10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

________________________

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the fiscal year ended          December 31, 2007      

- or -

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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 Incorporation	(I.R.S. Employer Identification No.)
or Organization)

1341 West Battlefield, Springfield, Missouri	65807
(Address of Principal Executive Offices)	(Zip Code)

Registrant's telephone number, including area code:  (417) 520-4333

Securities registered pursuant to Section 12(b) of the Act:  Common Stock, par value $.10 per share

(Title of Class)

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.   Yes o    No x

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 o    No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x.

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated file  o Accelerated filer  o Non-accelerated filer  o  Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o    No x

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the average bid and asked prices of the registrant's Common Stock as quoted on the Global Market of The NASDAQ Stock Market on June 30, 2007 (the last business day of the registrant’s most recently completed second quarter) was $70.3 million.  As of March 18, 2008 there were 2,706,675 shares of the registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to Stockholders (the “2007 Annual Report”) for the fiscal year ended December 31, 2007 (Parts I and II).

2. Portions of the Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”)to be held on May 28, 2008 (Part III).

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GUARANTY FEDERAL BANCSHARES, INC.

Form 10-K

TABLE OF CONTENTS

	Item		Page
		PART I
	1	Business	5
	1A	Risk Factors	29
	1B	Unresolved Staff Comments	31
	2	Properties	31
	3	Legal Proceedings	31
	4	Submission of Matters to a Vote of Security Holders	31
		PART II
	5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
	6	Selected Financial Data	33
	7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
	7A.	Quantitative and Qualitative Disclosures About Market Risk	33
	8	Financial Statements and Supplementary Data	33
	9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	33
	9A.(T)	Controls and Procedures	33
	9B.	Other Information	34
		PART III
	10	Directors, Executive Officers and Corporate Governance	35
	11	Executive Compensation	35
	12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
	13	Certain Relationships and Related Transactions, and Director Independence	37
	14	Principal Accountant Fees and Services	37
		PART IV
	15	Exhibits and Financial Statement Schedules	38
Signatures

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

GUARANTY FEDERAL BANCSHARES, INC. (THE "COMPANY") MAY FROM TIME TO TIME MAKE WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), IN ITS REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY, WHICH ARE MADE IN GOOD FAITH BY THE COMPANY PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, WORDS SUCH AS “ANTICIPATES,” “ESTIMATES,” “BELIEVES,” “EXPECTS,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS.

THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL).  THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE THE COMPANY'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THE PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE COMPANY CONDUCTS OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, INFLATION, INTEREST RATES, MARKET AND MONETARY FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND SERVICES OF THE COMPANY AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS AND SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES; THE SUCCESS OF THE COMPANY IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS AND SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING AND SAVING HABITS; THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS RESULTING FROM THESE FACTORS; AND OTHER FACTORS SET FORTH IN REPORTS AND OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.  FOR FURTHER INFORMATION ABOUT THESE AND OTHER RISKS, UNCERTAINTIES AND FACTORS, PLEASE REVIEW THE DISCLOSURE INCLUDED IN ITEM 1A. OF THIS FORM 10-K.

THE COMPANY CAUTIONS THAT THE LISTED FACTORS ARE NOT EXCLUSIVE.  THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

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PART I

Item 1.  Business

Business of the Company

Guaranty Federal Bancshares, Inc. (the “Company”) is a Delaware-chartered corporation that was created in September 1997 at the direction of Guaranty Federal Savings Bank, a federal savings bank (the "Bank").  The Company became a unitary savings and loan holding company for the Bank on December 30, 1997, in connection with a plan of conversion and reorganization involving the Bank and its then existing mutual holding company.  The mutual holding company structure had been created in April 1995 at which time more than a majority of the shares of the Bank were issued to the mutual holding company and the remaining shares were sold in a public offering.  In connection with the conversion and reorganization on December 30, 1997, the shares of the Bank held by the mutual holding company were extinguished along with the mutual holding company, and the shares of the Bank held by the public were exchanged for shares of the Company.  All of the shares of the Bank which remained outstanding after the conversion are owned by the Company.  Shares of the Company were issued on December 30, 1997.

On June 27, 2003, the Bank converted from a federal savings bank to a state-chartered trust company with banking powers in Missouri, and the Company became a bank holding company.  On this date, the name of the Bank was changed from Guaranty Federal Savings Bank to Guaranty Bank.  The primary activity of the Company is to oversee its investment in the Bank.  The Company engages in few other activities.  For this reason, unless otherwise specified, references to the Company include operations of the Bank.  Further, information in a chart or table based on Bank only data is identical to or immaterially different from information that would be provided on a consolidated basis.  In addition to the Bank, the Company owns Guaranty Statutory Trust I and Guaranty Statutory Trust II, both Delaware statutory trusts.

In 2003, the Company changed its fiscal year end from June 30 to a calendar year end of December 31.  As a result, the Company reported a six month transition period ended December 31, 2003 (the “Transition Period”) in order to change to this new calendar year end.

Business of the Bank

The Bank's principal business has been, and continues to be, attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, in permanent one-to four-family residential mortgage loans, multi-family residential mortgage loans, construction loans, commercial real estate loans, and consumer and other loans.  The Bank also invests in mortgage-backed securities, U.S. Government and federal agency securities and other marketable securities.  The Bank's revenues are derived principally from interest on its loans and other investments and fees charged for services provided, and gains generated from sales of loans and investment securities, and 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 primary sources of funds are: deposits; borrowings; amortization and prepayments of loan principal; and amortizations, prepayments and maturities of investment securities.

The Bank is regulated by the Missouri Division of Finance and its deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC").  See discussion under section captioned “Regulation” in this report.  The Bank is a member of the Federal Home Loan Bank of Des Moines (the “FHLB”), which is one of twelve regional Federal Home Loan Banks.  As a member, the Bank is required to purchase and maintain stock in the FHLB in an amount equal to 0.12% of its assets plus 4.45% of its outstanding FHLB advances.  At December 31, 2007, the Bank had $4,014,700 in FHLB stock, which was in compliance with this requirement.  

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Information regarding (i) average balances related to interest earning assets and interest bearing liabilities and an analysis of net interest earnings for the last three fiscal years and (ii) changes in interest income and interest expense resulting from changes in average balances and average rates for the last two fiscal years is provided under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Average Balances, Interest and Averages Yields” of the 2007 Annual Report is incorporated herein by reference.

Market Area

The Bank's primary market areas are Greene and ChristianCounties, which are in the southwestern corner of Missouri and includes the cities of Springfield and Nixa,Missouri.  There is a large regional health care presence with two large regional hospitals.  There also are four accredited colleges and one major university.  Part of the area’s growth can be attributed to its proximity to Branson, Missouri, which has developed a strong tourism industry related to country music and entertainment.  Branson is located 30 miles south of Springfield, and attracts between five and six million tourists each year, many of whom pass through Springfield.

Lending Activities

Set forth below is selected data relating to the composition of the Bank’s loan portfolio at the dates indicated:

	As of December 31,
	2007				2006				2005				2004				2003
	$		%		$		%		$		%		$		%		$		%
	Dollars in Thousands
Mortgage loans (includes loans held for sale):
One to four family	$	85,160	16	%	$	89,650	18	%		103,532	23	%		121,307	31	%	$	129,477	37	%
Multi-family		41,948	8	%		50,366	10	%		53,631	12	%		52,259	13	%		44,242	13	%
Construction		89,724	17	%		83,967	17	%		70,390	16	%		45,090	11	%		49,814	14	%
Commercial real estate		175,995	34	%		155,801	32	%		122,884	28	%		97,550	25	%		72,105	21	%
Total mortgage loans		392,827	75	%		379,784	78	%		350,437	79	%		316,206	80	%		295,638	86	%
Commercial business loans		104,026	20	%		82,676	17	%		66,370	15	%		55,606	14	%		24,618	7	%
Consumer loans		25,576	5	%		23,708	5	%		24,264	6	%		25,172	6	%		25,441	7	%
Total consumer and other loans		129,602	25	%		106,384	22	%		90,634	21	%		80,778	20	%		50,059	14	%
Total loans		522,429	100	%		486,168	100	%		441,071	100	%		396,984	100	%		345,697	100	%
Less:
Loans in process		-				-				-				-				9,425
Deferred loan fees/costs, net		224				115				141				106				237
Unearned discounts		-				-				3				7				19
Allowance for loan losses		5,963				5,784				5,400				4,537				3,886
Total Loans, net	$	516,242			$	480,269				435,527				392,334			$	332,130

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The following table sets forth the maturity of the Bank's loan portfolio as of December 31, 2007.  The table shows loans that have adjustable rates as due in the period during which they contractually mature.  The table does not include prepayments or scheduled principal amortization.

Loan Maturities	Due in One Year or Less		Due After One Through Five Years		Due After Five Years		Total
	(Dollars in thousands)
One to four family	$	13,353		17,922		53,884		85,160
Multi family		14,460		8,434		19,054		41,948
Construction		77,556		12,169		-		89,724
Commercial real estate		83,383		91,239		1,372		175,995
Commercial loans		57,262		38,222		8,541		104,026
Consumer loans		3,309		6,468		15,800		25,576
Total loans (1)	$	249,323		174,455		98,651		522,429
Less:
Deferred loan fees/costs								224
Allowance for loan losses								5,963
Loans receivable net							$	516,242
(1) Includes mortgage loans held for sale of $2,142

The following table sets forth the dollar amount, before deductions for unearned discounts, deferred loan fees/costs and allowance for loan losses, as of December 31, 2007 of all loans due after December 2008, which have pre-determined interest rates and which have adjustable interest rates.

Fixed and Adjustable Rate Loans by Type
	Fixed Rates		Adjustable Rates		Total		% ARM
	(Dollars in Thousands)
One-to four-family	$	20,411		51,396		71,807		72	%
Multi-family		17,891		9,597		27,488		35	%
Construction		1,307		10,862		12,169		89	%
Commercial real estate		28,586		64,025		92,611		69	%
Commercial loans		10,786		35,977		46,763		77	%
Consumer loans		5,483		16,785		22,268		75	%
Total loans (1)	$	84,464		188,642		273,106		69	%
(1) Before deductions for unearned discounts, deferred loan fees/costs and allowances for loan losses.

One- to Four-Family Mortgage Loans.  The Bank offers fixed- and adjustable-rate (“ARM”) first mortgage loans secured by one- to four-family residences in the Bank's primary lending area.  Typically, such residences are single family homes that serve as the primary residence of the owner.  However, there are a significant number of loans originated by the Bank which are secured by non-owner occupied properties.  Loan originations are generally obtained from existing or past customers, members of the local community, attorney referrals, established builders, and realtors within the Bank's market area.  Originated mortgage loans in the Bank's portfolio include due-on-sale clauses which provide the Bank with the contractual right to deem the loan immediately due and payable in the event that the borrower transfers ownership of the property without the Bank's consent.

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As of December 31, 2007, $85.2 million or 16% of the Bank’s total loan portfolio consisted of one- to four-family residential loans, of which 72% were ARM loans.  The Bank currently offers ARM and balloon loans that have fixed interest rate periods of one to seven years. Generally, ARM loans provide for limits on the maximum interest rate adjustment ("caps") that can be made at the end of each applicable period and throughout the duration of the loan.  ARM loans are originated for a term of up to 30 years on owner-occupied properties and generally up to 25 years on non-owner occupied properties.  Typically, interest rate adjustments are calculated based on U.S. treasury securities adjusted to a constant maturity of one year (CMT), plus a 2.50% to 2.75% margin.  Interest rates charged on fixed-rate loans are competitively priced based on market conditions and the cost of funds existing at the time the loan is committed.  The Bank's fixed-rate mortgage loans are made for terms of 15 to 30 years which are currently being sold on the secondary market.

Generally, ARM loans pose credit risks different from the risks inherent in fixed-rate loans, primarily because as interest rates rise the underlying payments of the borrower rise, thereby increasing the potential for default.  At the same time, the marketability of the underlying property may be adversely affected by higher interest rates.  The Bank does not originate ARM loans that provide for negative amortization.

The Bank generally originates both owner occupied and non-owner occupied one- to four-family residential mortgage loans in amounts up to 80% of the appraised value or the selling price of the mortgaged property, whichever is lower.  The Bank on occasion may make loans up to 95% of appraised value or the selling price of the mortgage property, whichever is lower.  However, the Bank typically requires private mortgage insurance for the excess amount over 80% for mortgage loans with loan to value percentages greater than 80%.

Multi-Family Mortgage Loans.  The Bank originates multi-family mortgage loans in its primary lending area.  As of December 31, 2007, $41.9 million or 8% of the Bank's total loan portfolio consisted of multi-family residential real estate loans.  With regard to multi-family mortgage loans, the Bank generally requires personal guarantees of the principals as well as a security interest in the real estate.  Multi-family mortgage loans are generally originated in amounts of up to 80% of the appraised value of the property.  A portion of the Bank’s multi-family mortgage loans have been originated with adjustable rates of interest which are quoted at a spread to the FHLB advance rate for the initial fixed rate period with subsequent adjustments based on the Wall Street prime rate.  The loan-to-one-borrower limitation, $15.5 million as of December 31, 2007, is the maximum the Bank will lend on a multi-family residential real estate loan.

Loans secured by multi-family residential real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances.  This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans.  Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate property.  If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired.

Construction Loans.  As of December 31, 2007, construction loans totaled $89.7 million or 17% of the Bank's total loan portfolio.  Construction loans originated by the Bank are generally secured by permanent mortgage loans for the construction of owner-occupied residential real estate or to finance speculative construction secured by residential real estate or owner-operated commercial real estate. This portion of the Bank’s loan portfolio predominantly consists of speculative loans, i.e.,loans to builders who are speculating that they will be able to locate a purchaser for the underlying property prior to or shortly after the time construction has been completed.

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Construction loans are made to contractors who have sufficient financial strength and a proven track record, for the purpose of resale, as well as on a "pre-sold" basis.  Construction loans made for the purpose of resale generally provide for interest only payments at floating rates and have terms of six months to fifteen months.  Construction loans to a borrower who will occupy a home, or to a builder who has pre-sold the home, typically have loan to value ratios of up to 85%.  Construction loans for speculative purposes, models, and commercial properties typically have loan to value ratios of up to 80%.  Loan proceeds are disbursed in increments as construction progresses and as inspections warrant.

Construction lending by its nature entails significant additional risks as compared with one-to four-family mortgage lending, attributable primarily to the fact that funds are advanced upon the security of the project under construction prior to its completion.  As a result, construction lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower or guarantor to repay the loan.  Because of these factors, the analysis of the prospective construction loan projects requires an expertise that is different in significant respects from that which is required for residential mortgage lending.  The Bank attempts to address these risks through its underwriting and construction monitoring procedures.

Commercial Real Estate Loans.  As of December 31, 2007, the Bank has commercial real estate loans totaling $176 million or 34% of the Bank's total loan portfolio.  Commercial real estate loans are generally originated in amounts up to 80% of the appraised value of the mortgaged property. The majority of the Bank’s commercial real estate loans have been originated with adjustable rates of interest, the majority of which are quoted at a spread to the FHLB advance rate for the initial fixed rate period with subsequent adjustments at a spread to the Wall Street prime rate. The Bank's commercial real estate loans are generally permanent loans secured by improved property such as office buildings, retail stores, small shopping centers, medical offices, motels, churches and other non-residential buildings.

To originate commercial real estate loans, the Bank generally requires a mortgage and security interest in the subject real estate, personal guarantees of the principals, a security interest in the related personal property, and a standby assignment of rents and leases.  The Bank has established its loan-to-one borrower limitation, which was $15.5 million as of December 31, 2007, as its maximum commercial real estate loan amount.  Because of the small number of commercial real estate loans and the relationship of each borrower to the Bank, each such loan has differing terms and conditions applicable to the particular borrower.

Loans secured by commercial real estate are generally larger and involve a greater degree of risk than residential mortgage loans.  Because payments on loans secured by commercial real estate are often dependent on successful operation or management of the properties, repayment of such loans may be subject, to a greater extent, to adverse conditions in the real estate market or the economy.  The Bank seeks to minimize these risks by careful underwriting, requiring personal guarantees, lending only to established customers and borrowers otherwise known by the Bank, and generally restricting such loans to its primary market area.

    As of December 31, 2007, the Bank’s commercial real estate loan portfolio included approximately $29.5 million, or 6% of the Bank’s total loan portfolio, in loans to develop land into residential lots. The Bank utilizes its knowledge of the local market conditions and appraisals to evaluate the development cost and estimate projected lot prices and absorption rates to assess loans on residential subdivisions.  The Bank typically loans up to 80% of the appraised value over terms up to two years.  Development loans generally involve a greater degree of risk than residential mortgage loans because (1) the funds are advanced upon the security of the land which has a materially lower value prior to completion of the infrastructure required of a subdivision, (2) the cash flow available for debt repayment is a function of the sale of the individual lots, and (3) the amount of interest required to service the debt is a function of the time required to complete the development and sell the lots.

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Commercial Business Loans.  As of December 31, 2007, the Bank has commercial business loans totaling $104 million or 20% of the Bank's total loan portfolio.  Commercial business loans are generally secured by business assets, such as accounts receivable, equipment and inventory.Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. The Bank expects to continue to expand its commercial business lending as opportunities present themselves.

Consumer and Other Loans.  The Bank also offers other loans, primarily consisting of loans secured by certificates of deposit, consumer loans, home equity loans and automobile loans.  As of December 31, 2007, the Bank has such loans totaling $25.6 million or 5% of the Bank’s total loan portfolio.  The Bank expects to continue to expand its consumer lending as opportunities present themselves.

Loan Approval Authority and Underwriting.  All loans to borrowers with aggregate indebtedness exceeding $1.5 million must have the approval of the Bank’s Loan Committee.  The Loan Committee meets weekly to review and approve loans made within the scope of its authority.

For all loans originated by the Bank, upon receipt of a completed loan application from a prospective borrower, a credit report is requested, income, assets, and certain other information are verified, and, if necessary, additional financial information is requested.  An appraisal of the real estate intended to secure the proposed loan is generally required and is performed by certified appraisers.  It is the Bank's policy to obtain appropriate insurance protection on all real estate first mortgage loans.  Borrowers generally must also obtain hazard insurance prior to closing and generally are required to advance funds for certain items such as real estate taxes, flood insurance and private mortgage insurance, when applicable.

Delinquencies, Non-Performing and Problem Assets.

               Delinquent Loans.  As of December 31, 2007, the Bank has eight loans 90 days or more past due with a principal balance of $6,215,533 and seventy-eight loans between 30 and 89 days past due with an aggregate principal balance of $8,242,217.  The Bank generally does not accrue interest on loans past due more than 90 days.

The following table sets forth the Bank's loans that were accounted for on a non-accrual basis or 90 days or more delinquent at the dates indicated.

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Delinquency Summary	As of
	December 31,
	2007			2006			2005			2004			2003
	(Dollars in Thousands)
Loans accounted for on a non-accrual basis
or contractually past due 90 days or more
Mortgage Loans:
One- to four-family	$	929		$	883		$	452			770			703
Multi-family		-			-			-			-			-
Construction		459			1,780			-			-			-
Commercial real estate		5,850			-			131			158			-
		7,238			2,663			583			928			703
Non-mortgage loans:
Commercial loans		-			44			-			-			-
Consumer and other loans		16			41			138			79			40
		16			85			138			79			40
Total non-accrual loans		7,254			2,748			721			1,007			743
Accruing loans which are contractually past
maturity or past due 90 days or more:
Mortgage Loans:
One- to four-family		103			-			-			-			-
Multi-family		-			-			-			-			-
Construction		-			-			-			-			-
Commercial real estate		-			-			-			-			-
		103			-			-			-			-
Non-mortgage loans:
Commercial loans		-			-			-			-			-
Consumer and other loans		-			-			-			-			-
		-			-			-			-			-
Total past maturity or past due accruing loans		103			-			-			-			-
Total accounted for on a non-accrual basis or contractually past maturity or 90 days or more past due	$	7,357		$	2,748		$	721			1,007			743
Total accounted for on a non-accrual basis or contractually past maturity or 90 days or more past due as a percentage of net loans		1.43	%		0.58	%		0.17	%		0.26	%		0.22	%
Total accounted for on a non-accrual basis or contractually past maturity or 90 days or more past due as a percentage of total assets		1.30	%		0.52	%		0.15	%		0.23	%		0.19	%

Non-Performing Assets.  Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of all interest at contractual rates becomes doubtful. Included as part of such review, mortgage loans are placed on non-accrual status generally when either principal or interest is more than 90 days past due.  Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.

11

Real estate acquired by the Bank as a result of foreclosure or by deed in lieu of foreclosure is deemed a foreclosed asset held for sale until such time as it is sold.  When a foreclosed asset held for sale is acquired it is recorded at its estimated fair value, less estimated selling expenses.  Valuations of such foreclosed assets are periodically performed by management, and any subsequent decline in estimated fair value is charged to operations.

The following table shows the principal amount of non-performing assets which are not performing under regulatory guidelines and all foreclosed assets, including assets acquired in settlement of loans and the resulting impact on interest income for the periods then ended. 

