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 SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

- or -

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________  to _____________________

Commission File Number:      0-23325

GUARANTY FEDERAL BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	43-1792717
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

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 x No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x No o

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

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 “large accelerated filer”, “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, 2011 (the last business day of the registrant’s most recently completed second quarter) was $11.7 million.  As of March 1, 2012 there were 2,709,471 shares of the registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Annual Report to Stockholders (the “2011 Annual Report”)for the fiscal year ended December 31, 2011 (Parts I and II).

2. Portions of the Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”) to be held on May 23, 2012 (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	31
	1B.	Unresolved Staff Comments	34
	2	Properties	34
	3	Legal Proceedings	36
	4	Mine Safety Disclosures	36
PART II
	5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	36
	6	Selected Financial Data	36
	7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
	7A.	Quantitative and Qualitative Disclosures About Market Risk	37
	8	Financial Statements and Supplementary Data	37
	9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
	9A.	Controls and Procedures	37
	9B.	Other Information	38
PART III
	10	Directors, Executive Officers and Corporate Governance	39
	11	Executive Compensation	39
	12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
	13	Certain Relationships and Related Transactions, and Director Independence	41
	14	Principal Accountant Fees and Services	41
PART IV
	15	Exhibits and Financial Statement Schedules	42
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 formed in September 1997. The Company became a unitary savings and loan holding company for Guaranty Federal Savings Bank, a federal savings bank (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.

On June 27, 2003, the Bank converted from a federal savings bank to a state-chartered bank with trust 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.

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 commercial real estate loans, multi-family residential mortgage loans, construction loans, permanent one-to four-family residential mortgage loans, business, 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 (“MDF”) 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.

Information regarding (i) average balances related to interest earning assets and interest bearing liabilities and an analysis of net interest income 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 2011 Annual Report, which is incorporated herein by reference.

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Internet Website

The Company’s internet website address is www.gbankmo.com. The information contained on that website is not included as part of, or incorporated by reference into, this Annual Report on Form 10-K. The Company makes available through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to these reports as soon as reasonably practicable after they are electronically filed or furnished to the Securities and Exchange Commission. These materials are also available free of charge (other than a user's regular internet access charges) on the Securities and Exchange Commission's website at www.sec.gov.

Market Area

The Bank's primary market areas are Greene and Christian Counties, which are in the southwestern corner of Missouri and includes the cities of Springfield, Nixa and Ozark,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

Management continually monitors the loan portfolio mix, attempting to stay well diversified in both product and customer type.  Although there is a concentration, currently, in commercial real estate, Management continues to seek the best mix of loan products for the portfolio.  Set forth below is selected data relating to the composition of the Bank’s loan portfolio at the dates indicated:

	As of December 31,
	2011					2010					2009					2008					2007
	$		%			$		%			$		%			$		%			$		%
	Dollars in Thousands
Mortgage loans (includes loans held for sale):
One to four family	$	101,734		21	%	$	105,737		20	%	$	111,587		21	%	$	109,940		19	%	$	85,160		16	%
Multi-family		43,166		9	%		44,138		9	%		35,904		7	%		35,202		6	%		41,948		8	%
Construction		44,912		9	%		63,308		12	%		75,391		14	%		138,749		24	%		89,724		17	%
Commercial real estate		194,856		39	%		195,890		38	%		196,727		36	%		154,398		27	%		175,995		34	%
Total mortgage loans		384,668		78	%		409,073		79	%		419,609		77	%		438,289		76	%		392,827		75	%
Commercial business loans		88,089		18	%		85,428		16	%		92,534		17	%		98,549		17	%		104,026		20	%
Consumer loans		20,758		4	%		23,426		5	%		30,568		6	%		38,390		7	%		25,576		5	%
Total consumer and other loans		108,847		22	%		108,854		21	%		123,102		23	%		136,939		24	%		129,602		25	%
Total loans		493,515		100	%		517,927		100	%		542,711		100	%		575,228		100	%		522,429		100	%
Less:
Deferred loan fees/costs, net		238					179					132					173					224
Allowance for loan losses		10,613					13,083					14,076					16,728					5,963
Total Loans, net	$	482,664				$	504,665				$	528,503				$	558,327				$	516,242

The following table sets forth the maturity of the Bank's loan portfolio as of December 31, 2011.  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.

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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	$	26,049	$	32,342	$	43,343	$	101,734
Multi-family		6,829		24,083		12,254		43,166
Construction		34,170		10,586		156		44,912
Commercial real estate		78,349		105,043		11,464		194,856
Commercial loans		46,269		32,162		9,658		88,089
Consumer loans		3,810		7,321		9,627		20,758
Total loans (1)	$	195,476	$	211,537	$	86,502	$	493,515
Less:
Deferred loan fees/costs								238
Allowance for loan losses								10,613
Loans receivable net							$	482,664

(1) Includes mortgage loans held for sale of $3,703

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, 2011 of all loans due after December 2012, which have pre-determined interest rates and which have adjustable interest rates.

	Fixed Rates		Adjustable Rates		Total		% Adjustable
	(Dollars in Thousands)
One to four family	$	22,360	$	53,325	$	75,685		70	%
Multi-family		19,019		17,318		36,337		48	%
Construction		782		9,960		10,742		93	%
Commercial real estate		41,523		74,984		116,507		64	%
Commercial loans		12,835		28,985		41,820		69	%
Consumer loans		1,443		15,505		16,948		91	%
Total loans (1)	$	97,962	$	200,077	$	298,039		67	%

(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 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, 2011, $101.7 million or 21% of the Bank’s total loan portfolio consisted of one- to four-family residential 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, 2011, $43.2 million or 9% 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, $11.6 million as of December 31, 2011, 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, 2011, construction loans totaled $44.9 million or 9% 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 80%.  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, 2011, the Bank has commercial real estate loans totaling $194.9 million or 39% 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 Wall Street Prime 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 $11.6 million as of December 31, 2011, 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, 2011, the Bank’s commercial real estate loan portfolio included approximately $21.5 million, or 4.3% 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 75% 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, 2011, the Bank has commercial business loans totaling $88.1 million or 18% 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 consumer loans, primarily consisting of loans secured by certificates of deposit, automobiles, boats and home equity loans.  As of December 31, 2011, the Bank has such loans totaling $20.8 million or 4% of the Bank’s total loan portfolio.  The Bank expects to continue to expand its consumer lending as opportunities present themselves.

Director and Insider loans.  Management believes that loans to Directors and Officers are prudent and within the normal course of business.  These loans reflect normal credit terms and represent no more collection risk than any other loan in the portfolio.

Delinquencies, Non-Performing and Problem Assets.

Delinquent Loans.  As of December 31, 2011, the Bank has six loans 90 days or more past due with a principal balance of $1,950,980 and fifteen loans between 30 and 89 days past due with an aggregate principal balance of $1,169,827.  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,
	2011			2010			2009			2008			2007
	(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	$	1,671		$	3,120		$	5,060		$	2,907		$	929
Multi-family		-			-			6,042			6,552			-
Construction		8,514			8,935			11,254			6,010			459
Commercial real estate		4,083			2,980			921			517			5,850
		14,268			15,035			23,277			15,986			7,238
Non-mortgage loans:
Commercial loans		2,377			7,743			5,640			4,629			-
Consumer and other loans		357			234			5,368			79			16
		2,734			7,977			11,008			4,708			16
Total non-accrual loans		17,002			23,012			34,285			20,694			7,254
Accruing loans which are contractually past maturity or past due 90 days or more:
Mortgage Loans:
One to four family		-			-			-			-			103
Multi-family		-			-			-			-			-
Construction		-			-			-			443			-
Commercial real estate		-			-			-			-			-
		-			-			-			443			103
Non-mortgage loans:
Commercial loans		-			-			-			-			-
Consumer and other loans		-			-			-			-			-
		-			-			-			-			-
Total past maturity or past due accruing loans		-			-			-			443			103
Total accounted for on a non-accrual basis or contractually past maturity or 90 days or more past due	$	17,002		$	23,012		$	34,285		$	21,137		$	7,357
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		3.52	%		4.55	%		6.49	%		3.79	%		1.43	%
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		2.62	%		3.37	%		4.65	%		3.13	%		1.30	%

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. 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, or when other circumstances indicate the collection of principal or interest is in doubt.  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 (i.e. loans that 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,
	2011			2010			2009			2008			2007
Non-accrual loans:	(Dollars in Thousands)
Mortgage loans:
One to four family	$	1,671		$	3,120		$	5,060		$	2,907		$	929
Multi-family		-			-			6,042			6,552			-
Construction		8,514			8,935			11,254			6,010			459
Commercial real estate		4,083			2,980			921			517			5,850
		14,268			15,035			23,277			15,986			7,238
Non-mortgage loans:
Commercial loans		2,377			7,743			5,640			4,629			-
Consumer and other loans		357			234			5,368			79			16
		2,734			7,977			11,008			4,708			16
Total non-accrual loans		17,002			23,012			34,285			20,694			7,254
Real estate and other assets acquired in settlement of loans		10,012			10,540			6,760			5,655			727
Total non-performing assets	$	27,014		$	33,552		$	41,045		$	26,349		$	7,981
Total non-accrual loans as a percentage of net loans		3.52	%		4.55	%		6.49	%		3.71	%		1.41	%
Total non-performing assets as a percentage of total assets		4.17	%		4.91	%		5.56	%		3.90	%		1.41	%
Impact on interest income for the period:
Interest income that would have been recorded on non-accruing loans	$	243		$	855		$	1,400		$	791		$	716

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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 highly questionable, and improbable.  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, 2011.

	Special Mention				Substandard				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in Thousands)
Loans:
One to four family		45	$	3,214		35	$	3,314		80	$	6,528
Multi-family		1		498		-		-		1		498
Construction		8		6,372		8		10,894		16		17,266
Commercial real estate		13		20,406		16		12,431		29		32,837
Commercial		13		2,183		15		5,376		28		7,559
Consumer and Other		4		309		20		927		24		1,236
Total loans		84		32,982		94		32,942		178		65,924
Foreclosed assets held-for-sale:
One to four family		-		-		8		1,864		8		1,864
Land and other assets		-		-		17		8,148		17		8,148
Total foreclosed assets		-		-		25		10,012		25		10,012
Total		84	$	32,982		119	$	42,954		203	$	75,936

13

Allowance for Loan Losses and Provision 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 collectability 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, 2011, the Bank's total allowance for loan losses was $10.6 million or 2.17% of gross loans outstanding (excluding mortgage loans held for sale), a decrease of $2.5 million from December 31, 2010. The Bank experienced loan charge offs in excess of recoveries as Management charged off specific loans that had been identified and classified as impaired at December 31, 2010. Also, the Bank experienced a significant decline in loan balances during 2011 that has reduced allowance for loan loss reserve requirements.  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.

Management records a provision for loan losses to bring the total allowance for loan losses to a level considered adequate based on the Bank’s internal analysis and methodology.  During 2011, the Bank recorded a provision for loan loss expense, as shown in the table below.  Management anticipates the need to continue adding to the allowance through charges to provision for loan losses as growth in the loan portfolio or other circumstances warrant.

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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
	December 31,
	2011			2010			2009			2008			2007
	(Dollars in Thousands)
Beginning balance	$	13,083		$	14,076		$	16,728		$	5,963		$	5,784
Gross loan charge offs
Mortgage Loans:
One to four family		(966	)		(906	)		(1,256	)		(631	)		(56	)
Multi-family		-			-			(556	)		(401	)		(1	)
Construction		(2,381	)		(3,893	)		(690	)		(2,147	)		(317	)
Commercial real estate		(2,744	)		(373	)		(37	)		(33	)		(49	)
		(6,091	)		(5,172	)		(2,539	)		(3,212	)		(423	)
Non-mortgage loans:
Commercial loans		(1,362	)		(1,847	)		(999	)		(677	)		-
Consumer and other loans		(322	)		(366	)		(6,229	)		(225	)		(309	)
		(1,684	)		(2,213	)		(7,228	)		(902	)		(309	)
Total charge offs		(7,775	)		(7,385	)		(9,767	)		(4,114	)		(732	)
Recoveries
Mortgage Loans:
One to four family		45			25			24			21			10
Multi-family		-			-			-			-			-
Construction		77			10			163			63			-
Commercial real estate		221			12			-			-			11
		343			47			187			84			21
Non-mortgage loans:
Commercial loans		322			60			8			13			8
Consumer and other loans		1,290			1,085			20			38			42
		1,612			1,145			28			51			50
Total recoveries		1,955			1,192			215			135			71
Net loan charge-offs		(5,820	)		(6,193	)		(9,552	)		(3,979	)		(661	)
Provision charged to expense		3,350			5,200			6,900			14,744			840
Ending balance	$	10,613		$	13,083		$	14,076		$	16,728		$	5,963
Net charge-offs as a percentage of average loans, net		1.19	%		1.25	%		1.86	%		0.70	%		0.14	%
Allowance for loan losses as a percentage of average loans, net		2.17	%		2.65	%		2.74	%		2.92	%		1.24	%
Allowance for loan losses as a percentage of total non-performing loans		62	%		57	%		41	%		81	%		82	%

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.

	As of
	December 31,
	2011					2010					2009					2008					2007
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
	(Dollars in thousands)
Mortgage Loans	$	7,358		69	%	$	9,913		76	%	$	10,883		77	%	$	12,746		76	%	$	4,484		75	%
Non-Mortgage Loans		3,255		31	%		3,170		24	%		3,193		23	%		3,982		24	%		1,479		25	%
Total	$	10,613		100	%	$	13,083		100	%	$	14,076		100	%	$	16,728		100	%	$	5,963		100	%

Investment Activities

The investment policy of the Company, which is established by the Company’s Board of Directors and reviewed by the Asset/Liability Committee of the Company’s Board of Directors, is designed primarily to provide and maintain liquidity, to generate a favorable return on investments, to help mitigate 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, 2011, the Company has investment securities with an amortized cost of $80.0 million and an estimated fair value of $81.3 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, $81.1 million, or 99.7%, of the Company’s investment securities portfolio are available-for-sale.

From time to time, the Company will sell a security to change its interest rate risk profile or restructure the portfolio and its cash flows.  In 2011, the Company sold $44.8 million in securities and recognized $1,505,915 of gain.  In a series of transactions during the fourth quarter of 2011, the Company sold $28.1 million of available-for-sale securities (at a realized gain of approximately $1.3 million) in order to prepay two repurchase agreements totaling $14.75 million (at a realized loss of approximately $1.5 million). The transactions allowed the Company to significantly reduce higher cost, non-core funding liabilities and to reduce the Company’s interest rate risk position.

In addition to the securities described above, at December 31, 2011 the Company held $5.6 million in insured certificates of deposit.  These were purchased because of the spread advantage to traditional debt, and low risk weighting.  For financial statement reporting purposes, the Company considers these certificates interest bearing deposits.

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.

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.

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	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2011
AVAILABLE-FOR-SALE SECURITIES:
Equity Securities	$	102,212	$	-	$	(39,950	)	$	62,262
Debt Securities:
U. S. government agencies		34,668,833		122,093		(64,264	)		34,726,662
U. S. treasuries		2,037,168		5,469		-			2,042,637
Municipals		4,049,701		138,736		(44,038	)		4,144,399
Government sponsored  mortgage-backed securities		38,950,955		1,148,789		(10,826	)		40,088,918
HELD-TO-MATURITY SECURITIES:
Government sponsored mortgage-backed securities		218,571		17,003		-			235,574
	$	80,027,440	$	1,432,090	$	(159,078	)	$	81,300,452

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2010
AVAILABLE-FOR-SALE SECURITIES:
Equity Securities	$	102,212	$	7,089	$	(31,381	)	$	77,920
Debt Securities:
U. S. government agencies		27,409,482		222,014		(128,414	)		27,503,082
Government sponsored mortgage-backed securities		66,407,555		2,865,745		(9,649	)		69,263,651
HELD-TO-MATURITY SECURITIES:
Government sponsored  mortgage-backed securities		260,956		20,828		-			281,784
	$	94,180,205	$	3,115,676	$	(169,444	)	$	97,126,437

17

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Approximate Fair Value
As of December 31, 2009
AVAILABLE-FOR-SALE SECURITIES:
Equity Securities	$	102,212	$	4,055	$	(41,219	)	$	65,048
Debt Securities:
U. S. government agencies		30,528,386		98,160		(86,326	)		30,540,220
Government sponsored  mortgage-backed securities		69,844,555		2,209,428		-			72,053,983
HELD-TO-MATURITY SECURITIES:
U. S. government agencies		114,119		-		(535	)		113,584
Government sponsored  mortgage-backed securities		358,664		27,470		-			386,134
	$	100,947,936	$	2,339,113	$	(128,080	)	$	103,158,968

The following tables set forth certain information regarding the weighted average yields and maturities of the Bank's investment securities portfolio as of December 31, 2011.

Investment Portfolio Maturities and Average Weighted Yields	Amortized Cost		Weighted Average Yield			Approximate Fair Value
Due in one to five years	$	26,394,204		1.74	%	$	26,473,064
Due in five to ten years		11,346,351		1.75	%		11,347,402
Due after ten years		3,015,147		4.84	%		3,093,232
Equity securities not due on  a single maturity date		102,212		0.00	%		62,262
Government sponsored mortgage-backed  securities not due on a single maturity date		39,169,526		4.33	%		40,324,492
	$	80,027,440		3.19	%	$	81,300,452

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	After One Through Five Years		After Five Through Ten Years		After Ten Years		Securities Not Due on a Single Maturity Date		Equity Securities		Total
As of December 31, 2011
Equity Securities	$	-	$	-	$	-	$	-	$	62,262	$	62,262
Debt Securities:
U. S. government agencies		24,134,144		10,592,518		-		-		-		34,726,662
U. S. treasuries		2,042,637		-		-		-		-		2,042,637
Municipals		296,283		754,884		3,093,232		-		-		4,144,399
Government sponsored  mortgage-backed securities		-		-		-		40,324,492		-		40,324,492
	$	26,473,064	$	11,347,402	$	3,093,232	$	40,324,492	$	62,262	$	81,300,452

Sources of Funds

General.  The Company's primary sources of funds are deposits, borrowings, amortization and prepayments of loans and amortization, and prepayments and maturities of investment securities.

Deposits.  The Bank offers a variety of deposit accounts having a range of interest rates and terms.  The Bank has concentrated on a diverse deposit mix, such that transaction accounts make a greater percent of funding than in the past.  The Bank offers various checking accounts, money markets, savings, fixed-term certificates of deposit and individual retirement 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 Company closely manages its deposit position and mix to manage interest rate risk and improve its net interest margin.  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 banking center locations.

Deposit Account Types

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

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	As of December 31,								As of December 31,								As of December 31,
	2011								2010								2009
	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		0.56	%	$	81,805		17	%		0.78	%	$	74,985		16	%		1.19	%	$	55,453		11	%
Savings		0.44	%		21,296		4	%		0.69	%		19,189		4	%		0.99	%		14,644		3	%
Money Market		0.77	%		169,759		35	%		1.20	%		183,692		38	%		3.32	%		199,967		38	%
Non-interest  bearing demand		0.00	%		56,315		11	%		0.00	%		26,634		5	%		0.00	%		28,931		6	%
Total					329,175		68	%					304,500		63	%					298,995		58	%
Certificates of Deposit: (fixed-rate, fixed-term)
1-11 months		1.53	%		75,992		16	%		2.02	%		113,602		24	%		2.57	%		123,880		24	%
12-23 months		1.58	%		50,123		10	%		1.89	%		7,401		1	%		3.46	%		16,406		3	%
24-35 months		1.51	%		16,298		3	%		2.64	%		37,010		8	%		3.32	%		50,622		10	%
36-47 months		1.81	%		6,846		1	%		2.60	%		13,067		3	%		4.23	%		15,999		3	%
48-59 months		1.87	%		5,496		1	%		2.92	%		3,180		1	%		4.75	%		4,518		1	%
60-71 months		1.66	%		654		0	%		2.46	%		1,866		0	%		3.69	%		1,834		1	%
72-95 months		0.00	%		-		0	%		2.37	%		68		0	%		2.90	%		797		0	%
Total					155,409		32	%					176,194		37	%					214,056		42	%
Total Deposits				$	484,584		100	%				$	480,694		100	%				$	513,051		100	%

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

In 2011, Management continued to place emphasis on reducing the dependence on jumbo deposits ($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, 2011.

	(Dollars in thousands)
	As of December 31, 2011
Three months or less	$	15,571
Over three through six months		2,818
Over six through twelve months		13,553
Over twelve months		31,881
Total	$	63,823

Borrowings

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

20

Deposits are the primary source of funds for the Bank's lending activities and other general business purposes.  However, during periods when the supply of lendable funds cannot meet the demand for such loans, the FHLB System, of which the Bank is a member, makes available, subject to compliance with eligibility standards, a portion of the funds necessary through loans (advances) to its members. Use of FHLB advances is a common practice, allowing the Bank to provide funding to its customers at a time when significant liquidity is not present, or at a rate advantageous relative to current market deposit rates. FHLB advances, due to their structure, allow the Bank to better manage its interest rate and liquidity risk.  The following table presents certain data for FHLB advances as of the dates indicated.

	As of December 31,
	2011			2010			2009
	(Dollars in Thousands)
Remaining maturity:
Less than one year	$	-		$	25,000		$	23,000
One to two years		15,700			-			25,000
Two to three years		-			15,700			-
Three to four years		250			-			15,700
Four to five years		-			250			-
Over five years		52,100			52,100			52,350
Total	$	68,050		$	93,050		$	116,050
Weighted average rate at end of period		2.23	%		2.58	%		2.68	%
For the period:
Average outstanding balance	$	86,800		$	109,967		$	112,851
Weighted average interest rate		2.52	%		2.66	%		2.79	%
Maximum outstanding as of any month end	$	93,050		$	116,050		$	116,050

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, Guaranty Statutory Trust I (“Trust I”) and Guaranty Statutory Trust II (“Trust II”) 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.

21

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 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,
	2011			2010			2009
	(Dollars in Thousands)
Subordinated debentures	$	15,465		$	15,465		$	15,465
Weighted average interest rate of subordinated debentures		3.95	%		6.62	%		6.62	%

Federal Reserve Bank Borrowings

During 2008, the Bank established a borrowing line with Federal Reserve Bank.  The Bank has the ability to borrow $37.0 million as of December 31, 2011.  The Federal Reserve Bank requires the Bank to maintain collateral in relation to borrowings outstanding.  The Bank had no borrowings on this line as of December 31, 2011 and 2010.  The line is regarded by management as a contingency source of funds, and is not utilized in day to day operating activity except for planning.

Securities Sold Under Agreements to Repurchase

The Company borrowed $9.8 million under a structured repurchase agreement in September 2007.  Effective in September 2009, interest was based on a fixed rate of 3.56% until maturity in September 2014.  The counterparty, Barclay’s Capital, Inc., had the option to terminate the agreement on a quarterly basis until the maturity date.  Prior to the stated maturity, the Company paid off this agreement in November 2011.

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The Company borrowed $30.0 million under three structured repurchase agreements in January 2008.  Interest is based on a fixed weighted average rate of 2.65% until maturity in January 2018.  Beginning in February 2010, the counterparty, Barclay’s Capital, Inc., has the option to terminate the agreements on a quarterly basis until maturity. Prior to the stated maturity, the Company paid off one of these agreements in the amount of $5.0 million in November 2011.

The Company has pledged certain investment securities with a fair value of $32.2 million and $46.9 million as of December 31, 2011 and 2010, respectively, to these repurchase agreements.

Management monitors these transactions closely, and management has determined to keep them in place due to the net income relief these types of transactions provide in the low interest rate environment.  The spread and interest rate risk on the transactions remain healthy.

Subsidiary Activity and Segment Information

The Company has three wholly-owned subsidiaries: (i) the Bank, the Company’s principal subsidiary and a state-chartered bank with trust powers in Missouri; (ii) Trust I; and (iii) Trust II.  As discussed in more detail above, 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 2011 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 judgments and estimates, the Company’s financial results could change, and such change could be material to the Company.

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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 2011 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,
	2011			2010			2009
Common Dividend Payout Ratio		0	%		0	%		0	%
Return on Average Assets		0.40	%		0.00	%		(0.45	%)
Return on Average Equity		5.00	%		0.01	%		(6.45	%)
Stockholders' Equity to Assets		8.36	%		7.62	%		6.97	%
EPS Diluted	$	1.01		$	-		$	(1.29	)
Dividends on Common Shares	$	-		$	-		$	-

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Employees

As of December 31, 2011, the Bank had 144 full-time employees and 38 part-time employees.  As of December 31, 2011, 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 competitors are 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 deposit accounts comes from other commercial banks, credit unions, regional bank and thrift holding companies, and savings institutions located in its primary market area.  Significant competition for the Bank's other deposit products and services come from money market mutual funds, brokerage firms, insurance companies, and retail stores.  Recently, online firms have offered attractive financial service products to consumers, irrespective of location.  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.

Supervision and 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.

Dodd-Frank Act

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law. The Dodd-Frank Act is sweeping legislation intended to overhaul regulation of the financial services industry. Its goals are to establish a new council of “systemic risk” regulators, create a new consumer protection division within the Federal Reserve, empower the Federal Reserve to supervise the largest, most complex financial companies, allow the government to seize and liquidate failing financial companies, and give regulators new powers to oversee the derivatives market. The provisions of the Dodd-Frank Act are so extensive and far reaching that full implementation may require several years, and an assessment of its full effect on the Company is not possible at this time. However, some provisions of the Dodd-Frank Act have impacted the Bank’s current and future operations, including but not limited to:

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· A new agency, the Bureau of Consumer Financial Protection, was created to have authority with respect to new and existing consumer financial protection laws.

· Deposit insurance is permanently increased to $250,000 and unlimited deposit insurance for noninterest-bearing transaction accounts is extended through January 1, 2013.

· A bank’s deposit insurance assessments will be based on the institution’s total average assets less its average tangible equity for the assessment period, rather than total deposits.

· Repeal of the prohibition on payment of interest on demand deposits, thereby permitting banks to pay interest on business accounts.

· Increase in the minimum ratio of net worth to insured deposits of the Deposit Insurance Fund from 1.15% to 1.35% and require the FDIC to offset the effect of the increase on institutions with assets of less than $10 billion.

· Provide for new disclosure relating to executive compensation and corporate governance and a prohibition on compensation arrangements that encourage inappropriate risks or that could provide excessive compensation.

· Require new capital rules and apply the same leverage and risk-based capital requirements that apply to most bank holding companies.

· Enhance the authority of the Federal Reserve Board to examine the Company and its non-bank subsidiaries.

· Require all bank holding companies to serve as a source of financial strength to their subsidiary banks in the event such subsidiaries suffer from financial distress.

