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                       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, 2001

                         Commission file number 0-25905

                         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
           Charlottesville, Virginia                           22911
   (Address of Principal Executive Offices)                 (Zip Code)

                                 (434) 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. [ ]

         The issuer's gross income for its most recent fiscal year was
$20,031,921.

         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 1,
2002 was approximately $17,314,348. (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 1, 2001
was 1,961,727.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Proxy Statement for the 2002 Annual Meeting of Shareholders - Part III

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                                TABLE OF CONTENTS

                                     PART I
                                     ------

                                                                            Page
                                                                            ----

ITEM 1.  DESCRIPTION OF BUSINESS............................................. 3

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 OPERATIONS..............................14

ITEM 7.  FINANCIAL STATEMENTS................................................36

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................36

                                    PART III
                                    --------

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
            CONTROL PERSONS; COMPLIANCE WITH SECTION
            16(a) OF THE EXCHANGE ACT........................................36

ITEM 10. EXECUTIVE COMPENSATION..............................................36

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT............................................36

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................37

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K..............................37

                                       2

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                                     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.

         Guaranty's principal asset 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 $180.0 million of gross loans outstanding at
December 31, 2001, 20.2% represented construction and land loans, 46.0%
represented commercial business and commerical real estate loans, and 22.1%
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 (434) 970-1100.

Market Area

         Guaranty is headquartered in Charlottesville, Virginia. Charlottesville
and its surrounding area had a collective population of approximately 120,000 in
2000 according to census figures. It 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 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
depositors 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.

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         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.

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 utilizes 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 a Directors Loan
Committee to approve loans. The Management Loan Committee, which consists of the
President and three additional senior officers, meets weekly to review all loan
applications from borrowers having total credit exposure to the Bank in excess
of $750,000 in the aggregate or in excess of $250,000 on an unsecured basis. A
Directors Loan Committee, which currently consists of five directors (three
directors constitute a quorum, of whom any two may act), approves loans from
borrowers having total credit exposure to the Bank in excess of $1,500,000 in
the aggregate or in excess of $500,000 on an unsecured basis that have been
previously approved by the Management Loan Committee. Guaranty's Chief Credit
Officer 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 available for debt service.
Loan applications are submitted to the underwriting department for review. Loan
quality is analyzed based on the Bank's experience and credit underwriting
guidelines 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 that Guaranty originates are
not readily salable in the secondary market because they do not meet all of the
secondary marketing guidelines. Real estate collateral is appraised by
independent fee appraisers who have been pre-approved by the Board of Directors.
All conforming loans including HUD/FHA, VA and applicable VHDA loans are
underwritten by mortgage loan administration according to the Bank's loan
authority schedule.

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         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, 2001, commitments to extend credit totaled $52.0 million.

Construction Lending

         Guaranty makes local construction loans, primarily residential, and
land acquisition and development loans. The construction loans are secured by
residential houses under construction and the underlying land for which the loan
was obtained. At December 31, 2001, construction, land and land development
loans outstanding were $36.3 million, or 20.2%, of gross loans. Approximately
95% 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, typically prime plus one
percent. Because the interest rate 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 attributable to the fact that loan funds are advanced
upon the security of the land or home under construction, which value is
estimated 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 mitigate the risks associated with construction
lending, Guaranty generally limits loan amounts to 75% to 80% of appraised
value, in addition to analyzing the creditworthiness of its borrowers. Guaranty
also obtains a first lien on the property as security for its construction loans
and typically requires 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 obtains appropriate collateral and personal guarantees from
the borrower's principal owners 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 readily 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 is substantially dependent on the success
of the business itself. Furthermore, the collateral for commercial business
loans may depreciate over time and generally cannot be appraised with as much
precision as residential real estate. Guaranty has a loan review and monitoring
process to regularly assess the repayment ability of commercial borrowers. At
December 31, 2001, commercial loans totaled $66.6 million, or 37.0% 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, 2001, commercial real estate loans aggregated $16.3
million or 9.0% of Guaranty's gross loans.

                                       5

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         In its underwriting of commercial real estate, Guaranty may lend, under
federal regulation, up to 85% of the secured property's appraised value,
although Guaranty's loan to original appraised value ratio on such properties is
80% or less in many 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 typically
requires personal guarantees or endorsements of the borrowers' principal owners.
Guaranty also carefully evaluates the location of the security property.

One-to-Four-Family Residential Real Estate Lending

         Residential lending activity may be generated by Guaranty's loan
originator solicitation, referrals by real estate professionals, and existing or
new bank customers. Loan applications are taken by a Bank loan originator. As
part of the application process, information is gathered concerning income,
employment and credit history of the applicant. Loan quality is analyzed based
on guidelines issued by the applicable investor, such as the Federal Home Loan
Mortgage Corporation (FHLMC), Veterans Administration (VA), the Department of
Housing and Urban Development (HUD). The non-conforming one-to-four family
adjustable rate mortgage (ARM) loans originated by Guaranty do not generally
meet secondary market investor guidelines. However, these loans are underwritten
using Guaranty's underwriting guidelines. The valuation of residential
collateral is provided by independent fee appraisers who have been approved by
the Bank's Board of Directors. Loan applications are underwritten either
manually or automatically. Automated underwriting may be used on those loans
with limited risk, based on assigned guidelines set forth by FHLMC.

         Security for the majority of Guaranty's residential lending is in the
form of owner occupied one-to-four family dwellings. Conventional mortgages are
originated up to allowable loan-to-value guidelines issued by the investor.
Maximum allowable loans insured by the Veterans Administration (VA) and the
Department of Housing and Urban Development (HUD) are originated according to
their applicable guidelines. Loans are also underwritten, funded, and serviced
by the Virginia Housing Development Authority specific to their defined
guidelines. The Loan Prospector automated underwriting system is capable of
rating conforming, VA, and FHA loans.

         Typically, all fixed rate mortgage loans are originated with the intent
to sell. In order to meet community needs and retain a competitive edge, the
bank occasionally originates non-conforming fixed rate loans. At December 31,
2001, $27.2 million, or 15.1%, of Guaranty's loan portfolio consisted of fixed
rate mortgage loans.

         Guaranty also originates a non-conforming adjustable rate product with
a higher entry level rate and margin than that of the conforming adjustable rate
products. This non-conforming loan provides yet another outlet for loans not
meeting investor guidelines. The Bank has no current investor relationship for
selling this ARM product. Interest rates on adjustable rate products offered by
the Bank are tied to One, Three, Five or Seven Year United States Treasury
bills. Guaranty's ARM products contain interest rate caps at adjustment periods
and rate ceilings based on a cap over and above the original interest rate. At
December 31, 2001, $12.7 million, or 7.0%, of the Bank's loan portfolio
consisted of adjustable rate mortgages.

                                       6

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         All residential mortgage loans originated by Guaranty contain a
"due-on-sale" clause providing that Guaranty may declare the unpaid principal
balance due and payable upon sale or transfer of the mortgaged premises, unless
certain investor provisions should apply. "Due-on-sale" definitions will vary
from investor to investor, so Guaranty's policy is to adhere to the mortgage
loan investor's guidelines, or in the case of our own loans, adhere to the
defined terms in the security instruments.

         In connection with residential real estate loans, Guaranty requires
title insurance, hazard insurance and if required, flood insurance. Flood
determination letters with life of loan tracking are obtained on all federally
related transactions with improvements serving as security for the transaction.
Guaranty does require escrows for real estate 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, credit cards, and home equity lines of
credit and loans. At December 31, 2001, Guaranty had consumer loans of $21.0
million or 11.7% of gross loans. Such loans are generally made to customers with
which Guaranty has a pre-existing relationship. Guaranty currently originates
all of its consumer loans in its geographic market area. Most of the consumer
loans are tied to the prime lending rate and reprice monthly.

         Consumer loans may entail greater risk than 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
borrower against an assignee of collateral securing the 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. Consumer loan
delinquencies often increase over time as the loans age.

         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 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, 2001, Guaranty had 92 full-time and seven part-time
employees. None of Guaranty's employees are represented by any collective
bargaining unit.

                                       7

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Supervision and Regulation

         General. 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 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.

         As a state-chartered commercial bank, the Bank is subject to
regulation, supervision and examination by the Virginia State Corporation
Commission's Bureau of Financial Institutions. It also subject to regulation,
supervision and examination by the Federal Reserve Board. State and federal law
also governs the activities in which the Bank engages, the investments that it
makes 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 Guaranty's subsidiaries, and therefore the earnings of
Guaranty, are affected by general economic conditions, management policies,
changes in state and federal legislation and actions of various regulatory
authorities, including those referred to above. The following description
summarizes the significant state and federal and state laws to which Guaranty
and the Bank are subject. To the extent that statutory or regulatory provisions
or proposals are described, the description is qualified in its entirety by
reference to the particular statutory or regulatory provisions or proposals.

         Payment of Dividends. Guaranty is a legal entity separate and distinct
from its banking and other subsidiaries. The majority of Guaranty's revenues
will result from dividends paid to Guaranty by the Bank. The Bank is subject to
laws and regulations that limit the amount of dividends that it can pay. In
addition, both Guaranty and the Bank are subject to various regulatory
restrictions relating to the payment of dividends, including requirements to
maintain capital at or above regulatory minimums. Banking regulators have
indicated that banking organizations should generally pay dividends only if the
organization's net income available to common shareholders over the past year
has been sufficient to fully fund the dividends, and 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 affect the ability of the
Bank to pay dividends. During the year ended December 31, 2001, the Bank
declared $420,875 in dividends payable to Guaranty.

         In October 2000, Guaranty and the Bank entered into a written agreement
with the Federal Reserve Bank of Richmond (the "FRB-Richmond") and the Bureau of
Financial Institutions that provided for certain restrictions on the declaration
and payment of dividends by either Guaranty or the Bank. Additional information
on this agreement is set forth in "Item 5. Market for Common Equity and Related
Stockholder Matters" below.

         Insurance of Accounts, Assessments and Regulation by the Federal
Deposit Insurance Corporation (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.

                                       8

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         The FDIC has implemented a risk-based deposit insurance assessment
system under which the assessment rate for an insured institution may vary
according to regulatory capital levels of the institution and other factors
(including supervisory evaluations). Depository institutions insured by the BIF
that are "well capitalized" and that present few or no supervisory concerns, are
required to pay only the statutory minimum assessment of $2,000 annually for
deposit insurance, while all other banks are required to pay premiums ranging
from .03% to .27% of domestic deposits. Because of the weaknesses that led to
the written agreement with the Federal Reserve and the Bureau of Financial
Institutions, the Bank's deposit insurance assessment was .10% of deposits per
year in 2000 and is .03% of deposits per year in 2001. These rate schedules are
subject to future adjustments by the FDIC. In addition, the FDIC has authority
to impose special assessments from time to time. However, because the
legislation enacted in 1996 requires that both Savings Association Insurance
Fund insured and BIF-insured deposits pay a pro rata portion of the interest due
on the obligations issued by the Financing Corporation, 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 not aware of any existing
circumstances that could result in termination of any Bank's deposit insurance.

         Capital. The Federal Reserve Board has issued risk-based and leverage
capital guidelines applicable to banking organizations that it supervises. 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 must 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," which, together with Tier 1 capital, composes "total capital").

         In addition, each of the federal banking regulatory agencies has
established minimum leverage capital requirements for banking organizations.
Under these requirements, banking organizations must maintain a minimum ratio of
Tier 1 capital to adjusted average quarterly assets equal to 3% to 5%, subject
to federal bank regulatory evaluation of an organization's overall safety and
soundness.

         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 banking organization's capital adequacy.

                                       9

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         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 that the
depository institution is insolvent or is in danger of becoming insolvent. For
example, under the requirements 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 the FDIC as a result
of the insolvency of commonly controlled insured depository institutions or for
any assistance provided by the FDIC to commonly controlled insured depository
institutions in danger of failure. The FDIC may decline to enforce the
cross-guarantee provision if it determines that a waiver is in the best
interests of the deposit insurance funds. The FDIC's claim for reimbursement
under the cross guarantee provisions 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 nonaffiliated holders of
subordinated debt of the commonly controlled insured depository institutions.

         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, 2001, Guaranty and the Bank were
classified as well capitalized.

         State banking regulators also have broad enforcement powers over the
Bank, including the power to impose fines and other civil and criminal
penalties, and to appoint a conservator.

         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 was
authorized to merge with a bank headquartered in another state, as long as
neither of the states had opted out of such interstate merger authority prior to
such date. After 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.

         Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act of 1999 (the
"Act") was signed into law on November 12, 1999. The Act covers a broad range of
issues, including a repeal of most of the restrictions on affiliations among
depository institutions, securities firms and insurance companies. Most of the
Act's provisions require the federal bank regulatory agencies and other
regulatory bodies to adopt regulations to implement the Act, and for that reason
an assessment of the full impact on Guaranty of the Act must await completion of
that regulatory process.

         The Act repeals sections 20 and 32 of the Glass-Stegall Act, thus
permitting unrestricted affiliations between banks and securities firms. The Act
also permits bank holding companies to elect to become financial holding
companies. A financial holding company may engage in or acquire companies that
engage in a broad range of financial services, including securities activities
such as underwriting, dealing, brokerage, investment and merchant banking; and
insurance underwriting, sales and brokerage activities. In order to become a
financial holding company, the bank holding company and all of its affiliated
depository institutions must be well-capitalized, well-managed, and have at
least a satisfactory Community Reinvestment Act rating.

