**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC  20549**





**FORM
      10-Q**





(Mark
      One)


S**QUARTERLY REPORT PURSUANT TO SECTION 13 OR
      15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





For
      the
      quarter ended March 31, 2007





OR





£**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





For
      the
      transition period from _______ to _______





Commission
      file number 0-23325





**Guaranty
      Federal Bancshares, Inc.**


(Exact
      name of registrant as specified in its charter)





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





Telephone
      Number:  (417) 520-4333





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports) and (2) has been subject to such filing requirements
      for
      the past 90 days.  Yes S No
£





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
      Act.  (Check one):  Large accelerated filer £Accelerated
      filer £
      Non-accelerated filer S





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12-b2 of the Exchange Act. Yes £ No
S





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





Class
            Outstanding
                as of May 15, 2007Common
                Stock, Par Value $0.10 per share
            2,888,038
                Shares












**GUARANTY
      FEDERAL BANCSHARES, INC.**





**TABLE
      OF CONTENTS**





**Page****PART
                I. Financial Information**Item
                1.  Financial StatementsConsolidated
                Financial Statements (Unaudited):Statements
                of Financial Condition
            3Statements
                of Income
            4Statements
                of  Stockholders’
                Equity
            5Statements
                of Cash Flows
            7Notes
                to Consolidated Financial
                Statements
            8Item
                2.  Management’s Discussion and Analysis of
                Financial Condition and Results of Operations
            10Item
                3. Quantitative and Qualitative Disclosures about
                Market Risk
            15Item
                4.  Control and
                Procedures
            17**PART
                II. Other Information**Item
                1.  Legal Proceedings
            19Item
                1A.  Risk factors
            19Item
                2.  Unregistered Sales of Equity
                Securities and Use of Proceeds
            19Item
                3.  Defaults Upon Senior
                Securities
            19Item
                4.  Submission of Matters to a Vote of
                Security Holders
            19Item
                5.  Other Information
            19Item
                6.  Exhibits
            19Signatures




2
 *Table
            of Contents*




****PART
      I****


**Item
      1. Financial Statements**


**GUARANTY
      FEDERAL BANCSHARES, INC.**


**CONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION**


**MARCH
      31, 2007 (UNAUDITED) AND DECEMBER 31, 2006**





**ASSETS**
            
            **3/31/07**
            
            
            **12/31/06**Cash
            
            $
            9,623,205
            
            
            
            10,684,831Interest-bearing
                deposits in other financial institutions
            
            
            5,511,468
            
            
            
            4,195,770Cash
                and cash equivalents
            
            
            15,134,673
            
            
            
            14,880,601Available-for-sale
                securities
            
            
            7,395,561
            
            
            
            7,906,321Held-to-maturity
                securities
            
            
            732,245
            
            
            
            763,025Stock
                in Federal Home Loan Bank, at cost
            
            
            3,546,043
            
            
            
            5,382,700Mortgage
                loans held for sale
            
            
            3,255,850
            
            
            
            3,004,635Loans
                receivable, net of allowance for loan losses of March 31, 2007 -
                $5,604,275 - December 31, 2006 - $5,783,477
            
            
            466,621,510
            
            
            
            477,264,522Accrued
                interest receivable:Loans
            
            
            2,784,333
            
            
            
            2,830,811Investments
            
            
            76,442
            
            
            
            79,498Prepaid
                expenses and other assets
            
            
            2,865,709
            
            
            
            2,955,483Foreclosed
                assets held for sale
            
            
            1,664,703
            
            
            
            172,637Premises
                and equipment
            
            
            7,771,839
            
            
            
            7,867,809Income
                taxes receivable
            
            
            20,857
            
            
            
            774,469Deferred
                income taxes
            
            
            1,033,813
            
            
            
            962,484$
            512,903,578
            
            
            
            524,844,995**LIABILITIES
                AND STOCKHOLDERS' EQUITY****LIABILITIES**Deposits
            
            $
            381,527,110
            
            
            
            352,229,636Federal
                Home Loan Bank advances
            
            
            65,586,000
            
            
            
            108,000,000Securities
                sold under agreements to repurchase
            
            
            1,723,501
            
            
            
            1,703,221Subordinated
                debentures
            
            
            15,465,000
            
            
            
            15,465,000Advances
                from borrowers for taxes and insurance
            
            
            338,524
            
            
            
            222,869Accrued
                expenses and other liabilities
            
            
            473,366
            
            
            
            441,890Accrued
                interest payable
            
            
            1,442,263
            
            
            
            1,414,946Dividend
                payable
            
            
            468,609
            
            
            
            468,190467,024,373
            
            
            
            479,945,752**STOCKHOLDERS'
                EQUITY**Common
                Stock:$0.10
                par value; authorized 10,000,000 shares; issued March 31, 2007 -
                6,702,471
                shares; December 31, 2006 - 6,653,527 shares
            
            
            670,247
            
            
            
            665,353Additional
                paid-in capital
            
            
            56,652,231
            
            
            
            55,730,352Unearned
                ESOP shares
            
            
            (1,287,930
            )
            
            
            (1,344,930
            )Retained
                earnings, substantially restricted
            
            
            42,467,691
            
            
            
            41,183,006Accumulated
                other comprehensive income: Unrealized appreciation on available-for-sale
                securities, net of income taxes
            
            
            1,231,371
            
            
            
            1,534,54899,733,610
            
            
            
            97,768,329Treasury
                stock, at cost; March 31, 2007 - 3,797,976 shares; December 31, 2006
                -
                3,764,367 shares
            
            
            (53,854,405
            )
            
            
            (52,869,086
            )45,879,205
            
            
            
            44,899,243$
            512,903,578
            
            
            
            524,844,995




See
        Notes
        to Condensed Consolidated Financial Statements




3
 *Table
            of Contents*




**GUARANTY
      FEDERAL BANCSHARES, INC.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**THREE  MONTHS
      ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)**





3/31/2007
            
            
            3/31/2006**INTEREST
                INCOME**Loans
            
            $
            9,343,445
            
            
            
            7,884,788Investment
                securities
            
            
            97,241
            
            
            
            102,007Other
            
            
            81,185
            
            
            
            91,1209,521,871
            
            
            
            8,077,915**INTEREST
                EXPENSE**Deposits
            
            
            3,505,416
            
            
            
