Edgar Filing: GUARANTY FEDERAL BANCSHARES INC

Guaranty Federal Bancshares Inc 2006 Proxy

United States

Securities and Exchange Commission

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. __)

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Guaranty Federal Bancshares, Inc.

(Name of Registrant as Specified in Its Charter)

______________________________________________________________

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[Guaranty Federal Bancshares, Inc. Letterhead]

April 21, 2006

Dear Fellow Stockholder:

On behalf of the Board of Directors and management of Guaranty Federal Bancshares, Inc., I cordially invite you to attend the 2006 Annual Meeting of Stockholders to be held at the Clarion Hotel, 3333 South Glenstone Avenue, Springfield, Missouri, on Wednesday, May 24, 2006 at 6:00 p.m., local time. The attached Notice of Annual Meeting of Stockholders and Proxy Statement describe the formal business to be transacted at the meeting. Following the formal meeting, I will report on the operations of the Company. Directors and officers of the Company, as well as representatives of BKD, LLP, our independent registered public accounting firm, will be present to respond to any questions that stockholders may have.

Whether or not you plan to attend the meeting, please sign and date the enclosed form of proxy and return it in the accompanying postage-paid return envelope as soon as possible. This will not prevent you from voting in person at the meeting but will assure that your vote is counted if you are unable to attend the meeting.

Respectfully,

/s/ Shaun A. Burke

Shaun A. Burke

President and CEO

GUARANTY FEDERAL BANCSHARES, INC.

1341 WEST BATTLEFIELD

SPRINGFIELD, MO 65807-4181

(417) 520-4333

______________________________________

NOTICE OF MEETING OF STOCKHOLDERS

To Be Held on May 24, 2006

Notice is hereby given that an annual meeting of the stockholders (“Meeting”) of Guaranty Federal Bancshares, Inc. (the “Company”) will be held at the Clarion Hotel, 3333 South Glenstone Avenue, Springfield, Missouri, on May 24, 2006, at 6:00 p.m., local time. Stockholders of record at the close of business on April 4, 2006 are the stockholders entitled to vote at the meeting.

A Proxy Card and a Proxy Statement for the Meeting are enclosed.

The Meeting is being held for the purpose of considering and acting upon:

1.	The election of three directors.

The ratification of BKD, LLP as Independent Registered Public Accounting Firm to the Company for the fiscal year ending December 31, 2006.

Such other matters as may come properly before the Meeting or any adjournments thereof. Except with respect to procedural matters incident to the conduct of the Meeting, the Board of Directors is not aware of any other business to come before the Meeting.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Don M. Gibson

Don M. Gibson

Chairman of the Board

Springfield, Missouri

April 21, 2006

THE BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND RETURN YOUR PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL MEETING IF YOU DESIRE, AND YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT AT ANY TIME PRIOR TO THE VOTE AT THE ANNUAL MEETING. IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM OUR RECORD HOLDER TO VOTE PERSONALLY AT THE MEETING.

GUARANTY FEDERAL BANCSHARES, INC.

1341 WEST BATTLEFIELD

SPRINGFIELD, MISSOURI 65807-4181

_____________________

PROXY STATEMENT

_____________________

This proxy statement has been prepared in connection with the solicitation of proxies by the Board of Directors of Guaranty Federal Bancshares, Inc. (the “Company”) for use at the annual meeting of stockholders to be held on May 24, 2006 (the “Annual Meeting”), and at any adjournment(s) thereof. The Annual Meeting will be held at 6:00 p.m., local time, at the Clarion Hotel, 3333 South Glenstone Avenue, Springfield, Missouri. It is anticipated that this proxy statement will be mailed to stockholders on or about April 21, 2006.

RECORD DATE--VOTING--VOTE REQUIRED FOR APPROVAL

All persons who were stockholders of the Company at the close of business on April 4, 2006, (“Record Date”) will be entitled to cast votes at the Annual Meeting. Voting may be by proxy or in person. As of the Record Date, the Company had 2,958,147 shares of common stock, par value $0.10 per share (“Common Stock”), issued and outstanding.

Holders of a majority of the outstanding shares of Common Stock entitled to vote, represented in person or by proxy, will constitute a quorum for purposes of transacting business at the Annual Meeting.

Stockholders are urged to indicate their vote in the appropriate spaces on the proxy card. Each proxy solicited hereby, if properly executed, duly returned to the Board of Directors of the Company and not revoked prior to the Annual Meeting, will be voted at the Annual Meeting in accordance with the stockholder’s instructions indicated thereon. Where no instructions are indicated, proxies will be voted by those named in the proxies FOR the approval of the specific proposals presented in this proxy statement and on the proxy card and in their best judgment upon any other business that may properly come before the Annual Meeting or any adjournment thereof. Each stockholder shall have one vote for each share of stock owned.

A stockholder giving a proxy has the power to revoke the proxy at any time before it is exercised by filing with the Secretary of the Company written instructions revoking it. A duly executed proxy bearing a later date will be sufficient to revoke an earlier proxy. The proxy executed by a stockholder who attends the Annual Meeting will be revoked only if that stockholder files the proper written instrument with the Secretary prior to the end of the voting.

To the extent necessary to assure sufficient representation at the Annual Meeting, proxies may be solicited by officers, directors and regular employees of the Company personally, by telephone or by further correspondence. Officers, directors and regular employees of the Company will not be compensated for their solicitation efforts. The cost of soliciting proxies from stockholders will be borne by the Company. The Company will also reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of Common Stock.

Regardless of the number of shares of the Company’s Common Stock owned, it is important that stockholders be represented by proxy or be present in person at the Annual Meeting. In order for any proposals considered at the Annual Meeting to be approved by the Company’s stockholders, a quorum must be present. Stockholders are requested to vote by completing the enclosed proxy card and returning it signed and dated in the enclosed postage-paid envelope.

Proxies marked as abstentions will not be counted as votes cast. In addition, shares held in street name which have been designated by brokers on proxy cards as not voted will not be counted as votes cast (“broker non-votes”). Proxies marked as abstentions or broker non-votes, however, will be treated as shares present for purposes of determining whether a quorum is present. Approval of the ratification of the independent auditor proposal requires the affirmative vote of a majority of the votes cast on such matter. Directors are elected by a plurality of votes of the shares present in person or by proxy at the Annual Meeting. Accordingly, abstentions and broker non-votes will have no effect on the election of directors or the proposal to ratify the Company’s independent registered public accounting firm.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

Persons and groups owning in excess of 5% of the Common Stock are required to file certain reports regarding such ownership pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Certificate of Incorporation of the Company restricts the voting by persons who beneficially own in excess of 10% of the outstanding shares of Common Stock. This restriction does not apply to employee benefit plans of the Company. The following table sets forth, as of the Record Date, persons or groups who are known by the Company to own more than 5% of the Common Stock.

