANTY FEDERAL BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                  March 31, 1999 (UNAUDITED) AND JUNE 30, 1998

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                                March 31,         June 30,
                                                                                  1999              1998      
                                                                              -------------    -------------
                                                                                          (Unaudited)
<S>                                                                          <C>                <C>    
Cash                                                                          $   1,245,430          846,691
Interest-bearing deposits in other financial institutions                         6,457,317        6,458,232
                                                                              -------------    -------------
         Cash and cash equivalents                                                7,702,747        7,304,923

Available-for-sale securities                                                     6,193,832        4,765,021
Held-to-maturity securities                                                       7,529,958        8,922,389
Mortgage-backed securities, held-to-maturity                                      4,424,109       11,948,654
Mortgage-backed securities, available-for-sale                                    8,772,108        9,055,658
Mortgage loans held for sale                                                      1,444,598          805,183
Loans receivable, net                                                           245,407,643      205,414,561
Accrued interest receivable
         Loans                                                                    1,329,861        1,188,162
         Investments                                                                135,758          252,865
         Mortgage-backed securities                                                 105,860          163,117
Prepaid expenses and other assets                                                 4,964,158        2,503,055
Foreclosed assets held for sale                                                       2,500          286,000
Premises and equipment                                                            7,436,113        7,432,971
                                                                              -------------    -------------
                                                                              $ 295,449,245      260,042,559
                                                                              =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
LIABILITIES
Deposits                                                                      $ 137,305,983      140,975,336
Federal Home Loan Bank advances                                                  90,228,371       45,081,028
Advances from borrowers for taxes and insurance                                     789,938          870,476
Accrued expenses and other liabilities                                            1,428,229          513,943
Accrued interest payable                                                            500,504          256,975
Income taxes payable                                                                501,670
                                                                                                     417,532
Deferred income taxes                                                             1,491,911        1,237,171
                                                                              -------------    -------------
         Total Liabilities                                                      232,246,606      189,352,461
                                                                              -------------    -------------
STOCKHOLDERS' EQUITY
Capital Stock
        Common stock, $0.10 par value; authorized 10,000,000 shares;  
        issued 6,242,888 shares - March 31;
         6,228,035 shares - June 30                                                 624,289          622,804
Additional paid-in capital                                                       47,215,113       49,016,992
Unearned ESOP shares                                                             (3,157,490)      (3,444,540)
Retained earnings, substantially restricted`                                     22,320,036       21,682,950
Accumulated other comprehensive income
         Unrealized appreciation on available-for-sale securities,
         net of income taxes of $1,992,692 and $1,651,429
         at March  31, 1999 and June 30, 1998, respectively                       3,392,962        2,811,892
                                                                              -------------    -------------
                                                                                 70,394,910       70,690,098
Treasury stock, at cost,  - 559,340 shares                                       (7,192,271)            --
                                                                              -------------    -------------
         Total Stockholders' Equity                                              63,202,639       70,690,098
                                                                              -------------    -------------
                                                                              $ 295,449,245      260,042,559
                                                                              =============    =============
</TABLE>

See Notes to Consolidated Financial Statements


                                       3
<PAGE>
                        GUARANTY FEDERAL BANCSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
         THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998(UNAUDITED)
<TABLE>
<CAPTION>

                                                    Three Months Ending            Nine Months Ending
                                                    -------------------            ------------------
                                                   3/31/99      3/31/98          3/31/99       3/31/98
                                                   -------      -------          -------       -------
<S>                                            <C>            <C>              <C>           <C>      
INTEREST INCOME
Loans                                            $ 4,689,386    3,696,895       13,663,415    10,794,484
Investment securities                                151,586       95,928          359,567       289,221
Mortgage-backed securities                           264,899      242,033          931,494       807,373
Other                                                139,829      348,943          408,104       642,517
                                                 ----------- ------------      -----------  ------------
       Total Interest Income                       5,245,700    4,383,799       15,362,580    12,533,595
                                                 -----------  -----------      -----------    ----------

INTEREST EXPENSE
Deposits                                           1,433,321    1,688,787        4,535,589     5,296,373
Federal Home Loan Bank advances                    1,239,382      339,326        3,328,994     1,159,344
Other borrowed funds                                      --           --               --        79,043
                                                 -----------   ----------        ---------    ----------
       Total Interest Expense                      2,672,703    2,028,113        7,864,583     6,534,760
                                                 -----------   ----------        ---------    ----------
Net Interest Income                                2,572,997    2,355,686        7,497,997     5,998,835
Provision for Loan Losses                             45,000       30,000          135,000        93,352
                                                 -----------   ----------        ---------    ----------  
Net Interest Income after
       Provision for Loan Losses                  2,527,997     2,325,686        7,362,997     5,905,483
                                                 ----------    ----------        ---------     ---------