Non-Performing Assets	As of
	December 31,
	2007			2006			2005			2004			2003
Non-accrual loans:	(Dollars in Thousands)
Mortgage loans:
One- to four-family	$	929		$	883		$	452		$	770		$	703
Multi-family		-			-			-			-			-
Construction		459			1,780			-			-			-
Commercial real estate		5,850			-			131			158			-
		7,238			2,663			583			928			703
Non-mortgage loans:
Commercial loans		-			44			-			-			-
Consumer and other loans		16			41			138			79			40
		16			85			138			79			40
Total non-accrual loans		7,254			2,748			721			1,007			743
Real estate and other assets acquired in settlement of loans		727			173			27			78			6
Total non-performing assets	$	7,981		$	2,921		$	748		$	1,085		$	749
Total non-accrual loans as a percentage of net loans		1.41	%		0.57	%		0.17	%		0.26	%		0.22	%
Total non-performing assets as a percentage of total assets		1.41	%		0.56	%		0.16	%		0.25	%		0.19	%
Impact on interest income for the period:
Interest income that would have been recorded on non-accruing loans	$	716		$	69		$	8		$	23		$	15

12

Problem Assets.  Federal regulations require that the Bank review and classify its assets on a regular basis to determine those assets considered to be of lesser quality.  In addition, in connection with examinations of insured institutions, bank examiners have authority to identify problem assets and, if appropriate, require them to be classified.  There are three classifications for problem assets: substandard, doubtful, and loss.  "Substandard assets" must have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected.  "Doubtful assets" have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values questionable, and there is a high possibility of loss.  An asset classified "loss" is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations have also created a “special mention” category, described as assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving management's close attention. Federal regulations require the Bank to establish general allowances for loan losses from assets classified as substandard or doubtful.  If an asset or portion thereof is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss or charge off such amount.  A portion of general loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution's regulatory capital.

For management purposes, the Bank also designates certain loans for additional attention.  Such loans are called “Special Mention” and have identified weaknesses, that if the situation deteriorates, the loans would merit a substandard classification.

The following table shows the aggregate amounts of the Bank's classified assets as of December 31, 2007.

Classification of Assets	Special Mention				Substandard				Doubtful				Loss				Total
	Number		Amount		Number		Amount		Number		Amount		Number		Amount		Number		Amount
	(Dollars in Thousands)
Loans:
One- to four-family		-	$	-		14	$	1,184		-	$	-		-	$	-		14	$	1,184
Multi-family		1		1,235		1		6,996		-		-		-		-		2		8,231
Construction		1		2,322		6		513		-		-		-		-		7		2,835
Commercial real estate		6		3,373		2		5,897		-		-		-		-		8		9,270
Commercial		4		1,944		1		2,592		-		-		-		-		5		4,536
Land		-		-		-		-		-		-		-		-		-		-
Other loans		3		203		6		622		1		5		-		-		10		830
Total loans		15		9,077		30		17,804		1		5		-		-		46		26,886
Foreclosed assets held-for-sale:
One- to four-family		-		-		2		334		-		-		-		-		2		334
Land and other assets		-		-		11		393		-		-		-		-		11		393
Total foreclosed assets		-		-		13		727		-		-		-		-		13		727
Total		15	$	9,077		43	$	18,531		1	$	5		-	$	-		59	$	27,613

13

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in its loan portfolio and the general economy.  Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience, and other factors that warrant recognition in providing for an adequate loan loss allowance.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and valuation of foreclosed assets held for sale.  Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

As of December 31, 2007 the Bank's total allowance for loan losses was $6.0 million or 1.14% of total loans.  This allowance reflects not only management's determination to maintain an allowance for loan losses consistent with regulatory expectations for non-performing or problem assets, but also reflects the regional economy and the Bank's policy of evaluating the risks inherent in its loan portfolio.

For fiscal year 2007, the Bank experienced loan charge offs in excess of recoveries, and based on the loan portfolio review discussed above, elected to add to the allowance through a provision for loan loss, as shown in the table below.  Management anticipates the need to continue adding to the allowance through charges to provision for loan losses as anticipated growth in the loan portfolio or other circumstances warrant.

14

The following tables set forth certain information concerning the Bank's allowance for loan losses for the periods indicated.

Allowance for Loan Losses	Year ended												Six months ended
	December 31,												December 31,
	2007			2006			2005			2004			2003 (1)
	(Dollars in Thousands)
Beginning balance	$	5,784			5,400			4,537			3,886			2,775
Gross loan charge offs
Mortgage Loans:
One- to four-family		(56	)		(286	)		(22	)		(188	)		(41	)
Multi-family		(1	)		-			-			-			-
Construction		(317	)		(29	)		-			-			-
Commercial real estate		(49	)		-			-			-			-
		(423	)		(315	)		(22	)		(188	)		(41	)
Non-mortgage loans:
Commercial loans		-			(206	)		(12	)		-			-
Consumer and other loans		(309	)		(126	)		(119	)		(43	)		(14	)
		(309	)		(126	)		(119	)		(43	)		(14	)
Total charge offs		(732	)		(647	)		(153	)		(231	)		(55	)
Recoveries
Mortgage Loans:
One- to four-family		10			109			61			9			1
Multi-family		-			-			-			-			-
Construction		-			29			-			-			1
Commercial real estate		11			-			-			-			-
		21			138			61			9			2
Non-mortgage loans:
Commercial loans		8			103			-			-			-
Consumer and other loans		42			40			10			9			2
		50			143			10			9			2
Total recoveries		71			281			71			18			4
Net loan charge-offs		(661	)		(366	)		(82	)		(213	)		(51	)
Provision charged to expense		840			750			945			864			1,162
Ending balance	$	5,963			5,784			5,400			4,537			3,886
Net charge-offs as a percentage of average loans, net		0.14	%		0.08	%		0.02	%		0.07	%		0.02	%
Allowance for loan losses as a percentage of average loans, net		1.24	%		1.28	%		1.29	%		1.39	%		1.19	%
Allowance for loan losses as a percentage of total non-performing loans		82	%		210	%		749	%		451	%		523	%
(1) In 2003, the Company determined to change its fiscal year end from June 30 to a calendar year end of  December 31. As a result, the Company reported a six-month transition period ended December 31, 2003 in order to change to this new calendar year end.

15

Allocation of Allowance for Loan Losses

The following table shows the amount of the allowance allocated to the mortgage and non-mortgage loan categories and the respective percent of that loan category to total loans.

Allocation of Allowance for Loan Losses

	As of
	December 31,
	2007					2006					2005					2004					2003
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
	(Dollars in thousands)
Mortgage Loans	$	4,484		75	%		4,512		78	%		4,266		79	%		3,630		80	%		3,342		86	%
Non-Mortgage Loans		1,479		25	%		1,272		22	%		1,134		21	%		907		20	%		544		14	%
Total	$	5,963		100	%		5,784		100	%		5,400		100	%		4,537		100	%		3,886		100	%

Investment Activities

The investment policy of the Company, which is established by the Company’s Board of Directors and reviewed by the Investment Committee of the Company’s Board of Directors, is designed primarily to provide and maintain liquidity, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement the Bank's lending activities.  The policy currently provides for held-to-maturity and available-for-sale investment security portfolios. The Company does not currently engage in trading investment securities and does not anticipate doing so in the future.  As of December 31, 2007, the Company has investment securities with a carrying value of $15.4 million and an estimated fair value of $15.4 million.  See Note 1 of the Notes to Consolidated Financial Statements for description of the accounting policy for investments.  Based on the carrying value of these securities, $14.7 million, or 95.7%, of the Company’s investment securities portfolio are available-for-sale.

The Company has the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, trust preferred securities, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements, and sale of federal funds.

16

Composition of Investment Securities Portfolio

The following tables set forth the amortized cost and approximate fair market values of the available-for-sale securities and held-to-maturity securities:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2007
AVAILABLE-FOR-SALE SECURITIES:
Equity Securities:
FHLMC stock	$	26,057		880,205		-			906,262
Other		718,190		-		(59,390	)		658,800
Debt Securities:
U. S. government agencies		1,800,034		4,049		-			1,804,083
Mortgage-backed securities		11,386,025		84,390		(109,622	)		11,360,793
HELD-TO-MATURITY SECURITIES:
U. S. government agencies		148,529		-		(2,000	)		146,529
Mortgage-backed securities		506,246		32,397		-			538,643
	$	14,585,081		1,001,041		(171,012	)		15,415,110

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2006
AVAILABLE-FOR-SALE SECURITIES:
Equity Securities:
FHLMC stock	$	35,847		2,449,293		-			2,485,140
Debt Securities:
U. S. government agencies		4,870,979		1,346		(12,074	)		4,860,251
Mortgage-backed securities		563,704		-		(2,774	)		560,930
HELD-TO-MATURITY SECURITIES:
U. S. government agencies		158,661		-		(481	)		158,180
Mortgage-backed securities		604,364		31,920		-			636,284
	$	6,233,555		2,482,559		(15,329	)		8,700,785

17

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2005
AVAILABLE-FOR-SALE SECURITIES:
Equity Securities:
FHLMC stock	$	47,595		3,128,415		-			3,176,010
Debt Securities:
U. S. government agencies		3,579,513		2,021		(397	)		3,581,137
HELD-TO-MATURITY SECURITIES:
U. S. government agencies		189,974		-		(2,478	)		187,496
Mortgage-backed securities		754,750		39,550		-			794,300
	$	4,571,832		3,169,986		(2,875	)		7,738,943

The following table sets forth certain information regarding the weighted average yields and maturities of the Bank's investment securities portfolio as of December 31, 2007:

Investment Portfolio Maturities and Average Weighted Yields	Amortized Cost		Weighted Average Yield			Approximate Fair Value
Due within one year	$	500,000		5.00	%	$	501,953
Due within two and five years		1,300,034		5.06	%		1,302,130
Due after ten years		148,529		4.25	%		146,529
Equity securities not due on
a single maturity date		744,247		0.00	%		1,565,062
Mortgage-backed securities not due on a
single maturity date		11,892,271		5.85	%		11,899,436
	$	14,585,081		5.44	%	$	15,415,110

18

Sources of Funds

General.  The Company's primary sources of funds are deposits, borrowings (including issuances of subordinated debentures), amortization and prepayments of loans and amortization, and prepayments and maturities of mortgage-backed securities.

Deposits.  The Bank offers a variety of deposit accounts having a range of interest rates and terms.  The Bank's deposits principally consist of fixed-term certificates of deposit, savings, money market, individual retirement accounts, and NOW (checking) accounts.  The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, local competition, and competition from non-bank financial service providers.  The Bank's deposits are typically obtained from the areas in which its offices are located.  The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain these deposits.

The Bank seeks to maintain a high level of stable core deposits by providing high quality service through its employees and its convenient office and branch locations.

Deposit Account Types

The following table sets forth the distribution of the Bank's deposit accounts at the dates indicated (dollars in thousands).

Deposit Account Types
	As of December 31,								As of December 31,								As of December 31,
	2007								2006								2005
	Average					Percent			Average					Percent			Average					Percent
	Interest					of Total			Interest					of Total			Interest					of Total
	Rate			Amount		Deposits			Rate			Amount		Deposits			Rate			Amount		Deposits
NOW		1.35	%	$	36,512		9	%		1.18	%		35,469		10	%		0.33	%		35,864		11	%
Savings		2.11	%		12,421		3	%		2.67	%		14,316		4	%		1.80	%		14,298		5	%
Money Market		3.48	%		64,319		15	%		3.38	%		52,314		15	%		2.47	%		43,897		14	%
Non-interest
bearing demand		0.00	%		28,520		7	%		0.00	%		26,894		8	%		0.00	%		36,194		11	%
Total					141,772		34	%					128,993		37	%					130,253		41	%
Certificates of Deposit: (fixed-rate, fixed-term)
1-11 months		5.09	%		190,772		46	%		4.81	%		167,852		48	%		3.56	%		125,336		39	%
12-23 months		5.12	%		57,434		14	%		5.02	%		35,424		10	%		3.74	%		48,149		15	%
24-35 months		5.04	%		12,593		3	%		4.93	%		11,930		3	%		4.20	%		9,670		3	%
36-47 months		5.14	%		5,752		1	%		4.82	%		3,724		1	%		3.94	%		4,248		1	%
48-59 months		5.33	%		6,386		2	%		5.24	%		2,847		1	%		4.14	%		1,851		1	%
60-71 months		5.28	%		3,456		1	%		5.41	%		1,171		0	%		4.64	%		552		0	%
72-95 months		4.55	%		26		0	%		5.44	%		289		0	%		0.00	%		-		0	%
Total					276,419		66	%					223,237		63	%					189,806		59	%
Total Deposits				$	418,191		100	%					352,230		100	%					320,059		100	%

19

Maturities of Certificates of Deposit of $100,000 or More

The following table indicates the approximate amount of the Bank's certificate of deposit accounts of $100,000 or more by time remaining until maturity as of December 31, 2007.

	(Dollars in thousands)
	As of December 31, 2007
Three months or less	$	29,440
Over three through six months		15,272
Over six through twelve months		22,723
Over twelve months		22,327
Total	$	89,762

Borrowings

The Company’s borrowings consist primarily of FHLB advances, issuances of junior subordinated debentures and securities sold under agreements to repurchase.

Deposits are the primary source of funds for the Bank's lending activities and other general business purposes.  However, during periods when supply of lendable funds cannot meet the demand for such loans, the FHLB System, to which the Bank is a member of, makes available, subject to compliance eligibility standards, a portion of the funds necessary through loans (advances) to its members. The following table presents certain data for FHLB advances as of the dates indicated.

Selected Data for Federal Home Loan Bank Advances
	As of December 31,
	2007			2006			2005
	(Dollars in Thousands)
Remaining maturity:
Less than one year	$	69,650			85,414			72,414
One to two years		386			13,650			3,000
Two to three years		3,000			386			16,650
Three to four years		-			3,000			386
Four to five years		-			-			3,000
Over five years		3,050			5,550			4,550
Total	$	76,086			108,000			100,000
Weighted average rate at end of period		4.37	%		5.35	%		4.55	%
For the period:
Average outstanding balance	$	65,575			110,810			111,104
Weighted average interest rate		5.29	%		5.16	%		4.04	%
Maximum outstanding as of any month end	$	92,500			124,000			132,000

20

Junior Subordinated Debentures:  On December 15, 2005, the Company completed an offering of $15 million of “Trust Preferred Securities” (defined hereinafter).  The Company formed two wholly-owned subsidiaries, each a Delaware statutory trust (each a “Trust”, and collectively, the “Trusts”), for the purpose of issuing the $15 million of Trust Preferred Securities.  The proceeds of the sale of Trust Preferred Securities, together with the proceeds of the Trusts’ sale of their common securities to the Company, were used by each Trust to purchase certain debentures from the Company.  The Company issued 30-year junior subordinated deferrable interest debentures to the Trusts in the principal amount of $5,155,000 (“Trust I Debentures”) and $10,310,000 (“Trust II Debentures”, and together with the Trust I Debentures, the “Debentures”) pursuant to the terms of Indentures dated December 15, 2005 by and between the Company and Wilmington Trust Company, as trustee.  The Trust I Debentures bear interest at a fixed rate of 6.92%, payable quarterly.  The Trust II Debentures bear interest at a fixed rate of 6.47% for 5 years, payable quarterly, after issuance and thereafter at a floating rate equal to the three month LIBOR plus 1.45%.  The interest payments by the Company to the Trusts will be used to pay the dividends payable by the Trusts to the holders of the Trust Preferred Securities.

The Debentures mature on February 23, 2036.  Subject to prior approval by the Federal Reserve Board, the Debentures and the Trust Preferred Securities are each callable by the Company or the Trusts, respectively and as applicable, at its option after five years from issuance, and sooner in the case of a special redemption at a special redemption price ranging up to 103.2% of the principal amount thereof, and upon the occurrence of certain events, such as a change in the regulatory capital treatment of the Trust Preferred Securities, either Trust being deemed an investment company or the occurrence of certain adverse tax events.  In addition, the Company and the Trusts may defer interest and dividend payments, respectively, for up to five consecutive years without resulting in a default.  An event of default may occur if the Company declares bankruptcy, fails to make the required payments within 30 days or breaches certain covenants within the Debentures.  The Debentures are subordinated to the prior payment of any other indebtedness of the Company.

Pursuant to two guarantee agreements by and between the Company and Wilmington Trust Company, the Company issued a limited, irrevocable guarantee of the obligations of each Trust under the Trust Preferred Securities whereby the Company has guaranteed any and all payment obligations of the Trusts related to the Trust Preferred Securities including distributions on, and the liquidation or redemption price of, the Trust Preferred Securities to the extent each Trust does not have funds available.

The Company used the proceeds of the sale of the Trust Preferred Securities for general corporate purposes by investing in the Bank, including funding to increase the Bank’s loan portfolio, restructuring of the Bank’s investment portfolio and repaying a portion of the Bank’s FHLB advances.

The following table sets forth certain information as to the Company's subordinated debentures issued to the Trusts at the dates indicated.

	As of December 31,
	2007			2006			2005
	(Dollars in Thousands)
Subordinated debentures	$	15,465			15,465			15,465
Weighted average interest
rate of subordinated debentures		6.62	%		6.62	%		6.62	%

21

Securities Sold Under Agreements to Repurchase: The Company borrowed $9.8 million under a structured repurchase agreement in September 2007.  Interest is based on a variable rate of three month LIBOR minus 100 basis points until September 12, 2009 and converts into a variable rate of two times the three month LIBOR minus 4.72% thereafter until maturity in September 2014.  The counterparty, Barclay’s Capital, Inc., has the right to terminate the transaction after two years.  The Company has pledged certain investment securities with a fair value of $10.5 million as of December 31, 2007.

Notes payable:  The Company has a $3.5 million revolving line of credit with a correspondent bank to be used for stock repurchases and investments.  The line of credit is unsecured, bears interest at one-month LIBOR plus 1.25%, payable quarterly, and matures on September 30, 2008.  The balance was $718,190 and $0 at December 31, 2007 and 2006, respectively.

Subsidiary Activity and Segment Information

The Company has three wholly-owned subsidiaries: (i) the Bank, the Company’s principal subsidiary and a state-chartered trust company with banking powers in Missouri; (ii) Guaranty Statutory Trust I, a Delaware statutory trust (“Trust I”); and (iii) Guaranty Statutory Trust II, a Delaware statutory trust (“Trust II”, and together with Trust I, the “Trusts”).  Trust I and Trust II were formed in December 2005 for the exclusive purpose of issuing trust preferred securities to acquire junior subordinated debentures issued by the Company.  Those debentures are the sole assets of the Trusts.  The interest payments by the Company on the debentures are the sole revenues of the Trusts and are used by the Trusts to pay the dividends to the holders of the trust preferred securities.  The Company has guaranteed any and all payment obligations of the Trusts related to the trust preferred securities.  Under generally accepted accounting principles, the Trusts are not consolidated with the Company.

The Bank has one service corporation subsidiary, Guaranty Financial Services of Springfield, Inc., a Missouri corporation.  This service corporation, which has been inactive since February 1, 2003, had agreements with third party providers for the sale of securities and casualty insurance products.

The Company’s banking operation conducted through its principal subsidiary, the Bank, is the Company’s only reportable segment.  Other information about the Company’s business segment is contained in the section captioned “Segment Information” in Note 1 to the consolidated financial statements in the 2007 Annual Report. This information is incorporated herein by reference.

Critical Accounting Policies

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 of this report is based upon the Company’s consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. On an on-going basis, management evaluates its estimates and judgments.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  There can be no assurance that actual results will not differ from those estimates.  If actual results are different than management’s judgements and estimates, the Company’s financial results could change, and such change could be material to the Company.

22

Material estimates and judgments that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.  In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties.

The Company has identified the accounting policies for the allowance for loan losses and related significant estimates and judgments as critical to its business operations and the understanding of its results of operations.  For a detailed discussion on the application of these significant estimates and judgments and our accounting policies, also see Note 1 to the Consolidated Financial Statements in the 2007 Annual Report.

Return on Equity and Assets

The following table sets forth certain dividend, equity and asset ratios of the Company for the periods indicated.

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2007			2006			2005
Dividend Payout Ratio		32	%		30	%		32	%
Return on Average Assets		1.17	%		1.33	%		1.28	%
Return on Average Equity		13.40	%		14.66	%		15.08	%
Stockholders' Equity to Assets		7.54	%		8.55	%		8.75	%
EPS Diluted	$	2.19			2.25			2.03
Dividends	$	0.70			0.67			0.65

23

Employees

As of March 18, 2008, the Bank has 132 full-time employees and 37 part-time employees.  As of December 31, 2007, the Company had no salaried employees.  None of the Bank's employees are represented by a collective bargaining group.  The Bank believes that its relationship with its employees is good.

Competition

The Bank experiences substantial competition both in attracting and retaining deposit accounts and in the making of mortgage and other loans.  The Bank's primary competition comprises the financial institutions near each of the Bank's offices.  In the Springfield metropolitan area, where the Bank's main office and branch offices are located, primary competition consists of commercial banks, credit unions, and savings institutions.

Direct competition for savings accounts comes from other savings institutions, credit unions, regional bank and thrift holding companies, and commercial banks located in its primary market area.  Significant competition for the Bank's other deposit products and services comes from money market mutual funds, brokerage firms, insurance companies, and retail stores.  The primary factors in competing for loans are interest rates and loan origination fees and the range of services offered by various financial institutions.  Competition for origination of real estate and other loans normally comes from commercial banks, savings institutions, mortgage bankers, mortgage brokers, and insurance companies.

The Bank believes it is able to compete effectively in its primary market area by offering competitive interest rates and loan fees, and a variety of deposit products, and by emphasizing personal customer service.

Website

The Company maintains a website at the following internet address:  www.gbankmo.com.

Regulation

Set forth below is a brief description of certain laws which relate to the regulation of the Company and the Bank.  These laws, and regulations adopted under these laws, are primarily intended for the protection of the Bank’s customers and depositors and not for the benefit of the stockholders of the Company.  The following description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

Regulation of the Company

General.  The Company is a registered bank holding company subject to regulation and supervision of the Board of Governors of the Federal Reserve System (“FRB”) under the Bank Holding Company Act of 1956 (“BHCA”).

24

Capital.  The FRB has adopted risk-based capital guidelines for bank holding companies. The minimum guideline for the ratio (“Risk-Based Capital Ratio”) of total capital (“Total Capital”) to risk-weighted assets (including certain off-balance-sheet commitments such as standby letters of credit) is 8%.  At least one-half of Total Capital must be composed of Tier 1 Capital which generally consists of common shareholders' equity, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock and certain nonfinancial equity investments, less goodwill and certain other intangible assets. The remainder, denominated "Tier 2 Capital," generally consists of limited amounts of subordinated debt, qualifying hybrid capital instruments, other preferred stock, loan loss reserves and unrealized gains on certain equity securities.