Name and Address Of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class
Guaranty Bank Employee Stock Ownership Plan (“ESOP”) 1341 West Battlefield Springfield, MO 65807-4181	296,029(1)	9.72%

(1)

Reflects shared investment and voting power with respect to all shares listed. The ESOP purchased these shares for the exclusive benefit of plan participants with funds borrowed from the Company. These shares are held in a suspense account and are allocated among ESOP participants annually on the basis of compensation as the ESOP debt is repaid. The ESOP Committee, consisting of certain non-employee directors of the Company’s Board of Directors, instructs the ESOP Trustee regarding investment of ESOP plan assets. The ESOP Trustee must vote all shares allocated to participant accounts under the ESOP as directed by participants. Unallocated shares and shares for which no timely voting direction is received are voted by the ESOP Trustee as directed by the ESOP Committee.

The following table sets forth certain information as of the Record Date, with respect to the shares of the Company’s Common Stock owned by each of the directors, nominees and Named Executive Officers (see section titled “Summary Compensation Table”) of the Company, and the total shares owned by directors and executive officers as a group. Except as otherwise noted, each person has sole voting and investment power over his shares. Less than 1% stock ownership is shown below with an asterisk (*).

Name of Beneficial Owner	Total Shares Beneficially Owned(1)	Percent of Total Outstanding Common Shares
Jack L. Barham	52,474(2)(3)	1.7%
Wayne V. Barnes	76,460(2)(4)	2.5%
Shaun A. Burke	18,094(5)	*
Don M. Gibson	41,200(2)	1.4%
Kurt D. Hellweg	28,777(2)	*
Gary Lipscomb	37,055(2)	1.2%
Gregory V. Ostergren	39,538(2)(6)	1.3%
Tim Rosenbury	7,581(2)	*
James L. Sivils, III	8,145(2)(7)	*
Total owned by all directors and executive officers as a group (eleven persons)	400,432(8)	13.2%

(1)

Amounts may include shares held directly, as well as shares held jointly with family members, in retirement accounts, in a fiduciary capacity, by certain family members, by certain related entities or by trusts of which the directors and executive officers are trustees or substantial beneficiaries, with respect to which shares the respective director or executive officers are trustees or substantial beneficiaries, with respect to which shares the respective director or executive officer may be deemed to have sole or shared voting and/or investment powers. Due to the rules for determining beneficial ownership, the same securities may be attributed as being beneficially owned by more than one person. The holders may disclaim beneficial ownership of the included shares which are owned by or with family members, trusts or other entities.

(2)

Excludes 296,029 shares of Common Stock held under the ESOP and 3,447 shares held under a restricted stock plan (the “RSP”) and a recognition and retention plan (the “RRP”) for which the individual serves as a member of the ESOP, RRP or RSP Committee or Trustee. Each individual disclaims beneficial ownership with respect to these shares held in a fiduciary capacity.

(3)	Includes 18,902 shares of Common Stock that the individual has the right to acquire through the exercise of options within 60 days of the Record Date.

(4)	Includes 23,402 shares of Common Stock that the individual has the right to acquire through the exercise of options within 60 days of the Record Date.

(5)	Includes 2,000 shares of Common Stock that the individual has the right to acquire through the exercise of options within 60 days of the Record Date.

(6)	Includes 13,939 shares of Common Stock that the individual has the right to acquire through the exercise of options within 60 days of the Record Date.

(7)	Includes 5,000 shares of Common Stock that the individual has the right to acquire through the exercise of options within 60 days of the Record Date.

(8)	Includes 88,623 shares of Common Stock that may be acquired within 60 days of the Record Date through the exercise of options.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own

more than ten percent of the Common Stock, to file reports detailing their ownership and changes of ownership in the Common Stock with the SEC and to furnish the Company with copies of all such ownership reports. Based solely on the Company’s review of the copies of the ownership reports furnished to the Company, and written representations relative to the filing of certain forms, the Company believes that all Section 16(a) filing requirements applicable to its officers and directors, and persons who own more than ten percent of the Common Stock, were complied with during the 2005 fiscal year.

FIRST PROPOSAL; ELECTION OF DIRECTORS

The number of directors constituting the Board of Directors of the Company (the “Board”) is currently nine. The Board is divided into three classes of three directors. The term of office of one class of directors expires each year in rotation so that the class up for election at each annual meeting of stockholders has served for a three-year term. The terms of three of the present directors (Burke, Hellweg and Lipscomb) are expiring at the Annual Meeting. One of these directors, Gary Lipscomb, has elected of his own accord not to seek election as a director at the Annual Meeting for another term. A new nominee, James R. Batten was approved at the March Board meeting upon the recommendation of the Nominating Committee of the Board. The following table sets forth certain information for each director nominee and continuing director of the Board.

On behalf of the management, staff and Board of Directors, we want to express our heartfelt thanks to Gary Lipscomb for his service to the Company. After 15 years of dedicated service as a member of our Board of Directors, Gary will retire at the expiration of his current term. We sincerely appreciate his valuable advice and counsel and wish him the very best in his retirement.

The two continuing directors (Burke and Hellweg) and the listed nominee (Batten) have been nominated, upon the recommendation of the Nominating Committee of the Board, by the Board and, upon election at the Annual Meeting by the stockholders, will hold office for a three-year term expiring in 2009 or until their successors are elected and qualified. Each nominee has indicated that he is willing and able to serve as a director if elected and has consented to being named as a nominee in this proxy statement.

Unless otherwise specified on the proxies received by the Company, it is intended that proxies received in response to this solicitation will be voted in favor of the election of each person named in the following table to be a director of the Company for the term as indicated, or until his successor is elected and qualified. There are no arrangements or understandings between the nominees or directors and any other person pursuant to which any such person was or is selected as a director or nominee.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS

THAT YOU VOTE FOR THE FOLLOWING NOMINEES.

Nominees for Three-Year Terms Expiring 2009

Name	Age (1)		Director Since		Current Term Expires
Shaun A. Burke	42		2004		2006
Kurt D. Hellweg		48		2000		2006
James R. Batten		43		New nominee		New nominee

In addition to the three nominees proposed to serve on the Board as described above, the following individuals are also directors of the Company, each serving for the current term indicated.

Directors Who Are Not Nominees

Who Will Continue in Office After the Annual Meeting

Name	Age (1)	Director Since	Current Term Expires
Jack L. Barham	72	1983	2007
Don M. Gibson	62	2002	2007
Tim Rosenbury	49	2002	2007
Wayne V. Barnes	74	1976	2008
Gregory V. Ostergren	50	1999	2008
James L. Sivils, III	41	2002	2008

(1)	As of the Record Date

Biographical Information

Set forth below are brief summaries of the background and business experience, including principal occupation, of each nominee and director currently serving on the Board of Directors of the Company.