                                       10

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         The Act provides that the states continue to have the authority to
regulate insurance activities, but prohibits the states in most instances from
preventing or significantly interfering with the ability of a bank, directly or
through an affiliate, to engage insurance sales, solicitations or
cross-marketing activities. Although the states generally must regulate bank
insurance activities in a nondiscriminatory manner, the states may continue to
adopt and enforce rules that specifically regulate bank insurance activities in
certain areas identified in the Act. The Act directs the federal bank regulatory
agencies to adopt insurance consumer protection regulations that apply to sales
practices, solicitations, advertising and disclosures.

         The Act adopts a system of functional regulation under which the
Federal Reserve Board is confirmed as the umbrella regulator for financial
holding companies, but financial holding company affiliates are to be
principally regulated by functional regulators such as the FDIC for state
nonmember bank affiliates, the Securities and Exchange Commission for securities
affiliates and state insurance regulators for insurance affiliates. The Act
repeals the broad exemption of banks from the definitions of "broker" and
"dealer" for purposes of the Securities Exchange Act of 1934, as amended, but
identifies a set of specific activities, including traditional bank trust and
fiduciary activities, in which a bank may engage without being deemed a
"broker", and a set of activities in which a bank may engage without being
deemed a "dealer". The Act also makes conforming changes in the definitions of
"broker" and "dealer" for purposes of the Investment Company Act of 1940, as
amended, and the Investment Advisers Act of 1940, as amended.

         The Act contains extensive customer privacy protection provisions.
Under these provisions, a financial institution must provide to its customers,
at the inception of the customer relationship and annually thereafter, the
institution's policies and procedures regarding the handling of customers'
nonpublic personal financial information. The Act provides that, except for
certain limited exceptions, an institution may not provide such personal
information to unaffiliated third parties unless the institution discloses to
the customer that such information may be so provided and the customer is given
the opportunity to opt out of such disclosure. An institution may not disclose
to a non-affiliated third party, other than to a consumer reporting agency,
customer account numbers or other similar account identifiers for marketing
purposes. The Act also provides that the states may adopt customer privacy
protections that are more strict than those contained in the Act. The Act also
makes a criminal offense, except in limited circumstances, obtaining or
attempting to obtain customer information of a financial nature by fraudulent or
deceptive means.

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, 2002, 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:

<TABLE>
<CAPTION>
Location                       Date Facility Opened     Lease Arrangements
--------                       --------------------     ------------------
<S>                                    <C>              <C>
Main Office:

1658 State Farm Boulevard              1996             Owned by Guaranty
Charlottesville, Virginia

Branch Offices:

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

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

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

Forest Lakes                           2001             Owned by Guaranty
3290 Worth Crossing
Charlottesville, Virginia
</TABLE>

         Guaranty believes that all of its properties are maintained in good
operating condition and are suitable and adequate for its operational needs.

                                       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 has been listed on the Nasdaq National Market
under the symbol "GSLC" since June 1997. 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

                                 Sales Price ($)
                                 ---------------

                                              High        Low     Dividends ($)
                                              ----        ---     -------------

Fiscal Year Ended December 31, 2000:
         1st quarter                          10.750      7.813        .06
         2nd quarter                           8.625      7.500        .06
         3rd quarter                           8.063      6.750         --
         4th quarter                           7.125      4.375         --

Fiscal Year Ended December 31, 2001:
         1st quarter                           9.000      5.000         --
         2nd quarter                           8.250      7.500         --
         3rd quarter                           8.500      7.270         --
         4th quarter                           9.000      7.500         --


         In October 2000, both Guaranty and the Bank entered into a written
agreement with the FRB-Richmond and the Bureau of Financial Institutions. Among
the restrictions included in the written agreement is a requirement that any
dividends paid or declared by either Guaranty or the Bank be approved by both
the FRB-Richmond and the Bureau of Financial Institutions. Following the
initiation of the written agreement, Guaranty's Board of Directors decided to
suspend dividend payments on Guaranty's Common Stock. The timing, amount and
payment of future dividends on Guaranty's Common Stock is at the discretion of
Guaranty's Board of Directors subject to the written approval by both the
FRB-Richmond and the Bureau of Financial Institutions 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.

                                       13

<PAGE>

         Guaranty is a legal entity separate and distinct from its subsidiaries,
and its revenues depend primarily on the payment of dividends from the Bank. As
previously stated, the Bank is currently prohibited from paying dividends to
Guaranty without the prior written consent of both the FRB-Richmond and the
Bureau of Financial Institutions.

         As of March 1, 2002, Guaranty had approximately 1,077 shareholders of
record.


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, 2001 and 2000, and for the years ended
December 31, 2001, 2000 and 1999. 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.

Overview

         Guaranty is headquartered in Charlottesville, Virginia and conducts
almost all of its operations through its subsidiary, Guaranty Bank. Guaranty
Bank is a community bank serving the Charlottesville and Harrisonburg markets.
Guaranty Bank operates eight branch locations, seven of which are in the
Charlottesville market. A branch location in the suburban Richmond market, which
opened in 1999, was operated for approximately seven months in 2001 prior to its
sale to another community bank.

         The past year has been a period of significant change for Guaranty.
Externally, the financial markets experienced eleven reductions in the Federal
Reserve's discount rate totaling 475 basis points. Such reductions were
unprecedented in the history of Guaranty and have negatively impacted short term
profitability due to the short term asset sensitivity of Guaranty's balance
sheet. The net interest margin was compressed throughout 2001 as interest rates
on earning assets fell faster than the corresponding decrease in interest rates
on deposits. Internally, Guaranty initiated a plan to reposition the company in
response to prior regulatory criticisms while modifying business practices to
react to falling interest rates and uncertain credit conditions. A new President
and Chief Executive Officer was hired in May 2001 to lead the effort to
reposition Guaranty to become a high performing community banking company.
Initially, management has focused on initiatives and opportunities that will
improve earnings. Among these are enhancing our mortgage banking business model,
gathering a larger market share of low cost deposits, strengthening our
management team, and managing targeted loan growth in the commercial and real
estate market segments. In light of uncertain economic conditions, significant
emphasis has been placed on managing the loan portfolio to maintain a high level
of asset quality while supporting customer needs.

         In October 2000, Guaranty and its subsidiary, Guaranty Bank (the Bank),
entered into a written agreement with the Federal Reserve Bank of Richmond and
the Bureau of Financial Institutions with respect to various operating policies
and procedures. As a result of the agreement, the Bank revised its
asset/liability management, liquidity, risk management, loan administration and
capital adequacy policies. Guaranty has made significant strides in addressing
all of the issues raised in the agreement. As a condition of the agreement, both
Guaranty and the Bank are restricted from paying or declaring dividends without
prior regulatory approval. Guaranty has suspended dividends to its common
shareholders. Guaranty is also prohibited from incurring any debt at the holding
company level. Guaranty does not have sufficient resources to make interest
payments on its subordinated debentures held by Guaranty Capital Trust I unless
the regulators approve dividend payments by the Bank to Guaranty. Thus far,
state and

                                       14

<PAGE>

federal regulators have approved dividend payments from the Bank to Guaranty
sufficient to make such interest payments. All interest payments have been made
on a timely basis. No other terms of the agreement are expected to restrict
Guaranty's operating plans for 2002.

         Guaranty's 2001 financial performance reflected a reduction in net
earnings and a planned reduction in total assets. The net result increased
regulatory capital ratios for both Guaranty and the Bank. This planned reduction
in total assets is indicative of Guaranty's emphasis changing from aggressive
growth to prudent management.

Net Income

         Net income for the year ended December 31, 2001, was $518,000 ($.26 per
diluted share), a $99,000 decrease from the net income reported for the prior
year. Decreased net income was due to a reduction in net interest income caused
by the impact of declining interest rates on a short term asset sensitive
balance sheet. Increases in operating expenses primarily related to severance
expenses arising from management changes also negatively impacted net income for
2001. These changes more than offset increased mortgage banking income and a
reduction in the provision for possible loan losses.

         Net income for the year ended December 31, 2000, was $607,000 or $.31
per diluted share. These earnings, an increase over 1999 earnings, were the
result of increased net interest income and deposit fees, which exceeded
increases in operating expenses and additional provisions for possible loan
losses. Additionally, net income in 2000 was not impacted by the losses on the
sale of investments, which negatively impacted the 1999 earnings.

         Net income for the year ended December 31, 1999 was $4,400, a 99.5%
decrease when compared to 1998 earnings of $1.0 million ($.68 per diluted
share). These decreased earnings were primarily a result of the sale of
approximately $13.0 million in long-term corporate bonds that 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 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 $7.9 million for the year ended December 31,
2001, a 19.4% decrease from $9.8 million in net interest income for the prior
year. The net interest margin for the year ended December 31, 2001, was 3.51%, a
48 basis point decline from 3.99% in the prior year. The net interest margin was
compressed throughout 2001 as interest rates on earning assets fell faster than
the corresponding decrease in interest rates paid on deposits. During the past
year, the yield on the loan portfolio fell by 125 basis points while the cost of
interest bearing deposits declined by 62 basis points. This difference is due to
the impact of loans with interest rates tied to the prime rate repricing
immediately with each rate reduction. In contrast, certificates of deposit are
generally issued with maturities of twelve months and the interest rate paid
usually does not adjust until maturity. Net interest income was also negatively
impacted by a reduction in average loans outstanding to $189.1 million in 2001
from $213.4 million during the prior year. If there are additional prime rate
decreases in 2002, the

                                       15

<PAGE>

net interest margin will be negatively impacted as the yield on interest earning
assets will generally fall faster than the cost of interest bearing liabilities.
Guaranty's net interest margin will be positively impacted by stable or rising
rates in 2002.

         Net interest income was $9.8 million for the year ended December 31,
2000, 26.5% greater than the $7.7 million reported for the year ended December
31, 1999. The improvement in net interest income reflects higher loan and
investment yields, higher average balances and an increasing gap between the
amount of earning assets and the amount of interest bearing liabilities. The net
interest margin increased due to Guaranty shifting its asset base into both
commercial and consumer loans and away from more conservatively priced
residential mortgage loans. The net interest margin for the year ended December
31, 2000, increased by 56 basis points to 3.99% as compared to the prior year
end. The increase was due to a 97 basis point increase in the yield on earning
assets, which exceeded the 54 basis point increase in the cost of interest
bearing liabilities.

         Net interest income was $7.7 million for the year ended December 31,
1999, 36.8% greater than the $5.7 million reported for 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 3.43% 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.

                                       16

<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,
-----------------------------------------------------------------------------------------------------------------------------------
                                                   2001                            2000                             1999
-----------------------------------------------------------------------------------------------------------------------------------
                                                 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>
(Dollars in thousands)
Assets
Interest earning assets:
   Securities                       $  28,303   $   1,855   6.55%   $  25,065   $   1,786    7.13%   $  32,278   $   2,157   6.68%
   Loans                              189,135      15,451   8.17%     213,353      20,103    9.42%     184,340      15,765   8.55%
   Interest bearing deposits
     in other banks                     7,381         336   4.55%       6,668         469    7.03%       8,928         450   5.04%
-----------------------------------------------------------------------------------------------------------------------------------
   Total interest-earning assets/
     total interest income            224,819      17,642   7.85%     245,086      22,358    9.12%     225,546      18,372   8.15%
-----------------------------------------------------------------------------------------------------------------------------------
   Noninterest earning assets:
     Cash and due from banks            8,134                           6,599                            5,484
     Premises and equipment             9,245                           9,454                            8,399
     Other assets                       4,504                           4,876                            5,256
     Less allowance for loan
       losses                          (2,523)                         (1,798)                          (1,122
-----------------------------------------------------------------------------------------------------------------------------------
   Total noninterest earning
     assets                            19,360                          19,131                           18,017
-----------------------------------------------------------------------------------------------------------------------------------
   Total Assets                     $ 244,179                       $ 264,217                        $ 243,563
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities and
   Stockholders' Equity
Interest bearing liabilities:
   Interest bearing deposits:
   Demand accounts                  $  23,344         243   1.04%   $  20,151         328    1.63%   $  21,528         388   1.80%
   MMDA accounts                       21,170         674   3.18%      21,883       1,000    4.57%      23,378       1,183   5.06%
   Savings                             11,643         195   1.67%      10,922         245    2.24%      10,968         253   2.31%
   Certificates of deposit            139,438       7,821   5.61%     149,787       8,949    5.97%     126,015       6,541   5.19%
-----------------------------------------------------------------------------------------------------------------------------------
   Total interest bearing
     deposits                         195,595       8,933   4.57%     202,743      10,522    5.19%     181,889       8,365   4.60%
-----------------------------------------------------------------------------------------------------------------------------------
   FHLB advances and other
     borrowings                        10,621         718   6.76%      28,791       1,950    6.77%      34,955       1,969   5.63%
   Bonds payable                          739         105  14.21%         881         105   11.92%       1,468         305  20.78%
-----------------------------------------------------------------------------------------------------------------------------------
   Total interest bearing
     liabilities/total interest
     expense                          206,955       9,756   4.71%     232,415      12,577    5.41%     218,312      10,639   4.87%
-----------------------------------------------------------------------------------------------------------------------------------
   Noninterest bearing liabilities:
   Demand deposits                     18,755                          14,409                           10,232
   Other liabilities                    2,259                           1,991                            3,583
-----------------------------------------------------------------------------------------------------------------------------------
     Total liabilities                227,969                         248,815                          232,127
-----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity                   16,210                          15,402                           11,436
-----------------------------------------------------------------------------------------------------------------------------------
   Total liabilities and
     Stockholders' equity           $ 244,179                       $ 264,217                        $ 243,563
-----------------------------------------------------------------------------------------------------------------------------------
Interest spread /1/                                         3.13%                            3.71%                           3.28%
Net interest income/net interest
   margin /2/                                   $   7,886   3.51%               $   9,781    3.99%               $   7,733   3.43%
-----------------------------------------------------------------------------------------------------------------------------------
</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.