NONINTEREST INCOME (LOSS)
Service charges                                      199,084      150,430          626,236       425,055
Late charges and other fees                           32,570       28,224           83,867        81,710
Gain on loans, investment
    securities and mortgage-backed securities          8,535       12,295           47,238        69,666
Income (expense) on foreclosed assets                 (4,291)       8,525          (11,281)       10,611
Other income                                          34,884       53,001           99,050       116,071
Total Noninterest Income                             270,782      252,475          845,110       703,113
                                                  ----------   ----------        ---------     ---------

NONINTEREST EXPENSE
Salaries and employee benefits                       802,633      587,781        2,287,793     1,658,897
Occupancy                                            205,476      202,054          577,981       550,917
SAIF deposit insurance premiums                       20,783       23,164           63,859        70,116
Data processing fees                                 132,873      105,547          377,290       302,849
Advertising                                          107,916      108,300          332,767       297,046
Other expense                                        246,927      218,634          791,818       624,834
                                                 ----------    ----------        ---------     ---------
       Total Noninterest Expense                   1,516,608    1,245,480        4,431,508     3,504,659
                                                 ----------    ----------        ---------     ---------
Income before Income Taxes                         1,282,171    1,332,681        3,776,599     3,103,937
Provision for Income Taxes                           458,548      489,438        1,334,444     1,149,403
                                                 -----------   ----------        ---------     ---------
NET INCOME                                           823,623      843,243        2,442,155     1,954,534

OTHER COMPREHENSIVE INCOME
       Unrealized appreciation (depreciation)
          on available-for-sale securities          (451,431)     331,504          581,070       786,945
                                                 -----------   ----------        ---------     ---------
COMPREHENSIVE INCOME                             $   372,192    1,174,747        3,023,225     2,741,479
                                                 ===========  ===========        =========     =========

BASIC EARNINGS PER SHARE                         $       .15          .14              .44           n/a
                                                 ===========  ===========        =========     =========
DILUTED EARNINGS PER SHARE                       $       .15          .14              .43           n/a
                                                 ===========  ===========        =========     =========

</TABLE>

See Notes to Consolidated Financial Statements

                                       4
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                  NINE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
                                                                               Accumulated
                                                                                  Other
                                                                              Comprehensive
                                                                                 Income                                   
                                                                              ---------------                             
                                                                               Unrealized
                                                                               Appreciation
                                                      Additional     Unearned  on Available-
                                            Common      Paid-In        ESOP      for-Sale        Retained     Treasury
                                             Stock      Capital       Shares  Securities, Net    Earnings       Stock      Total
                                             -----      -------       ------  ---------------    --------       -----      -----

<S>                                      <C>         <C>          <C>           <C>           <C>          <C>          <C>       
Balance, June 30, 1998                    $ 622,804   49,016,992   (3,444,540)   2,811,892     21,682,950           --   70,690,098
Net Income                                       --           --           --           --      2,442,155           --    2,442,155
Dividends on common stock,
($0.34 per share)                                --           --           --           --     (1,805,069)          --   (1,805,069)
Dividends on RRP stock                           --        7,500           --           --             --           --        7,500
Recognition and Retention Plan
   (RRP) expense & Restricted Stock
     Plan (RSP) expense                          --      389,338           --           --             --           --      389,338
Stock options exercised                       1,485       87,930           --           --             --           --       89,415
RSP stock purchased                              --   (2,373,065)          --           --             --           --   (2,373,065)
Treasury stock purchased                         --           --           --           --             --   (7,192,271)  (7,192,271)
Release of ESOP shares                           --       62,864      287,050           --             --           --      349,914
Tax benefit of RRP/RSP shares                    --       23,554           --           --             --           --       23,554
Change in unrealized appreciation on
   available-for-sale securities, net of
    income taxes of $341,263                     --           --           --      581,070             --           --      581,070
                                          ---------   ----------  -----------  -----------    -----------   ----------  -----------
Balance, March 31, 1999                   $ 624,289   47,215,113   (3,157,490)   3,392,962     22,320,036   (7,192,271)  63,202,639
                                          =========   ==========  ===========  ===========    ===========   ==========  ===========
</TABLE>

See Notes to Consolidated Financial Statements


                                       5
<PAGE>


                        GUARANTY FEDERAL BANCSHARES, INC.