Emergency Economic Stabilization Act and American Recovery and Reinvestment Act

In response to the financial crisis affecting the banking system and financial markets, the Emergency Economic Stabilization Act (“EESA”) was signed into law on October 3, 2008 and authorized the U.S. Department of the Treasury (the "Treasury") to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments under the Troubled Asset Relief Program (”TARP”).  As part of TARP, the Treasury established the Capital Purchase Program (“CPP”) to provide up to $250 billion of funding to eligible financial institutions through the purchase of debt or equity securities from participating institutions.

On January 30, 2009, the Company issued and sold, and the Treasury purchased, (1) 17,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock Series A, and (2) a ten-year warrant to purchase up to 459,459 shares of the Company's common stock at an exercise price of $5.55 per share, for an aggregate purchase price of $17.0 million.  The Series A preferred shares pay a dividend at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter.

The Series A preferred shares qualify as Tier 1 capital.  The Company may redeem the shares for $1,000 per share, plus accrued and unpaid dividends, in whole or in part, subject to regulatory approval.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “ARRA”) was signed into law.  The ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future CPP recipients that are in addition to those previously announced by the Treasury, until the institution has repaid the Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.  As a result of our participation in the CPP, the restrictions and standards established in the ARRA are applicable to the Company.  The ARRA restrictions do not apply to any TARP recipient during such time when the federal government (i) only holds any warrants to purchase common stock of such recipient or (ii) holds no preferred stock or warrants to purchase common stock of such recipient.

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The Treasury released an interim final rule (the “IFR”) on TARP standards for compensation and corporate governance on June 10, 2009, which implemented and further expanded the limitations and restrictions imposed on executive compensation and corporate governance by EESA and AARA.  The rules clarify prohibitions on bonus payments, provide guidance on the use of restricted stock units, expand restrictions on golden parachute payments, mandate enforcement of clawback provisions unless unreasonable to do so, outline the steps compensation committees must take when evaluating risks posed by compensation arrangements, and require the adoption and disclosure of a luxury expenditure policy, among other things. New requirements under the rules include enhanced disclosure of perquisites and the use of compensation consultants, and prohibitions on tax gross-up payments.  The Treasury has not yet published a final version of the IFR.

Regulation of the Bank

General.  The Bank is regulated as a bank under state and federal law, including being regulated and supervised by the 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 Federal Reserve Bank (“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 deposit accounts and the form and content of the Bank's loan 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.

Insurance of Deposit Accounts and Assessments.  The deposit accounts held by the Bank are insured by the DIF generally up to a maximum of $250,000 for each insured account (as defined by law and regulation).

Effective April 1, 2011, the FDIC has adopted rules in which insurance assessments will be based on the institution’s average total assets less its average tangible equity, rather than total deposits which are used in the current assessment calculation.

On November 12, 2009, the FDIC adopted a final rule to collect, in advance, insurance premiums for 2010, 2011 and 2012 in lieu of an additional special assessment.  The payment in the amount of $4,135,875 was made on December 30, 2009, which represents total premiums for these three years as estimated by the FDIC.  The unamortized balance remaining as of December 31, 2011 was $2,089,076.

The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and 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.

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Temporary Liquidity Guarantee Program.On October 14, 2008, the Temporary Liquidity Guarantee Program was enacted by the FDIC.  The program provided for the guarantee of newly-issued senior unsecured debt of financial institutions and bank holding companies and provided full deposit insurance coverage for all non-interest bearing deposit accounts.  The Bank participated in the program up and through its extension period of December 31, 2010.  Effective with the Dodd-Frank Act, all non-interest bearing transaction accounts receive unlimited deposit insurance through December 31, 2012 with no additional cost to the bank.

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.

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, 2011.  Applicable capital and ratio information is contained under the section titled “Regulatory Matters” in Note 1 to the Consolidated Financial Statements in the 2011 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 FHLB, which is one of 12 regional Federal Home Loan Banks.  As a member, the Bank is required to purchase and maintain stock in FHLB in an amount equal to 0.12% of assets plus 4.45% of Federal Home Loan Bank advances.  At December 31, 2011, the Bank had $3,846,900 in FHLB stock, which was in compliance with this requirement.

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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.  The Bank is in compliance with this Act.

Dividend Limitations.  The amount of dividends that the Bank may pay is subject to various regulatory limitations.  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.

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 under the Bank Holding Company Act of 1956 (“BHCA”).

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 indicators 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 its 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, 2011, the Company met its minimum capital adequacy guidelines.  Applicable capital and ratio information is contained under the section titled “Regulatory Matters” in Note 1 to the Consolidated Financial Statements in the 2011 Annual Report.

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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.

The amount of dividends that the Company may pay is subject to various regulatory 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.

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.

Executive Officers of the Registrant

           Set forth below is information concerning the executive officers of the Company.  Each executive officer is annually elected to a one-year term by the Board of Directors of the Company.

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Shaun A. Burke joined the Bank in March 2004 as President and Chief Executive Officer and was appointed President and Chief Executive Officer of the Company on February 28, 2005.  He has over 25 years of banking experience. Mr. Burke is a board member and President of the Springfield Business Development Corporation, the economic development subsidiary of the Springfield Area Chamber of Commerce.  He 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 Peters is Executive Vice President and Chief Financial Officer of the Bank and the Company.  He joined the Bank and the Company in August 2005.  Mr. Peters has over 20 years of experience in the financial services and public accounting industries.  He is a Certified Public Accountant with a Bachelor of Science Degree in Accounting from Missouri State University.  He is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants.  He is the current Chairman of the Southern Missouri Regional Board of the Make-A-Wish Foundation of Missouri as well as a Board member of the Missouri Governing Board of the 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 30 years of commercial banking experience.  Mr. Mattson is currently a member of the Springfield Area Chamber of Commerce and has served on its board nominating committee and venture capital committee.  He is on the board of directors of Ozarks Food Harvest, previously serving as its president and co-chair of their capital campaign.  He is a member of Leadership Springfield Class XI and a graduate of Rockhurst University and the Graduate School of Banking of The South at Baton Rouge, LA.

Sheri Biser is Executive Vice President and Chief Credit Officer of the Bank.  She joined the Bank in February 2009.  Ms. Biser has 26 years of banking experience.  Prior to joining the Bank, Ms. Biser served as Chief Credit Officer of Metropolitan National Bank for nearly eight years and worked in credit administration for fourteen years at another financial institution.  She received a Bachelor of Science Degree in Accounting from Fort Hays State University.

As of December 31, 2011, the age of these individuals was 48 for Mr. Burke, 42 for Mr. Peters, 58 for Mr. Mattson and 48 for Ms. Biser.

Item 1A.   Risk Factors

The Company’s business and operations are subject to, and may be adversely affected by, certain risks and uncertainties. An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included and incorporated by reference in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment.

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The Company could experience an increase in loan losses, which would reduce the Company’s earnings.

As the nation continues to recover from the economic downturn, real estate prices remain under pressure in the Company’s market. Furthermore, elevated levels of unemployment have made it difficult for many consumers to meet their monthly obligations. As a lender, we are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and our industry has seen above average loan loss levels for approximately eighteen months. While the Company believes that its loan underwriting standards have been and remain sound, the Company has experienced an increase in charge offs and non-performing loans. To the extent charge offs exceed our financial models, increased amounts charged to the provision for loan losses would reduce net income.

Rapidly changing interest rate environments could reduce our net interest margin, net interest income, fee income and net income.

Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a large part of our net income. Interest rates are the key drivers of the Company’s net interest margin and subject to many factors beyond the control of management. As interest rates change, net interest income is affected. Rapid increases in interest rates in the future could result in interest expense increasing faster than interest income because of mismatches in the maturities of the Company’s assets and liabilities. Furthermore, substantially higher rates generally reduce loan demand and may result in slower loan growth. Decreases or increases in interest rates could have a negative effect on the spreads between interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net interest income.

Liquidity needs could adversely affect the Company’s results of operations and financial condition.

The Bank’s primary source of funds is customer deposits and cash flows from investment instruments and loan repayments. While scheduled loan repayments are a relatively stable source, they are subject to the ability of the borrowers to repay their loans. The ability of the borrowers to repay their loans can be adversely affected by a number of factors, including changes in the economic conditions, adverse trends or events affecting the business environment, natural disasters and various other factors. Cash flows from the investment portfolio may be affected by changes in interest rates, resulting in excessive levels of cash flow during periods of declining interest rates and lower levels of cash flow during periods of rising interest rates. Deposit levels may be affected by a number of factors, including both the national market and local competitive interest rate environment, local and national economic conditions, natural disasters and other various events. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include the FHLB advances, brokered deposits and federal funds lines of credit from correspondent banks.

The Company may also pledge investments as collateral to borrow money from third parties. In certain cases, the Company may sell investment instruments for sizable losses to meet liquidity needs, reducing net income. While the Company believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity needs.

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Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.

We face competition in attracting and retaining deposits, making loans, and providing other financial services throughout our market area. Our competitors include other community banks, regional and super-regional banking institutions, national banking institutions, and a wide range of other financial institutions such as credit unions, government-sponsored enterprises, mutual fund companies, insurance companies, brokerage companies, and other non-bank businesses. Many of these competitors have substantially greater resources than Guaranty Federal Bancshares, Inc.

Inability to hire or retain certain key professionals, management and staff could adversely affect our revenues and net income.

We rely on key personnel to manage and operate our business, including major revenue generating functions such as our loan and deposit portfolios. The loss of key staff may adversely affect our ability to maintain and manage these portfolios effectively, which could negatively affect our revenues. In addition, loss of key personnel could result in increased recruiting, hiring, and training expenses, resulting in lower net income.

The Company is subject to extensive regulation that can limit or restrict its activities.

The Company operates in a highly regulated industry and is subject to examination, supervision, and comprehensive regulation by various agencies, including the MDF and FDIC. The Company’s regulatory compliance is costly.

The Company is also subject to capitalization guidelines established by its regulators, which require it and the Bank to maintain adequate capital to support its and the Bank’s growth.

The laws and regulations applicable to the banking industry could change at any time, and the Company cannot predict the effects of these changes on its business. To the extent activities of the Company and/or the Bank are restricted or limited by regulation or regulators’ supervisory authority, the Company’s future profitability may be adversely affected.

The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission and NASDAQ Global Market that are now and will be applicable to the Company, have increased the scope, complexity, and cost of corporate governance, reporting and disclosure practices. As a result, the Company has experienced, and may continue to experience, greater compliance cost.

Even though the Company’s common stock is currently traded on The NASDAQ National Market, the trading volume in the Company’s common stock has been low and the sale of substantial amounts of its common stock in the public market could depress the price of the Company’s common stock.

The trading volume of the Company’s common stock on The NASDAQ Global Market has been relatively low when compared with larger companies listed on The NASDAQ Global Market or other stock exchanges. Thinly traded stocks, such as the Company’s, can be more volatile than stocks trading in an active public market. Because of this, the Company stockholders may not be able to sell their shares at the volumes, prices, or times that they desire.

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The Company cannot predict the effect, if any, that future sales of its common stock in the market, or availability of shares of its common stock for sale in the market, will have on the market prices of the Company’s common stock. The Company, therefore, can give no assurance that sales of substantial amounts of its common stock in the market, or the potential for large amounts of sale in the market, would not cause the price of its common stock to decline or impair the Company’s ability to raise capital through sales of its common stock.

The market price of the Company’s common stock may fluctuate in the future, and these fluctuations may be unrelated to its performance. General market price declines or overall market volatility in the future could adversely affect the price of the Company’s common stock, and the current market price may not be indicative of future market prices.

Management’s analysis of the necessary funding for the allowance for loan loss account may be incorrect or may suddenly change resulting in lower earnings.

The funding of the allowance for loan loss account is the most significant estimate made by management in its financial reporting to shareholders and regulators. If negative changes to the performance of the Company’s loan portfolio were to occur, management may find it necessary or be required to fund the allowance for loan loss account through additional charges to the Company’s provision for loan loss expense. These changes may occur suddenly and be dramatic in nature. These changes are likely to affect the Company’s financial performance, capital levels and stock price.

If we are unable to redeem our Series A Preferred Stock after five years, the cost of this capital to us will increase substantially.

If we are unable to redeem the Series A Preferred Stock prior to January 30, 2014, the cost of this capital to us will increase substantially on that date, from 5% per annum ($850,000 annually) to 9% per annum ($1,530,000 annually). Depending on our financial condition at the time, this increase in the annual dividend rate on the Series A Preferred Stock could have a material negative effect on our earnings.

The Series A Preferred Stock impacts net income available to our common shareholders and earnings per common share, and the warrant we issued to Treasury may be dilutive to holders of our common stock.

The dividends declared on the Series A Preferred Stock will reduce the net income available to common shareholders and our earnings per common share. The Series A Preferred Stock will also receive preferential treatment in the event of liquidation, dissolution or winding up of Guaranty Federal Bancshares, Inc.  Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the warrant we issued to Treasury in conjunction with the sale to Treasury of the Series A Preferred Stock is exercised.

Item 1B.   Unresolved Staff Comments

Not applicable.

Item 2.      Properties

The following table sets forth certain information concerning the Bank’s facilities as of December 31, 2011.  All buildings owned are free of encumbrances or mortgages. The Bank’s facilities are well maintained and considered adequate for the foreseeable future.

34

				Lease
				Expiration
		Year	Owned or	(Including any
Location		Opened	Leased	renewal options)
Main Office
1341 W Battlefield Road	Springfield, Missouri  65807	1995	Owned	N/A
Operations Center
1414 W Elfindale	Springfield, Missouri  65807	2009	Owned	N/A
Banking Center Offices
1510 E Sunshine	Springfield, Missouri  65804	1979	Owned	N/A
2109 N Glenstone	Springfield, Missouri  65803	1987	Owned	N/A
4343 S National	Springfield, Missouri  65810	2000	Owned	N/A
1905 W Kearney	Springfield, Missouri  65803	2004	Leased*	2044
2155 W Republic Road	Springfield, Missouri  65807	2006	Leased*	2046
709 W Mt. Vernon	Nixa, Missouri  65714	2005	Leased*	2044
291 East Hwy CC	Nixa, Missouri  65714	2008	Leased*	2038
1701 W State Hwy J	Ozark, Missouri  65721	2008	Owned	N/A
Loan Production Offices
1001 Porter Wagoner Blvd	West Plains, Missouri  65775	2006	Leased	2011
709 N Main St	Mountain Grove, Missouri  65711	2006	Leased	2011
1100 Spur Dr.	Marshfield, Missouri  65706	2007	Leased	2012
Branson 1015 W Hwy 248	Branson, Missouri  65616	2011	Leased	2012

* Building owned with land leased.

35

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.  After reviewing pending and threatened litigation with legal counsel, management believes that as of December 31, 2011, the outcome of any such litigation will not have a material adverse effect on the Company’s results of operations.  Management is not able to predict whether any actions may or may not have a material adverse effect on its results of operations in future periods as the timing and amount of any resolution is not known.

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

Not applicable

Item  4.     Mine Safety Disclosures

Not applicable

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 2011 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 Company has a repurchase plan which was announced on August 20, 2007.  This plan authorizes the purchase by the Company of up to 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. The Company had no repurchase activity of the Company’s common stock during the fourth quarter ended December 31, 2011.

Item 6.      Selected Financial Data

The information contained on page 4 under the section captioned “Selected Consolidated Financial and Other Data” of the 2011 Annual Report is incorporated herein by reference.

36

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

The information contained on pages 5 through 16 under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2011 Annual Report is incorporated herein by reference.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

The information contained on page 12 and 13 under the sections captioned “Asset/Liability Management” and “Interest Rate Sensitivity Analysis” of the 2011 Annual Report is incorporated herein by reference.

Item  8.     Financial Statements and Supplementary Data

The financial statements set forth on pages 17 to 55 of the 2011 Annual Report and the financial information contained under the section captioned “Summary of Unaudited Quarterly Operating Results” set forth on page 16 of the 2011 Annual Report are incorporated herein by reference.

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

Not applicable.

Item 9A.   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, 2011.

Internal Control Over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting during the fourth quarter ending December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

37

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 controls 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, 2011, 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, 2011, the Company’s internal control over financial reporting was effective.

Item 9B.   Other Information

Not applicable.

38

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.

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 "Ownership of Certain Beneficial Owners and Management" in the Proxy Statement and is incorporated herein by reference.

39

Equity Compensation Plan Information

Plan category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights		(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		320,500	$	15.83		-
Equity compensation plans not  approved by security holders		31,000		18.74		160,656
Totals		351,500	$	16.09		160,656

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 the 2000 SCP and the 2001 SCP (discussed below).  Stock options awarded under the 2000 SCP are considered non-qualified for federal income tax purposes.  Officers, directors and employees of the Company and its subsidiaries are eligible under the 2000 SCP.  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 2000 SCP.  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 the 2000 SCP, the committee awarded 7,125 restricted shares of the Company’s common stock.  As of December 31, 2011, there are no restricted shares in the 2000 SCP that are not vested.  Options to acquire 17,875 shares of the Company’s common stock have been granted underthe 2000 SCP 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 the 2000 SCP (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 2000 SCP for the number of shares which were subject to such expired or forfeited awards or options.

40

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 2001 SCP are considered non-qualified for federal income tax purposes.  Officers, directors and employees of the Company and its subsidiaries are eligible to receive awards under the 2001 SCP.  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 2001 SCP.  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 the 2001 SCP, the Committee awarded 10,239 restricted shares of the Company’s common stock.  As of December 31, 2011, all restricted shares in this plan are vested.  Options to acquire 11,000 shares of the Company’s common stock have been granted under the 2001 SCP at a weighted-average exercise price of $23.23 per share.  The maximum number of shares of the Company’s Common Stock permitted to be awarded under the 2001 SCP 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 options to acquire 5,000 shares of the Company’s common stock 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, options to acquire 25,000 shares of the Company’s common stock were issued by the Company on March 9, 2004 as an employment inducement to a new officer 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.

41

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 2011 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, 2011 and 2010.

Consolidated Statements of Operations for the Years Ended December 31, 2011, 2010 and 2009.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009.

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2011, 2010 and 2009.

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:

Index to Exhibits

Exhibit Number	Exhibit Description
3(i).1	Restated Certificate of Incorporation of Guaranty Federal Bancshares, Inc. (1)
3(i).2	Certificate of Designations for the Series A Preferred Stock (21)
3(ii)	Bylaws of Guaranty Federal Bancshares, Inc., as amended (7)
4.1	Rights Agreement dated January 20, 1999 concerning the issuance of preferred stock and related rights. (2)
4.2	Form of Certificate for the Series A Preferred Stock (22)
4.3	Warrant to Purchase Common Stock (23)
	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 agreements between the Company and Barclay’s Capital, Inc. dated September 2007 and January 2008.

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)

42

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)

10.23	Letter Agreement dated January 30, 2009, including Securities Purchase Agreement – standard terms incorporated by reference therein, between the Company and the United States Department of the Treasury, with respect to the issuance and sale of Series A Preferred Stock and the Warrant (24)
10.24	Amendment and Waiver Regarding Compensation Arrangements dated January 28, 2009 by and among the Bank, the Company and its Senior Executive Officers* (25)
10.25	Written Description of 2009 Executive Incentive Compensation Annual Plan-President and Chief Executive Officer *(26)
10.26	Written Description of 2009 Executive Incentive Compensation Annual Plan-Chief Financial Officer and Chief Operating Officer *(27)
10.27	Written Description of 2009 Executive Incentive Compensation Annual Plan-Chief Lending Officer *(28)
10.28	Written Description of 2010 Executive Incentive Compensation Annual Plans-Chief Financial, Chief Lending and Chief Credit Officers (29)
10.29	Written Description of 2010 Executive Incentive Compensation Annual Plans-Chief Operating Officer (30)
10.30	Guaranty Federal Bancshares, Inc. 2010 Equity Plan *(31)
10.31	Written Description of 2011 Executive Incentive Compensation Annual Plans-Chief Executive, Chief Financial, Chief Operating, Chief Lending and Chief Credit Officers *(32)
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 Common Share” in the 2011 Annual Report.
13	Annual Report to Stockholders for the fiscal period ended December 31, 2011 (only those portions incorporated by reference in this document are deemed “filed”)

43

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
99.1	CEO Certification pursuant to 31 C.F.R 30.15
99.2	CFO Certification pursuant to 31 C.F.R. 30.15

     * Management contract or compensatory plan or arrangement

_____________________

(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.

44

(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.

(21) Filed as Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on February 3, 2009 and incorporated herein by reference.

(22) Filed as Exhibit 4.1 to the Current Report on Form 8-K filed by the Registrant on February 3, 2009 and incorporated herein by reference.

(23) Filed as Exhibit 4.2 to the Current Report on Form 8-K filed by the Registrant on February 3, 2009 and incorporated herein by reference.

(24) Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on February 3, 2009 and incorporated herein by reference.

(25) Filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on February 3, 2009 and incorporated herein by reference.

(26) Filed as Exhibit 10.23 to the Current Report on Form 8-K filed by the Registrant on February 9, 2009 and incorporated herein by reference.

(27) Filed as Exhibit 10.24 to the Current Report on Form 8-K filed by the Registrant on February 9, 2009 and incorporated herein by reference.

(28) Filed as Exhibit 10.25 to the Current Report on Form 8-K filed by the Registrant on February 9, 2009 and incorporated herein by reference.

(29) Filed as Exhibits 10.1 through 10.3 to the Current Report on Form 8-K filed by the Registrant on February 2, 2010 and incorporated herein by reference.

(30) Filed as Exhibit 10.4 to the Current Report on Form 8-K filed by the Registrant on April 26, 2010 and incorporated herein by reference.

(31) Filed as Exhibit 99.1 to the Form S-8 Registration Statement filed by the Registrant on October 29, 2010 (SEC File No. 333-170205) and incorporated herein by reference.

(32) Filed as Exhibits 10.1 through 10.5 to the Current Report on Form 8-K filed by the Registrant on February 28, 2011 and incorporated herein by reference.

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.
Dated:  March 30, 2012	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		Director
	and Director	Date:	March 30, 2012
	(Principal Executive Officer)
Date:	March 30, 2012

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 30, 2012
Date:	March 30, 2012

45

By:	/s/ John Griesemer	By:	/s/ Don M. Gibson
	John Griesemer		Don M. Gibson
	Director		Chairman of the Board and Director
Date:	March 30, 2012	Date:	March 30, 2012

By:	/s/ Gregory V. Ostergren	By:	/s/ James L. Sivils, III
	Gregory V. Ostergren		James L. Sivils, III
	Director		Director
Date:	March 30, 2012	Date:	March 30, 2012

By:	/s/ Kurt D. Hellweg	By:	/s/ Jack L. Barham
	Kurt D. Hellweg		Jack L. Barham
	Director		Director
Date:	March 30, 2012	Date:	March 30, 2012

46

EX-13

EXHIBIT 13

Guaranty Federal Bancshares, Inc.

2011 Annual Report

Investor Information

Contents President’s Message 1      Investor Information 2      Common Stock Prices & Dividends 4      Selected Consolidated Financial and         Other Data   5  Management’s Discussion and         Analysis of Financial Condition and Results of         Operations    17    Consolidated Financial Statements 55    Report of Independent Registered         Public Accounting Firm 56    Directors and Officers ANNUAL MEETING OF STOCKHOLDERS: The Annual Meeting of Stockholders of the Company will be held Wednesday, May 23, 2012 at 6:00 p.m., local time, at the Guaranty Bank Operations Center, 1414 W. Elfindale, 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: Symbol: GFED SPECIAL LEGAL COUNSEL: Husch Blackwell LLP 901 St. Louis St., Suite 1900 Springfield, MO  65806 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: BKD, LLP 910 St. Louis St. PO Box 1190 Springfield, MO  65801-1190 STOCKHOLDER AND FINANCIAL INFORMATION: Carter Peters, Executive Vice President, Chief Financial Officer 417-520-4333

1

Guaranty Federal Bancshares, Inc.

2011 Annual Report

Common Stock Prices & Dividends

The common stock of Guaranty Federal Bancshares, Inc. (the “Company”) is listed for trading on the NASDAQ Global Market under the symbol “GFED”.  As of March 13, 2012, there were approximately 1,217 holders of shares of the Company’s common stock.  At that date the Company had 6,779,800 shares of common stock issued and 2,709,471 shares of common stock outstanding.

During the years ended December 31, 2011 and 2010, the Company did not declare a cash dividend.  Any future dividends 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, regulatory limitations 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 Global Market by quarter for the years ended December 31, 2011 and 2010.

	Year ended				Year ended
	December 31, 2011				December 31, 2010
	High		Low		High		Low
Quarter ended:
March 31	$	6.85		4.60	$	5.85		5.08
June 30		6.83		4.97		6.50		5.30
September 30		5.42		4.50		6.31		5.15
December 31		6.40		4.20		5.18		4.30

2

Guaranty Federal Bancshares, Inc.

2011 Annual Report

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, 2006 and the hypothetical value of that investment as of the Company’s fiscal years ended December 31, 2007, 2008, 2009, 2010, and 2011, 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	12/31/2006		12/31/2007		12/31/2008		12/31/2009		12/31/2010		12/31/2011
Guaranty Federal Bancshares, Inc.		100		102.39		19.37		18.53		17.53		20.80
NASDAQ – Total US		100		110.55		66.30		96.34		113.70		112.76
NASDAQ Bank Index		100		77.93		59.29		48.32		54.06		47.34

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 Guaranty Bank) as of the dates indicated.  Dollar amounts are expressed in thousands except per share data.

Summary Balance Sheets	As of December 31,
	2011		2010		2009		2008		2007
ASSETS
Cash and cash equivalents	$	26,574	$	14,145	$	33,017	$	15,097	$	12,046
Investments and interest-bearing deposits		86,871		109,891		119,693		66,062		15,385
Loans receivable, net		482,664		504,665		528,503		558,327		516,242
Accrued interest receivable		2,139		2,670		2,671		2,632		3,323
Prepaids and other assets		18,051		18,982		25,249		16,573		8,613
Foreclosed assets		10,012		10,540		6,760		5,655		727
Premises and equipment		11,424		11,325		11,818		11,324		9,442
Bank owned life insurance		10,771		10,450		10,069		-		-
	$	648,506	$	682,668	$	737,780	$	675,670	$	565,778
LIABILITIES
Deposits	$	484,584	$	480,694	$	513,051	$	447,079	$	418,191
Federal Home Loan Bank advances		68,050		93,050		116,050		132,436		76,086
Securities sold under agreements to repurchase		25,000		39,750		39,750		39,750		9,849
Subordinated debentures		15,465		15,465		15,465		15,465		15,465
Other liabilities		1,172		1,668		2,053		3,627		3,500
		594,271		630,627		686,369		638,357		523,091
STOCKHOLDERS' EQUITY		54,235		52,041		51,411		37,313		42,687
	$	648,506	$	682,668	$	737,780	$	675,670	$	565,778
Supplemental Data	As of December 31,
	2011		2010		2009		2008		2007
Number of full-service offices		9		9		9		10		8
Cash dividends per common share	$	-	$	-	$	-	$	0.36	$	0.70

Summary Statements of Operations	Years ended December 31,
	2011		2010			2009			2008			2007
Interest income	$	30,376	$	32,331		$	33,873		$	36,363		$	37,972
Interest expense		9,611		14,806			20,527			19,524			20,519
Net interest income		20,765		17,525			13,346			16,839			17,453
Provision for loan losses		3,350		5,200			6,900			14,744			840
Net interest income after provision for loan losses		17,415		12,325			6,446			2,095			16,613
Noninterest income		4,485		4,279			4,240			2,316			4,729
Noninterest expense		17,361		15,530			15,161			12,760			11,842
Income (loss) before income taxes		4,539		1,074			(4,475	)		(8,349	)		9,500
Provision (credit) for income taxes		703		(57	)		(2,134	)		(2,989	)		3,400
Net income (loss)	$	3,836	$	1,131		$	(2,341	)	$	(5,360	)	$	6,100
Preferred stock dividends and discount accretion		1,126		1,126			1,032			-			-
Net income (loss) available to common shareholders	$	2,710	$	5		$	(3,373	)	$	(5,360	)	$	6,100
Basic income (loss) per common share	$	1.01	$	-		$	(1.29	)	$	(2.06	)	$	2.25
Diluted income (loss) per common share	$	1.01	$	-		$	(1.29	)	$	(2.06	)	$	2.19

4

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 that operates as a one-bank holding company. Guaranty Bank (the “Bank”) is a wholly-owned subsidiary of the Company.