                                       17

<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, 2001         Year Ended December 31, 2000
                                                             compared to                          compared to
                                                    Year Ended December 31, 2000         Year Ended December 31, 1999
                                                            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                         $    (143)   $     212    $     (69)   $     145    $     (516)   $     (371)
           Loans                                 (2,674)      (1,978)      (4,652)       1,604         2,734         4,338
           Interest bearing deposits
             in other banks                        (165)          32         (133)         178          (159)           19
         ------------------------------------------------------------------------------------------------------------------
               Total interest income             (2,982)      (1,734)      (4,716)       1,927         2,059         3,986
         Interest expense:
           Interest bearing deposits:
             Demand accounts                       (118)          33          (85)         (38)          (22)          (60)
             MMDA accounts                         (303)         (23)        (326)        (115)          (68)         (183)
             Savings                                (62)          12          (50)          (8)           --            (8)
             Certificates of deposit               (549)        (580)      (1,129)         983         1,425         2,408
         ------------------------------------------------------------------------------------------------------------------
               Total interest bearing deposits   (1,032)        (558)      (1,590)         822         1,335         2,157
             FHLB advances and other               (298)        (934)      (1,232)         398          (417)          (19)
             Bonds payable                           18          (18)          --         (130)          (70)         (200)
         ------------------------------------------------------------------------------------------------------------------
             Total interest expense              (1,312)      (1,510)      (2,822)       1,090           848         1,938
         ------------------------------------------------------------------------------------------------------------------
             Net interest income              $  (1,670)   $    (224)   $  (1,894)   $     837    $    1,211    $    2,048
         ------------------------------------------------------------------------------------------------------------------
</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, 2001, Guaranty had $38.8 million more liabilities than
assets that reprice within one year and therefore was in a one year
liability-sensitive position. A liability-sensitive position or a negative gap
will tend to positively impact net earnings in a period of falling interest
rates and negatively impact net earnings in a period of rising interest rates.
This liability-sensitive 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. However, with
respect to shorter time periods such as three months or less, Guaranty is in an
asset-sensitive position. In times of declining short term interest rates as
reflected by the Federal Reserve discount rate, Guaranty's net earnings will be
negatively impacted as reflected by the reductions in net interest income for
the year ended December 31, 2001. To decrease the gap between

                                       18

<PAGE>

interest-sensitive assets and liabilities, Guaranty is attempting to shift its
deposit mix to include a higher percentage of demand accounts and a lower
percentage of certificates of deposit.

         Guaranty has an Asset/Liability Committee ("ALCO"), which meets
regularly to discuss deposit pricing, changes in borrowed money, investment and
trading activity, loan sale activity, 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, investment and
trading activity, along with any other significant transactions are managed by
the President 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, 2001
                                                                Maturing or Repricing In:
-----------------------------------------------------------------------------------------------------
                                                    3 Months       4-12          1-5          Over 5
                                                    or less       Months        Years         Years
-----------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>           <C>           <C>
(Dollars in thousands)
Interest-sensitive assets:
  Loans                                            $  73,502    $  22,720     $  50,468     $  33,334
  Investments and mortgage-backed securities /1/          19           35           360        21,756
  Deposits at other institutions                       3,230           --            --            --
-----------------------------------------------------------------------------------------------------
  Total interest-sensitive assets                     76,751       22,755        50,828        55,090
-----------------------------------------------------------------------------------------------------
Cumulative interest-sensitive assets                  76,751       99,506       150,334       205,424
-----------------------------------------------------------------------------------------------------
Interest-sensitive liabilities:
  NOW accounts /2/                                        --           --            --        24,561
  Money market deposit accounts                       22,394           --            --            --
  Savings accounts                                    12,991           --            --            --
  Certificates of deposit                             33,956       67,962        15,750             8
  Borrowed money                                       1,000           --            --            --
  Convertible preferred securities                        --           --            --         6,013
  Bonds payable                                           17           31            96           486
-----------------------------------------------------------------------------------------------------
  Total interest-sensitive liabilities                70,358       67,993        15,846        31,068
-----------------------------------------------------------------------------------------------------
Cumulative interest-sensitive liabilities          $  70,358    $ 138,351     $ 154,197     $ 185,265
-----------------------------------------------------------------------------------------------------
Period gap                                         $   6,393    $ (45,238)    $  34,982     $  24,022
Cumulative gap                                         6,393      (38,845)       (3,863)       20,159
Ratio of cumulative interest-sensitive
  assets to interest-sensitive liabilities            109.09%       71.92%        97.49%       110.88%
Ratio of cumulative gap to total assets                 2.84%      (17.25%)       (1.72%)        8.95%
-----------------------------------------------------------------------------------------------------
</TABLE>
/1/ Amounts include Federal Home Loan Bank stock.
/2/ Guaranty 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 $3.6 million have fixed interest rates and $2.5
million have variable interest rates.

Investments

         Total investment securities increased 13.7% to $23.5 million at
December 31, 2001, from $20.7 million at December 31, 2000. In the available for
sale classification, Guaranty decreased its investment in corporate bonds from
$17.5 million to $12.6 million during the past year. In addition, Guaranty
increased its investment in medium term U.S. Government agency obligations by
$8.0 million. These changes resulted from management's efforts to reduce market
rate risk in Guaranty's balance sheet.

                                       19

<PAGE>

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

                                                                December 31,
                                               2001                 2000                1999
---------------------------------------------------------------------------------------------------
                                          Cost     Market      Cost     Market      Cost     Market
---------------------------------------------------------------------------------------------------
<S>                                     <C>       <C>        <C>       <C>        <C>       <C>
(Dollars in thousands)
Held-to-maturity
   Mortgage-backed securities           $   720   $   768    $   950   $   970    $ 1,086   $ 1,103
   Other                                    250       250        250       250        250       250
---------------------------------------------------------------------------------------------------
   Total held-to-maturity                   970     1,018      1,200     1,220      1,336     1,353
---------------------------------------------------------------------------------------------------

Available for sale
   Corporate bonds                       13,620    12,597     19,354    17,508     19,416    17,097
   U.S. Government Agency Obligations     8,000     7,970         --        --         --        --
   Mortgage-backed securities                --        --         --        --      4,898     4,780
---------------------------------------------------------------------------------------------------
   Total available for sale              21,620    20,567     19,354    17,508     24,314    21,877
---------------------------------------------------------------------------------------------------

Other
   Federal Reserve Bank &Other Stocks       422       422        422       422        320       320
   Federal Home Loan Bank Stock           1,550     1,550      1,550     1,550      1,500     1,500
---------------------------------------------------------------------------------------------------
   Total                                $24,562   $23,557    $22,526   $20,700    $27,470   $25,050
---------------------------------------------------------------------------------------------------
</TABLE>


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

                                                                December 31,
                                               2001                 2000                 1999
----------------------------------------------------------------------------------------------------
                                         Book       % of      Book       % of      Book       % of
                                         Value      Total     Value      Total     Value      Total
----------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>       <C>        <C>       <C>        <C>
(Dollars in thousands)
Investment securities:
   FHLMC mortgage-backed securities     $   720      3.06%   $   950      4.59%   $ 1,086      4.34%
   FNMA mortgage-backed securities           --        --         --        --      4,781     19.10
   Corporate bonds                       12,597     53.58     17,508     84.66     17,096     68.29
   Treasury and agency notes              8,220     34.97        250      1.21        250      1.00
   FHLB stock                             1,550      6.59      1,550      7.50      1,500      5.99
   Other                                    422      1.80        422      2.04        320      1.28
----------------------------------------------------------------------------------------------------
Total Investment securities             $23,509    100.00%   $20,680    100.00%   $25,033    100.00%
----------------------------------------------------------------------------------------------------
</TABLE>

                                       20

<PAGE>

         The following table indicates the increased return experienced by
Guaranty by lengthening the maturity of its investment portfolio. Securities
with maturities greater than ten years total $10.6 million and have an average
yield greater than 7.30%. The investment portfolio is initially managed for
proper matching with interest rate risk guidelines and then for investment
performance.
<TABLE>
<CAPTION>

                                Maturity Distribution and Yields of Investment Securities
                                                    December 31, 2001

                                   Due in 1 year    Due after 1 year  Due after 5 years
                                      or less       through 5 years   through 10 years  Due after 10 years     Total
-------------------------------------------------------------------------------------------------------------------------
                                   Amount  Yield     Amount  Yield     Amount  Yield     Amount  Yield     Amount  Yield
-------------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>
(Dollars in thousands)

Securities held for investment:
   U.S. Government securities     $    --     --    $   250   4.07%   $    --     --    $    --     --    $   250   4.07%
   Mortgage backed securities          55   8.22%       110   8.51%       201   8.51%       355   8.52%       720   8.49%
-------------------------------------------------------------------------------------------------------------------------
   Total                               55   8.22%       360   5.42%       201   8.51%       355   8.52%       970   7.35%
-------------------------------------------------------------------------------------------------------------------------
Securities held for sale /1/:
   U.S. Government securities          --     --         --     --      7,969   5.07%        --     --      7,969   5.07%
   Corporate securities                --     --         --     --      2,400   6.23%    10,197   7.27%    12,597   7.08%
-------------------------------------------------------------------------------------------------------------------------
   Total                               --     --         --     --     10,369   5.34%    10,197   7.27%    20,566   6.32%
-------------------------------------------------------------------------------------------------------------------------
Total securities                  $    55   8.22%   $   360   5.42%   $10,570   5.40%   $10,552   7.31%   $21,536   6.36%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

/1/  Excludes Federal Reserve Stock of $352,250, Federal Home Loan Bank Stock of
     $1,550,000 and Community Bankers Bank Stock of $70,000.

                                       21

<PAGE>

Loans

         Net loans consist of total loans minus undisbursed loan funds, deferred
loan fees and the allowance for loan losses. Net loans were $177.6 million at
December 31, 2001, an 11.9% decline from December 31, 2000. During 2001, the
size of Guaranty's loan portfolio decreased as a result of higher credit
standards in light of an uncertain economy and an effort to reduce its lending
concentration in residential construction and land development loans and
speculative residential construction loans. Net loans declined to $201.6 million
at December 31, 2000, from $205.4 million at December 31, 1999, as Guaranty
controlled its growth to increase its regulatory capital ratios. Net loans were
$205.4 million at December 31, 1999, an increase of 26.4% over the balance at
December 31, 1998.

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

                                       Loan Portfolio

                                                        December 31,
--------------------------------------------------------------------------------------------
                                    2001         2000         1999        1998        1997
--------------------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>         <C>         <C>
(Dollars in thousands)
Mortgage Loans:
   Residential                   $  39,864    $  54,911    $  62,796   $  66,369   $  66,035
   Commercial                       16,277        3,434        1,179       2,504      16,641
   Construction and land loans      36,307       59,363       70,009      50,286      11,511
--------------------------------------------------------------------------------------------
   Total real estate                92,448      117,708      133,984     119,159      94,187
Commercial business loans           66,603       59,120       55,698      34,388          --
Consumer loans                      20,973       27,190       16,960       9,630       6,705
--------------------------------------------------------------------------------------------
   Total loans receivable          180,024      204,018      206,642     163,177     100,892
--------------------------------------------------------------------------------------------
Adjustments:
   Deferred fees (costs)               (67)         (27)          40         113         282
   Allowance for losses              2,512        2,396        1,203       1,002         935
--------------------------------------------------------------------------------------------
   Total net items                   2,445        2,369        1,243       1,115       1,217
--------------------------------------------------------------------------------------------
   Total loans receivable, net   $ 177,579    $ 201,649    $ 205,399   $ 162,062   $  99,675
--------------------------------------------------------------------------------------------
</TABLE>

         The changes in Guaranty's loan portfolio over the past five years
represent the evolution from a savings association to a full service commercial
bank. Commercial business lending began in 1998 and now comprises over 45% of
total loans outstanding. During this same time period, residential mortgage
loans outstanding have decreased from $66.0 million to $39.9 million. Presently,
all residential mortgage loans originated in the mortgage banking business unit
are sold on a servicing released basis. Construction and land development loans
declined in 2001 as Guaranty reduced its loan concentration in speculative real
estate lending in 2001 but continues to be active in real estate finance.