Shaun A. Burke was appointed President and Chief Executive Officer of the Company on March 1, 2005. Mr. Burke has been President and Chief Executive Officer of Guaranty Bank, the Company’s wholly owned subsidiary (the “Bank”), since March 9, 2004. In May 1997, Mr. Burke joined, and assisted with the start up of, Signature Bank in Springfield, Missouri. During his tenure at Signature Bank, he held the positions of Executive Vice President and Senior Credit Officer and was a member of the bank’s board of directors. From 1983 to 1997, Mr. Burke was with Bank of America and its predecessors in Springfield, Missouri, with his last position being Vice President of Commercial Lending. Mr. Burke is active in many civic organizations and is a past member of the United Way Allocations and Agency Relations Executive Committee, Salvation Army Board of Directors and Big Brothers Big Sisters of the Ozarks Board of Directors.

Kurt D. Hellweg is President and Chief Executive Officer of International Dehydrated Foods, Inc. (“IDF”) and American Dehydrated Foods, Inc. (“ADF”). IDF and ADF are privately held companies that manufacture and market ingredients for both the food and feed industries. Mr. Hellweg has previously served as Vice President of Sales, Senior Vice President of Operations, and President/COO of ADF. Prior to joining ADF, Mr. Hellweg was an officer in the U.S. Navy from 1980 to 1987. During that time, he served tours as a helicopter pilot in the Atlantic Fleet and as an instructor pilot. Mr. Hellweg holds a BS degree in Engineering from the University of Nebraska. He is a past Member of the Board of the Springfield Area Chamber of Commerce, the Springfield Area Arts Council, and the Springfield Symphony.

James R. Batten, CPA, is the Executive Vice President of Finance, Chief Financial Officer and Treasurer of O’Reilly Automotive, Inc. Mr. Batten's primary areas of responsibility are Accounting and Finance. His O'Reilly career started as Finance Manager in January 1993 where he served until being promoted to Chief Financial Officer in March 1994. Prior to joining O’Reilly, Mr. Batten was employed by the accounting firms of Whitlock, Selim & Keehn, from 1986 to 1993 and Deloitte, Haskins & Sells from 1984 until 1986. Mr. Batten is a Member of the Board and Treasurer of the Springfield Area Chamber of Commerce, Member of the Board of New Covenant Academy, and Trustee of Hope Community Church. Mr. Batten served as a member of NASDAQ Issue Affairs Committee until 2005. He has also served as a Member of the Board, and previous President and Secretary, of the Big Brothers Big Sisters of the Ozarks. Mr. Batten has also served on a number of other professional and civic boards.

Jack L. Barham worked at Guaranty Federal Savings Bank, the predecessor savings bank to the Bank, for 24 years and retired in 1995. He served in various positions of responsibility and was a Realtor and appraiser. In 1983, he was elected to the Company’s Board of Directors. In 1990, he was elected Vice President and Chairman of the Board, and has continued to serve as Chairman of the Board until he relinquished such position in March 2005. The Board approved Mr. Barham as Vice Chairman of the Company in March 2005. He served in the US Navy, is a deacon at Ridgecrest Baptist Church and has been a member of various civic organizations.

Don M. Gibson was elected as President and Chief Executive Officer of the Company in January 2002 and served in such capacities until his retirement at the end of February 2005. Mr. Gibson also served as President and Chief Executive Officer of the Bank from January 2002 until the appointment of Shaun A. Burke on March 9, 2004 to serve in such capacity. Mr. Gibson has served as Chairman of the Board for the Company and the Bank since March 2005. Prior to joining the Company, Mr. Gibson was a retired banking executive. From March 2000 to July 2000 Mr. Gibson was President of Sinclair National Bank, Gravette, Arkansas. Prior to that, Mr. Gibson was at Great Southern Bank, a subsidiary of Great Southern Bancorp, Inc., Springfield, Missouri, holding various positions since September 1975 with his last being Vice Chairman.

Tim Rosenbury, AIA, is Executive Vice President and Chairman of Butler, Rosenbury & Partners, Inc., a 60-person architecture, engineering, interior design and planning firm in Springfield, Missouri, and he has held these positions since 1997. Mr. Rosenbury joined the firm in 1984 after practicing in Memphis, Tennessee. He graduated with a B.Arch. from Mississippi State University in 1980, which awarded him the designation of Alumni Fellow in 1999. He is Corporate Secretary of Ozark Mailing Service, Inc., a privately held company, and is a member of a number of professional and civic organizations, many of which he has held leadership positions.

Wayne V. Barnes previously owned Sunnyland Stages, Inc., a company that provided regular route schedule bus service, for approximately thirty-five years, until it was sold in 1998. He was the Vice-President and co-owner, with his wife, Barbara, of Sunnyland Tours, Inc., Springfield, Missouri, a company which provided package tour services for individuals and private groups domestically and overseas, until it was sold in January 2006. Mr. Barnes attended the University of Missouri and Drury College, and served in the US Navy. He is active in many civic organizations. Thereafter he is retired.

Gregory V. Ostergren is the Chairman, President and Chief Executive Officer of American National Property and Casualty Insurance Companies (“ANPAC”), Springfield, Missouri, and Chairman of the Farm Family Insurance Group, Albany, New York (“Farm Family”). Mr. Ostergren joined ANPAC in October of 1990 as President and CEO. In 2000, he took on the additional role as Chairman of ANPAC and in 2001, following the acquisition of Farm Family, which he led, Mr. Ostergren was voted Chairman of Farm Family. He is a Member of the Board of the Insurance Institute for Highway Safety, Washington, DC. After graduating from the University of Minnesota in 1977, Mr. Ostergren held various positions at Allstate Insurance Company in Chicago, Illinois, and Mutual Service Insurance Company in St. Paul, Minnesota. He is a member of the American Academy of Actuaries, an Associate of the Casualty Actuarial Society and a member of the academic business honor society Beta Gamma Sigma. He is past Chairman of the College of Natural and Applied Sciences Advisory Board for Southwest Missouri State University. He has also served as a Member of the Board of the Springfield Public School Foundation, as a Member of the Board and Treasurer of the United Way of the Ozarks, and has served on a number of other professional and civic boards of directors.

James L. Sivils, III, JD, is a partner in Morelock-Ross Companies, a group of several privately held companies involved in both commercial and residential construction and in real estate development and management in Springfield, Missouri. Mr. Sivils has been with Morelock-Ross since 1997. Prior to joining Morelock-Ross, Mr. Sivils worked as an attorney from 1990 to 1993 and as a real estate broker and developer from 1993 to 1997. Mr. Sivils holds a JD degree from the University of Missouri - Kansas City Law School and a B.A. degree from the University of Missouri - Columbia. Mr. Sivils is a past Member of the Board of the Springfield Apartment Housing Association and the Lakes Country Rehabilitation Center.

Director Independence

The Board of Directors of the Company has determined that all of the directors, except for Director Burke who is an executive officer of the Company and Director Gibson who served as an executive officer of the Company until February 2005, are “independent directors” as that term is defined in Rule 4200(a)(15) of the Marketplace Rules of the National Association of Securities Dealers, Inc. (“NASD”). These directors constitute a majority of the Board.