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                  NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                                                       Other
                                                                                                   Comprehensive
                                                                                                     Income    
                                                                                                  ---------------
                                                                                                    Unrealized
                                                                                                   Appreciation
                                                        Additional    Unearned                     on Available-
                                              Common      Paid-In       ESOP       Retained          for-Sale
                                               Stock      Capital      Shares      Earnings       Securities, Net        Total
                                               -----      -------      ------      --------       ---------------        -----

<S>                                       <C>           <C>         <C>          <C>               <C>              <C>       
Balance, June 30, 1997                     $3,125,000    3,687,356          --    18,620,219        2,057,580        27,490,155
Net Income                                         --           --          --     1,954,534               --         1,954,534
Dividends on common stock,
($0.22 per share on 3,125,000 shares
     and $.15 per share on 6,225,610 shares)       --           --          --    (1,621,372)              --        (1,621,372)
Dividends on RRP stock                             --        8,704          --            --               --             8,704
Recognition and Retention Plan
   (RRP) expense                                   --       74,470          --            --               --            74,470
Stock options exercised                           450       43,922          --            --               --            44,372
Transfer from MHC                                  --           --          --     1,842,982               --         1,842,982
Stock redeemed and stock issued under
    plan of conversion to stock
    ownership, net                         (2,502,868)  43,130,922  (3,444,540)           --               --        39,183,514
Tax benefit of RRP/RSP shares                      --       32,229          --            --               --            32,229
Change in unrealized appreciation on
   available-for-sale securities, net of
    income taxes of $462,174                       --           --          --            --          786,945           786,945
                                           ----------   ----------  ----------    ----------        ---------       -----------
Balance, March 31, 1998                   $   622,582   48,977,603  (3,444,540)   20,796,363        2,844,525        69,796,533
                                           ==========  ===========  ===========   ==========        =========       ===========

</TABLE>

See Notes to Consolidated Financial Statements

                                       6
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              NINE MONTHS ENDED MARCH 31, 1999 AND 1998(UNAUDITED)
<TABLE>
<CAPTION>
                                                                              1999             1998
                                                                              ----             ----
<S>                                                                    <C>               <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                            $ 2,442,155        1,954,534
   Items not requiring (providing) cash:
       Deferred income taxes                                                 (86,523)          51,504
       Depreciation                                                          315,209          331,393
       Provision for loan losses                                             135,000           93,352
       Gain on loans, investment securities
         and mortgage-backed securities                                      (47,238)         (69,666)
       Loss on sale of foreclosed assets                                       3,295               --
       Amortization of deferred income, premiums and discounts                66,695           79,965
       RRP/ RSP expense                                                      389,338           74,470
   Origination of loans held for sale                                     (8,213,377)      (5,686,116)
   Proceeds from sale of loans held for sale                               7,621,200        5,743,616
   Changes in:
       Accrued interest receivable                                            32,665          (81,792)
       Prepaid expenses and other assets                                    (203,703)         (81,657)
       Accounts payable and accrued expenses                                 192,645        1,095,043
       Income taxes payable                                                  107,692          194,626
                                                                         -----------      -----------  
         Net cash provided by operating activities                         2,755,053        3,699,272
                                                                         -----------      ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES
   Net increase in loans                                                 (40,182,514)     (32,420,629)
   Principal payments on mortgage-backed securities,
       available-for-sale                                                  4,585,363               --
   Principal payments on mortgage-backed securities,
       held-to-maturity                                                    3,217,266        2,925,359
   Purchase of premises and equipment                                       (318,351)        (317,833)
   Purchase of available-for-sale securities                                (501,561)              --
   Purchase of held-to-maturity securities                                        --       (4,855,431)
       Proceeds from maturities or calls of
       held-to-maturity investments                                        1,330,235        4,259,673
   Purchase of FHLB stock                                                 (2,257,400)
   Proceeds from sale of foreclosed assets                                   330,641           14,000
   Capitalized costs on foreclosed assets                                         46               --
                                                                         -----------      -----------
Net cash used in investing activities                                    (33,796,275)     (30,394,861)
                                                                         ------------     -----------  
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from sale of common stock, net                                        --       42,628,054
   Unearned ESOP shares                                                      349,914       (3,444,540)
   Stock options exercised                                                    89,415           44,372
   Cash dividends paid                                                      (839,899)      (1,621,372)
   Cash dividends received on RRP stock                                        7,500            8,704
   Net increase in demand deposits,
       NOW accounts and savings accounts                                   6,493,972        8,044,921
   Net decrease in certificates of deposit                               (10,163,325)     (14,345,968)
Proceeds from FHLB advances                                               49,092,500       43,750,000
   Repayments of FHLB advances                                            (3,945,157)     (34,039,638)
   Advances from borrowers for taxes and insurance                           (80,538)        (128,803)
   RSP stock purchased                                                    (2,373,065)              --
   Treasury stock purchased                                               (7,192,271)              --
                                                                         -----------      -----------
     Net cash provided by financing activities                            31,439,046       40,895,730
                                                                         -----------      -----------
INCREASE IN CASH AND CASH EQUIVALENTS                                        397,824       14,200,141