            2,269,292Federal
                Home Loan Bank advances
            
            
            1,175,193
            
            
            
            1,223,422Other
            
            
            265,878
            
            
            
            276,7094,946,487
            
            
            
            3,769,423**NET
                INTEREST INCOME**
            
            
            4,575,384
            
            
            
            4,308,492**PROVISION
                FOR LOAN LOSSES**
            
            
            210,000
            
            
            
            225,000**NET
                INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES**
            
            
            4,365,384
            
            
            
            4,083,492**NONINTEREST
                INCOME**Service
                charges
            
            
            552,482
            
            
            
            312,255Late
                charges and other fees
            
            
            60,953
            
            
            
            91,481Gain
                on sale of investment securities
            
            
            192,616
            
            
            
            198,424Gain
                on sale of loans
            
            
            292,697
            
            
            
            119,573Income
                (loss) on foreclosed assets
            
            
            (2,295
            )
            
            
            68Other
                income
            
            
            168,977
            
            
            
            100,0191,265,430
            
            
            
            821,820**NONINTEREST
                EXPENSE**Salaries
                and employee benefits
            
            
            1,742,884
            
            
            
            1,443,090Occupancy
            
            
            411,753
            
            
            
            317,315SAIF
                deposit insurance premiums
            
            
            9,665
            
            
            
            10,322Data
                processing
            
            
            97,703
            
            
            
            55,137Advertising
            
            
            99,999
            
            
            
            101,735Other
                expense
            
            
            512,544
            
            
            
            439,7952,874,548
            
            
            
            2,367,394**INCOME
                BEFORE INCOME TAXES**
            
            
            2,756,266
            
            
            
            2,537,918**PROVISION
                FOR INCOME TAXES**
            
            
            1,002,726
            
            
            
            973,593**NET
                INCOME**
            
            $
            1,753,540
            
            
            
            1,564,325**BASIC
                EARNINGS PER SHARE**
            
            $
            0.63
            
            
            
            0.56**DILUTED
                EARNINGS PER SHARE**
            
            $
            0.62
            
            
            
            0.54




See
        Notes
        to Condensed Consolidated Financial Statements




4
 *Table
            of Contents*




**GUARANTY
      FEDERAL BANCSHARES, INC.**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY**


**THREE
      MONTHS ENDED MARCH  31, 2007 (UNAUDITED)**





Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Unearned
              ESOP
                Shares
            
            
            Treasury
              Stock
            
            
            Retained
              Earnings
            
            
            Accumulated
                Other
              Comprehensive
              Income
            
            
            Total**Balance,
                January 1, 2007**
            
            $
            665,353
            
            
            
            55,730,352
            
            
            
            (1,344,930
            )
            
            
            (52,869,086
            )
            
            
            41,183,006
            
            
            
            1,534,548
            
            
            
            44,899,243Comprehensive
                incomeNet
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,753,540
            
            
            
            -
            
            
            
            1,753,540Change
                in unrealized appreciation on available-for-sale securities, net
                of income
                taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (303,177
            )
            
            
            (303,177
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,450,363Dividends
                ($0.17 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (468,855
            )
            
            
            -
            
            
            
            (468,855
            )Stock
                award plans
            
            
            -
            
            
            
            13,119
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            13,119Stock
                options exercised
            
            
            4,894
            
            
            
            799,356
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            804,250Release
                of ESOP shares
            
            
            -
            
            
            
            109,404
            
            
            
            57,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            166,404Treasury
                stock purchased
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (985,319
            )
            
            
            -
            
            
            
            -
            
            
            
            (985,319
            )**Balance,
                March 31, 2007**
            
            $
            670,247
            
            
            
            56,652,231
            
            
            
            (1,287,930
            )
            
            
            (53,854,405
            )
            
            
            42,467,691
            
            
            
            1,231,371
            
            
            
            45,879,205




See
      Notes
      to Condensed Consolidated Financial Statements




5
 *Table
            of Contents*




**GUARANTY
      FEDERAL BANCSHARES, INC.**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY**


**THREE
      MONTHS ENDED MARCH  31, 2006 (UNAUDITED)**





Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Unearned
              ESOP
                Shares
            
            
            Treasury
              Stock
            
            
            Retained
              Earnings
            
            
            Accumulated
                Other
              Comprehensive
              Income
            
            
            Total**Balance,
                January 1, 2006**
            
            $
            657,135
            
            
            
            53,778,686
            
            
            
            (1,572,930
            )
            
            
            (49,276,005
            )
            
            
            36,533,338
            
            
            
            1,971,925
            
            
            
            42,092,149Comprehensive
                incomeNet
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,564,325
            
            
            
            -
            
            
            
            1,564,325Change
                in unrealized appreciation on available-for-sale securities, net
                of income
                taxes of ($314,887)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (251,767
            )
            
            
            (251,767
            )Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,312,558Dividends
                ($0.165 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (461,397
            )
            
            
            -
            
            
            
            (461,397
            )Stock
                award plans
            
            
            -
            
            
            
            24,878
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            24,878Stock
                options exercised
            
            
            5,354
            
            
            
            980,081
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            985,435Release
                of ESOP shares
            
            
            -
            
            
            
            106,129
            
            
            
            57,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            163,129Treasury
                stock purchased
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (786,757
            )
            
            
            -
            
            
            
            -
            
            
            
            (786,757
            )**Balance,
                March 31, 2006**
            
            $
            662,489
            
            
            
            54,889,774
            
            
            
            (1,515,930
            )
            
            
            (50,062,762
            )
            
            
            37,636,266
            
            
            
            1,720,158
            
            
            
            43,329,995




See
        Notes
        to Condensed Consolidated Financial Statements




6
 *Table
            of Contents*





**GUARANTY
      FEDERAL  BANCSHARES,
      INC**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**THREE
      MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED)**





**3/31/2007**
            
            
            **3/31/2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            1,753,540
            
            
            
            1,564,325Items
                not requiring (providing) cash:Deferred
                income taxes
            
            
            106,728
            
            
            
            (165,001
            )Depreciation
            
            
            218,551
            
            
            
            155,042Provision
                for loan losses
            
            
            210,000
            
            
            
            225,000Gain
                on loans and investment securities
            
            
            (485,313
            )
            
            
            (317,997
            )Gain
                on sale of foreclosed assets
            
            
            (2,878
            )
            