Meetings and Committees of the Board of Directors

The business of the Company is conducted at regular and special meetings of the full Board of Directors of the Company (the “Board”) and its standing committees. The standing committees consist of the Executive, Audit, Compensation, Nominating, ESOP (Employee Stock Ownership Plan), and Option Committees. During the twelve months ended December 31, 2005, the Board held twelve regular meetings and two special meetings. No director attended less than 75% of those meetings and the meetings held by all committees of the Board of Directors on which he served.

Although the Company does not have a formal policy regarding director attendance at the Company’s annual stockholders meeting, all directors are expected to attend these annual meetings absent extenuating circumstances. All current directors, except Kurt D. Hellweg, attended the Company’s annual meeting of stockholders held on May 25, 2005.

Stockholder Communications with Directors

Stockholders and other interested persons who wish to communicate with the board of directors of the Company, or any individual director, should send their written correspondence by mail to: Don M. Gibson, Chairman of the Board, Guaranty Federal Bancshares, Inc., 1341 West Battlefield, Springfield, Missouri 65807.

Audit Committee

The Audit Committee of the Board is composed of the independent, non-employee directors of the Company and currently consists of seven directors: Messrs. Lipscomb, Barnes, Rosenbury, Sivils, Barham, Ostergren and Hellweg. This standing committee, among other things, (i) regularly meets with the internal auditor to review audit programs and the results of audits of specific areas as well as other regulatory compliance issues, (ii) meets at least annually in executive session with the Company’s independent auditors to review the results of the annual audit and other related matters, and (iii) meets quarterly with management and the independent auditors to review the Company’s financial statements and significant findings based on the independent auditor’s review. The Audit Committee is responsible for hiring, retaining, compensating and terminating the Company’s independent auditors. For a further description of the Audit Committee’s purposes and responsibilities, refer to the copy of the Audit Committee Charter included as Appendix B to the proxy statement prepared in connection with the annual meeting of stockholders held on May 19, 2004 (the “2004 Proxy Statement”).

During the twelve months ended December 31, 2005, the Audit Committee met thirteen times (See “Report of the Audit Committee”).

Nominating Committee

The Nominating Committee of the Board is composed of three or more directors as appointed by the Board, each of whom are required to be an “independent director” as defined under the NASD listing standards. Currently, the Nominating Committee consists of seven directors, Messrs. Ostergren, Barnes, Sivils, Hellweg, Lipscomb, Rosenbury and Barham, each of whom is an “independent director.” During the twelve months ended December 31, 2005, the Nominating Committee met two times. The Nominating Committee operates under a formal written charter adopted by the Board. A copy of the Nominating Committee’s charter was included as Appendix C to the 2004 Proxy Statement.

The Nominating Committee is responsible for identifying individuals qualified to serve as members of the Board and recommending to the Board the director nominees for election and appointment to the Board, as well as director nominees for each of the committees of the Board. In accordance with its charter, the Nominating Committee recommends candidates (including incumbent nominees) based on the following criteria: business experience, education, integrity and reputation, independence, conflicts of interest, diversity, age, number of other directorships and commitments (including charitable obligations), tenure on the Board, attendance at Board and committee meetings, stock ownership, specialized knowledge (such as an understanding of banking, accounting, marketing, finance, regulation and public policy) and a commitment to the Company’s communities and shared values, as well as overall experience in the context of the needs of the Board as a whole. The Committee monitors the mix of skills and experience of its directors and committee members in order to assess whether the Board has the appropriate tools to perform its oversight function effectively.

With respect to nominating existing directors, the Nominating Committee reviews relevant information available to it and assesses their continued ability and willingness to serve as a director. The Nominating Committee will also assess such person’s contribution in light of the mix of skills and experience the Nominating Committee has deemed appropriate for the Board as a whole. With respect to nominations of new directors, the Nominating Committee will conduct a thorough search to identify candidates based upon criteria the Nominating Committee deems appropriate and considering the mix of skills and experience necessary to complement existing members of the Board. The Nominating Committee will then review selected candidates and make its recommendation to the Board. See the copy of the Nominating Committee Charter in Appendix C to the 2004 Proxy Statement for a further description of the nomination process utilized by the Nominating Committee.

Nominations by a stockholder will be considered by the Nominating Committee if such nomination is written and delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Company between 30 and 60 days prior to the meeting at which such nominee may be considered. However, if less than 31 days’ notice of the meeting is given to stockholders, written notice of the stockholder nomination must be given to the Secretary of the Company as provided above no later than the tenth day after notice of the meeting was mailed to stockholders. A nomination must set forth, with respect to the nominee, (i) name, age, and addresses, (ii) principal occupation or employment, (iii) Common Stock beneficially owned, and (iv) other information that would be required in a proxy statement. The stockholder giving notice must list his or her name and address, as they appear on the Company’s books, and the amount of Common Stock beneficially owned by him or her. In addition, the stockholder making such nomination must promptly provide to the Company any other information reasonably requested by the Company. Nominations from stockholders will be considered and evaluated using the same criteria as all other nominations.

Compensation Committee

The Board of Directors of the Company and the Board of Directors of the Bank are comprised of the same persons. The Compensation Committee of the Bank’s Board of Directors, which consists solely of the non-employee directors of the Bank, is comprised of Messrs. Lipscomb, Barnes, Rosenbury, Sivils, Barham, Ostergren and Hellweg. As indicated above, each of these committee members is an “independent director” as defined under the NASD listing standards. The Company has no full time employees and relies on employees of the Bank for the limited services received by the Company. All compensation paid to officers of the Company and the Bank and to employees of the Bank is paid by the Bank.

The Compensation Committee, together with the full Board, is responsible for designing and determining the compensation and benefit plans for all employees, executive officers and directors of the Company and the Bank, including the Chief Executive Officer, based on its review, among other things, of performance, industry salary surveys and the recommendations of management concerning compensation (See “Compensation Committee Report on Executive Compensation”). During the twelve months ended December 31, 2005, the Compensation Committee met nine times.

Directors’ Compensation

Each member of the Board receives a yearly fee of $15,600, payable monthly, which is composed of $7,800 from the Company and $7,800 from the Bank. Directors do not receive fees for attendance at committee meetings.

Directors can participate in the Company’s Restricted Stock Plan, 1998 Stock Option Plan, 2000 Stock Compensation Plan, 2001 Stock Compensation Plan and the 2004 Stock Option Plan. In February and August 2005, Director Ostergren received a stock award of 1,425 shares of Common Stock valued at $28,073 and 311 shares of Common Stock valued at $5,987, respectively. In August 2005, Director Hellweg received a stock award of 1,736 shares of Common Stock valued at $33,418. Grants of stock awards and options vest at the rate of 20% one year after the date of award or grant and 20% annually thereafter and become immediately 100% vested upon death, disability, or termination of service following a change in control as defined in the respective plan. See section captioned “Option Grants During the 2005 Fiscal Year” of this Proxy Statement for information related to stock option grants to Shaun Burke during 2005.