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 multi-family, construction and commercial real estate loans, mortgage loans secured by one- to four-family residences, and consumer and business loans.  The Company also uses these funds to purchase government sponsored 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 commercial, one- to four-family residential and consumer 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; 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.

FINANCIAL CONDITION

From December 31, 2010 to December 31, 2011, the Company’s total assets decreased $34,162,262 (5%) to $648,505,858, liabilities decreased $36,356,343 (6%) to $594,271,011, and stockholders' equity increased $2,194,081 (4%) to $54,234,847.  The ratio of stockholders’ equity to total assets increased to 8.4% during this period, compared to 7.6% as of December 31, 2010.

From December 31, 2010 to December 31, 2011, cash and cash equivalents increased $12,428,753 (88%) to $26,574,082 and interest-bearing deposits decreased $7,197,346 (56%) to $5,587,654.

From December 31, 2010 to December 31, 2011, available-for-sale securities decreased $15,779,775 (16%), primarily due to sales, maturities and principal payments of $88.7 million offset by purchases of $73.5 million. In a series of transactions during the fourth quarter of 2011, the Company sold $28.1 million of available-for-sale securities (at a realized gain of approximately $1.3 million) in order to prepay two repurchase agreements totaling $14.75 million (at a realized loss of approximately $1.5 million).

5

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

From December 31, 2010 to December 31, 2011, held-to-maturity securities decreased $42,385 (16%) to $218,571 due to principal repayments received during the year. Stock of the Federal Home Loan Bank of Des Moines

(“FHLB”) was decreased by $1,178,300 (23%) to $3,846,900 due to lower stock requirements necessary from the reduction in FHLB advances.

From December 31, 2010 to December 31, 2011, net loans receivable decreased by $23,019,649 (5%) to $478,960,736.  During this period, permanent loans secured by both owner and non-owner occupied one to four unit residential real estate decreased $5,021,317 (5%), multi-family permanent loans decreased $972,339 (2%), construction loans decreased $18,396,348 (29%), permanent loans secured by commercial real estate decreased $1,033,427 (1%), commercial loans increased $2,660,991 (3%), and installment loans decreased $2,667,816 (11%).

As of December 31, 2011, management identified loans totaling $19,952,000 as impaired with a related allowance for loan losses of $2,122,000. Impaired loans decreased by $7,259,000 during 2011, compared to the balance of $27,211,000 at December 31, 2010.

From December 31, 2010 to December 31, 2011, the allowance for loan losses decreased $2,469,558 to $10,613,145.  In addition to the provision for loan loss of $3,350,000 recorded by the Company during the year ended December 31, 2011, loan charge-offs of specific loans (classified as nonperforming at December 31, 2010) exceeded recoveries by $5,819,558 for the year ended December 31, 2011. Also, the Company experienced a significant decline in loan balances during fiscal year 2011 that has reduced allowance for loan loss reserve requirements. The allowance for loan losses as of December 31, 2011 and December 31, 2010 was 2.17% and 2.54% of gross loans outstanding (excluding mortgage loans held for sale), respectively.  As of December 31, 2011, the allowance for loan losses was 53% of impaired loans versus 48% as of December 31, 2010.   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, 2010 to December 31, 2011, the prepaid FDIC deposit insurance premiums decreased $888,280 (30%) to $2,089,076 due to the utilization of credits for 2011 assessments.  The remaining balance consists of estimated insurance assessments to be incurred for fiscal years 2012, 2013 and 2014.

As of December 31, 2011, foreclosed assets held for sale consisted primarily of real estate related to single family residences, one commercial property located in Branson, Missouri of $1.3 million, one commercial property located in Springfield, Missouri of $1.6 million and one commercial development in northwest Arkansas of $3.2 million.

From December 31, 2010 to December 31, 2011, deposits increased $3,889,392 (1%) to $484,583,665.  During this period, checking and savings accounts increased by $24.75 million and certificates of deposit decreased by $20.8 million.  The increase in the checking and savings accounts was due to the Bank’s marketing efforts to obtain additional personal and commercial checking business.  At December 31, 2011, included in the certificates of deposit totals are $22.2 million in deposits classified as “brokered”, a decrease of $15.1 million from December 31, 2010.

From December 31, 2010 to December 31, 2011, the Company’s borrowings from the FHLB decreased $25,000,000 (27%) to $68,050,000 due to principal repayments during the period.

From December 31, 2010 to December 31, 2011, securities sold under agreements to repurchase decreased $14,750,000 (37%) to $25,000,000 due to the prepayment of two repurchase agreements.

From December 31, 2010 to December 31, 2011, stockholders’ equity (including unrealized appreciation on available-for-sale securities, net of tax) increased $2,194,081 (4%) to $54,234,847.  The Company earned net income for the year ended December 31, 2011 of $3,835,639.  In conjunction with the Series A Preferred Stock, the Company recorded $850,000 of dividends (5%) as of December 31, 2011.  On a per common share basis, stockholders’ equity increased $.56 from $13.51 as of December 31, 2010 to $14.07 as of December 31, 2011.

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

The following table shows the balances as of December 31, 2011 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.

6

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

	As of						Year Ended								Year Ended								Year Ended
	December 31, 2011						December 31, 2011								December 31, 2010								December 31, 2009
	Balance			Yield / Cost			Average Balance			Interest		Yield / Cost			Average Balance			Interest		Yield / Cost			Average Balance			Interest		Yield / Cost
ASSETS
Interest-earning:
Loans	$	493,277			5.82	%	$	506,323		$	27,424		5.42	%	$	517,133		$	28,348		5.48	%	$	548,847		$	29,695		5.41	%
Investment securities		81,283			1.74	%		91,114			2,637		2.89	%		110,149			3,477		3.16	%		102,096			3,744		3.67	%
Other assets		28,862			0.46	%		33,779			315		0.93	%		48,054			506		1.05	%		65,853			434		0.66	%
Total interest-earning		603,422			5.01	%		631,216			30,376		4.81	%		675,336			32,331		4.79	%		716,796			33,873		4.73	%
Noninterest-earning		45,084						47,031								48,148								25,294
	$	648,506					$	678,247							$	723,484							$	742,090
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts	$	21,296			0.43	%	$	20,480		$	118		0.58	%	$	17,322		$	140		0.81	%	$	13,069		$	121		0.93	%
Transaction accounts		251,563			0.92	%		252,915			2,580		1.02	%		257,629			3,968		1.54	%		215,494			6,152		2.85	%
Certificates of deposit		155,408			1.59	%		165,376			3,080		1.86	%		201,090			5,520		2.75	%		262,719			9,108		3.47	%
FHLB advances		68,050			2.26	%		85,516			2,164		2.53	%		110,613			2,989		2.70	%		112,851			3,152		2.79	%
Subordinated debentures		15,465			3.65	%		15,465			611		3.95	%		15,465			1,024		6.62	%		15,465			1,024		6.62	%
Repurchase agreements		25,000			2.14	%		37,726			1,058		2.80	%		39,750			1,166		2.93	%		39,750			970		2.44	%
Total interest-bearing		536,782			1.40	%		577,478			9,611		1.66	%		641,869			14,807		2.31	%		659,348			20,527		3.11	%
Noninterest-bearing		57,489						46,602								28,302								30,467
Total liabilities		594,271						624,080								670,171								689,815
Stockholders' equity		54,235						54,167								53,313								52,275
	$	648,506					$	678,247							$	723,484							$	742,090
Net earning balance	$	66,640					$	53,738							$	33,467							$	57,448
Earning yield less costing rate					3.61	%							3.15	%							2.48	%							1.62	%
Net interest income, and net yield spread on interest-earning assets										$	20,765		3.29	%				$	17,524		2.59	%				$	13,346		1.86	%
Ratio of interest-earning assets to interest-bearing liabilities		112	%					109	%							105	%							109	%

7

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, 2011 versus December 31, 2010												December 31, 2010 versus December 31, 2009
	Average Balance			Interest Rate			Rate &  Balance			Total			Average Balance			Interest  Rate			Rate &  Balance			Total
Interest income:
Loans	$	(593	)	$	(338	)	$	7		$	(924	)	$	(1,716	)	$	392		$	(23	)	$	(1,347	)
Investment securities		(601	)		(289	)		50			(840	)		295			(521	)		(41	)		(267	)
Other assets		(150	)		(58	)		17			(191	)		(117	)		259			(70	)		72
Net change in interest income		(1,344	)		(685	)		74			(1,955	)		(1,538	)		130			(134	)		(1,542	)
Interest expense:
Savings accounts		25			(40	)		(7	)		(22	)		39			(15	)		(5	)		19
Transaction accounts		(73	)		(1,340	)		25			(1,388	)		1,203			(2,833	)		(554	)		(2,184	)
Certificates of deposit		(980	)		(1,775	)		315			(2,440	)		(2,137	)		(1,896	)		445			(3,588	)
FHLB advances		(678	)		(190	)		43			(825	)		(62	)		(103	)		2			(163	)
Subordinated debentures		-			(413	)		-			(413	)		-			-			-			-
Repurchase agreements		(59	)		(51	)		2			(108	)		-			196			-			196
Net change in interest expense		(1,765	)		(3,809	)		378			(5,196	)		(957	)		(4,651	)		(112	)		(5,720	)
Change in net interest income	$	421		$	3,124		$	(304	)	$	3,241		$	(581	)	$	4,781		$	(22	)	$	4,178

RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2011 AND DECEMBER 31, 2010

	Average for the Year Shown
	Prime			Ten-Year Treasury			One-Year Treasury
December 31, 2011		3.25	%		2.78	%		0.18	%
December 31, 2010		3.25	%		3.22	%		0.32	%
Change in rates		0.00	%		-0.44	%		-0.14	%

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, 2011 and December 31, 2010 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 were steady and remained low for 2011 as the Federal Reserve Open Market Committee (“FOMC”) left the discount rate at 25 basis points.  As of December 31, 2011, the prime rate was 3.25% and unchanged from December 31, 2010.

Interest Income.  Total interest income decreased $1,955,538 (6%).  The average balance of interest-earning assets decreased $44,120,000 (7%) while the yield on average interest earning assets increased 2 basis points to 4.81%.

8

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

Interest on loans decreased $924,105 (3%) and the average loan receivable balance decreased $10,810,000 (2%) while the average yield decreased 6 basis points to 5.42%.  The Company’s yield on loans was negatively impacted due to the expiration of interest income being recognized on a matured interest rate swap as of June 30, 2010.  The income recognized for the year ended December 31, 2010 was approximately $509,000.Another factor that has negatively impacted the Company’s yield on loans is the high level of nonaccrual loans which has decreased to $17.0 million as of December 31, 2011, as compared to $23.0 million as of December 31, 2010.

Interest Expense.  Total interest expense decreased $5,195,911 (35%) as the average balance of interest-bearing liabilities decreased $64,391,000 (10%) while the average cost of interest-bearing liabilities decreased 65 basis points to 1.66%.

Interest expense on deposits decreased $3,849,870 (40%) during 2011 as the average balance of interest bearing deposits decreased $37,270,000 (1%) and the average interest rate paid to depositors decreased 111 basis points to 2.02%.  The primary reason for the significant decrease in the average cost of interest bearing deposits was the continued reduction throughout 2011 in the cost of money market deposits generated through an aggressive deposit campaign in the first quarter of 2009 as well as higher cost certificates of deposit maturing throughout 2011.

The average balance of FHLB advances decreased $25,097,000 (23%) while the average cost of those advances decreased 17 basis points to 2.53%.  As a result, interest expense on these advances decreased $824,289 (28%).  As of December 31, 2011, FHLB advances were 10% of total assets, compared to 14% of total assets as of December 31, 2010.

Net Interest Income.  The Company’s net interest income increased $3,240,373 (18%).  During the year ended December 31, 2011, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $53,738,000, resulting in an increase in the average net earning balance of $20,271,000 (61%), a result of management’s intent to roll off certain high priced deposits with low yielding assets.  In addition, the Company’s spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 67 basis points from 2.48% to 3.15%.

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 impaired and past due loans in the Company’s loan portfolio.  In addition, the Company considers general economic conditions and other factors related to collectability of the Company’s loan portfolio.

Based on its internal analysis and methodology, management recorded a provision for loan losses of $3,350,000 and $5,200,000 for the years ended December 31, 2011 and 2010, respectively.  Provisions recorded in 2011 are due to the Bank’s charge-offs during the year, continuing concerns over the local and national economy and over certain specific borrowers.

The Bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions.  Management of the Company anticipates the need to continue increasing the allowance for loan losses through charges to the provision for loan losses if growth in the Bank’s loan portfolio is experienced or other circumstances warrant.  Although the Bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio, there can be no assurance that future loan losses will not exceed internal estimates.  In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions.

Non-Interest Income.  Non-interest income increased $205,876 (5%).  The gain on sale of loans of $1,345,334 for 2011, compared to $1,749,857 for 2010 was due to a decline in volume associated with the Bank’s selling of fixed rate mortgage loans.  Gains on investment securities for the year ended December 31, 2011 were $1,505,915 compared to $275,125 for the year ended December 31, 2010.  The gains in fiscal 2011 were primarily the result of the sale of $28.1 million of available-for-sale securities to prepay two repurchase agreements totaling $14.75 million during the fourth quarter of 2011.  Deposit service charges decreased $237,290 (15%) due primarily to declines in overdraft charges, which is partially due to the adoption of Regulation E.  Regulation E has negatively impacted overdraft income due to new requirements on debit card and ATM transactions.  The long-term impact cannot be fully determined.  Loss on foreclosed assets increased $307,708 (62%) in 2011.  The Company continues to experience declines in real estate values on foreclosed properties held or sold by the Company.

9

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

Non-Interest Expense.  Non-interest expense increased $1,831,528 (12%).  This increase was primarily due to the prepayment penalty on repurchase agreements of $1,531,000.  Also, salaries and employee benefits increased $250,198 (3%) offsetting the decrease in FDIC deposit insurance premiums of $278,533 (23%).

The increase in compensation was due to normal salary and benefits increases for the Bank’s employees.  The overall staff increased from 170 full-time equivalent employees as of December 31, 2010 to 176 full-time equivalent employees as of December 31, 2011.

The decreases in FDIC deposit insurance premiums were driven primarily by the change in the FDIC’s assessment base and rate structure that went into effect in the second quarter of 2011.

Income Taxes.  The increase in income tax expense is a direct result of the Company’s increase in taxable income for the year ended December 31, 2011 compared to the year ended December 31, 2010.

Cash Dividends Paid.  The Company did not pay dividends on its common shares during 2011.  During 2011, the Company paid $850,000 in dividends on its preferred stock.

RESULTS OF OPERATIONS - COMPARISON OF YEAR ENDED DECEMBER 31, 2010 AND DECEMBER 31, 2009

	Average for the Year Shown
	Prime			Ten-Year Treasury			One-Year Treasury
December 31, 2010		3.25	%		3.22	%		0.32	%
December 31, 2009		3.25	%		3.26	%		0.47	%
Change in rates		0.00	%		-0.04	%		-0.15	%

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, 2010 and December 31, 2009 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 were steady and remained low for 2010 as the FOMC left the discount rate at 25 basis points.  As of December 31, 2010, the prime rate was 3.25% and unchanged from December 31, 2009.

Interest Income.  Total interest income decreased $1,541,960 (5%).  The average balance of interest-earning assets decreased $41,460,000 (6%) while the yield on average interest earning assets increased 6 basis points to 4.79%.

Interest on loans decreased $1,347,485 (5%) and the average loan receivable balance decreased $31,714,000 (6%) while the average yield increased 7 basis points to 5.48%.  The Company’s yield on loans was negatively impacted due to the expiration of interest income being recognized on a matured interest rate swap as of June 30, 2010.  The effect for the year ending December 31, 2010 was approximately $510,000.  Another factor that has negatively impacted the Company’s yield on loans is the high level of nonaccrual loans which has decreased to $23.0 million as of December 31, 2010, as compared to $34.3 million as of December 31, 2009.

Interest Expense.  Total interest expense decreased $5,719,706 (28%) as the average balance of interest-bearing liabilities decreased $17,479,000 (3%) while the average cost of interest-bearing liabilities decreased 80 basis points to 2.31%.

10

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

Interest expense on deposits decreased $5,753,057 (37%) during 2010 as the average balance of interest bearing deposits decreased $15,241,000 (3%), but the average interest rate paid to depositors decreased 111 basis points to 2.02%.  The primary reason for the significant decrease in the average cost of interest bearing deposits was the reduction at the beginning of 2010 in the cost of money market deposits generated through an aggressive deposit campaign in the first quarter of 2009.

The average balance of FHLB advances decreased $2,238,000 (2%) while the average cost of those advances decreased 9 basis points to 2.70%.  As a result, interest expense on these advances decreased $163,806 (5%).  As of December 31, 2010, FHLB advances were 14% of total assets, compared to 16% of total assets as of December 31, 2009.

Net Interest Income.  The Company’s net interest income increased $4,177,746 (31%).  During the year ended December 31, 2010, the average balance of interest-earning assets exceeded the average balance of interest-bearing liabilities by $33,467,000, resulting in a decrease in the average net earning balance of $23,981,000 (42%), a result of management’s intent to roll off certain high priced deposits with low yielding assets.  In addition, the Company’s spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities increased by 86 basis points from 1.62% to 2.48%.

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 impaired and past due loans in the Company’s loan portfolio.  In addition, the Company considers general economic conditions and other factors related to collectability of the Company’s loan portfolio.

Based on its internal analysis and methodology, management recorded a provision for loan losses of $5,200,000 and $6,900,000 for the years ended December 31, 2010 and 2009, respectively.  Provisions recorded in 2010 are due to the Bank’s charge-offs during the year, continuing concerns over the local and national economy and over certain specific borrowers.

The Bank will continue to monitor its allowance for loan losses and make future additions based on economic and regulatory conditions.  Management of the Company anticipates the need to continue increasing the allowance for loan losses through charges to the provision for loan losses if growth in the Bank’s loan portfolio is experienced or other circumstances warrant.  Although the Bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio, there can be no assurance that future loan losses will not exceed internal estimates.  In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions.

Non-Interest Income.  Non-interest income increased $39,875 (1%).  The gain on sale of loans of $1,749,857 for 2010, compared to $1,443,385 for 2009 was due to favorable mortgage rates resulting in increased volume on fixed rate mortgage loan sales.  Gains on investment securities for the year ended December 31, 2010 were $275,125 compared to $689,769 for the year ended December 31, 2009.  The gains in fiscal 2010 were the result of restructurings of the bond portfolio and to manage interest rate risk.  Deposit service charges decreased $249,665 (14%) due primarily to declines in overdraft charges, which is partially due to the adoption of Regulation E.  Regulation E has negatively impacted overdraft income due to new requirements on debit card and ATM transactions.  The long-term impact cannot be fully determined.  Loss on foreclosed assets decreased $31,015 (6%) in 2010, but remained elevated primarily due to the difficult market conditions causing sharp declines in real estate values on foreclosed properties held or sold by the Company.  Earnings from bank owned life insurance were $380,090 for 2010 compared to $69,539 for 2009.  This increase was due to the original purchase occurring on October 30, 2009.

Non-Interest Expense.  Non-interest expense increased $368,317 (2%).  This increase was primarily due to increases in salaries and employee benefits of $684,410 (9%) offsetting the decrease in FDIC deposit insurance premiums of $299,962 (20%).

The increase in compensation was due to normal salary and benefits increases for the Bank’s employees, along with a few key personnel additions in the latter half of the third quarter of 2009 and the second quarter of 2010.  The overall staff increased from 162 full-time equivalent employees as of December 31, 2009 to 170 full-time equivalent employees as of December 31, 2010.

11

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

Decreases in FDIC deposit insurance premiums were due to the special assessment of $341,000 that was incurred as of June 30, 2009 and paid on September 30, 2009.

Income Taxes.  The increase in income tax expense is a direct result of the Company’s increase in taxable income for the year ended December 31, 2010 compared to the taxable loss for the year ended December 31, 2009.

Cash Dividends Paid.  The Company did not pay dividends on its common shares during 2010.  During 2010, the Company paid $850,000 in dividends on its preferred stock.

ASSET / LIABILITY MANAGEMENT

The responsibility of managing and executing the Bank’s Asset Liability Policy falls to the Bank’s Asset/ Liability Committee (ALCO.)  ALCO seeks to manage interest rate risk so as to capture the highest net interest income, and to stabilize that net interest income, through changing interest rate environments.  Management attempts to position the Bank’s instrument repricing characteristics in line with probable rate movements in order to minimize the impact of changing interest rates on the Bank’s net interest income.  Since the relative spread between financial assets and liabilities is constantly changing, the Bank’s current net interest income may not be an indication of future net interest income.

The Bank has continued to emphasize the origination of commercial business, home equity, consumer and adjustable-rate, one- to four-family residential loans while originating fixed-rate, one- to four-family residential loans primarily for immediate resale in the secondary market.  Management continually monitors the loan portfolio for the purpose of product diversification and over concentration.

The Bank constantly monitors its deposits in an effort to prohibit them from adversely impacting the Bank’s 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, 2011 and 2010, the Bank’s savings accounts, checking accounts, and money market deposit accounts totaled $329,174,830 or 68% of its total deposits and $304,499,807 or 63% of total deposits, respectively.  The weighted average rate paid on these accounts decreased 39 basis points from 0.96% on December 31, 2010 to 0.56% on December 31, 2011 primarily due to the Bank’s efforts to reprice its money market deposit accounts during 2011.

INTEREST RATE SENSITIVITY ANALYSIS

The following table sets forth as of December 31, 2011, management’s estimates of the projected changes in Economic Value of Equity (“EVE”) in the event of 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		62,123		(4,101	)		-6	%		9.71	%		-0.35	%
	+200		63,408		(2,816	)		-4	%		9.82	%		-0.24	%
	+100		64,769		(1,455	)		-2	%		9.94	%		-0.12	%
NC			66,224		-			0	%		10.06	%		0.00	%
	-100		67,870		1,646			2	%		10.21	%		0.15	%
	-200		72,049		5,825			9	%		10.74	%		0.68	%

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.  All EVE and earnings projections are based on a point in time static balance sheet.

12

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

Management cannot predict future interest rates or their effect on the Bank’s EVE in the future.  Certain shortcomings are inherent in the method of analysis presented in the computation of EVE.  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 floating-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

Liquidity refers to the ability to manage future cash flows to meet the needs of depositors and borrowers and fund operations.  Maintaining appropriate levels of liquidity allows the Company to have sufficient funds available for customer demand for loans, withdrawal of deposit balances and maturities of deposits and other liabilities.  The Company’s primary sources of liquidity include cash and cash equivalents, customer deposits and FHLB borrowings.  The Company also has established borrowing lines available from the Federal Reserve Bank which is considered a secondary source 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 $26,574,082 as of December 31, 2011 and $14,145,329 as of December 31, 2010, representing an increase of $12,428,753.  The Company’s interest-bearing deposits totaled $5,587,654 as of December 31, 2011 and $12,785,000 as of December 31, 2010.  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.   The Bank has $87,409,324 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 25% of assets, the Bank has the ability to borrow an additional $81 million from the FHLB, as of December 31, 2011.  Based on existing collateral, the Bank has the ability to borrow $37 million from the Federal Reserve Bank as of December 31, 2011.  The Bank plans to maintain its FHLB and Federal Reserve Bank borrowings to a level that will provide a borrowing capacity sufficient to provide for contingencies.  Management has many policies and controls in place to attempt to manage the appropriate level of liquidity.

The Company’s Tier 1 capital position of $68,419,000 is 10.4% of average assets as of December 31, 2011. The Company has an excess of $42,163,000, $47,664,000, and $33,437,000 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.

With regards to the securities sold to the Treasury under the Capital Purchase Program, if the Company is unable to redeem the Series A Preferred Stock within five years of its issuance, the cost of capital to the Company will increase significantly from 5% per annum ($850,000 annually) to 9% per annum ($1,530,000 annually).  Depending on the Company’s financial condition at the time, the increase in the annual dividend rate on the Series A Preferred Stock could have a material adverse effect on the Company’s liquidity and net income available to common stockholders.

13

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

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, 2011 and 2010, the Bank had outstanding commitments to originate loans of approximately $10,955,000 and $7,949,000, 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, 2011 and 2010, unused lines of credit to borrowers aggregated approximately $36,931,000 and $50,473,000 for commercial lines and $17,625,000 and $17,525,000 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 $14,233,000 and $12,261,000 as of December 31, 2011 and 2010, respectively.  The commitments extend over varying periods of time.

In connection with the Company’s issuance of the Trust Preferred 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 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.

AGGREGATE CONTRACTUAL OBLIGATIONS

The following table summarizes the Company’s fixed and determinable contractual obligations by payment date as of December 31, 2011.  Dollar amounts are expressed in thousands.

			One Year		One to		Three to		More than
Contractual Obligations	Total		or less		Three Years		Five Years		Five Years
Deposits without stated maturity	$	329,175	$	329,175	$	-	$	-	$	-
Time and brokered certificates of deposit		155,409		87,409		56,043		11,892		65
Other borrowings		25,000		-		-		-		25,000
Federal Home Loan Bank advances		68,050		-		15,700		250		52,100
Subordinated debentures		15,465		-		-		-		15,465
Operating leases		484		139		196		114		36
Purchase obligations		50		50		-		-		-
Other long term obligations		231		231		-		-		-
Total	$	593,864	$	417,004	$	71,939	$	12,256	$	92,666

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.

14

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

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 judgments and estimates, the Company’s financial results could change, and such change could be material to the Company.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and fair values.  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 of the notes to consolidated financial statements in this report.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In April 2011, the Financial Accounting Standards Board (FASB) issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 were effective for the Company’s reporting period ended September 30, 2011. The adoption of ASU No. 2011-02 did not have a material impact on the Company’s consolidated financial statements.