In addition, the FRB has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets less goodwill (“Leverage Ratio”) of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 4%. The guidelines also provide that bank holding companies anticipating or experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance upon intangible assets. Furthermore, the FRB has indicated that it will consider a "tangible Tier 1 Leverage Ratio" (after deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities.

The Bank is subject to Risk-Based Capital and Leverage Ratio requirements adopted by the FDIC, which are substantially similar to those adopted by the FRB.  See “Regulation of the Bank – Prompt Corrective Action.”  In addition, a bank's capital classifications may affect a bank's activities. For example, under regulations adopted by the FDIC governing the receipt of brokered deposits, a bank may not lawfully accept, roll over or renew brokered deposits unless either (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC.

As of December 31, 2007, the Company and the Bank met their minimum capital adequacy guidelines, and the Bank was categorized as well capitalized.  Applicable capital and ratio information is contained under the section titled “Regulatory Matters” in Note 1 to the Consolidated Financial Statements in the 2007 Annual Report.

Dividend Restrictions and Share Repurchases.The Company’s source of cash flow (including cash flow to pay dividends to stockholders) is dividends paid to it by the Bank. The right of the Company to receive dividends or other distributions from the Bank is subject to the prior claims of creditors of the Bank, including depositors.

There are statutory and regulatory limitations on the payment of dividends to the Company by the Bank. See discussion under “Regulation of the Bank – Dividend Limitations.”  Future dividends will depend primarily upon the level of earnings of the Bank. Banking regulators also have the authority to prohibit banks and bank holding companies from paying a dividend if they should deem such payment to be an unsafe or unsound practice.

Unless a bank holding company is well capitalized immediately before and after the repurchase of its equity securities, is well managed and is not subject to any unresolved supervisory issues, it must notify the FRB prior to the purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration (gross consideration paid minus the gross consideration received from the sale of equity securities) paid by the Company during the preceding twelve months, is equal to 10% or more of the Company’s consolidated net worth.  The FRB may disapprove of the purchase or redemption if it determines, among other things, that the proposal would constitute an unsafe or unsound business practice.

25

Support of Banking Subsidiaries.  Under FRB policy, the Company is expected to act as a source of financial strength to the Bank and, where required, to commit resources to support the Bank. Moreover, if the Bank should become undercapitalized, the Company would be required to guarantee the Bank's compliance with its capital restoration plan in order for such plan to be accepted by the FDIC.

Acquisitions.  Under the BHCA, the Company must obtain the prior approval of the FRB before it may acquire all or substantially all of the assets of any bank, acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, or merge or consolidate with any other bank holding company. The BHCA also restricts the Company’s ability to acquire direct or indirect ownership or control of 5% or more of any class of voting shares of any nonbanking corporation.  The FRB is required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy. Consideration of convenience and needs issues includes the involved institutions’ performance under the Community Reinvestment Act of 1977, as amended (the “CRA”). Under the CRA, all financial institutions have a continuing and affirmative obligation consistent with safe and sound operation to help meet the credit needs of their entire communities, including low-to-moderate income neighborhoods. Based on its most recent CRA compliance examinations, the Bank has received a "satisfactory" CRA rating.

Transactions With Affiliates.  There are various legal restrictions on the extent to which a bank holding company may borrow or otherwise obtain credit from or sell assets or affiliate securities to its bank subsidiary. In general, covered transactions with a bank subsidiary must be on nonpreferential terms and cannot exceed, as to any one of the holding company or the holding company's nonbank subsidiaries, 10% of the bank's capital stock and surplus, and as to the holding company and all of its nonbank subsidiaries in the aggregate, 20% of such capital stock and surplus. Special collateral requirements also apply to covered extensions of credit.

Regulation of the Bank

General.  The Bank is regulated as a bank under state and federal law, including being regulated and supervised by the Missouri Division of Finance (“MDF”). Its deposits are insured by the Depository Insurance Fund (“DIF”) of the FDIC, which was created in 2006 in the merger of the Bank Insurance Fund and the Savings Association Insurance Fund under the Federal Deposit Insurance Reform Act.  Lending activities and other investments must comply with various federal statutory and regulatory requirements.  The Bank is also subject to certain reserve requirements promulgated by the FRB.

The MDF, in conjunction with the FDIC, will regularly examine the Bank and provide reports to the Bank's Board of Directors on any deficiencies that are found in the Bank's operations.  The Bank's relationship with its depositors and borrowers is also regulated to a great extent by federal and state law, especially in such matters as the ownership of savings accounts and the form and content of the Bank's mortgage documents.

The Bank must file reports with the MDF and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other banks or savings institutions.  This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the DIF and depositors.  The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

26

Insurance of Deposit Accounts.  The deposit accounts held by the Bank are insured by the DIF generally up to a maximum of $100,000 for each insured account (as defined by law and regulation).  Under the Federal Deposit Insurance Reform Act of 2005 (“FDIRA”) which was signed into law on February 8, 2006, this $100,000 insurance limit can be indexed for inflation as determined by the FDIC on a 5 year interval.  FDRIA increases the deposit insurance coverage for individual retirement accounts and certain other employee benefit plan accounts to $250,000, subject to increases for inflation, and provides pass-through coverage for employee benefit plans.  Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institution's primary regulator.

As part of FDIRA, three major changes were made regarding the assessments on banks.  First, the Designated Reserve Ratio (“DRR”) is no longer set in the law at 1.25%.  Instead, the FDIC Board sets the DRR annually between a 1.15% and 1.50% rate as determined by the FDIC regulations.  Second, under FDIRA, even if the DIF’s reserve meets the DRR, this law allows for assessments on higher risk banks.  Third, FDIRA eliminated the requirement that FDIC assess premiums of 23 basis points if the reserve ratio falls below 1.25%.

FDRIA also authorizes the FDIC to set deposit insurance premium assessments for depository institutions in amounts the FDIC determines to be necessary or appropriate, taking into consideration certain factors, including the estimated operating expenses of the DIF, the estimated case resolution expenses and income of the DIF, the projected effects on the capital and earnings of depository institutions, the risk factors taken into consideration under the risk-based assessment system and any other factors deemed by the FDIC to be appropriate.  STET requires the FDIC to declare dividends payable to depository institutions equal to 100% of the amount of the reserve in excess of 1.50% and 50% of the amount of the reserve between 1.35% and 1.50%.

The FDIC charges an annual assessment for the insurance of deposits based on the risk a particular institution poses to its deposit insurance fund. Under this system, DIF members pay within a range of 0 cents to 27 cents per $100 of domestic deposits, depending upon the institution's risk classification.  Risk classification is based on an institution's capital group and supervisory subgroup assignment. In addition, all FDIC-insured institutions are required to pay assessments to the FDIC at an annual rate of approximately .0172% of insured deposits to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the predecessor to the DIF. These assessments will continue until the FICO bonds mature in 2017.

Prompt Corrective Action.The FDIC is required to take prompt corrective action if a depository institution for which it is the regulator, including the Bank, does not meet its minimum capital requirements. The FDIC establishes five capital tiers: “well capitalized”, “adequately capitalized”, “under capitalized”, “significantly under capitalized” and “critically under capitalized”.  A depository institution’s capital tier will depend upon where its capital levels are in relation to various relevant capital measures, which, among others, include a Tier 1 and total risk-based capital measure and a leverage ratio capital measure.A depository institution is considered to be significantly undercapitalized if it has a Total Capital Ratio of less than 6.0%; a Tier I Capital ratio of less than 3.0%; or a Leverage Ratio of less than 3.0%. An institution that has a tangible equity capital to assets ratio equal to or less than 2.0% is deemed to be critically undercapitalized. "Tangible equity" includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards, plus the amount of outstanding cumulative perpetual preferred stock (including related surplus), minus all intangible assets, with certain exceptions.

27

The FDIC may, under certain circumstances, reclassify a well capitalized insured depository institution as adequately capitalized. It is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution. An institution may be reclassified if the FDIC determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice.

As stated previously, the Company and the Bank met their minimum capital adequacy guidelines, and the Bank was categorized as well capitalized, as of December 31, 2007.  Applicable capital and ratio information is contained under the section titled “Regulatory Matters” in Note 1 to the Consolidated Financial Statements in the 2007 Annual Report.

Safety and Soundness Standards.  Federal bank regulators are required to prescribe standards, by regulations or guidelines, relating to the internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest-rate-risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits and such other operational and managerial standards as the agencies may deem appropriate. The federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards, which require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.

Federal Home Loan Bank System.  The Bank is a member of the Federal Home Loan Bank of Des Moines (“FHLB-Des Moines”), which is one of 12 regional Federal Home Loan Banks.  As a member, the Bank is required to purchase and maintain stock in FHLB-Des Moines in an amount equal to 0.12% of assets plus 4.45% of Federal Home Loan Bank advances.  At December 31, 2007, the Bank had $4,014,700 in FHLB-Des Moines stock, which was in compliance with this requirement.

Anti-Terrorism Legislation. The USA Patriot Act of 2001, of which the majority was reauthorized into law in March 2006, contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. U.S. financial institutions are required to adopt policies and procedures to combat money laundering and the Treasury Secretary is granted broad authority to establish regulations and to impose requirements and restrictions on financial institutions' operations.

Dividend Limitations.  In the event the Bank would fail to meet federal minimum capital adequacy guidelines, its ability to pay dividends to the Company would be restricted.  In addition, under Missouri law dividends paid by banks are restricted by a statutory formula, which provides for the maintenance of a surplus fund and prohibits the payment of dividends which would impair the surplus fund.

Recent Legislation and Legislative and Regulatory Initiatives

Additional proposals to change the laws governing the financial institutions industry may be introduced in the United States Congress and in state legislatures, and the various banking agencies often modify existing regulations or adopt new regulations. Any such changes to which the Company or the Bank is and will be subject, however, could have a material effect on the Company or the Bank, and the Company and the Bank cannot predict what, if any, future actions may be taken by legislative or regulatory authorities or what impact such future legislation or regulations will have on the financial institutions industry generally or on the Company and the Bank.

Executive Officers of the Registrant

Set forth below is information concerning the executive officers of the Company.

28

Shaun A. Burke joined the Bank in March 2004 as president and Chief Executive Officer. Mr. Burke was appointed president and Chief Executive Officer of the Company on February 28, 2005.  Mr. Burke was previously with Signature Bank for seven years where he served as executive vice president and senior credit officer and was a member of the board of directors.  Mr. Burke has a total of 22 years banking experience.  Mr. Burke is also a past member of the United Way Allocations and Agency Relations Executive Committee, Salvation Army Board, and Big Brothers Big Sisters Board.

Carter Petersis Executive Vice President, Chief Financial Officer and Chief Operations Officer of the Bank and the Company.  He joined the Bank and the Company in August 2005.  Mr. Peters has over 15 years of experience in the financial services and public accounting industries.  Prior to joining the Company, Mr. Peters served as the Chief Financial Officer of Southern Missouri Bank for approximately two years and was employed by BKD, LLP, a certified public accounting and advising firm, for approximately eleven years.  He is a Certified Public Accountant with a Bachelor of Science Degree in Accounting from MissouriStateUniversity.  He is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants.  He is a current Board member of the local Make-A-Wish Foundation.

H. Michael Mattson is Executive Vice President and Chief Lending Officer of the Bank.  He joined the Bank in June 2006.  Mr. Mattson has over 29 years of commercial banking experience.  He was previously with Liberty Bank for six years, including four as Senior Loan Officer.  Mr. Mattson is currently Board President of Ozarks Food Harvest, Inc., member of the Springfield Area Chamber of Commerce and has served on its board nominating committee and venture capital committee.  He is a member of Leadership Springfield Class XI and a graduate of RockhurstUniversity and the Graduate School of Banking of The South at Baton Rouge, LA.

As of December 31, 2007, the age of these individuals was 45 for Mr. Burke, 38 for Mr. Peters, and 54 for Mr. Mattson.

Item 1A.  Risk Factors

The Company’s business and operations are subject to, and may be adversely affected by, certain risks and uncertainties. The following risks and other information in this report that is incorporated in this report by reference, including the Company’s consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, should be carefully considered. These risks are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or focused on may also adversely affect the Company’s business and operation. This Form 10-K is qualified in its entirety by all these risk factors.

The market price of the Company’s common stock may fluctuate significantly in response to a number of factors, including:

•  Changes in securities analysts’ estimates of financial performance

•  Volatility of stock market prices and volumes

•  Rumors or erroneous information

•  Changes in market valuations of similar companies

•  Changes in interest rates

29

•  New developments in the banking industry

•  Variations in quarterly or annual operating results

•  New litigation or changes in existing litigation

•  Regulatory actions

•  Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies

Geographical Risk

The Company’s main markets are in Greene and Christian counties in southwest Missouri. Since the Company does not have significant presence in other parts of the country, a prolonged economic downturn in these markets could negatively impact the Company.

Industry Risk

The Company operates in the financial services industry, a rapidly changing environment having numerous competitors including other banks and insurance companies, securities dealers, brokers, trust and investment companies and mortgage bankers. The pace of consolidation among financial service providers is accelerating and there are many new changes in technology, product offerings and regulation.

The Company must continue to make investments in its products and delivery systems to stay competitive with the industry as a whole or its financial performance may suffer.

Regulatory Risk

The Company and its subsidiaries are subject to extensive state and federal regulation, supervision and legislation that govern nearly every aspect of its operations. Changes to these laws could affect the Company’s ability to deliver or expand its services and diminish the value of its business.

Interest Rate Risk

The Company’s net interest income is the largest source of overall revenue to the Company and is mainly based on the difference between interest earned on loans and investment securities, and the interest paid on deposits and other borrowings. Interest rates are beyond the Company’s control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits, and the rates received on loans and investment securities and paid on deposits.

Lending Risk

There are inherent risks associated with the Company’s lending activities. Changes in economic conditions and changes in interest rates among other things could impact borrowers’ capabilities to repay the Company outstanding loans. For a complete discussion of the risk elements of the Company’s loan portfolio, please refer to page 7.

30

Litigation Risk

From time to time, the Company is subject to claims and litigation from customers and other individuals. Whether such claims and legal action are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Company, they may result in significant financial liability and/or adversely affect the market perception of the Company and its products and services. Any financial liability or reputation damage could have a material adverse effect on the Company’s business and financial performance.

Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2. Properties

The offices of the Company are located in the main office of the Bank.

The Bank's office facilities currently consist of its main office located at 1341 W. Battlefield in Springfield, Greene County, Missouri, six full-service branch offices in Springfield, one full-service branch office in Nixa, Christian County, Missouri, and one in-store branch located in the Wal-Mart Supercenter in Nixa, Christian County, Missouri.  The Bank has a relatively new main office building, which provides the Bank with a modern office for customer services and projects a favorable image for the Bank in the local marketplace.  The Bank also leases a facility in West Plains, Mountain Grove and Marshfield, Missouri for recently established loan production offices.

The Bank maintains a network of Automated Teller Machines ("ATMs").  A total of 20 ATMs are located at various branches and primarily convenience stores located in Greene and Christian Counties in Missouri.  In addition, the Bank is a member of the TransFund ATM network which provides its customers surcharge free access to over 80 area ATMs and over 700 ATMs nationwide.  The Bank will evaluate and relocate existing ATMs as needed.

Item 3. Legal Proceedings

(a) Material Legal Proceedings

The Company and the Bank, from time to time, may be parties to ordinary routine litigation, which arises in the normal course of business, such as claims to enforce liens, and condemnation proceedings, on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the business of the Company and the Bank.  As of December 31, 2007, there were no claims or lawsuits pending or known to be contemplated against the Company or the Bank that would have had a material effect on the Company or the Bank.

(b) Proceedings Terminated During the Last Quarter of the Fiscal Year Covered by This Report

Not applicable.

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

No matter was submitted to a vote of security holders during the last quarter of the fiscal year ended December 31, 2007.

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PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The information contained in the section captioned “Investor Information-Common Stock Prices and Dividends” on page 2 of the 2007 Annual Report is incorporated herein by reference.

With respect to the equity compensation plan information required by this item, see “Item 12.  Security Ownership of Certain Owners and Management and Related Stockholder Matters” in this report.

Issuer Purchases of Equity Securities

The following table summarizes the repurchase activity of the Company’s Common Stock during the Company’s fourth quarter ended December 31, 2007.

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 Programs
October 1, 2007 to October 31, 2007		3,143	$	29.86		3,143		343,113
November 1, 2007 to November 30, 2007		61,900		29.49		61,900		281,213
December 1, 2007 to December 31, 2007		20,535		28.77		20,535		260,678
Total		85,578	$	29.33		85,578

(1)  The Company has a repurchase plan which was announced on August 20, 2007. This plan authorizes the purchase by the Company of 350,000 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.

32

Item 6.  Selected Financial Data

The information contained on pages 4 and 5 under the section captioned “Selected Consolidated Financial and Other Data” of the 2007 Annual Report is incorporated herein by reference.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

The information contained on pages 6 through 19 under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2007 Annual Report is incorporated herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

The information contained on page 14 and 15 under the sections captioned “Asset/Liability Management” and “Interest Rate Sensitivity Analysis” of the 2007 Annual Report is incorporated herein by reference.

Item  8.  Financial Statements and Supplementary Data

The financial statements set forth on pages 20 to 48 of the 2007 Annual Report and the financial information contained under the section captioned “Summary of Unaudited Quarterly Operating Results” set forth on page 19 of the 2007 Annual Report are incorporated herein by reference.

Item 9.  Changes in and Disagreements with Accountants On Accounting and Financial Disclosure

Not applicable.

Item 9A(T).  Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (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.

The Company carried out 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 evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2007.

Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the fourth quarter ending December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

33

MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

The management of Guaranty Federal Bancshares, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls.  Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on that assessment, management concluded that, as of December 31, 2007, the Company’s internal control over financial reporting was effective.

This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Item 9B.  Other Information

Not applicable.

34

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

The information contained under the section captioned "First Proposal:  Election of Directors" (excluding any information contained under the section captioned “Meetings and Committees of the Board of Directors”) of the Proxy Statement is incorporated herein by reference.

The Company has adopted a Code of Conduct and Ethics, and it applies to all of the members of the board of directors, officers and employees of the Company (including the Bank), with special emphasis on compliance by the directors of the Company and the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller or persons performing similar functions for the Company. The Company’s Code of Conduct and Ethics is available on the Company’s website at www.gbankmo.com and may be accessed by logging onto the Company’s website and clicking on the “About Us” link and then the “Code of Conduct” link.  You will then be able to click on, and access, the Company’s Code of Conduct and Ethics.  Amendments to, and waivers granted under, the Company’s Code of Conduct and Ethics, if any, will be posted to the Company’s website as well.

The information required by Item 10 regarding an audit committee financial expert and the identification of the members of the audit committee, a separately designated committee of the Company’s board of directors established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934, is contained under the section captioned “Report of the Audit Committee” of the Proxy Statement and is incorporated herein by reference.

Additional information required by this item is contained (i) in the Proxy Statement under the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference, and (ii) under the section captioned "Executive Officers of the Registrant" in Item 1 of this report.

Item 11.  Executive Compensation

The information contained in the Proxy Statement under the section captioned "Report of the Compensation Committee” is incorporated herein by reference.

35

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except as set forth below, information required by this item is contained under the section captioned "Voting Securities and Principal Holders Thereof" in the Proxy Statement and is incorporated herein by reference.

Equity Compensation Plan Information
			(c)
			Number of securities
			remaining available
	(a)	(b)	for future issuance
	Number of securities to be	Weighted-average	under equity
	issued upon exercise  of	exercise price of	compensation plans
	outstanding options,	outstanding options,	(excluding securities
Plan category	warrants and rights	warrants and rights	reflected in column (a))
Equity compensation plans	193,254	20.89	171,082
approved by security holders
Equity compensation plans not
approved by security holders	38,985	18.42	3,498
Totals	232,239	20.48	174,580

Description of Stock Plans Not Approved by Stockholders

2000 Stock Compensation Plan.  During the year ended June 30, 2000, the directors of the Company established the 2000 Stock Compensation Plan (the “2000 SCP”) with both a stock award component and a stock option component for a term of ten years.  A committee of the Bank’s Board of Directors (the “Committee”) administers this plan and the 2001 SCP (discussed below).  Stock options awarded under the plan are considered non-qualified for federal income tax purposes.  Officers, directors and employees of the Company and its subsidiaries are eligible under the plan.  Stock awards and stock options vest at the rate of 20% per year over a five year period and become fully vested in the event of a “change in control” as defined in the plan.  In addition, the price of the stock options may not be less than the market value of the Company’s common stock on the date of grant, and the stock options expire no later than ten years from the date of grant.  Under the stock award component of this plan, the Committee awarded 7,125 restricted shares of the Company’s common stock.  As of December 31, 2007, there are no restricted shares in this plan that are not vested.  There have been 17,875 options granted underthis plan at an exercise price of $10.50 per share. The maximum number of shares of the Company’s common stock permitted to be awarded under this plan (25,000) have been awarded.  Previously issued awards or options which expire, become unexercisable, or are forfeited prior to their exercise may be granted as new awards or options under the plan for the number of shares which were subject to such expired or forfeited awards or options.

36

2001 Stock Compensation Plan.  During the year ended June 30, 2001, the directors of the Company established the 2001 Stock Compensation Plan (the “2001 SCP”) with both a stock award component and a stock option component for a term of ten years.  Stock options awarded under the plan are considered non-qualified for federal income tax purposes.  Officers, directors and employees of the Company and its subsidiaries are eligible under the plan.  Stock awards and stock options vest at the rate of 20% per year over a five year period and become fully vested in the event of a “change in control” as defined in the plan.  In addition, the price of the stock options may not be less than the market value of the Company’s common stock on the date of grant, and the stock options expire no later than ten years from the date of grant.  Under the stock award component of this plan, the Committee awarded 10,239 restrictedshares of the Company’s common stock.  As of December 31, 2007, all restricted shares in this plan are vested.  There have been 13,263 options granted under this plan at a weighted-average exercise price of $23.61 per share.  The maximum number of shares of the Company’s Common Stock permitted to be awarded under this plan is 25,000 shares.  Previously issued awards or options which expire, become exercisable, or are forfeited prior to their exercise may be granted as new awards or options under the plan for the number of shares which were subject to such expired or forfeited awards or options.