Compensation Committee Interlocks and Insider Participation

Since August 2002, the Compensation Committee of the Board has consisted of all non-employee directors of the Bank. During the fiscal year ended December 31, 2005, Mr. Jack L. Barham served on the Compensation Committee, and for many years until his retirement in 1995, he had been an officer of the Bank. Mr. Barham is the only member of the Compensation Committee during 2005 who was formerly an officer of the Company or the Bank. Prior to March 2005, Mr. Don M. Gibson served as the President and Chief Executive Officer of the Company and the Bank, but during 2005 he was not a member of the Compensation Committee. In addition, Shaun Burke, the current President and Chief Executive Officer of the Company and the Bank, did not serve as a member of the Compensation Committee during 2005.

Compensation Committee Report on Executive Compensation

The Compensation Committee, together with the full Board, has designed the compensation and benefit plans for all employees, executive officers and directors in order to attract and retain individuals who have the skills, experience and work ethic to provide a coordinated work force that will effectively and efficiently carry out the policies adopted by the Board and to manage the Company and the Bank to meet the Company’s mission, goals and objectives.

To determine the compensation and benefit plans of employees, executive officers and directors, the Compensation Committee reviews industry compensation statistics based on our asset size, makes cost of living adjustments, and establishes salary ranges for each senior officer, and fees for the Board. Management then determines, and is responsible to the Compensation Committee for, salary ranges for junior level officers and staff. The Compensation Committee then reviews (i) the financial performance of the Bank over the most recently completed fiscal year (including ROA, ROE, G & A expense, CAMELS rating, quality of assets, risk exposure and compliance rating) compared to results at comparable companies within the industry, and (ii) the responsibilities and performance of each senior officer and the salary compensation levels of each officer compared to like positions at comparable companies within the industry. The Compensation Committee evaluates all factors subjectively in the sense that they do not attempt to tie any factors to a specific level of compensation.

All employees and officers may participate on an equal, non-discriminatory basis in the Bank’s medical insurance plan, long-term disability plan and group life insurance plan. The Bank also provides all employees and officers with the opportunity to participate in the Employee Stock Ownership Plan (“ESOP”), and a contributory 401 (k) tax-deferred savings plan. The Compensation Committee of the Bank recommends all compensation and benefit plans to the full Board for approval annually.

Stock Option and Restricted Stock Award Plans. The 1998 Stock Option Plan (“SOP”) and the Restricted Stock Plan (“RSP”) are designed to reward Board members and senior officers for the future long-term performance of the Company, based on the responsibilities of the Board members and senior officers to manage the Bank and the Company. The 2000 Stock Compensation Plan, the 2001 Stock Compensation Plan, and the 2004 Stock Option Plan were adopted in February 2000, March 2001, and May 2004, respectively, and are also designed to reward Board members and senior officers for the future long-term performance of the Company, based on the responsibilities of the Board members and senior officers to manage the Bank and the Company.

Report of Chief Executive Officer Compensation. The compensation of the Chief Executive Officer (the “CEO”) is determined by the Compensation Committee, without the CEO participating in any discussions relating to such compensation, and is based on the same factors as those applied to other officers and employees of the Bank; however, more emphasis is placed on the general health and financial performance of the Bank and the Company. The CEO’s compensation package reflects a range based on like-sized, like-position comparables within the industry and the geographical region, tempered by the performance of the individual and the Company. Stock awards and option grants under the stock option and restricted stock award plans described above provide incentive, but should not replace, or override, maintenance of the compensation range established from the comparables.

Mr. Don Gibson served as the President and CEO of the Company until his retirement effective February 28, 2005, and he received a base salary of $200,000 during this period, which is proportionately equal to the salary he received during calendar year 2004 for such period. In addition to serving as the President and CEO of the Bank since March 2004, Mr. Shaun Burke became the President and CEO of the Company on February 28, 2005 following Mr. Gibson’s retirement. As of March 9, 2004, the Bank entered into an employment agreement with Mr. Burke pursuant to which Mr. Burke agreed to serve as the Bank’s President and CEO at an annual base salary of $225,000, which the Bank’s Board may increase from time to time on an annual basis. During calendar year 2005, Mr. Burke’s annual base salary remained at $225,000. Pursuant to the terms of the employment agreement, Mr. Burke also received a bonus of $75,000 (the maximum amount of such bonus) during 2005 as a result of achieving certain earnings per share benchmarks during 2005. He also received options to purchase 20,000 shares of Common Stock during 2005. See the section titled “Employment Agreements” of this Proxy Statement for more detail of the employment agreement with Mr. Burke and the section titled “Option Grants During the 2005 Fiscal Year” for more detail regarding the stock options granted to Mr. Burke.

THE COMPENSATION COMMITTEE

Jack L. Barham	Gregory V. Ostergren
Wayne V. Barnes	Tim Rosenbury
Kurt D. Hellweg	James L. Sivils, III
Gary Lipscomb

Summary Compensation Table

The following table sets forth information with respect to the annual compensation received for the periods indicated for services rendered in all capacities to the Company and the Bank by the Chief Executive Officer of the Company and the former Chief Executive Officer of the Company who served in such capacity until February 28, 2005 (the “Named Executive Officers” or “NEOs”). During the fiscal year ended December 31, 2005, no other person served as the Chief Executive Officer of the Company and no executive officer of either the Bank or the Company received an annual salary and bonus during fiscal year ended December 31, 2005 that exceeded $100,000 for services rendered in all capacities to the Bank or the Company.

Name and Principal Position	Year (10)	Annual Compensation			Long Term Compensation
		Salary	Bonus	Other Annual Compensation	Awards
		Salary	Bonus	Other Annual Compensation	Restricted Stock Awards	Securities Underlying Options	All Other Compensation
Shaun A. Burke, President and CEO(4)	2005 2004 Dec/03 2003	$240,600(1) $195,452(1) ---- ----	$75,000 ---- ---- ----	---- ---- ---- ----	---- ---- ---- ----	20,000(2) 25,000(3) ---- ----	$30,552(5) ---- ---- ----
Don M. Gibson Former President and CEO(6)	2005 2004 Dec/03 2003	$45,218(1) 215,600(1) 107,250(1) 209,000(1)	---- ---- ---- ----	---- ---- ---- ----	---- ---- ---- ----	---- ---- ---- 10,000(7)	---- $43,885(8) 15,111(9) ----

______________________

(1)	Includes director fees for Mr. Burke of $15,600 for fiscal 2005 and $13,000 for fiscal 2004; and for Mr. Gibson of $15,600, $15,600, $7,250, and $9,000 for fiscal 2005, for fiscal 2004, six month transition period ended December 31, 2003, and fiscal period ended June 30, 2003, respectively.