In May 2011, FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”  The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The adoption of ASU No. 2011-04 is not expected to have a material effect on the Company’s consolidated financial statements.

15

Guaranty Federal Bancshares, Inc.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

In June 2011, FASB issued ASU 2011-05, “Other Comprehensive Income (Topic 220): Presentation of Comprehensive Income.”The ASU amends Topic 220 to require an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income (“OCI”) either in a single continuous statement of comprehensive income or in two separate but consecutive statements. An entity is also required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments do not change items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, only the format for presentation. The requirements are effective during interim and annual periods beginning after December 15, 2011. The amendments should be applied retrospectively. On October 21, 2011, the FASB exposed a proposed deferral of the requirement that companies present reclassification adjustments for each component of OCI in both net income and OCI on the face of the financial statements. Early adoption is permitted. The adoption of ASU No.2011-05 is not expected to have a material effect on the Company’s consolidated financial statements.

 SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS

	Year Ended December 31, 2011, Quarter ended
	Mar-11		Jun-11		Sep-11		Dec-11
Interest income	$	7,530,118	$	7,641,494	$	7,729,579	$	7,474,747
Interest expense		2,686,311		2,540,220		2,398,198		1,986,239
Net interest income		4,843,807		5,101,274		5,331,381		5,488,508
Provision for loan losses		900,000		1,000,000		900,000		550,000
Gain on loans and investment securities		281,904		364,229		452,552		1,752,564
Other noninterest income, net		475,995		350,970		543,668		263,347
Noninterest expense		4,152,224		3,918,807		3,884,544		5,405,880
Income before income taxes		549,482		897,666		1,543,057		1,548,539
Provision for income taxes		26,520		108,124		327,427		241,034
Net income		522,962		789,542		1,215,630		1,307,505
Preferred stock dividends and discount accretion		281,391		281,390		281,391		281,391
Net income available to common shareholders	$	241,571	$	508,152	$	934,239	$	1,026,114
Basic income per common share	$	0.09	$	0.19	$	0.35	$	0.38
Diluted income per common share	$	0.09	$	0.19	$	0.35	$	0.38

	Year Ended December 31, 2010, Quarter ended
	Mar-10		Jun-10		Sep-10		Dec-10
Interest income	$	8,265,282	$	8,228,615	$	7,845,909	$	7,991,670
Interest expense		4,155,805		3,806,088		3,659,835		3,185,151
Net interest income		4,109,477		4,422,527		4,186,074		4,806,519
Provision for loan losses		950,000		950,000		850,000		2,450,000
Gain on loans and investment securities		458,592		372,835		513,553		680,002
Other noninterest income, net		715,780		670,094		647,898		220,599
Noninterest expense		3,756,018		3,878,811		3,826,701		4,068,397
Income (loss) before income taxes		577,831		636,645		670,824		(811,277	)
Provision (credit) for income taxes		101,965		144,142		148,620		(451,475	)
Net income (loss)		475,866		492,503		522,204		(359,802	)
Preferred stock dividends and discount accretion		281,391		281,390		281,391		281,391
Net income (loss) available to common shareholders	$	194,475	$	211,113	$	240,813	$	(641,193	)
Basic income (loss) per common share	$	0.07	$	0.08	$	0.09	$	(0.24	)
Diluted income (loss) per common share	$	0.07	$	0.08	$	0.09	$	(0.24	)

16

Guaranty Federal Bancshares, Inc.

Consolidated Balance Sheets

December 31, 2011 and 2010

	December 31,			December 31,
	2011			2010
ASSETS
Cash and due from banks	$	7,200,969		$	2,968,669
Interest-bearing deposits in other financial institutions		19,373,113			11,176,660
Cash and cash equivalents		26,574,082			14,145,329
Interest-bearing deposits		5,587,654			12,785,000
Available-for-sale securities		81,064,878			96,844,653
Held-to-maturity securities		218,571			260,956
Stock in Federal Home Loan Bank, at cost		3,846,900			5,025,200
Mortgage loans held for sale		3,702,849			2,685,163
Loans receivable, net of allowance for loan losses of December 31, 2011 and 2010 - $10,613,145 and $13,082,703, respectively		478,960,736			501,980,385
Accrued interest receivable:
Loans		1,752,786			2,058,576
Investments and interest-bearing deposits		386,534			611,698
Prepaid expenses and other assets		7,116,067			6,161,861
Prepaid FDIC deposit insurance premiums		2,089,076			2,977,356
Foreclosed assets held for sale		10,012,035			10,539,867
Premises and equipment		11,423,822			11,324,685
Bank owned life insurance		10,770,887			10,449,630
Income taxes receivable		512,666			-
Deferred income taxes		4,486,315			4,817,761
	$	648,505,858		$	682,668,120
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits	$	484,583,665		$	480,694,273
Federal Home Loan Bank advances		68,050,000			93,050,000
Securities sold under agreements to repurchase		25,000,000			39,750,000
Subordinated debentures		15,465,000			15,465,000
Advances from borrowers for taxes and insurance		156,509			134,002
Accrued expenses and other liabilities		496,956			655,404
Accrued interest payable		518,881			878,675
		594,271,011			630,627,354
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS' EQUITY
Capital Stock:
Series A preferred stock, $0.01 par value; authorized 2,000,000 shares; issued and outstanding December 31, 2011 and 2010 - 17,000 shares		16,425,912			16,150,350
Common stock, $0.10 par value; authorized 10,000,000 shares; issued December 31, 2011 and 2010 - 6,779,800 shares;		677,980			677,980
Common stock warrants; December 31, 2011 and 2010 - 459,459 shares		1,377,811			1,377,811
Additional paid-in capital		58,333,614			58,505,046
Unearned ESOP shares		(204,930	)		(432,930	)
Retained earnings, substantially restricted		38,456,991			35,746,914
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, net of income taxes; December 31, 2011 and 2010 - $464,723 and $1,082,399, respectively		791,285			1,843,004
		115,858,663			113,868,175
Treasury stock, at cost; December 31, 2011 and December 31, 2010 -  4,072,156 and 4,080,220 shares, respectively		(61,623,816	)		(61,827,409	)
		54,234,847			52,040,766
	$	648,505,858		$	682,668,120

See Notes to Consolidated Financial Statements

17

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Operations

Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
Interest Income
Loans	$	27,423,897		$	28,348,002		$	29,695,487
Investment securities		2,636,799			3,476,721			3,743,688
Other		315,242			506,753			434,261
		30,375,938			32,331,476			33,873,436
Interest Expense
Deposits		5,778,263			9,628,133			15,381,190
Federal Home Loan Bank advances		2,164,259			2,988,548			3,152,354
Subordinated debentures		610,929			1,023,783			1,023,783
Securities sold under agreements to repurchase		1,057,517			1,166,415			969,258
		9,610,968			14,806,879			20,526,585
Net Interest Income		20,764,970			17,524,597			13,346,851
Provision for Loan Losses		3,350,000			5,200,000			6,900,000
Net Interest Income After
Provision for Loan Losses		17,414,970			12,324,597			6,446,851
Noninterest Income
Service charges		1,315,333			1,552,623			1,802,288
Other fees		28,282			33,705			52,233
Gain on investment securities		1,505,915			275,125			689,769
Gain on sale of loans		1,345,334			1,749,857			1,443,385
Loss on foreclosed assets		(800,250	)		(492,542	)		(523,557	)
Other income		1,090,615			1,160,585			775,360
		4,485,229			4,279,353			4,239,478
Noninterest Expense
Salaries and employee benefits		8,886,713			8,636,515			7,952,105
Occupancy		1,660,802			1,704,790			1,806,100
FDIC deposit insurance premiums		942,056			1,220,589			1,520,551
Data processing		529,940			454,611			423,205
Advertising		300,000			300,000			316,666
Prepayment penalty on repurchase agreements		1,531,000			-			-
Other expense		3,510,944			3,213,422			3,142,983
		17,361,455			15,529,927			15,161,610
Income (Loss) Before Income Taxes		4,538,744			1,074,023			(4,475,281	)
Provision (Credit) for Income Taxes		703,105			(56,748	)		(2,134,563	)
Net Income (Loss)	$	3,835,639		$	1,130,771		$	(2,340,718	)
Preferred Stock Dividends and Discount Accretion		1,125,563			1,125,563			1,031,766
Net Income (Loss) Available to Common Shareholders	$	2,710,076		$	5,208		$	(3,372,484	)
Basic Income (Loss) Per Common Share	$	1.01		$	-		$	(1.29	)
Diluted Income (Loss) Per Common Share	$	1.01		$	-		$	(1.29	)

See Notes to Consolidated Financial Statements

18

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	3,835,639		$	1,130,771		$	(2,340,718	)
Items not requiring (providing) cash:
Deferred income taxes		949,122			(217,737	)		701,199
Depreciation		717,222			826,440			965,504
Provision for loan losses		3,350,000			5,200,000			6,900,000
Gain on sale of loans and investment securities		(2,851,249	)		(2,024,982	)		(2,133,154	)
Loss on sale of foreclosed assets		520,255			341,376			285,010
Accretion of gain on termination of interest rate swaps		-			(508,746	)		(1,017,492	)
Amortization of deferred income, premiums and discounts, net		529,016			587,769			352,345
Stock award plans		186,654			109,386			95,268
Origination of loans held for sale		(58,776,634	)		(81,958,753	)		(78,535,230	)
Proceeds from sale of loans held for sale		59,104,282			84,488,527			78,447,333
Release of ESOP shares		126,737			100,014			121,219
Increase in cash surrender value of bank owned life insurance		(321,257	)		(380,090	)		(69,540	)
Changes in:
Prepaid FDIC deposit insurance premiums		888,280			1,158,519			(4,135,875	)
Accrued interest receivable		530,954			1,289			(39,113	)
Prepaid expenses and other assets		(4,120	)		569,548			767,817
Accrued expenses and other liabilities		(349,891	)		(551,779	)		(214,248	)
Income taxes payable		(681,017	)		3,887,321			(3,333,407	)
Net cash provided by (used in) operating activities		7,753,993			12,758,873			(3,183,082	)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		14,093,653			7,493,436			18,959,641
Principal payments on held-to-maturity securities		42,385			211,827			83,682
Principal payments on available-for-sale securities		15,633,730			13,855,527			13,087,448
Purchase of available-for-sale securities		(73,537,207	)		(55,262,990	)		(82,769,479	)
Proceeds from sales of available-for-sale securities		46,274,707			17,516,564			25,356,214
Proceeds from maturities of available-for-sale securities		26,775,000			28,956,500			8,500,000
Purchase of premises and equipment		(816,359	)		(333,609	)		(1,459,557	)
Purchase of tax credit investments		(950,086	)		-			(3,433,867	)
Purchase of interest bearing deposits		-			-			(34,605,802	)
Proceeds from maturities of interest bearing deposits		7,197,346			5,000,000			18,045,000
Purchase of bank owned life insurance		-			-			(10,000,000	)
Redemption of Federal Home Loan Bank stock		1,178,300			951,400			753,500
Capitalized costs on foreclosed assets held for sale		(102,804	)		(737,336	)		(122,162	)
Insurance proceeds on foreclosed assets held for sale		-			637,427			-
Proceeds from sale of foreclosed assets held for sale		5,627,426			6,295,990			4,268,852
Net cash provided by (used in) investing activities		41,416,091			24,584,736			(43,336,530	)

See Notes to Consolidated Financial Statements

19

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Cash Flows (continued)

Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings accounts	$	24,675,024		$	5,504,374		$	160,490,510
Net decrease in certificates of deposit		(20,785,632	)		(37,861,203	)		(94,518,877	)
Net decrease in securities sold under agreements to repurchase		(14,750,000	)		-			-
Proceeds from FHLB advances		-			-			5,000,000
Repayments of FHLB advances		(25,000,000	)		(23,000,000	)		(21,386,000	)
Repayments of notes payable		-			-			(1,435,190	)
Advances from borrowers for taxes and insurance		22,507			(1,608	)		(30,717	)
Proceeds from issuance preferred stock and warrants		-			-			17,000,000
Common and preferred cash dividends paid		(850,000	)		(850,000	)		(672,917	)
Treasury stock purchased		(53,230	)		(6,540	)		(7,515	)
Net cash provided by (used in) financing activities		(36,741,331	)		(56,214,977	)		64,439,294
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		12,428,753			(18,871,368	)		17,919,682
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		14,145,329			33,016,697			15,097,015
CASH AND CASH EQUIVALENTS, END OF YEAR	$	26,574,082		$	14,145,329		$	33,016,697
Supplemental Cash Flows Information
Real estate acquired in settlement of loans	$	5,517,045		$	17,564,615		$	5,536,091
Interest paid	$	9,970,762		$	15,326,326		$	20,705,742
Income taxes paid, net of (refunds)	$	435,000		$	(3,726,331	)	$	496,661
Sale and financing of foreclosed assets held for sale	$	1,461,378		$	7,246,939		$	315,000

See Notes to Consolidated Financial Statements

20

Guaranty Federal Bancshares, Inc.

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2011, 2010 and 2009

	Preferred Stock		Common Stock		Common Stock  Warrants		Additional Paid-In  Capital			Unearned ESOP  Shares			Treasury Stock			Retained Earnings			Accumulated Other  Comprehensive  Income			Total
Balance, January 1, 2009	$	-	$	677,980	$	-	$	58,535,159		$	(888,930	)	$	(61,813,354	)	$	39,114,189		$	1,687,858		$	37,312,902
Comprehensive income (loss)
Net loss		-		-		-		-			-			-			(2,340,718	)		-			(2,340,718	)
Change in unrealized appreciation on available-for-sale securities and interest rate swaps, net of income taxes of $5,061		-		-		-		-			-			-			-			8,644			8,644
Total comprehensive loss																							(2,332,074	)
Preferred stock issued		15,622,189		-		-		-			-			-			-			-			15,622,189
Common stock warrants issued		-		-		1,377,811		-			-			-			-			-			1,377,811
Preferred stock discount accretion		252,599		-		-		-			-			-			(252,599	)		-			-
Preferred stock dividends		-		-		-		-			-			-			(779,167	)		-			(779,167	)
Stock award plans		-		-		-		95,268			-			-			-			-			95,268
Release of ESOP shares		-		-		-		(106,781	)		228,000			-			-			-			121,219
Treasury stock purchased		-		-		-		-			-			(7,515	)		-			-			(7,515	)
Balance, December 31, 2009		15,874,788		677,980		1,377,811		58,523,646			(660,930	)		(61,820,869	)		35,741,705			1,696,502			51,410,633
Comprehensive income
Net income		-		-		-		-			-			-			1,130,771			-			1,130,771
Change in unrealized appreciation on available-for-sale securities and interest rate swaps, net of income taxes of $86,041		-		-		-		-			-			-			-			146,502			146,502
Total comprehensive income																							1,277,273
Preferred stock discount accretion		275,562		-		-		-			-			-			(275,562	)		-			-
Preferred stock dividends (5%)		-		-		-		-			-			-			(850,000	)		-			(850,000	)
Stock award plans		-		-		-		109,386			-			-			-			-			109,386
Release of ESOP shares		-		-		-		(127,986	)		228,000			-			-			-			100,014
Treasury stock purchased		-		-		-		-			-			(6,540	)		-			-			(6,540	)
Balance, December 31, 2010		16,150,350		677,980		1,377,811		58,505,046			(432,930	)		(61,827,409	)		35,746,914			1,843,004			52,040,766
Comprehensive income
Net income		-		-		-		-			-			-			3,835,639			-			3,835,639
Change in unrealized appreciation on available-for-sale securities, net of income taxes of $617,676		-		-		-		-			-			-			-			(1,051,719	)		(1,051,719	)
Total comprehensive income																							2,783,920
Preferred stock discount accretion		275,562		-		-		-			-			-			(275,562	)		-			-
Preferred stock dividends (5%)		-		-		-		-			-			-			(850,000	)		-			(850,000	)
Stock award plans		-		-		-		(70,169	)		-			256,823			-			-			186,654
Release of ESOP shares		-		-		-		(101,263	)		228,000			-			-			-			126,737
Treasury stock purchased		-		-		-		-			-			(53,230	)		-			-			(53,230	)
Balance, December 31, 2011	$	16,425,912	$	677,980	$	1,377,811	$	58,333,614		$	(204,930	)	$	(61,623,816	)	$	38,456,991		$	791,285		$	54,234,847

See Notes to Consolidated Financial Statements

21

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

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

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, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and fair values.  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

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost.  Securities not classified as held to maturity are classified as “available-for-sale” and are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.  Purchase premiums are recognized in interest income using the interest method over the terms of the securities.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Effective April 1, 2009, the Company adopted new accounting guidance related to recognition and presentation of other-than-temporary impairment (ASC 320-10).  When the Company does not intend to sell a debt security, and it is more likely than not, the Company will not have to sell the security before a recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.  For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

As a result of this guidance, the Company would recognize in its consolidated statements of operations the full impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis.  For available-for-sale and held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.

22

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Prior to the adoption of the recent accounting guidance on April 1, 2009, management considered, in determining whether other-than-temporary impairment exists, (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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 a 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 and the carrying amounts of the loans sold, and are recorded in noninterest income.  Direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Loans

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.  Loan origination fees net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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.

The allowance consists of allocated and general components.  The allocated component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Bank’s internal risk rating process.  Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

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 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.

23

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

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 less cost to sell 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.  The estimated useful lives for each major depreciable classification of premises and equipment are as follows:

Buildings and improvements	35-40 years
Furniture and fixtures and vehicles	3-10 years

Bank Owned Life Insurance

Bank owned life insurance policies are carried at their cash surrender value.  The Company recognizes tax-free income from the periodic increases in cash surrender value of these policies and from death benefits.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes).  The income tax accounting guidance results in two components of income tax expense: current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  The Company determines deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.  Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

24

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiary.  With a few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2008.

Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.  At December 31, 2011 and 2010, the Company had no cash equivalents.

Pursuant to legislation enacted in 2010, the FDIC fully insures all noninterest-bearing transaction accounts through December 31, 2012, at all FDIC-insured institutions.  The FDIC’s insurance limits for interest-bearing cash accounts were permanently increased to $250,000 effective July 21, 2010.

Restriction on Cash and Due From Banks

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.  The reserve required on December 31, 2011 and 2010, was $7,899,000 and $5,933,000, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), net of applicable income taxes.  Other comprehensive income (loss) includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income, unrealized appreciation (depreciation) on held-to-maturity securities for which a portion of an other-than-temporary impairment has been recognized in income, and unrealized gains on interest rate swaps.

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, 2011 and 2010, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2011, 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.

25

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, 2011
Tier 1 (core) capital, and ratio to adjusted total assets
Company	$	68,419		10.4	%	$	26,256		4.0	%		n/a		n/a
Bank	$	66,834		10.2	%	$	26,249		4.0	%	$	32,811		5.0	%
Tier 1 (core) capital, and ratio to risk-weighted assets
Company	$	68,419		13.2	%	$	20,755		4.0	%		n/a		n/a
Bank	$	66,834		12.9	%	$	20,730		4.0	%	$	31,095		6.0	%
Total risk-based capital, and ratio to risk-weighted assets
Company	$	74,948		14.4	%	$	41,511		8.0	%		n/a		n/a
Bank	$	73,363		14.2	%	$	41,460		8.0	%	$	51,825		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, 2010
Tier 1 (core) capital, and ratio to adjusted total assets
Company	$	65,174		9.3	%	$	27,992		4.0	%		n/a		n/a
Bank	$	63,306		9.1	%	$	27,878		4.0	%	$	34,847		5.0	%
Tier 1 (core) capital, and ratio to risk-weighted assets
Company	$	65,174		12.1	%	$	21,629		4.0	%		n/a		n/a
Bank	$	63,306		11.7	%	$	21,582		4.0	%	$	32,374		6.0	%
Total risk-based capital, and ratio to risk-weighted assets
Company	$	71,986		13.3	%	$	43,258		8.0	%		n/a		n/a
Bank	$	70,118		13.0	%	$	43,165		8.0	%	$	53,956		10.0	%

The amount of dividends that the Company and Bank may pay is subject to various regulatory limitations.  As of December 31, 2011 and 2010 the Company and Bank exceeded their minimum capital requirements.  The Bank may not pay dividends which would reduce capital below the minimum requirements shown above.

26

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

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.

Reclassifications

Certain reclassifications have been made to the 2010 financial statements to conform to the 2011 financial statement presentation.  These reclassifications had no effect on net income.

General Litigation

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.  After reviewing pending and threatened litigation with legal counsel, management believes that as of December 31, 2011, the outcome of any such litigation will not have a material adverse effect on the Company’s results of operations.

Earnings Per Common Share

The computation for earnings per common share for the years ended December 31, 2011, 2010 and 2009 is as follows:

	Year Ended		Year Ended		Year Ended
	December 31, 2011		December 31, 2010		December 31, 2009
Net income (loss) available to common shareholders	$	2,710,076	$	5,208	$	(3,372,484	)
Average common shares outstanding		2,675,654		2,644,355		2,622,895
Effect of dilutive securities		826		-		-
Average diluted shares outstanding		2,676,480		2,644,355		2,622,895
Basic income (loss) per common share	$	1.01	$	0.00	$	(1.29	)
Diluted income (loss) per common share	$	1.01	$	0.00	$	(1.29	)

Stock options to purchase 351,500 and 365,579 shares of common stock were outstanding during the years ended December 31, 2011 and 2010, respectively, but were not included in the computation of diluted income per common share because their exercise price was greater than the average market price of the common shares.

Stock warrants to purchase 459,459 shares of common stock were outstanding during the year ended December 31, 2011 and were included in the computation of diluted income per common share because their exercise price was less than the average market price of the common shares during the period.  These warrants were also outstanding during 2010 and 2009, but were not included in the computation of diluted income per common share because their exercise price was greater than the average market price of the common shares.

Due to the Company’s net loss for the year ended December 31, 2009, no potentially dilutive shares were included in the computation of diluted earnings per share.

27

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 2:              SECURITIES

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities classified as available-for-sale are as follows:

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  (Losses)			Approximate  Fair Value
As of December 31, 2011
Equity Securities	$	102,212	$	-	$	(39,950	)	$	62,262
Debt Securities:
U. S. government agencies		34,668,833		122,093		(64,264	)		34,726,662
U. S. treasuries		2,037,168		5,469		-			2,042,637
Municipals		4,049,701		138,736		(44,038	)		4,144,399
Government sponsored  mortgage-backed securities		38,950,955		1,148,789		(10,826	)		40,088,918
	$	79,808,869	$	1,415,087	$	(159,078	)	$	81,064,878

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  (Losses)			Approximate  Fair Value
As of December 31, 2010
Equity Securities	$	102,212	$	7,089	$	(31,381	)	$	77,920
Debt Securities:
U. S. government agencies		27,409,482		222,014		(128,414	)		27,503,082
Government sponsored  mortgage-backed securities		66,407,555		2,865,745		(9,649	)		69,263,651
	$	93,919,249	$	3,094,848	$	(169,444	)	$	96,844,653

Maturities of available-for-sale debt securities as of December 31, 2011:

	Amortized  Cost		Approximate  Fair Value
1-5 years	$	26,394,204	$	26,473,064
5-10 years		11,346,351		11,347,402
After ten years		3,015,147		3,093,232
Government sponsored mortgage-backed securities not due on a single maturity date		38,950,955		40,088,918
	$	79,706,657	$	81,002,616

28

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The amortized cost and approximate fair values, together with gross unrealized gains and losses, 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, 2011
Debt Securities:
Government sponsored mortgage-backed securities	$	218,571	$	17,003	$	-	$	235,574
	$	218,571	$	17,003	$	-	$	235,574

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  (Losses)		Approximate Fair Value
As of December 31, 2010
Debt Securities:
Government sponsored mortgage-backed securities	$	260,956	$	20,828	$	-	$	281,784
	$	260,956	$	20,828	$	-	$	281,784

Maturities of held-to-maturity securities as of December 31, 2011:

	Amortized  Cost		Approximate  Fair Value
Government sponsored mortgage-backed   securities not due on a single maturity date	$	218,571	$	235,574
	$	218,571	$	235,574

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $60,222,048 and $62,981,616 as of December 31, 2011 and 2010, respectively.

Gross gains of $1,505,915, $275,125 and $689,769 and gross losses of $0, $0 and $0 resulting from sale of available-for-sale securities were realized for the years ended December 31, 2011, 2010 and 2009, respectively.  The tax effect of these net gains was $557,188, $101,796 and $255,215 in 2011, 2010 and 2009, respectively.

The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary.  Certain investment securities are valued less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates, or declines in stock prices of equity securities. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. It is management’s intent to hold the debt securities to maturity or until recovery of the unrealized loss. Should the impairment of any of these debt 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, to the extent the loss is related to credit issues, and to other comprehensive income to the extent the decline on debt securities is related to other factors and the Company does not intend to sell the security prior to recovery of the unrealized loss.

29

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

                No securities were written down for other-than-temporary impairment during the years ended December 31, 2011, 2010 and 2009.

Certain other investments in debt and 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, 2011 and 2010, was $29,766,876 and $5,386,231, respectively, which is approximately 37% and 6% of the Company’s investment portfolio.  These declines primarily resulted from changes in market interest rates and failure of certain investments to meet projected earnings targets.

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, 2011 and 2010.

