SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

                         Commission file number 0-18265

                         GUARANTY FINANCIAL CORPORATION
                 (Name of Small Business Issuer in its Charter)

                    Virginia                             54-1786496
          (State or Other Jurisdiction                (I.R.S. Employer
                of Incorporation)                    Identification No.)

            1658 State Farm Boulevard                       22911
            Charlottesville, Virginia                    (Zip Code)
    (Address of Principal Executive Offices)

                                 (804) 970-1100
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                      Name of Each Exchange
      Title of Each Class                              on Which Registered
      -------------------                              -------------------

            None                                               n/a

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $1.25 per share
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 past 90 days.
                                                                    Yes X  No
                                                                       ---   ---

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will 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-KSB
or any amendment to this Form 10-KSB. [ X ]

         The  issuer's  gross  income  for  its  most  recent  fiscal  year  was
$18,372,136.


<PAGE>

         The aggregate  market value of the voting stock held by  non-affiliates
computed by reference  to the closing  sales price of such stock as of March 13,
2000 was  approximately  $12,935,255.  (The  exclusion  from such  amount of the
market  value of the shares owned by any person shall not be deemed an admission
by the registrant that such person is an affiliate of the registrant.)

         The number of  outstanding  shares of Common Stock as of March 13, 2000
was 1,961,727.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Proxy Statement for the 2000 Annual Meeting of Shareholders - Part III





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<PAGE>

                                TABLE OF CONTENTS

                                     PART I
                                     ------

                                                                            Page

ITEM 1.  DESCRIPTION OF BUSINESS.............................................  4

ITEM 2.  DESCRIPTION OF PROPERTY............................................. 12

ITEM 3.  LEGAL PROCEEDINGS................................................... 13

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
            OF SECURITY HOLDERS.............................................. 13

                                     PART II
                                     -------

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.............................................. 13

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATION............................... 14

ITEM 7.  FINANCIAL STATEMENTS................................................ 34

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING AND FINANCIAL DISCLOSURE........................... 34

                                    PART III
                                    --------

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
            CONTROL PERSONS; COMPLIANCE WITH SECTION
            16(a) OF THE EXCHANGE ACT........................................ 34

ITEM 10. EXECUTIVE COMPENSATION.............................................. 34

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT............................................ 34

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 35

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.............................. 35




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<PAGE>

                                     PART I

Item 1.      Description of Business.

General

Guaranty Financial Corporation  ("Guaranty") is a Virginia corporation which was
organized  in 1995 for the purpose of becoming  the holding  company of Guaranty
Bank (the  "Bank").  The Bank is a Virginia  state  chartered  bank which  began
business in February 1981 and is headquartered in Charlottesville, Virginia.

The principal asset of Guaranty is the  outstanding  stock of the Bank, a wholly
owned subsidiary. Guaranty presently has no separate operations and its business
primarily  consists of the  business  of the Bank.  Guaranty's  Common  Stock is
quoted on The Nasdaq National Market under the symbol "GSLC".

The Bank is a  community  bank that  provides a broad  range of  commercial  and
retail banking services. Guaranty's principal business activities are attracting
checking  and savings  deposits  from local  businesses  and the general  public
through its retail banking offices and originating,  servicing, investing in and
selling  loans.  Of  Guaranty's  $211.0  million of gross loans  outstanding  at
December  31,  1999,  31.4%  represented  construction  and  land  loans,  24.9%
represented  commercial business loans, and 29.8% represented  residential first
mortgages.  Guaranty  also lends funds to retail  banking  customers by means of
home  equity,  installment  loans,  and  multi-family  dwellings.  In  addition,
Guaranty offers consumer loans and  government-insured  and  conventional  small
business loans.  Guaranty invests in certain United States government and agency
obligations and other investments permitted by applicable laws and regulations.

Guaranty's main office is located at 1658 State Farm Boulevard, Charlottesville,
Virginia 22911 and the telephone number is (804) 970-1100.

Market Area

Guaranty is headquartered in Charlottesville,  Virginia. Charlottesville and its
surrounding area had a collective  population of  approximately  108,000 in 1990
according to census figures,  is located in central Virginia 110 miles southwest
of Washington,  D.C. and 70 miles west of Richmond,  Virginia,  and includes the
University of Virginia,  the area's largest  employer.  Guaranty  operates eight
full service retail branches,  which serve  Charlottesville,  Albemarle  County,
Fluvanna County, Henrico County and Harrisonburg, Virginia.

Competition

Guaranty faces strong competition for loans and deposits.  Competition for loans
comes primarily from commercial  banks and mortgage  bankers who also make loans
in the Bank's market area. The Bank competes for loans  principally on the basis
of the interest rates and loan fees it charges, the types of loans it originates
and the quality of services it provides to borrowers.

Guaranty faces substantial competition for deposits from commercial banks, money
market and  mutual  funds,  credit  unions and other  investment  vehicles.  The
ability of  Guaranty to attract  and retain  deposits  depends on its ability to
provide an investment  opportunity  that satisfies the requirements of investors
as to rate of return,  liquidity,  risk and other factors. Guaranty competes for
these deposits by offering a variety of deposit  products at  competitive  rates
and convenient business hours.

Many of our competitors  have  substantially  greater  financial  resources than
those available to Guaranty.  Certain of these  institutions have  significantly
higher lending limits than Guaranty. In addition, there can be no assurance that
other  financial   institutions,   with  substantially  greater  resources  than
Guaranty, will not establish operations in Guaranty's service area.




                                       4
<PAGE>

Credit Policies

The principal risk associated with each of the categories of loans in Guaranty's
portfolio is the creditworthiness of its borrowers.  Within each category,  such
risk is increased or decreased,  depending on prevailing economic conditions. In
an effort to manage  the risk,  Guaranty's  policy  gives loan  amount  approval
limits  to  individual  loan  officers  based on  their  position  and  level of
experience.  The risk associated with real estate mortgage loans, commercial and
consumer  loans  varies,  based  on  employment  levels,   consumer  confidence,
fluctuations  in the value of real estate and other  conditions  that affect the
ability of borrowers to repay indebtedness. The risk associated with real estate
construction  loans varies,  based on the supply and demand for the type of real
estate under construction.

Guaranty  has  written  policies  and  procedures  to help manage  credit  risk.
Guaranty is  implementing  a loan review  process that includes  formulation  of
portfolio  management strategy,  guidelines for underwriting  standards and risk
assessment,  procedures  for ongoing  identification  and  management  of credit
deterioration,  and regular  portfolio reviews to establish loss exposure and to
ascertain compliance with Guaranty's policies.

Guaranty  uses a Management  Loan  Committee  and  Directors  Loan  Committee to
approve loans.  The Management Loan  Committee,  which consists of the President
and two  additional  senior  officers,  meets as  necessary  to review  all loan
applications in excess of $250,000. A Directors Loan Committee,  which currently
consists of five directors  (any two of whom may act),  approves loans in excess
of  $1,000,000  that  have  been  previously  approved  by the  Management  Loan
Committee.  Guaranty's  President is responsible  for reporting to the Directors
Loan Committee monthly on the activities of the Management Loan Committee and on
the status of various delinquent and  non-performing  loans. The Directors' Loan
Committee also reviews lending policies proposed by Management.

Residential loan originations come primarily from walk-in customers, real estate
brokers and  builders.  Commercial  real estate loan  originations  are obtained
through  broker  referrals,  direct  solicitation  of  developers  and continued
business  from  customers.  All  completed  loan  applications  are  reviewed by
Guaranty's  salaried  loan  officers.   As  part  of  the  application  process,
information is obtained concerning the income,  financial condition,  employment
and credit  history of the  applicant.  If  commercial  real estate is involved,
information  is also  obtained  concerning  cash flow after debt  service.  Loan
quality is analyzed based on the Bank's  experience and guidelines  with respect
to credit  underwriting,  as well as the  guidelines  issued by the Federal Home
Loan Mortgage  Corporation  ("FHLMC"),  Federal  National  Mortgage  Association
("FNMA") and other purchasers of loans,  depending on the type of loan involved.
The non-conforming one-to-four-family  adjustable-rate mortgage loans originated
by Guaranty,  however,  are not readily salable in the secondary  market because
they do not meet all of the  secondary  marketing  guidelines.  Real  estate  is
appraised by independent fee appraisers who have been  pre-approved by the Board
of Directors. Loans are submitted to the underwriting department for review. All
conforming   loans  including   HUD/FHA,   VA  and  applicable  VHDA  loans  are
underwritten and acted upon within loan administration  requiring two signatures
of approval.

In the normal course of business,  Guaranty makes various commitments and incurs
certain  contingent  liabilities  which are  disclosed  but not reflected in its
annual financial statements, including commitments to extend credit. At December
31, 1999, commitments to extend credit totaled $66.1 million.

Construction Lending

Guaranty  makes  local  construction  loans,  primarily  residential,  and  land
development  loans. The construction loans are secured by the property for which
the loan was  obtained.  At  December  31,  1999,  construction  and land  loans
outstanding were $66.2 million,  or 31.4%, of gross loans.  Approximately 90% of
these loans are  concentrated  in the  Richmond  and  Charlottesville,  Virginia
markets.  The average life of a construction  loan is approximately  nine months
and  they  reprice  monthly  to meet the  market,  normally  prime  plus one and
one-half  percent.  Because the interest  charged on these loans floats with the
market,  they help  Guaranty in managing  its interest  rate risk.  Construction
lending entails significant additional risks, compared with residential mortgage
lending. Construction loans often involve larger loan balances concentrated with
single  borrowers  or groups of related  borrowers.  Another  risk  involved  in
construction  lending is



                                       5
<PAGE>

attributable to the fact that loan funds are advanced upon the security of the
home or land under construction, which is of estimated value prior to the
completion of construction. Thus, it is more difficult to evaluate accurately
the total loan funds required to complete a project and related loan-to-value
ratios. To minimize the risks associated with construction lending, Guaranty
limits loan amounts to 80.0% of appraised value, in addition to its usual credit
analysis of its borrowers. Guaranty also obtains a first lien on the property as
security for its construction loans and personal guarantees from the borrower's
principal owners.

Commercial Business Loans

Commercial   business  loans  generally  have  a  higher  degree  of  risk  than
residential  mortgage  loans,  but have higher  yields.  To manage  these risks,
Guaranty  generally  secures  appropriate  collateral and monitors the financial
condition of its business  borrowers.  Residential  mortgage loans generally are
made  on the  basis  of the  borrower's  ability  to  make  repayment  from  his
employment  and other income and are secured by real estate whose value tends to
be easily  ascertainable.  In contrast,  commercial business loans typically are
made on the basis of the  borrower's  ability to make  repayment  from cash flow
from its business and are secured by business  assets,  such as commercial  real
estate,  accounts  receivable,   equipment  and  inventory.  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 for commercial  business loans may depreciate over time and cannot be
appraised  with as much  precision as  residential  real estate.  Guaranty has a
credit  review  and  monitoring  system  to  regularly  review  the cash flow of
commercial  borrowers.  At December 31, 1999,  commercial  loans  totaled  $52.6
million, or 24.9% of the total loan portfolio.

Commercial Real Estate Lending

Commercial  real estate loans are secured by various  types of  commercial  real
estate in Guaranty's market area, including multi-family  residential buildings,
commercial  buildings  and offices,  small  shopping  centers and  churches.  At
December 31, 1999, commercial real estate loans aggregated $12.3 million or 5.8%
of Guaranty's gross loans.

In its underwriting of commercial real estate,  Guaranty may lend, under federal
regulation,  up to 100% of the  secured  property's  appraised  value,  although
Guaranty's  loan to original  appraised value ratio on such properties is 80% or
less  in  most  cases.   Commercial  real  estate  lending  entails  significant
additional risk,  compared with residential  mortgage  lending.  Commercial real
estate loans  typically  involve larger loan balances  concentrated  with single
borrowers or groups of related borrowers.  Additionally,  the payment experience
on loans secured by income  producing  properties is typically  dependent on the
successful  operation  of a business  or a real  estate  project and thus may be
subject, to a greater extent, to adverse conditions in the real estate market or
in the economy  generally.  Guaranty's  commercial real estate loan underwriting
criteria require an examination of debt service coverage ratios,  the borrower's
creditworthiness and prior credit history and reputation, and Guaranty generally
requires  personal  guarantees  or  endorsements  of  borrowers.  Guaranty  also
carefully considers the location of the security property.

One-to-Four-Family Residential Real Estate Lending

Guaranty makes loans secured by one-to-four-family  residences, all of which are
located in its market area.  Guaranty  evaluates both the borrower's  ability to
make  principal  and interest  payments and the value of the property  that will
secure the loan.  Guaranty makes loans in amounts of up to 100% of the appraised
value of the underlying  real estate.  Loans are made with a loan to value up to
95% for  conventional  mortgage  loans  and up to 100% for loans  guaranteed  by
either the Federal  Housing  Authority  ("FHA") or the  Veterans  Administration
("VA"). For conventional loans in excess of 80% loan to value,  private mortgage
insurance  is  secured  insuring  the  mortgage  loans to 75% loan to value.  In
addition to fixed rate mortgage loans,  Guaranty makes adjustable rate mortgages
with the primary loan indexed to the one year  treasury.  Generally if the loans
are not made to credit standards of FHLMC, additional fees and rate are charged.



                                       6
<PAGE>

Although,  due  to  competitive  market  pressures,   the  Bank  does  originate
fixed-rate  mortgage loans, it currently  underwrites and documents the majority
of such loans to permit their sale in the secondary mortgage market. At December
31, 1999,  $18.3 million,  or 8.7%, of Guaranty's  loan  portfolio  consisted of
fixed-rate mortgage loans.

Guaranty's current one-to-four-family residential adjustable-rate mortgage loans
("ARMs")  have  interest  rates that adjust every year,  generally in accordance
with the rates on one-year U.S. Treasury Bills.  Guaranty's ARMs generally limit
interest  rate  increases  to  2%  each  rate  adjustment  period  and  have  an
established  ceiling  rate at the time the  loans  are made of up to 6% over the
original interest rate.  Borrowers are qualified at the first year interest rate
plus 2%. To compete  with  other  lenders in its  market  area,  Guaranty  makes
one-year ARMs at interest  rates which,  for the first year, are below the index
rate which would  otherwise  apply to these loans.  At December 31, 1999,  $44.5
million,  or 21.1%,  of Guaranty's loan portfolio  consisted of ARMs.  There are
unquantifiable risks resulting from potential increased costs to the borrower as
a result of repricing. It is possible,  therefore, that during periods of rising
interest  rates,  the risk of  defaults on ARMs may  increase  due to the upward
adjustment of interest costs to borrowers.

All  one-to-four-family  real estate mortgage loans being originated by Guaranty
contain a  "due-on-sale"  clause  providing that Guaranty may declare the unpaid
principal balance due and payable upon the sale of the mortgage property.  It is
Guaranty's policy to enforce these  due-on-sale  clauses  concerning  fixed-rate
loans and to permit assumptions of ARMs, for a fee, by qualified borrowers.

Guaranty requires, in connection with the origination of residential real estate
loans, title opinions and fire and casualty insurance coverage, as well as flood
insurance where appropriate,  to protect Guaranty's  interest.  The cost of this
insurance  coverage is paid by the borrower.  Guaranty does require  escrows for
taxes and insurance.

Consumer Lending

Guaranty  offers  various  secured  and  unsecured  consumer  loans,   including
unsecured personal loans and lines of credit,  automobile loans, deposit account
loans,  installment and demand loans,  letters of credit, and home equity loans.
At December 31, 1999,  Guaranty had consumer  loans of $17.2  million or 8.1% of
gross loans.  Such loans are generally made to customers with which Guaranty had
a pre-existing  relationship.  Guaranty  originates all of its consumer loans in
its market area and intends to continue its consumer  lending in this geographic
area.  Most of the consumer loans are tied to the prime lending rate and reprice
daily.

Consumer  loans may entail  greater  risk than do  residential  mortgage  loans,
particularly in the case of consumer loans which are unsecured, such as lines of
credit, or secured by rapidly  depreciable  assets such as automobiles.  In such
cases, any repossessed  collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the  outstanding  loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining deficiency
often does not  warrant  further  substantial  collection  efforts  against  the
borrower. In addition, consumer loan collections are dependent on the borrower's
continuing  financial  stability,  and  thus  are more  likely  to be  adversely
affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the
application  of various  federal  and state  laws,  including  federal and state
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.  Such loans may also give rise to claims and  defenses by a consumer
loan borrower against an assignee of such loan such as Guaranty,  and a borrower
may be able to assert  against such  assignee  claims and defenses  which it has
against  the  seller  of  the  underlying  collateral.   Guaranty  adds  general
provisions  to its loan loss  allowance  at the time the  loans are  originated.
Consumer loan delinquencies  often increase over time as the loans age. Guaranty
has very few unsecured consumer loans.

The  underwriting  standards  employed by Guaranty for consumer  loans include a
determination  of  the  applicant's  payment  history  on  other  debts  and  an
assessment of ability to meet existing  obligations and payments on the proposed
loan.  The  stability of the  applicant's  monthly  income may be  determined by
verification of gross monthly income from primary  employment,  and additionally
from any verifiable secondary income. Although creditworthiness of the applicant
is of



                                       7
<PAGE>

primary consideration, the underwriting process also includes an analysis of the
value of the security in relation to the proposed loan amount.

Employees

At December 31, 1999, Guaranty had the equivalent of 99 full-time employees, and
currently  has  five  part-time  employees.  None of  Guaranty's  employees  are
represented by any collective bargaining unit.

Supervision and Regulation

The  discussion  below is only a summary of the principal  laws and  regulations
that comprise the regulatory  framework applicable to Guaranty and the Bank. The
descriptions of these laws and regulations,  as well as descriptions of laws and
regulations  contained  elsewhere  herein, do not purport to be complete and are
qualified in their entirety by reference to applicable laws and regulations.

As a bank  holding  company,  Guaranty is subject to  regulation  under the Bank
Holding  Company Act of 1956 (as amended,  the "BHCA") and the  examination  and
reporting  requirements  of the Board of Governors of the Federal Reserve System
(the "Federal  Reserve  Board").  Under the BHCA, a bank holding company may not
directly  or  indirectly  acquire  ownership  or  control of more than 5% of the
voting shares or substantially all of the assets of any additional bank or merge
or consolidate  with another bank holding  company without the prior approval of
the Federal  Reserve Board.  The BHCA also generally  limits the activities of a
bank holding company to that of banking,  managing or controlling  banks, or any
other  activity  which is determined  to be so closely  related to banking or to
managing or controlling banks that an exception is allowed for those activities.

The activities  permissible to bank holding  companies and their affiliates were
substantially expanded by the Gramm-Leach-Bliley Act, which the President signed
on November 12, 1999. Gramm-Leach-Bliley repeals the anti-affiliation provisions
of the  Glass-Steagall  Act to permit the common ownership of commercial  banks,
investment  banks and  insurance  companies.  Under  Gramm-Leach-Bliley,  a bank
holding  company  can elect to be  treated as a  financial  holding  company.  A
financial  holding company may engage in any activity and acquire and retain any
company  that the  Federal  Reserve  determines  to be  financial  in nature.  A
financial  holding company also may engage in any activity that is complementary
to a financial  activity and does not pose a substantial  risk to the safety and
soundness of depository  institutions  or the financial  system  generally.  The
Federal  Reserve must consult with the Secretary of the Treasury in  determining
whether  an  activity  is  financial  in nature  or  incidental  to a  financial
activity.

As a  state-chartered  bank, the Bank is subject to regulation,  supervision and
examination by the Virginia State Corporation  Commission's  Bureau of Financial
Institutions  (the  "Virginia  SCC").  The Bank is also  subject to  regulation,
supervision and examination by the Federal Reserve Board and the Federal Deposit
Insurance  Corporation  (the  "FDIC").  State and  federal  law also  govern the
activities  in which the Bank may engage,  the  investments  it may make and the
aggregate amount of loans that may be granted to one borrower.  Various consumer
and compliance laws and regulations also affect the Bank's operations.