2003 Stock Option Agreement.  During the period ended December 31, 2003, the independent directors of the Company authorized the issuance of 5,000 stock options as an employment inducement to a new officer of the Bank pursuant to an individual stock option agreement.  Stock options awarded under thisagreement are considered non-qualified for federal income tax purposes, vest at the rate of 20% per year over a five year period, become fully vested in the event of a “change in control” as defined in the agreement and expire no later than ten years from the date of grant.  In addition, pursuant to the term of the stock option agreement which requires that the price of the stock options granted thereunder may not be less than the market value of the Company’s common stock on the date of grant, all of these options were granted at an exercise price of $17.20 per share.

2004 Stock Option Agreement.  Pursuant to the authorization of the independent directors of the Company, 25,000 stock options were issued by the Company on March 9, 2004 as an employment inducement to a new officer (Shaun Burke) of the Bank under an individual stock option agreement.  Stock options awarded under thisagreement are considered non-qualified for federal income tax purposes, vest at the rate of 20% per year over a five year period, become fully vested in the event of a “change in control” as defined in the agreement and expire no later than ten years from the date of grant.  In addition, pursuant to the term of the stock option agreement which requires that the price of the stock options granted thereunder may not be less than the market value of the Company’s common stock on the date of grant, all of these options were granted at an exercise price of $19.62 per share.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

The information required by this item is contained under the sections captioned "Indebtedness of Management and Directors and Transactions with Certain Related Persons" and “Director Independence” in the Proxy Statement and is incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services

The information required by this item is contained under the section captioned "Principal Accountant Fees and Services" in the Proxy Statement and is incorporated herein by reference.

37

PART IV

Item 15. Exhibits and Financial Schedules

1.	The following financial statements and the report of independent registered public accounting firm included in the 2007 Annual Report are filed as part of this Report and incorporated herein by reference.
	Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets as of December 31, 2007 and 2006.
	Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005.
	Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2007, 2006 and 2005.
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005.
	Notes to Consolidated Financial Statements.
2.	Financial statement schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and therefore have been omitted.
3.	The following exhibits are filed with this Report or incorporated herein by reference:

38

Index to Exhibits

Exhibit Number	Exhibit Description
3(i)	Restated Certificate of Incorporation of Guaranty Federal Bancshares, Inc. (1)
3(ii)	Bylaws of Guaranty Federal Bancshares, Inc., as amended (7)
4	Rights Agreement dated January 20, 1999 concerning the issuance of preferred stock and related rights. (2) The Company hereby agrees to furnish the SEC upon request, copies of (i) the instruments defining the rights of the holders of each issue of its junior subordinated debentures and (ii) the repurchase agreement between the Company and Barclay’s Capital, Inc. dated September 2007.
10.1	1994 Stock Option Plan *(3)
10.2	Recognition and Retention Plan *(4)
10.3	1998 Stock Option Plan *(5)
10.4	Restricted Stock Plan *(6)
10.5	Form of Change in Control Severance Agreement *(6)
10.6	2000 Stock Compensation Plan *(6)
10.7	2001 Stock Compensation Plan *(6)
10.8	2003 Stock Option Agreement *(8)
10.9	Employment Agreement effective as of March 9, 2004 by and between the Bank and Shaun A. Burke *(9)
10.10	2004 Stock Option Agreement dated March 9, 2004 between the Company and Shaun A. Burke *(10)
10.11	2004 Stock Option Plan *(11)
10.12	Form of Incentive Stock Option Agreement under the 2004 Stock Option Plan *(15)
10.13	Form of Non-Incentive Stock Option Agreement under the 2004 Stock Option Plan *(16)
10.14	Form of Incentive Stock Option Agreement under the 1994 Stock Option Plan *(12)
10.15	Form of Non-Incentive Stock Option Agreement under the 1994 Stock Option Plan *(13)
10.16	Incentive Stock Option Agreement dated March 17, 2005 between the Company and Shaun A. Burke (issued pursuant to the 2001 Stock Option Plan) *(14)
10.19	Written Description of Compensatory Arrangement with Chief Operating Officer and Chief Financial Officer *(17)
10.20	Written Description of 2007 Executive Incentive Compensation Annual Plan-President and Chief Executive Officer *(18)
10.21	Written Description of 2008 Executive Incentive Compensation Annual Plan-President and Chief Executive Officer *(19)
10.22	Written Description of 2008 Executive Incentive Compensation Annual Plan-Chief Financial Officer *(20)
11	Computation of per share earnings is set forth in Note 1 of the Notes to the Consolidated Financial Statements under the section captioned “Earnings Per Share” in the 2007 Annual Report.
13	Annual Report to Stockholders for the fiscal period ended December 31,2007 (only those portions incorporated by reference in this document are deemed “filed”)
21	Subsidiaries of the Registrant ( See Item 1. Business – Subsidiary and Segment Information)
23	Consent of BKD, LLP
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
* Management contract or compensatory plan or arrangement

39

___________________

(1)	Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (SEC File No. 0-23325) and incorporated herein by reference.
(2)	Filed as an exhibit to the Form 8A filed by Registrant on January 22, 1999 and incorporated herein by reference.
(3)	Filed as  Exhibit 10.1 of the Registration Statement on Form S-1 filed by the Registrant on September 23, 1997 (SEC File No. 333-36141) and incorporated herein by reference.
(4)	Filed as  Exhibit 10.2 of the Registration Statement on Form S-1 filed by the Registrant on September 23, 1997 (SEC File No. 333-36141) and incorporated herein by reference.
(5)	Filed as Exhibit 4 to the Form S-8 Registration Statement filed by the Registrant on March 6, 2002 (SEC File No. 333-83822) and incorporated herein by reference.
(6)	Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (SEC File No. 0-23325) and incorporated herein by reference.
(7)	Filed as Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on December 3, 2007 and incorporated herein by reference.
(8)	Filed as Exhibit 10.8 to the Annual Report on Form 10-K for the transition period ended December 31, 2003 filed by the Registrant on March 30, 2004 (SEC File No. 0-23325) and incorporated herein by reference.
(9)	Filed as Exhibit 10.9 to the Current Report on Form 8-K filed by the Registrant on January 24, 2005 (SEC File No. 0-23325) and incorporated herein by reference.
(10)	Filed as Exhibit 10.10 to the Current Report on Form 8-K filed by the Registrant on January 24, 2005 (SEC File No. 0-23325) and incorporated herein by reference.
(11)	Filed as Appendix A to the proxy statement for the annual meeting of stockholders held on May 19, 2004 (SEC File No. 0-23325) and incorporated herein by reference.
(12)	Filed as Exhibit 4.2 to the Form S-8 Registration Statement filed by the Registrant on March 3, 1998 (SEC File No. 333-47241) and incorporated herein by reference.
(13)	Filed as Exhibit 4.3 to the Form S-8 Registration Statement filed by the Registrant on March 3, 1998 (SEC File No. 333-47241) and incorporated herein by reference.
(14)	Filed as Exhibit 10.16 to the Current Report on Form 8-K filed by the Registrant on March 22,     2005 (SEC File No. 0-23325) and incorporated herein by reference.
(15)	Filed as Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed by the Registrant on March 30, 2005 and incorporated herein by reference.
(16)	Filed as Exhibit 10.13 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed by the Registrant on March 30, 2005 and incorporated herein by reference.
(17)	Filed as Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 filed by the Registrant on March 31, 2006 and incorporated herein by reference.
(18)	Filed as Exhibit 10.20 to the Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2007 filed by the Registrant on November 14, 2007 and incorporated herein by reference.
(19)	Filed as Exhibit 10.21 to the Current Report on Form 8-K filed by the Registrant on December 29, 2007 and incorporated herein by reference.
(20)	Filed as Exhibit 10.22 to the Current Report on Form 8-K filed by the Registrant on December 29, 2007 and incorporated herein by reference.

40

SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 31, 2008	By:	/s/ Shaun A. Burke
		Shaun A. Burke
		President and Chief Executive Officer (Duly Authorized Representative)

           Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ Shaun A. Burke	By:	/s/ Tim Rosenbury
	Shaun A. Burke		Tim Rosenbury
	President and Chief Executive Officer and Director		Director
	(Principal Executive Officer)	Date:	March 31, 2008
Date:	March 31, 2008

By:	/s/ Carter Peters	By:	/s/ James R. Batten
	Carter Peters		James R. Batten
	EVP and Chief Financial Officer		Director
	(Principal Accounting and Financial Officer)	Date:	March 31, 2008
Date:	March 31, 2008

By:	/s/ Wayne V. Barnes	By:	/s/ Don M. Gibson
	Wayne V. Barnes		Don M. Gibson
	Director		Chairman of the Board and Director
Date:	March 31, 2008	Date:	March 31, 2008

By:	/s/ Gregory V. Ostergren	By:	/s/ James L. Sivils, III
	Gregory V. Ostergren		James L. Sivils, III
	Director		Director
Date:	March 31, 2008	Date:	March 31, 2008

By:	/s/ Kurt D. Hellweg	By:	/s/ Jack L. Barham
	Kurt D. Hellweg		Jack L. Barham
	Director		Director
Date:	March 31, 2008	Date:	March 31, 2008

 41

EX-13

Guaranty Federal Bancshares, Inc.

2007 Annual Report

	Investor Information
Contents i   President’s Message 1  Investor Information 2  Common Stock Prices & Dividends 4  Selected Consolidated Financial and Other Data 6  Management’s Discussion and Analysis of Financial Condition and Results of Operations 20Consolidated Financial Statements 49Report of Independent Registered Public Accounting Firm 50Notes                Directors and Officers	ANNUAL MEETING OF STOCKHOLDERS: The Annual Meeting of Stockholders of the Company will be held Wednesday, May 28, 2008 at 6:00 p.m., local time, at the Clarion Hotel, 3333 S. Glenstone, Springfield, Missouri. ANNUAL REPORT ON FORM 10-K: Copies of the Company’s Annual Report on Form 10-K, including the financial statements, filed with the Securities and Exchange Commission are available without charge upon written request to:                 Lorene Thomas, Secretary                 Guaranty Federal Bancshares, Inc.,                 1341 W. Battlefield St., Springfield, MO  65807-4181 TRANSFER AGENT: Registrar and Transfer Company 10 Commerce Drive Cranford, NJ  07016 STOCK TRADING INFORMATION: Over-the Counter Symbol: GFED SPECIAL LEGAL COUNSEL: Husch Blackwell Sanders LLP 901 St. Louis St., Suite 1900 Springfield, MO  65806
______________________________________ Bank History Fact 1: 1913 - St. Louis Savings moves to Springfield, MO and changes their name to Guaranty Federal Savings and Loan Association. ______________________________________	INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: BKD, LLP 901 St. Louis St. PO Box 1190 Springfield, MO  65801-1190 STOCKHOLDER AND FINANCIAL INFORMATION: Carter Peters, Executive Vice President, Chief Financial Officer 417-520-0235

1

  Guaranty Federal Bancshares, Inc.

 2007 Annual Report

	Common Stock Prices & Dividends
Bank History Fact 2: 1935 – Converts to a Federal charter and the name is changed to Guaranty Federal Savings and Loan Association.	The common stock of Guaranty Federal Bancshares, Inc. (the “Company”) is traded in the over-the-counter market and quoted on the NASDAQ National Market under the symbol “GFED”.  As of March 18, 2008, there were approximately 1,572 stockholders.  At that date the Company had 6,740,985 shares of common stock issued and 2,706,675 shares of common stock outstanding. During the year ended December 31, 2007, the Company paid dividends of (i) $0.17 per share on April 13, 2007, to stockholders of record as of April 3, 2007, (ii) $0.17 per share on July 13, 2007 to stockholders of record as of July 2, 2007, and (iii) $0.18 per share on October 15, 2007, to stockholders of record as of October 1, 2007, and also declared a cash dividend of $0.18 per share on December 21, 2007, which was paid on January 18, 2008, to stockholders of record on January 4, 2008.  During the year ended December 31, 2006, the Company paid dividends of (i) $0.165 per share on April 14, 2006, to stockholders of record as of March 30, 2006, (ii) $0.165 per share on July 14, 2006 to stockholders of record as of July 3, 2006, and (iii) $0.17 per share on October 16, 2006, to stockholders of record as of October 2, 2006, and also declared a cash dividend of $0.17 per share on December 21, 2006, which was paid on January 19, 2007, to stockholders of record on January 5, 2007. The Company’s Board of Directors anticipates paying dividends on comparable dates during fiscal year ended December 31, 2008 to the payment dates during the fiscal year ended December 31, 2007.  Such future dividends, if any, will be at the discretion of the Company’s Board of Directors and will depend on, among other things, the Company’s results of operations, cash requirements and surplus, financial condition and other factors that the Company’s Board of Directors may consider relevant. The table below reflects the range of common stock high and low closing prices per the NASDAQ Stock Market by quarter for the years ended December 31, 2007 and 2006.
Bank History Fact 3: 1979 – Guaranty Federal opens first branch office. 1987 – Guaranty Federal opens second branch office.
Bank History Fact 4: 1995 – Reorganizes and issues stock in connection with formation of MHC. Forms federally chartered stock savings bank.

	Year ended				Year ended
	December 31, 2007				December 31, 2006
	High		Low		High		Low
Quarter ended:
March 31	$	29.85		28.43		30.24		27.68
June 30		30.21		28.75		29.71		27.80
September 30		30.42		29.00		29.40		27.51
December 31		30.25		27.05		28.75		27.89

2

  Guaranty Federal Bancshares, Inc.

2007 Annual Report

Bank History Fact 5:   2003 – The bank applies for State Charter and changes name to Guaranty Bank.   Set forth below is a stock performance graph comparing the cumulative total shareholder return on the Common Stock with (a) the cumulative total stockholder return on stocks included in The Nasdaq – Total U.S. Index and (b) the cumulative total stockholder return on stocks included in The Nasdaq Bank Index.  All three investment comparisons assume the investment of $100 as of the close of business on December 31, 2002 and the hypothetical value of that investment as of the Company’s fiscal years ended December 31, 2003, 2004, 2005, 2006, and 2007, assuming that all dividends were reinvested.  The graph reflects the historical performance of the Common Stock, and, as a result, may not be indicative of possible future performance of the Common Stock.  The data used to compile this graph was obtained from NASDAQ.

			Period Ending
Index	12/31/02		12/31/03		12/31/04		12/31/05		12/31/06		12/31/07
Guaranty Federal Bancshares, Inc.		100.00		128.26		165.55		197.22		207.74		212.72
NASDAQ – Total US		100.00		149.52		162.72		166.18		182.57		197.98
NASDAQ Bank Index		100.00		128.64		147.22		143.82		161.41		127.92

3

Guaranty Federal Bancshares, Inc.

Selected Consolidated Financial and Other Data

The following tables include certain information concerning the financial position and results of operations of Guaranty Federal Bancshares, Inc. (including consolidated data from operations of subsidiaries) as of the dates indicated.  Dollar amounts are expressed in thousands except per share data.

Summary Balance Sheet	As of December 31,
	2007		2006		2005		2004		2003
ASSETS
Cash and cash equivalents	$	12,046		14,881		20,506		15,896		22,657
Investment securities		15,385		8,669		7,702		21,553		16,731
Loans receivable, net		516,242		480,269		435,528		392,333		332,130
Accrued interest receivable		3,323		2,910		2,089		1,570		1,306
Prepaids and other assets		8,612		10,075		7,696		1,977		7,351
Foreclosed assets		727		173		27		78		6
Premises and equipment		9,442		7,868		7,453		7,189		6,576
	$	565,778		524,845		481,001		440,596		386,757
LIABILITIES
Deposits	$	418,191		352,230		320,059		296,388		237,131
Federal Home Loan Bank advances		76,086		108,000		100,000		100,000		108,837
Subordinated debentures		15,465		15,465		15,465		-		-
Other liabilities		13,349		4,251		3,385		3,435		2,811
		523,091		479,946		438,909		399,823		348,779
STOCKHOLDERS' EQUITY		42,687		44,899		42,092		40,773		37,978
	$	565,778		524,845		481,001		440,596		386,757
Supplemental Data	As of December 31,
	2007		2006		2005		2004		2003
Number of full-service offices		8		8		7		7		9
Cash dividends per share	$	0.70		0.67		0.65		0.63		0.61

4

Guaranty Federal Bancshares, Inc.

Selected Consolidated Financial and Other Data

Summary Statement of Income	Years ended December 31,
	2007		2006		2005		2004
Interest income	$	37,972		35,204		27,413		20,539
Interest expense		20,519		17,386		11,860		8,446
Net interest income		17,453		17,818		15,553		12,093
Provision for loan losses		840		750		945		864
Net interest income after provision
for loan losses		16,613		17,068		14,608		11,229
Noninterest income		4,729		3,660		3,468		3,616
Noninterest expense		11,842		10,177		8,670		8,248
Income before income taxes		9,500		10,551		9,406		6,597
Provision for income taxes		3,400		4,042		3,507		2,313
Net income	$	6,100		6,509		5,899		4,284
Basic	$	2.25		2.34		2.12		1.53
Diluted	$	2.19		2.25		2.03		1.47

	Six months ended
	December 31,
	2003 (1)		2002 (1)
			(Unaudited)
Interest income	$	9,846		11,290
Interest expense		4,491		6,086
Net interest income		5,355		5,204
Provision for loan losses		1,162		205
Net interest income after provision
for loan losses		4,193		4,999
Noninterest income		2,089		1,752
Noninterest expense		3,994		4,060
Income before income taxes		2,288		2,691
Provision for income taxes		788		927
Net income	$	1,500		1,764
Basic	$	0.54		0.63
Diluted	$	0.52		0.62

(1) In 2003, the Company determined to change its fiscal year end from June 30 to a calendar year end of December 31.  As a result, the Company reported a six-month transition period ended December 31, 2003 in order to change to this new calendar year end.

5

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

GENERAL

Guaranty Federal Bancshares, Inc. (the “Company”) is a Delaware corporation organized on December 30, 1997 for the purpose of becoming the holding company of Guaranty Federal Savings Bank, a federal savings bank (the “Bank”).  The Bank is a wholly-owned subsidiary of the Company.

In April 1995, Guaranty Federal Savings & Loan Association reorganized from a federally chartered mutual savings and loan association into a mutual holding company, Guaranty Federal Bancshares, M. H. C. (the “MHC”).  Concurrent with the reorganization, the Bank was chartered.  In December 1997, the Company completed the conversion and reorganization of the Bank and the former MHC by selling common stock to depositors of the Bank and a benefit plan of the Bank.  In addition, all shares of common stock of the Bank held by public stockholders were exchanged for shares of common stock of the Company.

On June 27, 2003, the Bank converted to a state-chartered trust company with banking powers in Missouri, and the Company became a one-bank holding company.  The name of the Bank was changed from Guaranty Federal Savings Bank to Guaranty Bank.

The primary activity of the Company is to oversee its investment in the Bank.  The Company engages in few other activities, and the Company has no significant assets other than its investment in the Bank.  For this reason, unless otherwise specified, references to the Company include the operations of the Bank.  The Company’s principal business consists of attracting deposits from the general public and using such deposits to originate mortgage loans secured by one- to four-family residences, multi-family, construction and commercial real estate loans and consumer and business loans.  The Company also uses these funds to purchase mortgage-backed securities, US government and agency obligations, and other permissible securities.  When cash outflows exceed inflows, the Company uses borrowings and brokered deposits as additional financing sources.

The Company derives revenues principally from interest earned on loans and investments and, to a lesser extent, from fees charged for services.  General economic conditions and policies of the financial institution regulatory agencies, including the Missouri Division of Finance and the Federal Deposit Insurance Corporation (“FDIC”) significantly influence the Company’s operations.  Interest rates on competing investments and general market interest rates influence the Company’s cost of funds.  Lending activities are affected by the interest rates at which such financing may be offered.  The Company intends to focus on one- to four-family residential, consumer, and commercial real estate lending throughout southwestern Missouri.

The Company has two wholly-owned subsidiaries other than the Bank, its principal subsidiary: (i) Guaranty Statutory Trust I, a Delaware statutory trust (“Trust I”); and (ii) Guaranty Statutory Trust II, a Delaware statutory trust.  These Trusts were formed in December 2005 for the exclusive purpose of issuing trust preferred securities to acquire junior subordinated debentures issued by the Company.  The Company’s banking operation conducted through the Bank is the Company’s only reportable segment.  See also the discussion contained in the section captioned “Segment Information” in Note 1 of the Notes to Consolidated Financial Statements in this report.

The discussion set forth below, and in any other portion of this report, may contain forward-looking statements.  Such statements are based upon the information currently available to management of the Company and management’s perception thereof as of the date of this report.  When used in this document, 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 of the Company set forth in Item 1A. of the Company’s Form 10-K.

6

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

FINANCIAL CONDITION

From December 31, 2006 to December 31, 2007, the Company’s total assets increased $40,932,985 (8%) to $565,777,980, liabilities increased $43,145,568 (9%) to $523,091,320, and stockholders' equity decreased $2,212,583 (5%) to $42,686,660.  The ratio of stockholders’ equity to total assets decreased to 7.5% during this period, compared to 8.6% as of December 31, 2006.

From December 31, 2006 to December 31, 2007, securities available-for-sale increased $6,823,617 (86%).  The increase is primarily due to purchases of $11,926,215, offset by maturities of $2,580,000 and the sale of 10,000 shares of the Federal Home Loan Mortgage Corporation (“FHLMC”) stock.  The Company currently owns 26,600 shares of FHLMC stock with an amortized cost of $26,057 in the securities available-for-sale category.  As of December 31, 2007, the gross unrealized gain on the stock is $880,205, a decrease of $1,569,088 from the gross unrealized gain at December 31, 2006, which was due to the sale of 10,000 shares during the year and a decrease in the stock price from $67.90 per share at December 31, 2006 to $34.07 at December 31, 2007. 