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                             7,304,923        3,817,351
                                                                         -----------      -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                $  7,702,747       18,017,492
                                                                          ==========      ===========
</TABLE>

See Notes to Consolidated Financial Statements

                                       7
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1:  Conversion, Reorganization and Stock Issuance
         ---------------------------------------------

     On December 30, 1997,  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.
Stockholders'  equity increased to $69.5 million primarily due to the conversion
in which 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").  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 of $654,388 were applied to
reduce the gross  proceeds.  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.


                                       8

<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 2:  Basis of Presentation, continued
         --------------------------------

     Operating  results for the three-month  and nine-month  periods ended March
31, 1999 and 1998,  are not  necessarily  indicative  of the results that may be
expected  for the full year.  The  Company  engaged in no  significant  business
activity other than  formation  activities  prior to December 30, 1997.  Between
December  30, 1997 and March 31,  1999,  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.

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 nine  months  ended March 31, 1998 has not
been  presented  because  the  information  is not  available  or  would  not be
meaningful.

                                       9
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 4:  Earnings Per Share, continued
         -----------------------------
<TABLE>
<CAPTION>
                                                Three months ended                Nine months ended
                                                  March 31, 1999                   March  31, 1999
                                           ----------------------------    ---------------------------------
                                             Income   Shares  Per-share      Income      Shares    Per-Share
<S>                                       <C>       <C>         <C>       <C>          <C>           <C>  
Basic EPS
Income available to common stockholders    $823,623  5,459,586   $0.15     $2,442,155   5,572,849     $0.44
                                                                 =====                                =====
Effect of Dilutive Securities
Stock Options                                           59,808                             60,618
                                                     ---------                          ---------
Income available to common stockholders    $823,623  5,519,394   $0.15     $2,442,155   5,633,467     $0.43
                                           ========  =========   =====     ==========   =========     =====
</TABLE>

     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 and nine months ended March 31, 1999,  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 March 31, 1999,  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 $389,338  and $74,470 for the nine month  periods
ended March 31,  1999 and 1998,  respectively.  The SOP and 1998 SOP  authorized
stock  options on shares to be issued to officers and  employees of the Bank. As
of March 31, 1999,  all options except those on 34,439 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 March 31,
1998,  there were 562,759  unexercised  options that have been granted at prices
ranging  from $5.83 to $13.44  per share and  200,351  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.
                                       10

<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 March 31,  1999,  and the results of  operations  for the three and
nine months ended March 31, 1999 and 1998.

     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.

                                       11

<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Financial Condition
-------------------

     The Bank's total assets increased $35,406,686,  or 13.6%, from $260,042,559
as of June 30, 1998, to $295,449,245 as of March 31, 1999.

     Cash and cash equivalents increased $397,824, or 5.4% from $7,304,923 as of
June 30, 1998, to $7,702,747 as of March 31, 1999.

     Securities   available-for-sale   increased   $1,428,811,   or  30.0%  from
$4,765,021  as of June 30, 1998,  to  $6,193,832  as of March 31, 1999,  this is
primarily  due to the  increase  in  value  of  Federal  Home  Loan  Corporation
("FHLMC")  stock. The Bank continues to hold 96,000 shares of FHLMC stock with a
amortized cost of $94,000 in the  available-for-sale  category.  As of March 31,
1999,  the gross  unrealized  gain on the stock was  $5,390,000 an increase from
$4,424,000  as of June 30, 1998.  Securities  held-to-maturity  decreased due to
principal  repayments,  by $1,392,431,  or 15.6%, from $8,922,389 as of June 30,
1998 to $7,529,958 as of March 31, 1999.