The earnings of the Bank,  and therefore the earnings of Guaranty,  are affected
by general  economic  conditions,  management  policies and the  legislative and
governmental actions of various regulatory authorities, including those referred
to above.  The following  description  summarizes  some of the state and federal
laws to which Guaranty and the Bank are subject.

The  Virginia  SCC and the  Federal  Reserve  Bank of Richmond  conduct  regular
examinations  of the Bank,  reviewing  such matters as the adequacy of loan loss
reserves,  quality of loans and investments,  management  practices,  compliance
with laws, and other aspects of their  operations.  In addition to these regular
examinations,  the Bank must furnish the  Virginia  SCC and the Federal  Reserve
with periodic reports  containing a full and accurate  statement of its affairs.
Supervision,



                                       8
<PAGE>

regulation and examination of banks by these agencies are intended primarily for
the protection of depositors rather than shareholders.

Insurance of Accounts,  Assessments  and Regulation by the FDIC. The deposits of
the Bank are  insured by the FDIC up to the limits  set forth  under  applicable
law. The deposits of the Bank are subject to the deposit  insurance  assessments
of the Bank Insurance Fund ("BIF") of the FDIC.

For the semi-annual period beginning January 1, 1998, the assessments imposed on
all FDIC deposits for deposit insurance have an effective rate ranging from 0 to
27 basis points per $100 of insured  deposits,  depending  on the  institution's
capital position and other supervisory factors. However, because the legislation
enacted in 1996 requires that both Savings  Association  Insurance Fund ("SAIF")
insured and  BIF-insured  deposits pay a pro rata portion of the interest due on
the  obligations  issued  by the  Financing  Corporation  ("FICO"),  the FDIC is
assessing  BIF-insured  deposits  an  additional  1.30 basis  points per $100 of
deposits to cover those obligations.

The FDIC is authorized to prohibit any BIF-insured  institution from engaging in
any activity  that the FDIC  determines by regulation or order to pose a serious
threat to the respective insurance fund. Also, the FDIC may initiate enforcement
actions against banks,  after first giving the institution's  primary regulatory
authority an opportunity to take such action. The FDIC may terminate the deposit
insurance of any depository institution if it determines,  after a hearing, that
the institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound  condition  to continue  operations,  or has  violated  any
applicable  law,  regulation,  order or any condition  imposed in writing by the
FDIC.  It also may  suspend  deposit  insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If deposit  insurance  is  terminated,  the  deposits at the
institution  at the time of  termination,  less  subsequent  withdrawals,  shall
continue to be insured for a period from six months to two years,  as determined
by the FDIC. Management is aware of no existing  circumstances that could result
in termination of the Bank's deposit insurance.

Capital.  The Federal Reserve Board has issued  risk-based and leverage  capital
guidelines  applicable  to  banking  organizations  they  supervise.  Under  the
risk-based  capital  requirements,  Guaranty  and the Bank  are  each  generally
required to maintain a minimum  ratio of total capital to  risk-weighted  assets
(including  certain  off-balance  sheet  activities,  such as standby letters of
credit),  of 8%. At least half of the total  capital is to be composed of common
equity, retained earnings and qualifying perpetual preferred stock, less certain
intangibles   ("Tier  1  capital").   The   remainder  may  consist  of  certain
subordinated  debt,  certain hybrid  capital  instruments  and other  qualifying
preferred  stock  and a  limited  amount  of the loan  loss  allowance  ("Tier 2
capital" and, together with Tier 1 capital,  "total  capital").  At December 31,
1999,  Guaranty's Tier 1 capital and total capital ratios were 9.43% and 11.22%,
respectively.

In  addition,  each of the Federal bank  regulatory  agencies  have  established
minimum leverage capital ratio  requirements  for banking  organizations.  These
requirements  provide for a minimum leverage ratio of Tier 1 capital to adjusted
average  quarterly assets equal to 4% for banks and bank holding  companies that
meet certain specified criteria. All other banks and bank holding companies will
generally be required to maintain a leverage  ratio of at least 100 to 200 basis
points above the stated minimum.  Guaranty's leverage ratio at December 31, 1998
was 10.81%.

The  risk-based  capital  standards  of the  Federal  Reserve  Board  explicitly
identify concentrations of credit risk and the risk arising from non-traditional
activities,  as well as an  institution's  ability  to manage  these  risks,  as
important  factors  to be taken  into  account  by the  agency in  assessing  an
institution's overall capital adequacy. The capital guidelines also provide that
an institution's  exposure to a decline in the economic value of its capital due
to  changes  in  interest  rates be  considered  by the  agency  as a factor  in
evaluating  a bank's  capital  adequacy.  The  Federal  Reserve  Board  also has
recently issued  additional  capital  guidelines for bank holding companies that
engage in certain trading activities.

Other Safety and Soundness  Regulations.  There are a number of obligations  and
restrictions imposed on bank holding companies and their depository  institution
subsidiaries  by Federal law and  regulatory  policy that are designed to reduce
potential loss exposure to the depositors of such depository institutions and to
the FDIC  insurance  funds in the event the



                                       9
<PAGE>
depository  institution  becomes  in danger of  default  or is in  default.  For
example,  under a policy of the  Federal  Reserve  Board  with  respect  to bank
holding  company  operations,  a bank holding  company is required to serve as a
source of financial  strength to its subsidiary  depository  institutions and to
commit resources to support such  institutions in  circumstances  where it might
not do so otherwise.  In addition,  the "cross-guarantee"  provisions of Federal
law require insured  depository  institutions  under common control to reimburse
the FDIC for any loss suffered or reasonably  anticipated  by either the SAIF or
the BIF as a result of the default of a commonly  controlled  insured depository
institution or for any assistance  provided by the FDIC to a commonly controlled
insured  depository  institution  in danger of default.  The FDIC may decline to
enforce the  cross-guarantee  provision if it determines that a waiver is in the
best  interests  of  the  SAIF  or  the  BIF  or  both.  The  FDIC's  claim  for
reimbursement  is superior to claims of shareholders  of the insured  depository
institution  or its holding  company but is subordinate to claims of depositors,
secured  creditors and holders of subordinated  debt (other than  affiliates) of
the commonly controlled insured depository institution.

The Federal banking agencies also have broad powers under current Federal law to
take  prompt  corrective  action  to  resolve  problems  of  insured  depository
institutions. The extent of these powers depends upon whether the institution in
question  is   well-capitalized,   adequately   capitalized,   undercapitalized,
significantly undercapitalized or critically undercapitalized, as defined by the
law.  As of  December  31,  1999,  Guaranty  and the  Bank  were  classified  as
well-capitalized.  State  regulatory  authorities  also have  broad  enforcement
powers over the Bank,  including  the power to impose  fines and other civil and
criminal penalties, and to appoint a receiver in order to conserve the assets of
any such institution for the benefit of depositors and other creditors.

Payment of Dividends.  Guaranty is a legal entity separate and distinct from the
Bank.  Virtually all of the revenues of Guaranty  result from  dividends paid to
Guaranty  by the Bank.  The Bank also is  subject  to state  laws that limit the
amount of  dividends  it can pay. In  addition,  both  Guaranty and the Bank are
subject  to various  general  regulatory  policies  relating  to the  payment of
dividends,  including requirements to maintain adequate capital above regulatory
minimums.  The Federal  Reserve Board has indicated  that banking  organizations
should  generally  pay  dividends  only if (1)  the  organization's  net  income
available to common  shareholders over the past year has been sufficient to fund
fully the dividends and (2) the prospective rate of earnings  retention  appears
consistent  with the  organization's  capital  needs,  asset quality and overall
financial  condition.   Guaranty  does  not  expect  that  any  of  these  laws,
regulations  or policies will  materially  impact the ability of the Bank to pay
dividends.

Community  Reinvestment.  The  requirements  of the Community  Reinvestment  Act
("CRA")  are  also  applicable  to  the  Bank.  The  CRA  imposes  on  financial
institutions an affirmative  and ongoing  obligation to meet the credit needs of
their  local  communities,  including  low and  moderate  income  neighborhoods,
consistent with the safe and sound operation of those institutions.  A financial
institution's  efforts in meeting community credit needs currently are evaluated
as part of the examination process pursuant to twelve assessment factors.  These
factors also are considered in evaluating mergers, acquisitions and applications
to open a branch or facility.  To the best  knowledge of the Bank, it is meeting
its obligations under the CRA. The Bank's CRA rating is "satisfactory".

Interstate  Banking and Branching.  Current  Federal law  authorizes  interstate
acquisitions of banks and bank holding companies without geographic  limitation.
Effective June 1, 1997, a bank  headquartered in one state will be authorized to
merge  with a bank  headquartered  in another  state,  as long as neither of the
states has opted out of such  interstate  merger  authority  prior to such date.
States are  authorized  to enact laws  permitting  such  interstate  bank merger
transactions  prior to June 1, 1997, as well as  authorizing a bank to establish
"de  novo"  interstate  branches.  Virginia  has  enacted  early  "opt in" laws,
permitting  interstate  bank merger  transactions.  Once a bank has  established
branches  in a state  through an  interstate  merger  transaction,  the bank may
establish and acquire  additional  branches at any location in the state where a
bank  headquartered  in that state could have  established or acquired  branches
under applicable Federal or state law.

Economic and Monetary Policies. The operations of Guaranty are affected not only
by general economic  conditions,  but also by the economic and monetary policies
of various regulatory authorities.  In particular, the Federal Reserve regulates
money,  credit  and  interest  rates  in  order to  influence  general  economic
conditions.  These  policies have a significant  influence on overall growth and
distribution  of loans,  investments  and  deposits  and affect  interest  rates
charged on loans

                                       10
<PAGE>

or paid for time and savings  deposits.  Federal Reserve monetary  policies have
had a  significant  effect on the operating  results of commercial  banks in the
past and are expected to continue to do so in the future.

Forward Looking Statements

Certain  statements  in  this  annual  report  are  forward-looking  and  may be
identified  by the use of  words  such  as  "believe",  "expect",  "anticipate",
"should", "planned", "estimated", and "potential". These statements are based on
the  Corporation's  current  expectations.  A variety of factors could cause the
Corporation's  actual  results  and  experience  to differ  materially  from the
anticipated  results or other  expectations  expressed  in such  forward-looking
statements.  The  risks  and  uncertainties  that  may  affect  the  operations,
performance,  development,  and results of the  Corporation's  business  include
interest rate  movements,  competition  from both  financial  and  non-financial
institutions,  the timing and occurrence (or  nonoccurence)  of transactions and
events that may be subject to circumstances  beyond the  Corporation's  control,
and general economic conditions.







                                       11
<PAGE>

Item 2.      Description of Property.


As of March 1, 2000,  Guaranty  conducted  its business  from its main office in
Charlottesville, Virginia and seven branch offices. The following table provides
certain information with respect to these properties:

                                  Date Facility
Location                             Opened       Lease Arrangements
--------                             ------       ------------------

Main Office:

1658 State Farm Boulevard             1996        Owned by Guaranty
Charlottesville, Virginia

Branch Offices:

Downtown Mall                         1992        Lease expires in 2002, subject
520 East Main Street                              to  Guaranty's  right to renew
Charlottesville, Virginia                         for three additional five-year
                                                  terms

Barracks Road                         1994        Lease expires in 2004, subject
1924 Arlington Boulevard                          to  Guaranty's  right to renew
Charlottesville, Virginia                         for  two  additional five-year
                                                  terms

West Main                             1998        Lease expires in 2003, subject
2211 West Main Street                             to  Guaranty's  right to renew
Charlottesville, Virginia                         for two  additional  five-year
                                                  terms

Route 29 North & Rio Road             1996        Owned by Guaranty
1700 Seminole Trail
Charlottesville, Virginia

Harrisonburg                          1997        Owned by Guaranty
1925 Reservoir Street
Harrisonburg, Virginia

Lake Monticello                       1998        Owned by Guaranty
Route 53 & Turkey Sag Road
Lake Monticello, Virginia

Henrico County                        1999        Owned by Guaranty
3498 Lauderdale Drive
Richmond, Virginia




                                       12
<PAGE>

Item 3.      Legal Proceedings.

In  the  course  of  its  operations,  Guaranty  is a  party  to  various  legal
proceedings.  Based upon information  currently  available,  management believes
that such legal proceedings,  in the aggregate, will not have a material adverse
effect on Guaranty's business, financial position, or results of operations.

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

No matters were  submitted  during the fourth quarter of the fiscal year covered
by this report to a vote of security holders of Guaranty.


                                     PART II

Item 5.      Market for Common Equity and Related Stockholder Matters.

Guaranty's Common Stock is listed on the Nasdaq National Market under the symbol
"GSLC". The following table sets forth, for the quarters indicated, the high and
low sales prices for  Guaranty's  Common Stock and per share  dividends  for the
periods indicated.

                           Market Price and Dividends
<TABLE>
<CAPTION>
                                                        Sales Price ($)
                                                        ---------------

                                                     High              Low              Dividends ($)
                                                     ----              ---              -------------
<S>                                                  <C>               <C>                   <C>
Fiscal Year Ended December 31, 1998:
         1st quarter                                 16.75             13.25                 .03
         2nd quarter                                 17.00             15.50                 .06
         3rd quarter                                 17.00             12.375                .06
         4th quarter                                 15.00             10.75                 .06

Fiscal Year Ended December 31, 1999:
         1st quarter                                 13.625            11.25                 .06
         2nd quarter                                 11.875            10.375                .06
         3rd quarter                                 11.75             10.125                .06
         4th quarter                                 10.75             8.00                  .06
</TABLE>

Guaranty  generally  pays  dividends on a quarterly  basis.  However,  the final
determination  of the timing,  amount and  payment of  dividends  on  Guaranty's
Common Stock is at the  discretion  of  Guaranty's  Board of Directors  and will
depend upon the earnings of Guaranty and its subsidiaries, principally the Bank,
the  financial  condition  of  Guaranty  and other  factors,  including  general
economic conditions and applicable governmental regulations and policies.

Guaranty is a legal entity separate and distinct from its subsidiaries,  and its
revenues depend primarily on the payment of dividends from the Bank. The Bank is
subject to certain legal restrictions on the amount of dividends it is permitted
to  pay  to  Guaranty.  At  December  31,  1999,  the  Bank  had  available  for
distribution as dividends to Guaranty approximately $2.0 million.

As of March 13, 2000, Guaranty had approximately 1,194 shareholders of record.



                                       13
<PAGE>

Item 6.      Management's Discussion and  Analysis  of  Financial  Condition and
             Results of Operation.

The following  commentary  discusses major components of Guaranty's business and
presents an  overview  of its  consolidated  financial  position  and results of
operations  at December  31, 1999 and 1998 and for the years ended  December 31,
1999, 1998 and 1997. This discussion  should be reviewed in conjunction with the
consolidated  financial  statements and accompanying notes and other statistical
information presented elsewhere in this annual report.

Guaranty is not aware of any current  recommendations by regulatory authorities,
which,  if implemented,  would have a material effect on its liquidity,  capital
resources or results of operations. There are no agreements between Guaranty and
the Federal Reserve,  the Virginia State  Corporation  Commission (the "SCC") or
the FDIC, nor has any regulatory agency made any recommendations  concerning the
operations  of  Guaranty  that could have a  material  effect on its  liquidity,
capital resources or results of operations.

OVERVIEW

o    On November  17,  1999,  Guaranty  Financial  Corporation,  in an effort to
     increase its  regulatory  capital base,  completed a secondary  offering of
     460,000 shares of common stock with net proceeds after offering expenses of
     $3,693,000.

o    Guaranty  opened its eighth retail  branch  during 1999,  in  Wellesley,  a
     planned  community in Henrico  County,  Virginia.  With the opening of this
     branch,  Guaranty is  beginning  to expand its market area into the western
     Richmond, Virginia market area.

o    As previously  reported,  during the third  quarter  Guaranty took steps to
     restructure its balance sheet in order to reduce its interest rate risk. As
     part of this  restructuring,  the Bank sold  approximately  $13  million in
     long-term  corporate  bonds  which  resulted  in a net  after  tax  loss of
     $857,000.  The sale of these bonds reduced the Bank's exposure to increases
     in interest  rates.  Also,  as part of the  restructuring,  the Bank sold a
     significant  portion of its residential loan servicing  portfolio resulting
     in a net loss of  approximately  $31,000.  The Bank sold the  servicing  to
     reduce its overall  servicing asset,  which is very sensitive to changes in
     the interest rate environment.

NET INCOME

Net income for the year ended  December  31, 1999 was $4,400,  a 99.5%  decrease
when compared to calendar  year 1998  earnings of  $1,016,000  ($.68 per diluted
share).  These  decreased  earnings  were  primarily  a result  from the sale of
approximately  $13 million in long term corporate  bonds which resulted in a net
after tax loss of $857,000.  This action was taken to reduce market rate risk in
Guaranty's  balance sheet and improve net interest  margin in the future.  Also,
during  1999,  Guaranty  increased  its loan  loss  provision  by  approximately
$300,000.

Net income for the year ended December 31, 1998 was $1,016,000 ($.68 per share),
a 13.3%  increase when compared to calendar year 1997 earnings of $898,000 ($.61
per share).  These  increased  earnings were primarily a result of increased net
interest  margin growth and expansion of the existing  branch  network,  and the
addition and expansion of the  commercial  and  construction  loan  departments.
These increased  revenues were partially offset by the one-time expenses related
to the conversion to a state chartered bank.




                                       14
<PAGE>

NET INTEREST INCOME

Net interest income is the major  component of Guaranty's  earnings and is equal
to the amount by which interest income exceeds interest expense.  Earning assets
consist  primarily  of loans  and  securities,  while  deposits  and  borrowings
represent  the major  portion of interest  bearing  liabilities.  Changes in the
volume and mix of assets and  liabilities,  as well as changes in the yields and
rates paid, determine changes in net interest income. The net interest margin is
calculated by dividing net interest income by average earning assets.

Net interest income was $7.7 million for the year ended December 31, 1999, 36.8%
greater than the $5.7 million  reported during the year ended December 31, 1998.
This  improvement in the net interest income was primarily due to an increase in
the volume of prime based  residential  construction  lending  including builder
lines of credit,  commercial  loan  increases,  and an  increase  in income from
securities  held for sale,  coupled  with the  decline  in the  average  cost of
interest bearing  liabilities.  Average loans increased 40.4% for the year ended
December 31, 1999. The interest income from  investments  increased 53.0% during
the year ended December 31, 1999. Net interest margin  decreased 30 basis points
to 3.28% at December  31,  1999 which was caused by a  reduction  in the average
yield on loans,  and fee income  associated  with  commercial  and  construction
lending.  The average cost of interest bearing  deposits  declined from 4.87% in
1998 to 4.60% in 1999.  The cost of average total interest  bearing  liabilities
during the year ended  December 31, 1999 declined from 5.18% in 1998 to 4.87% in
1999.  The average rate paid on savings  accounts  declined 66 basis points from
2.97% in 1998 to 2.31%  in  1999.  The  average  rate  paid on  certificates  of
deposits declined 22 basis points from 5.41% in 1998 to 5.19% in 1999.

Net interest income was $5.7 million for the year ended December 31, 1998, 62.9%
greater than the $3.5 million  reported during the year ended December 31, 1997.
This  improvement  in the net interest  income was  primarily  due to the volume
increases in the loan portfolios and interest bearing deposits with other banks,
and the decline in the average  cost of interest  bearing  liabilities.  Average
loans  increased 37.6% for the year ended December 31, 1998. The average balance
of the interest  bearing  deposits with other banks was $10.5 million during the
year ended December 31, 1998, an increase of 87.3%,  from an average  balance of
$5.6  million  during the year ended  December 31,  1997.  The average  yield on
average loans increased 65 basis points from 8.50% in 1997 to 9.15% in 1998. The
average yield on interest bearing deposits  declined from 5.05% in 1997 to 4.87%
in 1998. The cost of average total interest bearing  liabilities during the year
ended  December  31,  1998  declined  from  5.29% in 1997 to 5.18% in 1998.  The
average  rate paid on savings  accounts  declined 39 basis  points from 3.36% in
1997 to 2.97%  in 1998.  The  average  rate  paid on  certificates  of  deposits
declined 9 basis points from 5.50% in 1997 to 5.41% in 1998.