            
            (1,023
            )Gain
                on sale of premises and equipment
            
            
            -
            
            
            
            (90
            )Amortization
                of deferred income, premiums and discounts
            
            
            31,635
            
            
            
            74,555Stock
                award plan expense
            
            
            13,119
            
            
            
            24,878Origination
                of loans held for sale
            
            
            (16,874,472
            )
            
            
            (11,064,539
            )Proceeds
                from sale of loans held for sale
            
            
            16,915,954
            
            
            
            10,742,866Release
                of ESOP shares
            
            
            166,404
            
            
            
            163,129Changes
                in:Accrued
                interest receivable
            
            
            49,534
            
            
            
            83,569Prepaid
                expenses and other assets
            
            
            89,775
            
            
            
            (113,560
            )Accounts
                payable and accrued expenses
            
            
            58,793
            
            
            
            341,489Income
                taxes receivable
            
            
            753,612
            
            
            
            549,849Net
                cash provided by operating activities
            
            
            3,004,982
            
            
            
            2,262,492**CASH
                FLOWS FROM INVESTING ACTIVITIES**Net
                decrease (increase) in loans
            
            
            8,909,311
            
            
            
            (5,021,320
            )Principal
                payments on available-for-sale securities
            
            
            34,405
            
            
            
            16,107Principal
                payments on held-to-maturity securities
            
            
            30,780
            
            
            
            41,405Proceeds
                from maturities of available-for-sale securities
            
            
            -
            
            
            
            500,000Purchase
                of premises and equipment
            
            
            (122,581
            )
            
            
            (213,877
            )Purchase
                of available-for-sale securities
            
            
            (500,000
            )
            
            
            (3,780,316
            )Proceeds
                from sale of available-for-sale securities
            
            
            687,737
            
            
            
            201,361Redemption
                (purchase) of FHLB stock
            
            
            1,836,657
            
            
            
            (356,000
            )Proceeds
                from sale of premises and equipment
            
            
            -
            
            
            
            4,540Proceeds
                from sale of foreclosed assets
            
            
            2,878
            
            
            
            21,298Net
                cash provided by (used in) investing activities
            
            
            10,879,187
            
            
            
            (8,586,802
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Stock
                options exercised
            
            
            804,250
            
            
            
            985,435Cash
                dividends paid
            
            
            (468,437
            )
            
            
            (458,726
            )Net
                increase (decrease) in demand deposits, NOW accounts and savings
                accounts
            
            
            23,540,327
            
            
            
            (13,849,478
            )Net
                increase in certificates of deposit and securities sold under agreements
                to repurchase
            
            
            5,777,427
            
            
            
            9,028,130Proceeds
                from FHLB advances
            
            
            476,476,300
            
            
            
            390,414,000Repayments
                of FHLB advances
            
            
            (518,890,300
            )
            
            
            (389,414,000
            )Advances
                from borrowers for taxes and insurance
            
            
            115,655
            
            
            
            222,714Treasury
                stock purchased
            
            
            (985,319
            )
            
            
            (786,757
            )Net
                cash used in financing activities
            
            
            (13,630,097
            )
            
            
            (3,858,682
            )**INCREASE
                (DECREASE) IN CASH AND CASH EQUIVALENTS**
            
            
            254,072
            
            
            
            (10,182,992
            )**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            14,880,601
            
            
            
            20,506,478**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            15,134,673
            
            
            
            10,323,486




See
        Notes
        to Condensed Consolidated Financial Statements




7
 *Table
            of Contents*





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Unaudited)**





**Note
      1:  Basis of Presentation**





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





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





These
      condensed consolidated financial statements should be read in conjunction with
      the consolidated financial statements and notes thereto included in the
      Company’s Form 10-K annual report for 2006 filed with the Securities and
      Exchange Commission.  The condensed consolidated statement of
      financial condition of the Company as of December 31, 2006, has been derived
      from the audited consolidated balance sheet of the Company as of that
      date.  Certain information and note disclosures normally included in
      the Company’s annual financial statements prepared in accordance with generally
      accepted accounting principles have been condensed or omitted.





**Note
      2:  Principles of Consolidation**





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





**Note
      3:  Benefit Plans**





The
      Company has stock-based employee compensation plans, which are described fully
      in the Company’s December 31, 2006 Annual Report on Form 10-K.





The
      table
      below summarizes transactions under the Company’s stock option plans for three
      months ended March 31, 2007:





Number
                of sharesIncentive
              Stock
              Option
            
            
            Non-
              Incentive
              Stock
              Option
            
            
            Weighted
              Average
              Exercise
              PriceBalance
                outstanding as of January 1, 2007
            
            
            155,491
            
            
            
            115,206
            
            
            
            17.30Granted
            
            
            13,500
            
            
            
            -
            
            
            
            28.43Exercised
            
            
            (32,944
            )
            
            
            (16,000
            )
            
            
            13.52Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -Balance
                outstanding as of March 31, 2007
            
            
            136,047
            
            
            
            99,206
            
            
            
            18.21Options
                exercisable as of March 31, 2007
            
            
            77,250
            
            
            
            67,206
            
            
            
            14.97




8
 *Table
            of Contents*




In
      December, 2004, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment” (SFAS
      123R). SFAS 123R requires companies to recognize the cost of employee services
      received in exchange for awards of equity instruments, such as stock options
      and
      restricted stock, based on the fair value of those awards at the date of grant
      and eliminated the choice to account for employee stock options under Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(APB 25). The Company adopted SFAS 123R effective January 1, 2006 using the
      modified prospective method and, as such, results for prior periods have not
      been restated. Stock-based compensation expense is recognized for all stock
      options granted or modified after January 1, 2006.  In addition,
      unvested options existing at January 1, 2006, are recognized in expense over
      the
      remaining vesting period.  The fair value of all stock options has
      been estimated using the Black-Scholes option pricing model using various
      assumptions, some of which are highly subjective.




Stock-based
      compensation expense recognized for the three months ended March 31, 2007 and
      2006 was $13,119 and $16,868, respectively. As of March 31, 2007, there was
      $197,016 of unrecognized compensation expense related to nonvested stock
      options, which will be recognized over the remaining vesting
      period.