	December 31, 2011
	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	$	26,316	$	(4,361	)	$	35,946	$	(35,589	)	$	62,262	$	(39,950	)
U. S. government agencies		21,351,961		(64,264	)		-		-			21,351,961		(64,264	)
Municipals		1,045,521		(44,038	)		-		-			1,045,521		(44,038	)
Government sponsored mortgage-backed securities		7,307,132		(10,826	)		-		-			7,307,132		(10,826	)
	$	29,730,930	$	(123,489	)	$	35,946	$	(35,589	)	$	29,766,876	$	(159,078	)

	December 31, 2010
	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	$	-	$	-		$	40,153	$	(31,381	)	$	40,153	$	(31,381	)
U. S. government agencies		4,374,049		(128,414	)		-		-			4,374,049		(128,414	)
Government sponsored mortgage-backed securities		972,029		(9,649	)		-		-			972,029		(9,649	)
	$	5,346,078	$	(138,063	)	$	40,153	$	(31,381	)	$	5,386,231	$	(169,444	)

30

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 3:              LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at December 31, 2011 and 2010 include:

	December 31,
	2011			2010
Real estate - residential mortgage:
One to four family units	$	98,030,718		$	103,052,035
Multi-family		43,165,695			44,138,034
Real estate - construction		44,912,049			63,308,397
Real estate - commercial		194,856,374			195,889,801
Commercial loans		88,088,580			85,427,589
Consumer and other loans		20,758,027			23,425,843
Total loans		489,811,443			515,241,699
Less:
Allowance for loan losses		(10,613,145	)		(13,082,703	)
Deferred loan fees/costs, net		(237,562	)		(178,611	)
Net loans	$	478,960,736		$	501,980,385

Classes of loans by aging at December 31, 2011 and 2010 were as follows:

As of December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	5	$	206	$	33	$	244	$	97,787	$	98,031	$	-
Multi-family		-		-		-		-		43,166		43,166		-
Real estate - construction		728		-		157		885		44,027		44,912		-
Real estate - commercial		167		-		1,193		1,360		193,496		194,856		-
Commercial loans		32		-		548		580		87,508		88,088		-
Consumer and other loans		14		18		20		52		20,706		20,758		-
Total	$	946	$	224	$	1,951	$	3,121	$	486,690	$	489,811	$	-

As of December 31, 2010
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	1,158	$	562	$	1,591	$	3,311	$	99,741	$	103,052	$	-
Multi-family		-		-		-		-		44,138		44,138		-
Real estate - construction		1,969		89		311		2,369		60,939		63,308		-
Real estate - commercial		-		234		-		234		195,656		195,890		-
Commercial loans		2,571		-		2,021		4,592		80,836		85,428		-
Consumer and other loans		100		25		29		154		23,272		23,426		-
Total	$	5,798	$	910	$	3,952	$	10,660	$	504,582	$	515,242	$	-

31

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Nonaccruing loans are summarized as follows:

	December 31,
	2011		2010
Real estate - residential mortgage:
One to four family units	$	1,671,245	$	3,119,760
Multi-family		-		-
Real estate - construction		8,514,187		8,934,666
Real estate - commercial		4,082,416		2,980,117
Commercial loans		2,377,081		7,743,116
Consumer and other loans		357,060		234,475
Total	$	17,001,989	$	23,012,134

Activity in the allowance for loan losses was as follows:

	Years ended
	December 31,
	2011			2010			2009
Balance, beginning of year	$	13,082,703		$	14,076,123		$	16,728,492
Provision charged to expense		3,350,000			5,200,000			6,900,000
Losses charged off, net of recoveries  of $1,955,578, $1,191,644 and $217,288 for the years ended December 31, 2011, 2010 and 2009, respectively		(5,819,558	)		(6,193,420	)		(9,552,369	)
Balance, end of year	$	10,613,145		$	13,082,703		$	14,076,123

The following table presents the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the years ended December 31, 2011 and 2010:

As of December 31, 2011
	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of year	$	4,547		$	3,125		$	1,713		$	528		$	2,483		$	687		$	-	$	13,083
Provision charged to expense		265			2,123			943			(138	)		505			(1,283	)		935	$	3,350
Losses charged off		(2,381	)		(2,744	)		(966	)		-			(1,362	)		(322	)		-	$	(7,775	)
Recoveries		77			221			45			-			322			1,290			-	$	1,955
Balance, end of year	$	2,508		$	2,725		$	1,735		$	390		$	1,948		$	372		$	935	$	10,613
Ending balance:  individually evaluated for impairment	$	1,355		$	659		$	127		$	-		$	399		$	72		$	-	$	2,612
Ending balance:  collectively evaluated for impairment	$	1,153		$	2,066		$	1,608		$	390		$	1,549		$	300		$	935	$	8,001
Loans:
Ending balance:  individually evaluated for impairment	$	8,515		$	5,019		$	1,819		$	-		$	3,048		$	653		$	-	$	19,054
Ending balance:  collectively evaluated for impairment	$	36,397		$	189,837		$	96,212		$	43,166		$	85,040		$	20,105		$	-	$	470,757

32

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2010
	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of year	$	2,810		$	2,923		$	1,646		$	393	$	3,554		$	2,750		$	-	$	14,076
Provision charged to expense		5,620			563			948			135		716			(2,782	)		-	$	5,200
Losses charged off		(3,893	)		(373	)		(906	)		-		(1,847	)		(366	)		-	$	(7,385	)
Recoveries		10			12			25			-		60			1,085			-	$	1,192
Balance, end of year	$	4,547		$	3,125		$	1,713		$	528	$	2,483		$	687		$	-	$	13,083
Ending balance:  individually evaluated for impairment	$	3,134		$	1,384		$	149		$	-	$	1,052		$	307		$	-	$	6,026
Ending balance:  collectively evaluated for impairment	$	1,413		$	1,741		$	1,564		$	528	$	1,431		$	380		$	-	$	7,057
Loans:
Ending balance:  individually evaluated for impairment	$	9,281		$	5,150		$	3,363		$	-	$	8,409		$	1,008		$	-	$	27,211
Ending balance:  collectively evaluated for impairment	$	54,027		$	190,740		$	99,689		$	44,138	$	77,019		$	22,418		$	-	$	488,031

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

33

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The following summarizes impaired loans at and for the years ended December 31, 2011 and 2010:

As of December 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest  Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,424	$	1,424	$	-	$	2,373	$	50
Multi-family		-		-		-		-		-
Real estate - construction		1,181		1,181		-		3,705		-
Real estate -  commercial		4,646		5,985		-		4,609		57
Commercial loans		1,148		1,459		-		1,573		55
Consumer and other loans		376		376		-		458		37
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	395	$	421	$	127	$	1,396	$	-
Multi-family		-		-		-		-		-
Real estate - construction		7,334		7,854		1,355		7,697		-
Real estate -  commercial		373		373		659		2,189		-
Commercial loans		1,900		1,900		399		2,790		-
Consumer and other loans		277		277		72		381		-
Total
Real estate - residential mortgage:
One to four family units	$	1,819	$	1,845	$	127	$	3,769	$	50
Multi-family		-		-		-		-		-
Real estate - construction		8,515		9,035		1,355		11,402		-
Real estate -  commercial		5,019		6,358		659		6,798		57
Commercial loans		3,048		3,359		399		4,363		55
Consumer and other loans		653		653		72		839		37
Total	$	19,054	$	21,250	$	2,612	$	27,171	$	199

34

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2010
	Recorded		Unpaid		Specific		Average		Interest
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,691	$	1,708	$	-	$	3,011	$	185
Multi-family		-		-		-		1,007		-
Real estate - construction		601		2,003		-		4,418		9
Real estate -  commercial		2,881		2,881		-		2,674		30
Commercial loans		2,897		4,852		-		3,516		41
Consumer and other loans		369		372		-		2,253		93
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,672	$	1,672	$	357	$	1,570	$	-
Multi-family		-		-		-		-		-
Real estate - construction		8,680		8,680		3,134		2,804		-
Real estate -  commercial		2,269		2,269		1,384		997		-
Commercial loans		5,512		5,512		1,052		4,867		-
Consumer and other loans		639		639		99		1,879		-
Total
Real estate - residential mortgage:
One to four family units	$	3,363	$	3,380	$	357	$	4,581	$	185
Multi-family		-		-		-		1,007		-
Real estate - construction		9,281		10,683		3,134		7,222		9
Real estate -  commercial		5,150		5,150		1,384		3,671		30
Commercial loans		8,409		10,364		1,052		8,383		41
Consumer and other loans		1,008		1,011		99		4,132		93
Total	$	27,211	$	30,588	$	6,026	$	28,996	$	358

Interest of approximately $1,223,789 was recognized on average impaired loans of $39,642,406 for the year ended December 31, 2009.

At December 31, 2011, the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (TDR).  The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower.  This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower.  Key factors considered by the Bank include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.  The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

35

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

As a result of adopting the amendments in Accounting Standards Update No. 2011-02 (the ASU), the Bank reassessed all restructurings that occurred on or after the beginning of its current fiscal year December 31, 2011 for identification as troubled debt restructurings.  The Bank identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology.  Upon identifying those receivables as troubled debt restructurings, the Bank identified them as impaired under the guidance in Accounting Standards Codification (ASC) 310-10-35.  The ASU requires prospective application of the impairment measurement guidance in ASC 310-10-35 for those receivables newly identified as impaired

The following table presents information regarding troubled debt restructurings by class for the year ended December 31, 2011:

	Number  of Loans		Pre-Modification  Outstanding Recorded Balance		Post-Modification  Outstanding Recorded Balance
Real estate - residential mortgage:
One to four family units		-	$	-	$	-
Multi-family		-		-		-
Real estate - construction		3		8,526,970		8,925,340
Real estate -  commercial		3		6,526,382		4,591,406
Commercial loans		-		-		-
Consumer and other loans		-		-		-
Total		6	$	15,053,352	$	13,516,746

The troubled debt restructurings described above increased the allowance for loan losses by $1,299,226 and resulted in charge offs of $1,859,100 during the year ended December 31, 2011.

The following table presents the troubled debt restructurings by type of modification:

	Interest Rate		Term		Combination		Total Modification
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	-	$	-
Multi-family		-		-		-		-
Real estate - construction		6,884,800		2,040,540		-		8,925,340
Real estate -  commercial		-		-		4,591,406		4,591,406
Commercial loans		-		-		-		-
Consumer and other loans		-		-		-		-
Total	$	6,884,800	$	2,040,540	$	4,591,406	$	13,516,746

At December 31, 2010, the Bank did not have any troubled debt restructurings.

As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks loans by an internal rating system.  All loans are assigned an internal credit quality rating based on an analysis of the borrower’s financial condition.  The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank’s safety and soundness.  The following are the internally assigned ratings:

Pass-This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

36

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Special mention-This rating represents loans that are currently protected but are potentially weak.  The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard-This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

The following table provides information about the credit quality of the loan portfolio using the Bank’s internal rating system as of December 31, 2011 and 2010:

As of December 31, 2011
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	27,646	$	162,019	$	91,503	$	42,668	$	80,529	$	19,522	$	423,887
Special Mention		6,372		20,406		3,214		498		2,183		309		32,982
Substandard		10,894		12,431		3,314		-		5,376		927		32,942
Total	$	44,912	$	194,856	$	98,031	$	43,166	$	88,088	$	20,758	$	489,811

As of December 31, 2010
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	45,307	$	173,210	$	93,816	$	44,138	$	73,291	$	21,580	$	451,342
Special Mention		4,621		7,604		2,962		-		1,028		4		16,219
Substandard		13,380		15,076		6,274		-		11,109		1,842		47,681
Total	$	63,308	$	195,890	$	103,052	$	44,138	$	85,428	$	23,426	$	515,242

The weighted average interest rate on loans as of December 31, 2011 and 2010 was 5.82% and 5.61%, respectively.

The Bank serviced mortgage loans for others amounting to $199,256 and $237,605 as of December 31, 2011 and 2010, respectively.  The Bank serviced commercial loans for others amounting to $4,143,374 and $6,555,843 as of December 31, 2011 and 2010, respectively.

37

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 4:              PREMISES AND EQUIPMENT

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

	December 31,			December 31,
	2011			2010
Land	$	2,250,789		$	2,250,789
Buildings and improvements		11,860,040			11,503,087
Automobile		16,479			16,479
Furniture, fixtures and equipment		8,343,157			7,883,750
Leasehold improvements		271,799			271,799
		22,742,264			21,925,904
Less accumulated depreciation		(11,318,442	)		(10,601,219	)
Net premises and equipment	$	11,423,822		$	11,324,685

Depreciation expense was $717,222, $826,440 and $965,504 for the years ended December 31, 2011, 2010, and 2009, respectively.

NOTE 5:              BANK OWNED LIFE INSURANCE

In October 2009, the Company purchased $10 million of Bank owned life insurance on certain key members of management.  Such policies are recorded at their cash surrender value, or the amount that can be realized.  The increase in cash surrender value in excess of the single premium paid is reported as other noninterest income.  The balance at December 31, 2011 and 2010 was $10,770,887 and $10,449,630, respectively.

NOTE 6:              OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income components and related taxes were as follows:

	Year ended
	December 31,
	2011			2010			2009
Unrealized gains (losses) on available-for-sale securities	$	(163,480	)	$	1,016,414		$	1,720,966
Accretion of gains on interest rate swaps		-			(508,746	)		(1,017,492	)
Less: Reclassification adjustment for realized gains included in income		(1,505,915	)		(275,125	)		(689,769	)
Other comprehensive income (loss) before tax effect		(1,669,395	)		232,543			13,705
Tax expense (benefit)		(617,676	)		86,041			5,061
Other comprehensive income (loss)	$	(1,051,719	)	$	146,502		$	8,644

38

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:

	2011		2010
Unrealized gain on available-for-sale securities	$	1,256,008	$	2,925,403
Tax effect		464,723		1,082,399
Net of tax amount	$	791,285	$	1,843,004

NOTE 7:              INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS

The Company has purchased investments in limited partnerships that were formed to operate low-income housing apartment complexes and single-family housing units throughout Missouri.  The investments are accounted for under the cost method as the Company does not have the ability to exert significant influence over the partnerships.  For a minimum 15 year compliance period, each partnership must adhere to affordable housing regulatory requirements in order to maintain the utilization of the tax credits. At December 31, 2011 and 2010, the net carrying value of the Company’s investments in these entities were $6,249,021 and $5,251,318, respectively, and are included in other assets on the Company’s Consolidated Balance Sheets.

The Company received federal tax credits of $806,324, $551,000 and $499,943 during 2011, 2010 and 2009, respectively.  Amortization of the investment costs were $676,700, $480,322 and $451,927 during 2011, 2010 and 2009, respectively.

NOTE 8:              DEPOSITS

	December 31, 2011								December 31, 2010
	Weighted  Average  Rate			Balance		Percentage  of Deposits			Weighted  Average  Rate			Balance		Percentage of Deposits
Demand		0.00	%	$	56,315,467		11.6	%		0.00	%	$	26,634,448		5.5	%
NOW		0.56	%		81,804,342		16.9	%		0.78	%		74,984,520		15.6	%
Money market		0.77	%		169,759,166		35.0	%		1.20	%		183,691,603		38.2	%
Savings		0.44	%		21,295,855		4.4	%		0.69	%		19,189,236		4.0	%
		0.56	%		329,174,830		67.9	%		0.96	%		304,499,807		63.3	%
Certificates:
0% - 1.99%		1.08	%		127,813,801		26.4	%		1.12	%		100,992,487		21.0	%
2.00% - 3.99%		2.88	%		15,059,924		3.1	%		2.84	%		43,016,216		8.9	%
4.00% - 6.00%		5.05	%		12,535,110		2.6	%		4.76	%		32,185,764		6.7	%
		1.57	%		155,408,835		32.1	%		2.20	%		176,194,466		36.7	%
Total Deposits		0.89	%	$	484,583,665		100.0	%		1.42	%	$	480,694,273		100.0	%

The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately $63,823,000 and $67,264,000, as of December 31, 2011 and 2010, respectively.

39

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

A summary of certificates of deposit by maturity as of December 31, 2011, is as follows:

2012	$	87,409,324
2013		42,580,169
2014		13,462,872
2015		6,428,637
2016		5,463,296
Thereafter		64,537
	$	155,408,835

A summary of interest expense on deposits is as follows:

	Years ended
	December 31,
	2011			2010			2009
NOW and Money Market accounts	$	2,580,341		$	3,968,205		$	6,151,371
Savings accounts		118,432			140,382			121,362
Certificate accounts		3,099,265			5,536,701			9,140,075
Early withdrawal penalties		(19,775	)		(17,155	)		(31,618	)
	$	5,778,263		$	9,628,133		$	15,381,190

The Bank utilizes brokered deposits as an additional funding source.  The aggregate amount of brokered deposits was approximately $22,229,000 and $37,073,000 as of December 31, 2011 and 2010, respectively.

NOTE 9:              BORROWINGS

Federal Home Loan Bank Advances

Federal Home Loan Bank advances consist of the following:

	December 31, 2011					December 31, 2010
Maturity Date	Amount		Weighted  Average Rate			Amount		Weighted  Average Rate
2011	$	-		-		$	25,000,000		3.53	%
2013		15,700,000		2.14	%		15,700,000		2.14	%
2015		250,000		4.66	%		250,000		4.66	%
2018		50,000,000		2.14	%		50,000,000		2.14	%
2019		2,100,000		4.87	%		2,100,000		4.87	%
	$	68,050,000		2.23	%	$	93,050,000		2.58	%

The FHLB requires the Bank to maintain collateral in relation 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.  Based on existing collateral as well as the FHLB’s limitation of advances to 25% of assets, the Bank has the ability to borrow an additional $81.0 million from the FHLB, as of December 31, 2011.

40

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Federal Reserve Bank Borrowings

During 2008, the Bank established a borrowing line with the Federal Reserve Bank.  The Bank has the ability to borrow $37.0 million as of December 31, 2011.  The Federal Reserve Bank requires the Bank to maintain collateral in relation to borrowings outstanding.  The Bank had no borrowings outstanding on this line as of December 31, 2011 and 2010.

Securities Sold Under Agreements to Repurchase

The Company borrowed $9.8 million under a structured repurchase agreement in September 2007.  Effective in September 2009, interest was based on a fixed rate of 3.56% until maturity in September 2014.  The counterparty, Barclay’s Capital, Inc., had the option to terminate the agreement on a quarterly basis until maturity date.  Prior to the stated maturity date, the Company paid off this agreement in November 2011.

The Company borrowed $30.0 million under three structured repurchase agreements in January 2008.  Interest is based on a fixed weighted average rate of 2.65% until maturity in January 2018.  Beginning in February 2010, the counterparty, Barclay’s Capital, Inc., has the option to terminate the agreements on a quarterly basis until maturity. Prior to the stated maturity date, the Company paid off one of these agreements in the amount of $5.0 million in November 2011.

The Company has pledged certain investment securities with a fair value of $32.2 million and $46.9 million as of December 31, 2011 and 2010, respectively, to these repurchase agreements.

NOTE 10:            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.

NOTE 11:            INCOME TAXES

As of December 31, 2011 and 2010, 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, 2011 and 2010.

41

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The provision (credit) for income taxes consists of:

	Years Ended
	December 31,
	2011			2010			2009
Taxes currently payable	$	(246,017	)	$	160,989		$	(2,835,762	)
Deferred income taxes		949,122			(217,737	)		701,199
	$	703,105		$	(56,748	)	$	(2,134,563	)

The tax effects of temporary differences related to deferred taxes shown on the December 31, 2011 and 2010 balance sheets are:

	2011			2010
Deferred tax assets:
Allowances for loan losses	$	3,926,864		$	4,840,600
Writedowns on foreclosed assets held for sale		589,773			482,604
State low income housing tax credits		1,708,621			1,476,757
Federal low income housing tax and other credits		478,223			710,651
Deferred loan fees/costs		87,898			66,086
Other		241,658			164,610
		7,033,037			7,741,308
Deferred tax liabilities:
FHLB stock dividends		(120,632	)		(120,632	)
Unrealized appreciation on available-for-sale securities		(473,711	)		(1,082,400	)
Accumulated depreciation		(175,448	)		(175,448	)
Other		(68,310	)		(68,310	)
		(838,101	)		(1,446,790	)
Deferred tax asset before valuation allowance		6,194,936			6,294,518
Valuation allowance:
Beginning balance		(1,476,757	)		(785,696	)
Increase for state low income housing tax credits during the period		(231,864	)		(691,061	)
Ending balance		(1,708,621	)		(1,476,757	)
Net deferred tax asset	$	4,486,315		$	4,817,761

42

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

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

	Years ended
	December 31,
	2011			2010			2009
Computed at statutory rate		34.0	%		34.0	%		(34.0	%)
Increase (reduction) in taxes resulting from:
State financial institution tax and credits		(17.8	%)		(83.7	%)		(30.6	%)
ESOP		(5.6	%)		(4.4	%)		(1.9	%)
Cash surrender value of life insurance		(7.1	%)		(8.0	%)		(0.8	%)
Valuation allowance		5.1	%		64.3	%		19.8	%
Other		6.9	%		(7.5	%)		6.4	%
Actual tax provision (credit)		15.5	%		(5.3	%)		(41.1	%)

NOTE 12:            DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale securities:  Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  Level 1 securities include equity securities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include U.S. government agencies and government sponsored mortgage-backed securities.  The Company has no Level 3 securities.

43

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010 (dollar amounts in thousands):

As of December 31, 2011
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Equity securities:
Other	$	62	$	-	$	-	$	62
Debt securities:
U.S. government agencies		-		34,727		-		34,727
U. S. treasuries		2,043		-		-		2,043
Municipals		-		4,144		-		4,144
Government sponsored mortgage-backed securities		-		40,089		-		40,089
Available-for-sale securities	$	2,105	$	78,960	$	-	$	81,065

As of December 31, 2010
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Equity securities:
Other	$	78	$	-	$	-	$	78
Debt securities:
U.S. government agencies		-		27,503		-		27,503
Government sponsored mortgage-backed securities		-		69,264		-		69,264
Available-for-sale securities	$	78	$	96,767	$	-	$	96,845

The following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Foreclosed Assets Held for Sale:   Fair value is estimated using recent appraisals, comparable sales and other estimates of value obtained principally from independent sources, adjusted for selling costs.  Foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.

Impaired loans (Collateral Dependent):   Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized.  This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

44

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010 (dollar amounts in thousands):

2011
Impaired loans:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
December 31, 2011	$	-	$	-	$	11,243	$	11,243
December 31, 2010	$	-	$	-	$	16,163	$	16,163
Foreclosed assets held for sale:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
December 31, 2011	$	-	$	-	$	3,626	$	3,626
December 31, 2010	$	-	$	-	$	6,686	$	6,686

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and cash equivalents, interest-bearing deposits and Federal Home Loan Bank stock

The carrying amounts reported in the balance sheets approximate those assets' fair value.

Held-to-maturity securities

Fair value is based on quoted market prices, if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Loans with similar characteristics were aggregated for purposes of the calculations.  The carrying amount of accrued interest approximates its fair value.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits.  The carrying amount approximates fair value.  The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank advances and securities sold under agreements to repurchase

The fair value of advances and securities sold under agreements to repurchase is estimated by using rates on debt with similar terms and remaining maturities.

Subordinated debentures and notes payable

For these variable rate instruments, the carrying amount is a reasonable estimate of fair value.  There is currently a limited market for similar debt instruments and the Company has the option to call the subordinated debentures at an amount close to its par value.

Interest payable

The carrying amount approximates fair value.

Commitments to originate loans, letters of credit and lines of credit

The fair value of commitments to originate loans 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 and lines 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.

45

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

The following table presents estimated fair values of the Company’s financial instruments at December 31, 2011 and 2010.

	December 31, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	26,574,082	$	26,574,082	$	14,145,329	$	14,145,329
Interest-bearing deposits		5,587,654		5,587,654		12,785,000		12,785,000
Held-to-maturity securities		218,571		235,574		260,956		281,784
Federal Home Loan Bank stock		3,846,900		3,846,900		5,025,200		5,025,200
Mortgage loans held for sale		3,702,849		3,702,849		2,685,163		2,685,163
Loans, net		478,960,736		485,714,408		501,980,385		508,839,154
Interest receivable		2,139,320		2,139,320		2,670,274		2,670,274
Financial liabilities:
Deposits		484,583,665		485,803,947		480,694,273		482,094,550
Federal Home Loan Bank advances		68,050,000		70,815,606		93,050,000		92,694,525
Securities sold under agreements to repurchase		25,000,000		25,025,344		39,750,000		40,473,482
Subordinated debentures		15,465,000		15,465,000		15,465,000		15,465,000
Interest payable		518,881		518,881		878,675		878,675
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-		-		-
Unused lines of credit		-		-		-		-

NOTE 13:            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 regarding loans.

The current protracted economic decline continues to present financial institutions with circumstances and challenges which in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans.  The financial statements have been prepared using the values and information currently available to the Company.

Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses, or capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

NOTE 14:            EMPLOYEE BENEFIT PLANS

Equity Plans

On May 26, 2010, the Company’s stockholders voted to approve the Guaranty Federal Bancshares, Inc. 2010 Equity Plan (the ”Plan”).  The Plan provides for the grant of up to 200,000 shares of Common Stock under equity awards including stock options, stock awards, restricted stock, stock appreciation rights, performance units, or other equity-based awards payable in cash or stock to key employees and directors of the Company and the Bank.  As of December 31, 2011, non-incentive stock options for 25,000 shares and restricted stock for 16,952 shares of Common Stock have been granted under the Plan.

46

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

In addition, the Company established four stock option plans for the benefit of certain directors, officers and employees of the Company 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 Company 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.

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, 2009		108,250			116,704		$	23.29
Granted		41,500			20,000			5.31
Exercised		-			-			-
Forfeited		(1,000	)		-			28.43
Balance outstanding as of December 31, 2009		148,750			136,704			19.40
Granted		46,000			45,000			5.24
Exercised		-			-			-
Forfeited		-			(10,875	)		10.50
Balance outstanding as of December 31, 2010		194,750			170,829			16.14
Granted		-			-			-
Exercised		-			-			-
Forfeited		(10,250	)		(3,829	)		17.51
Balance outstanding as of December 31, 2011		184,500			167,000		$	16.09
Options exercisable as of December 31, 2011		109,100			108,250		$	19.98

In January 2011, the Company granted restricted stock to directors that was fully vested and thus, expensed in full during the year ended December 31, 2011.  The amount expensed of $100,017 for the year represents 16,952 shares of common stock at a market price of $5.90 at the date of grant.

Total stock-based compensation expense recognized for the years ended December 31, 2011, 2010 and 2009 was $186,655, $109,386 and $95,268, respectively.  As of December 31, 2011, there was $171,636 of unrecognized compensation expense related to nonvested stock options, which will be recognized over the remaining vesting period.

As of December 31, 2011, total outstanding stock options of 351,500 had a remaining contractual life of 4.53 years.

The total intrinsic value of outstanding stock options was $0 at December 31, 2011 and 2010, respectively, and the total intrinsic value of outstanding exercisable stock options was $0 at December 31, 2011 and 2010, respectively.  There were no options exercised during fiscal years 2011 and 2010.  The total fair value of share awards vested was $237,525 and $144,347 during 2011 and 2010, respectively.

47

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

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.  There were no options granted during the year ended December 31, 2011.

	December 31, 2010			December 31, 2009
Dividends per share	$	-		$	-
Risk-free interest rate		2.15	%		1.75	%
Expected life of options	5 years			5 years
Weighted-average volatility		42.62	%		57.58	%
Weighted-average fair value of options granted during year	$	2.04		$	1.31

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 sheets. 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 $126,736, $100,014 and $121,219 for the years ended December 31, 2011, 2010 and 2009, respectively.

The following is a summary of ESOP shares as of December 31, 2011:

Beginning ESOP shares		344,454
Released shares		(299,218	)
Shares committed for release		(22,618	)
Unreleased shares		22,618
Fair value of unreleased shares	$	128,923

NOTE 15:            DERIVATIVE FINANCIAL INSTRUMENTS

The Company recorded all derivative financial instruments at fair value in the financial statements.  Derivatives were used as a risk management tool to hedge the exposure to changes in interest rates or other identified market risks.

When a derivative is intended to be a qualifying hedged instrument, the Company prepares written hedge documentation that designates the derivative as 1) a hedge of fair value of a recognized asset or liability (fair value hedge) or 2) a hedge of a forecasted transaction, such as, the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge).  The written documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item, and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective.