                                       15
<PAGE>
The following table sets forth average balances of total interest earning assets
and total interest bearing  liabilities for the periods  indicated,  showing the
average  distribution  of  assets,  liabilities,  stockholders'  equity  and the
related income, expense and corresponding weighted average yields and costs.
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
----------------------------------------------------------------------------------------------------------------------------------
  (Dollars in thousands)                                  1999                        1998                         1997
----------------------------------------------------------------------------------------------------------------------------------
                                                        Interest  Average           Interest  Average            Interest  Average
                                                Average  income/   yield/   Average  income/   yield/   Average   income/   yield/
                                                balance  expense    rate    balance  expense    rate    balance   expense    rate
----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>      <C>     <C>        <C>     <C>     <C>          <C>      <C>
Assets
Interest earning assets:
   Securities                                   $32,278   $2,157    6.68%   $18,388   $1,290   7.02%    $22,637    $1,590    7.02%
   Loans                                        184,340   15,765    8.55%   122,751   11,231   9.15%     89,222     7,584    8.50%
   Interest bearing deposits
      in other banks                              8,928      450    5.04%    10,500      539   5.13%      5,605       346    6.17%
----------------------------------------------------------------------------------------------------------------------------------
   Total interest-earning
          assets/total interest income          225,546   18,372    8.15%   151,639   13,060   8.61%    117,464     9,520    8.10%
----------------------------------------------------------------------------------------------------------------------------------
   Noninterest earning assets:
      Cash and due from banks                     5,484                       2,450                      1,898
      Premises and equipment                      8,399                       6,519                      5,508
      Other assets                                5,256                       3,001                      2,624
      Less allowance for loan losses             (1,122)                     (1,104)                      (890)
----------------------------------------------------------------------------------------------------------------------------------
          Total noninterest earning assets       18,017                      10,866                      9,140
----------------------------------------------------------------------------------------------------------------------------------
             Total Assets                      $243,563                    $162,505                   $126,604
==================================================================================================================================

Liabilities and stockholders' equity
Interest bearing liabilities:
   Interest bearing deposits:
      Demand/MMDA accounts                      $44,906   $1,571    3.50%   $24,936     $862   3.46%   $11,110       $289    2.60%
      Savings                                    10,968      253    2.31%     8,551      254   2.97%     5,654        190    3.36%
      Certificates of deposit                   126,015    6,541    5.19%    93,615    5,068   5.41%    80,779      4,443    5.50%
----------------------------------------------------------------------------------------------------------------------------------
          Total interest bearing deposits       181,889    8,365    4.60%   127,102    6,184   4.87%    97,543      4,922    5.05%
----------------------------------------------------------------------------------------------------------------------------------
      FHLB advances and other borrowings         34,955    1,969    5.63%    13,893      899   6.47%    14,070        804    5.71%
      Bonds payable                               1,468      305   20.78%     2,142      325  15.17%     2,583        312   12.08%
----------------------------------------------------------------------------------------------------------------------------------
          Total interest bearing
             liabilities/total interest expense 218,312   10,639    4.87%   143,137    7,408   5.18%   114,196      6,038    5.29%
----------------------------------------------------------------------------------------------------------------------------------
      Non interest bearing liabilities:
        Demand deposits                          10,232                       5,338                     1,658
        Other liabilities                         3,583                       3,531                       903
----------------------------------------------------------------------------------------------------------------------------------
          Total liabilities                     232,127                     152,006                   116,757
----------------------------------------------------------------------------------------------------------------------------------
      Stockholders' equity                       11,436                      10,499                     9,847
----------------------------------------------------------------------------------------------------------------------------------
          Total liabilities and stockholders'
            equity                             $243,563                    $162,505                  $126,604
==================================================================================================================================
      Interest spread (1)                                           3.28%                      3.43%                         2.81%
      Net interest income/net interest
        margin (2)                                        $7,733    3.43%             $5,652   3.73%               $3,482    2.96%
==================================================================================================================================
</TABLE>
(1) Interest  spread is the average  yield  earned on earning  assets,  less the
    average rate incurred on interest bearing liabilities
(2) Net interest  margin is net interest  income,  expressed as a percentage  of
    average earning assets.

                                       16
<PAGE>

The following table describes the impact on Guaranty's interest income resulting
from changes in average  balances and average  rates for the periods  indicated.
The change in interest due to both volume and rate has been  allocated to volume
and rate  changes in  proportion  to the  relationship  of the  absolute  dollar
amounts of the change in each.

<TABLE>
<CAPTION>
                                        Year Ended December 31, 1999            Year Ended December 31, 1999
                                                 compared to                             compared to
                                        Year Ended December 31, 1998            Year Ended December 31, 1998
                                                Change Due To:                          Change Due To:
--------------------------------------------------------------------------------------------------------------
                                                             Increase                               Increase
(Dollars in thousands)                     Rate    Volume   (Decrease)            Rate     Volume  (Decrease)
--------------------------------------------------------------------------------------------------------------
<S>                                       <C>       <C>       <C>                 <C>     <C>       <C>
Interest income:
   Securities                              ($63)     $930       $867                $0     ($300)    ($300)
   Loans                                   (737)    5,271      4,534               580     3,067     3,647
   Interest bearing deposits
     in other banks                          (9)      (80)       (89)              (58)      251       193
------------------------------------------------------------------------------------------------------------
        Total interests income             (809)    6,121      5,312               522     3,018     3,540
Interest expense:
   Interest bearing deposits:
      Demand/MMDA accounts                   10       699        709                96       477       573
      Savings                               (56)       55         (1)              (22)       86        64
      Certificates of deposit              (206)    1,679      1,473               (73)      699       626
------------------------------------------------------------------------------------------------------------
        Total interest bearing deposits    (252)    2,433      2,181                 1     1,262     1,263
      FHLB advances and other              (117)    1,187      1,070               107       (12)       95
      Bonds payable                         120      (140)       (20)               66       (53)       13
------------------------------------------------------------------------------------------------------------
      Total interest expense               (249)    3,480      3,231               174     1,197     1,371
------------------------------------------------------------------------------------------------------------
      Net interest income                 ($560)    2,641     $2,081              $348    $1,821    $2,169
============================================================================================================
</TABLE>

INTEREST SENSITIVITY

An  important  element  of  both  earnings  performance  and  liquidity  is  the
management of the interest  sensitivity gap. The interest sensitivity gap is the
difference between interest-sensitive assets and interest-sensitive  liabilities
maturing or repricing within a specific time interval. The gap can be managed by
repricing assets or liabilities,  by selling investments,  by replacing an asset
or liability  prior to maturity,  or by adjusting  the interest  rate during the
life of an asset or  liability.  Matching the amounts of assets and  liabilities
repricing  in the same time  interval  helps to hedge the risk and  minimize the
impact on net income of changes in market  interest  rates.  Guaranty  evaluates
interest rate risk and then formulates guidelines regarding asset generation and
pricing, funding sources and pricing, and off-balance sheet commitments in order
to decrease  sensitivity  risk.  These  guidelines  are based upon  management's
outlook regarding future interest rate movements,  the state of the regional and
national economy, and other financial and business risk factors.

At December 31, 1999,  Guaranty had $32.9 million more  liabilities  than assets
that reprice within one year and therefore was in a liability-sensitive position
compared  to the same  period in the prior year where  there were $17.0  million
more   assets   than    liabilities   that   repriced   within   one   year.   A
liability-sensitive  position or a negative gap can adversely affect earnings in
a period of rising  interest  rates.  This  negative  position  is the result of
investments in securities  with a maturity of over five years coupled with fixed
rate borrowing and certificates of deposit reaching maturity in one year or less
and short term borrowings used to fund loans also maturing in one year or less.

Guaranty  has an  Asset/Liability  Committee  ("ALCO"),  which  meets to discuss
deposit  pricing,  changes in borrowed money,  investment and trading  activity,
loan sale activities, liquidity levels and the overall interest sensitivity. The
actions of this  committee are reported to the Board of Directors  monthly.  The
daily monitoring of interest rate risk,



                                       17
<PAGE>

investment and trading activity,  along with any other significant  transactions
are managed by the CEO with input from other ALCO members.

The following table presents the amounts of Guaranty's interest sensitive assets
and liabilities that mature or reprice in the periods indicated.

<TABLE>
<CAPTION>
                                                                      December 31, 1999
                                                                  Maturing or Repricing In:
----------------------------------------------------------------------------------------------------------
                                                     3 Months         4-12           1-5           Over
(Dollars in thousands)                               or less         Months         Years         5 Years
----------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>            <C>           <C>
Interest-sensitive assets:
  Loans                                               $85,191        $61,690        $34,457       $29,686
  Investments and mortgage-backed securities(1)             -          1,750          1,086        22,197
  Deposits at other institutions                        7,173              -              -             -
----------------------------------------------------------------------------------------------------------
     Total interest-sensitive assets                   92,364         63,440         35,543        51,883
==========================================================================================================

   Cumulative interest-sensitive assets                92,364        155,804        191,347       243,230
==========================================================================================================

Interest-sensitive liabilities:
  NOW accounts (2)                                          -              -              -        30,206
  Money market deposit accounts                        27,888              -              -             -
  Savings accounts                                     11,203              -              -             -
  Certificates of deposit                              30,502         82,281         17,525             -
  Borrowed money                                       16,650         20,000              -             -
  Bonds payable                                            34            102            367           400
----------------------------------------------------------------------------------------------------------
     Total interest-sensitive liabilities              86,277        102,383         17,892        30,606
==========================================================================================================

   Cumulative interest-sensitive liabilities         $ 86,277      $ 188,660      $ 206,552     $ 237,158
==========================================================================================================

   Period gap                                        $  6,087      $ (38,943)     $  17,651     $  21,277

   Cumulative gap                                    $  6,087      $ (32,856)     $ (15,205)    $   6,072

   Ratio of cumulative interest-sensitive
    assets to interest-sensitive liabilities          107.06%         82.58%         92.64%       102.56%

   Ratio of cumulative gap to total assets              2.35%        (12.67%)        (5.86%)        2.34%
</TABLE>

(1) Includes Federal Home Loan Bank stock
(2) The  Corporation  has found that NOW accounts are generally not sensitive to
    changes in interest  rates and  therefore  has placed  such  deposits in the
    "over 5 years" category

Of Guaranty's commercial and construction loans with a maturity of more than one
year,  approximately  $3.9 million have fixed  interest  rates and $21.8 million
have variable interest rates.

INVESTMENTS

Total available for sale investment  securities decreased 17.5% to $22.2 million
at  December  31,  1999 from $26.9  million at December  31,  1998.  The overall
decrease was  primarily a result of  management's  efforts to reduce market rate
risk in Guaranty's balance sheet.



                                       18
<PAGE>

The following table shows the amortized cost and fair market value of investment
securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                            December 31,
                                                     1999                       1998                       1997
------------------------------------------------------------------------------------------------------------------------
                                               Cost        Market         Cost       Market          Cost       Market
------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>           <C>         <C>            <C>         <C>
Held-to-maturity
     Mortgage-backed securities              $  1,086     $  1,103      $  2,094    $  2,187       $  2,745    $  2,759
     Other                                        250          250           250         250            100         100
------------------------------------------------------------------------------------------------------------------------
     Total held-to-maturity                     1,336        1,353         2,344       2,437          2,845       2,859
------------------------------------------------------------------------------------------------------------------------

Available for sale
     Corporate bonds                           19,735       17,417        26,463      26,581         11,415      11,474
     U.S. Government Obligations                    -            -           301         328            129         129
     Mortgage-backed securities                 4,898        4,780             -           -              -           -
------------------------------------------------------------------------------------------------------------------------
     Total available for sale                  24,633       22,197        26,764      26,909         11,544      11,603
------------------------------------------------------------------------------------------------------------------------

Trading
     U.S. Government Obligations                    -            -         1,000       1,001          1,031       1,032
------------------------------------------------------------------------------------------------------------------------
     Total Trading                                  -            -         1,000       1,001          1,031       1,032
------------------------------------------------------------------------------------------------------------------------

Other
     Federal Home Loan Bank Stock               1,500        1,500         1,300       1,300            860         860
------------------------------------------------------------------------------------------------------------------------
     Total                                   $ 27,469     $ 25,050      $ 31,408    $ 31,647       $ 16,280    $ 16,354
========================================================================================================================
</TABLE>

The  following  table  sets  forth  the  composition  of  Guaranty's  investment
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                    1999                         1998                        1997
-------------------------------------------------------------------------------------------------------------------------------
                                              Book         % of            Book         % of           Book         % of
                                              Value        Total           Value        Total          Value        Total
-------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                          <C>           <C>            <C>          <C>            <C>          <C>
Investment securities:

FHLMC mortgage-backed securities             $  1,086        4.34%        $  2,094       6.64%        $  2,745      16.80%
FNMA mortgage-backed securities                 4,781        19.10               -           -               -           -
Corporate bonds                                17,096        68.29          26,581       84.24          11,474       70.23
Treasury notes                                    250         1.00           1,250        3.96           1,082        6.62
Other                                             320         1.28             328        1.04             177        1.09
-------------------------------------------------------------------------------------------------------------------------------
Subtotal                                       23,533        94.01          30,253       95.88          15,478      94.74%

Other :
FHLB stock                                      1,500         5.99           1,300        4.12             860        5.26
-------------------------------------------------------------------------------------------------------------------------------

Total Investment securities                  $ 25,033      100.00%        $ 31,553     100.00%        $ 16,338     100.00%
===============================================================================================================================
</TABLE>



                                       19
<PAGE>

LOANS

Net loans  consist of total loans minus  undisbursed  loan funds,  deferred loan
fees and the  allowance  for loan  losses.  Net loans  were  $205.3  million  at
December 31, 1999, an increase of 26.4% over  December 31, 1998.  Net loans were
$162.4  million at  December  31,  1998,  an increase of 62.9% over net loans at
December 31, 1997.

The average  balance of total loans as a percentage of average assets was 75.7%,
and 75.5% for the years ended December 31, 1999 and 1998. respectively.

The following  table sets forth the  composition of Guaranty's loan portfolio in
dollars at the dates indicated.

                                 Loan Portfolio

<TABLE>
<CAPTION>
                                                           December 31,                           June 30,
-----------------------------------------------------------------------------------------------------------------
                                             1999        1998        1997         1996        1996        1995
-----------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>          <C>          <C>         <C>         <C>
(Dollars in thousands)
Mortgage Loans:
         Residential                      $  62,796   $  66,369    $ 66,035     $ 67,016    $ 66,136    $ 62,175
         Commercial                          12,295      13,293      16,641        8,486       7,670       4,508
         Construction and land loans         66,181      60,088      18,263        5,220       8,813       8,887
-----------------------------------------------------------------------------------------------------------------
         Total real estate                  141,272     139,750     100,939       80,722      82,619      75,570
Commercial business loans                    52,561      23,692           -            -           -           -
Consumer loans                               17,191       9,630       6,705        4,175       5,386       4,580
-----------------------------------------------------------------------------------------------------------------
         Total loans receivable             211,024     173,072     107,644       84,897      88,005      80,150
-----------------------------------------------------------------------------------------------------------------
Less:
         Undistributed loans in process       4,382       9,588       6,752        2,467       2,824       3,858
         Deferred fees                           40         113         282          290         314         323
         Allowance for losses                 1,203       1,002         935          870         786         747
-----------------------------------------------------------------------------------------------------------------
         Total net items                      5,625      10,703       7,969        3,627       3,924       4,928
-----------------------------------------------------------------------------------------------------------------
         Total loans receivable, net      $ 205,399   $ 162,369    $ 99,675     $ 81,270    $ 84,081    $ 75,222
==================================================================================================================
</TABLE>

The growth of our loan portfolio and the change in its composition  reflects our
growth  strategy and the conversion of Guaranty Bank from a savings  association
to a commercial  bank. At June 30, 1996, we had no  commercial  business  loans.
Construction  loans accounted for only 10.0% of gross loans,  while  residential
mortgage loans  represented  75.2% of gross loans. In contrast,  at December 31,
1999,  commercial  business loans,  construction loans and residential  mortgage
loans,  respectively  represented  24.9%,  54.2%,  and 29.8% of gross loans. The
dollar  amount of  Guaranty's  residential  mortgage  loans has been  relatively
constant  since June 30, 1996.  This does not reflect a decision to  de-emphasis
mortgage  lending.  Rather,  it  reflects  a  decision  in 1997 to sell  all new
conforming fixed-rate mortgage loans in the secondary mortgage market.




                                       20
<PAGE>
The following  tables show the composition of Guaranty's loan portfolio by fixed
and adjustable rate at the dates indicated.

                 Fixed Rate and Adjustable Rate Loans by Amount
<TABLE>
<CAPTION>
                                                                December 31,                                   June 30,
--------------------------------------------------------------------------------------------------------------------------------
                                             1999           1998            1997           1996           1996           1995
--------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                       <C>            <C>              <C>            <C>            <C>            <C>
Fixed-Rate Loans:
     Real Estate
         Residential                      $  18,277      $  20,206        $ 26,514       $ 26,061       $ 28,907       $ 23,577
         Commercial                           1,155          3,623               -              -
         Construction and land loans              -              -              37            138            339             69
--------------------------------------------------------------------------------------------------------------------------------
         Total real estate                   19,432         23,829          26,551         26,199         29,246         23,646
--------------------------------------------------------------------------------------------------------------------------------
Commercial business loans                    21,681          4,178               -              -
Consumer loans                                2,825            242           3,099          1,396            597            736
--------------------------------------------------------------------------------------------------------------------------------
     Total fixed-rate loans                  43,938         28,249          29,650         27,595         29,843         24,382
--------------------------------------------------------------------------------------------------------------------------------

Adjustable-Rate Loans:
     Real Estate
     Residential                             44,519         46,163          39,521         40,955         37,229         38,598
     Commercial                              11,140          9,670          16,641          8,486          7,670          4,508
     Construction and land loans             66,181         60,088          18,226          5,082          8,474          8,818
--------------------------------------------------------------------------------------------------------------------------------
         Total real estate                  121,840        115,921          74,388         54,523         53,373         51,924
Commercial business loans                    30,880         19,514               -              -
Consumer loans                               14,366          9,388           3,606          2,779          4,789          3,844
--------------------------------------------------------------------------------------------------------------------------------
     Total adjustable-rate loans            167,086        144,823          77,994         57,302         58,162         55,768
--------------------------------------------------------------------------------------------------------------------------------
         Total loans receivable             211,024        173,072         107,644         84,897         88,005         80,150
--------------------------------------------------------------------------------------------------------------------------------

Less:
     Undisbursed loans in process             4,382          9,588           6,752          2,467          2,824          3,858
     Deferred loan fees                          40            113             282            290            314            323
     Allowances for losses                    1,203          1,002             935            870            786            747
--------------------------------------------------------------------------------------------------------------------------------
         Total net items                      5,625         10,703           7,969          3,627          3,924          4,928
--------------------------------------------------------------------------------------------------------------------------------
         Total loans receivable, net      $ 205,399      $ 162,369        $ 99,675       $ 81,270       $ 84,081       $ 75,222
================================================================================================================================
</TABLE>

Contractual  principal repayments of loans do not necessarily reflect the actual
term of  Guaranty's  loan  portfolio.  The  average  life of  mortgage  loans is
substantially  less than their contractual terms because of loan prepayments and
enforcement of due-on-sale clauses,  which gives Guaranty the right to declare a
loan immediately due and payable in the event,  among other things, the borrower
sells the real property  subject to the mortgage and the loan is not repaid.  In
addition,  certain  borrowers  increase their equity in the security property by
making payments in excess of those required under the terms of the mortgage.

ASSET QUALITY

Asset quality is an important factor in the successful  operation of a financial
institution.  Banking regulations require insured institutions to classify their
own assets and to establish  prudent  general  allowances  for losses for assets
classified as "substandard" or "doubtful." For the portion of assets  classified
as "loss," an institution is required to either establish specific allowances of
100% of the amount classified or charge such amounts off its books.