(2)

Consists of a grant on March 17, 2005 of options to acquire 10,000 shares of Common Stock and a grant on December 16, 2005 of options to acquire 10,000 shares of Common Stock. Such options vest at 20% per year beginning March 17, 2006 and December 16, 2006, respectively, are exercisable at $23.20 per share and $28.12 per share, respectively, and have a ten year term.

(3)	Consists of a grant on March 9, 2004 of options to acquire 25,000 shares of Common Stock. Such options vest at 20% per year beginning March 9, 2005, are exercisable at $19.62 per share and have a ten year term.

(4)

Mr. Burke was appointed Senior Executive Vice President of the Company and President and Chief Executive Officer of the Bank in March 2004. Prior to such appointment, Mr. Burke was not an officer or employee of the Company. Effective February 28, 2005, Mr. Burke was appointed President and CEO of the Company.

(5)	Consists of 1,094 shares of Common Stock allocated under the ESOP at a per share price issuance of $27.90.

(6)	Mr. Gibson retired as President and CEO of the Company on February 28, 2005.

(7)	Consists of a grant of options to acquire 10,000 shares of Common Stock during fiscal year ended June 30, 2003. Such options vest at 20% per year beginning February 20, 2004, are exercisable at $15.31 per share and have a ten year term.

(8)	Consists of 1,824 shares of Common Stock allocated under the ESOP at a per share price issuance of $24.06.

(9)	Consists of 785 shares of Common Stock allocated under the ESOP at a per share price on issuance of $19.25.

(10)

The compensation reported for the NEOs in the top two rows represents compensation paid during the calendar year 2005 and calendar year 2004, respectively. The Company elected to convert from a June 30 fiscal year end to a December 31 calendar year end in 2003. The compensation reported in the third row, if applicable, represents the compensation paid to NEOs during the six-month transition period ended December 31, 2003. The compensation reported in the fourth row, if applicable, represents compensation paid to the NEOs during the Company’s previous fiscal period ended June 30, 2003.

Employment Agreements

As to the Named Executive Officers in the Summary Compensation Table above, the Bank has entered into a written employment agreement with Mr. Shaun Burke dated as of March 9, 2004. Pursuant to this agreement, Mr. Burke will serve as the Bank’s President and CEO (and other duties assigned to him by the Bank’s Board of Directors (the “Bank’s Board”) for a term of three (3) years and additional one year extensions as provided in such agreement. During the term of this agreement, Mr. Burke shall receive a base salary of $225,000, which will be reviewed annually, and may be increased, by the Bank’s Board at its discretion. Mr. Burke may also receive a bonus during each year of the agreement based on the achievement of certain annual loan production quotas during the first year of this agreement and certain earnings per share benchmarks during the second and third years of this agreement (up to a maximum of $75,000 per year).

If Mr. Burke’s employment is terminated by the Bank without “Cause” or by Mr. Burke for “Good Reason” (as such terms are defined in the agreement), Mr. Burke will receive the base salary for the remaining term of this agreement when such amounts become due. Upon a “Change of Control” (as defined in the agreement), and if Mr. Burke’s employment is terminated for any reason (other than his death or the expiration of the term of this agreement) at any time within the greater of twelve months or the then remaining term of this agreement after the Change of Control is consummated, Mr. Burke will receive a lump sum payment equal to 2.99 times his base salary and bonus. If Mr. Burke voluntarily terminates his employment in connection with, or within 12 months after, a Change of Control and such Change of Control was at any time opposed by the Bank’s Board, then Mr. Burke will be entitled to receive the compensation described in the previous two sentences.

Option Grants During the 2005 Fiscal Year

The following table sets forth options to acquire shares of Common Stock which were granted during the fiscal year ended December 31, 2005 to the Named Executive Officers. No stock appreciation rights were granted during the last fiscal year.

Individual Grants (1)					Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (10 years)(3)
Name	Number of Securities Underlying Options Granted (#)	Percent of Total Options Granted to Employees in Fiscal Year	Exercise or Base Price ($/Share)(2)	Expiration Date	5%($)	10%($)
Shaun A. Burke	10,000	24%	$23.20	03/17/15	$145,906	$369,748
	10,000	24%	$28.12	12/22/15	$176,845	$448,160

(1)	Options vest at 20% annually beginning the first year after the date of grant (March 17, 2005 and December 22, 2005, respectively, for the two grants listed above) and have a ten year term. However, the options will terminate earlier if the optionee ceases service with the Company and the Bank.

(2)	The exercise price for all stock option grants is the fair market value of the Common Stock on the date of grant.

(3)

The assumed 5% and 10% rates of stock price appreciation are provided in accordance with rules of the Securities and Exchange Commission and do not represent the Company’s estimate or projection of its Common Stock price. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock, overall market conditions and the option holders’ continued employment through the vesting period. Unless the market price of its Common Stock appreciates over the option term, no value will be realized from the option grants made to this executive officer. The potential realizable values shown in the table are calculated by assuming that the estimated fair market value of the Common Stock on the date of grant increases by 5% and 10%, respectively, during each year of the option term.

Aggregated Option Exercises In The Last Fiscal Year and Fiscal Year End Option Values

The following table presents (i) the shares of Common Stock exercised by each NEO during the fiscal year ended December 31, 2005 and the value realized from such exercise, (ii) the unexercised stock options for Common Stock of the Company held by each Named Executive Officer as of December 31, 2005, and (iii) the value of such unexercised stock options as of December 31, 2005.

Name	Shares Acquired on Exercise(#)	Value Realized($)(1)	Number of Securities Underlying Unexercised Options/SARs at FY-End (#) Exercisable / Unexercisable	Value of Unexercised in-the- Money Options/SARs at FY- End ($) Exercisable / Unexercisable(2)
Shaun A. Burke	5,000	$31,900	0/40,000	$0/$210,400
Don M. Gibson	5,000	$43,960	0/12,000	$0/$334,800

(1)	Calculated based on the difference between the option exercise price and the closing price of the Common Stock on the date of exercise multiplied by the number of shares to which the exercise relates.

(2)	Calculated by multiplying the closing price of $27.90 for the Common Stock on December 31, 2005 (as reported on the Nasdaq National Market System), less the option exercise price, by the total number of shares under option.