**Note
      4: Earnings Per Share**





For
                three months ended March 31, 2007Income
                Available
              to
                Stockholders
            
            
            Average
                Shares
              Outstanding
            
            
            Per-shareBasic
                Earnings per Share
            
            $
            1,753,540
            
            
            
            2,760,860
            
            
            
            0.63Effect
                of Dilutive Securities: Stock Options
            
            
            
            
            
            
            75,319Diluted
                Earnings per Share
            
            $
            1,753,540
            
            
            
            2,836,179
            
            
            
            0.62





For
                three months ended March 31, 2006Income
                Available
              to
                Stockholders
            
            
            Average
                Shares
              Outstanding
            
            
            Per-shareBasic
                Earnings per Share
            
            $
            1,564,325
            
            
            
            2,789,500
            
            
            
            0.56Effect
                of Dilutive Securities: Stock Options
            
            
            
            
            
            
            118,108Diluted
                Earnings per Share
            
            $
            1,564,325
            
            
            
            2,907,608
            
            
            
            0.54





**Note
      5: Other Comprehensive Income**





3/31/2007
            
            
            3/31/2006Unrealized
                losses on
            
            $
            (673,850
            )
            
            
            (630,930
            )available-for-sale
                securitiesLess:
                Reclassification adjustment forrealized
                gains included in income
            
            
            (192,616
            )
            
            
            (198,424
            )Other
                comprehensive loss, before tax effect
            
            
            (481,234
            )
            
            
            (432,506
            )Tax
                benefit
            
            
            (178,057
            )
            
            
            (180,739
            )Other
                Comprehensive Loss
            
            $
            (303,177
            )
            
            
            (251,767
            )




9
 *Table
            of Contents*




**Note
      6: Change in Accounting Principle**





In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48 (FIN 48), *Accounting for Uncertainty in Income Taxes - an
      Interpretation of SFAS No. 109 - Accounting for Income Taxes*. This
      interpretation addresses accounting for tax uncertainties that arise when a
      position that an entity takes on its tax return may be different from the
      position that the taxing authority may take, and provides guidance about the
      accounting for tax benefits associated with uncertain tax positions,
      classification of a liability recognized for those positions, and interim
      reporting considerations. This Interpretation requires that the Company
      recognize in its financial statements, the impact of a tax position, if that
      position is more likely than not of being sustained on audit. The provisions
      of
      FIN 48 were effective as of January 1, 2007, with any cumulative effect of
      the
      change in accounting principle recorded as an adjustment to retained earnings.
      The adoption of this standard did not have a material impact on the consolidated
      financial condition or results of operations of the Company.  The
      Company’s federal and state income tax returns are open and subject to
      examinations from the 2004 tax year and forward.




**Item2.  Management’s
        Discussion and Analysis of
        Financial Condition and Results of Operations**




**General**


The
      primary function of the Company has been to monitor its investment in the Bank.
      As a result, the results of operations of the Company are derived primarily
      from
      operations of the Bank. The Bank’s results of operations are primarily dependent
      on net interest margin, which is the difference between interest income on
      interest-earning assets and interest expense on interest-bearing
      liabilities.  The Bank’s income is also affected by the level of its
      noninterest expenses, such as employee salaries and benefits, occupancy expenses
      and other expenses.  The following discussion reviews the Company’s
      financial condition as of March 31, 2007, and the results of operations for
      the
      three months ended March 31, 2007 and 2006.





The
      discussion set forth below, as well as other portions of this Form 10-Q, may
      contain forward-looking comments. Such comments are based upon the information
      currently available to management of the Company and management’s perception
      thereof as of the date of this Form 10-Q.  When used in this Form
      10-Q, words such as “anticipates,” “estimates,” “believes,” “expects,” and
      similar expressions are intended to identify forward-looking statements but
      are
      not the exclusive means of identifying such statements.  Such
      statements are subject to risks and uncertainties.  Actual results of
      the Company’s operations could materially differ from those forward-looking
      comments.  The differences could be caused by a number of factors or
      combination of factors including, but not limited to: changes in demand for
      banking services; changes in portfolio composition; changes in management
      strategy; increased competition from both bank and non-bank companies; changes
      in the general level of interest rates; and other factors set forth in reports
      and other documents filed by the Company with the Securities and Exchange
      Commission from time to time, including the risk factors described under Item
      1A. of the Company’s Form 10-K for the fiscal year ended December 31,
      2006.




**Financial
      Condition**


The
      Company’s total assets decreased $11,941,417 from $524,844,995 as of December
      31, 2006, to $512,903,578 as of March 31, 2007.





Cash
      and
      cash equivalents increased $254,072 (2%) from $14,880,601 as of December 31,
      2006, to $15,134,673 as of March 31, 2007.





Securities
      available-for-sale decreased $510,760 (6%) from $7,906,321 as of December 31,
      2006, to $7,395,561 as of March 31, 2007.  The Bank currently holds
      33,600 shares of Federal Home Loan Mortgage Corporation (“FHLMC”) stock with an
      amortized cost of $32,910 in the available-for-sale category.  As of
      March 31, 2007, the gross unrealized gain on the FHLMC stock was $1,965,954,
      a
      decrease from $2,449,293 as of December 31, 2006.





Securities
      held-to-maturity decreased primarily due to principal repayments by $30,780
      (4%)
      from $763,025 as of December 31, 2006, to $732,245 as of March 31,
      2007.





Stock
      in
      Federal Home Loan Bank of Des Moines (“FHLB”) decreased by $1,836,657 (34%), due
      to the redemption of such stock to continue to maintain a level to meet FHLB
      advance requirements.





10
 *Table
            of Contents*




Net
      loans
      receivable decreased by $10,643,012 (2%) from $477,264,522 as of December 31,
      2006, to $466,621,510 as of March 31, 2007.  Commercial loans
      decreased $15,315,556 (18%) from $82,675,514 as of December 31, 2006, to
      $67,359,958 as of March 31, 2007 due to several unexpected
      payoffs.  Commercial real estate loans increased by $2,714,608 (2%)
      from $155,800,918 as of December 31, 2006, to $158,515,526 as of March 31,
      2007.
      Permanent multi-family loans decreased by $1,951,745 (4%).  The Bank
      continued to be active in construction lending.  Construction loans
      increased by $4,494,494 (5%) to $88,461,470 as of March 31, 2007, compared
      to
      $83,966,976 as of December 31, 2006. Loan growth is anticipated in future
      quarters and represents a major part of the Bank’s planned asset
      growth.