Assets which do not  currently  expose  Guaranty to  sufficient  risk to warrant
classification  in one of the  aforementioned  categories  but possess potential
weaknesses are required to be designated "special mention" by management. On the
basis of management's  review of its assets, at December 31, 1999,  Guaranty had
classified  $2.9 million of its assets as

                                       21
<PAGE>

substandard,  and none as doubtful or loss.  Not all of  Guaranty's  assets that
have been  classified  are  included in the table of  non-performing  assets set
forth below.  Several of these loans are classified  because of previous  credit
problems but are performing.

Unless well secured and in the process of collection, Guaranty places loans on a
nonaccrual  status after being  delinquent  greater than 90 days,  or earlier in
situations  in which the loans have  developed  inherent  problems that indicate
payment of principal and interest may not be made in full.  Whenever the accrual
of interest is stopped,  previously  accrued but uncollected  interest income is
reversed. Thereafter,  interest is recognized only as cash is received. The loan
is  reinstated  to an  accrual  basis  after it has been  brought  current as to
principal and interest under the contractual terms of the loan.

The following  table  reflects the  composition of  nonperforming  assets at the
dates indicated.

<TABLE>
<CAPTION>
                                                                      December 31,                               June 30,
-----------------------------------------------------------------------------------------------------------------------------------
                                                    1999          1998           1997          1996           1996        1995
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                                  <C>           <C>            <C>           <C>            <C>         <C>
Nonaccrual loans                                     $ 1,310       $ 1,686        $ 1,436       $ 1,670        $ 1,458     $ 1,556
Restructured loans                                         -             -              -            11             11          12
-----------------------------------------------------------------------------------------------------------------------------------
     Total non-performing loans                        1,310         1,686          1,436         1,681          1,469       1,568
-----------------------------------------------------------------------------------------------------------------------------------
Foreclosed assets                                        843           488             65            51             41         122
-----------------------------------------------------------------------------------------------------------------------------------
     Total non-performing assets                     $ 2,153       $ 2,174        $ 1,501       $ 1,732        $ 1,510     $ 1,690
===================================================================================================================================

Loans past due 90 or more days and
     accruing interest                               $    93       $   106        $   189       $     -        $    19     $     1
Non-performing loans to total loans, at
     period end                                        0.62%         0.97%          1.42%         1.98%          1.67%       2.06%
Non-performing assets to period end
     total loans and foreclosed assets                 1.02%         1.25%          1.49%         2.04%          1.72%       2.21%
</TABLE>

Delinquent and problem loans

When a borrower fails to make a required payment on a loan, Guaranty attempts to
cure the  delinquency  by  contacting  the  borrower.  A notice is mailed to the
borrower  after a payment is 15 days past due and again when the loan is 30 days
past due.  For most  loans,  if the  delinquency  is not  cured  within 60 days,
Guaranty  issues a notice of  intent to  foreclose  on the  property  and if the
delinquency  is not cured  within 90 days,  Guaranty may  institute  foreclosure
action. In most cases, deficiencies are cured promptly.

Allowance for losses on loans and real estate

Guaranty provides valuation  allowances for anticipated losses on loans and real
estate when its management determines that a significant decline in the value of
the collateral has occurred, and if the value of the collateral is less than the
amount of the unpaid  principal  of the  related  loan plus  estimated  costs of
acquisition and sale. In addition,  Guaranty also provides reserves based on the
dollar  amount and type of  collateral  securing its loans,  in order to protect
against  unanticipated  losses. A loss experience  percentage is established for
each loan type and is reviewed  annually.  Semi-annually  the loss percentage is
applied to the  portfolio,  by product type, to determine the minimum  amount of
reserves  required.   Although   management  believes  that  it  uses  the  best
information  available  to  make  such  determinations,  future  adjustments  to
reserves may be necessary,  and net income could be significantly  affected,  if
circumstances  differ  substantially from assumptions used in making the initial
determinations.



                                       22
<PAGE>

An analysis of the allowance for loan losses,  including charge-off activity, is
presented below for the periods indicated.

<TABLE>
<CAPTION>
                                                                                           Six Months
                                                                                             Ended
                                                     Year Ended December 31,               December 31,             Year Ended
------------------------------------------------------------------------------------------------------------------------------------
                                             1999             1998            1997             1996             1996           1995
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>             <C>              <C>              <C>           <C>
Balance at beginning of period              $1,002             $935            $870             $788             $747          $754
Provision charged to operations                486              184             122               92               57           (10)
Charge-offs:
     Real estate                               122              120              57               10               39             -
     Consumer                                    -                -               -                -                -             1
     Commercial                                165                -               -                -
Recoveries:
     Real estate                                 -                3               -                -               19             -
     Consumer                                    2                -               -                -
     Commercial                                  -                -               -                -                4             4
------------------------------------------------------------------------------------------------------------------------------------
Net Charge-offs                                285              117              57               10               16            (3)
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period                      $1,203           $1,002            $935             $870             $788          $747
====================================================================================================================================

Allowance for loan losses to period
     end total loans                         0.57%            0.58%           0.93%            1.06%            0.93%         0.98%
Allowance for loan losses to nonaccrual
     loans                                  91.83%           59.43%          67.20%           52.10%           54.05%        48.01%
Net charge-offs to average loans             0.15%            0.10%           0.06%            0.01%            0.02%         0.00%
</TABLE>

Provision for loan losses

For the year  ended  December  31,  1999,  the  provision  for loan  losses  was
$486,000,  compared  to  $184,200  for the year ended  December  31,  1998.  The
increase in the  provision  for loan losses  during the year ended  December 31,
1999 is due to Guaranty's  continued movement towards commercial  business,  and
construction  and land  development  lending which carries a higher risk of loss
than traditional mortgage lending.

Guaranty  monitors  its loan loss  allowance  monthly  and makes  provisions  as
necessary.  Management believes that the level of Guaranty's loan loss allowance
is adequate for its loan portfolio size and mix.

A  breakdown  of the general  allowance  for loan losses in dollars and loans in
each category to total loans in percentages is provided in the following tables.
Because  all of these  factors  are  subject to  change,  the  breakdown  is not
necessarily predictive of future loan losses in the indicated categories.



                                       23
<PAGE>

<TABLE>
<CAPTION>

Year Ended December,                    1999                      1998                      1997
----------------------------------------------------------------------------------------------------------
                                             Ratio of                  Ratio of                 Ratio of
                                             Loans to                  Loans to                 Loans to
                                            Total Gross              Total Gross               Total Gross
                                 Allowance     Loans       Allowance    Loans       Allowance     Loans
----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------------------------------------
<S>                              <C>       <C>             <C>       <C>              <C>       <C>
Residential real estate             $ 78      29.77%         $ 101     38.35%         $ 477      61.35%
Commercial real estate               109        5.84           144       7.68           212       15.46
Construction and land                383       31.37           384      34.72            52       16.97
Commercial business                  466       24.92           258      13.69             -           -
Consumer and other loans             167        8.10           115       5.56            43        6.22
Unallocated                            -                         -          -           151           -
----------------------------------------------------------------------------------------------------------
     Total                       $ 1,203     100.00%       $ 1,002    100.00%         $ 935     100.00%
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
                                     Six Months
                                       Ended
                                     December 31,                     Year Ended December 31,
--------------------------------------------------------------------------------------------------------
                                        1996                      1996                     1995
--------------------------------------------------------------------------------------------------------
                                            Ratio of                  Ratio of                 Ratio of
                                            Loans to                  Loans to                 Loans to
                                           Total Gross              Total Gross              Total Gross
                                Allowance     Loans       Allowance    Loans       Allowance     Loans
--------------------------------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------------------------------
<S>                                <C>        <C>            <C>       <C>            <C>        <C>
Residential real estate            $ 471      78.94%         $ 327     75.15%         $ 311      77.57%
Commercial real estate               179       10.00           194       8.72           220        5.63
Construction and land                 38        6.15            70      10.01            86       11.09
Commercial business                    -           -             -          -             -           -
Consumer and other loans              13        4.91            40       6.12            32        5.71
Unallocated                          169           -           157          -            98           -
--------------------------------------------------------------------------------------------------------
     Total                         $ 870     100.00%         $ 788    100.00%         $ 747     100.00%
========================================================================================================
</TABLE>

NON-INTEREST INCOME

Guaranty's  non-interest  income  consists  primarily of loan fees and servicing
income, net gains on sale of loans and securities,  and fees and service charges
on deposit accounts. The following table presents information on the sources and
amounts of non-interest income.



                                       24
<PAGE>
                                                  Year Ended December 31,
------------------------------------------------------------------------------
                                               1999        1998        1997
------------------------------------------------------------------------------
Non Interest Income
------------------------------------------------------------------------------
(Dollars in thousands)
Servicing income (loss)
    Gross servicing income                   $    560    $    452    $    526
    Amortization expense                         (563)       (169)        (77)
    Impairment adjustment                         341        (342)          -
------------------------------------------------------------------------------
Net servicing income (loss)                       338         (59)        449
Gain (loss)on sale of loans and securities     (1,211)      1,405       1,067
Service charges on checking                       578         424         166
Late charges and other comsumer fees              105          69          82
Annuity and investment sales                      140          61          12
Other                                             175          66          92
------------------------------------------------------------------------------
Total                                        $    125    $  1,966    $  1,868
------------------------------------------------------------------------------

For the year ended December 31, 1999,  non-interest income was $125,000 compared
to $2.0 million for the year ended December 31, 1998. This decrease was a result
of gains on sales of  securities  in 1998 of $1.4 million while a pretax loss of
approximately $1.2 million occurred during 1999 due to the sale of approximately
$13 million of available for sale securities.  This loss was partially offset by
a market value  recovery  recognized  on the  servicing  asset of  approximately
$341,000  as well as  increases  in income  from  service  charges  on  checking
accounts  and  other  related  fees.  For the  year  ended  December  31,  1998,
non-interest income was $2.0 million compared to $1.9 million for the year ended
December 31, 1997.  During 1998 there were  increased  fees with the addition of
the  commercial  loan  department  and service  charges on  commercial  checking
accounts  which carry  higher  fees and an  increase  in fees on other  checking
accounts. These increases were offset by a market value impairment recognized on
the servicing asset for $342,000.

Loans and  securities  sales were a result of the continued  strategy of selling
newly   originated   fixed  rate  mortgage   loans  in  the  secondary   market,
restructuring  of the balance  sheet to reduce  interest  rate risk  relating to
fixed  rate  mortgages,  and to  provide  liquidity  to  fund  anticipated  loan
closings.

During 1999  Guaranty  sold the majority of its  servicing  portfolio,  with the
transfer of the loans occurring in February 2000, for approximately $2.8 million
resulting  in a loss of  approximately  $31,000,  as part of its  balance  sheet
restructuring.  Guaranty's mortgage loan servicing rights ("MSR's")  accumulated
as a  by-product  of its  mortgage  lending  business.  Generally,  the value of
servicing rights moves inversely with the value of interest  bearing  securities
as market interest rates change.  Guaranty has found that the value of servicing
rights is extremely  sensitive to changes in market interest rates, but tends to
fall faster as interest  rates decline than interest  rates rise.  Increases and
decreases  in the value of  servicing  rights are  treated as income or expense.
Because  Guaranty  cannot  control or predict  changes in the value of servicing
rights or the rate of  amortization  as loans  prepay,  it  decided  to sell the
mortgage loan servicing business.

Historically,  mortgage loan servicing was a significant  business for Guaranty.
Loan servicing includes  collecting and remitting loan payments,  accounting for
principal and interest, holding escrow funds for payment of taxes and insurance,
making required  inspections of the mortgaged  premises,  contacting  delinquent
mortgagors,  supervising  foreclosures  in the event of unremitted  defaults and
generally administering the loans for the investors to whom they have been sold.
MSRs are intangible  assets that represent the rights to service  mortgage loans
and in turn to receive  the  service  fee income  associated  with the  mortgage
loans. MSRs are amortized against income over the estimated average lives of the
loans  serviced.  If loans are  prepaid at rates  faster  than those  originally
assumed,  adjustments  may be required to the unamortized  balance,  which could
result in charges to current  earnings.  Conversely,  slower  prepayments  rates
could result in increases in mortgage loan servicing  income in future  periods.
Impairment  of MSRs is assessed  based on the fair value of those  rights.  Fair
values are  estimated  using  discounted  cash flows  based on a current  market
interest  rate.  For the  purposes  of  measuring  impairment,  the  rights  are
stratified  based on the  predominant  risk  characteristics  of the  underlying
loans.  The amount of impairment  recognized is the amount by which  capitalized
MSRs for a stratum  exceed

                                       25
<PAGE>

their fair  value.  At  December  31, 1999 and 1998 MSRs  totaled  $568,000  and
$1,978,000, respectively. Impairment on these rights was $1,000 and $342,000 for
the years  ended  December  31,  1999 and  1998,  respectively.  See  "Financial
Statements  - Summary of  Accounting  Policies."  At December 31, 1999 and 1998,
loans  serviced  for  others   totaled   $241.9  million  and  $173.1   million,
respectively.  Approximately  $189,000,000  of  loans  serviced  for  others  at
December  31, 1999 were sold to a third party with  transfer of the loans having
occurred in February 2000.

Guaranty sells fixed rate residential production on an individual loan basis and
securitizes loans through the creation of Federal National Mortgage  Association
("FNMA"),  Federal Home Loan Mortgage  Corporation  ("FHLMC")  and  Governmental
National Mortgage Association ("GMNA") mortgage-backed securities.

During the years ended  December 31, 1999 and 1998  Guaranty  sold $80.0 million
and $60.3 million,  respectively,  of loans and securitized  loans.  The sale of
fixed rate product creates liquidity.

Guaranty also traded treasury securities in an effort to take advantage of short
term movements in market  interest  rates.  It is Guaranty's  policy not to hold
trading  securities  with a cost in excess of $5  million  at one time.  Trading
securities are marked to market  monthly.  Sales of trading  account  securities
totaled $ 30.8 million and $105.9  million,  during the years ended December 31,
1999  and  1998  respectively.  Guaranty  experienced  losses  of  $304,000  and
$302,000,  respectively  on such sales for the years ended December 31, 1999 and
1998, and a gain of $5,000 in the year ended December 31, 1997.

Loan  fees,  net of loan  underwriting  and  closing  costs,  are  deferred  and
amortized into income over the estimated  remaining  lives of the loans to which
they relate.  Guaranty had deferred fees, net of direct  underwriting  costs, of
$40,000 and $113,000 at December 31, 1999 and 1998, respectively.

NON-INTEREST EXPENSES

For the year ended December 31, 1999,  non-interest  expenses were $7.4 million,
compared to $5.8 million for the year ended  December 31, 1998. The $1.6 million
increase  was  due to an  increase  in  personnel,  occupancy  costs,  and  data
processing  associated with the overall growth of the Bank including the opening
of an eighth  branch  during the year.  For the year ended  December  31,  1998,
non-interest  expenses  were $5.8 million  compared to $3.8 million for the year
ended  December 31, 1997.  This  increase was due  primarily to increased  costs
associated  with  the  expanded  branch  network  and  the new  commercial  loan
department.

                                             Year Ended December 31,
------------------------------------------------------------------------
Non Interest Expense                      1999        1998        1997
------------------------------------------------------------------------
(Dollars in thousands)
Personnel                               $ 3,998     $ 3,089     $ 2,011
Occupancy                                   918         783         524
Data processing                             762         585         422
Marketing and professional fees             471         513         426
Other                                     1,216         823         460
------------------------------------------------------------------------
Total                                   $ 7,365     $ 5,793     $ 3,843
------------------------------------------------------------------------

INCOME TAXES

Income tax expense for the years ended  December 31, 1999,  1998,  and 1997, was
$2,300,  $624,000, and $486,000 respectively.  The decreases and increases are a
direct result of earnings levels for the respective year ends.




                                       26
<PAGE>

SOURCES OF FUNDS

Deposits

Deposits have  traditionally  been the principal  source of Guaranty's funds for
use in lending and for other general business purposes. In addition to deposits,
Guaranty  derives  funds  from  loan  repayments,   cash  flows  generated  from
operations,  which includes interest  credited to deposit  accounts,  repurchase
agreements  entered  into with  commercial  banks and FHLB of Atlanta  advances.
Contractual loan payments are a relatively stable source of funds, while deposit
inflows  and  outflows  and  related  cost of such  funds  have  varied  widely.
Borrowings   may  be  used  to   compensate   for   reductions  in  deposits  or
deposit-inflows  at  less  than  projected  levels  and  have  been  used  on  a
longer-term basis to support expanded lending activities.

Guaranty attracts both short-term and long-term deposits from the general public
by offering a wide assortment of accounts and rates.  Guaranty offers  statement
savings  accounts,  various  checking  accounts,  various money market accounts,
fixed-rate certificates with varying maturities,  individual retirement accounts
and has  expanded to provide  products and  services  for small  businesses  and
brokered  deposits.  Guaranty's  principal use of deposits is to originate loans
and fund purchases of investment securities.

At December 31, 1999, deposits were $199.6 million, up 15.5% from $172.8 million
at December  31,  1998.  The deposit  growth is a  reflection  of branch  office
growth,  aggressive  pricing  and  increased  marketing.  In order to reduce the
overall  cost of funds and reduce the  Corporation's  reliance on high cost time
deposits and short term borrowings as a funding source,  management continues to
direct  extensive  marketing  efforts towards  attracting lower cost transaction
accounts.  However, there is no assurance that these efforts will be successful,
or if  successful,  will reduce the  Corporations  reliance on time deposits and
short term borrowings.

The  following  table sets forth the dollar  amount of  deposits  in the various
types of deposit programs offered by Guaranty at the dates indicated.


--------------------------------------------------------------------------------
December 31,                                  1999         1998         1997
--------------------------------------------------------------------------------
(Dollars in thousands)
Statement savings accounts                  $  11,203    $   9,863    $   6,434
Demand deposit accounts                        30,206       23,433       12,037
Money market accounts                          27,878       22,319        4,000
30-to-180-day certificates                      3,250          825        1,326
Nine-month certificates                             -            -        1,638
One-to five-year fixed-rate certificates      119,350      106,953       87,467
Eighteen-month prime rate certificates          7,708        9,412           45
--------------------------------------------------------------------------------
     Total                                  $ 199,595    $ 172,805    $ 112,947
================================================================================






                                       27
<PAGE>

The following table contains information pertaining to the average amount of and
the  average  rate  paid on each of the  following  deposit  categories  for the
periods indicated.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Year Ended December 31,              1999                      1998                     1997
--------------------------------------------------------------------------------------------------------
                                          Average                   Average                  Average
                             Average       Rate        Average       Rate       Average        Rate
                             Balance       Paid        Balance       Paid       Balance        Paid
--------------------------------------------------------------------------------------------------------
<S>                         <C>             <C>       <C>             <C>       <C>             <C>
(Dollars in thousands)
Noninterest bearing
  demand deposits           $  10,232       0.00%     $   5,338       0.00%     $  1,658        0.00%
Interest bearing
  demand deposits              44,906       3.50%        24,936       3.46%       11,110        2.59%
Savings deposits               10,968       2.31%         8,551       2.97%        5,654        3.36%
Time deposits                 126,015       5.19%        93,615       5.41%       80,779        5.51%
--------------------------------------------------------------------------------------------------------
Total deposits              $ 192,121       4.35%     $ 132,440       4.67%     $ 99,201        4.97%
========================================================================================================
</TABLE>

The  variety  of  deposit  accounts  offered by  Guaranty  has  allowed it to be
competitive  in obtaining  funds and has allowed it to respond with  flexibility
to,  although not to  eliminate,  the threat of  disintermediation  (the flow of
funds away from depository institutions such as banking institutions into direct
investment vehicles such as government and corporate securities). The ability of
Guaranty to attract and maintain  deposits,  has been,  and will continue to be,
significantly affected by market conditions.

The following  table sets forth the deposit flows of Guaranty during the periods
indicated.

-------------------------------------------------------------------------------
Year Ended December 31,                  1999          1998          1997
-------------------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------------------------
Opening balance                       $  172,805     $  112,947    $   81,401
Net deposits                              18,425         53,673        26,624
Interest credited                          8,365          6,185         4,922
-------------------------------------------------------------------------------
Ending balance                        $  199,595     $  172,805    $  112,947
-------------------------------------------------------------------------------

Net increase                          $   26,790     $   59,858    $   31,546
Percent increase                           15.50%         53.00%        38.75%
===============================================================================

The following table indicates the amount of Guaranty's  certificates of deposits
by time remaining until maturity as of December 31, 1999.