Indebtedness of Management and Directors and Transactions with Certain Related Persons

Loans made to a director or executive officer in excess of the greater of $25,000 or 5% of the Company’s capital and surplus (up to a maximum of $500,000) must be approved in advance by a majority of the disinterested members of the Board of Directors. The Bank, like other financial institutions, provides loans to its officers, directors, and employees to purchase or refinance personal residences as well as consumer loans. At the May 20, 2004 Board meeting, the Board approved a new employee mortgage loan program (the “New Loan Program”) as an additional benefit to eligible Bank directors and employees. The New Loan Program provides mortgage loans at favorable interest rates, namely a one-year adjustable rate mortgage priced at one percent over the bank’s cost of funds. The purpose of the loan must be to purchase or refinance a primary residence (i.e., no investment properties). All full-time employees that have completed the 90-day probation period are eligible to participate in this loan program. Underwriting includes standard application and financial disclosures, which must qualify to standard secondary market requirements. Borrower is responsible for all third party closing costs. Payments must be automatically deducted from an account maintained at the Bank and tax and insurance escrows required. The index rate is the Bank’s all-in cost of funds plus a margin of 1%. The index will be the last month-end calculation within 45 days prior to closing. The maximum adjustment per year is 2% with a 6% lifetime maximum. Each loan has up to a 30-year note/amortization. If borrower’s employment is terminated for any reason, the rate and term converts immediately to the Bank’s current secondary market one-year ARM product. Other than the interest rate with respect to the New Loan Program, all loans provided under the New Loan Program and any other loans provided to directors and executive officers have been made in the ordinary course of business, on substantially the same terms and collateral as those of comparable transactions prevailing at the time, and, in the opinion of management of the Company, do not involve more that the normal risk of collectibility or present other unfavorable features.

No directors, executive officers or their affiliates had aggregate indebtedness to the Company or the Bank on below market rate loans exceeding $60,000 at any time since January 1, 2005 except as noted in the following table.

Name	Position	Date of Loan	Largest Amount Outstanding Since 01/01/05	Balance as of 12/31/05	Interest Rate at 12/31/05	Type
Shaun A. Burke	CEO and President	09/28/04	$473,436	$464,036	3.875%	Home Mortgage
James L. Sivils, III	Director	09/28/04	474,433	465,013	3.875%	Home Mortgage
Bruce Winston	Senior Vice President and CFO	12/27/04	123,193	119,525	4.00%	Home Mortgage

Stock Performance Graph

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, 2000 and the hypothetical value of that investment as of the Company’s fiscal years ended December 31, 2001, 2002, 2003, 2004, and 2005, 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.

[Missing Graphic Reference]

		*Period Ending*
*Index*	12/31/00	12/31/01	12/31/02	12/31/03	12/31/04	12/31/05
Guaranty Federal Bancshares, Inc.	100.00	118.88	145.23	185.20	238.81	276.92
NASDAQ - Total US	100.00	79.32	54.84	81.99	89.23	91.12
NASDAQ Bank Index	100.00	108.27	110.87	142.62	163.22	159.40

The following table sets forth information as of December 31, 2005 with respect to compensation plans under which shares of our Common Stock may be issued:

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	305,001	15.56	230,000
Equity compensation plans not approved by security holders	34,875	16.50	1,498
Totals	339,876	15.66	231,498

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. A committee of the Bank’s Board of Directors comprised solely of independent directors (the “Committee”), administers this plan and the 2001 SCP (discussed below). Stock options awarded under the plan are considered non-qualified for federal income tax purposes. Officers, directors and employees of the Company and its subsidiaries are eligible under the plan. Stock awards and stock options vest at the rate of 20% per year over a five-year period, become fully vested in the event of a “change in control” as defined in the plan, and expire no later than ten years from the date of grant. 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. Under the stock award component of this plan, the Committee awarded 7,125 restricted shares of the Company’s Common Stock. As of December 31, 2005, there are 1,425 restricted shares in this plan that are not vested. There have been 17,875 options granted under this plan at an exercise price of $10.50 per share. The maximum number of shares of the Company’s Common Stock permitted to be awarded under this plan (25,000) have been awarded. Previously issued awards or options which expire, become unexercisable, or are forfeited prior to their exercise may be granted as new awards or options under the plan for the number of shares which were subject to such expired or forfeited awards or options.

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. Stock options awarded under the plan are considered non-qualified for federal income tax purposes. Officers, directors and employees of the Company and its subsidiaries are eligible under the plan. Stock awards and stock options vest at the rate of 20% per year over a five year period, become fully vested in the event of a “change in control” as defined in the plan, and expire no later than ten years from the date of grant. In addition, the price of the stock options may not be less than the market value of the Company’s Common Stock on the date of grant, and the stock options expire no later than ten years from the date of grant. Under the stock award component of this plan, the Committee awarded 10,239 restricted shares of the Company’s Common Stock. As of December 31, 2005, 4,094 of the shares in this plan are not vested, and no options have been granted under this plan. The maximum number of shares of the Company’s Common Stock permitted to be awarded under this plan is 25,000 shares. Previously issued awards or options which expire, become exercisable, or are forfeited prior to their exercise may be granted as new awards or options under the plan for the number of shares which were subject to such expired or forfeited awards or options.

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

2004 Stock Option Agreement. Pursuant to the authorization of the independent directors of the Company, 25,000 stock options were issued by the Company on March 9, 2004 as an employment inducement to a new officer (Shaun Burke) of the Bank and the Company under an individual stock option agreement. Stock options awarded under this agreement 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.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board is composed of seven directors. The Board has determined that each of these directors is independent under the Marketplace Rules of NASD. In particular, each of these directors is independent as defined under Rule 4200(a)(15) and Rule 4350(d)(2)(A)(ii). The Board has also determined that Mr. Lipscomb qualifies as an Audit Committee Financial Expert as defined by the rules and regulations of the Securities and Exchange Commission (the “SEC”). Only this paragraph of the Report of the Audit Committee shall be incorporated by reference into the Company’s Annual Report on form 10-K filed with the SEC under the Exchange Act, notwithstanding the incorporation by reference of this Report of the Audit Committee into such filing.

The Audit Committee operates under a written charter adopted by the Company’s Board of Directors. A copy of the charter is included as Appendix B to the Prior Year Proxy Statement.

The primary duties and responsibilities of the Audit Committee are to (i) monitor the Company’s financial reporting process and systems of internal control, (ii) monitor the independence and performance of the Company’s independent registered public accounting firm and outsourced internal auditors, and (iii) assure that management, the board of directors, the outsourced internal auditors and the independent auditors have the opportunity to communicate with one another.

The Committee has reviewed and discussed the audited consolidated financial statements with management and has discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).

The Audit Committee has also received the written disclosures and the letter from BKD, LLP, the Company’s independent registered public accounting firm, required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit Committee has discussed with the independent registered public accounting firm that firm’s independence. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the independence of the independent registered public accounting firm.

Based upon the Audit Committee’s discussions and review described above, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 for filing with the SEC.

THE AUDIT COMMITTEE

Jack L. Barham Gary Lipscomb

Wayne V. Barnes James L. Sivils, III

Kurt D. Hellweg Gregory V. Ostergren

Tim Rosenbury

PRINCIPAL ACCOUNTANT FEES AND SERVICES

During the calendar year ended December 31, 2005 and December 31, 2004, BKD, LLP, the Company’s independent registered public accounting firm during these periods, provided various audit, audit related and non-audit services, including tax, to the Company. Set forth below are the aggregate fees billed for these services during these periods and a brief description of such services:

(a)

Audit fees: Aggregate fees billed for professional services rendered for the audits of the Company’s financial statements and reviews of financial statements included in the Company’s quarterly reports on Form 10-Q were $84,874 for calendar year ended December 31, 2005 and $73,862 for the calendar year ended December 31, 2004.