On November 7, 2008, the Company elected to terminate three interest rate swap agreements with a total notional value of $90 million.  At termination, the swaps had a market value (gain) of approximately $1.7 million.  The gain was deferred and was accreted into income.  The Company recognized $508,746 and $1.0 million of this gain in 2010 and 2009, respectively.  As of June 30, 2010, the original gain at termination was fully accreted into income in accordance with the stated maturity date of the original agreement.

48

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 16:            PREFERRED STOCK AND COMMON STOCK WARRANTS

On January 30, 2009, as part of the U.S. Department of the Treasury's Troubled Asset Relief Program's Capital Purchase Program (“CPP”), the Company entered into a Securities Purchase Agreement - Standard Terms with the United States Department of the Treasury (the "Treasury") pursuant to which the Company sold to the Treasury 17,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock") and issued a ten year warrant (the "Warrant") to purchase 459,459 shares of the Company's common stock (the "Common Stock") for $5.55 per share (the "Warrant Shares") for a total purchase price of $17.0 million (the "Transaction").

The Series A Preferred Stock qualifies as Tier 1 capital and is entitled to cumulative preferred dividends at a rate of 5% per year for the first five years, payable quarterly, and 9% thereafter. The Series A Preferred Stock has a liquidation preference of $1,000 per share, plus accrued and unpaid dividends.  The failure by the Company to pay a total of six quarterly dividends, whether or not consecutive, gives the holders of the Series A Preferred Stock the right to elect two directors to the Company's Board of Directors.

The Company may redeem the Series A Preferred Stock for $1,000 per share, plus accrued and unpaid dividends, in whole or in part, subject to regulatory approval.

The Warrant is exercisable immediately upon issuance and expires in ten years. The Warrant has anti-dilution protections and certain other protections for the holder of the Warrant, as well as potential registration rights upon written request from the Treasury.  The Treasury has agreed not to exercise voting rights with respect to the Warrant Shares that it may acquire upon exercise of the Warrant. If the Series A Preferred Stock is redeemed in whole, the Company has the right to purchase any shares of the Common Stock held by the Treasury at their fair market value at that time.

The Company is subject to certain contractual restrictions under the CPP and the Certificate of Designations for the Series A Preferred Stock that could prohibit the Company from declaring or paying dividends on its common stock or the Series A Preferred Stock.

The proceeds from the CPP were allocated between the Series A Preferred Stock and the Warrant based on a fair value assigned using a discounted cash flow model.  This resulted in an initial value of $15,622,189 for the Series A Preferred Stock and $1,377,811 for the Warrants.  The discount of approximately $1.4 million on the Series A Preferred Stock is being accreted over the straight-line method (which approximates the level-yield method) over five years ending February 28, 2014.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “ARRA”) was signed into law.  The ARRA imposes certain additional executive compensation and corporate expenditure limits on all current and future CPP recipients.  These limits are in addition to those previously imposed by the Treasury under the Emergency Economic Stabilization Act of 2008 (the “EESA”).  The Treasury released an interim final rule (the “IFR”) on TARP standards for compensation and corporate governance on June 10, 2009, which implemented and further expanded the limitations and restrictions imposed by EESA and ARRA.  The IFR applies to the Company as of the date of publication in the Federal Register on June 15, 2009, but was subject to comment which ended on August 14, 2009.  The Treasury has not yet published a final version of the IFR.

As a result of the Company’s participation in the CPP, the restrictions and standards established under EESA and ARRA are applicable to the Company.  Neither the ARRA nor the EESA restrictions shall apply to any CPP recipient, including the Company, at such time that the federal government no longer holds any of the Company’s Series A Preferred Stock.

49

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 17:            OTHER EXPENSES

Other expenses for the years ended December 31, 2011, 2010 and 2009 were as follows:

	December 31,		December 31,		December 31,
	2011		2010		2009
Directors compensation	$	215,980	$	178,376	$	167,749
Outside services		55,000		55,000		86,730
Legal expense		628,444		444,904		370,988
Miscellaneous deposit expense		73,712		44,864		103,752
Office supplies		94,002		109,424		126,844
Telephone		116,826		107,738		104,166
Postage		165,837		172,792		175,017
Insurance		74,287		68,628		62,971
Supervisory exam		58,609		60,115		57,271
Accounting		149,475		165,000		187,389
Organization dues		118,568		114,037		98,853
Loan expense		307,021		427,775		285,078
Contributions		40,118		40,140		40,302
ATM expense		219,329		200,224		260,375
Federal tax credits amortization		676,700		480,322		451,927
Other operating		517,036		544,083		563,571
	$	3,510,944	$	3,213,422	$	3,142,983

NOTE 18:            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,
	2011			2010			2009
Balance, beginning of year	$	5,982,120		$	6,829,498		$	6,800,439
New Loans		650,095			-			688,200
Repayments		(837,319	)		(847,378	)		(659,141	)
Balance, end of year	$	5,794,896		$	5,982,120		$	6,829,498

 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 19:            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.

50

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

As of December 31, 2011 and 2010, the Bank had outstanding commitments to originate fixed-rate mortgage loans of approximately $10,955,000 and $7,949,000, respectively.  The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period.

Standby letters of credit are irrevocable conditional commitments issued by the Bank 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 as that involved in extending loans to customers.  Fees for letters of credit 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 $14,233,000 and $12,261,000 as of December 31, 2011 and 2010, respectively, with terms ranging from 1 year to 5 years.

The Bank has confirming letters of credit from the FHLB issued to enhance Bank issued letters of credit granted to various customers for industrial revenue bond issues.  As of December 31, 2011 and 2010, these letters of credit aggregated approximately $10,656,000 and $10,984,000. 

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, 2011 and 2010, unused lines of credit to borrowers aggregated approximately $36,931,000 and $50,473,000, respectively, for commercial lines and $17,625,000 and $17,525,000, respectively, for open-end consumer lines.

As of December 31, 2010, the Company had commitments to purchase $1.9 million in federal low income housing investments in southwest Missouri.  The Company had no remaining purchase commitments in these investments as of December 31, 2011.

51

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

NOTE 20:            CONDENSED PARENT COMPANY STATEMENTS

The condensed balance sheets as of December 31, 2011 and 2010, and statements of operations and cash flows for the years ended December 31, 2011, 2010 and 2009 for the parent company, Guaranty Federal Bancshares, Inc., are as follows:

Balance Sheets	December 31,
	2011			2010
Assets
Cash	$	781,432		$	1,197,553
Available-for-sale securities		62,262			77,920
Due from subsidiary		21,295			21,295
Investment in subsidiary		67,649,693			65,164,131
Investment in Capital Trust I & II		465,000			465,000
Prepaid expenses and other assets		183,508			287,684
Refundable income taxes		717,319			499,486
Deferred income taxes		5,793			38,833
	$	69,886,302		$	67,751,902
Liabilities
Subordinated debentures	$	15,465,000		$	15,465,000
Accrued expenses and other liabilities		186,455			246,136
Stockholders' equity
Series A preferred stock		16,425,912			16,150,350
Common stock		677,980			677,980
Common stock warrants		1,377,811			1,377,811
Additional paid-in capital		58,333,614			58,505,046
Unearned ESOP shares		(204,930	)		(432,930	)
Retained earnings		38,456,991			35,746,914
Unrealized appreciation on available-for-sale securities and interest rate swaps, net		791,285			1,843,004
Treasury stock		(61,623,816	)		(61,827,409	)
	$	69,886,302		$	67,751,902

52

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Statements of Operations	Years ended December 31,
	2011			2010			2009
Income
Dividends from subsidiary bank	$	1,000,000		$	-		$	-
Gain on investment securities		-			-			365,077
Interest income:
Related party		14,753			25,933			36,726
Other		18,369			30,783			55,425
		1,033,122			56,716			457,228
Expense
Interest expense:
Other		-			-			2,556
Related party		610,929			1,023,783			1,023,783
Other		462,971			463,502			458,947
		1,073,900			1,487,285			1,485,286
Loss before income taxes and equity in undistributed income (loss) of subsidiaries		(40,778	)		(1,430,569	)		(1,028,058	)
Credit for income taxes		(349,000	)		(480,000	)		(302,528	)
Income (Loss) before equity in undistributed earnings of subsidiaries		308,222			(950,569	)		(725,530	)
Equity in undistributed income (losses) of subsidiaries		3,527,417			2,081,340			(1,615,188	)
Net income (loss)	$	3,835,639		$	1,130,771		$	(2,340,718	)

53

Guaranty Federal Bancshares, Inc.

Notes to Consolidated Financial Statements

Statements of Cash Flows	Years ended December 31,
	2011			2010			2009
Cash Flows From Operating Activities
Net income (loss)	$	3,835,639		$	1,130,771		$	(2,340,718	)
Items not requiring (providing) cash:
Equity in undistributed (income) loss of subsidiaries		(3,527,417	)		(2,081,340	)		1,615,188
Deferred income taxes		38,834			-			-
Release of ESOP shares		126,737			100,014			121,219
Stock award plan expense		186,655			109,386			95,268
Gain on investment securities		-			-			(365,077	)
Changes in:
Prepaid expenses and other assets		104,176			103,787			11,094
Income taxes payable/refundable		(217,833	)		(104,143	)		(62,672	)
Accrued expenses		(59,682	)		(18,376	)		(31,264	)
Net cash provided by (used in) operating activities		487,109			(759,901	)		(956,962	)
Cash Flows From Investing Activities
Capital contributions to subsidiary bank		-			-			(13,000,000	)
Proceeds from sales of AFS securities		-			-			834,952
Net cash used in investing activities		-			-			(12,165,048	)
Cash Flows From Financing Activities
Cash dividends paid on common and preferred stock		(850,000	)		(850,000	)		(672,917	)
Treasury stock purchased		(53,230	)		(6,540	)		(7,515	)
Repayment of advances from subsidiary		-			900			-
Repayment of notes payable		-			-			(1,435,190	)
Proceeds from issuance of preferred stock and warrants		-			-			17,000,000
Net cash provided by (used in) financing activities		(903,230	)		(855,640	)		14,884,378
Increase (decrease) in cash		(416,121	)		(1,615,541	)		1,762,368
Cash, beginning of year		1,197,553			2,813,094			1,050,726
Cash, end of year	$	781,432		$	1,197,553		$	2,813,094

54

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, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2011.  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, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

/s/BKD, LLP

Springfield, Missouri

March 30, 2012

55

Guaranty Federal Bancshares, Inc.

2011 Annual Report

Board of Directors	Executive Officers
Guaranty Federal Bancshares, Inc.	Guaranty Federal Bancshares, Inc.
and Guaranty Bank	and Guaranty Bank
Don M. Gibson	Shaun A. Burke
Chairman of the Board	President,
Guaranty Federal Bancshares and	Chief Executive Officer
Guaranty Bank
	Carter M. Peters
Jack L. Barham	Executive Vice President,
Vice Chairman of the Board	Chief Financial Officer
Guaranty Federal Bancshares
	H. Michael Mattson
Shaun A. Burke	Executive Vice President,
President and CEO	Chief Lending Officer
Guaranty Federal Bancshares and
Guaranty Bank	Sheri Biser
	Executive Vice President,
James R. Batten, CPA	Chief Credit Officer
Executive Vice President
Convoy of Hope	E. Lorene Thomas
	Corporate Secretary
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
John F. Griesemer
Executive Vice President and COO
Springfield Underground, Inc.

56

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. 333-170205, 333-47241, 333-31196, 333-65544, 333-83822 and 333-117918 on Forms S-8 and Registration Statement No. 333-157634 on Form S-3 of Guaranty Federal Bancshares, Inc. of our report dated March 30, 2012 on our audits of the consolidated financial statements of Guaranty Federal Bancshares, Inc. as of December 31, 2011 and 2010, and for the years ended December 31, 2011, 2010 and 2009, which report is included in this Annual Report on Form 10-K.

/s/BKD, LLP

Springfield, Missouri

March 30, 2012

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 officer 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 most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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 officer 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 the 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 30, 2012	/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 officer 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 most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) 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 officer 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 the 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 30, 2012	/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, 2011 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 Section 15(d) of the Securities Exchange Act of 1934, as amended; 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 30, 2012

* 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, 2011 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 Section 15(d) of the Securities Exchange Act of 1934, as amended; 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 30, 2012

* 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-99.1

Exhibit 99.1

Certification of the Chief Executive Officer Pursuant to 31 CFR § 30.15

I, Shaun A. Burke, certify, based on my knowledge, that:

(i)            The compensation committee of Guaranty Federal Bancshares, Inc. (the “Company”) has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (SEO) compensation plans and employee compensation plans and the risks these plans pose to the Company;

(ii)           The compensation committee of the Company has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company and has identified any features of the employee compensation plans that pose risks to the Company and has limited those features to ensure that the Company is not unnecessarily exposed to risks;

(iii)           The compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee and has limited any such features;

(iv)          The compensation committee of the Company will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v)           The compensation committee of the Company will provide a narrative description of how it limited, during any part of the most recently completed fiscal year that was a TARP period, the features in:

(a) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company;

(b) Employee compensation plans that unnecessarily expose the Company to risks; and

(c) Employee compensation plans that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee;

(vi)           The Company has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under Section 111 of EESA (bonus payments), be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii)         The Company has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(viii)        The Company has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during any part of the most recently completed fiscal year that was a TARP period;

(ix)           The Company and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to the policy, required approval of the board of directors, a committee of the board of directors, a SEO, or an executive officer with a similar level of responsibility were properly approved;

(x)            The Company will permit a non-binding shareholder resolution in compliance with any applicable Federal securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;

(xi)           The Company will disclose the amount, nature, and justification for the offering during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii)          The Company will disclose whether the Company, the board of directors of the Company, or the compensation committee of the Company has engaged during any part of the most recently completed fiscal year that was a TARP period a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii)         The Company has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(xiv)         The Company has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the Company and Treasury, including any amendments;

(xv)          The Company will submit to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and

(xvi)         I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both.  (See, for example, 18 USC 1001).

Date:  March 30, 2012	/s/ Shaun A. Burke
	Shaun A. Burke
	President and Chief Executive Officer

EX-99.2

Exhibit 99.2

Certification of the Chief Financial Officer Pursuant to 31 CFR § 30.15

I, Carter Peters, certify, based on my knowledge, that:

(i)            The compensation committee of Guaranty Federal Bancshares, Inc. (the “Company”) has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (SEO) compensation plans and employee compensation plans and the risks these plans pose to the Company;

(ii)           The compensation committee of the Company has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company and has identified any features of the employee compensation plans that pose risks to the Company and has limited those features to ensure that the Company is not unnecessarily exposed to risks;

(iii)          The compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee and has limited any such features;

(iv)          The compensation committee of the Company will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v)           The compensation committee of the Company will provide a narrative description of how it limited, during any part of the most recently completed fiscal year that was a TARP period, the features in:

(a) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company;

(b) Employee compensation plans that unnecessarily expose the Company to risks; and

(c) Employee compensation plans that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee;

(vi)          The Company has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under Section 111 of EESA (bonus payments), be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii)         The Company has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(viii)        The Company has limited bonus payments to its applicable employees in accordance with section 111 of EESA and the regulations and guidance established thereunder during any part of the most recently completed fiscal year that was a TARP period;

(ix)           The Company and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to the policy, required approval of the board of directors, a committee of the board of directors, a SEO, or an executive officer with a similar level of responsibility were properly approved;

(x)            The Company will permit a non-binding shareholder resolution in compliance with any applicable Federal securities rules and regulations on the disclosures provided under the Federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;

(xi)           The Company will disclose the amount, nature, and justification for the offering during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii)          The Company will disclose whether the Company, the board of directors of the Company, or the compensation committee of the Company has engaged during any part of the most recently completed fiscal year that was a TARP period a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii)         The Company has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(xiv)        The Company has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the Company and Treasury, including any amendments;

(xv)         The Company will submit to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and

(xvi)         I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both.  (See, for example, 18 USC 1001).

Date:  March 30, 2012	/s/ Carter Peters
	Carter Peters
	Executive Vice President and Chief Financial Officer

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2011

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 18:            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,
	2011			2010			2009
Balance, beginning of year	$	5,982,120		$	6,829,498		$	6,800,439
New Loans		650,095			-			688,200
Repayments		(837,319	)		(847,378	)		(659,141	)
Balance, end of year	$	5,794,896		$	5,982,120		$	6,829,498

 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.

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SECURITIES

12 Months Ended

Dec. 31, 2011

SECURITIES [Abstract]

SECURITIES

NOTE 2:              SECURITIES

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities classified as available-for-sale are as follows:

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  (Losses)			Approximate  Fair Value
As of December 31, 2011
Equity Securities	$	102,212	$	-	$	(39,950	)	$	62,262
Debt Securities:
U. S. government agencies		34,668,833		122,093		(64,264	)		34,726,662
U. S. treasuries		2,037,168		5,469		-			2,042,637
Municipals		4,049,701		138,736		(44,038	)		4,144,399
Government sponsored  mortgage-backed securities		38,950,955		1,148,789		(10,826	)		40,088,918
	$	79,808,869	$	1,415,087	$	(159,078	)	$	81,064,878

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  (Losses)			Approximate  Fair Value
As of December 31, 2010
Equity Securities	$	102,212	$	7,089	$	(31,381	)	$	77,920
Debt Securities:
U. S. government agencies		27,409,482		222,014		(128,414	)		27,503,082
Government sponsored  mortgage-backed securities		66,407,555		2,865,745		(9,649	)		69,263,651
	$	93,919,249	$	3,094,848	$	(169,444	)	$	96,844,653

Maturities of available-for-sale debt securities as of December 31, 2011:

	Amortized  Cost		Approximate  Fair Value
1-5 years	$	26,394,204	$	26,473,064
5-10 years		11,346,351		11,347,402
After ten years		3,015,147		3,093,232
Government sponsored mortgage-backed securities not due on a single maturity date		38,950,955		40,088,918
	$	79,706,657	$	81,002,616

The amortized cost and approximate fair values, together with gross unrealized gains and losses, 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, 2011
Debt Securities:
Government sponsored mortgage-backed securities	$	218,571	$	17,003	$	-	$	235,574
	$	218,571	$	17,003	$	-	$	235,574

	Amortized  Cost		Gross  Unrealized  Gains		Gross  Unrealized  (Losses)		Approximate Fair Value
As of December 31, 2010
Debt Securities:
Government sponsored mortgage-backed securities	$	260,956	$	20,828	$	-	$	281,784
	$	260,956	$	20,828	$	-	$	281,784

Maturities of held-to-maturity securities as of December 31, 2011:

	Amortized  Cost		Approximate  Fair Value
Government sponsored mortgage-backed   securities not due on a single maturity date	$	218,571	$	235,574
	$	218,571	$	235,574

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $60,222,048 and $62,981,616 as of December 31, 2011 and 2010, respectively.

Gross gains of $1,505,915, $275,125 and $689,769 and gross losses of $0, $0 and $0 resulting from sale of available-for-sale securities were realized for the years ended December 31, 2011, 2010 and 2009, respectively.  The tax effect of these net gains was $557,188, $101,796 and $255,215 in 2011, 2010 and 2009, respectively.

The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary.  Certain investment securities are valued less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates, or declines in stock prices of equity securities. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. It is management's intent to hold the debt securities to maturity or until recovery of the unrealized loss. Should the impairment of any of these debt 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, to the extent the loss is related to credit issues, and to other comprehensive income to the extent the decline on debt securities is related to other factors and the Company does not intend to sell the security prior to recovery of the unrealized loss.

                No securities were written down for other-than-temporary impairment during the years ended December 31, 2011, 2010 and 2009.

Certain other investments in debt and 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, 2011 and 2010, was $29,766,876 and $5,386,231, respectively, which is approximately 37% and 6% of the Company's investment portfolio.  These declines primarily resulted from changes in market interest rates and failure of certain investments to meet projected earnings targets.

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, 2011 and 2010.

	December 31, 2011
	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	$	26,316	$	(4,361	)	$	35,946	$	(35,589	)	$	62,262	$	(39,950	)
U. S. government agencies		21,351,961		(64,264	)		-		-			21,351,961		(64,264	)
Municipals		1,045,521		(44,038	)		-		-			1,045,521		(44,038	)
Government sponsored mortgage-backed securities		7,307,132		(10,826	)		-		-			7,307,132		(10,826	)
	$	29,730,930	$	(123,489	)	$	35,946	$	(35,589	)	$	29,766,876	$	(159,078	)

	December 31, 2010
	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	$	-	$	-		$	40,153	$	(31,381	)	$	40,153	$	(31,381	)
U. S. government agencies		4,374,049		(128,414	)		-		-			4,374,049		(128,414	)
Government sponsored mortgage-backed securities		972,029		(9,649	)		-		-			972,029		(9,649	)
	$	5,346,078	$	(138,063	)	$	40,153	$	(31,381	)	$	5,386,231	$	(169,444	)

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NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2011

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and fair values.  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

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost.  Securities not classified as held to maturity are classified as “available-for-sale” and are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.  Purchase premiums are recognized in interest income using the interest method over the terms of the securities.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Effective April 1, 2009, the Company adopted new accounting guidance related to recognition and presentation of other-than-temporary impairment (ASC 320-10).  When the Company does not intend to sell a debt security, and it is more likely than not, the Company will not have to sell the security before a recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.  For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

As a result of this guidance, the Company would recognize in its consolidated statements of operations the full impairment (that is, the difference between the security's amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis.  For available-for-sale and held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.

Prior to the adoption of the recent accounting guidance on April 1, 2009, management considered, in determining whether other-than-temporary impairment exists, (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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 a 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 and the carrying amounts of the loans sold, and are recorded in noninterest income.  Direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Loans

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.  Loan origination fees net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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.

The allowance consists of allocated and general components.  The allocated component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Bank's internal risk rating process.  Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

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 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.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group's historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

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 less cost to sell 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.  The estimated useful lives for each major depreciable classification of premises and equipment are as follows:

Buildings and improvements	35-40 years
Furniture and fixtures and vehicles	3-10 years

Bank Owned Life Insurance

Bank owned life insurance policies are carried at their cash surrender value.  The Company recognizes tax-free income from the periodic increases in cash surrender value of these policies and from death benefits.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes).  The income tax accounting guidance results in two components of income tax expense: current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  The Company determines deferred income taxes using the liability (or balance sheet) method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.  Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management's judgment.  Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

                The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiary.  With a few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2008.

Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.  At December 31, 2011 and 2010, the Company had no cash equivalents.

Pursuant to legislation enacted in 2010, the FDIC fully insures all noninterest-bearing transaction accounts through December 31, 2012, at all FDIC-insured institutions.  The FDIC's insurance limits for interest-bearing cash accounts were permanently increased to $250,000 effective July 21, 2010.

Restriction on Cash and Due From Banks

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.  The reserve required on December 31, 2011 and 2010, was $7,899,000 and $5,933,000, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), net of applicable income taxes.  Other comprehensive income (loss) includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income, unrealized appreciation (depreciation) on held-to-maturity securities for which a portion of an other-than-temporary impairment has been recognized in income, and unrealized gains on interest rate swaps.

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, 2011 and 2010, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2011, 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.

                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, 2011
Tier 1 (core) capital, and ratio to adjusted total assets
Company	$	68,419		10.4	%	$	26,256		4.0	%		n/a		n/a
Bank	$	66,834		10.2	%	$	26,249		4.0	%	$	32,811		5.0	%
Tier 1 (core) capital, and ratio to risk-weighted assets
Company	$	68,419		13.2	%	$	20,755		4.0	%		n/a		n/a
Bank	$	66,834		12.9	%	$	20,730		4.0	%	$	31,095		6.0	%
Total risk-based capital, and ratio to risk-weighted assets
Company	$	74,948		14.4	%	$	41,511		8.0	%		n/a		n/a
Bank	$	73,363		14.2	%	$	41,460		8.0	%	$	51,825		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, 2010
Tier 1 (core) capital, and ratio to adjusted total assets
Company	$	65,174		9.3	%	$	27,992		4.0	%		n/a		n/a
Bank	$	63,306		9.1	%	$	27,878		4.0	%	$	34,847		5.0	%
Tier 1 (core) capital, and ratio to risk-weighted assets
Company	$	65,174		12.1	%	$	21,629		4.0	%		n/a		n/a
Bank	$	63,306		11.7	%	$	21,582		4.0	%	$	32,374		6.0	%
Total risk-based capital, and ratio to risk-weighted assets
Company	$	71,986		13.3	%	$	43,258		8.0	%		n/a		n/a
Bank	$	70,118		13.0	%	$	43,165		8.0	%	$	53,956		10.0	%

The amount of dividends that the Company and Bank may pay is subject to various regulatory limitations.  As of December 31, 2011 and 2010 the Company and Bank exceeded their minimum capital requirements.  The Bank may not pay dividends which would reduce capital below the minimum requirements shown above.

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.

Reclassifications

Certain reclassifications have been made to the 2010 financial statements to conform to the 2011 financial statement presentation.  These reclassifications had no effect on net income.

General Litigation

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.  After reviewing pending and threatened litigation with legal counsel, management believes that as of December 31, 2011, the outcome of any such litigation will not have a material adverse effect on the Company's results of operations.

Earnings Per Common Share

The computation for earnings per common share for the years ended December 31, 2011, 2010 and 2009 is as follows:

	Year Ended		Year Ended		Year Ended
	December 31, 2011		December 31, 2010		December 31, 2009
Net income (loss) available to common shareholders	$	2,710,076	$	5,208	$	(3,372,484	)
Average common shares outstanding		2,675,654		2,644,355		2,622,895
Effect of dilutive securities		826		-		-
Average diluted shares outstanding		2,676,480		2,644,355		2,622,895
Basic income (loss) per common share	$	1.01	$	0.00	$	(1.29	)
Diluted income (loss) per common share	$	1.01	$	0.00	$	(1.29	)

Stock options to purchase 351,500 and 365,579 shares of common stock were outstanding during the years ended December 31, 2011 and 2010, respectively, but were not included in the computation of diluted income per common share because their exercise price was greater than the average market price of the common shares.

Stock warrants to purchase 459,459 shares of common stock were outstanding during the year ended December 31, 2011 and were included in the computation of diluted income per common share because their exercise price was less than the average market price of the common shares during the period.  These warrants were also outstanding during 2010 and 2009, but were not included in the computation of diluted income per common share because their exercise price was greater than the average market price of the common shares.

Due to the Company's net loss for the year ended December 31, 2009, no potentially dilutive shares were included in the computation of diluted earnings per share.