<TABLE>
<CAPTION>
                                                                            Maturity
----------------------------------------------------------------------------------------------------------------
                                                3 Months      Over 3 to     Over 6 to       Over
                                                or less       6 months      12 months     12 months      Total
----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>            <C>           <C>          <C>
Certificates of deposit less than $100,000     $  21,196     $  17,612      $  35,228     $  15,676    $  89,712
Certificates of deposit of $100,000 or more        9,306         5,074         24,367         1,849       40,596
----------------------------------------------------------------------------------------------------------------
     Total certificates of deposits            $  30,502     $  22,686      $  59,595     $  17,525    $ 130,308
================================================================================================================
</TABLE>


                                       28
<PAGE>

Borrowings

As a member of the FHLB of Atlanta, Guaranty is required to own capital stock in
the FHLB of Atlanta and is  authorized  to apply for  advances  from the FHLB of
Atlanta.  Each FHLB credit program has its own interest rate, which may be fixed
or variable,  and range of  maturities.  The FHLB of Atlanta may  prescribe  the
acceptable  uses to which these  advances  may be put, as well as on the size of
the advances and  repayment  provisions.  The  advances  are  collateralized  by
Guaranty's  investment  in  Federal  Home Loan Bank stock and  certain  mortgage
loans.  See the  Notes to  Consolidated  Financial  Statements  for  information
regarding the  maturities and rate  structure of Guaranty's  FHLB  advances.  At
December 31, 1999, $20 million were outstanding to the FHLB.

Guaranty's   borrowings  also  include   securities  sold  under  agreements  to
repurchase,  with  mortgage-backed  securities  or other  securities  pledged as
collateral. The proceeds are used by Guaranty for general corporate purposes. At
December 31, 1999,  Guaranty had $16.6 million  outstanding  in securities  sold
under agreement to repurchase.

Guaranty uses  borrowings  to  supplement  deposits when they are available at a
lower  overall  cost to Guaranty  or the can be  invested at a positive  rate of
return.

The following table sets forth the maximum month-end balances,  average balances
and  weighted  average  rates,  of  FHLB  advances  and  securities  sold  under
agreements to repurchase for the periods indicated.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Year Ended December 31,                   1999                   1998                   1997
------------------------------------------------------------------------------------------------------
(Dollars in thousands)
------------------------------------------------------------------------------------------------------
<S>                                  <C>                   <C>                     <C>
Maximum Balance:
     FHLB Advances                       $30,000                $26,000               $17,500
     Securities sold under
         agreements to repurchase         16,650                  6,856                 5,867
------------------------------------------------------------------------------------------------------


                                              Weighted               Weighted               Weighted
                                     Average   Average      Average   Average      Average   Average
                                     Balance    Rate        Balance    Rate        Balance    Rate
------------------------------------------------------------------------------------------------------

FHLB Advances                        $26,226    4.88%       $9,748     5.57%       $10,956    6.18%
Securities sold under
     agreements to repurchase          9,387    5.10%        2,336     5.00%         2,007    6.29%
======================================================================================================
</TABLE>

At  December  31,  1999,  Guaranty  had $20.0  million  outstanding  to the FHLB
compared to $21 million  outstanding  at December 31, 1998 and no advances  were
outstanding at December 31, 1997.



                                       29
<PAGE>

The following table sets forth the balances of Guaranty's  short-term borrowings
at the dates indicated.

-------------------------------------------------------------------------------
December 31,                              1999           1998           1997
-------------------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------------------------
FHLB advances                            $20,000        $21,000              -
Securities sold under agreements
  to repurchase                           16,650          1,008          2,989
-------------------------------------------------------------------------------
     Total short-term borrowings         $36,650        $22,008         $2,989
===============================================================================
Weighted average interest rate of
  short-term FHLB advances                 4.88%          5.57%          0.00%
Weighted average interest rate of
  securities sold under agreements to
  repurchase                               6.14%          5.00%          6.29%
===============================================================================

See notes to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability to meet present and future financial obligations either
through the sale of  existing  assets or the  acquisition  of  additional  funds
through  asset and liability  management.  Cash flow  projections  are regularly
reviewed and updated to assure that adequate liquidity is provided.  As a result
of Guaranty's  management of liquid assets and the ability to generate liquidity
through increasing deposits, management believes that Guaranty maintains overall
liquidity that is sufficient to satisfy its  depositors'  requirements  and meet
its customers' credit needs.

Guaranty's primary sources of funds are deposits,  borrowings, and amortization,
prepayments and maturities of outstanding loans and investments, and loan sales.
While  scheduled  payments from the  amortization  of loans and  securities  are
relatively  predictable sources of funds, deposit flows and loan prepayments are
greatly   influenced  by  general  interest  rates,   economic   conditions  and
competition.  Excess  funds are  invested  in  overnight  deposits  to fund cash
requirements  experienced  in the normal  course of business.  Guaranty has been
able to generate sufficient cash through its deposits as well as borrowings.

Cash and cash equivalents were approximately  $12.6 million and $10.5 million at
December 31, 1999 and 1998,  respectively.  Financing  activities provided $42.9
million  primarily as a result of net proceeds  from the sale of common stock of
$3.7  million,  a net  increase in deposits of $26.8  million and an increase in
securities sold under  agreements to repurchase of $15.6 million.  Approximately
$4.1 million was provided by operating  activities  which was primarily a result
of an  increase  in  non-cash  items,  such  as a $1.2  million  loss on sale of
available  for  sale  securities,  $486,000  in  provision  for  loan  loss  and
depreciation  and  amortization  of  $633,000  along with the cash items such as
prepayments  by  borrowers  for  taxes  and  insurance  of  $366,000  and  other
liabilities   of  $628,000.   In   addition,   investing   activities   absorbed
approximately  $44.9  million  which was primarily a result of a net increase in
loans of approximately $43.8 million.

For  the  year  ended  December  31,  1998,  cash  and  cash   equivalents  were
approximately  $10.5  million.   Financing  activities  provided  $84.7  million
primarily as a result of net advances from FHLB of $21.0  million,  net increase
in  deposits  of  approximately  $59.9  million and  proceeds  from  issuance of
convertible  preferred  securities for $6.9 million.  Approximately $394,000 was
absorbed by operating  activities which was primarily a result of an increase in
other assets which  include  approximately  $1.5 million  increase in originated
mortgage   servicing  rights,   increase  in  accrued  interest   receivable  of
approximately  $807,000 and  amortization of deferred loan fees of approximately
$529,000. In addition, investing activities absorbed approximately $79.7 million
which was primarily a result of a net increase in loans of  approximately  $62.8
million, net investment  securities purchases of $14.9 million, and purchases of
office properties and equipment of approximately $1.5 million.



                                       30
<PAGE>

Guaranty uses its sources of funds  primarily to meet  operating  needs,  to pay
deposit  withdrawals  and fund loan  commitments.  At December 31, 1999 and 1998
total approved loan commitments were $4.4 million and $9.6 million respectively.
In addition,  at December 31, 1999 and 1998,  commitments  under unused lines of
credit were $61.7 million and $52.3 million,  respectively. At December 31, 1997
the total  approved  loan  commitments  outstanding  amounted to $14.3  million.
Certificates of deposits scheduled to mature in one year or less at December 31,
1999,  1998 and 1997 totaled  $112.8  million,  $91.5  million,  $77.7  million,
respectively.  Management  believes  that  a  significant  portion  of  maturing
deposits will remain with Guaranty.

Management  intends to fund anticipated loan closings and operating needs during
2000 through cash on hand, proceeds from the sale of loans and securities,  cash
generated from  operations and  anticipated  increases in deposits.  Current and
anticipated  marketing  programs will be primarily targeted at the attraction of
lower cost  transaction  accounts.  Concurrent  with the strategies  employed to
attract these accounts,  management  plans to gradually  reduce the rate paid on
time  deposits in comparison to the  competition.  However,  the pricing of time
deposits will be balanced against  upcoming  maturities to ensure that liquidity
is not adversely impacted by a large run off of time deposits.

Capital represents funds, earned or obtained,  over which financial institutions
can exercise greater control in comparison with deposits and borrowed funds. The
adequacy of  Guaranty's  capital is reviewed by  management  on an ongoing basis
with  reference to size,  composition  and quality of  Guaranty's  resources and
consistent with regulatory requirements and industry standards. Management seeks
to maintain a capital  structure that will support  anticipated asset growth and
absorb any  potential  losses.  In an effort to increase the capital base during
1999,  Guaranty  completed a secondary offering of common stock. The proceeds of
$3.7 million,  less issuance costs of  approximately  $447,000 were added to the
Bank's  additional  paid  in  capital.   During  1998,  Guaranty's  wholly-owned
subsidiary  Guaranty  Capital  Trust I issued  $6.9  million of 7.0%  cumulative
convertible  trust preferred  securities.  The proceeds,  less issuance costs of
approximately $276,000 were added to the Bank's additional paid in capital.

Guaranty and Bank are subject to regulatory capital  requirements of the Federal
Reserve.  At December 31, 1999, Guaranty exceeded all such regulatory capital as
shown in the following table.

                                                December 31, 1999
                                                Guaranty Financial    Guaranty
                                                   Corporation          Bank
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
Tier 1 Capital:
Common stock                                       $   2,452        $   2,000
Capital surplus                                        8,943            9,790
Cumulative preferred securities (2)                    5,292                -
Retained earnings                                      4,479            9,780
--------------------------------------------------------------------------------
Disallowed intangible assets                              57               57
--------------------------------------------------------------------------------
Total Tier 1 Capital                                  21,109           21,513
--------------------------------------------------------------------------------

Tier 2 Capital:
Allowance for loan losses (1)                          1,203            1,203
Cumulative preferred securities                        2,797                -
--------------------------------------------------------------------------------
Total Tier 2 Capital                                   4,000            1,203
--------------------------------------------------------------------------------
Total Risk Based Capital                           $  25,109        $  22,716
--------------------------------------------------------------------------------

Risk Weighted Assets                               $ 223,805        $ 223,805

Capital Ratios:
Tier 1 Risk-based                                      9.43%            9.61%
Total Risk-based                                      11.22%           10.15%
Tier 1 Capital to average adjusted total assets        9.29%            8.51%
================================================================================
(1)  Limited to 1.25% of risk weighted assets.
(2)  Limited to 1/3 of core capital.


                                       31
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES AND SEASONALITY

The financial  statements in this document have been prepared in accordance with
generally  accepted  accounting  principles  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  industrial  companies,  virtually all of the assets and liabilities of a
financial institution are 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.

ACCOUNTING RULES

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and Hedging Activities ("SFAS 133"), which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities.  SFAS 133 requires that
an entity  recognize  all  derivatives  as either assets or  liabilities  in the
statement of financial  position and measure those instruments at fair value. If
certain  requirements are met, a derivative may be specifically  designated as a
hedge and an entity  that  elects  to apply  hedge  accounting  is  required  to
establish at the inception of the hedge the method it will use for assessing the
effectiveness  of the  hedging  derivative  and  the  measurement  approach  for
determining  the  ineffective  aspect  of  the  hedge.  Those  methods  must  be
consistent  with the entity's  approach to managing risk.  SFAS 133 is effective
for all fiscal  quarters  of fiscal  years  beginning  after  June 15,  2000 and
requires application prospectively.

SUBISDIARY ACTIVITIES

The Holding Company has two subsidiaries,  the Bank and Guaranty Capital Trust I
(the  "Trust").  The Trust was formed on April 29, 1998 and is the holder of the
trust  preferred  securities  which were sold for  $6,900,000.  See Notes to the
Consolidated  Financial  Statements for  information  regarding the terms of the
securities. The Bank has two wholly owned subsidiaries,  GMSC, Inc. ("GMSC") and
Guaranty  Investments  Corporation  ("GICO").  GMSC  is a  financing  subsidiary
through  which  Guaranty  formed  a  Real  Estate  Mortgage  Investment  Conduit
("REMIC"). Guaranty sells non-deposit investment products through GICO. GICO had
a net income of $2,400 for the year ended  December  31,  1999 and a net loss of
$15,800 for the year ended December 31, 1998.

In 1987,  Guaranty  formed  GMSC  and  entered  into a REMIC in order to  create
liquidity.  Guaranty  utilized  the REMIC to pool  $19.9  million  of fixed rate
mortgages  into mortgage  backed  securities,  which were used as collateral for
bonds sold to private investors.  The bonds bore a coupon of 8% and were sold at
a discount  and costs of  issuance  of  approximately  $3.3  million.  The bonds
discount and issuance costs are amortized against income as mortgages underlying
the  bonds  repay.  For the  years  ended  December  31,  1999,  1998  and  1997
amortization  expense was  $156,000,  $101,000  and $64,000,  respectively.  The
amortization of the REMIC expenses is treated as interest expense.



                                       32
<PAGE>

YEAR 2000 PROJECT

The Year 2000 presents  problems for  businesses  that are dependent on computer
hardware  and  software  to  perform  date  dependent   calculations  and  logic
comparisons.  A great deal of software and  microchip  technology  was developed
utilizing two digit years rather than four digit years  (example:  99 instead of
1999).  Technology  utilizing  two digit  years most  likely will not be able to
distinguish  the year 2000 from  1900,  and  therefore  may shut down or perform
miscalculations and comparisons.

As part of Guaranty's  strategic  plan,  and in  conjunction  with the Year 2000
readiness plan, Guaranty upgraded its entire computer system, including hardware
and software.  The changes not only made the institution better prepared for any
potential  Year 2000  problems,  but have also  allowed  Guaranty  to offer more
sophisticated  products,  lower  potential  down  time  and  increased  customer
service.  Total  costs were  approximately  $325,000,  with the  expenses  being
incurred in late 1998 and the first  quarter of 1999.  Included in  non-interest
expense  for  the  year  ended  December  31,  1999  is  approximately  $200,000
associated with the Year 2000 issue.

Currently  Guaranty has experienced no negative  effects as a result of the Year
2000 conversion.  However, there can be no assurance that during the fiscal year
ending December 31, 2000 that no such disturbances will occur.




                                       33
<PAGE>

Item 7.      Financial Statements.

         The following  financial  statements are filed as a part of this report
following Item 13 below:

         Report of Independent Certified Public Accountants
         Consolidated Balance Sheets as of December 31, 1999 and 1998
         Consolidated  Statements of Operations for the years ended December 31,
            1999, 1998 and 1997
         Consolidated  Statements of  Comprehensive  Income (Loss) for the years
            ended December 31, 1999, 1998 and 1997
         Consolidated  Statements  of  Stockholders'  Equity for the years ended
            December 31, 1999, 1998 and 1997
         Consolidated  Statements of Cash Flows for the years ended December 31,
             1999, 1998 and 1997
         Summary of Accounting Policies
         Notes to Consolidated Financial Statements


Item 8.      Changes in and  Disagreements  with  Accountants  on Accounting and
             Financial Disclosure.

         There  were  no  changes  in  or  disagreements   with  accountants  on
accounting and financial disclosure during the last two fiscal years.


                                    PART III

Item 9.      Directors,  Executive  Officers,  Promoters  and  Control  Persons;
             Compliance with Section 16(a) of the Exchange Act.

         Information  set forth  under the  headings  "Election  of  Directors,"
"Executive  Officers  Who Are Not  Directors,"  and  "Section  16(a)  Beneficial
Ownership Reporting Compliance" in Guaranty's definitive Proxy Statement for its
2000 Annual Meeting of  Shareholders,  which Proxy  Statement will be filed with
the Securities and Exchange  Commission within 120 days of the end of Guaranty's
1999  fiscal  year (the  "2000  Proxy  Statement"),  is hereby  incorporated  by
reference.

Item 10.     Executive Compensation

         Information  set forth under the headings  "Executive  Compensation  --
Summary of Cash and Certain Other  Compensation,"  "-- Stock Option Grants," "--
Option  Exercises  and  Holdings,"  "--  Directors'  Fees,"  and "--  Employment
Agreements" in the 2000 Proxy Statement is hereby incorporated by reference.

Item 11.     Security Ownership of Certain Beneficial Owners and Management

         Information  set  forth  under  the  headings  "Security  Ownership  of
Management" and "Security  Ownership of Certain  Beneficial  Owners" in the 2000
Proxy Statement is incorporated by reference.



                                       34
<PAGE>

Item 12.     Certain Relationships and Related Transactions

         Information set forth under the heading  "Transactions with Management"
in the 2000 Proxy Statement is hereby incorporated by reference.

Item 13.     Exhibits and Reports on Form 8-K

         The following  documents are attached hereto or incorporated  herein by
reference as Exhibits:

         (a)      Exhibits

                  3.1      Amended and  Restated  Articles of  Incorporation  of
                           Guaranty   Financial    Corporation    (restated   in
                           electronic  format),  attached  as Exhibit 3.1 to the
                           Registrant's  Annual  Report on Form  10-KSB  for the
                           year ended December 31, 1997,  incorporated herein by
                           reference.

                  3.2      Bylaws of Guaranty Financial Corporation, attached as
                           Exhibit 3.1 to the Registrant's Annual Report on Form
                           10-KSB  for  the  year  ended   December   31,  1997,
                           incorporated herein by reference.

                  10.1     Guaranty  Financial  Corporation  1991 Incentive Plan
                           (as   amended),   attached   as   Exhibit  A  to  the
                           Registrant's  definitive Proxy Statement for the 1998
                           Annual Meeting of Shareholders,  incorporated  herein
                           by reference.

                  10.2     Employment Agreement, dated February 26, 1999, by and
                           between the Registrant and Thomas P. Baker,  attached
                           as  Exhibit  10.2  to the  Registrant's  Registration
                           Statement on Form S-1,  Registration  No.  333-88335,
                           filed  with  the   Commission  on  October  1,  1999,
                           incorporated herein by reference.

                  21       Subsidiaries of the Registrant.

                  27       Financial Data Schedule (filed electronically only).


         (b)      Reports on Form 8-K

                  No  reports on Form 8-K were filed  during the  quarter  ended
                  December 31, 1999.




                                       35
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries











                                                            Financial Statements
                                    Years Ended December 31, 1999, 1998 and 1997












<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries


                                                                        Contents

================================================================================




Report of Independent Certified Public Accountants                             3

Consolidated Financial Statements

  Balance Sheets                                                               4

  Statements of Operations                                                 5 - 6

  Statements of Comprehensive Income (Loss)                                    7

  Statements of Stockholders' Equity                                           8

  Statements of Cash Flows                                                9 - 11

Summary of Accounting Policies                                           12 - 17

Notes to Consolidated Financial Statements                               18 - 39




                                                                               2
<PAGE>


Report of Independent Certified Public Accountants



To the Board of Directors and Stockholders
Guaranty Financial Corporation
Charlottesville, Virginia

We  have  audited  the  consolidated   balance  sheets  of  Guaranty   Financial
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the related
consolidated  statements  of  operations,  stockholders'  equity,  comprehensive
income  (loss),  and cash flows for each of the three years in the period  ended
December 31, 1999.  These  financial  statements are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as 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  consolidated  financial  position  of
Guaranty  Financial  Corporation  and  subsidiaries  as of December 31, 1999 and
1998,  and the results of their  operations and their cash flows for each of the
three years in the period ended  December 31, 1999 in conformity  with generally
accepted accounting principles.