                                       22

<PAGE>

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

                        Fixed Rate and Adjustable Rate Loans by Amount

                                                            December 31,
----------------------------------------------------------------------------------------------
                                      2001         2000         1999        1998        1997
----------------------------------------------------------------------------------------------
<S>                                <C>          <C>          <C>         <C>         <C>
(Dollars in thousands)
Fixed-Rate Loans:
   Real Estate
     Residential                   $  27,200    $  20,403    $  18,277   $  20,206   $  26,514
     Commercial                           --           --        1,179       2,504          --
     Construction and land loans          --           --           --          --          37
----------------------------------------------------------------------------------------------
   Total real estate                  27,200       20,403       19,456      22,710      26,551
----------------------------------------------------------------------------------------------
Commercial business loans             15,427       12,891       13,678       7,098          --
Consumer Loans                         3,429        3,832        2,825         242       3,099
----------------------------------------------------------------------------------------------
   Total fixed-rate loans             46,056       37,126       35,959      30,050      29,650
----------------------------------------------------------------------------------------------

Adjustable-Rate Loans:
   Real Estate
   Residential                        12,664       34,508       44,519      46,163      39,521
   Commercial                         16,277        3,434       11,140      12,853      16,641
   Construction and land loans        36,307       59,363       70,009      50,286      11,474
----------------------------------------------------------------------------------------------
   Total real estate                  65,248       97,305      125,668     109,302      67,636
Commercial business loans             51,176       46,229       30,880      14,437          --
Consumer loans                        17,544       23,358       14,135       9,388       3,606
----------------------------------------------------------------------------------------------
   Total adjustable-rate loans       133,968      166,892      170,683     133,127      71,242
----------------------------------------------------------------------------------------------
   Total loans receivable            180,024      204,018      206,642     163,177     100,892
----------------------------------------------------------------------------------------------

Less:
   Deferred fees (costs)                 (67)         (27)          40         113         282
   Allowances for losses               2,512        2,396        1,203       1,002         935
----------------------------------------------------------------------------------------------
   Total net items                     2,445        2,369        1,243       1,115       1,217
----------------------------------------------------------------------------------------------
   Total loans receivable, net     $ 177,579    $ 201,649    $ 205,399   $ 162,062   $  99,675
----------------------------------------------------------------------------------------------
</TABLE>

         The following table presents the remaining maturities of selected
categories of Guaranty's loan portfolio at December 31, 2001.

                Remaining Maturities of Selected Loan Categories
                                December 31, 2001

                                         Commercial, Financial    Real Estate
                                           and Agricultural       Construction
            ------------------------------------------------------------------
            (Dollars in thousands)
            Within 1 year                      $ 31,358             $ 21,968
            ------------------------------------------------------------------
            Variable Rate:
               1 to 5 years                      17,704                7,167
               After 5 years                     61,381                1,045
            ------------------------------------------------------------------
            Total                                79,085                8,212
            Fixed Rate:
               1 to 5 years                      13,022                   --
               After 5 years                     26,379                   --
            ------------------------------------------------------------------
            Total                                39,401                   --
            ------------------------------------------------------------------
            Total                              $149,844             $ 30,180
            ------------------------------------------------------------------

                                       23

<PAGE>

         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

General

         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,
2001, Guaranty had classified $6.6 million of its loans as substandard. No loans
were classified as doubtful or loss at December 31, 2001. Most of Guaranty's
assets that have been classified are not included in the table of non-performing
assets set forth below because many loans are classified as substandard based on
certain criteria or previous credit problems but are currently performing.

         Unless well secured and in the process of collection, Guaranty places
loans on a non-accrual 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 non-performing assets
at the dates indicated.
<TABLE>
<CAPTION>

                                                        December 31,
-------------------------------------------------------------------------------------
                                        2001      2000      1999      1998      1997
-------------------------------------------------------------------------------------
<S>                                    <C>       <C>       <C>       <C>       <C>
(Dollars in thousands)
Non-accrual loans                      $  187    $  238    $1,310    $1,686    $1,436
Restructured loans                         --        --        --        --        --
-------------------------------------------------------------------------------------
   Total non-performing loans             187       238     1,310     1,686     1,436
-------------------------------------------------------------------------------------
Foreclosed assets                         764     1,301       843       488        65
-------------------------------------------------------------------------------------
   Total non-performing assets         $  951    $1,539    $2,153    $2,174    $1,501
-------------------------------------------------------------------------------------
Loans past due 90 or more days and
   accruing interest                   $  103    $1,587    $   93    $  106    $  189
Non-performing loans to total loans,
   at period end                         0.10%     0.12%     0.62%     0.97%     1.42%
Non-performing assets to period end
   total loans and foreclosed assets     0.53%     0.76%     1.02%     1.25%     1.49%
</TABLE>

                                       24

<PAGE>

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

         Guaranty provides valuation allowances for anticipated losses on loans
when its management determines that full repayment by the borrower is unlikely
and 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, risk rating and type
of loan. A loss experience percentage is established for each risk rating and
loan type and is reviewed quarterly. Each quarter the loss percentage is applied
to the portfolio, by risk rating and loan 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.

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

                                                  Year Ended December 31,
------------------------------------------------------------------------------------------
                                    2001        2000        1999        1998        1997
------------------------------------------------------------------------------------------
<S>                                <C>         <C>         <C>         <C>         <C>
(Dollars in thousands)
Balance at beginning of period     $2,396      $1,203      $1,002      $  935      $  870
Provision charged to operations       333       1,505         486         184         122
Charge-offs:
   Real estate                         66         229         122         120          57
   Consumer                            15          72          --          --          --
   Commercial                         145          34         165          --          --
Recoveries:
   Real estate                          1          20          --           3          --
   Consumer                            --           2           2          --          --
   Commercial                           8           1          --          --          --
------------------------------------------------------------------------------------------
Net Charge-offs                       217         312         285         117          57
------------------------------------------------------------------------------------------
Balance, end of period             $2,512      $2,396      $1,203      $1,002      $  935
------------------------------------------------------------------------------------------

Allowance for loan losses to
   period end total loans            1.40%       1.17%       0.57%       0.58%       0.93%
Allowance for loan losses to
   nonaccrual loans              1,343.32%   1,006.72%      91.83%      59.43%      67.20%
Net charge-offs to average loans     0.12%       0.15%       0.15%       0.10%       0.06%
</TABLE>

                                       25

<PAGE>

Provision for loan losses

         For the years ended December 31, 2001, 2000 and 1999, the provision for
loan losses was $333,000, $1.5 million and $486,000, respectively. The provision
for loan losses decreased in the year ended December 31, 2001, as Guaranty's
loan portfolio decreased and its allowance for possible losses increased as a
percentage of loans outstanding. The provision for loan losses increased during
the prior two years due to the growth of Guaranty's loan portfolio and
diversification into commercial business, and construction and land development
lending, which carries a higher risk of loss than residential mortgage lending.

         Guaranty monitors its loan loss allowance quarterly 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 comparison of the allocation of the allowance for loan losses in
dollars by loan category to the percentage of the loan portfolio represented by
each category is provided in the following table. Because all of these factors
are subject to change, the allocation is not necessarily predictive of future
loan losses in the indicated categories.
<TABLE>
<CAPTION>

                                                       December 31,
------------------------------------------------------------------------------------------------
                                   2001                    2000                    1999
------------------------------------------------------------------------------------------------
                                       Ratio of                Ratio of                Ratio of
                                       Loans to                Loans to                Loans to
                                     Total Gross             Total Gross             Total Gross
                           Allowance    Loans      Allowance    Loans      Allowance    Loans
------------------------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>         <C>         <C>         <C>
(Dollars in thousands)
Residential real estate     $   50       22.1%      $  109       26.9%      $   78       29.8%
Construction and land          611       20.2        1,056       29.1          383       31.4
Commercial                   1,165       46.0          861       30.7          575       30.7
Consumer and other loans       105       11.7          137       13.3          167        8.1
Unallocated                    581         --          233         --           --         --
------------------------------------------------------------------------------------------------
   Total                    $2,512      100.0%      $2,396      100.0%      $1,203      100.0%
------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

                                                         December 31,
------------------------------------------------------------------------------------------
                                          1998                             1997
------------------------------------------------------------------------------------------
                                                 Ratio of                        Ratio of
                                                 Loans to                        Loans to
                                               Total Gross                     Total Gross
                                 Allowance        Loans          Allowance        Loans
------------------------------------------------------------------------------------------
<S>                               <C>             <C>             <C>             <C>
(Dollars in thousands)
Residential real estate           $  101           38.4%          $  477           61.4%
Construction and land                384           34.7               52           17.0
Commercial                           402           21.4              212           15.4
Consumer and other loans             115            5.5               43            6.2
Unallocated                           --             --              151             --
------------------------------------------------------------------------------------------
  Total                           $1,002          100.0%          $  935          100.0%
------------------------------------------------------------------------------------------
</TABLE>

                                       26

<PAGE>

Non-Interest Income

         Guaranty's non-interest income consists primarily of mortgage banking
income, loan fees and servicing income, gains and losses on sale of investment
securities, fees and service charges on deposit accounts and investment sales
commissions.

         The following table presents information on the sources and amounts of
non-interest income.

                                                  Year Ended December 31,
--------------------------------------------------------------------------------
Non Interest Income                         2001            2000          1999
--------------------------------------------------------------------------------
(Dollars in thousands)
Mortgage banking income                   $ 1,094         $   213        $  628
Service charges on deposit accounts           785             718           578
Late charges and other consumer fees          310             238           105
Investment sales commissions                  254             195           140
Mortgage servicing income (loss), net        (154)             59             3
Investment gains (losses)                       3             (76)       (1,498)
Other                                          98              93           169
--------------------------------------------------------------------------------
  Total                                   $ 2,390         $ 1,440       $   125
--------------------------------------------------------------------------------


         Non-interest income increased by $950,000 to $2.4 million for the year
ended December 31, 2001. The increase in non-interest income for the current
year was due primarily to an increase in income from Guaranty's mortgage banking
unit resulting from an increase in sales of residential mortgage loans to $63.5
million from $39.8 million in the prior year. In mid-2001, Guaranty revised its
mortgage banking business model and as a result sells all originated residential
mortgage loans on a servicing released basis. In addition to sales to the
Federal Home Loan Mortgage Corporation. Guaranty has entered into correspondent
mortgage banking relationships with several regional banking companies.
Residential mortgage loan originations for the year ended December 31, 2001,
increased to $70.7 million from $40.1 million in the prior year. The increase
was due to the employment of an additional mortgage loan originator in 2001 and
the impact of declining interest rates. Service charges on deposit accounts
increased by 9.3% to $785,000 for the most recent year due to increased volume
of transaction accounts.

         Non-interest income increased by $1.3 million to $1.4 million for the
year ended December 31, 2000. The increase in non-interest income for this year
was due to the elimination of the losses on securities sales. 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 $13.0 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.

         As part of its revised mortgage banking business model, Guaranty sold
its residential mortgage loan servicing for others portfolio in 2001 for
approximately $900,000. The transfer of the loan servicing, which was completed
in October 2001, resulted in a gain of approximately $9,000. With the present
practice of selling all residential mortgage loans on a servicing released
basis, Guaranty will not accumulate mortgage loan servicing rights 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 creating volatility in net earnings. 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 exit the
mortgage loan servicing business.

                                       27

<PAGE>

         Prior to 2000, Guaranty traded treasury securities in an effort to take
advantage of short-term movements in market interest rates. Guaranty did not buy
or sell any trading account securities in 2001 or 2000. Sales of trading account
securities totaled $30.8 million during the year ended December 31, 1999.
Guaranty experienced losses of $304,000 on such sales for the year ended
December 31, 1999.

Non-Interest Expenses

         Non-interest expenses increased by 4.1% to $9.2 million for the year
ended December 31, 2001. The majority of the increase was related to severance
and recruiting expenses resulting from management changes in 2001. For the first
seven months of 2001, Guaranty operated nine retail banking branches due to the
opening of the Forest Lakes branch in northern Albemarle County. The retail
banking branch in suburban Richmond was sold in July 2001. Guaranty incurred
approximately $152,000 in expenses, consisting primarily of personnel and
occupancy expenses prior to its sale. Non-interest expenses increased by
approximately $1.4 million to $8.8 million for the year ended December 31, 2000.
The increase was in all categories and reflected the continued growth of
Guaranty. 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 that year.

         The following table summarizes the main components of non-interest
expense.


                                                Year Ended December 31,
-------------------------------------------------------------------------------
Non Interest Expense                     2001             2000            1999
-------------------------------------------------------------------------------
(Dollars in thousands)
Personnel                               $4,811           $4,227          $3,753
Occupancy                                1,412            1,353           1,129
Data Processing                          1,037              926             819
Marketing                                  211              317             286
Professional fees                          385              423             185
Other                                    1,301            1,549           1,193
-------------------------------------------------------------------------------
  Total                                 $9,157           $8,795          $7,365
-------------------------------------------------------------------------------


Income Taxes

         Income tax expense for the years ended December 31, 2001, 2000 and
1999, was $267,000, $313,000 and $2,300, respectively. The decreases and
increases are a direct result of earnings levels for the respective year-ends.
The effective income tax rate was 34.0% for each year.

                                       28

<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 Federal Home Loan Bank
("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, 2001, deposits were $200.6 million, a 7.6% decrease
from $217.0 million at December 31, 2000. The decrease in deposits corresponds
with the decrease in the loan portfolio in 2001. In order to reduce the overall
cost of funds and reduce Guaranty's reliance on high cost time deposits and
short term borrowings as a funding source, management continues to direct
extensive efforts towards attracting lower cost transaction accounts. During
2001, Guaranty increased its non-interest bearing demand balances by 25.3% to
$22.1 million and its interest bearing demand balances by 11.1% to $25.5
million. However, there is no assurance that these efforts will continue to be
successful, or if successful, will reduce the Guaranty's reliance on time
deposits and short term borrowings. The financial markets were affected by
eleven short-term interest rate reductions totaling 475 basis points in 2001.
Current rates offered by Guaranty on certificates of deposit are substantially
below those offered a year ago. The majority of certificates of deposit are
initially issued with a one year maturity. As these certificates of deposit
continue to mature and reprice, Guaranty's interest expense will decrease and
its net interest income will increase.