     Mortgage-backed  securities,  held-to-maturity,  decreased  $7,524,545,  or
63.0%,  from  $11,948,654  as of June 30, 1998, to  $4,424,109,  as of March 31,
1999. The decrease is attributable  to prepayments  received on various pools of
mortgage-backed  securities  during  the nine  months  ending  March  31,  1999.
Mortgage-backed securities, available-for-sale, decreased $283,550, or 3.1% from
$9,055,658 as if June 30, 1998, to $8,772,108 of March 31, 1998. The decrease is
attributable to a decrease in the market value of these  securities  during this
period, as well as prepayments.

     Net loans receivable increased by $39,993,082, or 19.5%, from $205,414,561,
as of  June  30,  1998,  to  $245,407,643,  as of  March  31,  1999,  and  loans
held-for-sale increased by $639,415, or 79.4%, from $805,183 as of June 30, 1998
to $1,444,598 as of March 31, 1999. Growth consisted  primarily of loans secured
by both owner and non-owner occupied residential real estate, which increased by
$32,326,000.   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  $147,852 or 6.7% from $2,191,557 as of
June 30, 1998, to $2,339,409 as of March 31, 1999.  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 March 31, 1999 and June 30, 1998 was 0.9%,  and 1.1%  respectively,
of net loans  outstanding.  As of March 31, 1999,  the allowance for loan losses
was 228.2% of nonperforming loans versus 216.6% as of June 30, 1998.

                                       12

<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Financial Condition, continued
------------------------------

     Fair value of foreclosed assets  held-for-sale  decreased $283,500 or 99.1%
from $286,000 as of June 30, 1998, to $2,500 as of March 31, 1999. This decrease
is due to the sale of all  foreclosed  assets  held  with the  exception  of one
vehicle.

     Premises and equipment  increased  $3,142,  or 0.1%,  from $7,432,971 as of
June 30,  1998,  to  $7,436,113  as of March  31,  1999.  The Bank  opened a new
"in-store"  branch in a Walmart  Super  Center,  located in Nixa,  Missouri,  in
January  1999.  The increase in premises and equipment was primarily due to cost
of establishing this branch net of depreciation.

     Deposits  decreased  $3,669,353,  or 2.6%, from $140,975,336 as of June 30,
1998, to $137,305,983 as of March 31, 1999. For the nine months ending March 31,
1999,  checking and passbook accounts  increased by $6,493,972,  or 17.6%, while
certificates of deposits decreased by $10,163,325, or 9.8%. 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,  as well as the  opening of a new  "in-store"  branch  located in the
Walmart Super Center in Nixa, Mo. 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  $45,147,343 or 100.1%,  from $45,081,028 as of
June 30, 1998, to  $90,228,371  as of March 31, 1999. As of March 31, 1999,  the
Bank had the ability to borrow an additional $66.0 million from the FHLB.

     Accrued expenses and other  liabilities  increased  $914,286 or 177.9% from
$513,943 as of June 30, 1998, to  $1,428,229 as of March 31, 1999.  The majority
of this increase is due to a $0.18 per share dividend payable to stockholders of
record March 31, 1999, totaling $965,170.

     Stockholders'  equity  (including  unrealized  appreciation  on  securities
available-for-sale, net of tax) decreased $7,487,459, or 10.6%, from $70,690,098
as of June 30, 1998, to $63,202,639 as of March 31, 1999.  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 559,340  shares of treasury
stock  were  purchased  in the open  market  at a cost of  $7,192,271.  Finally,
semi-annual  dividends in the amount of  $1,805,069  ($0.16 and $0.18 per share,
respectively)  were declared  and/or paid.  On a per share basis,  stockholders'
equity decreased from $12.01 as of June 30, 1998 to $11.77 as of March 31, 1999.

                                       13
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Analysis of core earnings
-------------------------

     The  Company's  profitability  is  primarily  dependent  upon net  interest
income,  which  represents  the difference  between  interest and fees earned on
loans,  MBSs 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.  Net income is further
affected by non-interest income, non-interest expense and income taxes.