From December 31, 2006 to December 31, 2007, securities held-to-maturity decreased $108,250 (14%) to $654,775 due to repayments received during the period. Stock of the Federal Home Loan Bank of Des Moines (“FHLB”) was decreased by $1,368,000 (25%) to $4,014,700 due to the reductions in stock necessary to meet FHLB borrowing requirements.  The Bank is required to own stock in the FHLB equal to 0.12% of assets plus 4.45% of advances.

From December 31, 2006 to December 31, 2007, net loans receivable increased by $36,835,513 (8%) to $514,100,035.  During this period, permanent loans secured by both owner and non-owner occupied one to four unit residential real estate decreased $3,627,329 (4%), multi-family permanent loans decreased $8,418,642 (17%), construction loans increased $5,757,244 (7%), permanent loans secured by commercial real estate increased $20,194,156 (13%), commercial loans increased $21,350,061 (26%), and installment loans increased $1,868,202 (8%).  During this period the Company continued to increase its emphasis on commercial lending, while selling the majority of conforming single family loan production on the secondary market.  Loans sold on the secondary market are sold servicing released, whereby the third party who purchases the loan provides the servicing.

From December 31, 2006 to December 31, 2007, loans past due 90 days or more increased $4,202,056 to $6,215,533 (1.21% of net loans).  As of December 31, 2007, management considers loans totaling $7,254,334 as impaired with a related allowance for loan losses of $415,000.  One commercial real estate loan and various one to four residential loans comprise the majority of the impaired loans.  The Bank recognizes interest income on impaired loans as payments are received.  Management believes the allowance for loan losses is at a level to be sufficient in providing for potential loan losses in the Bank’s existing loan portfolio.

From December 31, 2006 to December 31, 2007, the allowance for loan losses increased $179,446 to $5,962,923.  In addition to the provision for loan loss of $840,000 recorded by the Company during the year ended December 31, 2007, loan charge-offs exceeded recoveries by $660,554 for the twelve months ended December 31, 2007. The allowance for loan losses as of December 31, 2007 and December 31, 2006 was 1.16% and 1.21% of net loans outstanding, respectively.  As of December 31, 2007, the allowance for loan losses was 82% of impaired loans versus 192% as of December 31, 2006.  The allowance as a percentage of impaired loans declined primarily due to one impaired commercial real estate loan that was placed on non-accrual status in April 2007.

As of December 31, 2007, foreclosed assets held for sale consisted primarily of two single family residences and single family patio homes and lots from one small developer.

From December 31, 2006 to December 31, 2007, premises and equipment increased $1,574,541 (20%) to $9,442,350 due primarily to two land purchases for future branch and operations sites.

From December 31, 2006 to December 31, 2007, deposits increased $65,961,648 (19%) to $418,191,284.  During this period, transaction accounts increased by $12,779,497 (10%) to 34% of total deposits and certificates of deposit increased by $53,182,151 (24%) to $276,418,573.  Included in the certificates of deposit total is $4,381,699 in deposits placed by brokers, a decrease from $29,146,308 as of December 31, 2006.

7

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

     From December 31, 2006 to December 31, 2007, the Company’s borrowings from the Federal Home Loan Bank (“FHLB”) decreased $31,914,000 to $76,086,000, due to repayments exceeding new advances.  The Company was able to make such repayments through the funds generated from deposit growth.

Securities sold under agreements to repurchase increased $8,146,074 (478%) from $1,703,221 as of December 31, 2006, to $9,849,295 as of December 31, 2007. due to a floating rate leveraged transaction completed during the third quarter.

As of December 31, 2007 and 2006, the Company had $15,465,000 of junior subordinated debentures that were comprised of $5,155,000 issued to Guaranty Statutory Trust I and $10,310,000 issued to Guaranty Statutory Trust II.  On December 15, 2005, the Company completed an offering of $15 million of trust preferred securities (”Trust Securities”).  The Company formed Guaranty Statutory Trust I and Guaranty Statutory Trust II as wholly-owned subsidiaries and Delaware statutory trusts for the purpose of issuing the Trust Securities.  The proceeds of the sale of Trust Securities issued by Guaranty Statutory Trust I, together with the proceeds of the Trust’s sale of its common securities issued to the Company, were used by the Trust to purchase 30-year junior subordinated deferrable interest debentures from the Company in the principal amount of $5,155,000 (“Trust I Debentures”).  The proceeds of the sale of Trust Securities issued by Guaranty Statutory Trust II, together with the proceeds of the Trust’s sale of its common securities issued to the Company, were used by the Trust to purchase 30-year junior subordinated deferrable interest debentures from the Company in the principal amount of $10,310,000 (“Trust II Debentures”, and collectively with the Trust I Debentures, the “Debentures”).  Both the Trust I Debentures and the Trust II Debentures were issued pursuant to the terms of Indentures dated December 15, 2005 by and between the Company and Wilmington Trust Company, as trustee.  The Trust I Debentures bear interest at a fixed rate of 6.92%, payable quarterly.  The Trust II Debentures bear interest at a fixed rate of 6.47% for 5 years, payable quarterly, after issuance and thereafter at a floating rate equal to the three month LIBOR plus 1.45%.  The interest payments by the Company to the Trusts will be used to pay the dividends payable by the Trusts to the holders of the Trust Securities.

The Debentures mature on February 23, 2036. Subject to prior approval by the Federal Reserve Board, the Debentures and the Trust Securities are each callable by the Company or the Trusts, respectively and as applicable, at its option after five years from issuance, and sooner in the case of a special redemption at a special redemption price ranging up to 103.2% of the principal amount thereof, and upon the occurrence of certain events, such as a change in the regulatory capital treatment of the Trust Securities, either Trust being deemed an investment company or the occurrence of certain adverse tax events.  In addition, the Company and the Trusts may defer interest and dividend payments, respectively, for up to five consecutive years without resulting in a default.  An event of default may occur if the Company declares bankruptcy, fails to make the required payments within 30 days or breaches certain covenants under the Debentures.   The Debentures are subordinated to the prior payment of any other indebtedness of the Company.

The Company invested the proceeds of the sale of the Trust Securities in its banking subsidiary, where the funds were used primarily to restructure the investment portfolio, fund loan growth and repay FHLB advances.

Stockholders’ equity (including unrealized appreciation on securities available-for-sale, net of tax) decreased $2,212,583 (5%) to $42,686,660 as of December 31, 2007.  Net income for the year ended December 31, 2007 exceeded cash dividends paid or declared by $4,219,443.  The Company repurchased 252,799 shares as treasury stock at a cost of $7,479,118, at an average price of $29.59 per share.  As of December 31, 2007, 260,678 shares remain to be repurchased under the repurchase plan announced August 20, 2007.  The decrease in unrealized appreciation on securities available-for-sale, net of tax, decreased stockholders’ equity by $1,030,781.  Stockholders’ equity also increased as a result of exercises of stock options to purchase the Company’s Common Stock and the release of shares of the Company’s Common Stock held by the Bank sponsored Employee Stock Ownership Plan.  On a per share basis, stockholders’ equity increased $.07 from $16.30 as of December 31, 2006 to $16.37 as of December 31, 2007.

8

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

The following table shows the balances as of December 31, 2007 of various categories of interest-earning assets and interest-bearing liabilities and the corresponding yields and costs, and, for the periods indicated: (1) the average balances of various categories of interest-earning assets and interest-bearing liabilities, (2) the total interest earned or paid thereon, and (3) the resulting weighted average yields and costs.  In addition, the table shows the Company’s rate spreads and net yields.  Average balances are based on daily balances.  Tax-free income is not material; accordingly, interest income and related average yields have not been calculated on a tax equivalent basis.  Average loan balances include non-accrual loans.  Dollar amounts are expressed in thousands.

	As of						Year Ended								Year Ended								Year Ended
	December 31, 2007						December 31, 2007								December 31, 2006								December 31, 2005
	Balance			Yield / Cost			Average Balance			Interest		Yield / Cost			Average Balance			Interest		Yield / Cost			Average Balance			Interest		Yield / Cost
ASSETS
Interest-earning:
Loans	$	516,242			7.23	%		482,806			37,114		7.69	%		452,348			34,500		7.63	%		419,552			26,682		6.36	%
Investment securities		15,385			5.30	%		10,688			537		5.02	%		7,261			451		6.21	%		9,905			432		4.36	%
Other assets		4,976			4.69	%		7,372			322		4.37	%		9,843			253		2.57	%		11,681			299		2.56	%
Total interest-earning		536,603			7.15	%		500,866			37,973		7.58	%		469,452			35,204		7.50	%		441,138			27,413		6.21	%
Noninterest-earning		29,175						18,730								20,914								20,205
	$	565,778						519,596								490,366								461,343
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts	$	12,217			2.11	%		13,474			320		2.37	%	$	14,830			365		2.46	%	$	14,931			201		1.35	%
Transaction accounts		100,831			2.12	%		100,689			2,940		2.92	%		78,238			1,710		2.19	%		84,776			1,300		1.53	%
Certificates of deposit		276,419			5.10	%		246,785			12,600		5.11	%		195,772			8,448		4.32	%		178,301			5,788		3.25	%
FHLB advances		76,086			4.37	%		65,575			3,470		5.29	%		110,810			5,722		5.16	%		111,104			4,494		4.04	%
Subordinated debentures		15,465			6.62	%		15,465			1,024		6.62	%		15,465			1,028		6.65	%		701			47		6.70	%
Other borrowed funds		10,567			4.23	%		3,691			165		4.47	%		3,947			114		2.89	%		1,395			31		2.22	%
Total interest-bearing		491,585			4.33	%		445,679			20,519		4.60	%		419,062			17,387		4.15	%		391,208			11,861		3.03	%
Noninterest-bearing		31,506						28,401								26,898								28,374
Total liabilities		523,091						474,080								445,960								419,582
Stockholders' equity		42,687						45,516								44,406								41,761
	$	565,778						519,596							$	490,366							$	461,343
Net earning balance	$	45,018						55,187							$	50,390							$	49,930
Earning yield less costing rate					2.82	%							2.98	%							3.35	%							3.18	%
Net interest income, and
net yield spread on
interest-earning assets											17,454		3.48	%					17,817		3.80	%					15,552		3.53	%
Ratio of interest-earning assets to
interest-bearing liabilities		109	%					112	%							112	%							113	%

9

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

The following table sets forth information regarding changes in interest income and interest expense for the periods indicated resulting from changes in average balances and average rates shown in the previous table.  For each category of interest-earning assets and interest-bearing liabilities information is provided with respect to changes attributable to:  (i) changes in balance (change in balance multiplied by the old rate), (ii) changes in interest rates (change in rate multiplied by the old balance); and (iii) the combined effect of changes in balance and interest rates (change in balance multiplied by change in rate). Dollar amounts are expressed in thousands.

	Year ended												Year ended
	December 31, 2007 versus December 31, 2006												December 31, 2006 versus December 31, 2005
	Average Balance			Interest Rate			Rate & Balance			Total			Average Balance			Interest Rate		Rate & Balance			Total
Interest income:
Loans	$	2,323			273			18			2,614			2,075			5,318		416			7,809
Investment securities		213			(86	)		(41	)		86			(115	)		183		(49	)		19
Other assets		(64	)		177			(44	)		69			(47	)		1		-			(46	)
Net change in interest income		2,472			364			(67	)		2,769			1,913			5,502		367			7,782
Interest expense:
Savings accounts		(33	)		(13	)		1			(45	)		(2	)		167		(1	)		164
Transaction accounts		491			574			165			1,230			(100	)		553		(43	)		410
Certificates of deposit		2,201			1,548			403			4,152			567			1,907		187			2,661
FHLB advances		(2,336	)		142			(58	)		(2,252	)		(12	)		1,243		(3	)		1,228
Subordinated debentures		-			(4	)		-			(4	)		990			-		(9	)		981
Other borrowed funds		(7	)		62			(4	)		51			57			9		17			83
Net change in interest expense		316			2,309			507			3,132			1,500			3,879		148			5,527
Change in net interest income	$	2,156			(1,945	)		(574	)		(363	)	$	413			1,623		219			2,255

RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2007 AND DECEMBER 31, 2006

	Average for the Year Shown
	Prime			Ten –Year Treasury			One-Year Treasury
December 31, 2007		8.05	%		4.63	%		4.53	%
December 31, 2006		7.96	%		4.80	%		4.94	%
Changes in rates		0.09	%		-0.17	%		-0.41	%

Interest Rates.  The Bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates.  The above table sets forth the weekly average interest rates for the 52 weeks ending December 31, 2007 and December 31, 2006 as reported by the Federal Reserve. The Bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate.  The ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans.

Rates trended upward during 2006 as the Federal Reserve Open Market Committee (“FOMC”) continued its increase in the discount rates by 100 basis points from January through June.  As of year-end 2006 the prime rate was 8.25%.  Rates were steady for the first eight months of 2007, but due to several economic factors, the FOMC began decreasing the discount rate at its September 2007 meeting and continued for each meeting thereafter.  As of year-end 2007 the prime rate was 7.25%.

10

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

Interest Income.  Total interest income increased $2,768,092 (8%) as the average balance of interest-earning assets increased $31,414,000 (7%).  In addition, the yield on average interest earning assets increased 8 basis points to 7.58%.

Interest on loans increased $2,613,520 (8%) and the average loan receivable balance increased $30,458,000 (7%) while the average yield increased 6 basis points to 7.69%.

Interest Expense.  Total interest expense increased $3,132,710 (18%) as the average balance of interest-bearing liabilities increased $26,617,000 (6%).  In addition, the average cost of interest-bearing liabilities increased 45 basis points to 4.60%.

Interest expense on deposits increased $5,337,591 (51%) as the average balance of interest bearing deposits increased $72,108,000 (25%) and the average interest rate paid to depositors increased 76 basis points to 4.40%.

The Company’s borrowings from the FHLB decreased to $76,086,000, which remains in compliance with the FHLB limitation of advances to 35% of assets.  The average balance of advances decreased $45,235,000 (41%) and the average cost of those advances increased 13 basis points to 5.29%.  As a result, interest expense on these advances decreased $2,252,422 (39%).  As of December 31, 2007 FHLB advances were 13% of total assets, compared to 21% of total assets as of December 31, 2006.

Net Interest Income.  The Company’s net interest income decreased $364,618 (2%).  During the year ended December 31, 2007, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $55,187,000, resulting in an increase in the average net earning balance of $4,797,000 (10%).    In addition, the Company’s spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities decreased by 37 basis points from 3.35% to 2.98%.

Provision for Loan Losses.  Provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the Company to provide for potential loan losses in the existing loan portfolio.  When making its assessment, the Company considers prior loss experience, volume and type of lending, local banking trends and past due loans in the Company’s loan portfolio.  In addition, the Company considers general economic conditions and other factors related to collectibility of the Company’s loan portfolio.

During the year ended December 31, 2007, the Company experienced loan charge-offs, in excess of recoveries, of $660,554 and, based on a review as discussed above, elected to record a provision for loan loss of $840,000 to increase the allowance for loan losses to $5,962,923 as of December 31, 2007.  The provision for loan losses recorded by the Company during year ended December 31, 2006 was $750,000.  Management of the Company anticipates the need to continue increasing the loan loss allowance in the future through charges to provision for loan losses based on the anticipated growth in its loan portfolio.

Non-Interest Income.  Non-interest income increased $1,068,849 (29%).  The gain on sale of loans of $1,177,017 for 2007, compared to $692,276 for 2006, was the result of mortgage banking activities related to the sale of single-family conforming residential loans in the secondary market.  The Bank attempts to minimize its risk of price changes by committing to sell loans while the loans are in the origination process.  The gain on sale of investments for the year ended December 31, 2007 was $618,363, compared to $750,869 for the year ended December 31, 2006.  These gains were attributed to the sale of 10,000 shares of FHLMC stock in 2007 and the sale of 12,000 shares in 2006.  Deposit service charges increased $813,917 (58%) due to increases in insufficient funds and overdraft charges primarily due to the Bank’s overdraft privilege program that was implemented in the fourth quarter of 2006.

Non-Interest Expense.  Non-interest expense increased $1,665,457 (16%).  This increase was primarily due to increases in salaries and employee benefits of $962,487 (16%), occupancy expense of $93,633 (6%), data processing of $111,490 (40%) and other expense of $498,249 (27%).

11

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

The increase in compensation was due to several factors, including additions in executive and staff positions, pay increases to existing employees, increases in employee benefit costs and an increase in the number of employees.  The staff increased from 146 full-time equivalent employees as of December 31, 2006 to 150 full-time equivalent employees as of December 31, 2007.

The increases in occupancy and data processing expenses were primarily due to increased depreciation as well as maintenance expenses relating to the Bank’s conversion to a new core processing system in the first half of 2006.

Increases in other expenses are comprised of increased expenses related to audit and compliance costs for the Sarbanes-Oxley Act of 2002, fees paid to a third party vendor related to the Bank’s overdraft privilege program, increased amortization on low income housing tax credits and an increase in ATM expense.  The Bank converted to a new ATM network provider in September 2006.  The expense is now 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.

Income Taxes.  The decrease in income tax expense is a direct result of the decrease in the Company’s taxable income for the year ended December 31, 2007 as compared to the year ended December 31, 2006.

Cash Dividends Paid.  The Company paid dividends of $0.17 per share on April 13, 2007, to stockholders’ of record as of April 3, 2007, and $0.17 per share on July 13, 2007 to stockholders’ of record as of July 2, 2007, and $0.18 per share on October 15, 2007, to stockholders’ of record as of October 1, 2007.  The Company declared a cash dividend of $0.18 per share on December 21, 2007, which was paid on January 18, 2008, to stockholders of record on January 4, 2008.

RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2006 AND DECEMBER 31, 2005

	Average for the Year Shown
	Prime			Ten –Year Treasury			One-Year Treasury
December 31, 2006		7.96	%		4.80	%		4.94	%
December 31, 2005		6.19	%		4.29	%		3.62	%
Changes in rates		1.77	%		0.51	%		1.32	%

Interest Rates.  The Bank charges borrowers and pays depositors interest rates that are largely a function of the general level of interest rates.  The above table sets forth the weekly average interest rates for the 52 weeks ending December 31, 2006 and December 31, 2005 as reported by the Federal Reserve. The Bank typically indexes its adjustable rate commercial loans to prime and its adjustable rate mortgage loans to the one-year treasury rate.  The ten-year treasury rate is a proxy for 30-year fixed rate home mortgage loans.

Rates trended upward during 2005 as the FOMC increased the discount rates 25 basis points after eight consecutive meetings from January 2005 to December 2005. As of year-end 2005 the prime rate was 7.25%.This trend continued in 2006 as the FOMC increased the discount rates 25 basis points after four consecutive meetings from January 2006 to June 2006.  As of year-end 2006 the prime rate was 8.25%.

Interest Income.  Total interest income increased $7,791,759 (28%) as the average balance of interest-earning assets increased $28,314,000 (6%).  In addition, the yield on average interest earning assets increased 129 basis points to 7.50%.

Interest on loans increased $7,818,452 (29%) and the average loan receivable balance increased $32,796,000 (8%) while the average yield increased 127 basis points to 7.63%.  The increase in loan yield is

12

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

the result of the combination of new loans at higher rates, a reduction in prepayments, and an increase of interest rates on adjustable rate loans.

Interest Expense.  Total interest expense increased $5,526,189 (47%) as the average balance of interest-bearing liabilities increased $27,854,000 (7%).  In addition, the average cost of interest-bearing liabilities increased 112 basis points to 4.15%.

Interest expense on deposits increased $3,235,130 (44%) as the average balance of interest bearing deposits increased $10,832,000 (4%) and the average interest rate paid to depositors increased 102 basis points to 3.64%.  The average balance of interest bearing core deposit accounts decreased $6,639,000 (7%) and the average balance of certificates of deposit increased $17,471,000 (10%).

The Company’s borrowings from the FHLB increased to $108,000,000, which remains in compliance with the FHLB limitation of advances to 35% of assets.  The average cost of those advances increased 112 basis points to 5.16%.  As a result, interest expense on these advances increased $1,227,976 (27%).  As of December 31, 2006 FHLB advances are 20% of total assets, compared to 21% of total assets as of December 31, 2005.

Net Interest Income.  The Company’s net interest income increased $2,265,570 (14%).  During the year ended December 31, 2006, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $50,390,000, resulting in an increase in the average net earning balance of $460,000 (1%).    In addition, the Company’s spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 17 basis points from 3.18% to 3.35%.

Provision for Loan Losses.  Provisions for loan losses are charged or credited to earnings to bring the total allowance for loan losses to a level considered adequate by the Company to provide for potential loan losses in the existing loan portfolio.  When making its assessment, the Company considers prior loss experience, volume and type of lending, local banking trends and past due loans in the Company’s loan portfolio.  In addition, the Company considers general economic conditions and other factors related to collectibility of the Company’s loan portfolio.

During the year ended December 31, 2006, the Company experienced loan charge-offs, in excess of recoveries, of $366,177 and, based on a review as discussed above, elected to record a provision for loan loss of $750,000 to increase the allowance for loan losses to $5,783,477 as of December 31, 2006.  The provision for loan losses recorded by the Company during year ended December 31, 2005 was $945,000.  Management of the Company anticipates the need to continue increasing the loan loss allowance in the future through charges to provision for loan losses based on the anticipated growth in its loan portfolio and the shift in the Company’s emphasis from primarily single-family loans to a mix of single-family and commercial loans.