         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,                                  2001           2000          1999
--------------------------------------------------------------------------------
(Dollars in thousands)
Statement savings account                  $ 12,992       $ 10,319      $ 11,203
Demand deposit accounts                      47,570         40,879        30,206
Money market accounts                        22,394         18,893        27,878
30-to-180-day certificates                    1,427          4,613         3,250
Seven to eleven month certificates            6,404         37,027            --
One-to-five year fixed-rate certificates    105,608         98,540       119,350
Eighteen-month prime rate certificates        4,237          6,773         7,708
--------------------------------------------------------------------------------
  Total                                    $200,632       $217,044      $199,595
--------------------------------------------------------------------------------

                                       29

<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,                          2001                      2000                    1999
-----------------------------------------------------------------------------------------------------------------
                                                      Average                   Average                   Average
                                        Average        Rate       Average        Rate      Average         Rate
                                        Balance        Paid       Balance        Paid      Balance         Paid
-----------------------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>       <C>             <C>       <C>             <C>
Non-interest bearing demand deposits   $ 18,755        0.00%     $ 14,409        0.00%     $ 10,232        0.00%
Interest bearing demand deposits         44,514        2.06%       42,034        3.16%       44,906        3.50%
Savings deposits                         11,643        1.67%       10,922        2.24%       10,968        2.31%
Time deposits                           139,438        5.61%      149,787        5.97%      126,015        5.19%
-----------------------------------------------------------------------------------------------------------------
Total deposits                         $214,350        4.17%     $217,152        4.84%     $192,121        4.35%
-----------------------------------------------------------------------------------------------------------------
</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,                 2001             2000            1999
--------------------------------------------------------------------------------
(Dollars in thousands)
Opening balance                       $217,044         $199,595        $172,805
Net deposits                           (25,345)           6,927          18,425
Interest credited                        8,933           10,522           8,365
--------------------------------------------------------------------------------
Ending balance                        $200,632         $217,044        $199,595
--------------------------------------------------------------------------------
Net increase (decrease)               $(16,412)        $ 17,449        $ 26,790
Percent increase (decrease)              (7.56%)           8.74%          15.50%
--------------------------------------------------------------------------------


         The following table indicates the amount of Guaranty's certificates of
deposit by time remaining until maturity as of December 31, 2001.
<TABLE>
<CAPTION>

                                                                        Maturity
----------------------------------------------------------------------------------------------------------
                                              3 Months     Over 3 to    Over 6 to      Over
                                              or less      6 months     12 months    12 months      Total
----------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>           <C>          <C>         <C>
(Dollars in thousands)
Certificates of deposit less than $100,000    $29,155      $18,321       $37,245      $12,366     $ 97,087
Certificates of deposit of $100,000 or more     8,221        4,356         6,062        1,950       20,589
----------------------------------------------------------------------------------------------------------
Total of certificates of deposits             $37,376      $22,677       $43,307      $14,316     $117,676
----------------------------------------------------------------------------------------------------------
</TABLE>

                                       30

<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 the size of
the advances and repayment provisions. The advances are collateralized by
Guaranty's investment in FHLB 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, 2001, Guaranty had
$1.0 million outstanding to the FHLB compared to $14.0 million and $20.0 million
outstanding at the end of the prior two years, respectively.

         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, 2001 and 2000, Guaranty did not have any amount outstanding in
securities sold under agreement to repurchase, as compared to $16.6 million at
December 31, 1999.

         Guaranty uses borrowings to supplement deposits when they are available
at a lower overall cost to Guaranty or they 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,                 2001                     2000                     1999
-------------------------------------------------------------------------------------------------------
<S>                             <C>   <C>     <C>        <C>   <C>      <C>        <C>  <C>     <C>
(Dollars in thousands)
Maximum Balance:
   FHLB advances                      $18,000                  $31,000                  $30,000
   Securities sold under
     agreements to repurchase              --                   16,684                   16,650
-------------------------------------------------------------------------------------------------------
                                             Weighted                  Weighted                Weighted
                                Average      Average     Average       Average     Average     Average
                                Balance       Rate       Balance        Rate       Balance      Rate
-------------------------------------------------------------------------------------------------------
  FHLB advances                 $4,608        5.14%      $18,147        6.68%      $26,226      4.88%
  Securities sold under
    agreements to repurchase        --          --         4,265        6.39%        9,387      5.10%
-------------------------------------------------------------------------------------------------------
</TABLE>


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

Year Ended December 31,                    2001           2000           1999
-------------------------------------------------------------------------------
(Dollars in thousands)
FHLB advances                             $1,000        $14,000        $20,000
Securities sold under agreements
  to repurchase                               --             --         16,650
-------------------------------------------------------------------------------
   Total short-term borrowings            $1,000        $14,000        $36,650
-------------------------------------------------------------------------------
Weighted average interest rate of
  short-term FHLB advances                  2.13%          6.35%          5.57%
Weighted average interest rate of
  securities sold under agreements to
  repurchase                                  --             --           6.14%
-------------------------------------------------------------------------------

                                       31

<PAGE>

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, loan
sales and prepayments and maturities of outstanding loans and investments. 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 $12.4 million at December
31, 2001. Financing activities reduced cash and cash equivalents by
approximately $22.3 million in 2001 due to decreases in deposits and repayment
of advances from the FHLB. Approximately $5.8 million was absorbed by operating
activities, which was primarily a result of the origination of $70.7 million in
residential mortgage loans held for sale that were offset by proceeds from the
sale of residential mortgage loans totaling $63.5 million. In addition,
investing activities provided approximately $24.9 million that was primarily a
result of a net decrease in loans of $27.7 million that was slightly offset by
the net purchase of $2.3 million in investments available for sale.

         At December 31, 2000, cash and cash equivalents were approximately
$15.6 million. Financing activities reduced cash and cash equivalents by
approximately $6.1 million during 2000. This amount represents the combination
of the net decrease in advances from the FHLB of $6.0 million, a decrease of
$16.7 million in securities sold under agreements to repurchase and the growth
in deposits of $17.1 million. Approximately $353,000 in dividends to common
shareholders were paid during 2000. Daily operating activities provided $3.4
million in cash and cash equivalents. Investing activities provided an
additional $5.6 million in cash and cash equivalents which consisted mainly of
the sale of $4.8 million in securities and a net decrease in the loan portfolio
of $2.6 million. This additional cash flow was used to invest in office
properties and equipment (primarily for the new Forest Lakes branch) of $1.3
million, and $453,000 in originated mortgage servicing rights.

         Guaranty uses its sources of funds primarily to meet operating needs,
to pay deposit withdrawals and fund loan commitments. At December 31, 2001,
total approved loan commitments were $7.3 million. In addition, at December 31,
2001, commitments under unused lines of credit were $38.4 million. Certificates
of deposit scheduled to mature in one year or less at December 31, 2001 totaled
$101.9 million. Based on prior results, management believes that a significant
portion of maturing deposits will remain with Guaranty.

         Management intends to fund anticipated loan closings and operating
needs during 2002 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.

                                       32

<PAGE>

         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.

         Guaranty and the Bank are subject to regulatory capital requirements of
the Federal Reserve. At December 31, 2001, Guaranty and the Bank exceeded all
such regulatory capital requirements as shown in the following table.

                                                        December 31, 2001
                                              Guaranty Financial     Guaranty
                                                 Corporation           Bank
------------------------------------------------------------------------------
(Dollars in thousands)
Tier 1 Capital:
  Common stock                                    $  2,452           $  2,000
  Capital surplus                                    8,953              9,742
  Cumulative preferred securities /2/                5,592                 --
  Retained earnings                                  5,369             10,800
------------------------------------------------------------------------------
   Total Tier 1 Capital                             22,366             22,542
------------------------------------------------------------------------------

Tier 2 Capital:
  Allowance for loan losses /1/                      2,276              2,276
  Cumulative preferred securities                      420                 --
------------------------------------------------------------------------------
   Total Tier 2 Capital                              2,696              2,276
------------------------------------------------------------------------------
     Total Risk Based Capital                     $ 25,062           $ 24,818
------------------------------------------------------------------------------

Risk Weighted Assets                              $182,004           $181,950

Capital Ratios:
  Tier 1 Risk-based                                  12.29%             12.39%
  Total Risk-based                                   13.77%             13.64%
  Tier 1 Capital to average adjusted total assets     9.69%              9.77%
------------------------------------------------------------------------------

/1/ Limited to 1.25% of risk weighted assets.
/2/ Limited to 1/3 of core capital.


Impact of Inflation, 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.

                                       33

<PAGE>

Recent Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133, as amended by SFAS
137 and 138, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS 133 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. The adoption of SFAS 133 did not have an
effect on Guaranty's financial statements.

         In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations", which was effective
July 1, 2001. SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests methods. Guaranty believes the adoption of SFAS 141 will
not have an effect on Guaranty's financial statements.

         In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is
effective January 1, 2002. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles
as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires a transitional
goodwill impairment test six months from the date of adoption and further
requires an evaluation of the carrying value of goodwill for impairment annually
thereafter. Guaranty believes the adoption of SFAS 142 will not have an effect
on Guaranty's financial statements.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations and Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". This statement also amends ARB No. 51, "Consolidated Financial
Statements", to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. This statement also broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS 144 is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal years. Guaranty believes the
adoption of SFAS 144 will not have a material effect on Guaranty's financial
statements.

                                       34

<PAGE>

         On July 6, 2001, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 102 ("SAB 102"), "Selected Loan Loss Allowance
Methodology and Documentation Issues". The bulletin expresses the SEC's views on
the development, documentation and application of a systematic methodology for
determining allowances for loan and lease losses in accordance with generally
accepted accounting principles. This includes for each period reported the
"books and records of the registrants engaged in lending activities include
documentation of: (a) systematic methodology to be employed each period in
determining the amount of loan losses to be reported, and (b) rationale
supporting each period's determination that the amounts reported were adequate."
Management believes that its documentation and methodologies are compliant with
SAB 102.

Subsidiary Activities

         Guaranty 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 $53,000, $42,000 and $2,400 for the years ended December 31,
2001, 2000 and 1999, respectively.

         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, 2001, 2000 and 1999,
amortization expense was $36,000, $21,000 and $156,000, respectively. The
amortization of the REMIC expenses is treated as interest expense.

Forward Looking Statements

         The Company cautions readers that certain statements in this annual
report with respect to Guaranty's future operations and business prospects are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are generally identified by phrases such as "Guaranty expects,"
"Guaranty believes" or words of similar import. Such forward-looking statements
involve known and unknown risks including, but not limited to, changes in
general economic and business conditions, interest rate fluctuations,
competition within and from outside the banking industry, new products and
services in the banking industry, risks inherent in making loans such as
repayment risks and fluctuating collateral values, changing trends in customer
profiles and changes in laws and regulations applicable to Guaranty. Although
Guaranty believes that its expectations with respect to the forward-looking
statements are based upon reliable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results, performance or achievements of Guaranty will not differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements.

                                       35

<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, 2001 and 2000
         Consolidated Statements of Operations for the years ended December 31,
            2001, 2000 and 1999
         Consolidated Statements of Comprehensive Income (Loss) for the years
            ended December 31, 2001, 2000 and 1999
         Consolidated Statements of Stockholders' Equity for the years ended
            December 31, 2001, 2000 and 1999
         Consolidated Statements of Cash Flows for the years ended December 31,
            2001, 2000 and 1999
         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
2002 Annual Meeting of Shareholders (the "2002 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 2002 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 2002
Proxy Statement is incorporated by reference.

                                       36

<PAGE>

Item 12.          Certain Relationships and Related Transactions

         Information set forth under the heading "Transactions with Management"
in the 2002 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 (restated in electronic format), attached as
                           Exhibit 3.1 to Guaranty's Annual Report on Form
                           10-KSB for the year ended December 31, 1997,
                           incorporated herein by reference.

                  3.2      Bylaws of Guaranty, attached as Exhibit 3.1 to
                           Guaranty'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 Guaranty's
                           definitive Proxy Statement for the 1998 Annual
                           Meeting of Shareholders, incorporated herein by
                           reference.

                  10.2     Employment Agreement, dated as of May 10, 2001, by
                           and between Guaranty and William E. Doyle, Jr.,
                           attached as Exhibit 10.1 to Guaranty's Quarterly
                           Report on Form 10-QSB for the period ended June 30,
                           2001, incorporated herein by reference.

                  21       Subsidiaries of Guaranty.


         (b)      Reports on Form 8-K

                  No reports on Form 8-K were filed during the quarter ended
December 31, 2001.

                                       37

<PAGE>

                            Guaranty Financial Corporation
                                          and Subsidiaries
















                                               Consolidated Financial Statements
                                            As of December 31, 2001 and 2000 and
                            For the Years Ended December 31, 2001, 2000 and 1999



<PAGE>


                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                                        Contents

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


     Independent Auditors' Report                                              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 - 18

     Notes to Consolidated Financial Statements                          19 - 39


                                                                               2

<PAGE>

                        [LETTERHEAD OF BDO SEIDMAN, LLP]


Independent Auditors' Report



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, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.