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.
<TABLE>
<CAPTION>

                                         Nine months ended                      Nine months ended
                                          March 31, 1999                         March 31, 1998
                                          --------------                         --------------
                                Average                 Yield/         Average                  Yield/
                                Balance    Interest     Cost           Balance     Interest     Cost
                                -------    --------     ----           -------     --------     ----
                                        (In Thousands)                       (In Thousands)
<S>                           <C>        <C>             <C>         <C>          <C>           <C>  
ASSETS
Interest-earning:
Loans                          $228,377   $13,663         7.98%       $170,199     $10,794       8.46%
Investment securities             8,179       360         5.87%          6,512         289       5.92%
Mortgage-backed securities       18,274       931         6.79%         14,442         807       7.45%
Other assets                     13,844       408         3.93%         17,663         643       4.85%
                               --------    ------         -----        -------      ------       -----
Total interest-earning          268,674    15,362         7.62%        208,816      12,533       8.00%
Noninterest-earning               7,650                                  6,993
                               --------                                -------
                               $276,324                               $215,809
                               ========                               ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts                 $8,414       157         2.49%         $8,796         183       2.77%
Transaction accounts             27,743       570         2.74%         21,037         455       2.88%
Certificates of deposit          95,927     3,808         5.29%        112,503       4,658       5.52%
FHLB advances                    74,627     3,329         5.95%         25,282       1,159       6.11%
Other borrowed funds                 --        --            --          3,859          79       2.73%
                               --------    ------       -------        -------      ------      ------
Total interest-bearing          206,711     7,864         5.07%        171,477       6,534       5.08%
Noninterest-bearing               3,741                                  2,400
                               --------                                -------
Total liabilities               210,452                                173,877
Stockholders' equity             65,872                                 41,932
                               --------                                -------
                               $276,324                               $215,809
                                =======                               ========
Net earning balance            $ 61,963                               $ 37,339 
                               ========                               ======== 
Earning yield less costing rate                           2.55%                                  2.92%
Net interest income, and
     net yield spread on
     interest earning assets               $7,498         3.71%                     $5,999       3.83%
                                           ======       =======                     ======      ======
Ratio on interest-earning assets to
     interest-bearing liabilities                          130%            122%
                                                        ======        ========
</TABLE>

                                       14
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

              Results of Operations - Comparison of Three Month and
                Nine Month Periods Ended March 31, 1999 and 1998

     Net income for the three  months and nine  months  ended March 31, 1999 was
$823,623 and  $2,442,155,  as compared to $843,243 and  $1,954,534 for the three
months and nine  months  ended March 31,  1998 which  represents  an decrease in
earnings  of  $19,620 or 2.3% for the three  month  period,  and a  increase  in
earnings of $487,621 or 24.9% for the nine month period.

Interest Income
---------------

     Total interest  income for the three months and nine months ended March 31,
1999,  increased  $861,901 or 19.7% and  $2,828,985  or 22.6% as compared to the
three  months and nine months  ended March 31,  1998.  For the nine month period
ended March 31, 1999  compared to the same period in 1998,  the average yield on
interest  earning assets  decreased 38 basis points to 7.62%,  while the average
balance of interest  earnings assets increased  $59,858,000 over the same period
one year ago.

Interest Expense
----------------

     Total interest expense for the three months and nine months ended March 31,
1999,  increased  $644,590 or 31.8% and $1,329,823 or 20.3% when compared to the
three  months and nine months  ended March 31,  1998.  For the nine month period
ended March 31, 1999, the average cost of interest bearing liabilities decreased
1 basis point to 5.07%  while the average  balance  increased  $35,234,000  when
compared to the same period in 1998.

Net Interest Income
-------------------

     Net  interest  income for the three  months and nine months ended March 31,
1999, increased $217,311, or 9.2% and $1,499,162,  or 25.0% when compared to the
same period in 1998.  The  increase in net  interest  income for the nine months
ended  March 31,  1999 was the result of a  $24,624,000  increase in average net
interest  earnings  assets  offset by a 37 basis point  decrease in net interest
margin  compared  to the same  period in 1998.  This  increase  in net  interest
earning  assets  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 for the nine month  period ended March 31, 1999 even though the
yield on interest  earning  assets  decreased by 38 basis points,  compared to a
decrease of 1 basis point on interest bearing liabilities,  when compared to the
same period in 1998.


                                       15
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Provision for Loan Losses
-------------------------

     Based  primarily on the continued  growth of the loan portfolio  management
decided to increase the allowance for loan loss reserve  through a provision for
loan loss of $45,000 and  $135,000  for the three  months and nine months  ended
March 31,  1999,  respectively,  compared  to $30,000  and  $93,352 for the same
period in 1998.  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 $18,307 or 7.3% and $141,997, or 20.2% for the
three months and nine months ended March 31,  1999,  when  compared to the three
months and nine months ended March 31, 1998.  The increase was  primarily due to
an increase in checking  account service  charges,  which  increased  $48,654 or
32.3% and $201,181 or 47.3% for the three months and nine months ended March 31,
1999, when compared to the same period in 1998.