Non-Interest Income.  Non-interest income increased $191,941 (6%).  The gain on sale of loans of $692,276 for 2006, compared to $623,252 for 2005, was the result of mortgage banking activities related to the sale of single-family conforming residential loans in the secondary market.  The Bank attempts to minimize its risk of price changes by committing to sell loans while the loans are in the origination process.  The gain on sale of investments for the year ended December 31, 2006 was $750,869, compared to $743,335 for year ended December 31, 2005.  In 2006, this gain was attributed to the sale of 12,000 shares of FHLMC stock.  During 2006 the Bank sold its mortgage loan servicing rights to a third party, which resulted in a profit on the sale of $89,441. In addition the Bank had income from tax credits purchased of $191,678 during 2006.  Deposit service charges decreased $241,709 (15%) due to decreases in insufficient funds and overdraft charges on the Bank’s checking accounts.  In addition, other fees decreased $38,869 (29%) primarily due to a decrease in prepayment penalties collected during the year ended December 31, 2006.

13

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

Non-Interest Expense.  Non-interest expense increased $1,507,193 (17%).  This increase was primarily due to increases in salaries and employee benefits of $1,226,893 (25%) and occupancy expense of $155,211 (11%).  The increase in compensation was due to normal salary and benefits increases for the Bank’s employees, along with an increase in the number of employees.  The staff increased from 125 full-time equivalent employees as of December 31, 2005 to 146 full-time equivalent employees as of December 31, 2006.  In 2006, the Company opened a new full-service branch in Springfield, Missouri.  In addition advertising expense increased $173,038 (75%).  This increase was primarily due to the Bank’s decision to increase its exposure through the use of several different advertising mediums.  Data processing expense decreased $160,222 (36%). This decrease was primarily due to the Bank’s decision to terminate its relationship with a third-party vendor that provided data processing services.  This conversion was completed in January of 2006.

Income Taxes.  The increase in income tax expense is a direct result of the increase in the Company’s taxable income for the period ended December 31, 2006 as compared to the period ended December 31, 2005.

Cash Dividends Paid.  The Company paid dividends of $0.165 per share on April 14, 2006, to stockholders’ of record as of March 30, 2006, and $0.165 per share on July 15, 2006 to stockholders’ of record as of July 1, 2006, and $0.17 per share on October 14, 2006, to stockholders’ of record as of October 1, 2006.  The Company declared a cash dividend of $0.17 per share on December 21, 2006, which was paid on January 19, 2007, to stockholders of record on January 5, 2007.

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.  This matching is especially difficult because the residential mortgage loans that comprise a significant portion of the Bank’s assets give the borrower the right to prepay at any time.  These borrowers act in their economic self-interest and refinance higher rate loans when rates are low.  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 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, construction, commercial business, home equity and consumer loans, while originating fixed-rate, one- to four-family residential loans primarily for immediate resale in the secondary market.

The Bank is also managing interest rate risk by the origination of construction loans.  As of December 31, 2007, such loans constitute 17% 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 December 31, 2007 and December 31, 2006, the Bank’s savings accounts, checking accounts, and money market deposit accounts totaled $141,772,709 or 34% of its total deposits and $128,993,214 or 37% of total deposits, respectively.  The weighted average rate paid on these accounts increased 12 basis points from 1.99% on December 31, 2006 to 2.11% on December 31, 2007.  The Bank believes, based on historical experience, that a substantial portion of such accounts represents non-interest rate sensitive, core deposits.  As of  December 31, 2007, the FHLB has the option to call $9.0 million of advances with a weighted average rate of 5.55% and a remaining life of seven months.

14

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

INTEREST RATE SENSITIVITY ANALYSIS

The following table sets forth as of December 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 decreases in market interest rates.  Dollar amounts are expressed in thousands.

BP Change		Estimated Net Portfolio Value								NPV as % of PV of Assets
in Rates		$ Amount		$ Change			% Change			NPV Ratio			Change
	+300		43,361		1,657			4	%		7.79	%		0.41	%
	+200		43,437		1,733			4	%		7.77	%		0.39	%
	+100		42,874		1,170			3	%		7.62	%		0.24	%
NC			41,704		-			0	%		7.38	%		0.00	%
	-100		39,895		(1,809	)		-4	%		7.03	%		-0.35	%
	-200		37,499		(4,205	)		-10	%		6.59	%		-0.79	%
	-300		34,700		(7,004	)		-17	%		6.07	%		-1.31	%

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, 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 loan portfolio could decrease in future periods due to refinancing activity if market interest rates remain constant 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.

The Bank’s Board of Directors is responsible for reviewing the Bank’s asset and liability policies. The Bank’s management is responsible for administering the policies and determinations of the Board of Directors with respect to the Bank’s asset and liability goals and strategies.  Management expects that the Bank’s asset and liability policies and strategies will continue as described above so long as competitive and regulatory conditions in the financial institution industry and market interest rates continue as they have in recent years.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of funds for investments and operations are net income from operations, deposits from its primary market area, FHLB advances, principal and interest payments on loans and mortgage-backed securities, proceeds from maturing investment securities, and the issuance of subordinated debentures.  The Company considers deposits and FHLB advances as its primary sources of funds.

The Company’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, and certificates of deposit with other financial institutions that have an original maturity of three months or less.  The levels of such assets are dependent on the Bank’s operating, financing, and investment activities at any given time.  The Company’s cash and cash equivalents totaled $12,046,202 as of December 31, 2007 and $14,880,601 as of December 31, 2006, representing a decrease of

15

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

$2,834,399.  The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows, which are subject to, and influenced by, many factors.

In addition to the capital necessary to meet the Company’s conditional commitments discussed under the caption “Off-Balance Sheet Arrangements” below, the Bank also has $201,179,713 in certificates of deposit that are scheduled to mature in one year or less.  Management anticipates that the majority of these certificates will renew in the normal course of operations. Based on existing collateral as well as the FHLB’s limitation of advances to 35% of assets, the Bank has the ability to borrow an additional $68,951,000 from the FHLB, as of December 31, 2007.  The Bank plans to maintain its FHLB borrowings to a level that will provide a borrowing capacity sufficient to provide for contingencies.

The Company’s Tier 1 capital position of $56,244,000 is 10.8% of average assets as of December 31, 2007.  The Company has an excess of $35,460,000, $35,785,000, and $22,597,000 of required regulatory levels of tangible, core, and risk-based capital, respectively.  In addition, under current regulatory guidelines, the Bank is classified as well capitalized.  See also additional information provided under the caption “Regulatory Matters” in Note 1 of the Notes to Consolidated Financial Statements.

During the year ended December 31, 2007, the Company purchased 252,799 shares of common stock at an average price of $29.59 to place in the treasury account.  During the year ended December 31, 2006, the Company purchased 125,066 shares of common stock at an average price of $28.73 to place in the treasury account.  The Company intends to monitor the common stock price and, with regulatory approval, may from time to time initiate further stock repurchases in order to improve the Company’s long-term earnings per share while at the same time maintaining an adequate level of stockholders’ equity.  The Company has a repurchase plan which was announced on August 20, 2007, and as of December 31, 2007, a total of 260,678 shares of the Company’s common stock may be purchased under this plan.

OFF-BALANCE SHEET ARRANGEMENTS

Various commitments and contingent liabilities arise in the normal course of business, which are not required to be recorded on the balance sheet.  The most significant of these are loan commitments, lines of credit and standby letters of credit.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  As of December 31, 2007 and 2006, the Bank had outstanding commitments to originate loans of approximately $3,490,000 and $3,991,000, respectively.  Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  As of December 31, 2007 and 2006, unused lines of credit to borrowers aggregated approximately $63,403,000 and $64,370,000 for commercial lines and $21,957,000 and $19,790,000 for open-end consumer lines.  Since a portion of the loan commitment and line of credit may expire without being drawn upon, the total unused commitments and lines do not necessarily represent future cash requirements.

Standby letters of credit are irrevocable conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers.  The Bank had total outstanding standby letters of credit amounting to $12,464,000 and $9,182,000 as of December 31, 2007 and 2006, respectively.  As of December 31, 2007 and 2006, the Bank had outstanding commitments to originate mortgage loans of approximately $3,490,000 and $3,991,000, respectively.  The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period.

In connection with the Company’s issuance of the Trust Securities and pursuant to two guarantee agreements by and between the Company and Wilmington Trust Company, the Company issued a limited, irrevocable guarantee of the obligations of each Trust under the Trust Securities whereby the Company has guaranteed any and all payment obligations of the Trusts related to the Trust Securities including distributions on, and the liquidation or redemption price of, the Trust Securities to the extent each Trust does not have funds available.

16

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

AGGREGATE CONTRACTUAL OBLIGATIONS

The following table summarizes the Company’s fixed and determinable contractual obligations by payment date as of December 31, 2007.  Dollar amounts are expressed in thousands.

Payments Due By Period
			One Year		One to		Three to		More than
Contractual Obligations	Total		or less		Three Years		Five Years		Five Years
Deposits without stated maturity	$	141,773		141,773		-		-		-
Time and brokered certificates of deposit		276,419		201,180		60,843		11,381		3,014
Other borrowings		10,567		817		-		-		9,750
Federal Home Loan Bank advances		76,086		69,650		3,386		-		3,050
Subordinated debentures		15,465		-		-		-		15,465
Operating leases		572		125		189		99		160
Purchase obligations		-		-		-		-		-
Other long term obligations		117,984		117,984		-		-		-
Total	$	638,866		531,529		64,418		11,480		31,439

IMPACT OF INFLATION AND CHANGING PRICES

The Company prepared the consolidated financial statements and related data presented herein in accordance with accounting principles generally accepted in the United States of America which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most companies, the assets and liabilities of a financial institution are primarily monetary in nature.  As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation.  Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation.  In the current interest rate environment, liquidity and the maturity structure of the Bank’s assets and liabilities are critical to the maintenance of acceptable performance levels.

CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. On an on-going basis, management evaluates its estimates and judgments.

 Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  There can be no assurance that actual results will not differ from those estimates.  If actual results are different than management’s judgements and estimates, the Company’s financial results could change, and such change could be material to the Company.

Material estimates and judgments that are particularly susceptible to significant change relate to the determination of the allowance for loan losses.  In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties.

17

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

The Company has identified the accounting policies for the allowance for loan losses and related significant estimates and judgments as critical to its business operations and the understanding of its results of operations.  For a detailed discussion on the application of these significant estimates and judgments and our accounting policies, also see Note 1 of the notes to consolidated financial statements in this report.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

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.

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 provisions of FASB 157 were effective as of January 1, 2008.  The adoption of the standard did not have a material impact on the consolidated financial statements. 

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.  This statement permits companies to choose to measure financial instruments and certain other financial assets and liabilities at fair value.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted.  The provisions of this statement were effective for the Company as of January 1, 2008.   The adoption of the standard did not have a material impact on the consolidated financial statements.

18

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition

   And Results of Operations

SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS

	Year Ended December 31, 2007, Quarter ended
	Mar-07		Jun-07		Sep-07		Dec-07
Interest income	$	9,521,871		9,103,145		9,685,875		9,661,649
Interest expense		4,946,487		5,028,396		5,201,745		5,342,675
Net interest income		4,575,384		4,074,749		4,484,130		4,318,974
Provision for loan losses		210,000		210,000		210,000		210,000
Gain on sale of loans and investment securities		485,313		524,526		463,989		321,552
Other noninterest income, net		780,117		810,325		752,916		589,829
Noninterest expense		2,874,548		2,995,788		2,986,558		2,985,257
Income before income taxes		2,756,266		2,203,812		2,504,477		2,035,098
Provision for income taxes		1,002,726		787,588		891,786		717,671
Net income	$	1,753,540		1,416,224		1,612,691		1,317,427
Basic earnings per share	$	0.63		0.51		0.60		0.50
Diluted earnings per share	$	0.62		0.50		0.59		0.49
	Year Ended December 31, 2006, Quarter ended
	Mar-06		Jun-06		Sep-06		Dec-06
Interest income	$	8,077,915		8,386,269		9,054,605		9,685,529
Interest expense		3,769,423		4,125,175		4,543,095		4,948,900
Net interest income		4,308,492		4,261,094		4,511,510		4,736,629
Provision for loan losses		225,000		225,000		150,000		150,000
Gain on sale of loans and investment securities		317,997		336,889		349,425		438,834
Other noninterest income, net		503,823		621,981		571,626		519,273
Noninterest expense		2,367,394		2,543,500		2,630,195		2,635,605
Income before income taxes		2,537,918		2,451,464		2,652,366		2,909,131
Provision for income taxes		973,593		870,074		1,028,044		1,170,084
Net income	$	1,564,325		1,581,390		1,624,322		1,739,047
Basic earnings per share	$	0.56		0.56		0.58		0.63
Diluted earnings per share	$	0.54		0.54		0.56		0.61

19

Guaranty Federal Bancshares, Inc.

Consolidated Balance Sheets

December 31, 2007 and 2006

	December 31,			December 31,
	2007			2006
ASSETS
Cash and due from banks	$	11,135,960			10,684,831
Interest-bearing deposits in other financial institutions		910,242			4,195,770
Cash and cash equivalents		12,046,202			14,880,601
Available-for-sale securities		14,729,938			7,906,321
Held-to-maturity securities		654,775			763,025
Stock in Federal Home Loan Bank, at cost		4,014,700			5,382,700
Mortgage loans held for sale		2,141,998			3,004,635
Loans receivable, net of allowance for loan losses of
December 31, 2007 and 2006 - $5,962,923 and $5,783,477, respectively		514,100,035			477,264,522
Accrued interest receivable:
Loans		3,218,845			2,830,811
Investments		104,603			79,498
Prepaid expenses and other assets		2,841,411			2,955,483
Foreclosed assets held for sale		727,422			172,637
Premises and equipment		9,442,350			7,867,809
Income taxes receivable		-			774,469
Deferred income taxes		1,755,701			962,484
	$	565,777,980			524,844,995
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits	$	418,191,284			352,229,636
Federal Home Loan Bank advances		76,086,000			108,000,000
Securities sold under agreements to repurchase		9,849,295			1,703,221
Subordinated debentures		15,465,000			15,465,000
Notes payable		718,190			-
Advances from borrowers for taxes and insurance		157,811			222,869
Accrued expenses and other liabilities		299,005			441,890
Accrued interest payable		1,793,663			1,414,946
Dividend payable		469,373			468,190
Income taxes payable		61,699			-
		523,091,320			479,945,752
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS' EQUITY
Common Stock:
$0.10 par value; authorized 10,000,000 shares; issued
December 31, 2007 and 2006 - 6,736,485 and 6,653,527
shares, respectively		673,649			665,353
Additional paid-in capital		57,571,929			55,730,352
Unearned ESOP shares		(1,116,930	)		(1,344,930	)
Retained earnings, substantially restricted		45,402,449			41,183,006
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities,
net of income taxes; December 31, 2007 and 2006 - $295,863,
and $901,243, respectively		503,767			1,534,548
		103,034,864			97,768,329
Treasury stock, at cost;
December 31, 2007 and 2006 - 4,017,166 and 3,764,367
shares, respectively		(60,348,204	)		(52,869,086	)
		42,686,660			44,899,243
	$	565,777,980			524,844,995

See Notes to Consolidated Financial Statements

20

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Income

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
INTEREST INCOME
Loans	$	37,113,849			34,500,329			26,681,877
Investment securities		537,176			450,919			431,863
Other		321,515			253,200			298,949
		37,972,540			35,204,448			27,412,689
INTEREST EXPENSE
Deposits		15,860,794			10,523,203			7,288,073
Federal Home Loan Bank advances		3,469,551			5,721,973			4,493,997
Subordinated debentures		1,023,783			1,027,526			47,683
Other		165,175			113,891			30,651
		20,519,303			17,386,593			11,860,404
NET INTEREST INCOME		17,453,237			17,817,855			15,552,285
PROVISION FOR LOAN LOSSES		840,000			750,000			945,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		16,613,237			17,067,855			14,607,285
NONINTEREST INCOME
Service charges		2,215,641			1,401,724			1,643,433
Other fees		90,360			96,209			135,078
Gain on sale of investment securities		618,363			750,869			743,335
Gain on sale of loans		1,177,017			692,276			623,252
Loss on foreclosed assets		(41,909	)		(46,833	)		(1,617	)
Other income		669,095			765,473			324,296
		4,728,567			3,659,718			3,467,777
NONINTEREST EXPENSE
Salaries and employee benefits		7,074,249			6,111,762			4,884,869
Occupancy		1,614,403			1,520,770			1,365,559
FDIC deposit insurance premiums		42,555			39,661			39,796
Data processing		391,679			280,189			440,411
Advertising		399,996			403,292			230,254
Other expense		2,319,269			1,821,020			1,708,612
		11,842,151			10,176,694			8,669,501
INCOME BEFORE INCOME TAXES		9,499,653			10,550,879			9,405,561
PROVISION FOR INCOME TAXES		3,399,771			4,041,795			3,506,591
NET INCOME	$	6,099,882			6,509,084			5,898,970
BASIC EARNINGS PER SHARE	$	2.25			2.34			2.12
DILUTED EARNINGS PER SHARE	$	2.19			2.25			2.03

See Notes to Consolidated Financial Statements

21

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,099,882			6,509,084			5,898,970
Items not requiring (providing) cash:
Deferred income taxes		(187,839	)		(592,927	)		(249,519	)
Depreciation		902,322			814,150			759,931
Provision for loan losses		840,000			750,000			945,000
Gain on sale of loans and investment securities		(1,795,380	)		(1,443,145	)		(1,366,587	)
(Gain) loss on sale of equipment and other assets		-			(89,911	)		3,055
(Gain) loss on sale of foreclosed assets		(4,621	)		46,833			(1,323	)
Amortization of deferred income,
premiums and discounts		108,733			24,106			(48,305	)
Stock award plans		286,346			388,884			33,213
Origination of loans held for sale		(71,861,627	)		(51,685,484	)		(45,528,012	)
Proceeds from sale of loans held for sale		73,901,281			51,465,404			47,649,521
Release of ESOP shares		672,765			651,958			564,980
Changes in:
Accrued interest receivable		(413,139	)		(821,182	)		(519,112	)
Prepaid expenses and other assets		114,073			400,043			(628,141	)
Accrued expenses and other liabilities		235,832			1,060,085			200,417
Income taxes payable		836,168			(1,096,634	)		102,119
Net cash provided by operating activities		9,734,796			6,381,264			7,816,207
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans		(39,788,084	)		(45,195,742	)		(45,967,115	)
Principal payments on held-to-maturity securities		108,250			186,219			358,395
Principal payments on available-for-sale securities		376,625			175,145			-
Purchase of available-for-sale securities		(11,926,192	)		(3,780,315	)		(10,516,958	)
Purchase of premises and equipment		(2,476,863	)		(719,094	)		(1,032,777	)
Purchase of tax credit investments		-			(2,195,334	)		-
Proceeds from sale of originated mortgage servicing rights		-			1,023,608			-
Proceeds from sale of premises and equipment		-			470			5,860
Proceeds from sales of available-for-sale securities		1,128,153			762,617			9,345,564
Proceeds from maturities of available-for-sale securities		2,580,000			1,750,000			9,000,000
(Purchase) redemption of FHLB stock		1,368,000			(403,900	)		167,700
Proceeds from sale of foreclosed assets		1,453,674			395,327			352,341
Net cash used in investing activities		(47,176,437	)		(48,000,999	)		(38,286,990	)

See Notes to Consolidated Financial Statements

22

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Cash Flows (continued)

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised		1,118,762			1,147,042			1,031,400
Cash dividends paid		(1,879,256	)		(1,850,300	)		(1,794,557	)
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts		12,779,497			(1,259,419	)		2,901,337
Net increase in certificates of deposit		53,182,151			33,430,104			20,769,872
Net increase in securities sold under agreements to repurchase		8,146,074			108,963			330,238
Proceeds from FHLB advances		1,855,538,600			1,901,242,000			1,322,664,000
Repayments of FHLB advances		(1,887,452,600	)		(1,893,242,000	)		(1,322,664,000	)
Proceeds from issuance of notes payable		2,468,000			-			-
Repayments of notes payable		(1,749,810	)		-			-
Proceeds from issuance of subordinated debentures		-			-			15,465,000
Advances from borrowers for taxes and insurance		(65,058	)		10,549			(59,476	)
Treasury stock purchased		(7,479,118	)		(3,593,081	)		(3,563,011	)
Net cash provided by financing activities		34,607,242			35,993,858			35,080,803
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS		(2,834,399	)		(5,625,877	)		4,610,020
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR		14,880,601			20,506,478			15,896,458
CASH AND CASH EQUIVALENTS,
END OF YEAR	$	12,046,202			14,880,601			20,506,478
Supplemental Cash Flows Information
Real estate acquired in settlement of loans	$	2,003,838			588,022			299,643
Interest paid	$	20,140,586			16,479,811			11,713,756
Income taxes paid	$	2,563,603			4,041,795			3,506,591
Dividend declared and unpaid	$	469,373			468,190			459,074

See Notes to Consolidated Financial Statements

23

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2007, 2006 and 2005

	Common Stock		Additional Paid-In Capital		Unearned ESOP Shares			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance, January 1, 2005	$	649,386		52,384,842		(1,800,930	)		(45,712,994	)		32,437,131			2,815,828			40,773,263
Comprehensive income
Net income		-		-		-			-			5,898,970			-			5,898,970
Change in unrealized appreciation
on available-for-sale securitites, net
of income taxes of ($495,626)		-		-		-			-			-			(843,903	)		(843,903	)
Total comprehensive income																		5,055,067
Dividends ($0.65 per share)		-		-		-			-			(1,802,763	)		-			(1,802,763	)
Stock award plans		-		33,213		-			-			-			-			33,213
Stock options exercised		7,749		1,023,651		-			-			-			-			1,031,400
Release of ESOP shares		-		336,980		228,000			-			-			-			564,980
Treasury stock purchased		-		-		-			(3,563,011	)		-			-			(3,563,011	)
Balance, December 31, 2005		657,135		53,778,686		(1,572,930	)		(49,276,005	)		36,533,338			1,971,925			42,092,149
Comprehensive income
Net income		-		-		-			-			6,509,084			-			6,509,084
Change in unrealized appreciation
on available-for-sale securitites, net
of income taxes of ($256,871)		-		-		-			-			-			(437,377	)		(437,377	)
Total comprehensive income																		6,071,707
Dividends ($0.67 per share)		-		-		-			-			(1,859,416	)		-			(1,859,416	)
Stock award plans		-		388,884		-			-			-			-			388,884
Stock options exercised		8,218		1,138,824		-			-			-			-			1,147,042
Release of ESOP shares		-		423,958		228,000			-			-			-			651,958
Treasury stock purchased		-		-		-			(3,593,081	)		-			-			(3,593,081	)
Balance, December 31, 2006	$	665,353		55,730,352		(1,344,930	)		(52,869,086	)		41,183,006			1,534,548			44,899,243
Comprehensive income
Net income		-		-		-			-			6,099,882			-			6,099,882
Change in unrealized appreciation
on available-for-sale securitites, net
of income taxes of ($605,380)		-		-		-			-			-			(1,030,781	)		(1,030,781	)
Total comprehensive income																		5,069,101
Dividends ($0.70 per share)		-		-		-			-			(1,880,439	)		-			(1,880,439	)
Stock award plans		-		286,346		-			-			-			-			286,346
Stock options exercised		8,296		1,110,466		-			-			-			-			1,118,762
Release of ESOP shares		-		444,765		228,000			-			-			-			672,765
Treasury stock purchased		-		-		-			(7,479,118	)		-			-			(7,479,118	)
Balance, December 31, 2007	$	673,649		57,571,929		(1,116,930	)		(60,348,204	)		45,402,449			503,767			42,686,660

See Notes to Consolidated Financial Statements

24

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 1:                      NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

In April 1995, Guaranty Federal Savings & Loan Association reorganized from a federally chartered mutual savings and loan association into a mutual holding company, Guaranty Federal Bancshares, M. H. C. (the "MHC").  Concurrent with the reorganization, Guaranty Federal Savings Bank (the "Bank"), a stock savings bank was chartered.  The Bank issued 3,125,000 shares of common stock in connection with the reorganization, the majority of which were owned by the MHC.