(b)	Audit-related fees: Aggregate fees billed for professional services rendered related to audits of employee benefit plans and consultation on accounting matters were $12,449 for the calendar year ended December 31, 2005 and $8,865 for the calendar year ended December 31, 2004.

(c)	Tax fees: Aggregate fees billed for professional services rendered related to tax compliance, tax advice and tax consultations were $10,350 for the calendar year ended December 31, 2005 and $9,280 for the calendar year ended December 31, 2004.

(d)	All other fees: Aggregate fees billed for all other professional services, including compliance work, and ESOP and 401(k) plan administration, were $12,225 for the calendar year ended December 31, 2005, and $14,735 for the calendar year ended December 31, 2004.

The Audit Committee pre-approves all audit and permissible non-audit services to be provided by BKD, LLP and the estimated fees for these services.

SECOND PROPOSAL: RATIFICATION OF BKD, LLP AS

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The independent registered public accounting firm for the period ended December 31, 2005 for the Company and its subsidiary, the Bank, were BKD, LLP. In accordance with its charter, the Audit Committee has selected and appointed BKD, LLP to continue as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2006. As part of good corporate practice, the Audit Committee and the Company’s Board of Directors are requesting that its stockholders ratify such appointment. The Audit Committee is not required to take any action as a result of the outcome of the vote on this proposal. If the stockholders do not ratify the appointment, however, the Audit Committee may investigate the reasons for stockholder rejection and may consider whether to retain BKD, LLP or to appoint another independent registered public accounting firm.

The Board of Directors of the Company unanimously recommends that the stockholders vote FOR the ratification of the appointment of BKD, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2006.

A representative of BKD, LLP will be present at the Annual Meeting. The representative will have an opportunity to make a statement, if so desired, and will be available to respond to appropriate questions.

MISCELLANEOUS

The Board of Directors is not aware of any business to come before the Annual Meeting other than those matters described above in this proxy statement. However, if any other matters should properly come before the meeting, it is intended that proxies in the accompanying form will be voted in respect thereof in accordance with the judgment of the persons named in the accompanying proxy. If the Company did not have notice of a matter on or before April 24, 2006, it is expected that the persons named in the accompanying proxy will exercise discretionary authority when voting on that matter.

It is anticipated that the Company’s annual report to stockholders for the period ended December 31, 2005, including financial statements, will be mailed on April 21, 2006, together with this proxy statement, to all stockholders of record as of the Record Date. Any stockholder who has not received a copy of the annual report may obtain a copy by writing to the Secretary of the Company at the Company’s address as provided at the end of the next section of this proxy statement.

STOCKHOLDER PROPOSALS

In order to be eligible for inclusion in the Company’s proxy materials for next year’s annual meeting of stockholders, any stockholder proposal to take action at such meeting must be received at the Company’s executive offices at 1341 W. Battlefield, Springfield, Missouri 65807-4181, no later than December 22, 2006.

In the event the Company receives notice of a stockholder proposal to take action at next year’s annual meeting of stockholders that is not submitted for inclusion in the Company’s proxy material, or is submitted for inclusion but is properly excluded from the proxy material, the persons named in the proxy sent by the Company to its stockholders intend to exercise their discretion to vote on the stockholder proposal in accordance with their best judgment if notice of such proposal is received at the Company’s main office between 60 days and 30 days prior to the meeting. If next year’s annual meeting is also held on May 24, 2007, then stockholder proposals would have to be delivered to the Company between March 24, 2007 and April 24, 2007. The Company’s Certificate of Incorporation provides that if notice of a stockholder proposal to take action at next year’s annual meeting is not received at the Company’s main office between 60 days and 30 days prior to the meeting, the proposal will not be eligible for presentation at that meeting. However, if less than 31 days’ notice of the annual meeting is provided, a stockholder’s proposal would have to be received no later than 10 days after notice was mailed to the stockholders by the Company for that meeting.

A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 2005, AS FILED WITH THE SEC, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN REQUEST TO E. LORENE THOMAS, SECRETARY, GUARANTY FEDERAL BANCSHARES, INC., 1341 WEST BATTLEFIELD, SPRINGFIELD, MISSOURI 65807-4181.

Dated: April 21, 2006

[FORM OF PROXY]

|X| PLEASE MARK VOTES AS IN THIS EXAMPLE

PROXY

GUARANTY FEDERAL BANCSHARES, INC.

ANNUAL MEETING OF STOCKHOLDERS

May 24, 2006

The undersigned hereby appoints the Board of Directors of Guaranty Federal Bancshares, Inc. (the “Company”), or its designee, with full powers of substitution, to act as attorneys and proxies for the undersigned, to vote all shares of Common Stock of the Company which the undersigned is entitled to vote at the Annual Meeting of Stockholders (the “Meeting”), to be held at the Clarion Hotel, 3333 South Glenstone Avenue, Springfield, Missouri, on Wednesday, May 24, 2006, at 6:00 p.m., local time and at any and all adjournments thereof, in the following manner: (Please be sure to sign and date this Proxy below. All joint holders should sign.)

Date_________

Stockholder Signature ____________________________

Stockholder Co-holder (if any) ______________________

1. The election as directors of all nominees listed and the terms indicated (except as marked to the contrary below):

Three Year Terms: Shaun A. Burke

Kurt D. Hellweg

James R. Batten

FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]

INSTRUCTION: To withhold authority to vote for individual nominee(s), mark “For All Except” and write the name(s) in the space provided below.

2. The ratification of the appointment of BKD, LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2006.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

In their discretion, such attorneys and proxies are authorized to vote upon such other business as may properly come before the Meeting or any adjournments thereof.

The Board of Directors recommends a vote “FOR” all of the above listed nominees and proposition 2.

THIS SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS SIGNED PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.

Detach above card, sign, date and mail in postage paid envelope provided.

GUARANTY FEDERAL BANCSHARES, INC.

Should the above signed be present and elect to vote at the Meeting, or at any adjournments thereof, and after written notification to the Secretary of the Company at the Meeting of the stockholder’s decision to terminate this Proxy, the power of said attorneys and proxies shall be deemed terminated and of no further force and effect. The undersigned may also revoke this Proxy by filing a subsequently dated Proxy or by written notification to the Secretary of the Company of the stockholder’s decision to terminate this Proxy. The above signed acknowledges receipt from the Company prior to the execution of this proxy of a Notice of Meeting of Stockholders, a Proxy Statement dated April 21, 2006, and an Annual Report to Shareholders for the period ended December 31, 2005.

Please sign exactly as your name appears on this Proxy. When signing as attorney, executor, administrator, trustee, guardian, or any other representative capacity, please give full title. If shares are held jointly, each holder should sign.

PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.