                                                                BDO Seidman, LLP

Richmond, Virginia
February 2, 2000




                                                                               3
<PAGE>

<TABLE>
<CAPTION>
===================================================================================================================
December 31,                                                                       1999                 1998
-------------------------------------------------------------------------------------------------------------------

     Assets
<S>                                                                           <C>                  <C>
Cash and cash equivalents (including interest
   bearing deposits of approximately
   $4,659,000 and $1,561,000)                                                 $  12,634,518        $  10,526,732
Investment securities (Note 1)
   Held-to-maturity                                                               1,335,625            2,343,827
   Available for sale                                                            22,196,717           26,909,320
   Trading                                                                                -            1,000,000
Investment in Federal Home Loan Bank
   stock, at cost (Note 8)                                                        1,500,000            1,300,000
Loans receivable, net (Notes 2 and 10)                                          205,399,169          162,369,285
Accrued interest receivable                                                       1,742,936            1,650,876
Real estate owned                                                                   842,981              488,273
Office properties and equipment, net (Note 3)                                     9,331,484            7,049,982
Mortgage servicing rights (Note 2)                                                  567,697            1,978,000
Other assets (Note 9)                                                             3,788,163            1,403,511
-------------------------------------------------------------------------------------------------------------------












                                                                               $259,339,290         $217,019,806
-------------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                     Consolidated Balance Sheets

<TABLE>
<CAPTION>
===================================================================================================================

December 31,                                                                       1999                 1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                  <C>
     Liabilities and Stockholders' Equity

Liabilities
   Deposits (Note 4)                                                           $199,594,671         $172,805,284
   Advances from Federal Home Loan Bank
     (Note 8)                                                                    20,000,000           21,000,000
   Securities sold under agreement to
     repurchase (Notes 1 and 7)                                                  16,650,250            1,008,750
   Bonds payable (Notes 1 and 6)                                                    902,513            1,785,754
   Accrued interest payable                                                         257,879              124,826
   Income taxes payable (Note 9)                                                          -              242,649
   Prepayments by borrowers for taxes and
     insurance                                                                      493,725              128,133
   Other liabilities                                                              1,098,681              470,139
-------------------------------------------------------------------------------------------------------------------

Total liabilities                                                               238,997,719          197,565,535
-------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies
   (Notes 11, 12, 14 and 16)
-------------------------------------------------------------------------------------------------------------------

Convertible preferred securities (Notes 12 and 13)                                6,075,000            6,900,000
-------------------------------------------------------------------------------------------------------------------

Stockholders' Equity (Notes 13 and 14)
   Preferred stock, par value $1 per share,
     500,000 shares authorized, none issued                                               -                    -
   Common stock, par value $1.25 per share,
     4,000,000 shares authorized, 1,961,727
     and 1,501,727 shares issued and
     outstanding                                                                  2,452,159            1,877,159
   Additional paid-in capital                                                     8,943,119            5,724,524
   Accumulated other comprehensive income
     (loss)                                                                      (1,608,089)              89,625
   Retained earnings - substantially restricted                                   4,479,382            4,862,963
-------------------------------------------------------------------------------------------------------------------

Total stockholders' equity                                                       14,266,571           12,554,271
-------------------------------------------------------------------------------------------------------------------

                                                                               $259,339,290         $217,019,806
===================================================================================================================
                    See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>



                                                                               4
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Operations

<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,                                            1999                 1998                1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>                  <C>
Interest income
   Loans                                                    $15,764,851          $11,230,838          $7,584,732
   Mortgage-backed securities                                   124,865              207,406           1,045,831
   Investment securities                                      2,482,420            1,622,022             889,245
--------------------------------------------------------------------------------------------------------------------

Total interest income                                        18,372,136           13,060,266           9,519,808
--------------------------------------------------------------------------------------------------------------------

Interest expense
   Deposits                                                   8,365,324            6,184,500           4,922,258
   Borrowings                                                 2,273,678            1,224,475           1,116,152
--------------------------------------------------------------------------------------------------------------------

Total interest expense                                       10,639,002            7,408,975           6,038,410
--------------------------------------------------------------------------------------------------------------------

Net interest income                                           7,733,134            5,651,291           3,481,398

Provision for loan losses (Note 2)                              486,000              184,200             122,320
--------------------------------------------------------------------------------------------------------------------

Net interest income after provision
   for loan losses                                            7,247,134            5,467,091           3,359,078
--------------------------------------------------------------------------------------------------------------------

Other income
   Loan and deposit fees and servicing income                   517,585              656,293             622,587
   Net gain (loss) on sale of loans and
     securities                                                (870,376)           1,062,670           1,067,348
   Other                                                        477,794              247,240             177,837
--------------------------------------------------------------------------------------------------------------------

Total other income                                              125,003            1,966,203           1,867,772
--------------------------------------------------------------------------------------------------------------------

Other expense
   Personnel                                                  3,998,107            3,089,212           2,010,794
   Occupancy (Note 11)                                          918,099              783,473             523,502
   Data processing (Note 11)                                    762,159              585,282             422,851
   Other                                                      1,687,039            1,334,848             885,948
--------------------------------------------------------------------------------------------------------------------

Total other expenses                                          7,365,404            5,792,815           3,843,095
--------------------------------------------------------------------------------------------------------------------



                                                                                                        continued...
</TABLE>

                                                                               5
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Operations
                                                                     (continued)

<TABLE>
<CAPTION>
===================================================================================================================
Year Ended December 31,                                            1999                 1998                1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>                 <C>
Income before income taxes                                       $6,733           $1,640,479          $1,383,755

Provision for income taxes (Note 9)                               2,300              624,200             486,040
--------------------------------------------------------------------------------------------------------------------

Net income                                                       $4,433           $1,016,279          $  897,715
====================================================================================================================

Basic and Diluted Earnings Per Share                             $     -          $      .68          $      .61
====================================================================================================================
                     See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>







                                                                               6
<PAGE>


                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                          Consolidated Statements of Comprehensive Income (Loss)

<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,                                         1999                 1998                  1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                     <C>                   <C>
Net income                                                $       4,433           $1,016,279            $897,715
--------------------------------------------------------------------------------------------------------------------

   Other comprehensive income (loss)
     Unrealized gains on securities
       Unrealized holding gains (losses)
         arising during period                               (2,385,032)             (19,865)             82,211
       Less: reclassification adjustment for
         gains (losses) included in net
         income                                                 187,262              (82,211)                  -
--------------------------------------------------------------------------------------------------------------------

   Other comprehensive income (loss),
     before tax                                              (2,572,294)              62,346              82,211

     Income tax (expense) benefit related
       to items of other comprehensive
       income (loss)                                            874,580              (23,692)            (31,240)
--------------------------------------------------------------------------------------------------------------------

   Other comprehensive income (loss)
     net of tax                                              (1,697,714)              38,654              50,971
--------------------------------------------------------------------------------------------------------------------

Comprehensive income (loss)                               $  (1,693,281)          $1,054,933            $948,686
--------------------------------------------------------------------------------------------------------------------
                     See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>



                                                                               7
<PAGE>


                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
=======================================================================================================================

                                                                      Accumulated
                                                       Additional       Other                                Total
                                          Common        Paid-in      Comprehensive         Retained      Stockholders'
                                           Stock         Capital     Income (Loss)         Earnings         Equity
-----------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>          <C>                  <C>            <C>
Balance, December 31, 1996               $1,155,010     $1,975,695   $           -        $3,445,044     $  6,575,749
Issuance of common stock
   (Note 13)                                718,750      3,752,228               -                 -        4,470,978
Cash dividend                                     -              -               -          (135,259)        (135,259)
Accumulated other
   comprehensive income                           -              -          50,971                 -           50,971
Stock options exercised
   (Note 14)                                  5,000         14,520               -                 -           19,520
Repurchase of common stock                   (2,031)       (17,489)              -                 -          (19,520)
Net income                                        -              -               -           897,715          897,715
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997                1,876,729      5,724,954          50,971         4,207,500       11,860,154
Cash dividend                                     -              -               -          (360,816)        (360,816)
Accumulated other
   comprehensive income                           -              -          38,654                 -           38,654
Stock options exercised
   (Note 14)                                  2,500         21,500               -                 -           24,000
Repurchase of common stock                   (2,070)       (21,930)              -                 -          (24,000)
Net income                                        -              -               -         1,016,279        1,016,279
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998                1,877,159      5,724,524          89,625         4,862,963       12,554,271
Cash dividend                                     -              -               -          (388,014)        (388,014)
Accumulated other
   comprehensive loss                             -              -      (1,697,714)                -       (1,697,714)
Repurchase of trust preferred
   securities (Note 12)                                    101,027                                            101,027
Issuance of common stock
   (Note 13)                                575,000      3,117,568               -                 -        3,692,568
Net income                                        -              -               -             4,433            4,433
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999               $2,452,159     $8,943,119     $(1,608,089)       $4,479,382      $14,266,571
=======================================================================================================================
                        See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>




                                                                               8
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,                                       1999                 1998                1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                   <C>
Operating activities
   Net income                                           $         4,433       $    1,016,279       $     897,715
   Adjustments to reconcile net income
     to net cash provided (absorbed) by
     operating activities
       Provision for loan losses                                486,000              184,200             122,320
       Depreciation and amortization                            632,665              487,073             354,005
       Amortization of deferred loan fees                       (43,797)            (529,287)            (89,564)
       Net amortization of premiums and
         accretion of discounts                                 111,133              194,913              64,154
       Gain on sale of loans                                   (319,689)          (1,328,575)           (518,736)
       Originations of loan held for sale                   (79,669,584)         (58,985,227)        (24,280,323)
       Proceeds from sale of loans                           79,989,273           60,313,802          24,799,059
       Loss (gain) on sale of held to maturity
         and securities available for sale                    1,212,750             (378,082)           (384,194)
       Loss on disposal of office properties
         and equipment                                            5,657                6,316                   -
       (Gain) loss on sale of trading
         account securities                                     303,968              301,869              (5,520)
       Purchases of trading account securities              (30,061,752)        (106,204,637)        (73,838,893)
       Sales of trading account securities                   30,757,784          105,934,956          89,548,520
       Changes in
         Accrued interest receivable                            (92,060)            (806,664)           (173,001)
         Other assets                                           (66,672)          (1,014,818)           (115,936)
         Accrued interest payable                               133,053               66,422             (15,698)
         Income taxes                                          (242,649)              61,549             214,100
         Prepayments by borrowers for
           taxes and insurance                                  365,592               47,309             (25,077)
         Other liabilities                                      628,542              238,239            (777,389)
--------------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by operating
   activities                                                 4,134,647             (394,363)         15,775,542
--------------------------------------------------------------------------------------------------------------------
</TABLE>




                                                                    continued...


                                                                               9
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows
                                                                     (continued)
<TABLE>
<CAPTION>
====================================================================================================================

Year Ended December 31,                                         1999                 1998                1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                  <C>                 <C>
Investing activities
   Net increase in loans                                   $(43,826,795)        $(62,772,937)       $(18,451,153)
   Repayments on held to maturity
     securities                                               1,049,891              555,607             309,815
   Purchase of held to maturity securities                            -             (150,000)                  -
   Purchase of securities available for sale                (53,120,948)        (105,361,247)        (58,088,310)
   Proceeds from sales of securities
     available for sale                                      54,923,087           90,471,571          46,920,567
   Sale of FHLB stock                                         1,100,000                    -             500,100
   Purchase of FHLB stock                                    (1,300,000)            (439,900)                  -
   Purchase of servicing rights                                (806,650)            (499,000)                  -
   Purchase of office properties and
     equipment                                               (2,919,824)          (1,543,593)         (1,407,630)
--------------------------------------------------------------------------------------------------------------------

Net cash absorbed by investing activities                   (44,901,239)         (79,739,499)        (30,216,611)
--------------------------------------------------------------------------------------------------------------------

Financing activities
   Net increase in deposits                                  26,789,387           59,858,272          31,545,941
   Repayment of Federal Home Loan
     Bank advances                                          (30,000,000)         (39,000,000)        (21,000,000)
   Proceeds from Federal Home Loan
     Bank advances                                           29,000,000           60,000,000           3,500,000
   Payments on bonds payable, including
     unapplied payments                                      (1,036,063)            (673,116)           (408,402)
   Increase (decrease) in securities sold
     under agreements to repurchase                          15,641,500           (1,980,250)         (3,692,000)
   Proceeds from issuance of convertible
     preferred securities                                             -            6,900,000                   -
   Repurchase of convertible preferred
     securities                                                (825,000)                   -                   -
   Proceeds from issuance of common
     stock, net                                               3,692,568                    -           4,470,978
   Dividends paid                                              (388,014)            (360,816)           (135,259)
--------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                    42,874,378           84,744,090          14,281,258
--------------------------------------------------------------------------------------------------------------------
</TABLE>



                                                                    continued...


                                                                              10
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows
                                                                     (continued)
<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,                                        1999                 1998                1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                  <C>                  <C>
Increase (decrease) in cash and cash
   equivalents                                             $  2,107,786         $  4,610,228         $  (159,811)

Cash and cash equivalents, beginning
   of year                                                   10,526,732            5,916,504           6,076,315
--------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                      $12,634,518          $10,526,732          $5,916,504
====================================================================================================================
                        See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>




                                                                              11
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies

================================================================================

Nature of Business and Regulatory Environment

Guaranty  Financial  Corporation  (the "Parent  Corporation")  is a bank holding
Corporation whose principal assets are its wholly-owned  subsidiaries,  Guaranty
Bank (the "Bank") and Guaranty Capital Trust I (the "Trust").  The Bank provides
a full range of banking services to individual and corporate customers. In these
financial statements,  the consolidated group is referred to collectively as the
"Corporation".

At June 30, 1997, the Bank was converted from a federal savings association to a
Virginia  chartered  Federal  Reserve member bank. As a result,  the Corporation
changed their year end from June 30, to December 31.

The Federal  Deposit  Insurance  Corporation  ("FDIC")  is the  federal  deposit
insurance  administrator for both banks and savings  associations.  The FDIC has
specific  authority to prescribe  and enforce  such  regulations  and issue such
orders as it deems  necessary  to prevent  actions  or  practices  by  financial
institutions that pose a serious threat to the Bank Insurance Fund ("BIF").

Principles of Consolidation

The consolidated financial statements include the accounts of Guaranty Financial
Corporation,  its  wholly-owned  subsidiaries,  Guaranty  Capital  Trust  I  and
Guaranty Bank, and the Bank's wholly-owned subsidiaries, GMSC, Inc. and Guaranty
Investment Corp. All material  intercompany  accounts and transactions have been
eliminated in the consolidation.

Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of  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.

Investment Securities

Investments in securities are classified as either held-to-maturity, trading, or
available for sale, according to management's intent and ability.

Investments  in debt  securities  classified as  held-to-maturity  are stated at
cost, adjusted for amortization of premiums and accretion of discounts using the
level yield method.  Management has a positive  intent and ability to hold these
securities to maturity and, accordingly,  adjustments are not made for temporary
declines in their market value below amortized cost.  Investment in Federal Home
Loan Bank stock is stated at cost.




                                                                              12
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

================================================================================

Investment Securities (continued)

Investments in debt and equity securities classified as  available-for-sale  are
stated at market value with  unrealized  holding gains and losses  excluded from
earnings and reported as a separate  component of stockholders'  equity,  net of
tax effect, until realized.

Investments  in debt and equity  securities  classified as trading are stated at
market value.  Unrealized  holding gains and losses for trading  securities  are
included in the statement of operations.

Gains and losses on the sale of  securities  are  determined  using the specific
identification method.

Options

Premiums  received  for writing put and call options are recorded as a liability
and are taken into income if the option is closed  prior to maturity or expires.
Upon  exercise of the option,  the  premium is treated as an  adjustment  to the
basis of the underlying security.

Loans Held for Sale

Mortgage  loans  originated  and intended for sale in the  secondary  market are
carried at the lower of cost or  estimated  market value in the  aggregate.  Net
unrealized  losses are  recognized  through a valuation  allowance by charges to
income.

The Corporation had approximately  $630,000,  $1,080,000 and $9,200,000 of loans
held for sale at December 31, 1999, 1998 and 1997,  respectively.  The estimated
market value of these loans exceeded their carrying cost.

Loans Receivable

Loans  receivable  that  management  has the intent and  ability to hold for the
foreseeable   future  or  until  maturity  or  pay-off  are  reported  at  their
outstanding  principal  adjusted for any  charge-offs,  the  allowance  for loan
losses,  and any  deferred  fees or costs on  originated  loans and  unamortized
premiums or discounts on purchased loans.

Loans  receivable  consists  primarily of long-term real estate loans secured by
first deeds of trust on single family  residences,  other residential  property,
commercial  property,  construction  and land located  primarily in the state of
Virginia.  Interest  income on  mortgage  loans is  recorded  when earned and is
recognized  based  on the  level  yield  method.  The  Corporation  provides  an
allowance  for  accrued  interest  deemed to be  uncollectible,  which is netted
against accrued interest receivable in the consolidated balance sheets.

The  Corporation  defers loan  origination  and commitment  fees, net of certain
direct loan  origination  costs,  and the net deferred fees are  amortized  into
interest  income over the lives of the related loans as yield  adjustments.  Any
unamortized  net fees on loans fully repaid or sold are  recognized as income in
the year of repayment or sale.



                                                                              13
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

================================================================================

Sale of Loans and Participation in Loans

The Corporation is able to generate funds by selling loans and participations in
loans to the  Federal  Home Loan  Mortgage  Corporation  ("FHLMC")  and to other
insured investors.  Under participation  servicing  agreements,  the Corporation
continues  to  service  the  loans  and the  participant  is paid  its  share of
principal and interest collections.

The  Corporation  allocates the cost of acquiring or originating  mortgage loans
between the mortgage  servicing  rights and the loans,  based on their  relative
fair values, if the bank sells or securitizes the loans and retains the mortgage
servicing rights.  The Corporation  assesses its capitalized  mortgage servicing
rights for impairment based on the fair value of those rights.

The cost of mortgage  servicing  rights is amortized in proportion  to, and over
the  period  of,  estimated  net  servicing  revenues.  Impairment  of  mortgage
servicing  rights is  assessed  based on the fair  value of those  rights.  Fair
values are  estimated  using  discounted  cash flows  based on a current  market
interest rate. For purposes of measuring  impairment,  the rights are stratified
based on the  predominant  risk  characteristics  of the underlying  loans.  The
amount of impairment  recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed their fair value. At December 31, 1999 and
1998 an impairment of approximately  $1,000 and $342,000 was recognized on those
rights, respectively.

Allowance for Possible Loan Losses

The allowance for loan losses is maintained at a level  considered by management
to be adequate  to absorb  future  loan  losses  currently  inherent in the loan
portfolio.  Management's  assessment  of the adequacy of the  allowance is based
upon type and volume of the loan portfolio, past loan loss experience,  existing
and  anticipated  economic  conditions,  and other factors which deserve current
recognition  in  estimating  future loan losses.  Additions to the allowance are
charged to  operations.  Loans are  charged-off  partially or wholly at the time
management determines collectibility is not probable. Management's assessment of
the adequacy of the  allowance is subject to  evaluation  and  adjustment by the
Corporation's regulators.

Loans are generally placed on nonaccrual status when the collection of principal
or interest is 90 days or more past due, or earlier if  collection  is uncertain
based  upon an  evaluation  of the value of the  underlying  collateral  and the
financial  strength of the borrower.  Loans may be reinstated to accrual  status
when all  payments  are  brought  current  and,  in the  opinion of  management,
collection of the remaining  balance can be reasonably  expected.  Loans greater
than 90 days past due may remain on accrual  status if management  determines it
has adequate collateral to cover the principal and interest.




                                                                              14
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

================================================================================

Allowance for Possible Loan Losses (continued)

A loan is considered  to be impaired  when it is probable  that the  Corporation
will be unable to collect all  principal and interest  amounts  according to the
contractual  terms of the loan  agreement.  A performing  loan may be considered
impaired.  The allowance for loan losses related to loans identified as impaired
is primarily  based on the excess of the loan's  current  outstanding  principal
balance over the estimated  fair market value of the related  collateral.  For a
loan that is not  collateral-dependent,  the allowance is recorded at the amount
by which the outstanding  principal balance exceeds the current best estimate of
the future cash flows on the loan  discounted at the loan's  original  effective
interest rate.

For impaired  loans that are on nonaccrual  status,  cash payments  received are
generally applied to reduce the outstanding principal balance. However, all or a
portion of a cash payment  received on a nonaccrual  loan may be  recognized  as
interest income to the extent allowed by the loan contract,  assuming management
expects to fully collect the remaining principal balance on the loan.

At December 31, 1999 and 1998 the  Corporation had no loans that were considered
impaired.