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Consolidated Balance Sheets (USD $)	Dec. 31, 2011	Dec. 31, 2010
ASSETS
Cash and due from banks	$ 7,200,969	$ 2,968,669
Interest-bearing deposits in other financial institutions	19,373,113	11,176,660
Cash and cash equivalents	26,574,082	14,145,329
Interest-bearing deposits	5,587,654	12,785,000
Available-for-sale securities	81,064,878	96,844,653
Held-to-maturity securities	218,571	260,956
Stock in Federal Home Loan Bank, at cost	3,846,900	5,025,200
Mortgage loans held for sale	3,702,849	2,685,163
Loans receivable, net of allowance for loan losses of December 31, 2011 and 2010 - $10,613,145 and $13,082,703, respectively	478,960,736	501,980,385
Accrued interest receivable:
Loans	1,752,786	2,058,576
Investments and interest-bearing deposits	386,534	611,698
Prepaid expenses and other assets	7,116,067	6,161,861
Prepaid FDIC deposit insurance premiums	2,089,076	2,977,356
Foreclosed assets held for sale	10,012,035	10,539,867
Premises and equipment	11,423,822	11,324,685
Bank owned life insurance	10,770,887	10,449,630
Income taxes receivable	512,666	0
Deferred income taxes	4,486,315	4,817,761
Total Assets	648,505,858	682,668,120
LIABILITIES
Deposits	484,583,665	480,694,273
Federal Home Loan Bank advances	68,050,000	93,050,000
Securities sold under agreements to repurchase	25,000,000	39,750,000
Subordinated debentures	15,465,000	15,465,000
Advances from borrowers for taxes and insurance	156,509	134,002
Accrued expenses and other liabilities	496,956	655,404
Accrued interest payable	518,881	878,675
Total Liabilities	594,271,011	630,627,354
COMMITMENTS AND CONTINGENCIES
Capital Stock:
Series A preferred stock, $0.01 par value; authorized 2,000,000 shares; issued and outstanding December 31, 2011 and 2010 - 17,000 shares	16,425,912	16,150,350
Common stock, $0.10 par value; authorized 10,000,000 shares; issued December 31, 2011 and 2010 - 6,779,800 shares;	677,980	677,980
Common stock warrants; December 31, 2011 and 2010 - 459,459 shares	1,377,811	1,377,811
Additional paid-in capital	58,333,614	58,505,046
Unearned ESOP shares	(204,930)	(432,930)
Retained earnings, substantially restricted	38,456,991	35,746,914
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, net of income taxes; December 31, 2011 and 2010 - $464,723 and $1,082,399, respectively	791,285	1,843,004
Stockholders Equity before Treasury Stock	115,858,663	113,868,175
Treasury stock, at cost; December 31, 2011 and December 31, 2010 -4,072,156 and 4,080,220 shares, respectively	(61,623,816)	(61,827,409)
Total Stockholders Equity	54,234,847	52,040,766
Total Liabilities and Shareholders Equity	$ 648,505,858	$ 682,668,120

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Consolidated Statements of Stockholders' Equity (USD $)	Preferred Stock [Member]	Common Stock [Member]	Common Stock Warrants [Member]	Additional Paid-in Capital [Member]	Unearned ESOP Shares [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Total
Balance at Dec. 31, 2008	$ 0	$ 677,980	$ 0	$ 58,535,159	$ (888,930)	$ (61,813,354)	$ 39,114,189	$ 1,687,858	$ 37,312,902
Comprehensive income (loss)
Net income (loss)	0	0	0	0	0	0	(2,340,718)	0	(2,340,718)
Change in unrealized appreciation on available-for-sale securities and interest rate swaps, net of income taxes	0	0	0	0	0	0	0	8,644	8,644
Total comprehensive income (loss)									(2,332,074)
Preferred stock issued	15,622,189	0	0	0	0	0	0	0	15,622,189
Common stock warrants issued	0	0	1,377,811	0	0	0	0	0	1,377,811
Preferred stock discount accretion	252,599	0	0	0	0	0	(252,599)	0	0
Preferred stock dividends	0	0	0	0	0	0	(779,167)	0	(779,167)
Stock award plans	0	0	0	95,268	0	0	0	0	95,268
Release of ESOP shares	0	0	0	(106,781)	228,000	0	0	0	121,219
Treasury stock purchased	0	0	0	0	0	(7,515)	0	0	(7,515)
Balance at Dec. 31, 2009	15,874,788	677,980	1,377,811	58,523,646	(660,930)	(61,820,869)	35,741,705	1,696,502	51,410,633
Comprehensive income (loss)
Net income (loss)	0	0	0	0	0	0	1,130,771	0	1,130,771
Change in unrealized appreciation on available-for-sale securities and interest rate swaps, net of income taxes	0	0	0	0	0	0	0	146,502	146,502
Total comprehensive income (loss)									1,277,273
Preferred stock discount accretion	275,562	0	0	0	0	0	(275,562)	0	0
Preferred stock dividends	0	0	0	0	0	0	(850,000)	0	(850,000)
Stock award plans	0	0	0	109,386	0	0	0	0	109,386
Release of ESOP shares	0	0	0	(127,986)	228,000	0	0	0	100,014
Treasury stock purchased	0	0	0	0	0	(6,540)	0	0	(6,540)
Balance at Dec. 31, 2010	16,150,350	677,980	1,377,811	58,505,046	(432,930)	(61,827,409)	35,746,914	1,843,004	52,040,766
Comprehensive income (loss)
Net income (loss)	0	0	0	0	0	0	3,835,639	0	3,835,639
Change in unrealized appreciation on available-for-sale securities and interest rate swaps, net of income taxes	0	0	0	0	0	0	0	(1,051,719)	(1,051,719)
Total comprehensive income (loss)									2,783,920
Preferred stock discount accretion	275,562	0	0	0	0	0	(275,562)	0	0
Preferred stock dividends	0	0	0	0	0	0	(850,000)	0	(850,000)
Stock award plans	0	0	0	(70,169)	0	256,823	0	0	186,654
Release of ESOP shares	0	0	0	(101,263)	228,000	0	0	0	126,737
Treasury stock purchased	0	0	0	0	0	(53,230)	0	0	(53,230)
Balance at Dec. 31, 2011	$ 16,425,912	$ 677,980	$ 1,377,811	$ 58,333,614	$ (204,930)	$ (61,623,816)	$ 38,456,991	$ 791,285	$ 54,234,847

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DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2011

DERIVATIVE FINANCIAL INSTRUMENTS [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 15:            DERIVATIVE FINANCIAL INSTRUMENTS

The Company recorded all derivative financial instruments at fair value in the financial statements.  Derivatives were used as a risk management tool to hedge the exposure to changes in interest rates or other identified market risks.

When a derivative is intended to be a qualifying hedged instrument, the Company prepares written hedge documentation that designates the derivative as 1) a hedge of fair value of a recognized asset or liability (fair value hedge) or 2) a hedge of a forecasted transaction, such as, the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge).  The written documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item, and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management's assertion that the hedge will be highly effective.

On November 7, 2008, the Company elected to terminate three interest rate swap agreements with a total notional value of $90 million.  At termination, the swaps had a market value (gain) of approximately $1.7 million.  The gain was deferred and was accreted into income.  The Company recognized $508,746 and $1.0 million of this gain in 2010 and 2009, respectively.  As of June 30, 2010, the original gain at termination was fully accreted into income in accordance with the stated maturity date of the original agreement.

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OTHER EXPENSES

12 Months Ended

Dec. 31, 2011

OTHER EXPENSES [Abstract]

OTHER EXPENSES

NOTE 17:            OTHER EXPENSES

Other expenses for the years ended December 31, 2011, 2010 and 2009 were as follows:

	December 31,		December 31,		December 31,
	2011		2010		2009
Directors compensation	$	215,980	$	178,376	$	167,749
Outside services		55,000		55,000		86,730
Legal expense		628,444		444,904		370,988
Miscellaneous deposit expense		73,712		44,864		103,752
Office supplies		94,002		109,424		126,844
Telephone		116,826		107,738		104,166
Postage		165,837		172,792		175,017
Insurance		74,287		68,628		62,971
Supervisory exam		58,609		60,115		57,271
Accounting		149,475		165,000		187,389
Organization dues		118,568		114,037		98,853
Loan expense		307,021		427,775		285,078
Contributions		40,118		40,140		40,302
ATM expense		219,329		200,224		260,375
Federal tax credits amortization		676,700		480,322		451,927
Other operating		517,036		544,083		563,571
	$	3,510,944	$	3,213,422	$	3,142,983

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Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Comprehensive income (loss)
Preferred stock dividends, (in hundredths)	5.00%	5.00%	0.00%
Change in unrealized appreciation on available-for-sale securities and interest rate swaps, tax effects	$ 617,676	$ 86,041	$ 5,061

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Consolidated Balance Sheets (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
ASSETS
Loans receivable, allowance for loan losses	$ 10,613,145	$ 13,082,703
Capital Stock:
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized (in shares)	2,000,000	2,000,000
Preferred stock, issued (in shares)	17,000	17,000
Preferred stock, outstanding (in shares)	17,000	17,000
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	6,779,800	6,779,800
Common stock warrants (in shares)	459,459	459,459
Accumulated other comprehensive income
Unrealized appreciation on available-for-sale securities, tax effects	$ 464,723	$ 1,082,399
Treasury stock, at cost (in shares)	4,072,156	4,080,220

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SUBORDINATED DEBENTURES

12 Months Ended

Dec. 31, 2011

SUBORDINATED DEBENTURES [Abstract]

SUBORDINATED DEBENTURES

NOTE 10:            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.

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Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Mar. 01, 2012	Jun. 30, 2011
Entity Registrant Name	GUARANTY FEDERAL BANCSHARES INC
Entity Central Index Key	0001046203
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 11,700,000
Entity Common Stock, Shares Outstanding		2,709,471
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2011

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INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 11:            INCOME TAXES

As of December 31, 2011 and 2010, 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, 2011 and 2010.

The provision (credit) for income taxes consists of:

	Years Ended
	December 31,
	2011			2010			2009
Taxes currently payable	$	(246,017	)	$	160,989		$	(2,835,762	)
Deferred income taxes		949,122			(217,737	)		701,199
	$	703,105		$	(56,748	)	$	(2,134,563	)

The tax effects of temporary differences related to deferred taxes shown on the December 31, 2011 and 2010 balance sheets are:

	2011			2010
Deferred tax assets:
Allowances for loan losses	$	3,926,864		$	4,840,600
Writedowns on foreclosed assets held for sale		589,773			482,604
State low income housing tax credits		1,708,621			1,476,757
Federal low income housing tax and other credits		478,223			710,651
Deferred loan fees/costs		87,898			66,086
Other		241,658			164,610
		7,033,037			7,741,308
Deferred tax liabilities:
FHLB stock dividends		(120,632	)		(120,632	)
Unrealized appreciation on available-for-sale securities		(473,711	)		(1,082,400	)
Accumulated depreciation		(175,448	)		(175,448	)
Other		(68,310	)		(68,310	)
		(838,101	)		(1,446,790	)
Deferred tax asset before valuation allowance		6,194,936			6,294,518
Valuation allowance:
Beginning balance		(1,476,757	)		(785,696	)
Increase for state low income housing tax credits during the period		(231,864	)		(691,061	)
Ending balance		(1,708,621	)		(1,476,757	)
Net deferred tax asset	$	4,486,315		$	4,817,761

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

	Years ended
	December 31,
	2011			2010			2009
Computed at statutory rate		34.0	%		34.0	%		(34.0	%)
Increase (reduction) in taxes resulting from:
State financial institution tax and credits		(17.8	%)		(83.7	%)		(30.6	%)
ESOP		(5.6	%)		(4.4	%)		(1.9	%)
Cash surrender value of life insurance		(7.1	%)		(8.0	%)		(0.8	%)
Valuation allowance		5.1	%		64.3	%		19.8	%
Other		6.9	%		(7.5	%)		6.4	%
Actual tax provision (credit)		15.5	%		(5.3	%)		(41.1	%)

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Consolidated Statements of Operations (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Interest Income
Loans	$ 27,423,897	$ 28,348,002	$ 29,695,487
Investment securities	2,636,799	3,476,721	3,743,688
Other	315,242	506,753	434,261
Total Interest Income	30,375,938	32,331,476	33,873,436
Interest Expense
Deposits	5,778,263	9,628,133	15,381,190
Federal Home Loan Bank advances	2,164,259	2,988,548	3,152,354
Subordinated debentures	610,929	1,023,783	1,023,783
Securities sold under agreements to repurchase	1,057,517	1,166,415	969,258
Total Interest Expenses	9,610,968	14,806,879	20,526,585
Net Interest Income	20,764,970	17,524,597	13,346,851
Provision for Loan Losses	3,350,000	5,200,000	6,900,000
Net Interest Income After Provision for Loan Losses	17,414,970	12,324,597	6,446,851
Noninterest Income
Service charges	1,315,333	1,552,623	1,802,288
Other fees	28,282	33,705	52,233
Gain on investment securities	1,505,915	275,125	689,769
Gain on sale of loans	1,345,334	1,749,857	1,443,385
Loss on foreclosed assets	(800,250)	(492,542)	(523,557)
Other income	1,090,615	1,160,585	775,360
Total Noninterest Income	4,485,229	4,279,353	4,239,478
Noninterest Expense
Salaries and employee benefits	8,886,713	8,636,515	7,952,105
Occupancy	1,660,802	1,704,790	1,806,100
FDIC deposit insurance premiums	942,056	1,220,589	1,520,551
Data processing	529,940	454,611	423,205
Advertising	300,000	300,000	316,666
Prepayment penalty on repurchase agreements	1,531,000	0	0
Other expense	3,510,944	3,213,422	3,142,983
Total Noninterest Expenses	17,361,455	15,529,927	15,161,610
Income (Loss) Before Income Taxes	4,538,744	1,074,023	(4,475,281)
Provision (Credit) for Income Taxes	703,105	(56,748)	(2,134,563)
Net Income (Loss)	3,835,639	1,130,771	(2,340,718)
Preferred Stock Dividends and Discount Accretion	1,125,563	1,125,563	1,031,766
Net Income (Loss) Available to Common Shareholders	$ 2,710,076	$ 5,208	$ (3,372,484)
Basic Income (Loss) Per Common Share (in dollars per share)	$ 1.01	$ 0	$ (1.29)
Diluted Income (Loss) Per Common Share (in dollars per share)	$ 1.01	$ 0	$ (1.29)

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BANK OWNED LIFE INSURANCE

12 Months Ended

Dec. 31, 2011

BANK OWNED LIFE INSURANCE [Abstract]

BANK OWNED LIFE INSURANCE

NOTE 5:              BANK OWNED LIFE INSURANCE

In October 2009, the Company purchased $10 million of Bank owned life insurance on certain key members of management.  Such policies are recorded at their cash surrender value, or the amount that can be realized.  The increase in cash surrender value in excess of the single premium paid is reported as other noninterest income.  The balance at December 31, 2011 and 2010 was $10,770,887 and $10,449,630, respectively.

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2011

PREMISES AND EQUIPMENT [Abstract]

PREMISES AND EQUIPMENT

NOTE 4:              PREMISES AND EQUIPMENT

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

	December 31,			December 31,
	2011			2010
Land	$	2,250,789		$	2,250,789
Buildings and improvements		11,860,040			11,503,087
Automobile		16,479			16,479
Furniture, fixtures and equipment		8,343,157			7,883,750
Leasehold improvements		271,799			271,799
		22,742,264			21,925,904
Less accumulated depreciation		(11,318,442	)		(10,601,219	)
Net premises and equipment	$	11,423,822		$	11,324,685

Depreciation expense was $717,222, $826,440 and $965,504 for the years ended December 31, 2011, 2010, and 2009, respectively.

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PREFERRED STOCK AND COMMON STOCK WARRANTS

12 Months Ended

Dec. 31, 2011

PREFERRED STOCK AND COMMON STOCK WARRANTS [Abstract]

PREFERRED STOCK AND COMMON STOCK WARRANTS

NOTE 16:            PREFERRED STOCK AND COMMON STOCK WARRANTS

On January 30, 2009, as part of the U.S. Department of the Treasury's Troubled Asset Relief Program's Capital Purchase Program (“CPP”), the Company entered into a Securities Purchase Agreement - Standard Terms with the United States Department of the Treasury (the "Treasury") pursuant to which the Company sold to the Treasury 17,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock") and issued a ten year warrant (the "Warrant") to purchase 459,459 shares of the Company's common stock (the "Common Stock") for $5.55 per share (the "Warrant Shares") for a total purchase price of $17.0 million (the "Transaction").

The Series A Preferred Stock qualifies as Tier 1 capital and is entitled to cumulative preferred dividends at a rate of 5% per year for the first five years, payable quarterly, and 9% thereafter. The Series A Preferred Stock has a liquidation preference of $1,000 per share, plus accrued and unpaid dividends.  The failure by the Company to pay a total of six quarterly dividends, whether or not consecutive, gives the holders of the Series A Preferred Stock the right to elect two directors to the Company's Board of Directors.

The Company may redeem the Series A Preferred Stock for $1,000 per share, plus accrued and unpaid dividends, in whole or in part, subject to regulatory approval.

The Warrant is exercisable immediately upon issuance and expires in ten years. The Warrant has anti-dilution protections and certain other protections for the holder of the Warrant, as well as potential registration rights upon written request from the Treasury.  The Treasury has agreed not to exercise voting rights with respect to the Warrant Shares that it may acquire upon exercise of the Warrant. If the Series A Preferred Stock is redeemed in whole, the Company has the right to purchase any shares of the Common Stock held by the Treasury at their fair market value at that time.

The Company is subject to certain contractual restrictions under the CPP and the Certificate of Designations for the Series A Preferred Stock that could prohibit the Company from declaring or paying dividends on its common stock or the Series A Preferred Stock.

The proceeds from the CPP were allocated between the Series A Preferred Stock and the Warrant based on a fair value assigned using a discounted cash flow model.  This resulted in an initial value of $15,622,189 for the Series A Preferred Stock and $1,377,811 for the Warrants.  The discount of approximately $1.4 million on the Series A Preferred Stock is being accreted over the straight-line method (which approximates the level-yield method) over five years ending February 28, 2014.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “ARRA”) was signed into law.  The ARRA imposes certain additional executive compensation and corporate expenditure limits on all current and future CPP recipients.  These limits are in addition to those previously imposed by the Treasury under the Emergency Economic Stabilization Act of 2008 (the “EESA”).  The Treasury released an interim final rule (the “IFR”) on TARP standards for compensation and corporate governance on June 10, 2009, which implemented and further expanded the limitations and restrictions imposed by EESA and ARRA.  The IFR applies to the Company as of the date of publication in the Federal Register on June 15, 2009, but was subject to comment which ended on August 14, 2009.  The Treasury has not yet published a final version of the IFR.

As a result of the Company's participation in the CPP, the restrictions and standards established under EESA and ARRA are applicable to the Company.  Neither the ARRA nor the EESA restrictions shall apply to any CPP recipient, including the Company, at such time that the federal government no longer holds any of the Company's Series A Preferred Stock.

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DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2011

DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES [Abstract]

DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

NOTE 12:            DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale securities:  Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  Level 1 securities include equity securities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include U.S. government agencies and government sponsored mortgage-backed securities.  The Company has no Level 3 securities.

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010 (dollar amounts in thousands):

As of December 31, 2011
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Equity securities:
Other	$	62	$	-	$	-	$	62
Debt securities:
U.S. government agencies		-		34,727		-		34,727
U. S. treasuries		2,043		-		-		2,043
Municipals		-		4,144		-		4,144
Government sponsored mortgage-backed securities		-		40,089		-		40,089
Available-for-sale securities	$	2,105	$	78,960	$	-	$	81,065

As of December 31, 2010
Financial assets:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Equity securities:
Other	$	78	$	-	$	-	$	78
Debt securities:
U.S. government agencies		-		27,503		-		27,503
Government sponsored mortgage-backed securities		-		69,264		-		69,264
Available-for-sale securities	$	78	$	96,767	$	-	$	96,845

The following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Foreclosed Assets Held for Sale:   Fair value is estimated using recent appraisals, comparable sales and other estimates of value obtained principally from independent sources, adjusted for selling costs.  Foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.

Impaired loans (Collateral Dependent):   Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized.  This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and 2010 (dollar amounts in thousands):

2011
Impaired loans:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
December 31, 2011	$	-	$	-	$	11,243	$	11,243
December 31, 2010	$	-	$	-	$	16,163	$	16,163
Foreclosed assets held for sale:
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
December 31, 2011	$	-	$	-	$	3,626	$	3,626
December 31, 2010	$	-	$	-	$	6,686	$	6,686

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and cash equivalents, interest-bearing deposits and Federal Home Loan Bank stock

The carrying amounts reported in the balance sheets approximate those assets' fair value.

Held-to-maturity securities

Fair value is based on quoted market prices, if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Loans with similar characteristics were aggregated for purposes of the calculations.  The carrying amount of accrued interest approximates its fair value.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits.  The carrying amount approximates fair value.  The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank advances and securities sold under agreements to repurchase

The fair value of advances and securities sold under agreements to repurchase is estimated by using rates on debt with similar terms and remaining maturities.

Subordinated debentures and notes payable

For these variable rate instruments, the carrying amount is a reasonable estimate of fair value.  There is currently a limited market for similar debt instruments and the Company has the option to call the subordinated debentures at an amount close to its par value.

Interest payable

The carrying amount approximates fair value.

Commitments to originate loans, letters of credit and lines of credit

The fair value of commitments to originate loans 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 and lines 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.

The following table presents estimated fair values of the Company's financial instruments at December 31, 2011 and 2010.

	December 31, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	26,574,082	$	26,574,082	$	14,145,329	$	14,145,329
Interest-bearing deposits		5,587,654		5,587,654		12,785,000		12,785,000
Held-to-maturity securities		218,571		235,574		260,956		281,784
Federal Home Loan Bank stock		3,846,900		3,846,900		5,025,200		5,025,200
Mortgage loans held for sale		3,702,849		3,702,849		2,685,163		2,685,163
Loans, net		478,960,736		485,714,408		501,980,385		508,839,154
Interest receivable		2,139,320		2,139,320		2,670,274		2,670,274
Financial liabilities:
Deposits		484,583,665		485,803,947		480,694,273		482,094,550
Federal Home Loan Bank advances		68,050,000		70,815,606		93,050,000		92,694,525
Securities sold under agreements to repurchase		25,000,000		25,025,344		39,750,000		40,473,482
Subordinated debentures		15,465,000		15,465,000		15,465,000		15,465,000
Interest payable		518,881		518,881		878,675		878,675
Unrecognized financial instruments (net of contractual value):
Commitments to extend credit		-		-		-		-
Unused lines of credit		-		-		-		-

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DEPOSITS

12 Months Ended

Dec. 31, 2011

DEPOSITS [Abstract]

DEPOSITS

NOTE 8:              DEPOSITS

	December 31, 2011								December 31, 2010
	Weighted  Average  Rate			Balance		Percentage  of Deposits			Weighted  Average  Rate			Balance		Percentage of Deposits
Demand		0.00	%	$	56,315,467		11.6	%		0.00	%	$	26,634,448		5.5	%
NOW		0.56	%		81,804,342		16.9	%		0.78	%		74,984,520		15.6	%
Money market		0.77	%		169,759,166		35.0	%		1.20	%		183,691,603		38.2	%
Savings		0.44	%		21,295,855		4.4	%		0.69	%		19,189,236		4.0	%
		0.56	%		329,174,830		67.9	%		0.96	%		304,499,807		63.3	%
Certificates:
0% - 1.99%		1.08	%		127,813,801		26.4	%		1.12	%		100,992,487		21.0	%
2.00% - 3.99%		2.88	%		15,059,924		3.1	%		2.84	%		43,016,216		8.9	%
4.00% - 6.00%		5.05	%		12,535,110		2.6	%		4.76	%		32,185,764		6.7	%
		1.57	%		155,408,835		32.1	%		2.20	%		176,194,466		36.7	%
Total Deposits		0.89	%	$	484,583,665		100.0	%		1.42	%	$	480,694,273		100.0	%

The aggregate amount of certificates of deposit with a minimum balance of $100,000 was approximately $63,823,000 and $67,264,000, as of December 31, 2011 and 2010, respectively.

A summary of certificates of deposit by maturity as of December 31, 2011, is as follows:

2012	$	87,409,324
2013		42,580,169
2014		13,462,872
2015		6,428,637
2016		5,463,296
Thereafter		64,537
	$	155,408,835

A summary of interest expense on deposits is as follows:

	Years ended
	December 31,
	2011			2010			2009
NOW and Money Market accounts	$	2,580,341		$	3,968,205		$	6,151,371
Savings accounts		118,432			140,382			121,362
Certificate accounts		3,099,265			5,536,701			9,140,075
Early withdrawal penalties		(19,775	)		(17,155	)		(31,618	)
	$	5,778,263		$	9,628,133		$	15,381,190

The Bank utilizes brokered deposits as an additional funding source.  The aggregate amount of brokered deposits was approximately $22,229,000 and $37,073,000 as of December 31, 2011 and 2010, respectively.

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OTHER COMPREHENSIVE INCOME (LOSS)

12 Months Ended

Dec. 31, 2011

OTHER COMPREHENSIVE INCOME (LOSS) [Abstract]

OTHER COMPREHENSIVE INCOME (LOSS)

NOTE 6:              OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income components and related taxes were as follows:

	Year ended
	December 31,
	2011			2010			2009
Unrealized gains (losses) on available-for-sale securities	$	(163,480	)	$	1,016,414		$	1,720,966
Accretion of gains on interest rate swaps		-			(508,746	)		(1,017,492	)
Less: Reclassification adjustment for realized gains included in income		(1,505,915	)		(275,125	)		(689,769	)
Other comprehensive income (loss) before tax effect		(1,669,395	)		232,543			13,705
Tax expense (benefit)		(617,676	)		86,041			5,061
Other comprehensive income (loss)	$	(1,051,719	)	$	146,502		$	8,644

The components of accumulated other comprehensive income, included in stockholders' equity, are as follows:

	2011		2010
Unrealized gain on available-for-sale securities	$	1,256,008	$	2,925,403
Tax effect		464,723		1,082,399
Net of tax amount	$	791,285	$	1,843,004

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INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS

12 Months Ended

Dec. 31, 2011

INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS [Abstract]

INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS

NOTE 7:              INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS

The Company has purchased investments in limited partnerships that were formed to operate low-income housing apartment complexes and single-family housing units throughout Missouri.  The investments are accounted for under the cost method as the Company does not have the ability to exert significant influence over the partnerships.  For a minimum 15 year compliance period, each partnership must adhere to affordable housing regulatory requirements in order to maintain the utilization of the tax credits. At December 31, 2011 and 2010, the net carrying value of the Company's investments in these entities were $6,249,021 and $5,251,318, respectively, and are included in other assets on the Company's Consolidated Balance Sheets.

The Company received federal tax credits of $806,324, $551,000 and $499,943 during 2011, 2010 and 2009, respectively.  Amortization of the investment costs were $676,700, $480,322 and $451,927 during 2011, 2010 and 2009, respectively.