On December 30, 1997, the MHC converted to Guaranty Federal Bancshares, Inc. (the “Company”), a Delaware-chartered stock corporation.  In connection with the conversion and reorganization, the shares of the Bank held by the mutual holding company were extinguished along with the mutual holding company and the shares of the Bank held by the public were exchanged for 1,880,710 shares of the Company.  Additional shares of the Company were sold to certain depositors of the Bank and to the trust of the employee stock ownership plan of the Bank as of December 30, 1997.

On June 27, 2003, the Bank converted to a state-chartered trust company with banking powers, and the Company became a one-bank holding company.  The name of the Bank was changed from Guaranty Federal Savings Bank to Guaranty Bank.

Nature of Operations

The Company operates as a one-bank holding company. The Bank is primarily engaged in providing a full range of banking and mortgage services to individual and corporate customers in southwest Missouri.  The Bank is subject to competition from other financial institutions.  The Company and the Bank are also subject to the regulation of certain federal and state agencies and receive periodic examinations by those regulatory authorities.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank.  All significant intercompany profits, transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.  In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties.

 Securities

Available-for-sale securities, which include any security for which the Company or the Bank has no immediate plan to sell but which may be sold in the future, are carried at fair value.  Unrealized gains and losses are recorded, net of related income tax effects, in other comprehensive income.

25

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Held-to-maturity securities, which include any security for which the Company or the Bank has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.

Amortization of premiums and accretion of discounts are recorded as interest income from securities.  Realized gains and losses are recorded as interest income from securities.  Realized gains and losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined on the specific identification method.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or fair value, determined using an aggregate basis.  Write-downs to fair value are recognized as a charge to earnings at the time the decline in value occurs.  Forward commitments to sell mortgage loans are sometimes acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale.  Gains and losses resulting from sales of mortgage loans are recognized when the respective loans are sold to investors.  Gains and losses are determined by the difference between the selling price plus the value of retained servicing rights, if any, and the carrying amount of the loans sold, net of discounts collected or paid and considering a normal servicing rate.  Fees received from borrowers to guarantee the funding of mortgage loans held for sale and fees paid to investors to ensure the ultimate sale of such mortgage loans are recognized as income or expense when the loans are sold or when it becomes evident that the commitment will not be used.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-offs are reported at their outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.  Interest income is reported on the interest method, and includes amortization of net deferred loan fees and costs over the loan term.  Generally, loans are placed on non-accrual status at ninety days past due and interest is considered a loss, unless the loan is well-secured and in the process of collection.

Loan Servicing

The cost of originated mortgage-servicing rights is amortized over the shorter of the actual or contractual loan life.  Impairment of mortgage-servicing rights is assessed based on the fair value of those rights.  Fair values are estimated by discounting expected cash flows.  For purposes of measuring impairment, the rights are stratified based on the loan type, remaining term to maturity and interest rate.  The key assumptions used in the valuation include discount rates, prepayment speeds and servicing costs.  The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights exceeds their fair value.  During 2006, the Company sold its mortgage servicing rights to a third party.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

26

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell.  Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation.  Depreciation is charged to expense using the straight-line and accelerated methods over the estimated useful lives of the assets.

Income Taxes

Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities.  A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

Cash Equivalents

The Company considers all highly liquid interest-bearing deposits in other financial institutions with an initial maturity of three months or less to be cash equivalents.

Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct and material effect on the Company's financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below).  Management believes, as of December 31, 2007, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2007, the most recent notification from the Missouri Division of Finance and the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table.  There are no conditions or events since that notification that management believes have changed the Company’s or the Bank’s category.

27

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The Company’s and the Bank's actual capital amounts and ratios are also presented in the table.  No amount was deducted from capital for interest-rate risk.  Dollar amounts are expressed in thousands.

											To Be Well Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2007
Tier 1 (core) capital, and
ratio to adjusted total assets
Company	$	56,244		10.8	%		20,784		4.0	%		n/a		n/a
Bank	$	56,152		10.5	%		21,432		4.0	%		26,790		5.0	%
Tier 1 (core) capital, and
ratio to risk-weighted assets
Company	$	56,244		11.0	%		20,459		4.0	%		n/a		n/a
Bank	$	56,152		11.0	%		20,437		4.0	%		30,656		6.0	%
Total risk-based capital, and
ratio to risk-weighted assets
Company	$	63,515		12.4	%		40,918		8.0	%		n/a		n/a
Bank	$	62,511		12.2	%		40,874		8.0	%		51,093		10.0	%

											To Be Well Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2006
Tier 1 (core) capital, and
ratio to adjusted total assets
Company	$	57,820		11.8	%		19,615		4.0	%		n/a		n/a
Bank	$	57,062		11.2	%		20,336		4.0	%		25,420		5.0	%
Tier 1 (core) capital, and
ratio to risk-weighted assets
Company	$	57,820		12.0	%		19,231		4.0	%		n/a		n/a
Bank	$	57,062		11.9	%		19,231		4.0	%		28,846		6.0	%
Total risk-based capital, and
ratio to risk-weighted assets
Company	$	65,251		13.6	%		38,461		8.0	%		n/a		n/a
Bank	$	63,948		13.3	%		38,461		8.0	%		48,077		10.0	%

28

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The amount of dividends that the Bank may pay is subject to various regulatory limitations.  As of December 31, 2007, 2006, and 2005, the Bank exceeded its minimum capital requirements.  The Bank may not pay dividends which would reduce capital below the minimum requirements shown above.

Earnings Per Share

The computation for earnings per share for years ended December 31, 2007, 2006 and 2005 is as follows:

	Year Ended		Year Ended		Year Ended
	December 31, 2007		December 31, 2006		December 31, 2005
Net income	$	6,099,882		6,509,084		5,898,970
Average common shares outstanding		2,713,384		2,786,823		2,780,249
Effect of stock options outstanding		77,998		109,200		126,885
Average diluted shares outstanding		2,791,382		2,896,023		2,907,134
Earnings per share - basic	$	2.25		2.34		2.12
Earnings per share - diluted	$	2.19		2.25		2.03

Options to purchase 69,500 and 21,500 shares of common stock were outstanding during the year ended December 31, 2007 and 2005, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.  All outstanding options to purchase common stock were included in the computation of diluted earnings per share for the year ended December 31, 2006.

Stock Option Plans

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 eliminates the choice to account for employee stock options under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), which is how the Company previously accounted for its stock options. 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.

As a result of adopting SFAS 123R on January 1, 2006, incremental stock-based compensation expense recognized was $71,324 and $64,655 for the years ended December 31, 2007 and 2006, respectively.  As of December 31, 2007, there was $233,199 of unrecognized compensation expense related to nonvested stock options, which will be recognized over a weighted average period of 3.4 years.

29

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Prior to January 1, 2006, no compensation expense was recognized for stock option grants, as all such grants had an exercise price equal to the fair market value on the date of grant. The following illustrates the effect on net income and earnings per share if the Company had applied the fair value method of SFAS No. 123, “Accounting for Stock-Based Compensation,” prior to January 1, 2006:

	Year Ended
	December 31, 2005
Net income, as reported	$	5,898,970
Less:  Total stock-based employee
compensation cost determined
under the fair value-based
method, net of income taxes		(51,516	)
Pro forma net income	$	5,847,454
Earnings per share:
Basic - as reported	$	2.12
Basic - pro forma	$	2.10
Diluted - as reported	$	2.03
Diluted - pro forma	$	2.01

Segment Information

The principal business of the Company is overseeing the business of the Bank.  The Company has no significant assets other than its investment in the Bank. The banking operation is the Company’s only reportable segment.  The banking segment is principally engaged in the business of originating mortgage loans secured by one-to-four family residences, multi-family, construction, commercial and consumer loans.  These loans are funded primarily through the attraction of deposits from the general public, borrowings from the Federal Home Loan Bank and brokered deposits. Selected information is not presented separately for the Company’s reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements.

30

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 2:                      SECURITIES

The amortized cost and approximate fair values of securities classified as available-for-sale securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2007
Equity Securities:
FHLMC stock	$	26,057		880,205		-			906,262
Other		718,190		-		(59,390	)		658,800
Debt Securities:
U. S. government agencies		1,800,034		4,049		-			1,804,083
Mortgage-backed securities		11,386,025		84,390		(109,622	)		11,360,793
	$	13,930,306		968,644		(169,012	)		14,729,938
As of December 31, 2006
Equity Securities:
FHLMC stock	$	35,847		2,449,293		-			2,485,140
Debt Securities:
U. S. government agencies		4,870,979		1,346		(12,074	)		4,860,251
Mortgage-backed securities		563,704		-		(2,774	)		560,930
	$	5,470,530		2,450,639		(14,848	)		7,906,321

Maturities of available-for-sale debt securities as of December 31, 2007:

	Amortized Cost		Approximate Fair Value
Within one year	$	500,000		501,953
2-5 years		1,300,034		1,302,130
Mortgage-backed securities not due on a
single maturity date		11,386,025		11,360,793
	$	13,186,059		13,164,876

31

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The amortized cost and approximate fair values of securities classified as held to maturity are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2007
Debt Securities:
U. S. government agencies	$	148,529		-		(2,000	)		146,529
Mortgage-backed securities		506,246		32,397		-			538,643
	$	654,775		32,397		(2,000	)		685,172
As of December 31, 2006
Debt Securities:
U. S. government agencies	$	158,661		-		(481	)		158,180
Mortgage-backed securities		604,364		31,920		-			636,284
	$	763,025		31,920		(481	)		794,464

Maturities of held-to-maturity securities as of December 31, 2007:

	Amortized Cost		Approximate Fair Value
After ten years	$	148,529		146,529
Mortgage-backed securities not due on a
single maturity date		506,246		538,643
	$	654,775		685,172

The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $12,661,393, $1,803,181 and $381,115 as of December 31, 2007, 2006 and 2005, respectively.  The approximate fair value of pledged securities amounted to $12,659,842, $1,805,148 and $385,439 as of December 31, 2007, 2006 and 2005, respectively.

Gross gains of $618,363, $750,869 and $1,269,396 and gross losses of $0, $0 and $526,061 resulting from sale of available-for-sale securities were realized for the years ended December 31, 2007, 2006 and 2005, respectively.  The tax effect of these net gains was $228,794, $277,822 and $275,034 in 2007, 2006 and 2005, respectively.

Certain investments in debt and marketable equity securities are reported in the financial statements at an amount less than their historical cost.  Total fair value of these investments at December 31, 2007 and 2006, was $4,013,643 and $4,836,168, respectively, which is approximately 26% and 56% of the Company’s investment portfolio, respectively.  These declines primarily resulted from changes in market interest rates and failure of certain investments to meet projected earnings targets.

Based on evaluation of available evidence including recent changes in interest rates and other information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

32

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following table shows gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2007 and 2006.

	December 31, 2007
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Equity Securities	$	658,800		(59,390	)		-		-			658,800		(59,390	)
U. S. Government Agencies		-		-			146,529		(2,000	)		146,529		(2,000	)
Mortgage-backed securities		3,208,314		(109,622	)		-		-			3,208,314		(109,622	)
	$	3,867,114		(169,012	)		146,529		(2,000	)		4,013,643		(171,012	)

	December 31, 2006
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U. S. Government Agencies	$	2,869,948		(9,183	)		1,405,290		(3,372	)		4,275,238		(12,555	)
Mortgage-backed securities		560,930		(2,774	)		-		-			560,930		(2,774	)
	$	3,430,878		(11,957	)		1,405,290		(3,372	)		4,836,168		(15,329	)

33

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 3:                      LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at December 31, 2007 and 2006 include:

	2007			2006
Real estate - residential mortgage:
One to four family units	$	83,018,129			86,645,458
Multi-family		41,947,555			50,366,197
Real estate - construction		89,724,220			83,966,976
Real estate - commercial		175,995,074			155,800,918
Commercial loans		104,025,575			82,675,514
Installment loans		25,576,502			23,708,300
Total loans		520,287,055			483,163,363
Less:
Allowance for loan losses		(5,962,923	)		(5,783,477	)
Deferred loan fees/costs, net		(224,097	)		(115,364	)
Net loans	$	514,100,035			477,264,522

Impaired loans totaled $7,254,334 and $3,016,448 as of December 31, 2007 and 2006, respectively with a related allowance for loan losses of $415,000 and $298,311, respectively.  As of December 31, 2007 and 2006, respectively, impaired loans of $1,047,618 and $991,398 had no related allowance for loan losses.

Interest of $166,013, $275,143 and $615,928 was recognized on average impaired loans of $5,136,396, $3,250,403 and $4,805,205 for the years ended December 31, 2007, 2006 and 2005, respectively.  Interest of $165,148, $272,600 and $600,288, was recognized on impaired loans on a cash basis during the years ended December 31, 2007, 2006 and 2005, respectively.

At December 31, 2007 and 2006 there were $103,270 and $0 in accruing loans delinquent 90 days or more, respectively. Non-accruing loans at December 31, 2006 and 2005 were $7,254,334 and $2,748,000, respectively.

Activity in the allowance for loan losses was as follows:

	Years ended
	December 31,
	2007			2006			2005
Balance, beginning of year	$	5,783,477			5,399,654			4,536,654
Provision charged to expense		840,000			750,000			945,000
Losses charged off, net of recoveries
of $70,990, $280,854 and $71,385 for the years ended
December 31, 2007, 2006 and 2005 respectively		(660,554	)		(366,177	)		(82,000	)
Balance, end of year	$	5,962,923			5,783,477			5,399,654

34

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The weighted average interest rate on loans as of December 31, 2007 and 2006 was 7.23% and 7.78%, respectively.

The Bank serviced mortgage loans for others amounting to $613,633 and $654,974 as of December 31, 2007 and 2006, respectively. The Bank serviced commercial loans for others amounting to $20,724,871 and $15,847,746 as of December 31, 2007 and 2006, respectively.

NOTE 4:                      PREMISES AND EQUIPMENT

Major classifications of premises and equipment, stated at cost, are as follows:

	December 31,			December 31,
	2007			2006
Land	$	2,323,789			1,250,789
Buildings and improvements		8,461,883			7,387,668
Automobile		16,479			-
Furniture, fixtures and equipment		6,251,839			5,938,670
Leasehold improvements		271,799			271,799
		17,325,789			14,848,926
Less accumulated depreciation		(7,883,439	)		(6,981,117	)
Net premises and equipment	$	9,442,350			7,867,809

Depreciation expense was $902,322, $814,150 and $759,931 for the years ended December 31, 2007, 2006, and 2005, respectively.

NOTE 5:                      OTHER COMPREHENSIVE LOSS

Other comprehensive loss components and related taxes were as follows:

	Year ended
	December 31,
	2007			2006			2005
Unrealized gains (losses) on
available-for-sale securities	$	(1,017,798	)		56,621			(596,194	)
Less: Reclassification adjustment for
realized gains included in income		(618,363	)		(750,869	)		(743,335	)
Other comprehensive loss before tax effect		(1,636,161	)		(694,248	)		(1,339,529	)
Tax benefit		(605,380	)		(256,871	)		(495,626	)
Other comprehensive loss	$	(1,030,781	)		(437,377	)		(843,903	)

35

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 6:                      DEPOSITS

	December 31, 2007								December 31, 2006
	Weighted Average Rate			Balance		Percentage of Deposits			Weighted Average Rate			Balance		Percentage of Deposits
Demand		0.00	%	$	28,520,385		6.8	%		0.00	%		26,893,997		7.6	%
NOW		1.35	%		36,511,976		8.7	%		1.18	%		35,468,920		10.1	%
Money market		3.48	%		64,319,237		15.4	%		3.38	%		52,313,962		13.7	%
Savings		2.11	%		12,421,113		3.0	%		2.67	%		14,316,335		4.1	%
		2.11	%		141,772,711		33.9	%		1.99	%		128,993,214		36.6	%
Certificates:
0% - 3.99%		3.60	%		5,523,980		1.3	%		3.16	%		29,366,266		8.3	%
4.00% - 5.99%		5.12	%		268,121,877		64.1	%		5.12	%		193,446,432		54.9	%
6.00% - 7.99%		6.00	%		2,772,716		0.7	%		6.06	%		423,724		0.1	%
		5.10	%		276,418,573		66.1	%		4.86	%		223,236,422		63.4	%
Total Deposits		4.09	%	$	418,191,284		100.0	%		3.81	%		352,229,636		100.0	%

The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately $89,762,000 and $87,796,000, as of December 31, 2007 and 2006, respectively.

A summary of certificates of deposit by maturity as of December 31, 2007, is as follows:

2008	$	201,179,713
2009		51,356,348
2010		9,486,684
2011		5,335,232
2012		6,046,258
Thereafter		3,014,338
	$	276,418,573

A summary of interest expense on deposits is as follows:

	Years ended
	December 31,
	2007			2006			2005
NOW and Money Market accounts	$	2,940,311			1,709,996			1,299,800
Savings accounts		320,172			364,685			200,509
Certificate accounts		12,657,119			8,493,705			5,814,064
Early withdrawal penalties		(56,808	)		(45,183	)		(26,300	)
	$	15,860,794			10,523,203			7,288,073

The Bank utilizes brokered deposits as an additional funding source.  The aggregate amount of brokered deposits was approximately $4,382,000 and $29,146,000 as of December 31, 2007 and 2006, respectively.

36

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 7:                      BORROWINGS

Federal Home Loan Bank Advances

Federal Home Loan Bank advances consist of the following:

	December 31, 2007					December 31, 2006
Maturity Date	Amount		Weighted Average Rate			Amount		Weighted Average Rate
2007	$	-		-			85,414,000		5.32	%
2008		69,650,000		4.24	%		13,650,000		5.30	%
2009		386,000		7.21	%		386,000		7.21	%
2010		3,000,000		6.37	%		3,000,000		6.37	%
2011		-		-			-		-
2012		-		-			-		-
Thereafter		3,050,000		5.13	%		5,550,000		5.39	%
	$	76,086,000		4.37	%		108,000,000		5.35	%

The FHLB requires the Bank to maintain collateral equal to outstanding balances of advances.  For collateral purposes, the FHLB values mortgage loans free of other pledges, liens and encumbrances at 80% of their fair value, and investment securities free of other pledges, liens and encumbrances at 95% of their fair value.

Securities Sold Under Agreements to Repurchase

The Company borrowed $9.8 million under a structured repurchase agreement in September 2007.  Interest is based on a variable rate of three month LIBOR minus 100 basis points until September 12, 2009 and converts into a variable rate of two times the three month LIBOR minus 4.72% thereafter until maturity in September 2014.  The counterparty, Barclay’s Capital, Inc., has the right to terminate the transaction after two years.  The Company has pledged certain investment securities with a fair value of $10.5 million as of December 31, 2007.

Notes payable

The Company has a $3.5 million revolving line of credit with a correspondent bank to be used for stock repurchases and investments.  The line of credit is unsecured, bears interest at one-month LIBOR plus 1.25%, payable quarterly, and matures on September 30, 2008.  The balance was $718,190 and $0 at December 31, 2007 and 2006, respectively.

NOTE 8:                      SUBORDINATED DEBENTURES

During 2005, the Company formed two wholly owned grantor trust subsidiaries, Guaranty Statutory Trust I and Guaranty Statutory Trust II, to issue preferred securities representing undivided beneficial interests in the assets of the trusts and to invest the gross proceeds of the preferred securities in notes of the Company.  Trust I issued $5,000,000 of preferred securities and Trust II issued $10,000,000 of preferred securities.  The sole assets of Trust I were originally $5,155,000 aggregate principal amount of the Company’s fixed rate subordinated debenture notes due 2036, which are redeemable beginning in 2011.  The sole assets of Trust II were originally $10,310,000 aggregate principal amount of the Company’s fixed/variable rate subordinated debenture notes due 2036, which are redeemable beginning in 2011.  Trust II subordinated debenture notes bear interest at a fixed rate for five years and thereafter at a floating rate based on LIBOR.  The preferred securities qualify as either Tier I or Tier II capital for regulatory purposes, subject to certain limitations.