Real Estate Owned

Real estate acquired through  foreclosure is initially  recorded at the lower of
fair value,  less selling  costs,  or the balance of the loan on the property at
date of  foreclosure.  Costs  relating to the  development  and  improvement  of
property are  capitalized,  whereas  those  relating to holding the property are
charged to expense.

Valuations are periodically performed by management, and an allowance for losses
is  established  by a charge to operations  if the carrying  value of a property
exceeds its estimated fair value, less selling costs.

Securities Sold Under Agreements to Repurchase

The Corporation  enters into sales of securities  under agreements to repurchase
(reverse repurchase agreements).  Fixed-coupon reverse repurchase agreements are
treated as financings,  and the  obligations to repurchase  securities  sold are
reflected as a liability in the consolidated  balance sheets.  The dollar amount
of securities underlying the agreements remain in the asset accounts.

Office Properties and Equipment

Office properties and equipment are stated at cost less accumulated depreciation
and  amortization.  Provisions for  depreciation  and  amortization are computed
using the straight-line method over the estimated useful lives of the individual
assets  or  the  terms  of  the  related  leases,  if  shorter,   for  leasehold
improvements.  Expenditures  for  betterments and major renewals are capitalized
and ordinary maintenance and repairs are charged to expense as incurred.



                                                                              15
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

================================================================================

Income Taxes

Deferred  income taxes are  recognized  for the tax  consequences  of "temporary
differences" by applying enacted  statutory tax rates applicable to future years
to  differences  between the financial  statement  carrying  amounts and the tax
bases of existing assets and liabilities.

For tax years beginning prior to January 1, 1996, savings banks that met certain
definitional tests and other conditions  prescribed by the Internal Revenue Code
were allowed, within limitations, to deduct from taxable income an allowance for
bad debts using the "percentage of taxable  income"  method.  The cumulative bad
debt reserve, upon which no taxes have been paid, was approximately  $236,000 at
December 31, 1998.

Section  1616 of the Small  Business  Job  Protection  Act of 1996  (the  "Act")
repealed the  percentage of taxable income method of computing bad debt reserve,
and  requires  the  recapture  into taxable  income of "excess  reserves",  on a
ratable basis over the next six years.  Excess reserves are defined, in general,
as the excess of the balance of the tax bad debt reserve  (using the  percentage
of taxable income method) as of the close of the last tax year beginning  before
January 1, 1996 over the  balance of the reserve as of the close of the last tax
year beginning before January 1, 1988. The recapture of the reserves is deferred
if the Corporation meets the "residential loan  requirement"  exception,  during
either or both of the first two years  beginning  after  December 31, 1995.  The
residential  loan  requirement  is met, in general,  if the principal  amount of
residential  loans made by the Corporation  during the year is not less than the
Corporation's  "base  amount".  The base amount is defined as the average of the
principal amounts of residential loans made during the six most recent tax years
beginning before January 1, 1996.

As a result of the Act, the  Corporation  must  recapture  into  taxable  income
approximately  $354,000  ratably over six years,  which began December 31, 1998,
since the  Corporation met the residential  loan  requirement  exemption for the
period ended December 31, 1997.

Basic and Diluted Earnings Per Share

Basic earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity.  The basic
and diluted weighted  average number of shares of common stock  outstanding were
1,558,439,  1,501,604 and 1,466,843 for the years ended December 31, 1999,  1998
and 1997, respectively.




                                                                              16
<PAGE>


                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

================================================================================

Statements of Cash Flows

Cash and cash equivalents include Federal funds sold with original maturities of
three months or less.  Interest paid was approximately  $10,772,000,  $7,343,000
and  $6,060,000  for  the  years  ended  December  31,  1999,   1998  and  1997,
respectively.  Cash paid for income taxes was approximately  $360,000,  $656,000
and $350,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Real estate  acquired in the settlement of loans was  approximately  $1,141,000,
$488,000  and $64,000  for the years ended  December  31,  1999,  1998 and 1997,
respectively.

Reclassifications

Certain  reclassifications  have  been  made  in  the  prior  year  consolidated
financial statements and notes to conform to the December 31, 1999 presentation.

New Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and Hedging Activities ("SFAS 133"), which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities.  SFAS 133 requires that
an entity  recognized  all  derivatives  as either assets or  liabilities in the
statement of financial  position and measure those instruments at fair value. If
certain  requirements are met, a derivative may be specifically  designated as a
hedge and an entity  that  elects  to apply  hedge  accounting  is  required  to
establish at the inception of the hedge the method it will use for assessing the
effectiveness  of the  hedging  derivative  and  the  measurement  approach  for
determining  the  ineffective  aspect  of  the  hedge.  Those  methods  must  be
consistent  with the entity's  approach to managing risk.  SFAS 133 is effective
for all fiscal  quarters  of fiscal  years  beginning  after  June 15,  2000 and
requires application prospectively.





                                                                              17
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements


================================================================================

1.      Investment Securities

A  summary  of the  carrying  value and  estimated  market  value of  investment
securities is as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------------------------------------------------------------

                                                                        Gross                  Gross              Estimated
                                                Amortized             Unrealized             Unrealized             Market
                                                   Cost                 Gains                  Losses               Value
-------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                    <C>                  <C>                    <C>
Held to Maturity

   Mortgage-backed securities                   $1,085,625             $17,048              $       -              $1,102,673
   Other                                           250,000                   -                      -                 250,000
-------------------------------------------------------------------------------------------------------------------------------

                                                 1,335,625              17,048                      -               1,352,673
-------------------------------------------------------------------------------------------------------------------------------

Available for Sale

   Mortgage-backed securities                    4,897,805                   -                117,365               4,780,440
   Corporate bonds                              19,415,565                   -              2,319,038              17,096,527
   Other                                           319,750                   -                      -                 319,750
-------------------------------------------------------------------------------------------------------------------------------

                                                24,633,120                   -              2,436,403              22,196,717
-------------------------------------------------------------------------------------------------------------------------------

                                               $25,968,745             $17,048             $2,436,403             $23,549,390
===============================================================================================================================
</TABLE>





                                                                              18
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

1.      Investment Securities (continued)
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------------------------------------------------------------

                                                                        Gross                  Gross              Estimated
                                                Amortized             Unrealized             Unrealized             Market
                                                   Cost                 Gains                  Losses               Value
-------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                     <C>                   <C>                <C>
Held to Maturity

   Mortgage-backed securities                  $  2,093,827            $  93,173             $        -         $  2,187,000
   Other                                            250,000                    -                      -              250,000
-------------------------------------------------------------------------------------------------------------------------------

                                                  2,343,827               93,173                      -            2,437,000
-------------------------------------------------------------------------------------------------------------------------------

Available for Sale

   Corporate bonds                               26,463,324              279,136                161,491           26,580,969
   Other                                            301,438               26,913                      -              328,351
-------------------------------------------------------------------------------------------------------------------------------

                                                 26,764,762              306,049                161,491           26,909,320
-------------------------------------------------------------------------------------------------------------------------------

                                                $29,108,589             $399,222               $161,491          $29,346,320
===============================================================================================================================
</TABLE>





                                                                              19
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

1.      Investment Securities (continued)

The amortized cost and estimated  market value of available for sale and held to
maturity securities at December 31, 1999 by maturity is as follows:
<TABLE>
<CAPTION>
                                                                                 Estimated
                                                         Amortized                 Market
                                                           Cost                    Value
--------------------------------------------------------------------------------------------------
<S>                                                    <C>                      <C>
Held to Maturity
   Mortgage-backed securities                          $  1,085,625             $  1,102,673
   Other                                                    250,000                  250,000
--------------------------------------------------------------------------------------------------

                                                          1,335,625                1,352,673
--------------------------------------------------------------------------------------------------

Available for Sale
   Mortgage-backed securities                             4,897,805                4,780,440
   Due after five years                                  19,735,315               17,416,277
--------------------------------------------------------------------------------------------------

                                                         24,633,120               22,196,717
--------------------------------------------------------------------------------------------------

                                                        $25,968,745              $23,549,390
--------------------------------------------------------------------------------------------------
</TABLE>
Gross  gains and  losses  from the sale of  securities  during  the years  ended
December 31, 1999, 1998 and 1997 were as follows (in 000's):
<TABLE>
<CAPTION>
                                                        1999                         1998                       1997
                                                Gains          Losses         Gains        Losses        Gains       Losses
-------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>             <C>           <C>           <C>         <C>
Held to Maturity                                  $   -        $     -         $    -        $202          $237        $   -
Available for Sale                                  256          1,468            579           -           147            -
Trading                                              77            381            162         464           134          128
</TABLE>

Mortgage  backed  securities  of  approximately  $1,086,000  and  $2,094,000  at
December 31, 1999 and 1998,  respectively,  were pledged for bonds payable (Note
6). At December 31, 1999 and 1998,  investment securities with a market value of
approximately   $16,650,000  and  $1,008,000,   respectively   were  pledged  as
collateral under repurchase agreements (Note 7).




                                                                              20
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

2.      Loans Receivable

Loans receivable are summarized as follows

December 31,                                           1999              1998
--------------------------------------------------------------------------------

Residential real estate                       $  62,795,692     $  66,369,052
Commercial real estate                           12,295,263        13,293,237
Construction and land                            66,180,482        60,088,168
Commercial business                              52,561,209        23,692,273
Consumer                                         17,191,224         9,629,551
--------------------------------------------------------------------------------

                                                211,023,870       173,072,281
--------------------------------------------------------------------------------

Less
   Undisbursed loan funds                         4,381,823         9,587,873
   Deferred loan fees                                39,640           112,809
   Allowance for loan losses                      1,203,238         1,002,314
--------------------------------------------------------------------------------

                                                  5,624,701        10,702,996
--------------------------------------------------------------------------------

                                               $205,399,169      $162,369,285
================================================================================

The allowance for loan losses is summarized as follows:

                                                                       Amount
--------------------------------------------------------------------------------

Balance at December 31, 1996                                       $   869,851
Provision charged to expense                                           122,320
Net charge-offs                                                        (57,194)
--------------------------------------------------------------------------------

Balance at December 31, 1997                                           934,977
Provision charged to expense                                           184,200
Net charge-offs                                                       (116,863)
--------------------------------------------------------------------------------

Balance at December 31, 1998                                         1,002,314
Provision charged to expense                                           486,000
Net charge-offs                                                       (285,076)
--------------------------------------------------------------------------------

Balance at December 31, 1999                                        $1,203,238
================================================================================




                                                                              21
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

2.      Loans Receivable (continued)

The Corporation serviced loans for others aggregating approximately $241,930,000
and  $173,147,000  at December  31, 1999 and 1998,  respectively.  Approximately
$189,000,000  of loans  serviced at December 31, 1999 were sold to a third party
with transfer of the loans to occur in February 2000.  Mortgage servicing rights
were  approximately  $568,000  and  $1,978,000  at  December  31, 1999 and 1998,
respectively.   Mortgage  servicing  rights  of  approximately   $1,571,000  and
$1,584,000 were  capitalized  during the years ended December 31, 1999 and 1998,
respectively.

Gross  gains  and  gross  losses  on the  sale of loans  totaling  approximately
$911,000,  and $592,000,  $1,374,000  and $46,000,  and $520,000 and $1,000 were
realized during the years ended December 31, 1999, 1998 and 1997, respectively.

3.      Office Properties and Equipment

Office properties and equipment are summarized as follows:

December 31,                                                1999          1998
--------------------------------------------------------------------------------

Land                                                  $3,494,851    $2,127,055
Building and leasehold improvements                    4,389,136     3,691,488
Furniture and fixtures                                 1,223,340     1,052,840
Equipment                                              2,032,628     1,479,974
Automobiles                                              129,743        59,598
--------------------------------------------------------------------------------

                                                      11,269,398     8,410,955
Less accumulated depreciation and amortization         1,938,214     1,360,973
--------------------------------------------------------------------------------

Net office properties and equipment                   $9,331,484    $7,049,982
================================================================================



                                                                              22
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

4.      Deposits

Deposits are summarized as follows:

December 31,                                            1999             1998
--------------------------------------------------------------------------------

Statement savings accounts                     $  11,202,630    $   9,862,983
Demand deposit accounts                           30,205,914       23,432,095
Money market accounts                             27,877,742       22,319,439
--------------------------------------------------------------------------------

                                                  69,286,286       55,614,517
--------------------------------------------------------------------------------

Time deposits                                    130,308,385      117,190,767
--------------------------------------------------------------------------------

                                                $199,594,671     $172,805,284
--------------------------------------------------------------------------------

The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000 was approximately  $40,596,000 and $29,640,000 at December 31, 1999 and
1998, respectively.

At December 31, 1999, scheduled maturities of certificates are as follows:

             Year Ending December 31,
            --------------------------------------------------------------------

                         2000                                   $112,783,419
                         2001                                     12,151,684
                         2002                                      3,292,624
                         2003                                      1,413,126
                  2004 and thereafter                                667,532
            --------------------------------------------------------------------

                                                                $130,308,385
            --------------------------------------------------------------------




                                                                              23
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

5.      Fair Value of Financial Instruments

The estimated  fair values of the  Corporation's  financial  instruments  are as
follows:
<TABLE>
<CAPTION>
December 31,                                                          1999                                1998
-------------------------------------------------------------------------------------------------------------------------------
                                                            Carrying            Fair           Carrying            Fair
                                                             Amount             Value           Amount             Value
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>             <C>               <C>
Financial assets
   Cash and short-term investments                          $ 12,634,518      $ 12,635,000    $  10,526,732     $  10,527,000
   Securities                                                 23,532,342        23,549,000       30,253,147        30,346,000
   Loans, net of allowance for loan losses                   205,399,169       206,287,000      162,369,285       163,090,000

Financial liabilities
   Deposits                                                  199,594,671       199,951,000      172,805,284       173,825,000
   Advances from Federal Home Loan Bank                       20,000,000        20,000,000       21,000,000        21,000,000
   Securities sold under agreement to repurchase              16,650,250        16,650,000        1,008,750         1,009,000
   Bonds payable                                                 902,513               N/A        1,785,754               N/A
</TABLE>
<TABLE>
<CAPTION>
                                                              Notional            Fair           Notional            Fair
                                                               Amount             Value           Amount             Value
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>              <C>               <C>
Unrecognized financial instruments
   Commitments to extend credit                              $66,134,000       $66,134,000      $61,917,000       $61,917,000
   Forward commitments to repurchase
     mortgage-backed securities                                        -                 -       10,000,000        10,000,000
</TABLE>

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.

Cash and short-term investments
-------------------------------

For those short-term  investments,  the carrying amount is a reasonable estimate
of fair value.

Securities
----------

Fair  values are based on quoted  market  prices or dealer  quotes.  If a quoted
market  price is not  available,  fair value is estimated  using  quoted  market
prices for similar securities.




                                                                              24
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

5.      Fair Value of Financial Instruments (continued)

Loan receivables
----------------

The fair value of loans is estimated by discounting  the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
remaining  maturities.  This  calculation  ignores loan fees and certain factors
affecting the interest  rates  charged on various  loans such as the  borrower's
creditworthiness  and compensating  balances and dissimilar types of real estate
held as collateral.

Deposit liabilities
-------------------

The fair value of demand deposits,  savings  accounts,  and certain money market
deposits  is the amount  payable on demand at the balance  sheet date.  The fair
value of  fixed-maturity  certificates  of deposit is estimated  using the rates
currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank
------------------------------------

For advances  that mature  within one year of the balance  sheet date,  carrying
value is considered a reasonable estimate of fair value.

The fair values of all other advances are estimated  using  discounted cash flow
analysis  based on the  Corporation's  current  incremental  borrowing  rate for
similar types of advances.

Securities sold under agreement to repurchase
---------------------------------------------

Fixed-coupon reverse repurchase agreements are treated as short-term financings.
The carrying value is considered a reasonable estimate of fair value.

Bonds payable
-------------

Due to the nature and terms (Note 6) of the bonds payable held by GMSC,  Inc. at
December 31, 1999 and 1998, it was not deemed  practicable  to estimate the fair
value.

Commitments to extend credit
----------------------------

The fair value of commitments is estimated  using the fees currently  charged to
enter into similar  agreements,  taking into account the remaining  terms of the
agreements and the present  creditworthiness  of the  borrowers.  For fixed-rate
loan  commitments,  fair value also  considers the  difference  between  current
levels of interest  rates and the committed  rates.  Because of the  competitive
nature of the  marketplace  loan fees vary  greatly with no fees charged in many
cases.




                                                                              25
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

5.      Fair Value of Financial Instruments (continued)

Forward Commitments to purchase mortgage-backed securities
----------------------------------------------------------

Fair values are based on quoted market prices or dealer quotes.

6.      Bonds Payable

In October 1987, GMSC, Inc. issued serial bonds (the "Bonds")  collateralized by
mortgage-backed   securities  which  are  treated  as  a  real  estate  mortgage
investment conduit ("REMIC") under the Internal Revenue Code of 1986 for federal
tax purposes.  The Bonds are secured by an indenture  between GMSC, Inc. and the
Bank  of New  York,  acting  as  trustee  for the  bondholders.  The  Bonds  are
summarized as follows:
<TABLE>
<CAPTION>
December 31,                                                                  1999               1998
--------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                <C>
Serial Bonds

   Class A-3, maturing January 20, 2019, at 8.0%                        $1,152,698         $2,169,815
   Unapplied payments                                                      (85,628)           (66,683)
--------------------------------------------------------------------------------------------------------

                                                                         1,067,070          2,103,132
   Less unamortized discount                                              (164,557)          (317,378)
--------------------------------------------------------------------------------------------------------

                                                                        $  902,513         $1,785,754
========================================================================================================
</TABLE>

The  Bonds  are  repaid  in  conjunction   with  the  net  cash  flow  from  the
mortgage-backed  securities  together with the reinvestment income thereon. As a
result,  the  actual  life of the Bonds is less than  their  stated  maturities.
Interest is paid as incurred on the Class A-3 Bonds. The indenture also provides
for the  establishment  of two trust  accounts  to insure the timely  payment of
interest,  debt maturities,  trustee and accounting fees and other expenses. The
account  established  for payment of trustee and accounting  fees is included in
cash on the  statement  of  condition.  The account  established  for payment of
interest  and debt  maturities  is netted  with cash and  bonds  payable  on the
balance sheet.



                                                                              26
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

7.      Securities Sold Under Agreements to Repurchase

The  following  is  a  summary  of  certain  information  regarding  the  Bank's
repurchase agreements:
<TABLE>
<CAPTION>
Year Ended December 31,                                                    1999             1998
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>
Balance at end of year                                              $16,650,250       $1,009,000
Weighted average interest rate during the year                          5.10%            5.00%
Average amount outstanding during the year                          $ 9,387,194       $2,336,294
Maximum amount outstanding at any month end during
   the year                                                         $16,650,250       $6,856,060
</TABLE>

8.      Advances From Federal Home Loan Bank

Information  related to borrowing activity from the Federal Home Loan Bank is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,                                                    1999             1998
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>
Maximum amount outstanding during the year                          $30,000,000      $26,000,000
---------------------------------------------------------------------------------------------------

Average amount outstanding during the year                          $26,225,806      $ 9,748,000
---------------------------------------------------------------------------------------------------

Average interest rate during the year                                   4.88%             5.57%
---------------------------------------------------------------------------------------------------
</TABLE>



                                                                              27
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

9.      Income Taxes

The  provision for income taxes as presented in the  consolidated  statements of
operations are as follows:

Year ended December 31,                   1999            1998            1997
--------------------------------------------------------------------------------

Current income tax                      $2,300        $624,200        $458,040
Deferred income tax                          -               -          28,000
--------------------------------------------------------------------------------

                                        $2,300        $624,200        $486,040
================================================================================

Reconciliations  of the  provision  for income  taxes  computed  at the  federal
statutory income tax rate to the effective rate follows:

Year ended December 31,                   1999            1998            1997
--------------------------------------------------------------------------------

Tax expense at statutory rate           $2,300        $557,800        $470,477
Adjustments
   Effect of state taxes                     -               -          55,350
   Other                                     -          66,400         (39,787)
--------------------------------------------------------------------------------

                                        $2,300        $624,200        $486,040
================================================================================




                                                                              28
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

9.      Income Taxes (continued)

The  components  of the net deferred  income  taxes,  which is included in other
assets in the balance sheet, are as follows:

December 31,                                             1999            1998
--------------------------------------------------------------------------------

Deferred tax asset
   Bad debt reserves                              $   363,000       $ 241,000
   Deferred loan fees                                  22,000          30,000
   Servicing rights                                         -         116,000
   Available for sale securities                      828,000               -
   Other                                               70,000         143,000
--------------------------------------------------------------------------------

Total deferred tax asset                            1,283,000         530,000
--------------------------------------------------------------------------------

Deferred tax liability
   GMSC REMIC                                          97,000         133,000
   FHLB stock                                          26,000         167,000
   Fixed assets                                       221,000          84,000
   Trading securities                                       -          90,000
--------------------------------------------------------------------------------

Total deferred tax liability                          344,000         474,000
--------------------------------------------------------------------------------

Net deferred tax asset                            $   939,000       $  56,000
--------------------------------------------------------------------------------

10.     Related Party Transactions

In the normal  course of business,  the  Corporation  makes loans to  directors,
officers and other related parties.  These loans are made on  substantially  the
same terms as those prevailing at the time for comparable  transactions with the
other borrowers.