                                                            /s/ BDO Seidman, LLP

Richmond, Virginia
January 18, 2002


                                                                               2

<PAGE>

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

December 31,                                               2001            2000
-------------------------------------------------------------------------------

     Assets

Cash and cash equivalents (including interest
   bearing deposits of approximately
   $2,465,000 and $5,158,000)                      $ 12,437,293    $ 15,550,212
Investment securities (Note 1)
   Held-to-maturity                                     969,989       1,199,609
   Available for sale                                20,988,725      17,930,719
Investment in Federal Home Loan Bank
   stock, at cost                                     1,550,000       1,550,000
Loans receivable, net (Notes 2 and 10)              177,578,914     201,648,862
Accrued interest receivable                           1,245,266       2,078,691
Real estate owned                                       763,873       1,301,277
Office properties and equipment, net (Note 3)         8,109,789       9,706,786
Mortgage servicing rights (Note 2)                           --       1,020,982
Other assets (Note 9)                                 1,522,512       2,067,367
-------------------------------------------------------------------------------







                                                   $225,166,361    $254,054,505
===============================================================================


                                                                               3

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                     Consolidated Balance Sheets



================================================================================
December 31,                                               2001            2000
--------------------------------------------------------------------------------

     Liabilities and Stockholders' Equity

Liabilities
   Deposits (Note 4)                              $ 200,631,703   $ 217,043,695
   Advances from Federal Home Loan Bank
     (Note 8)                                         1,000,000      14,000,000
   Bonds payable (Notes 1 and 6)                        595,374         792,153
   Accrued interest payable                             137,491         393,787
   Prepayments by borrowers for taxes and
     insurance                                          164,662         263,973
   Other liabilities                                    545,113         510,227
-------------------------------------------------------------------------------

Total liabilities                                   203,074,343     233,003,835
-------------------------------------------------------------------------------

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

Convertible preferred securities (Notes 12 and 13)    6,012,500       6,012,500
-------------------------------------------------------------------------------

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
     shares issued and outstanding                    2,452,159       2,452,159
   Additional paid-in capital                         8,953,230       8,953,230
   Accumulated other comprehensive loss                (695,336)     (1,218,309)
   Retained earnings - substantially restricted       5,369,465       4,851,090
-------------------------------------------------------------------------------

Total stockholders' equity                           16,079,518      15,038,170
-------------------------------------------------------------------------------

                                                  $ 225,166,361   $ 254,054,505
===============================================================================
    See accompanying summary of accounting policies and notes to consolidated
                             financial statements.


                                                                               4

<PAGE>
<TABLE>
<CAPTION>

                                                             Guaranty Financial Corporation
                                                                           and Subsidiaries

                                                      Consolidated Statements of Operations



===========================================================================================
Year Ended December 31,                                 2001           2000            1999
-------------------------------------------------------------------------------------------
<S>                                             <C>            <C>             <C>
Interest income
   Loans                                        $ 15,451,066   $ 20,102,511    $ 15,764,851
   Investment securities                           2,190,541      2,254,749       2,607,285
-------------------------------------------------------------------------------------------

Total interest income                             17,641,607     22,357,260      18,372,136
-------------------------------------------------------------------------------------------

Interest expense
   Deposits                                        8,932,880     10,522,255       8,365,324
   Borrowings                                        822,993      2,054,883       2,273,678
-------------------------------------------------------------------------------------------

Total interest expense                             9,755,873     12,577,138      10,639,002
-------------------------------------------------------------------------------------------

Net interest income                                7,885,734      9,780,122       7,733,134

Provision for loan losses (Note 2)                   333,467      1,505,000         486,000
-------------------------------------------------------------------------------------------

Net interest income after provision
   for loan losses                                 7,552,267      8,275,122       7,247,134
-------------------------------------------------------------------------------------------

Other income
   Loan and deposit fees and servicing income        830,704        938,500         660,662
   Net gain (loss) on sale securities                  3,046        (76,206)     (1,498,469)
   Mortgage banking income                         1,093,393        212,910         628,093
   Gain on sale of branch                             79,289             --              --
   Other                                             383,882        364,776         334,717
-------------------------------------------------------------------------------------------

Total other income                                 2,390,314      1,439,980         125,003
-------------------------------------------------------------------------------------------

Other expense
   Personnel                                       4,810,577      4,226,707       3,752,505
   Occupancy (Note 11)                             1,411,567      1,352,567       1,128,766
   Data processing (Note 11)                       1,037,245        925,751         818,525
   Other                                           1,897,717      2,289,858       1,665,608
-------------------------------------------------------------------------------------------

Total other expenses                               9,157,106      8,794,883       7,365,404
-------------------------------------------------------------------------------------------
</TABLE>

                                                                    continued...


                                                                               5

<PAGE>
<TABLE>
<CAPTION>

                                                           Guaranty Financial Corporation
                                                                         and Subsidiaries

                                                    Consolidated Statements of Operations
                                                                              (continued)



=========================================================================================
Year Ended December 31,                                 2001           2000          1999
-----------------------------------------------------------------------------------------
<S>                                             <C>            <C>             <C>
Income before income taxes                      $    785,475   $    920,219    $    6,733

Provision for income taxes (Note 9)                  267,100        313,103         2,300
-----------------------------------------------------------------------------------------

Net income                                      $    518,375   $    607,116    $    4,433
=========================================================================================

Basic and Diluted Earnings Per Share            $        .26   $        .31    $       --
=========================================================================================
</TABLE>
    See accompanying summary of accounting policies and notes to consolidated
                             financial statements.


                                                                               6

<PAGE>
<TABLE>
<CAPTION>

                                                          Guaranty Financial Corporation
                                                                        and Subsidiaries

                                  Consolidated Statements of Comprehensive Income (Loss)



========================================================================================
Year Ended December 31,                               2001           2000           1999
----------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>
Net income                                     $   518,375    $   607,116    $     4,433
----------------------------------------------------------------------------------------

   Other comprehensive income (loss)
     Unrealized gains on securities
       Unrealized holding gains (losses)
         arising during period                     506,458        514,370     (2,385,032)
       Less: reclassification adjustment for
         gains (losses) included in net
         income                                   (285,925)       (76,206)       187,262
----------------------------------------------------------------------------------------

   Other comprehensive income (loss),
     before tax                                    792,383        590,576     (2,572,294)

     Income tax (expense) benefit related
       to items of other comprehensive
       income (loss)                              (269,410)      (200,796)       874,580
----------------------------------------------------------------------------------------

   Other comprehensive income (loss)
     net of tax                                    522,973        389,780     (1,697,714)
----------------------------------------------------------------------------------------

Comprehensive income (loss)                    $ 1,041,348    $   996,896    $(1,693,281)
========================================================================================
</TABLE>
    See accompanying summary of accounting policies and notes to consolidated
                             financial statements.


                                                                               7

<PAGE>
<TABLE>
<CAPTION>

                                                                            Guaranty Financial Corporation
                                                                                          and Subsidiaries

                                                           Consolidated Statements of Stockholders' Equity



==========================================================================================================
                                                              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, 1998      $  1,877,159   $  5,724,524   $     89,625    $  4,862,963    $ 12,554,271
Cash dividend                             --             --             --        (388,014)       (388,014)
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
Cash dividend                             --             --             --        (235,408)       (235,408)
Other comprehensive
   income                                 --             --        389,780              --         389,780
Repurchase of trust preferred
   securities (Note 12)                   --         10,111             --              --          10,111
Net income                                --             --             --         607,116         607,116
----------------------------------------------------------------------------------------------------------

Balance, December 31, 2000         2,452,159      8,953,230     (1,218,309)      4,851,090      15,038,170
Other comprehensive
   income                                 --             --        522,973              --         522,973
Net income                                --             --             --         518,375         518,375
----------------------------------------------------------------------------------------------------------

Balance, December 31, 2001      $  2,452,159   $  8,953,230   $   (695,336)   $  5,369,465    $ 16,079,518
==========================================================================================================
</TABLE>
    See accompanying summary of accounting policies and notes to consolidated
                             financial statements.


                                                                               8

<PAGE>
<TABLE>
<CAPTION>

                                                               Guaranty Financial Corporation
                                                                             and Subsidiaries

                                                        Consolidated Statements of Cash Flows



=============================================================================================
Year Ended December 31,                                  2001            2000            1999
---------------------------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>
Operating activities
   Net income                                    $    518,375    $    607,116    $      4,433
   Adjustments to reconcile net income
     to net cash provided (absorbed) by
     operating activities
       Provision for loan losses                      333,467       1,505,000         486,000
       Depreciation and amortization                1,122,468         721,954         632,665
       Deferred loan fees                             (72,009)        (63,298)        (43,797)
       Net amortization of premiums and
         accretion of discounts                       160,696         (92,757)        111,133
       Gain on sale of loans                       (1,249,393)       (338,318)       (319,689)
       Origination of loans held for sale         (70,683,960)    (40,142,264)    (79,669,584)
       Proceeds from sale of loans                 63,478,428      39,803,946      79,989,273
       Loss (gain) on sale of held to maturity
         and securities available for sale             (3,046)         76,206       1,212,750
       Loss (gain) on disposal of office
         properties and equipment                      (3,036)         27,554           5,657
       Gain on sale of branch                         (79,289)             --              --
       Loss on sale of trading account
         securities                                        --              --         303,968
       Purchases of trading account securities                             --     (30,061,752)
       Sales of trading account securities                 --              --      30,757,784
       Changes in
         Accrued interest receivable                  833,425        (335,755)        (92,060)
         Other assets                                  87,544       1,865,189         (66,672)
         Accrued interest payable                    (256,296)        135,908         133,053
         Income taxes                                 156,510          36,108        (242,649)
         Prepayments by borrowers for
           taxes and insurance                        (99,311)       (229,752)        365,592
         Other liabilities                               (212)       (186,381)        628,542
---------------------------------------------------------------------------------------------

Net cash provided (absorbed) by operating
   activities                                      (5,755,639)      3,390,456       4,134,647
---------------------------------------------------------------------------------------------
</TABLE>


                                                                    continued...


                                                                               9

<PAGE>
<TABLE>
<CAPTION>

                                                                Guaranty Financial Corporation
                                                                              and Subsidiaries

                                                         Consolidated Statements of Cash Flows
                                                                                   (continued)



==============================================================================================
Year Ended December 31,                                   2001            2000            1999
----------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
Investing activities
   Net decrease (increase) in loans               $ 27,695,518    $  2,559,072    $(43,826,795)
   Repayments on held to maturity
     securities                                        229,620         383,340       1,049,891
   Purchase of held to maturity securities            (250,000)       (250,000)             --
   Proceeds from retirement of held to maturity
     securities                                        250,000              --              --
   Purchase of securities available for sale       (26,000,000)             --     (53,120,948)
   Proceeds from sales of securities
     available for sale                             23,683,500       4,798,122      54,923,087
   Sale of FHLB stock                                       --         500,000       1,100,000
   Purchase of FHLB stock                                   --        (550,000)     (1,300,000)
   Purchase of other stock                                  --        (102,500)             --
   Proceeds from sales of real estate owned            830,293              --              --
   Net decrease in cash from sale of branch:
     Proceeds from sale of loans                     4,358,781              --              --
      Sale of deposits                              (7,143,692)             --              --
     Proceeds from sale of office properties,
       equipment, and land                           1,057,608              --              --
   Origination of mortgage servicing rights           (331,307)       (453,285)       (806,650)
   Proceeds from sales of mortgage
       servicing rights, net                           825,938              --              --
   Purchase of office properties and
     equipment                                        (374,986)     (1,295,199)     (2,919,824)
   Proceeds from sales of office properties
     and equipment                                     109,883              --              --
----------------------------------------------------------------------------------------------

Net cash provided (absorbed) by investing
   activities                                       24,941,156       5,589,550     (44,901,239)
----------------------------------------------------------------------------------------------

Financing activities
   Net increase (decrease) in deposits              (9,101,991)     17,132,526      26,789,387
   Repayment of Federal Home Loan
     Bank advances                                 (62,000,000)    (62,000,000)    (30,000,000)
   Proceeds from Federal Home Loan
     Bank advances                                  49,000,000      56,000,000      29,000,000
   Payments on bonds payable, including
     unapplied payments                               (196,445)       (130,977)     (1,036,063)
   Increase (decrease) in securities sold
     under agreements to repurchase                         --     (16,650,250)     15,641,500
</TABLE>


                                                                              10

<PAGE>
<TABLE>
<CAPTION>

                                                                Guaranty Financial Corporation
                                                                              and Subsidiaries

                                                         Consolidated Statements of Cash Flows
                                                                                   (continued)



==============================================================================================
Year Ended December 31,                                   2001            2000            1999
----------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
   Repurchase of convertible preferred
     securities                                   $         --    $    (62,500)   $   (825,000)
   Proceeds from issuance of common
     stock, net                                             --              --       3,692,568
   Dividends paid                                           --        (353,111)       (388,014)
----------------------------------------------------------------------------------------------

Net cash provided (absorbed) by financing
   activities                                      (22,298,436)     (6,064,312)     42,874,378
----------------------------------------------------------------------------------------------

Increase (decrease)in cash and cash equivalents     (3,112,919)      2,915,694       2,107,786

Cash and cash equivalents, beginning
   of year                                          15,550,212      12,634,518      10,526,732
----------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year            $ 12,437,293    $ 15,550,212    $ 12,634,518
==============================================================================================
</TABLE>
    See accompanying summary of accounting policies and notes to consolidated
                             financial statements.


                                                                              11

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies


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


Nature of Business and Regulatory Environment

Guaranty Financial Corporation ("Guaranty") 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.

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.

Reclassifications

Certain reclassifications have been made in the prior year consolidated
financial statements and notes to conform to the December 31, 2001 presentation.

Investment Securities

Investments in securities are classified as either held-to-maturity, available
for sale, or trading, 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.

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.

Guaranty had approximately $14,279,350, $2,193,000 and $630,000 of loans held
for sale at December 31, 2001, 2000 and 1999, 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. Guaranty provides an allowance for
accrued interest deemed to be uncollectible, which is netted against accrued
interest receivable in the consolidated balance sheets.

Guaranty 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

Guaranty is able to generate funds by selling loans to the Federal Home Loan
Mortgage Corporation ("FHLMC") and other investors. In mid - 2001, Guaranty
changed its mortgage banking business model to sell all residential mortgage
loans originated on a servicing released basis. As part of this revised business
model, Guaranty sold its residential mortgage loan servicing for others
portfolio for $918,000 in 2001. Under prior servicing agreements, Guaranty
continued to service the loans and the participant is paid its share of
principal and interest collections.