37

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 9:                      INCOME TAXES

As of December 31, 2007 and 2006, retained earnings included approximately $5,075,000 for which no deferred income tax liability has been recognized.  This amount represents an allocation of income to bad debt deductions for tax purposes only.  Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate.  The unrecorded deferred income tax liability on the above amount was approximately $1,878,000 as of December 31, 2007 and 2006.

The provision for income taxes consists of:

	Years Ended
	December 31,
	2007			2006			2005
Taxes currently payable	$	3,587,610			4,634,722			3,756,110
Deferred income taxes		(187,839	)		(592,927	)		(249,519	)
	$	3,399,771			4,041,795			3,506,591

The tax effects of temporary differences related to deferred taxes shown on the December 31, 2007 and 2006 balance sheets are:

	December 31,			December 31,
	2007			2006
Deferred tax assets:
Allowances for loan and foreclosed asset losses	$	2,206,281			2,139,886
Accrued compensated absences and bonuses		18,500			18,500
Interest on non-accrual loans		43,525			-
Deferred loan fees/costs		82,915			42,684
		2,351,221			2,201,070
Deferred tax liabilities:
FHLB stock dividends		(120,632	)		(120,632	)
Unrealized appreciation on available-for-sale securities		(295,863	)		(901,243	)
Accumulated depreciation		(93,383	)		(142,323	)
Other		(85,642	)		(74,388	)
		(595,520	)		(1,238,586	)
Net deferred tax asset	$	1,755,701			962,484

 A reconciliation of income tax expense at the statutory rate to income tax expense at the Company’s effective rate is shown below:

38

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

	Years ended
	December 31,
	2007			2006			2005
Computed at statutory rate		34.0	%		34.0	%		34.0	%
Increase (reduction) in taxes resulting from:
State financial institution tax		0.8	%		2.7	%		1.8	%
ESOP		3.1	%		2.6	%		1.2	%
Other		-2.1	%		-1.0	%		0.3	%
Actual tax provision		35.8	%		38.3	%		37.3	%

 Missouri law provides that banks will be taxed based on an annual privilege tax of 7% of net income.  The privilege tax is included in provision for income taxes.

NOTE 10:                      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents estimated fair values of the Company’s financial instruments.  The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties.  Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.  Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

39

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

	December 31, 2007				December 31, 2006
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	12,046,202		12,046,202		14,880,601		14,880,601
Available-for-sale securities		14,729,938		14,729,938		7,906,321		7,906,321
Held-to-maturity securities		654,775		685,172		763,025		794,464
Federal Home Loan Bank stock		4,014,700		4,014,700		5,382,700		5,382,700
Mortgage loans held for sale		2,141,998		2,141,998		3,004,635		3,004,635
Loans, net		514,100,035		514,637,570		477,264,522		474,906,965
Interest receivable		3,323,448		3,323,448		2,910,309		2,910,309
Financial liabilities:
Deposits		418,191,284		419,513,185		352,229,636		351,887,931
Federal Home Loan Bank advances		76,086,000		76,532,490		108,000,000		108,167,567
Securities sold under agreements
to repurchase		9,849,295		9,849,295		1,703,221		1,703,221
Subordinated debentures		15,465,000		15,465,000		15,465,000		15,465,000
Notes payable		718,190		718,190		-		-
Interest payable		1,793,663		1,793,663		1,414,946		1,414,946
Dividend payable		469,373		469,373		468,190		468,190
Unrecognized financial instruments
(net of contractual value):
Commitments to extend credit		-		-		-		-
Unused lines of credit		-		-		-		-

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents and Federal Home Loan Bank stock

The carrying amounts reported in the balance sheets for cash and cash equivalents approximate those assets' fair value.

Investment Securities

Fair values for investment securities equal quoted market prices, if available.  If quoted market prices are not available, fair values are estimated based on quoted market prices of similar securities.

Interest Receivable

The carrying amount of interest receivable approximates its fair value.

Mortgage Loans Held for Sale

Fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Loans with similar characteristics are aggregated for purposes of the calculations.

40

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Deposits

The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date (i.e., their carrying amounts).  The fair value of fixed-maturity certificates of deposit is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank Advances and Subordinated Debentures

Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate fair value of existing advances and subordinated debentures.

Securities Sold under Agreements to Repurchase and Notes Payable

For these variable rate instruments, the carrying amount is a reasonable estimate of fair value.

Interest and Dividend Payable

The carrying amounts of interest payable and dividend payable approximates their fair value.

Commitments to Extend Credit, Letters of Credit and Lines of Credit

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

NOTE 11:                      SIGNIFICANT ESTIMATES AND CONCENTRATIONS

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations.  Estimates related to the allowance for loan losses are reflected in the footnote regarding loans.  Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk.

NOTE 12:                      EMPLOYEE BENEFIT PLANS

Stock Award Plans

The Company has established four stock award plans for the benefit of certain directors, officers and employees of the Bank and its subsidiary. The plans provide a proprietary interest in the Company in a manner designed to encourage these individuals to remain with the Bank.  A committee of the Bank’s Board of Directors administers the plans.  The Company accounts for the cost of share purchases under the plans as a reduction of stockholders' equity.  The awards vest at the rate of 20% per year over a five-year period.  Compensation expense is recognized based on the Company’s stock price on the date the shares are awarded to employees.

At the annual stockholders’ meeting on October 18, 1995, the Bank’s stockholders approved the Recognition and Retention Plan (the “RRP”).  Following approval of the Plan, the Bank contributed $464,643 to a separate trust to purchase the 75,106 shares of the Company’s common stock in the RRP.  As of December 31, 2007 all shares in this plan have vested.

At a special stockholders’ meeting on July 22, 1998, the Company’s stockholders approved the Restricted Stock Plan (the “RSP”).  Following approval of the Plan, the Company contributed $2,373,065 to a separate trust to purchase the 173,632 shares in the RSP.  As of December 31, 2007 all shares in this plan have vested.

41

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

During the year ended June 30, 2000, the directors of the Company established the Stock Compensation Plan (the “2000 SCP”) with both a stock award component and a stock option component.  Under the stock award component of this plan, the Committee awarded 7,125 shares of the Company’s common stock.  Following approval of the Plan, the Company contributed $85,945 to a separate trust to purchase the 7,125 shares in the SCP.  As of December 31, 2007 all shares in this plan have vested.

During the year ended June 30, 2001, the directors of the Company established the Stock Compensation Plan (the “2001 SCP”) with both a stock award component and a stock option component.  Under the stock award component of this plan, the Committee awarded 10,239 shares of the Company’s common stock. The shares for this plan were taken from forfeited shares in the RSP.  As of December 31, 2007 all shares in this plan have vested.

The Bank recognized $0, $18,537 and $45,694 of expense under these stock award plans in the years ended December 31, 2007, 2006 and 2005, respectively.

Stock Option Plans

The Company has established four stock option plans for the benefit of certain directors, officers and employees of the Bank and its subsidiary.  A committee of the Company’s Board of Directors administers the plans.  The stock options under these plans may be either incentive stock options or nonqualified stock options.  Incentive stock options can be granted only to participants who are employees of the Bank or its subsidiary.  The option price must not be less than the market value of the Company stock on the date of grant.  All options expire no later than ten years from the date of grant.  The options vest at the rate of 20% per year over a five-year period.

At the annual stockholders’ meeting on October 18, 1995, the Bank’s stockholders approved the 1994 Stock Option and Incentive Plan for the benefit of certain directors, officers and employees of the Bank and its subsidiary.  Under this Plan, the Committee may grant stock options for up to 187,764 shares of the Company’s common stock.

At a special stockholders’ meeting on July 22, 1998, the Company’s stockholders approved the 1998 Stock Option and Incentive Plan.  Under this plan, the Committee may grant stock options for up to 434,081 shares of the Company’s common stock.

Under the stock option component of the 2000 SCP, the Committee granted nonqualified stock options for 17,875 shares of the Company’s common stock.

Under the stock option component of the 2001 SCP, the Committee granted nonqualified stock options for 13,263 shares of the Company’s common stock.

During the six months ended December 31, 2003, the directors of the Company authorized the issuance of 5,000 stock options as an employment inducement to a new officer of the Bank pursuant to a stock option agreement.  Stock options awarded under this agreement are considered non-qualified for federal income tax purposes.

During the year ended December 31, 2004, the directors of the Company authorized the issuance of 25,000 stock options as an employment inducement to a new officer of the Bank pursuant to a stock option agreement.  Stock options awarded under this agreement are considered non-qualified for federal income tax purposes.

 On May 19, 2004, the Company’s stockholders voted to approve a 2004 Stock Option Plan (“2004 SOP”).  The purpose of the plan is to attract and retain qualified personnel for positions of substantial responsibility.  The aggregate number of shares with respect to options issued under this plan shall not exceed 250,000 shares.  To date 84,500 stock options have been granted under this plan, with 5,000 stock options cancelled.

42

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The table below summarizes transactions under the Company’s stock option plans:

	Number of shares
	Incentive Stock Option			Non-Incentive Stock Option			Weighted Average Exercise Price
Balance outstanding as of January 1, 2005		198,772			186,091		$	14.27
Granted		42,500			-			25.11
Exercised		(66,487	)		(11,000	)		13.31
Forfeited		(10,000	)		-			20.88
Balance outstanding as of December 31, 2005		164,785			175,091			15.65
Granted		20,000			-			28.06
Exercised		(24,294	)		(57,885	)		13.96
Forfeited		(5,000	)		(2,000	)		24.84
Balance outstanding as of December 31, 2006		155,491			115,206			17.30
Granted		19,500			25,000			29.48
Exercised		(56,958	)		(26,000	)		13.49
Forfeited		-			-			-
Balance outstanding as of December 31, 2007		118,033			114,206			20.48
Options exercisable as of December 31, 2007		60,036			67,206			16.14

As of December 31, 2007, total outstanding stock options of 232,239 had a remaining contractual life of 5.57 years.

The total intrinsic value of outstanding stock options was $1,914,130 and $3,087,638 at December 31, 2007 and 2006, respectively, and the total intrinsic value of outstanding exercisable stock options was $1,600,704 and $2,587,449 at December 31, 2007 and 2006, respectively.  The total intrinsic value of stock options exercised was $1,298,634 and $1,177,399 in 2007 and 2006, respectively.  The total fair value of share awards vested was $919,069 and $1,053,858 during 2007 and 2006, respectively.

The fair value of each option granted is estimated on the date of the grant using the Black-Scholes pricing model with the following weighted-average assumptions:

	December 31, 2007			December 31, 2006			December 31, 2005
Dividends per share	$	0.70			0.66			0.64
Risk-free interest rate		4.54	%		4.52	%		4.00	%
Expected life of options	5 years			5 years			5 years
Weighted-average volatility		4.62	%		9.16	%		13.01	%
Weighted-average fair value
of options granted during year	$	2.95			3.41			3.30

43

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Employee Stock Ownership Plan

The Bank sponsors an internally-leveraged Employee Stock Ownership Plan (ESOP).  All employees are eligible to participate after they attain age twenty-one and complete twelve consecutive months of service during which they work at least 1,000 hours. The ESOP borrowed $3,444,540 from the Company and purchased 344,454 shares of the common stock of the Company. The ESOP debt is secured by shares of the Company.  The loan will be repaid from contributions to the ESOP as approved annually by the Bank’s Board of Directors.  As the debt is repaid, shares are released from collateral and allocated to employees’ accounts. The shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. When shares are committed for release, the shares become outstanding for earnings per share computations.  Dividends on allocated ESOP shares are recorded as a reduction of retained earnings and may be paid directly to participants or credited to their account; dividends are not paid on unallocated ESOP shares.  Compensation expense is recognized ratably based on the average fair value of shares committed to be released.  Compensation expense attributed to the ESOP was $672,765, $651,958 and $564,980 for the years ended December 31, 2007, 2006 and 2005, respectively.

The following is a summary of ESOP shares as of December 31, 2007:

Beginning ESOP shares		344,454
Released shares		(207,353	)
Shares committed for release		(23,214	)
Unreleased shares		113,887
Fair value of unreleased shares	$	3,270,835

NOTE 13:                      RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank has granted loans to executive officers and directors and their affiliates.  Annual activity consisted of the following:

	Year ended December 31,
	2007			2006
Balance, beginning of year	$	3,508,387			3,270,812
New Loans		100,000			680,588
Repayments		(17,757	)		(443,013	)
Balance, end of year	$	3,590,630			3,508,387

 In management's opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms as those prevailing at the time for comparable transactions with other persons.  Further, in management's opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

NOTE 14:                      COMMITMENTS AND CREDIT RISK

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Bank evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty.  Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate.

44

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2007 and 2006, the Bank had outstanding commitments to originate mortgage loans of approximately $3,490,000 and $3,991,000, respectively.  The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period.  As of December 31, 2007 and 2006, commitments of $2,941,000 and $3,991,000, respectively, were at fixed rates and $549,000 and $0, respectively, were at floating market rates.

Standby letters of credit are irrevocable conditional commitments issued by the Bank’s to guarantee the performance of a customer to a third party.  Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions.  Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations.  The credit risk involved in issuing standby letters of credit is essentially the same at that involved in extending loans to customers.  Fees for letters of credit issued after December 31, 2002 are initially recorded by the Bank as deferred revenue and are included in earnings at the termination of the respective agreements.  Should the Bank be obligated to perform under the standby letters of credit, the Bank may seek recourse from the customer for reimbursement of amounts paid.

The Bank had total outstanding standby letters of credit amounting to $12,464,000 and $9,182,000 as of December 31, 2007 and 2006, respectively, with terms ranging from 30 days to 5 years.

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Lines of credit generally have fixed expiration dates.  Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements.  Each customer's credit worthiness is evaluated on a case-by-case basis.  The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the counterparty.  Collateral held varies but may include accounts receivable, inventory, property and equipment, commercial real estate and residential real estate.  Management uses the same credit policies in granting lines of credit as it does for on balance sheet instruments.

As of December 31, 2007 and 2006, unused lines of credit to borrowers aggregated approximately $63,403,000 and $64,370,000 for commercial lines and $21,957,000 and $19,790,000 for open-end consumer lines.

NOTE 15:                      CONDENSED PARENT COMPANY STATEMENTS

The condensed balance sheets as of December 31, 2007 and 2006, and statements of income and cash flows for the years ended December 31, 2007, 2006 and 2005 for the parent company, Guaranty Federal Bancshares, Inc., are as follows:

45

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Balance Sheets
	2007			2006
Assets
Cash	$	547,796			711,485
Available-for-sale securities		658,800			-
Due from subsidiary		28,126			28,895
Investment in subsidiary		56,693,200			58,597,264
Investment in Capital Trust I & II		468,420			468,420
Prepaid expenses and other assets		463,642			482,852
Refundable income taxes		681,266			820,225
Deferred income taxes		21,974			-
	$	59,563,224			61,109,141
Liabilities
Notes payable	$	718,190			-
Subordinated debentures		15,465,000			15,465,000
Accrued expenses and other liabilities		224,001			276,708
Dividend payable		469,373			468,190
Stockholders' equity
Common stock		673,649			665,353
Additional paid-in capital		57,571,929			55,730,352
Unearned ESOP shares		(1,116,930	)		(1,344,930	)
Retained earnings		45,402,449			41,183,006
Unrealized appreciation on
available-for-sale securities, net		503,767			1,534,548
Treasury stock		(60,348,204	)		(52,869,086	)
	$	59,563,224			61,109,141

46

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Income Statements	Years ended December 31,
	2007			2006			2005
Income
Dividends from subsidiary bank	$	8,487,268			4,639,062			3,540,000
Interest income:
Related party		135,015			150,308			127,786
Other		30,783			31,125			3
		8,653,066			4,820,495			3,667,789
Expense
Interest expense:
Other		13,037			963			-
Related party		1,023,783			1,027,526			47,683
Occupancy		2,400			2,400			2,400
Other		953,200			879,484			759,722
		1,992,420			1,910,373			809,805
Income before income taxes
and equity in undistributed
earnings of subsidiaries		6,660,646			2,910,122			2,857,984
Credit for income taxes		(349,935	)		(427,642	)		(117,312	)
Income before equity in undistributed
earnings of subsidiaries		7,010,581			3,337,764			2,975,296
Equity in undistributed
earnings of subsidiaries		(910,699	)		3,171,320			2,923,674
Net income	$	6,099,882			6,509,084			5,898,970

47

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Statements of Cash Flows	Years ended December 31,
	2007			2006			2005
Cash Flows From Operating Activities
Net income	$	6,099,882			6,509,084			5,898,970
Items not requiring (providing) cash:
Equity in undistributed earnings of subsidiaries		-			(3,171,320	)		(2,923,674	)
Release of ESOP shares		672,765			651,958			564,980
Stock award plan expense		71,325			83,192			23,161
Changes in:
Prepaid expenses and other assets		19,210			(8,810	)		(36,407	)
Income taxes payable/refundable		353,980			(307,380	)		17,707
Accrued expenses		(52,707	)		151,084			98,005
Net cash provided by operating activities		7,164,455			3,907,808			3,642,742
Cash Flows From Investing Activities
Capital contribution to subsidiary bank		-			-			(13,970,000	)
Purchase of AFS securities		(718,190	)		-			-
Purchase of investment in capital trusts		-			-			(465,000	)
Distributions in excess of net income of subsidiary		910,699			-			-
Net (increase) decrease in advance to subsidiary		769			(28,895	)		574,000
Net cash provided by (used in) investing activities		193,278			(28,895	)		(13,861,000	)
Cash Flows From Financing Activities
Stock options exercised		1,118,762			1,147,042			1,031,400
Cash dividends paid		(1,879,256	)		(1,850,300	)		(1,794,557	)
Treasury stock purchased		(7,479,118	)		(3,593,081	)		(3,563,011	)
Proceeds from issuance of notes payable		2,468,000			-			-
Repayment of notes payable		(1,749,810	)		-			-
Proceeds from issuance of subordinated debentures		-			-			15,465,000
Net cash provided by (used in) financing activities		(7,521,422	)		(4,296,339	)		11,138,832
Increase (decrease) in cash		(163,689	)		(417,426	)		920,574
Cash, beginning of year		711,485			1,128,911			208,337
Cash, end of year	$	547,796			711,485			1,128,911

48

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Guaranty Federal Bancshares, Inc.

Springfield, Missouri

We have audited the accompanying consolidated balance sheets of Guaranty Federal Bancshares, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007.  The Company’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guaranty Federal Bancshares, Inc. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/BKD, LLP

Springfield, Missouri

March 27, 2008

49

  Guaranty Federal Bancshares, Inc.

 2007 Annual Notes

50

  Guaranty Federal Bancshares, Inc.

 2007 Annual Report

Board of Directors	Guaranty
Guaranty Federal Bancshares, Inc.	Federal
and Guaranty Bank	Bancshares, Inc.
Don M. Gibson	Officers
Chairman of the Board
Guaranty Federal Bancshares and	Shaun A. Burke
Guaranty Bank	President,
	Chief Executive Officer
Jack L. Barham
Vice Chairman of the Board	Carter M. Peters
Guaranty Federal Bancshares	Executive Vice President,
	Chief Financial Officer/Chief
	Operations Officer
Shaun A. Burke
President and CEO	H. Michael Mattson
Guaranty Federal Bancshares and	Executive Vice President,
Guaranty Bank	Chief Lending Officer
Wayne V. Barnes	E. Lorene Thomas
Retired	Corporate Secretary
James R. Batten, CPA
Chief Operations Officer
AG Financial
Kurt D. Hellweg
President and CEO
International Dehydrated Foods, Inc. and
American Dehydrated Foods, Inc.
Gregory V. Ostergren
Chairman, President and CEO
American National Property and Casualty
Insurance Companies
Tim Rosenbury, AIA
Executive Vice President and Chairman
Butler, Rosenbury and Partners, Inc.
James L. Sivils, III, JD
Partner  - Morelock Ross Companies

51

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Guaranty Federal Bancshares, Inc.

Springfield, Missouri

We consent to the incorporation by reference in Registration Statement Nos. 333-47241, 333-31196, 333-65544, 333-83822 and 333-117918 on Forms S-8 of Guaranty Federal Bancshares, Inc. of our report dated March 27, 2008, relating to the consolidated balance sheets of Guaranty Federal Bancshares, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity and cash flows for the years ended December 31, 2007, 2006 and 2005, which appears in the Annual Report on Form 10-K of Guaranty Federal Bancshares, Inc. for the period ended December 31, 2007.

/s/BKD, LLP

Springfield, Missouri

March 27, 2008

EX-31.1

Exhibit 31(i).1

Certification of the Principal Executive Officer

Rule 13a-14(a) of the Securities Exchange Act of 1934

I, Shaun A. Burke, certify that:

1.  I have reviewed this annual report on Form 10-K of Guaranty Federal Bancshares, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 31, 2008	By:	/s/ Shaun A. Burke
		Shaun A. Burke
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31(i).2

Certification of the Principal Financial Officer

Rule 13a-14(a) of the Securities Exchange Act of 1934

I, Carter Peters, certify that:

1.  I have reviewed this annual report on Form 10-K of Guaranty Federal Bancshares, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 31, 2008	By:	/s/ Carter Peters
		Carter Peters
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CEO CERTIFICATION PURSUANT TO

 18 U.S.C. SECTION 1350*

In connection with the Annual Report of Guaranty Federal Bancshares, Inc. (the “Company”) on Form 10--K for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shaun A. Burke, Chief Executive Officer (principal executive officer) of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes--Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Shaun A. Burke

Shaun A. Burke

Chief Executive Officer

(Principal Executive Officer)

March 31, 2008

* A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CFO CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350 *

In connection with the Annual Report of Guaranty Federal Bancshares, Inc. (the “Company”) on Form 10--K for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carter Peters, Chief Financial Officer (principal financial officer) of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes--Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Carter Peters

Carter Peters

Chief Financial Officer

(Principal Financial Officer)

March 31, 2008

* A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.