Noninterest Expense
-------------------

     Noninterest expense increased $271,128, or 21.8% for the three months ended
March 31,  1999,  and  increased  $926,849,  or 26.4% for the nine month  period
ending  March 31, 1999 when  compared to the three  months and nine months ended
March 31,  1998.  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  $214,852,  or 36.6% for the three
months  ended March 31,  1999,  and  increased  $628,896,  or 37.9% for the nine
months  ended March 31,  1999,  when  compared to the same period in 1998.  This
included  an increase  in RRP/RSP  expense of  $99,313,  or 374.9% for the three
months ended March 31, 1999, and an increase of $314,868, or 422.8% for the nine
months ended March 31, 1999,  when  compared to the same period in 1998, as well
as a decrease of $4,363,  or 6.1% for the three months ended March 31, 1999, and
an increase of $155,610 or 113.9% for the nine months ended March 31, 1999,  for
the ESOP expense.


                                       16
<PAGE>
                        GUARANTY FEDERAL BANCSHARES, INC.

Noninterest Expense, continued
------------------------------

     Advertising  expense  decreased  $384,  or 0.4% for the three  months ended
March 31, 1999,  and increased  $35,721 or 12.0% for the nine months ended March
31, 1999,  when compared to the same period in 1998. The primary reason for this
increase was the additional  expense in connection  with the marketing  campaign
designed to attract checking accounts.

     Data  processing  fees increased  $27,326,  or 25.9%,  for the three months
ended March 31, 1999, and increased $74,441,  or 24.6% for the nine months ended
March 31, 1999,  when  compared to the same period in 1998.  These  increases in
data processing were primarily due to the increases in accounts serviced and the
volume of transactions handled.

Provision for Income Taxes
--------------------------

     There was a $30,890  decrease and $185,041  increase in the  provision  for
income  taxes for the three  months and nine  months  ended March 31,  1999,  as
compared to the same period in 1998.  These  changes  were due to the changes in
before tax income for the three  months and nine months  ended  March 31,  1999,
compared to the same period in 1998. . 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 March 31,
1999, was  $2,339,409 or 0.9% of loans  receivable.  Total assets  classified as
substandard  or loss as of March  31,  1999,  were  $1,198,495  or 0.4% 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.

                                       17
<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Nonperforming Assets, continued
-------------------------------
                                         3/31/99       6/30/98       6/30/97
                                         -------       -------       -------
                                                (Dollars In Thousands)
   Nonperforming loans                   $   1,025    $   1,012     $    1,257
   Real estate and other assets
   acquired in settlement of loans               3          286            210
                                        ----------     --------       --------

   Total Nonperforming Assets            $   1,028    $   1,298     $    1,467
                                          ========     ========      =========
   Total Nonperforming Assets
   as a Percentage of Total
   Assets                                    0.35%        0.50%           .74%
   Allowance for loan losses             $   2,339    $   2,191     $    2,177
   Allowance for loan losses as a
   Percentage of average loans, net          1.02%        1.24%          1.49%

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 and second  quarter of fiscal year 1999,  the general  level of
long-term  interest rates dropped and borrowers  opted for fixed rate mortgages.
As of March 31, 1999, ARMs represent  60.3% of the loan  portfolio.  Of the ARMs
originated  during the first and second  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.

                                       18
<PAGE>
                        GUARANTY FEDERAL BANCSHARES, INC.

     The  Bank  is also  managing  interest  rate  risk  by the  origination  of
construction  loans. As of March 31, 1999, such loans made up 8.1% 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 March 31, 1999, these accounts
totaled  $43,349,174 or 31.6% 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.

                                       19
<PAGE>
                        GUARANTY FEDERAL BANCSHARES, INC.

Interest Rate Sensitivity Analysis
----------------------------------

     The  following  table sets forth as of  December  31, 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.
                                             NPV as %
BP Change  Estimated Net Portfolio Value   of PV Assets
in Rates       $ Amount      $ Change      % Change      NPV Ratio  BP Change
---------       --------      --------      --------     ---------  ---------

+400 bp      $   57,819      $   (941)        -2%          21.3%      +118 bp
+300             59,791         1,030         +2%          21.6%      +143 bp
+200             60,764         2,003         +3%          21.5%      +135 bp
+100             60,506         1,746         +3%          21.0%       +90 bp
NC               58,760                                    20.1%
-100             55,641        (3,120)        -5%          18.9%      -129 bp
-200             51,948        (6,812)       -12%          17.4%      -275 bp
-300             48,261       (10,499)       -18%          15.9%      -421 bp
-400             43,946       (14,814)       -25%          14.3%      -584 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.