Allowance
      for loan losses decreased $179,202 (3%) from $5,783,477 as of December 31,
      2006
      to $5,604,275 as of March 31, 2007. The allowance decreased due to net loan
      charge-offs of $389,202 exceeding the provision for loan losses of $210,000
      recorded during the period.  Management of the Company decided to
      record a provision for loan losses to partially offset the net charge-offs
      for
      the period and maintain the allowance at a level in accordance with management’s
      methodology.  See discussion under “Results of Operations – Comparison
      of Three Month Periods Ended March 31, 2007 and 2006 – Provision for Loan
      Losses.”   The allowance for loan losses as of March 31, 2007 and
      December 31, 2006 was 1.20% of net loans outstanding.





Deposits
      increased $29,297,474 (8%) from $352,229,636 as of December 31, 2006, to
      $381,527,110 as of March 31, 2007.  For the three months ended March
      31, 2007, checking and savings accounts increased by $23,540,327 and
      certificates of deposits increased by $5,757,147.  The increase in
      checking and savings was due to the Bank’s continued emphasis on developing
      commercial checking business.  The increase in certificates of deposit
      was primarily due to the Company’s emphasis on retail customers offset by a
      decrease in brokered deposits.  As a result, retail certificates of
      deposits increased $18,254,118 (10%) during the period.  During the
      same period brokered certificates of deposit decreased $12,199,971
      (42%).  See also the discussion under “Quantitative and Qualitative
      Disclosure about Market Risk – Asset/Liability Management.”





FHLB
      advances decreased by $42,414,000 from $108,000,000 as of December 31, 2006,
      to
      $65,586,000 as of March 31, 2007, due to repayments exceeding new advances.
      This
      was done through the funds generated from deposit growth and the decrease in
      net
      loans receivable.





Stockholders’
      equity (including unrealized appreciation on securities available-for-sale,
      net
      of tax) increased $979,962 (2%) from $44,899,243 as of December 31, 2006, to
      $45,879,205 as of March 31, 2007. The Company’s net income during this period
      was $1,753,540 which was partially offset by dividends in the amount
      of  $468,855 which were declared on March 22, 2007 and paid on April
      13, 2007, to stockholders’ of record as of April 3, 2007.  In
      addition, the increase in stockholders’ equity was further offset as the
      Company repurchased 33,609 shares of treasury stock at an aggregate cost of
      $985,319 (an average cost of $29.32 per share) and a decrease in unrealized
      appreciation on available for sale securities, net of taxes, of $303,177 during
      this period.  On a per share basis, stockholders’ equity increased
      from $16.30 as of December 31, 2006 to $16.53 as of March 31, 2007.




**Average
        Balances, Interest and Average Yields**




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





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





11
 *Table
            of Contents*




Three
                Months ended 3/31/2007
            
            
            Three
                Months ended 3/31/2006Average
              Balance
            
            
            Interest
            
            
            Yield
                /
              Cost
            
            
            Average
              Balance
            
            
            Interest
            
            
            Yield
                /
              Cost**ASSETS**Interest-earning:Loans
            
            $
            478,767
            
            
            
            9,343
            
            
            
            7.81
            %
            
            $
            444,633
            
            
            
            7,885
            
            
            
            7.09
            %Investment
                securities
            
            
            8,480
            
            
            
            97
            
            
            
            4.59
            %
            
            
            9,791
            
            
            
            102
            
            
            
            4.17
            %Other
                assets
            
            
            8,968
            
            
            
            81
            
            
            
            3.62
            %
            
            
            6,950
            
            
            
            91
            
            
            
            5.24
            %Total
                interest-earning
            
            
            496,215
            
            
            
            9,522
            
            
            
            7.68
            %
            
            
            461,374
            
            
            
            8,078
            
            
            
            7.00
            %Noninterest-earning
            
            
            16,803
            
            
            
            
            
            
            
            
            
            
            
            15,737$
            513,018
            
            
            
            
            
            
            
            
            
            
            $
            477,111**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Interest-bearing:Savings
                accounts
            
            $
            14,804
            
            
            
            95
            
            
            
            2.57
            %
            
            $
            13,958
            
            
            
            64
            
            
            
            1.83
            %Transaction
                accounts
            
            
            93,044
            
            
            
            653
            
            
            
            2.81
            %
            
            
            76,139
            
            
            
            351
            
            
            
            1.84
            %Certificates
                of deposit
            
            
            225,504
            
            
            
            2,757
            
            
            
            4.89
            %
            
            
            192,408
            
            
            
            1,855
            
            
            
            3.86
            %FHLB
                Advances
            
            
            88,300
            
            
            
            1,175
            
            
            
            5.32
            %
            
            
            104,776
            
            
            
            1,223
            
            
            
            4.67
            %Subordinated
                debentures
            
            
            15,465
            
            
            
            257
            
            
            
            6.65
            %
            
            
            15,465
            
            
            
            256
            
            
            
            6.62
            %Other
                borrowed funds
            
            
            1,465
            
            
            
            10
            
            
            
            2.73
            %
            
            
            3,638
            
            
            
            21
            
            
            
            2.31
            %Total

                interest-bearing
            
            
            438,582
            
            
            
            4,947
            
            
            
            4.51
            %
            
            
            406,384
            
            
            
            3,770
            
            
            
            3.71
            %Noninterest-bearing
            
            
            28,237
            
            
            
            
            
            
            
            
            
            
            
            27,458Total
                liabilities
            
            
            466,819
            
            
            
            
            
            
            
            
            
            
            
            433,842Stockholders’
                equity
            
            
            46,199
            
            
            
            
            
            
            
            
            
            
            
            43,269$
            513,018
            
            
            
            
            
            
            
            
            
            
            $
            477,111Net
                earning balance
            
            $
            57,633
            
            
            
            
            
            
            
            
            
            
            $
            54,990Earning
                yield less costing rate
            
            
            
            
            
            
            
            
            
            
            3.16
            %
            
            
            
            
            
            
            
            
            
            
            3.29
            %Net
                interest income, and net yield spread on interest earning
                assets
            
            
            
            
            
            $
            4,575
            
            
            
            3.69
            %
            
            
            
            
            
            $
            4,308
            
            
            
            3.73
            %Ratio
                of interest-earning assets to interest-bearing liabilities
            
            
            
            
            
            
            113
            %
            
            
            
            
            
            
            
            
            
            
            114
            %




**Results
        of Operations - Comparison of Three Month Periods Ended March 31, 2007 and
        2006**




Net
      income for the three months ended March 31, 2007 was $1,753,540 as compared
      to
      $1,564,325 for the three months ended March 31, 2006, which represents an
      increase in earnings of $189,215 (12%) for the three month period ended March
      31, 2007.