Historically, Guaranty allocated 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 sold or securitized the loans and retained the
mortgage servicing rights. Guaranty assessed its capitalized mortgage servicing
rights for impairment based on the fair value of those rights.

The cost of mortgage servicing rights was amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights was assessed based on the fair value of those rights. Fair
values were estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights were 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, 2000 an
impairment of approximately $55,000 was recognized on those rights.

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
Guaranty'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 Guaranty 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, 2001 and 2000 Guaranty 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

Guaranty 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 Guaranty 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 Guaranty during the year is not less than Guaranty'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, Guaranty must recapture into taxable income
approximately $354,000 ratably over six years, which began December 31, 1998,
since Guaranty 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
1,961,727, 1,961,727 and 1,558,439 for the years ended December 31, 2001, 2000
and 1999, 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 $10,012,169, $12,713,000
and $10,772,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. Cash paid for income taxes was approximately $380,000, $697,000
and $360,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Real estate acquired in the settlement of loans was approximately $305,000,
$941,000 and $1,141,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 as amended by SFAS 137 and 138, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 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. The adoption of SFAS 133 did not have an
effect on the Guaranty's financial statements.

In March 2000, the FASB issued interpretation No. 44 ("FIN 44"), Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25. FIN 44 clarifies the application of APB No. 25 for (a) the
definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 2, 2000 but certain
conclusions cover specific events that occur after either December 15, 1998 or
January 12, 2000. Guaranty believes that adoption of FIN 44 did not have a
material effect on Guaranty's financial statements but may impact the accounting
for grants or awards in future periods.

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations",
which is effective July 1, 2001. SFAS 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests methods. The Company believes the adoption
of SFAS 141 will not have an effect on the Guaranty's financial statements.


                                                                              17

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)


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


Accounting Pronouncements (continued)

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 1, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS 142 also requires a transitional goodwill
impairment test six months from the date of adoption and further requires an
evaluation of the carrying value of goodwill for impairment annually thereafter.
Guaranty believes the adoption of SFAS 142 will not have an effect on Guaranty's
financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
statement supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". This statement also amends ARB No. 51, "Consolidated Financial
Statements", to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This statement requires that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. This statement also broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS 144 is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal years. Guaranty believes the
adoption of SFAS 144 will not have a material effect on Guaranty's financial
statements.

On July 6, 2001, the SEC issued Staff Accounting Bulletin No. 102 ("SAB 102"),
"Selected Loan Loss Allowance Methodology and Documentation Issues". The
bulletin expresses the SEC's views on the development, documentation and
application of a systematic methodology for determining allowances for loan and
lease losses in accordance with generally accepted accounting principles. This
includes for each period reported the "books and records of the registrants
engaged in lending activities include documentation of: (a) systematic
methodology to be employed each period in determining the amount of loan losses
to be reported, and (b) rationale supporting each period's determination that
the amounts reported were adequate." Management believes that its documentation
and methodologies are compliant with SAB 102.


                                                                              18

<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, 2001
---------------------------------------------------------------------------------------

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

   Mortgage-backed securities    $   719,989   $    48,288   $        --    $   768,277
   U.S Treasury Bonds                250,000            --            --        250,000
---------------------------------------------------------------------------------------

Total Held to Maturity               969,989        48,288            --      1,018,277
---------------------------------------------------------------------------------------

Available for Sale
   U.S Government Agency Bonds     8,000,000            --       (30,125)     7,969,875
   Corporate bonds                13,620,016            --    (1,023,416)    12,596,600
   Other                             422,250            --            --        422,250
---------------------------------------------------------------------------------------

Total Available for Sale          22,042,266            --    (1,053,541)    20,988,725
---------------------------------------------------------------------------------------

Total Investment Securities      $23,012,255   $    48,288   $(1,053,541)   $22,007,002
=======================================================================================
</TABLE>


                                                                              19

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


1.       Investment Securities (continued)

<TABLE>
<CAPTION>
December 31, 2000
---------------------------------------------------------------------------------------

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

   Mortgage-backed securities    $   949,609   $    20,335   $        --    $   969,944
   U.S Treasury Bonds                250,000            --            --        250,000
---------------------------------------------------------------------------------------

Total Held to Maturity             1,199,609        20,335            --      1,219,944
---------------------------------------------------------------------------------------

Available for Sale
   Corporate bonds                19,354,392            --    (1,845,923)    17,508,469
   Other                             422,250            --            --        422,250
---------------------------------------------------------------------------------------

Total Available for Sale          19,776,642            --    (1,845,923)    17,930,719
---------------------------------------------------------------------------------------

Total Investment Securities      $20,976,251   $    20,335   $(1,845,923)   $19,150,663
=======================================================================================
</TABLE>


                                                                              20

<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, 2001 by maturity is as follows:

                                                                      Estimated
                                                      Amortized         Market
                                                        Cost            Value
--------------------------------------------------------------------------------

Held to Maturity

   Mortgage-backed securities                       $   719,989      $   768,277
   U.S Treasury Bonds                                   250,000          250,000
--------------------------------------------------------------------------------

Total Held to Maturity                                  969,989        1,018,277
--------------------------------------------------------------------------------

Available for Sale
   Corporate bonds and other due after five years    13,620,016       12,596,600
   Other                                                422,250          422,250
   U.S Government Agency Bonds                        8,000,000        7,969,875
--------------------------------------------------------------------------------

Total Available for Sale                             22,042,266       20,988,725
--------------------------------------------------------------------------------

Total Investment Securities                         $23,012,255      $22,007,002
================================================================================


Gross gains and losses from the sale of securities during the years ended
December 31, 2001, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>

                                   2001                    2000                     1999
                             Gains      Losses      Gains       Losses        Gains       Losses
--------------------------------------------------------------------------------------------------
<S>                      <C>          <C>         <C>         <C>          <C>          <C>
Held to Maturity         $       --   $      --   $      --   $       --   $       --   $       --
Available for Sale            3,046          --          --       76,206      111,244    1,387,569
Trading                          --          --          --           --      238,544      460,688
--------------------------------------------------------------------------------------------------

Total                    $    3,046   $      --   $      --   $   76,206   $  349,788   $1,848,257
==================================================================================================
</TABLE>

Mortgage backed securities of approximately $720,000 and $950,000 at December
31, 2001 and 2000, respectively, were pledged for bonds payable (Note 6).


                                                                              21

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


2.       Loans Receivable

Loans receivable are summarized as follows

December 31,                                             2001               2000
--------------------------------------------------------------------------------

Mortgage loans
   Residential                                  $  39,854,284     $  54,910,973
   Commercial                                      16,276,612         3,434,287
   Construction and land loans                     36,307,260        59,363,432
--------------------------------------------------------------------------------

Total real estate                                  92,438,156       117,708,692

Commercial business loans                          66,603,247        59,119,906
Consumer loans                                     20,982,986        27,189,655
--------------------------------------------------------------------------------

Total loans receivable                            180,024,389       204,018,253
--------------------------------------------------------------------------------

Less
   Deferred loan costs, net                           (66,525)          (27,121)
   Allowance for loan losses                        2,512,000         2,396,512
--------------------------------------------------------------------------------

                                                    2,445,475         2,369,391
--------------------------------------------------------------------------------

                                                $ 177,578,914     $ 201,648,862
================================================================================

The allowance for loan losses is summarized as follows:

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

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
Provision charged to expense                                          1,505,000
Net charge-offs                                                        (311,726)
--------------------------------------------------------------------------------

Balance at December 31, 2000                                          2,396,512
Provision charged to expense                                            333,467
Net charge-offs                                                        (217,979)
--------------------------------------------------------------------------------

Balance at December 31, 2001                                         $2,512,000
================================================================================


                                                                              22

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


2.       Loans Receivable (continued)

Guaranty serviced loans for others aggregating approximately $13,192,000 and
$91,963,000 at December 31, 2001 and 2000, respectively. The servicing rights to
approximately $189,000,000 in loans were sold and transferred during 2001.
Mortgage servicing rights, net of valuation reserve, were approximately $0 and
$1,021,000 at December 31, 2001 and 2000, respectively. Mortgage servicing
rights of approximately $331,307 and $599,000 were capitalized during the years
ended December 31, 2001 and 2000, respectively.

Gross gains and gross losses on the sale of loans and servicing totaling
approximately $1,249,000 and $0, $643,000 and $305,000, $911,000 and $592,000
were realized during the years ended December 31, 2001, 2000 and 1999,
respectively.

3.       Office Properties and Equipment

Office properties and equipment are summarized as follows:

December 31,                                                 2001           2000
--------------------------------------------------------------------------------

Land                                                  $ 3,123,848    $ 3,494,851
Building and leasehold improvements                     4,419,899      4,459,307
Furniture and fixtures                                  1,293,824      1,253,539
Equipment                                               2,309,371      2,858,790
Automobiles                                                32,949        163,165
--------------------------------------------------------------------------------

                                                       11,179,891     12,229,652
Less accumulated depreciation and amortization          3,070,102      2,522,866
--------------------------------------------------------------------------------

Net office properties and equipment                   $ 8,109,789    $ 9,706,786
================================================================================


                                                                              23

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


4.       Deposits

Deposits are summarized as follows:

December 31,                                            2001                2000
--------------------------------------------------------------------------------

Statement savings accounts                      $ 12,991,825        $ 10,319,368
Demand deposit accounts                           47,569,392          40,879,316
Money market accounts                             22,394,469          18,893,556
--------------------------------------------------------------------------------

                                                  82,955,686          70,092,240
--------------------------------------------------------------------------------

Time deposits                                    117,676,017         146,951,455
--------------------------------------------------------------------------------

                                                $200,631,703        $217,043,695
================================================================================

The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $20,589,000 and $26,746,000 at December 31, 2001 and
2000, respectively.

At December 31, 2001, scheduled maturities of time deposits are as follows:

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

                        2002                               $103,360,000
                        2003                                 10,161,000
                        2004                                  1,791,000
                        2005                                  1,398,000
                 2006 and thereafter                            966,000
           ------------------------------------------------------------

                                                           $117,676,000
           ============================================================


                                                                              24

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


5.       Fair Value of Financial Instruments

The estimated fair values of Guaranty's financial instruments are as follows:
<TABLE>
<CAPTION>

December 31,                                              2001                          2000
------------------------------------------------------------------------------------------------------
                                                Carrying        Fair          Carrying        Fair
                                                 Amount         Value          Amount         Value
------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>            <C>
Financial assets
   Cash and short-term investments           $ 12,437,293   $ 12,437,000   $ 15,550,212   $ 15,550,000
   Securities                                  21,958,714     22,008,000     19,130,328     19,151,000
   Loans, net of allowance for loan losses    177,578,914    174,715,000    201,648,862    203,822,000

Financial liabilities
   Deposits                                   200,631,703    201,277,000    217,043,695    216,733,000
   Advances from Federal Home Loan Bank         1,000,000      1,000,000     14,000,000     14,000,000
   Bonds payable                                  595,374            N/A        792,153            N/A

                                                Notional        Fair          Notional        Fair
                                                 Amount         Value          Amount         Value
------------------------------------------------------------------------------------------------------

Unrecognized financial instruments
   Commitments to extend credit              $ 52,009,000   $ 52,009,000   $ 49,674,000   $ 49,674,000
</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.


                                                                              25

<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 Guaranty'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, 2001 and 2000, 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.


                                                                              26

<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:

December 31,                                                 2001         2000
--------------------------------------------------------------------------------

Serial Bonds

   Class A-3, maturing January 20, 2019, at 8.0%        $ 739,648     $ 971,042
   Unapplied payments                                     (35,098)      (34,949)
--------------------------------------------------------------------------------

                                                          704,550       936,093
   Less unamortized discount                             (109,176)     (143,940)
--------------------------------------------------------------------------------

                                                        $ 595,374     $ 792,153
================================================================================

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 balance sheet. The account established for payment of interest and
debt maturities is netted with cash and bonds payable on the balance sheet.