The following is a summary of loan  transactions  with  directors,  officers and
other related parties:

December 31,                                             1999            1998
--------------------------------------------------------------------------------

Balance at the beginning of year                  $   975,000        $293,000
Additional loans                                      798,000         856,000
Loan reductions                                      (304,000)       (174,000)
--------------------------------------------------------------------------------

Balance at end of year                             $1,469,000        $975,000
================================================================================



                                                                              29
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

11.     Commitments and Contingencies

The Corporation  leases office space under operating  leases expiring at various
dates through 2002 and has a contract for data processing services whose initial
term  expires in  February  2004 and  requires  minimum  payments of $25,800 per
month.  Future minimum rental and data  processing  payments  required that have
initial or  remaining  noncancelable  terms in excess of one year as of December
31, 1999, are as follows:

                                                          Amount
                                            ------------------------------------
                                                                   Data
Year Ending December 31,                        Leases          Processing
--------------------------------------------------------------------------------

2000                                            $  91,300       $   309,600
2001                                               87,500           309,600
2002                                               61,200           309,600
2003                                               28,900           309,600
2004                                               22,600            51,600
--------------------------------------------------------------------------------

                                                 $291,500        $1,290,000
================================================================================

Total rental expense amounted to approximately $91,600,  $70,000 and $47,000 for
the years ended  December  31,  1999,  1998 and 1997,  respectively.  Total data
processing expense amounted to approximately  $762,000,  $585,000,  and $423,000
for the years ended December 31, 1999, 1998 and 1997, respectively.

The  Corporation  is defendant in various  lawsuits  incidental to its business.
Management is of the opinion that its financial  position will not be materially
affected by the ultimate resolution of any pending or threatened litigation.

12.     Convertible Preferred Stock

On  April  29,  1998,  the  Corporation  formed  Guaranty  Capital  Trust I (the
"Trust"),  a wholly owned  subsidiary.  The Trust issued  276,000 shares of 7.0%
cumulative  preferred  securities maturing May 5, 2028 with an option to call on
or after  April 29,  2003  (call  price of $18.50  per  share)  for  $6,900,000.
Conversion of the preferred  securities into the corporations stock may occur at
any time prior to maturity.  The Trust also issued  8,537 shares of  convertible
common stock for $213,425.  The  Corporation  purchased all shares of the common
stock.  The proceeds from the sale of the preferred  securities were utilized to
purchase from the Corporation junior subordinated debt securities (guaranteed by
the Bank), of $7,113,425  bearing interest at 7.0% and maturing May 5, 2028. All
intercompany interest and equity was eliminated in consolidation.

In December 1999 the  Corporation  repurchased  33,000 shares of the  cumulative
preferred securities at an average price of $17.97 per share which resulted in a
net gain, recognized in the statement of stockholders' equity, on the repurchase
of $101,000.



                                                                              30
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

13.     Stockholders' Equity

On  November 4, 1999,  the  Corporation  completed  a secondary  offering of its
common stock  through the sale of 460,000  shares at a price of $9.00 per share.
Proceeds to the  Corporation  from the  offering  (net of  offering  expenses of
approximately $447,000) were approximately $3,693,000.

The following table represents the Bank's regulatory capital levels.
<TABLE>
<CAPTION>
                                        Amount             Percent             Actual            Actual           Excess
 December 31, 1999                     Required           Required             Amount            Percent          Amount
--------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>             <C>                  <C>           <C>
Tier 1 risk based                    $  8,952,000           4.00%           $21,513,000           9.61%        $12,561,000
Total risk based capital               17,904,000           8.00             22,716,000          10.15           4,812,000

                                        Amount             Percent             Actual            Actual           Excess
 December 31, 1998                     Required           Required             Amount            Percent          Amount
--------------------------------------------------------------------------------------------------------------------------------

Tier 1 risk based                    $  7,246,000           4.00%           $16,645,000           9.19%         $9,399,000
Total risk based capital               14,492,000           8.00             17,647,000           9.74           3,155,000
</TABLE>

The Corporation may not declare or pay a cash dividend, or repurchase any of its
capital stock if the effect thereof would cause the net worth of the Corporation
to be reduced below the net worth requirement imposed by federal regulations.

Proceeds from the Trust Preferred  Securities were contributed to capital of the
Bank and are included,  to the extent allowed,  in the calculation of regulatory
capital.




                                                                              31
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

14.     Stock Option Plan

The Corporation has a noncompensatory stock option plan (the "Plan") designed to
provide long-term incentives to key employees.  All options are exercisable upon
date of vesting.

The following table summarizes options outstanding:
<TABLE>
<CAPTION>
                                                1999                            1998                          1997
-------------------------------------------------------------------------------------------------------------------------------

                                                   Weighted -                       Weighted -                   Weighted -
                                                     average                         average                       average
                                                    exercise                         exercise                     exercise
                                        Shares        price          Shares           price           Shares        price
-------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>             <C>             <C>              <C>           <C>
Options outstanding at
   beginning of year                    88,000       $15.86          71,200          $15.25            4,000      $   4.88
Granted                                 44,500        12.00          37,500           15.86           72,000         15.25
Forfeited                               (2,500)       12.00         (18,700)          16.03             (800)        12.00
Exercised                                    -         -             (2,000)          12.00           (4,000)         4.88
-------------------------------------------------------------------------------------------------------------------------------

Options outstanding
   at end of year                      130,000       $12.98          88,000          $15.86           71,200        $15.25
===============================================================================================================================

Options exercisable
   at end of year                       49,700                       24,200                           11,240
===============================================================================================================================
</TABLE>

The  weighted  average  fair  value of  options  granted  during  the year ended
December 31, 1999, 1998 and 1997 was $3.17, $4.85 and $1.14, respectively.




                                                                              32
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

The Corporation applies Accounting Principals Board Opinion No. 25 in accounting
for stock options granted to employees. Had compensation expense been determined
based upon the fair value of the  awards at the grant date and  consistent  with
the  method  under  Statement  of  Financial   Accounting   Standards  123,  the
Corporation's  net earnings and net earnings per share would have been decreased
to the pro forma amounts indicated in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,                                                               1999             1998              1997
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>                <C>
Net income (loss)
   As reported                                                                  $    4,433        $1,016,279         $897,715
   Pro forma                                                                       (88,670)          896,242          844,363

Net income (loss) per share (basic and diluted)
   As reported                                                                  $      .00        $      .68         $   0.61
   Pro forma                                                                          (.06)              .60             0.58
</TABLE>

The fair value of each option  granted is  estimated  on the date of grant using
the  Black-Sholes  option pricing model with the following  assumptions used for
grants for the year ended December 31, 1999: a risk free interest rate of 5.18%,
dividend  yield of .50%,  expected  weighted  average term of 8.00 years,  and a
volatility of 20.00%.

15.     Employee Benefit Plans

Effective  February 16, 1989, the  Corporation  adopted a 401(k)  profit-sharing
plan in which  all  employees  are  eligible  to  participate  after one year of
service  and are at least  twenty-one  years of age.  Participants  may elect to
contribute a percentage of their  compensation  to the plan. The Corporation may
make contributions to the plan at its discretion.  Corporation contributions are
allocated to employee  accounts using a systematic  formula based on participant
compensation.  The Corporation  contributed  approximately $56,000,  $14,900 and
$10,300 for the years ended December 31, 1999, 1998 and 1997, respectively.

16.     Financial Instruments With Off-Balance-Sheet Risk

The Corporation is a party to financial instruments with  off-balance-sheet risk
in the normal  course of business to meet the  financing  needs of its customers
and to  reduce  its own  exposure  to  fluctuations  in  interest  rates.  These
financial instruments include commitments to extend credit,  options written and
purchased,  forward  commitments  to  purchase  mortgage-backed  securities  and
standby  letters of  credit.  Those  instruments  involve,  to varying  degrees,
elements of credit and interest rate risk in excess of the amount  recognized in
the balance sheet. The contract or notional amounts of these instruments reflect
the extent of involvement the Corporation has in particular classes of financial
instruments




                                                                              33
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

16.     Financial Instruments With Off-Balance-Sheet Risk (continued)

The Corporation's  exposure to credit loss in the event of nonperformance by the
other party to the financial  instrument  for  commitments  to extend credit and
standby  letters of credit written is represented  by the  contractual  notional
amount of those  instruments.  The Corporation  uses the same credit policies in
making commitments and conditional  obligations as it does for  on-balance-sheet
instruments.  For options  purchased,  the  contract or notional  amounts do not
represent exposure to credit loss.

Unless noted  otherwise,  the Corporation  does not require  collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
December 31,                                                                         1999           1998
----------------------------------------------------------------------------------------------------------
<S>                                                                           <C>            <C>
Financial instruments whose contract amounts represent credit risk
   Commitments to extend credit                                               $66,134,000    $61,917,000
   Standby letters of credit written                                            4,719,000      1,454,000

Financial instruments whose contract amounts represent interest
   rate risk
     Forward commitment to purchase mortgage-backed securities                          -     10,000,000
</TABLE>

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 many of the  commitments are expected to expire
without  being  completely  drawn  upon,  the total  commitment  amounts  do not
necessarily  represent future cash requirements.  The Corporation evaluates each
customer's creditworthiness on a case-by-case basis.

Standby  letters of credit  written are  conditional  commitments  issued by the
Corporation  to guarantee the  performance  of a customer to a third party.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.

Substantially all of the Corporation's  loan activity was with customers located
in  Charlottesville  and  Richmond,  Virginia  and  surrounding  counties,  with
approximately 30% of the loans  collateralized by one to four family residential
properties.



                                                                              34
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

17.     Selected Quarterly Financial Data (Unaudited)

Condensed quarterly consolidated financial data is shown as follows: (Dollars in
thousands except per share data)
<TABLE>
<CAPTION>
                                                       First                Second               Third             Fourth
Year ended December 31, 1999                          Quarter              Quarter              Quarter           Quarter
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>                  <C>                <C>
Total interest income                                   $3,906               $4,679               $4,652             $5,135
Total interest expense                                   2,526                2,649                2,721              2,743
-------------------------------------------------------------------------------------------------------------------------------

Net interest income                                      1,380                2,030                1,931              2,392
Provision for loan losses                                   60                  105                  216                105
-------------------------------------------------------------------------------------------------------------------------------

Net interest income after provision
   for loan losses                                       1,320                1,925                1,715              2,287

Other income (loss)                                        794                  158               (1,139)               312
Other expenses                                           1,701                1,701                1,917              2,047
-------------------------------------------------------------------------------------------------------------------------------

Income (loss) before income tax
   expense (benefit)                                       413                  382               (1,341)               552

Income tax expense (benefit)                               140                  130                 (456)               188
-------------------------------------------------------------------------------------------------------------------------------

Net income (loss)                                       $  273               $  252               $ (885)            $  364
===============================================================================================================================

Basic and diluted earnings (loss)
   per share                                            $  .18               $  .17               $ (.59)            $  .21
===============================================================================================================================
</TABLE>



                                                                              35
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

17.     Selected Quarterly Financial Data (Unaudited) (continued)
<TABLE>
<CAPTION>
                                                        First               Second               Third               Fourth
Year ended December 31, 1998                           Quarter              Quarter              Quarter             Quarter
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>                  <C>                <C>
Total interest income                                   $2,508               $2,956               $3,506             $4,090
Total interest expense                                   1,540                1,753                2,065              2,051
-------------------------------------------------------------------------------------------------------------------------------

Net interest income                                        968                1,203                1,441              2,039
Provision for loan losses                                   42                   44                   49                 49
-------------------------------------------------------------------------------------------------------------------------------

Net interest income after provision
   for loan losses                                         926                1,159                1,392              1,990

Other income                                               613                  375                  730                248
Other expenses                                           1,173                1,245                1,607              1,768
-------------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                 366                  289                  515                470

Income taxes                                               153                  105                  201                165
-------------------------------------------------------------------------------------------------------------------------------

Net income                                              $  213               $  184               $  314             $  305
===============================================================================================================================

Basic and diluted earnings per share                    $  .17               $  .12               $  .21             $  .18
===============================================================================================================================
</TABLE>




                                                                              36
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

18.      Condensed Financial  Information of the Corporation (Parent Corporation
         Only)

                   Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,                                                       1999                  1998
-----------------------------------------------------------------------------------------------
<S>                                                         <C>                   <C>
     Assets

Investment in subsidiaries, at equity                       $21,695,484           $19,289,414
Cash                                                            129,640                11,612
Prepaid expenses and other assets                               455,664               527,117
-----------------------------------------------------------------------------------------------

                                                            $22,280,788           $19,828,143
===============================================================================================


     Liabilities and Stockholders' Equity

Other liabilities                                           $   117,703           $   250,072
-----------------------------------------------------------------------------------------------

Total liabilities                                               117,703               250,072
-----------------------------------------------------------------------------------------------

Subordinated debt                                             6,288,425             7,113,425
-----------------------------------------------------------------------------------------------

Stockholders' equity
   Common stock                                               2,452,159             1,877,159
   Additional paid-in capital                                 8,943,119             5,724,524
   Retained earnings                                          4,479,382             4,862,963
-----------------------------------------------------------------------------------------------

Total stockholders' equity                                   15,874,660            12,464,646
-----------------------------------------------------------------------------------------------

                                                            $22,280,788           $19,828,143
===============================================================================================
</TABLE>



                                                                              37
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

18.      Condensed Financial  Information of the Corporation (Parent Corporation
         Only) (continued)

                       Condensed Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,                                                        1999                1998
---------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                <C>
Income
   Dividends received from Bank                                           $ 886,278          $  361,306
---------------------------------------------------------------------------------------------------------

Total income                                                                886,278             361,306
---------------------------------------------------------------------------------------------------------

Interest expense                                                           (497,940)           (319,324)
Noninterest expense                                                         (23,473)            (19,305)
---------------------------------------------------------------------------------------------------------

Income before undistributed net income of the Bank                          364,865              22,677
Undistributed net income                                                   (360,432)            993,602
---------------------------------------------------------------------------------------------------------

Net income                                                                $   4,433          $1,016,279
=========================================================================================================
</TABLE>



                                                                              38
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


================================================================================

18.      Condensed Financial  Information of the Corporation (Parent Corporation
         Only) (continued)

                       Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,                                                                            1999                  1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                   <C>
Operating activities
   Net income                                                                              $      4,433          $  1,016,279
   Adjustments
     Undistributed earnings of the Bank                                                         360,432              (993,602)
     Gain on repurchase of subordinated debt                                                    101,027                     -
     (Increase) decrease in prepaid and other assets                                             71,453              (486,281)
     (Decrease) increase in other liabilities                                                  (132,369)              250,072
     Other                                                                                       39,788                 1,229
-------------------------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by operating activities                                            444,764              (212,303)
-------------------------------------------------------------------------------------------------------------------------------

Investing activities
   Dividends received from Bank                                                                 886,278               361,306
   Investment in the Bank                                                                    (3,692,568)                    -
   Investment in Guaranty Capital Trust                                                               -            (6,900,000)
-------------------------------------------------------------------------------------------------------------------------------

Net cash absorbed by investing activities                                                    (2,806,290)           (6,538,694)
-------------------------------------------------------------------------------------------------------------------------------

Financing activities
   Cash dividends paid on common stock                                                         (388,014)             (360,816)
   Issuance of subordinate debt                                                                       -             7,113,425
   Repurchase of subordinated debt                                                             (825,000)                    -
   Issuance of common stock                                                                   3,692,568                     -
-------------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                                                     2,479,554             6,752,609
-------------------------------------------------------------------------------------------------------------------------------

Increase in cash                                                                                118,028                 1,612

Cash, beginning of year                                                                          11,612                10,000
-------------------------------------------------------------------------------------------------------------------------------

Cash, end of year                                                                          $    129,640          $     11,612
===============================================================================================================================
</TABLE>




                                                                              39
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                          GUARANTY FINANCIAL CORPORATION



Date:  March 29, 2000                     By: /s/ Thomas P. Baker
                                              ----------------------------------
                                              Thomas P. Baker
                                              President, Chief Executive Officer
                                              and Director


         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
               Signature                                    Title                                   Date
               ---------                                    -----                                   ----

<S>                                              <C>                                           <C>
          /s/ Thomas P. Baker                     President, Chief Executive                   March 29, 2000
-------------------------------------                Officer and Director
            Thomas P. Baker                      (Principal Executive Officer)


     /s/ L. Benjamin Johnson, III                Vice President and Controller                 March 29, 2000
-------------------------------------              (Principal Financial and
        L. Benjamin Johnson, III                       Accounting Officer)


                                                     Chairman of the Board                     March __, 2000
-------------------------------------
            Douglas E. Caton


          /s/ Harry N. Lewis                      Vice Chairman of the Board                   March 29, 2000
-------------------------------------
             Harry N. Lewis


          /s/ Henry J. Browne                              Director                            March 29, 2000
-------------------------------------
            Henry J. Browne


        /s/ Jason I. Eckford, Jr.                          Director                            March 29, 2000
-------------------------------------
         Jason I. Eckford, Jr.


        /s/ Robert P. Englander                            Director                            March 29, 2000
-------------------------------------
          Robert P. Englander


           /s/ John R. Metz                                Director                            March 29, 2000
-------------------------------------
              John R. Metz

<PAGE>

               Signature                                    Title                                   Date
               ---------                                    -----                                   ----


         /s/ James R. Sipe, Jr.                            Director                            March 29, 2000
-------------------------------------
           James R. Sipe, Jr.


        /s/ Oscar W. Smith, Jr.                            Director                            March 29, 2000
-------------------------------------
          Oscar W. Smith, Jr.


           /s/ John B. Syer                                Director                            March 29, 2000
-------------------------------------
              John B. Syer
</TABLE>



<PAGE>


                                  EXHIBIT INDEX

        Number                       Document
        ------                       --------

         3.1             Amended  and  Restated  Articles  of  Incorporation  of
                         Guaranty Financial  Corporation (restated in electronic
                         format),  attached as Exhibit  3.1 to the  Registrant's
                         Annual  Report  on  Form  10-KSB  for  the  year  ended
                         December 31, 1997, incorporated herein by reference.

         3.2             Bylaws of Guaranty Financial  Corporation,  attached as
                         Exhibit 3.1 to the  Registrant's  Annual Report on Form
                         10-KSB  for  the  year   ended   December   31,   1997,
                         incorporated herein by reference.

         10.1            Guaranty Financial  Corporation 1991 Incentive Plan (as
                         amended),  attached  as  Exhibit A to the  Registrant's
                         definitive  Proxy Statement for the 1998 Annual Meeting
                         of Shareholders, incorporated herein by reference.

         10.2            Employment  Agreement,  dated February 26, 1999, by and
                         between the Registrant and Thomas P. Baker, attached as
                         Exhibit 10.2 to the Registrant's Registration Statement
                         on Form S-1, Registration No. 333-88335, filed with the
                         Commission on October 1, 1999,  incorporated  herein by
                         reference.

         21              Subsidiaries of the Registrant.

         27              Financial Data Schedule (filed electronically only).