**Interest
      Income**





Total
      interest income for the three months ended March 31, 2007, increased $1,443,956
      (18%) as compared to the three months ended March 31, 2006.  For the
      three month period ended March 31, 2007 compared to the same period in 2006,
      the
      average yield on interest earning assets increased 68 basis points to 7.68%,
      and
      the average balance of interest earnings assets increased approximately
      $34,841,000.





12
 *Table
            of Contents*




**Interest
      Expense**





Total
      interest expense for the three months ended March 31, 2007, increased $1,177,064
      (31%) when compared to the three months ended March 31, 2006.  For the
      three month period ended March 31, 2007, the average cost of interest bearing
      liabilities increased 80 basis points to 4.51%, and the average balance of
      interest bearing liabilities increased approximately $32,198,000 when compared
      to the same period in 2006.





**Net
      Interest Income**





Net
      interest income for the three months ended March 31, 2007, increased $266,892
      (6%) when compared to the same period in 2006. The average balance of interest
      earning assets increased by approximately $2,643,000 more than the average
      balance in interest bearing liabilities increased when comparing the three
      month
      period ended March 31, 2007 to the same period in 2006.  For the three
      month period ended March 31, 2007, the earning yield minus the costing rate
      spread decreased 13 basis points to 3.16% when compared to the same period
      in
      2006.





**Provision
      for Loan Losses**





Based
      on
      its internal analysis and methodology, management recorded a provision for
      loan
      loss of $210,000 for the three months ended March 31, 2007, compared to $225,000
      for the same period in 2006.  The Bank will continue to monitor its
      allowance for loan losses and make future additions based on economic and
      regulatory conditions.  Management of the Company anticipates the need
      to continue increasing the allowance for loan losses through charges to the
      provision for loan losses as anticipated growth in the Bank’s loan portfolio
      increases or other circumstances warrant.  Although the Bank maintains
      its allowance for loan losses at a level which it considers to be sufficient
      to
      provide for potential loan losses in its existing loan portfolio, there can
      be
      no assurance that future loan losses will not exceed internal
      estimates.  In addition, the amount of the allowance for loan losses
      is subject to review by regulatory agencies which can order the establishment
      of
      additional loan loss provisions.





**Noninterest
      Income**





Noninterest
      income increased $443,610 (54%) for the three months ended March 31, 2007 when
      compared to the three months ended March 31, 2006.





Service
      charges on transaction accounts increased by $240,227 (77%) during the three
      months ended March 31, 2007 when compared to the same period in
      2006.  This is a result of an increase in the amount of insufficient
      funds and overdraft charges during this period when compared to the same period
      in 2006.  This is primarily due to the Bank’s overdraft privilege
      program that was implemented in the fourth quarter of 2006.





Gain
      on
      sale of loans increased $173,124 (145%) for the three months ended March 31,
      2007 when compared to the same period in 2006, which was a result of an increase
      in the volume and yield of mortgage loans sold on the secondary market during
      the three months ended March 31, 2007, compared to the same period in
      2006.





Other
      income increased $68,958 (69%) for the three months ended March 31, 2007 when
      compared to the same period in 2006.  This increase was primarily due
      to an increase in the amount of ATM fees collected during the three months
      ended
      March 31, 2007, compared to the same period in 2006.  The Bank
      converted to a new ATM network provider in September 2006.   The
      income is collected daily and recorded at gross, rather than net of expenses
      as
      was previously done prior to the conversion.  Currently, the
      associated expenses related to ATM services are recorded in noninterest expense
      under other expense.




13
 *Table
            of Contents*




**Noninterest
      Expense**





Noninterest
      expense increased $507,154 (21%) for the three months ended March 31, 2007
      when
      compared to the three months ended March 31, 2006.





Salaries
      and employee benefits increased $299,794 (21%) for the three months ended March
      31, 2007 when compared to the same period in 2006.  This increase was
      due to several factors, including additions in executive and staff positions,
      pay increases to existing employees and increases in employee benefit costs
      during the three month period ended March 31, 2007 when compared to the same
      period in 2006.





Occupancy
      expense increased $94,438 (30%) and data processing expense increased $42,566
      (77%) for the three months ended March 31, 2007 when compared to the same period
      in 2006.  These increases were primarily due to increased depreciation
      and maintenance expenses relating to the Bank’s conversion to a new core
      processing system in 2006.





Other
      expense increased $72,749 (17%) for the three months ended March 31, 2007 when
      compared to the same period in 2006.  This increase was primarily due
      to an increase in the amount of ATM expenses during the three months ended
      March
      31, 2007, compared to the same period in 2006.  The Bank converted to
      a new ATM network provider in September 2006.   The expense is
      recorded at gross, rather than net of income earned as was previously done
      prior
      to the conversion.  Currently, the associated income related to ATM
      services is recorded in noninterest income.





**Provision
      for Income Taxes**





There
      was
      an increase of $29,133 (3%) in the provision for income taxes for the three
      months ended March 31, 2007 as compared to the same period in 2006 due to an
      increase in taxable income for the three months ended March 31, 2007, compared
      to the same period in 2006.




**Nonperforming
        Assets**




The
      allowance for loan losses is calculated based upon an evaluation of pertinent
      factors underlying the various types and quality of the Bank’s existing loan
      portfolio.  When making such evaluation, management considers such
      factors as the repayment status of its loans, the estimated net realizable
      value
      of the underlying collateral, borrowers’ intent (to the extent known by the
      Bank) and ability to repay the loan, local economic conditions and the Bank’s
      historical loss ratios.  The Bank’s allowance for loan losses as of
      March 31, 2007, was $5,604,275 or 1.20% of net loans
      receivable.  Total loans classified as substandard, doubtful or loss
      as of March 31, 2007, were $6,703,147 or 1.31% of total
      assets.  Management considered nonperforming and total classified
      loans in evaluating the adequacy of the Bank’s allowance for loan
      losses.