                                                                              27

<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 Guaranty's
repurchase agreements:

Year Ended December 31,                                     2001           2000
--------------------------------------------------------------------------------

Maximum amount outstanding at any month end during
   the year                                            $      --    $16,684,364
Average amount outstanding during the year             $      --    $ 4,265,035
Weighted average interest rate during the year                --           6.39%

8.       Advances From Federal Home Loan Bank

Information related to borrowing activity from the Federal Home Loan Bank is as
follows:

Year Ended December 31,                                     2001           2000
--------------------------------------------------------------------------------

Maximum amount outstanding during the year           $18,000,000    $31,000,000
Average amount outstanding during the year           $ 4,608,219    $18,147,059
Average interest rate during the year                       5.14%          6.68%

9.       Income Taxes

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

Year ended December 31,                       2001           2000           1999
--------------------------------------------------------------------------------

Current income tax provision             $ 285,743      $ 744,103      $   2,300
Deferred income tax benefit                (18,643)      (431,000)            --
--------------------------------------------------------------------------------

                                         $ 267,100      $ 313,103      $   2,300
================================================================================

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

Year ended December 31,                       2001           2000           1999
--------------------------------------------------------------------------------

Tax expense at statutory rate            $ 267,062      $ 312,874      $   2,300
Adjustments
   Other                                        38            229             --
--------------------------------------------------------------------------------

                                         $ 267,100      $ 313,103      $   2,300
================================================================================


                                                                              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,                                               2001             2000
--------------------------------------------------------------------------------

Deferred tax asset
   Bad debt reserves                                 $  814,000       $  755,000
   REO reserves                                          68,000          117,000
   Deferred loan fees                                     8,000           14,000
   Servicing rights                                          --           19,000
   Available for sale securities                        358,000          628,000
   Other                                                     --           37,000
--------------------------------------------------------------------------------

Total deferred tax asset                              1,248,000        1,570,000
--------------------------------------------------------------------------------

Deferred tax liability
   GMSC REMIC                                            81,000           91,000
   Fixed assets                                         305,000          309,000
   Other                                                118,000               --
--------------------------------------------------------------------------------

Total deferred tax liability                            504,000          400,000
--------------------------------------------------------------------------------

Net deferred tax asset                               $  744,000       $1,170,000
================================================================================

10.      Related Party Transactions

In the normal course of business, Guaranty 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,                                         2001               2000
--------------------------------------------------------------------------------

Balance at the beginning of year                 $ 1,165,000        $ 1,469,000
Additional loans                                   1,978,000            598,000
Loan reductions                                   (1,099,000)          (902,000)
--------------------------------------------------------------------------------

Balance at end of year                           $ 2,044,000        $ 1,165,000
================================================================================


                                                                              29

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


11.      Commitments and Contingencies

Guaranty leases office space under operating leases expiring at various dates
through 2005 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, 2001, are
as follows:

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

2002                                                  $  88,400        $ 309,600
2003                                                     69,600          309,600
2004                                                     43,000           51,600
2005                                                      5,000               --
--------------------------------------------------------------------------------

                                                      $ 206,000        $ 670,800
================================================================================

Total rental expense amounted to approximately $179,000, $108,000 and $91,600
for the years ended December 31, 2001, 2000 and 1999, respectively. Total data
processing expense amounted to approximately $1,037,000, $926,000 and $762,000
for the years ended December 31, 2001, 2000 and 1999, respectively.

Guaranty 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, Guaranty 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 Guaranty's stock may occur at any time prior to
maturity. The Trust also issued 8,537 shares of convertible common stock for
$213,425. Guaranty purchased all shares of the common stock. The proceeds from
the sale of the preferred securities were utilized to purchase from Guaranty
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 Guaranty 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)


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


12.      Convertible Preferred Stock (continued)

In January 2000, Guaranty repurchased 2,500 shares of the cumulative preferred
securities at a price of $17.50 per share which resulted in a net gain,
recognized in the statement of stockholders' equity, on the repurchase of
$10,111.

13.      Stockholders' Equity

On November 4, 1999, Guaranty 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
Guaranty 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, 2001              Required        Required         Amount         Percent        Amount
-------------------------------------------------------------------------------------------------------
<S>                          <C>                  <C>         <C>                <C>        <C>
Tier 1 risk based            $  7,279,000         4.00%       $22,542,000        12.39%     $15,263,000
Total risk based capital       14,560,000         8.00%        24,818,000        13.64%      10,258,000

                                 Amount         Percent          Actual         Actual         Excess
 December 31, 2000              Required        Required         Amount         Percent        Amount
-------------------------------------------------------------------------------------------------------

Tier 1 risk based            $  8,723,000         4.00%       $21,857,000        10.02%     $13,134,000
Total risk based capital       17,445,000         8.00%        24,254,000        11.12%       6,809,000
</TABLE>

Guaranty 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 Guaranty 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.

On October 26, 2000, Guaranty and the Bank entered into a written agreement with
the Federal Reserve Bank of Richmond and the Bureau of Financial Institutions of
the Commonwealth of Virginia with respect to various operating policies and
procedures. Various bank operating policies including asset/liability
management, liquidity, risk management, loan administration and capital adequacy
have been revised and reviewed and approved by the bank regulators.


                                                                              31

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


13.      Stockholders' Equity (continued)

The agreement also restricts Guaranty from paying future dividends or incurring
any debt at the holding company level without prior regulatory approval. In
addition, the Bank, is also prohibited from paying intercompany dividends to
Guaranty without prior regulatory approval. Except for the requirement of the
pre-approval of dividend payments by both Guaranty and the Bank, Guaranty does
not expect the agreement will restrict or change its operating plans.

14.      Stock Option Plan

Guaranty 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>

                                        2001                   2000                     1999
-------------------------------------------------------------------------------------------------------

                                            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            101,900     $14.16      130,000     $13.69        88,000     $15.48
Granted                          16,512       8.16           --         --        44,500      12.00
Forfeited                       (60,500)     12.10      (28,100)     12.00        (2,500)     12.00
Exercised                            --         --           --         --            --         --
-------------------------------------------------------------------------------------------------------

Options outstanding
   at end of year                57,912      12.07      101,900     $14.16       130,000     $13.69
=======================================================================================================

Options exercisable
   at end of year                48,900                  73,200                   49,700
=======================================================================================================
</TABLE>

The weighted average fair value of options granted during the year ended
December 31, 2001 and 1999 was $4.28 and $3.17, respectively.


                                                                              32

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


14.      Stock Option Plan (continued)

Guaranty 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, Guaranty'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,                                  2001          2000          1999
------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>           <C>
Net income (loss)
   As reported                                       $518,375      $607,116      $  4,433
   Pro forma                                          498,434       607,116       (88,670)

Net income (loss) per share (basic and diluted)
   As reported                                       $   0.26      $   0.31      $    .00
   Pro forma                                             0.25          0.31          (.06)
</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, 2001: a risk free interest rate of 4.71%,
dividend yield of 0%, expected weighted average term of 9.5 years, and a
volatility of 33.20%.

15.      Employee Benefit Plans

Effective February 16, 1989, Guaranty 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. Guaranty may make contributions to
the plan at its discretion. Guaranty's contributions are allocated to employee
accounts using a systematic formula based on participant compensation. Guaranty
contributed approximately $60,000, $65,000 and $56,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

16.      Financial Instruments With Off-Balance-Sheet Risk

Guaranty 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 Guaranty 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)

Guaranty'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. Guaranty 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, Guaranty does not require collateral or other security
to support financial instruments with credit risk.

<TABLE>
<CAPTION>
December 31,                                                                   2001           2000
--------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>
Financial instruments whose contract amounts represent credit risk
   Commitments to extend credit                                         $52,009,000    $49,674,000
   Standby letters of credit written                                      3,282,000      3,776,000
</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. Guaranty evaluates each
customer's creditworthiness on a case-by-case basis.

Standby letters of credit written are conditional commitments issued by Guaranty
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 Guaranty's loan activity was with customers located in
Charlottesville and Richmond, Virginia and surrounding counties.


                                                                              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, 2001           Quarter      Quarter      Quarter      Quarter
--------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>          <C>
Total interest income                 $   5,105    $   4,569    $   4,204    $   3,763
Total interest expense                    2,929        2,753        2,328        1,746
--------------------------------------------------------------------------------------

Net interest income                       2,176        1,816        1,876        2,017
Provision for loan losses                   150           75           75           33
--------------------------------------------------------------------------------------

Net interest income after provision
   for loan losses                        2,026        1,741        1,801        1,984

Other income                                538          560          583          709
Other expenses                            2,310        2,290        2,325        2,231
--------------------------------------------------------------------------------------

Income before income tax
   expense                                  254           11           59          462

Income tax expense                           86            4           20          157
--------------------------------------------------------------------------------------

Net income                            $     168    $       7    $      39    $     305
======================================================================================

Basic and diluted earnings
   per share                          $     .08    $     .00    $     .02    $     .16
======================================================================================
</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, 2000           Quarter      Quarter      Quarter      Quarter
--------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>          <C>
Total interest income                 $   5,327    $   5,850    $   5,702    $   5,478
Total interest expense                    3,019        3,317        3,164        3,077
--------------------------------------------------------------------------------------

Net interest income                       2,308        2,533        2,538        2,401
Provision for loan losses                   130        1,075          150          150
--------------------------------------------------------------------------------------

Net interest income after provision
   for loan losses                        2,178        1,458        2,388        2,251

Other income (loss)                         214          501          400          325
Other expenses                            2,022        2,083        2,134        2,556
--------------------------------------------------------------------------------------

Income (loss) before income tax
   expense (benefit)                        370         (124)         654           20

Income tax expense (benefit)                126          (42)         222            7
--------------------------------------------------------------------------------------

Net income (loss)                     $     244    $     (82)   $     432    $      13
======================================================================================

Basic and diluted earnings (loss)
   per share                          $    0.12    $   (0.04)   $   (0.22)   $    0.01
======================================================================================
</TABLE>


                                                                              36

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


18.      Condensed Financial Information of the Parent Company Only

                   Condensed Statements of Financial Condition

December 31,                                                2001            2000
--------------------------------------------------------------------------------

     Assets

Investment in subsidiaries, at equity                $22,552,191     $22,032,092
Cash                                                         152           1,876
Prepaid expenses and other assets                        448,437         463,967
--------------------------------------------------------------------------------

                                                     $23,000,780     $22,497,935
================================================================================


     Liabilities and Stockholders' Equity

Other liabilities                                    $        --     $    15,531
--------------------------------------------------------------------------------

Total liabilities                                             --          15,531
--------------------------------------------------------------------------------

Subordinated debt                                      6,225,925       6,225,925
--------------------------------------------------------------------------------

Stockholders' equity
   Common stock                                        2,452,159       2,452,159
   Additional paid-in capital                          8,953,230       8,953,230
   Retained earnings                                   5,369,466       4,851,090
--------------------------------------------------------------------------------

Total stockholders' equity                            16,774,855      16,256,479
--------------------------------------------------------------------------------

                                                     $23,000,780     $22,497,935
================================================================================


                                                                              37

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


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

                       Condensed Statements of Operations

Year Ended December 31,                                        2001        2000
--------------------------------------------------------------------------------

Income
   Dividends received from Bank                           $ 420,875   $ 666,291
--------------------------------------------------------------------------------

Total income                                                420,875     666,291
--------------------------------------------------------------------------------

Interest expense                                           (420,875)   (420,875)
Noninterest expense                                          (1,724)    (23,867)
--------------------------------------------------------------------------------

Income (loss) before undistributed net income of the Bank    (1,724)    221,549
Undistributed net income                                    520,099     385,567
--------------------------------------------------------------------------------

Net income                                                $ 518,375   $ 607,116
================================================================================


                                                                              38

<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


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

                       Condensed Statements of Cash Flows

Year Ended December 31,                                       2001         2000
--------------------------------------------------------------------------------

Operating activities
   Net income                                            $ 518,375    $ 607,116
   Adjustments
     Undistributed earnings of the Bank                   (520,099)    (385,567)
     Gain on repurchase of subordinated debt                    --       10,111
     Increase (decrease) in prepaid and other assets        15,531       (8,304)
     (Decrease) increase in other liabilities              (15,531)      15,531
--------------------------------------------------------------------------------

Net cash provided (absorbed) by operating activities        (1,724)     238,887
--------------------------------------------------------------------------------

Investing activities
   Dividends received from Bank                            420,875      666,291
   Investment in the Bank                                 (420,875)    (617,331)
--------------------------------------------------------------------------------

Net cash provided (absorbed) by investing activities            --       48,960
--------------------------------------------------------------------------------

Financing activities
   Cash dividends paid on common stock                          --     (353,111)
   Repurchase of subordinated debt                              --      (62,500)
--------------------------------------------------------------------------------

Net cash provided (absorbed) by financing activities            --     (415,611)
--------------------------------------------------------------------------------

Increase (decrease) in cash                                 (1,724)    (127,764)

Cash, beginning of year                                      1,876      129,640
--------------------------------------------------------------------------------

Cash, end of year                                        $     152    $   1,876
================================================================================


                                                                              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 21, 2002                  By: /s/ WILLIAM E. DOYLE, JR.
                                           -------------------------------------
                                           William E. Doyle, Jr.
                                           President and Chief Executive Officer


         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/ WILLIAM E. DOYLE, JR.        President and Chief Executive Officer       March 21, 2002
-----------------------------                and Director
   William E. Doyle, Jr.            (Principal Executive Officer)


/s/ THOMAS F. CRUMP                     Chief Financial Officer              March 21, 2002
-----------------------------          (Principal Financial and
   Thomas F. Crump                         Accounting Officer)


/s/ DOUGLAS E. CATON                     Chairman of the Board               March 21, 2002
-----------------------------
   Douglas E. Caton


/s/ HARRY N. LEWIS                      Vice Chairman of the Board           March 21, 2002
-----------------------------
   Harry N. Lewis


/s/ HENRY J. BROWNE                             Director                     March 21, 2002
-----------------------------
   Henry J. Browne


/s/ JASON I. ECKFORD, JR.                       Director                     March 21, 2002
-----------------------------
   Jason I. Eckford, Jr.


/s/ JOHN R. METZ                                Director                     March 21, 2002
-----------------------------
   John R. Metz
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
         Signature                              Title                             Date
         ---------                              -----                             ----


<S>                              <C>                                         <C>
/s/ JAMES R. SIPE, JR.                          Director                     March 21, 2002
-----------------------------
   James R. Sipe, Jr.


/s/ OSCAR W. SMITH, JR.                         Director                     March 21, 2002
-----------------------------
   Oscar W. Smith, Jr.
</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 definitive
                           Proxy Statement of Guaranty Financial Corporation for
                           the 1998 Annual Meeting of Shareholders, incorporated
                           herein by reference.

         10.2              Employment Agreement, dated as of May 10, 2001, by
                           and between Guaranty and William E. Doyle, Jr.,
                           attached as Exhibit 10.1 to the Registrant's
                           Quarterly Report on Form 10-QSB for the period ended
                           June 30, 2001, incorporated herein by reference.

         21                Subsidiaries of Guaranty Financial Corporation.