                                       20
<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.

     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 March 31,
1999,  the  Bank's  liquidity  ratio  was  19.4%,  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.  As of March 31, 1999,
the Bank had approximately $6,038,000 in commitments to originate mortgage loans
and $13,832,000 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.


                                       21


<PAGE>
                        GUARANTY FEDERAL BANCSHARES, INC.

Impact of Year 2000

     As with all financial institutions,  the Year 2000 issue is considered high
priority.  Through much  evaluation and testing,  the banking  industry is being
regarded as one of the most  prepared.  We have evaluated and tested all systems
we consider  mission-critical.  Mission-critical  systems are defined as systems
that the Bank  considers  being  crucial  to the  basic  daily  operation.  Core
business processes have also been evaluated.

     In addition to our own in-house  testing,  the Bank participated as a proxy
institution in testing services and applications  provided by our online service
bureau.  This means our actual data in regards to accounts  and  balances,  date
specific processes, as well as calculations were used in the testing process. It
was our opinion that actually  using our own data for testing was more important
than relying on other institutions' results-based reports.

     The Bank has also been  reviewed in two separate  phases by our  regulatory
agency, the Office of Thrift  Supervision.  It has been determined in each phase
of  examination  that we are following all  guidelines  and meeting the specific
time deadlines.

     The  evaluation  of risk was  categorized  into  three  areas:  (1) our own
systems, (2) systems used by borrowers,  depositors,  and business partners, and
(3) systems provided by data processing services.

     Our  own  systems.   The  Bank  has  developed  an   expenditure   plan  of
approximately  $235,000 ($175,000 for hardware/software  upgrades and $60,000 in
consultant  and  employee  costs).  As of March  31,  1999,  the Bank has  spent
approximately  $87,000 of the plan  ($61,000 in  hardware/software  upgrades and
$26,000 in  consultant  and employee  costs).  These  systems are  scheduled for
completion by June 30, 1999.

     Systems 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 feel that most of our  residential
customers are not dependent on their  individual  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 favorably evaluated the responses.

                                       22


<PAGE>

                        GUARANTY FEDERAL BANCSHARES, INC.

Impact of Year 2000, continued

     Systems  provided by data  processing  services.  This category is the most
vital to the core business  processes the Bank  performs.  We use an online data
service bureau and other  third-party  vendors to process all  transactional and
reporting business. As mentioned, we have participated as a proxy institution in
testing the core processing  system with our service  bureau.  A crew of several
key  employees  of the Bank went through the  processes  of gathering  pertinent
account   information  and  test   transactions,   entering  data  in  a  staged
post-Year2000  environment,   documenting  information,  and  reviewing  testing
results. Our findings were addressed by the service bureau, and corrections made
where  applicable.  Other  third-party  vendors  have also been  tested,  either
directly by us or, when applicable,  in conjunction with our service bureau.  In
the  aggregate,  testing has been  completed on these  systems,  and the Bank is
reviewing the testing results provided.

     Contingency planning. Although the majority of information we have compiled
through  testing and evaluation  has indicated  that the Bank should  experience
none, or very minimal  issues with the Year 2000, we still must prepare for more
severe  circumstances.  In  contingency  planning,  the Bank must  assess how to
continue  providing  what is  considered  core  business  processes if the usual
process is found to be unrecoverable. The Bank is currently developing a plan in
conjunction   with  our  online  data  service   bureau  and  with   independent
consultation.  Categorically,  core  business  processes  will be  recovered  in
alternative  forms,   either  by  bringing  the  process  in-house  or  manually
processing  business  transactions  on a temporary  basis until solutions can be
provided.

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




                                       23
<PAGE>
                        GUARANTY FEDERAL BANCSHARES, INC.

                                     PART II

Item 1.  Legal Proceedings
--------------------------
     
         None.

Item 2.  Changes in Securities
------------------------------

         Not applicable.

Item 3.  Defaults Upon Senior Securities
----------------------------------------

         Not applicable.

Item 4.  Submission of Matters to Vote of Common Stockholders
-------------------------------------------------------------

         None.

Item 5.  Other Information
--------------------------

         None.

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

         a)       Exhibits

                  None.

         b)       Reports on Form 8-K

                  None.

                                       24

<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                                       May 14, 1999    
-------------------------                            -------------------------
     James E. Haseltine
     President and Chief Executive Officer
     (Principal Executive Officer)



/s/ Bruce Winston                                            May 14, 1999
-------------------------                            -------------------------
    Bruce Winston
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)