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




3/31/2007
            
            
            12/31/2006
            
            
            12/31/2005Nonperforming
                loans
            
            $
            942
            
            
            
            2,748
            
            
            
            721Real
                estate acquired in settlement of loans
            
            
            1,665
            
            
            
            173
            
            
            
            27Total
                nonperforming assets
            
            $
            2,607
            
            
            
            2,921
            
            
            
            748Total
                nonperforming assets as a percentage of total assets
            
            
            0.51
            %
            
            
            0.56
            %
            
            
            0.16
            %Allowance
                for loan losses
            
            $
            5,604
            
            
            
            5,783
            
            
            
            5,400Allowance
                for loan losses as a percentage of net loans
            
            
            1.20
            %
            
            
            1.20
            %
            
            
            1.25
            %




14
 *Table
            of Contents*




**Liquidity
        and Capital Resources**


The
      Bank’s primary sources of funds are deposits, principal and interest payments on
      loans and mortgage-backed securities, proceeds from maturing investment
      securities and extensions of credit from FHLB.  While scheduled loan
      and security repayments and the maturity of short-term investments are somewhat
      predictable sources of funding, deposit flows are influenced by many factors,
      which make their cash flows difficult to anticipate.





The
      Bank
      uses its liquidity resources principally to satisfy its ongoing commitments
      which include funding loan commitments, funding maturing certificates of deposit
      as well as deposit withdrawals, maintaining liquidity, purchasing investments,
      and meeting operating expenses.  Management believes that anticipated
      cash flows and deposit growth will be adequate to meet the Bank’s liquidity
      needs.




**Item
      3.  Quantitative and Qualitative Disclosures about
      Market Risk**


**Asset/Liability
          Management**


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





As
      a part
      of its asset and liability management strategy and throughout the past several
      years, the Bank has continued to emphasize the origination of adjustable-rate,
      one- to four-family residential loans and adjustable-rate or relatively
      short-term commercial real estate, commercial business and consumer loans,
      while
      originating fixed-rate, one- to four-family residential loans primarily for
      immediate resale in the secondary market on either a service-retained basis
      or
      service-released basis. This allows the Bank to serve the customer’s needs and
      retain a banking relationship with respect to such fixed-rate residential loans,
      while limiting its exposure to the risk associated with  carrying a
      long-term fixed-rate loan in its loan portfolio.





The
      Bank
      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.  The Bank believes, based on
      historical experience, that a substantial portion of such accounts represents
      non-interest rate sensitive core deposits.





**Interest
      Rate Sensitivity Analysis**





The
      following table sets forth as of March 31, 2007 management’s estimates of the
      projected changes in net portfolio value (“NPV”) in the event of 100, 200, and
      300 basis point (“bp”) instantaneous and permanent increases and  100,
      200 and 300 basis point instantaneous and permanent decreases in market interest
      rates.  Dollar amounts are expressed in thousands.





15
 *Table
            of Contents*




BP
                Change
            
            
            Estimated
                Net Portfolio Value
            
            
            NPV
                as % of PV of Assetsin
                Rates
            
            
            $
                Amount
            
            
            $
                Change
            
            
            %
                Change
            
            
            NPV
                Ratio
            
            
            Change+300
            
            
            $
            43,574
            
            
            $
            51
            
            
            
            0
            %
            
            
            8.73
            %
            
            
            0.19
            %+200
            
            
            
            44,263
            
            
            
            740
            
            
            
            2
            %
            
            
            8.80
            %
            
            
            0.26
            %+100
            
            
            
            44,376
            
            
            
            853
            
            
            
            2
            %
            
            
            8.76
            %
            
            
            0.22
            %NC
            
            
            
            43,523
            
            
            
            -
            
            
            
            -
            
            
            
            8.54
            %
            
            
            --100
            
            
            
            41,982
            
            
            
            (1,541
            )
            
            
            -4
            %
            
            
            8.20
            %
            
            
            -0.34
            %-200
            
            
            
            39,897
            
            
            
            (3,626
            )
            
            
            -8
            %
            
            
            7.76
            %
            
            
            -0.79
            %-300
            
            
            
            37,254
            
            
            
            (6,269
            )
            
            
            -14
            %
            
            
            7.21
            %
            
            
            -1.33
            %





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





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





The
      Bank’s Board of Directors (the “Board”) is responsible for reviewing the Bank’s
      asset and liability policies.  The Board meets quarterly to review
      interest rate risk and trends, as well as liquidity and capital ratios and
      requirements.  The Bank’s management is responsible for administering
      the policies and determinations of the Board with respect to the Bank’s asset
      and liability goals and strategies.





**Impact
      of New Accounting Pronouncements**





In
      March
      2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
      156, *Accounting for Servicing of Financial Assets.* SFAS No. 156 amends
      SFAS No. 140, *Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities,*and specifies the accounting for certain
      servicing assets and liabilities, such as those common to mortgage servicing
      activities. SFAS No. 156 requires an entity to separately recognize servicing
      assets and servicing liabilities and to initially measure these servicing assets
      and servicing liabilities at fair value at inception. It also permits an entity
      with a separately recognized servicing asset or servicing liability to choose
      either the amortization method or fair value method for subsequent measurement.
      Adoption of SFAS No. 156 was required for transactions beginning January 1,
      2007. The adoption of this standard did not have a material impact on the
      consolidated financial condition or results of operations of the
      Company.





In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48 (FIN 48), *Accounting for Uncertainty in Income Taxes - an
      Interpretation of SFAS No. 109 - Accounting for Income Taxes*. This
      interpretation addresses accounting for tax uncertainties that arise when a
      position that an entity takes on its tax return may be different from the
      position that the taxing authority may take, and provides guidance about the
      accounting for tax benefits associated with uncertain tax positions,
      classification of a liability recognized for those positions, and interim
      reporting considerations. This Interpretation requires that the Company
      recognize in its financial statements, the impact of a tax position, if that
      position is more likely than not of being sustained on audit. The provisions
      of
      FIN 48 were effective as of January 1, 2007, with any cumulative effect of
      the
      change in accounting principle recorded as an adjustment to retained earnings.
      The adoption of this standard did not have a material impact on the consolidated
      financial condition or results of operations of the Company.