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BORROWINGS

12 Months Ended

Dec. 31, 2011

BORROWINGS [Abstract]

BORROWINGS

NOTE 9:              BORROWINGS

Federal Home Loan Bank Advances

Federal Home Loan Bank advances consist of the following:

	December 31, 2011					December 31, 2010
Maturity Date	Amount		Weighted  Average Rate			Amount		Weighted  Average Rate
2011	$	-		-		$	25,000,000		3.53	%
2013		15,700,000		2.14	%		15,700,000		2.14	%
2015		250,000		4.66	%		250,000		4.66	%
2018		50,000,000		2.14	%		50,000,000		2.14	%
2019		2,100,000		4.87	%		2,100,000		4.87	%
	$	68,050,000		2.23	%	$	93,050,000		2.58	%

The FHLB requires the Bank to maintain collateral in relation 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.  Based on existing collateral as well as the FHLB's limitation of advances to 25% of assets, the Bank has the ability to borrow an additional $81.0 million from the FHLB, as of December 31, 2011.

Federal Reserve Bank Borrowings

During 2008, the Bank established a borrowing line with the Federal Reserve Bank.  The Bank has the ability to borrow $37.0 million as of December 31, 2011.  The Federal Reserve Bank requires the Bank to maintain collateral in relation to borrowings outstanding.  The Bank had no borrowings outstanding on this line as of December 31, 2011 and 2010.

Securities Sold Under Agreements to Repurchase

The Company borrowed $9.8 million under a structured repurchase agreement in September 2007.  Effective in September 2009, interest was based on a fixed rate of 3.56% until maturity in September 2014.  The counterparty, Barclay's Capital, Inc., had the option to terminate the agreement on a quarterly basis until maturity date.  Prior to the stated maturity date, the Company paid off this agreement in November 2011.

The Company borrowed $30.0 million under three structured repurchase agreements in January 2008.  Interest is based on a fixed weighted average rate of 2.65% until maturity in January 2018.  Beginning in February 2010, the counterparty, Barclay's Capital, Inc., has the option to terminate the agreements on a quarterly basis until maturity. Prior to the stated maturity date, the Company paid off one of these agreements in the amount of $5.0 million in November 2011.

The Company has pledged certain investment securities with a fair value of $32.2 million and $46.9 million as of December 31, 2011 and 2010, respectively, to these repurchase agreements.

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EMPLOYEE BENEFIT PLANS

12 Months Ended

Dec. 31, 2011

EMPLOYEE BENEFIT PLANS [Abstract]

EMPLOYEE BENEFIT PLANS

NOTE 14:            EMPLOYEE BENEFIT PLANS

Equity Plans

On May 26, 2010, the Company's stockholders voted to approve the Guaranty Federal Bancshares, Inc. 2010 Equity Plan (the ”Plan”).  The Plan provides for the grant of up to 200,000 shares of Common Stock under equity awards including stock options, stock awards, restricted stock, stock appreciation rights, performance units, or other equity-based awards payable in cash or stock to key employees and directors of the Company and the Bank.  As of December 31, 2011, non-incentive stock options for 25,000 shares and restricted stock for 16,952 shares of Common Stock have been granted under the Plan.

                In addition, the Company established four stock option plans for the benefit of certain directors, officers and employees of the Company 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 Company 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.

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, 2009		108,250			116,704		$	23.29
Granted		41,500			20,000			5.31
Exercised		-			-			-
Forfeited		(1,000	)		-			28.43
Balance outstanding as of December 31, 2009		148,750			136,704			19.40
Granted		46,000			45,000			5.24
Exercised		-			-			-
Forfeited		-			(10,875	)		10.50
Balance outstanding as of December 31, 2010		194,750			170,829			16.14
Granted		-			-			-
Exercised		-			-			-
Forfeited		(10,250	)		(3,829	)		17.51
Balance outstanding as of December 31, 2011		184,500			167,000		$	16.09
Options exercisable as of December 31, 2011		109,100			108,250		$	19.98

In January 2011, the Company granted restricted stock to directors that was fully vested and thus, expensed in full during the year ended December 31, 2011.  The amount expensed of $100,017 for the year represents 16,952 shares of common stock at a market price of $5.90 at the date of grant.

Total stock-based compensation expense recognized for the years ended December 31, 2011, 2010 and 2009 was $186,655, $109,386 and $95,268, respectively.  As of December 31, 2011, there was $171,636 of unrecognized compensation expense related to nonvested stock options, which will be recognized over the remaining vesting period.

As of December 31, 2011, total outstanding stock options of 351,500 had a remaining contractual life of 4.53 years.

The total intrinsic value of outstanding stock options was $0 at December 31, 2011 and 2010, respectively, and the total intrinsic value of outstanding exercisable stock options was $0 at December 31, 2011 and 2010, respectively.  There were no options exercised during fiscal years 2011 and 2010.  The total fair value of share awards vested was $237,525 and $144,347 during 2011 and 2010, 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.  There were no options granted during the year ended December 31, 2011.

	December 31, 2010			December 31, 2009
Dividends per share	$	-		$	-
Risk-free interest rate		2.15	%		1.75	%
Expected life of options	5 years			5 years
Weighted-average volatility		42.62	%		57.58	%
Weighted-average fair value of options granted during year	$	2.04		$	1.31

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 sheets. 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 $126,736, $100,014 and $121,219 for the years ended December 31, 2011, 2010 and 2009, respectively.

The following is a summary of ESOP shares as of December 31, 2011:

Beginning ESOP shares		344,454
Released shares		(299,218	)
Shares committed for release		(22,618	)
Unreleased shares		22,618
Fair value of unreleased shares	$	128,923

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COMMITMENTS AND CREDIT RISK

12 Months Ended

Dec. 31, 2011

COMMITMENTS AND CREDIT RISK [Abstract]

COMMITMENTS AND CREDIT RISK

NOTE 19:            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.

                As of December 31, 2011 and 2010, the Bank had outstanding commitments to originate fixed-rate mortgage loans of approximately $10,955,000 and $7,949,000, respectively.  The commitments extend over varying periods of time with the majority being disbursed within a thirty-day period.

Standby letters of credit are irrevocable conditional commitments issued by the Bank 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 as that involved in extending loans to customers.  Fees for letters of credit 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 $14,233,000 and $12,261,000 as of December 31, 2011 and 2010, respectively, with terms ranging from 1 year to 5 years.

The Bank has confirming letters of credit from the FHLB issued to enhance Bank issued letters of credit granted to various customers for industrial revenue bond issues.  As of December 31, 2011 and 2010, these letters of credit aggregated approximately $10,656,000 and $10,984,000. 

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, 2011 and 2010, unused lines of credit to borrowers aggregated approximately $36,931,000 and $50,473,000, respectively, for commercial lines and $17,625,000 and $17,525,000, respectively, for open-end consumer lines.

As of December 31, 2010, the Company had commitments to purchase $1.9 million in federal low income housing investments in southwest Missouri.  The Company had no remaining purchase commitments in these investments as of December 31, 2011.

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ 3,835,639	$ 1,130,771	$ (2,340,718)
Items not requiring (providing) cash:
Deferred income taxes	949,122	(217,737)	701,199
Depreciation	717,222	826,440	965,504
Provision for loan losses	3,350,000	5,200,000	6,900,000
Gain on sale of loans and investment securities	(2,851,249)	(2,024,982)	(2,133,154)
Loss on sale of foreclosed assets	520,255	341,376	285,010
Accretion of gain on termination of interest rate swaps	0	(508,746)	(1,017,492)
Amortization of deferred income, premiums and discounts, net	529,016	587,769	352,345
Stock award plans	186,654	109,386	95,268
Origination of loans held for sale	(58,776,634)	(81,958,753)	(78,535,230)
Proceeds from sale of loans held for sale	59,104,282	84,488,527	78,447,333
Release of ESOP shares	126,737	100,014	121,219
Increase in cash surrender value of bank owned life insurance	(321,257)	(380,090)	(69,540)
Changes in:
Prepaid FDIC deposit insurance premiums	888,280	1,158,519	(4,135,875)
Accrued interest receivable	530,954	1,289	(39,113)
Prepaid expenses and other assets	(4,120)	569,548	767,817
Accrued expenses and other liabilities	(349,891)	(551,779)	(214,248)
Income taxes payable	(681,017)	3,887,321	(3,333,407)
Net cash provided by (used in) operating activities	7,753,993	12,758,873	(3,183,082)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans	14,093,653	7,493,436	18,959,641
Principal payments on held-to-maturity securities	42,385	211,827	83,682
Principal payments on available-for-sale securities	15,633,730	13,855,527	13,087,448
Purchase of available-for-sale securities	(73,537,207)	(55,262,990)	(82,769,479)
Proceeds from sales of available-for-sale securities	46,274,707	17,516,564	25,356,214
Proceeds from maturities of available-for-sale securities	26,775,000	28,956,500	8,500,000
Purchase of premises and equipment	(816,359)	(333,609)	(1,459,557)
Purchase of tax credit investments	(950,086)	0	(3,433,867)
Purchase of interest bearing deposits	0	0	(34,605,802)
Proceeds from maturities of interest bearing deposits	7,197,346	5,000,000	18,045,000
Purchase of bank owned life insurance	0	0	(10,000,000)
Redemption of Federal Home Loan Bank stock	1,178,300	951,400	753,500
Capitalized costs on foreclosed assets held for sale	(102,804)	(737,336)	(122,162)
Insurance proceeds on foreclosed assets held for sale	0	637,427	0
Proceeds from sale of foreclosed assets held for sale	5,627,426	6,295,990	4,268,852
Net cash provided by (used in) investing activities	41,416,091	24,584,736	(43,336,530)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings accounts	24,675,024	5,504,374	160,490,510
Net decrease in certificates of deposit	(20,785,632)	(37,861,203)	(94,518,877)
Net decrease in securities sold under agreements to repurchase	(14,750,000)	0	0
Proceeds from FHLB advances	0	0	5,000,000
Repayments of FHLB advances	(25,000,000)	(23,000,000)	(21,386,000)
Repayments of notes payable	0	0	(1,435,190)
Advances from borrowers for taxes and insurance	22,507	(1,608)	(30,717)
Proceeds from issuance preferred stock and warrants	0	0	17,000,000
Common and preferred cash dividends paid	(850,000)	(850,000)	(672,917)
Treasury stock purchased	(53,230)	(6,540)	(7,515)
Net cash provided by (used in) financing activities	(36,741,331)	(56,214,977)	64,439,294
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	12,428,753	(18,871,368)	17,919,682
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	14,145,329	33,016,697	15,097,015
CASH AND CASH EQUIVALENTS END OF YEAR	26,574,082	14,145,329	33,016,697
Supplemental Cash Flows Information
Real estate acquired in settlement of loans	5,517,045	17,564,615	5,536,091
Interest paid	9,970,762	15,326,326	20,705,742
Income taxes paid, net of (refunds)	435,000	(3,726,331)	496,661
Sale and financing of foreclosed assets held for sale	$ 1,461,378	$ 7,246,939	$ 315,000

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LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2011

LOANS AND ALLOWANCE FOR LOAN LOSSES [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 3:              LOANS AND ALLOWANCE FOR LOAN LOSSES

Categories of loans at December 31, 2011 and 2010 include:

	December 31,
	2011			2010
Real estate - residential mortgage:
One to four family units	$	98,030,718		$	103,052,035
Multi-family		43,165,695			44,138,034
Real estate - construction		44,912,049			63,308,397
Real estate - commercial		194,856,374			195,889,801
Commercial loans		88,088,580			85,427,589
Consumer and other loans		20,758,027			23,425,843
Total loans		489,811,443			515,241,699
Less:
Allowance for loan losses		(10,613,145	)		(13,082,703	)
Deferred loan fees/costs, net		(237,562	)		(178,611	)
Net loans	$	478,960,736		$	501,980,385

Classes of loans by aging at December 31, 2011 and 2010 were as follows:

As of December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	5	$	206	$	33	$	244	$	97,787	$	98,031	$	-
Multi-family		-		-		-		-		43,166		43,166		-
Real estate - construction		728		-		157		885		44,027		44,912		-
Real estate - commercial		167		-		1,193		1,360		193,496		194,856		-
Commercial loans		32		-		548		580		87,508		88,088		-
Consumer and other loans		14		18		20		52		20,706		20,758		-
Total	$	946	$	224	$	1,951	$	3,121	$	486,690	$	489,811	$	-

As of December 31, 2010
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	1,158	$	562	$	1,591	$	3,311	$	99,741	$	103,052	$	-
Multi-family		-		-		-		-		44,138		44,138		-
Real estate - construction		1,969		89		311		2,369		60,939		63,308		-
Real estate - commercial		-		234		-		234		195,656		195,890		-
Commercial loans		2,571		-		2,021		4,592		80,836		85,428		-
Consumer and other loans		100		25		29		154		23,272		23,426		-
Total	$	5,798	$	910	$	3,952	$	10,660	$	504,582	$	515,242	$	-

Nonaccruing loans are summarized as follows:

	December 31,
	2011		2010
Real estate - residential mortgage:
One to four family units	$	1,671,245	$	3,119,760
Multi-family		-		-
Real estate - construction		8,514,187		8,934,666
Real estate - commercial		4,082,416		2,980,117
Commercial loans		2,377,081		7,743,116
Consumer and other loans		357,060		234,475
Total	$	17,001,989	$	23,012,134

Activity in the allowance for loan losses was as follows:

	Years ended
	December 31,
	2011			2010			2009
Balance, beginning of year	$	13,082,703		$	14,076,123		$	16,728,492
Provision charged to expense		3,350,000			5,200,000			6,900,000
Losses charged off, net of recoveries  of $1,955,578, $1,191,644 and $217,288 for the years ended December 31, 2011, 2010 and 2009, respectively		(5,819,558	)		(6,193,420	)		(9,552,369	)
Balance, end of year	$	10,613,145		$	13,082,703		$	14,076,123

The following table presents the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of and for the years ended December 31, 2011 and 2010:

As of December 31, 2011
	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of year	$	4,547		$	3,125		$	1,713		$	528		$	2,483		$	687		$	-	$	13,083
Provision charged to expense		265			2,123			943			(138	)		505			(1,283	)		935	$	3,350
Losses charged off		(2,381	)		(2,744	)		(966	)		-			(1,362	)		(322	)		-	$	(7,775	)
Recoveries		77			221			45			-			322			1,290			-	$	1,955
Balance, end of year	$	2,508		$	2,725		$	1,735		$	390		$	1,948		$	372		$	935	$	10,613
Ending balance:  individually evaluated for impairment	$	1,355		$	659		$	127		$	-		$	399		$	72		$	-	$	2,612
Ending balance:  collectively evaluated for impairment	$	1,153		$	2,066		$	1,608		$	390		$	1,549		$	300		$	935	$	8,001
Loans:
Ending balance:  individually evaluated for impairment	$	8,515		$	5,019		$	1,819		$	-		$	3,048		$	653		$	-	$	19,054
Ending balance:  collectively evaluated for impairment	$	36,397		$	189,837		$	96,212		$	43,166		$	85,040		$	20,105		$	-	$	470,757

As of December 31, 2010
	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of year	$	2,810		$	2,923		$	1,646		$	393	$	3,554		$	2,750		$	-	$	14,076
Provision charged to expense		5,620			563			948			135		716			(2,782	)		-	$	5,200
Losses charged off		(3,893	)		(373	)		(906	)		-		(1,847	)		(366	)		-	$	(7,385	)
Recoveries		10			12			25			-		60			1,085			-	$	1,192
Balance, end of year	$	4,547		$	3,125		$	1,713		$	528	$	2,483		$	687		$	-	$	13,083
Ending balance:  individually evaluated for impairment	$	3,134		$	1,384		$	149		$	-	$	1,052		$	307		$	-	$	6,026
Ending balance:  collectively evaluated for impairment	$	1,413		$	1,741		$	1,564		$	528	$	1,431		$	380		$	-	$	7,057
Loans:
Ending balance:  individually evaluated for impairment	$	9,281		$	5,150		$	3,363		$	-	$	8,409		$	1,008		$	-	$	27,211
Ending balance:  collectively evaluated for impairment	$	54,027		$	190,740		$	99,689		$	44,138	$	77,019		$	22,418		$	-	$	488,031

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC-310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

The following summarizes impaired loans at and for the years ended December 31, 2011 and 2010:

As of December 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest  Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,424	$	1,424	$	-	$	2,373	$	50
Multi-family		-		-		-		-		-
Real estate - construction		1,181		1,181		-		3,705		-
Real estate -  commercial		4,646		5,985		-		4,609		57
Commercial loans		1,148		1,459		-		1,573		55
Consumer and other loans		376		376		-		458		37
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	395	$	421	$	127	$	1,396	$	-
Multi-family		-		-		-		-		-
Real estate - construction		7,334		7,854		1,355		7,697		-
Real estate -  commercial		373		373		659		2,189		-
Commercial loans		1,900		1,900		399		2,790		-
Consumer and other loans		277		277		72		381		-
Total
Real estate - residential mortgage:
One to four family units	$	1,819	$	1,845	$	127	$	3,769	$	50
Multi-family		-		-		-		-		-
Real estate - construction		8,515		9,035		1,355		11,402		-
Real estate -  commercial		5,019		6,358		659		6,798		57
Commercial loans		3,048		3,359		399		4,363		55
Consumer and other loans		653		653		72		839		37
Total	$	19,054	$	21,250	$	2,612	$	27,171	$	199

As of December 31, 2010
	Recorded		Unpaid		Specific		Average		Interest
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,691	$	1,708	$	-	$	3,011	$	185
Multi-family		-		-		-		1,007		-
Real estate - construction		601		2,003		-		4,418		9
Real estate -  commercial		2,881		2,881		-		2,674		30
Commercial loans		2,897		4,852		-		3,516		41
Consumer and other loans		369		372		-		2,253		93
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	1,672	$	1,672	$	357	$	1,570	$	-
Multi-family		-		-		-		-		-
Real estate - construction		8,680		8,680		3,134		2,804		-
Real estate -  commercial		2,269		2,269		1,384		997		-
Commercial loans		5,512		5,512		1,052		4,867		-
Consumer and other loans		639		639		99		1,879		-
Total
Real estate - residential mortgage:
One to four family units	$	3,363	$	3,380	$	357	$	4,581	$	185
Multi-family		-		-		-		1,007		-
Real estate - construction		9,281		10,683		3,134		7,222		9
Real estate -  commercial		5,150		5,150		1,384		3,671		30
Commercial loans		8,409		10,364		1,052		8,383		41
Consumer and other loans		1,008		1,011		99		4,132		93
Total	$	27,211	$	30,588	$	6,026	$	28,996	$	358

Interest of approximately $1,223,789 was recognized on average impaired loans of $39,642,406 for the year ended December 31, 2009.

At December 31, 2011, the Bank's impaired loans shown in the table above included loans that were classified as troubled debt restructurings (TDR).  The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower.  This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor's projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower.  Key factors considered by the Bank include the debtor's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.  The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction of the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02 (the ASU), the Bank reassessed all restructurings that occurred on or after the beginning of its current fiscal year December 31, 2011 for identification as troubled debt restructurings.  The Bank identified as troubled debt restructurings certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology.  Upon identifying those receivables as troubled debt restructurings, the Bank identified them as impaired under the guidance in Accounting Standards Codification (ASC) 310-10-35.  The ASU requires prospective application of the impairment measurement guidance in ASC 310-10-35 for those receivables newly identified as impaired

The following table presents information regarding troubled debt restructurings by class for the year ended December 31, 2011:

	Number  of Loans		Pre-Modification  Outstanding Recorded Balance		Post-Modification  Outstanding Recorded Balance
Real estate - residential mortgage:
One to four family units		-	$	-	$	-
Multi-family		-		-		-
Real estate - construction		3		8,526,970		8,925,340
Real estate -  commercial		3		6,526,382		4,591,406
Commercial loans		-		-		-
Consumer and other loans		-		-		-
Total		6	$	15,053,352	$	13,516,746

The troubled debt restructurings described above increased the allowance for loan losses by $1,299,226 and resulted in charge offs of $1,859,100 during the year ended December 31, 2011.

The following table presents the troubled debt restructurings by type of modification:

	Interest Rate		Term		Combination		Total Modification
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	-	$	-
Multi-family		-		-		-		-
Real estate - construction		6,884,800		2,040,540		-		8,925,340
Real estate -  commercial		-		-		4,591,406		4,591,406
Commercial loans		-		-		-		-
Consumer and other loans		-		-		-		-
Total	$	6,884,800	$	2,040,540	$	4,591,406	$	13,516,746

At December 31, 2010, the Bank did not have any troubled debt restructurings.

As part of the on-going monitoring of the credit quality of the Bank's loan portfolio, management tracks loans by an internal rating system.  All loans are assigned an internal credit quality rating based on an analysis of the borrower's financial condition.  The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank's safety and soundness.  The following are the internally assigned ratings:

Pass-This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

                Special mention-This rating represents loans that are currently protected but are potentially weak.  The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard-This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

The following table provides information about the credit quality of the loan portfolio using the Bank's internal rating system as of December 31, 2011 and 2010:

As of December 31, 2011
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	27,646	$	162,019	$	91,503	$	42,668	$	80,529	$	19,522	$	423,887
Special Mention		6,372		20,406		3,214		498		2,183		309		32,982
Substandard		10,894		12,431		3,314		-		5,376		927		32,942
Total	$	44,912	$	194,856	$	98,031	$	43,166	$	88,088	$	20,758	$	489,811

As of December 31, 2010
	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	45,307	$	173,210	$	93,816	$	44,138	$	73,291	$	21,580	$	451,342
Special Mention		4,621		7,604		2,962		-		1,028		4		16,219
Substandard		13,380		15,076		6,274		-		11,109		1,842		47,681
Total	$	63,308	$	195,890	$	103,052	$	44,138	$	85,428	$	23,426	$	515,242

The weighted average interest rate on loans as of December 31, 2011 and 2010 was 5.82% and 5.61%, respectively.

The Bank serviced mortgage loans for others amounting to $199,256 and $237,605 as of December 31, 2011 and 2010, respectively.  The Bank serviced commercial loans for others amounting to $4,143,374 and $6,555,843 as of December 31, 2011 and 2010, respectively.

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CONDENSED PARENT COMPANY STATEMENTS

12 Months Ended

Dec. 31, 2011

CONDENSED PARENT COMPANY STATEMENTS [Abstract]

CONDENSED PARENT COMPANY STATEMENTS

NOTE 20:            CONDENSED PARENT COMPANY STATEMENTS

The condensed balance sheets as of December 31, 2011 and 2010, and statements of operations and cash flows for the years ended December 31, 2011, 2010 and 2009 for the parent company, Guaranty Federal Bancshares, Inc., are as follows:

Balance Sheets	December 31,
	2011			2010
Assets
Cash	$	781,432		$	1,197,553
Available-for-sale securities		62,262			77,920
Due from subsidiary		21,295			21,295
Investment in subsidiary		67,649,693			65,164,131
Investment in Capital Trust I & II		465,000			465,000
Prepaid expenses and other assets		183,508			287,684
Refundable income taxes		717,319			499,486
Deferred income taxes		5,793			38,833
	$	69,886,302		$	67,751,902
Liabilities
Subordinated debentures	$	15,465,000		$	15,465,000
Accrued expenses and other liabilities		186,455			246,136
Stockholders' equity
Series A preferred stock		16,425,912			16,150,350
Common stock		677,980			677,980
Common stock warrants		1,377,811			1,377,811
Additional paid-in capital		58,333,614			58,505,046
Unearned ESOP shares		(204,930	)		(432,930	)
Retained earnings		38,456,991			35,746,914
Unrealized appreciation on available-for-sale securities and interest rate swaps, net		791,285			1,843,004
Treasury stock		(61,623,816	)		(61,827,409	)
	$	69,886,302		$	67,751,902

Statements of Operations	Years ended December 31,
	2011			2010			2009
Income
Dividends from subsidiary bank	$	1,000,000		$	-		$	-
Gain on investment securities		-			-			365,077
Interest income:
Related party		14,753			25,933			36,726
Other		18,369			30,783			55,425
		1,033,122			56,716			457,228
Expense
Interest expense:
Other		-			-			2,556
Related party		610,929			1,023,783			1,023,783
Other		462,971			463,502			458,947
		1,073,900			1,487,285			1,485,286
Loss before income taxes and equity in undistributed income (loss) of subsidiaries		(40,778	)		(1,430,569	)		(1,028,058	)
Credit for income taxes		(349,000	)		(480,000	)		(302,528	)
Income (Loss) before equity in undistributed earnings of subsidiaries		308,222			(950,569	)		(725,530	)
Equity in undistributed income (losses) of subsidiaries		3,527,417			2,081,340			(1,615,188	)
Net income (loss)	$	3,835,639		$	1,130,771		$	(2,340,718	)

Statements of Cash Flows	Years ended December 31,
	2011			2010			2009
Cash Flows From Operating Activities
Net income (loss)	$	3,835,639		$	1,130,771		$	(2,340,718	)
Items not requiring (providing) cash:
Equity in undistributed (income) loss of subsidiaries		(3,527,417	)		(2,081,340	)		1,615,188
Deferred income taxes		38,834			-			-
Release of ESOP shares		126,737			100,014			121,219
Stock award plan expense		186,655			109,386			95,268
Gain on investment securities		-			-			(365,077	)
Changes in:
Prepaid expenses and other assets		104,176			103,787			11,094
Income taxes payable/refundable		(217,833	)		(104,143	)		(62,672	)
Accrued expenses		(59,682	)		(18,376	)		(31,264	)
Net cash provided by (used in) operating activities		487,109			(759,901	)		(956,962	)
Cash Flows From Investing Activities
Capital contributions to subsidiary bank		-			-			(13,000,000	)
Proceeds from sales of AFS securities		-			-			834,952
Net cash used in investing activities		-			-			(12,165,048	)
Cash Flows From Financing Activities
Cash dividends paid on common and preferred stock		(850,000	)		(850,000	)		(672,917	)
Treasury stock purchased		(53,230	)		(6,540	)		(7,515	)
Repayment of advances from subsidiary		-			900			-
Repayment of notes payable		-			-			(1,435,190	)
Proceeds from issuance of preferred stock and warrants		-			-			17,000,000
Net cash provided by (used in) financing activities		(903,230	)		(855,640	)		14,884,378
Increase (decrease) in cash		(416,121	)		(1,615,541	)		1,762,368
Cash, beginning of year		1,197,553			2,813,094			1,050,726
Cash, end of year	$	781,432		$	1,197,553		$	2,813,094

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SIGNIFICANT ESTIMATES AND CONCENTRATIONS

12 Months Ended

Dec. 31, 2011

Significant Estimates And Concentrations [Abstract]

SIGNIFICANT ESTIMATES AND CONCENTRATIONS

NOTE 13:            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 regarding loans.

The current protracted economic decline continues to present financial institutions with circumstances and challenges which in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans.  The financial statements have been prepared using the values and information currently available to the Company.

Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses, or capital that could negatively impact the Company's ability to meet regulatory capital requirements and maintain sufficient liquidity.