16
 *Table
            of Contents*




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin (SAB) No. 108, *Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements*. SAB No. 108 was issued to provide guidance on how the
      effects of prior year uncorrected misstatements should be considered when
      quantifying misstatements in current year financial statements. SAB No. 108
      requires an entity to quantify misstatements using both a balance sheet and
      an
      income statement approach and to evaluate whether either approach results in
      quantifying an error that is material in light of the relevant quantitative
      and
      qualitative factors. SAB No. 108 was effective beginning January 1,
      2007.  The adoption of this standard did not have a material impact on
      the consolidated financial condition or results of operations of the
      Company.





In
      September 2006, the FASB issued SFAS No. 157, *Fair Value
      Measurements*. This Statement defines fair value, establishes a framework
      for measuring fair value in generally accepted accounting principles and expands
      disclosure related to the use of fair value measures in financial statements.
      This Statement applies under other accounting pronouncements that require or
      permit fair value measurements, and does not expand the use of fair value
      measures in financial statements, but standardizes its definition and guidance
      in generally accepted accounting principles. SFAS No. 157 emphasizes that
      fair value is a market-based measurement based on an exchange transaction
      between market participants in which an entity sells an asset or transfers
      a
      liability. SFAS No. 157 also establishes a fair value hierarchy from observable
      market data as the highest level to fair value based on an entity's own fair
      value assumptions as the lowest level. The Statement is to be effective for
      financial statements issued for fiscal years beginning after November 15,
      2007, with early adoption permitted. The Company is evaluating this Statement
      to
      determine the impact, if any, on certain of its financial assets and
      liabilities.





In
      February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for
      Financial Assets and Financial Liabilities*. SFAS No. 159 provides companies
      with the option to report selected financial assets and liabilities at fair
      value. Under the option, any changes in fair value would be included in
      earnings. This Statement seeks to reduce both complexity in accounting and
      volatility in earnings caused by differences in the existing accounting rules.
      Existing accounting principles use different measurement attributes for
      different assets and liabilities, which can lead to earnings volatility. This
      Statement helps to mitigate this type of accounting-induced volatility by
      enabling companies to achieve a more consistent accounting for changes in the
      fair value of related assets and liabilities without having to apply complex
      hedge accounting provisions. Under this Statement, entities may measure at
      fair
      value financial assets and liabilities selected on a contract-by-contract basis.
      They would be required to display those values separately from those measured
      under different attributes on the face of the statement of financial condition.
      Furthermore, companies must provide additional information that would help
      investors and other users of financial statements to more easily understand
      the
      effect on earnings. SFAS No. 159 is effective for fiscal years beginning after
      November 15, 2007, with earlier application permitted if the Company makes
      this
      election during its first quarter of fiscal year 2007. If the Company adopts
      SFAS No. 159 early, it must also adopt SFAS No. 157 simultaneously. The Company
      did not elect to adopt this Statement early and is currently evaluating the
      provisions of the Statement to determine the impact, if any, on certain of
      its
      financial assets and liabilities.





**Item
      4. Controls and Procedures**





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





17
 *Table
            of Contents*




The
      Company conducted an evaluation, under the supervision and with the
      participation of the Company’s management, including the Company’s Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      Company’s disclosure controls and procedures.   Based on the
      foregoing, the Company’s Chief Executive Officer and Chief Financial Officer
      concluded that the Company’s disclosure controls and procedures were effective
      as of March 31, 2007.





(b)  There
      have been no changes in the Company’s internal control over financial reporting
      during the quarter ended March 31, 2007 that have materially affected, or are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




18
 *Table
            of Contents*




**PART
      II**





**Item1.**
            **Legal
                Proceedings**


None.





**Item
                1A.**
            **Risk
                Factors**


Not
      applicable.





**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds**





The
      following table summarizes the repurchase activity of the Company’s common stock
      during the Company’s first quarter ended March 31, 2007.





**ISSUER
      PURCHASES OF EQUITY SECURITIES**





Period
            
            (a)
                Total Number of
              Shares
                Purchased
            
            
            (b)
                Average Price
              Paid
                per Share
            
            
            (c)
                Total Number of
              Shares
                Purchased as Part
              of
                Publicly Announced
              Plans
                or Programs (1)
            
            
            (d)
                Maximum
              Number
                of Shares
              that
                May Yet Be
              Purchased
                Under the
              Plans
                or ProgramsJanuary
                1, 2007 to January 31, 2007
            
            
            1,350
            
            
            $
            29.39
            
            
            
            1,350
            
            
            
            162,127February
                1, 2007 to February 28, 2007
            
            
            19,259
            
            
            $
            29.31
            
            
            
            19,259
            
            
            
            142,868March
                1, 2007 to March 31, 2007
            
            
            13,000
            
            
            $
            29.32
            
            
            
            13,000
            
            
            
            129,868Total
            
            
            33,609
            
            
            $
            29.32
            
            
            
            33,609




(1)
            The
                Company has a repurchase plan which was announced on July 25,
                2006.  This plan authorizes the purchase by the Company of up to
                250,000 shares of the Company’s common stock.  There is no
                expiration date for this plan.  There are no other repurchase
                plans in effect at this time.





**Item
                3.**
            **Defaults
                Upon Senior Securities**


Not
      applicable.





**Item
                4.**
            **Submission
                of Matters to a Vote of Common Security
                Holders**


Not
      applicable.





**Item
                5.**
            **Other
                Information**


None.





**Item6.**
            **Exhibits**





11.
            Statement
                re computation of per share earnings (set forth in “Note 4: Earnings Per
                Share” of the Notes to Condensed Consolidated Financial Statements
                (unaudited))


31(i).1
            Certification
                of the Principal Executive Officer pursuant to Rule 13a -14(a) of
                the
                Exchange Act


31(i).2
            Certification
                of the Principal Financial Officer pursuant to Rule 13a - 14(a) of
                the
                Exchange Act


32.1
            CEO
                certification pursuant to 18 U.S.C. Section
                1350


32.2
            CFO
                certification pursuant to 18 U.S.C. Section
                1350




19
 *Table
            of Contents*




**SIGNATURES**





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





Guaranty
                Federal Bancshares, Inc.**Signature
                and Title**
            
            **Date**/s/
                Shaun A. Burke
            
            May
                15, 2007Shaun
                A. BurkePresident
                and Chief Executive Officer(Principal
                Executive Officer and Duly Authorized Officer)/s/
                Carter Peters
            
            May
                15, 2007Carter
                PetersExecutive
                Vice President and Chief Financial Officer(Principal
                Financial and Accounting Officer)




20