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, 2000

                         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)

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

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

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

             None                                             n/a

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

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

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for past 90 days.
                                                             Yes __X__  No _____

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         The  issuer's  gross  income  for  its  most  recent  fiscal  year  was
$23,797,240.

<PAGE>

         The aggregate  market value of the voting stock held by  non-affiliates
computed by reference  to the closing  sales price of such stock as of March 20,
2001 was  approximately  $11,728,721.  (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 20, 2001
was 1,961,727.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Proxy Statement for the 2001 Annual Meeting of Shareholders - Part III
                                 (to be filed)




















                                       2
<PAGE>

                                TABLE OF CONTENTS

                                     PART I
                                     ------


                                                                           Page
                                                                           ----

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

ITEM 2.     DESCRIPTION OF PROPERTY........................................ 13

ITEM 3.     LEGAL PROCEEDINGS.............................................. 14

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE
               OF SECURITY HOLDERS......................................... 14

                                     PART II
                                     -------

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED
                STOCKHOLDER MATTERS........................................ 14

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATION......................... 15

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

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                ON ACCOUNTING AND FINANCIAL DISCLOSURE..................... 37

                                    PART III
                                    --------

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                CONTROL PERSONS; COMPLIANCE WITH SECTION
                16(a) OF THE EXCHANGE ACT.................................. 37

ITEM 10.    EXECUTIVE COMPENSATION......................................... 37

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                OWNERS AND MANAGEMENT...................................... 37

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

ITEM 13.    EXHIBITS, LIST AND REPORTS ON FORM 8-K......................... 38






                                       3
<PAGE>

                                     PART I

Item 1.      Description of Business.

General

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

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

         The Bank is a community  bank that provides a broad range of commercial
and retail  banking  services.  Guaranty's  principal  business  activities  are
attracting  checking and savings  deposits from local businesses and the general
public through its retail banking offices and originating,  servicing, investing
in and selling loans. Of Guaranty's $204.0 million of gross loans outstanding at
December  31,  2000,  29.1%  represented  construction  and  land  loans,  29.0%
represented  commercial business loans, and 26.9% represented  residential first
mortgages.  Guaranty  also lends funds to retail  banking  customers by means of
home  equity,  installment  loans,  and  multi-family  dwellings.  In  addition,
Guaranty offers consumer loans and  government-insured  and  conventional  small
business loans.  Guaranty invests in certain United States government and agency
obligations and other investments permitted by applicable laws and regulations.

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

Market Area

         Guaranty is headquartered in Charlottesville, Virginia. Charlottesville
and its surrounding area had a collective population of approximately 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  nine  full  service  retail  branches,  which  serve  Charlottesville,
Albemarle County, Fluvanna County, Henrico County and Harrisonburg, Virginia.

Competition

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

         Guaranty faces  substantial  competition  for deposits from  commercial
banks,  money  market  and mutual  funds,  credit  unions  and other  investment
vehicles.  The ability of Guaranty to attract and retain deposits depends on its
ability to provide an investment  opportunity that satisfies the requirements of
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.



                                       4
<PAGE>

         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.



                                       5
<PAGE>

         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, 2000, commitments to extend credit totaled $49.7 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, 2000,  construction,  land and land  development
loans  outstanding were $59.4 million,  or 29.1%, of gross loans.  Approximately
90% of  these  loans  are  concentrated  in the  Richmond  and  Charlottesville,
Virginia markets.  The average life of a construction loan is approximately nine
months and they  reprice  monthly to meet the market,  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 80.0% 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, 2000, commercial loans totaled $59.1 million, or 29.0% 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, 2000,  commercial  real estate loans  aggregated $3.4
million or 1.7% of Guaranty's gross loans.

         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



                                       6
<PAGE>

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  assessment  of  residential
collateral is provided by  independent  fee appraisers who have been approved by
the Bank's Board of Directors.  Loans  applications are reviewed and approved in
primarily two ways,  by either the  underwriting  department,  or in the case of
limited risk as defined by the automated underwriting system along with assigned
characteristics,  it is possible for the  origination  team,  consisting  of the
originator and processor, to approve the transaction.

         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,  investor  quality 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.  These  loans  are
typically  unconventional or jumbo in nature.  No current investor  relationship
exists for selling  these  products.  At December 31, 2000,  $20.4  million,  or
10.0%, 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.  As with the fixed rate non-conforming product, 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 the One Year
United States Treasury bill.  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.  Guaranty  originates the conforming one-year adjustable
rate  mortgages  below the index rate to  compete  with  local  competitors.  At
December  31,  2000,  $34.5  million,  or 16.9%,  of the Bank's  loan  portfolio
consisted of adjustable rate mortgages.


                                       7
<PAGE>

         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, 2000,  Guaranty had consumer  loans of $27.0
million or 13.2% of gross loans. Such loans are generally made to customers with
which Guaranty has a pre-existing  relationship.  Guaranty originates all of its
consumer  loans in its  geographic  market  area and  intends to  continue  this
practice.  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.  Guaranty  adds
general  provisions  to  its  loan  loss  allowance  monthly  as the  loans  are
originated.  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, 2000,  Guaranty  had 99 full-time  and eight  part-time
employees.  None of  Guaranty's  employees  are  represented  by any  collective
bargaining unit.



                                       8
<PAGE>

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,  2000,  the Bank
declared $666,283 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.

         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



                                       9
<PAGE>

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.

         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



                                       10
<PAGE>

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,  2000,  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.

         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



                                       11
<PAGE>

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.









                                       12
<PAGE>

Item 2.      Description of Property.

         As of March 1, 2001,  Guaranty  conducted  its  business  from its main
office in  Charlottesville,  Virginia and eight 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

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

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



                                       13
<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
<TABLE>
<CAPTION>
                                                Sales Price ($)
                                                ---------------

                                                High         Low         Dividends ($)
                                                ----         ---         -------------
<S>                                            <C>          <C>               <C>
Fiscal Year Ended December 31, 1999:
         1st quarter                           13.625       11.250            .06
         2nd quarter                           11.875       10.375            .06
         3rd quarter                           11.750       10.125            .06
         4th quarter                           10.750        8.000            .06

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             --
</TABLE>

         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.



                                       14
<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, 2001,  Guaranty had approximately  1,200 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,  2000 and 1999 and for the years ended
December  31,  2000,  1999 and  1998.  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 it operations through its subsidiary, Guaranty Bank. Guaranty Bank
is a  community  bank  serving  the  Charlottesville,  Harrisonburg  and western
Richmond  suburban  markets.  Guaranty Bank opened its ninth branch  location in
early 2001. Guaranty is currently  negotiating to sell its one branch in western
suburban Richmond.

         In October 2000,  Guaranty and its subsidiary,  Guaranty Bank,  entered
into a written  agreement  with the  FRB-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.
In addition,  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 federal  regulators have approved dividend payments from the Bank
to Guaranty  sufficient  to make such interest  payments.  No other terms of the
agreement are expected to restrict Guaranty's operating plans for 2001.

         Guaranty's  performance for 2000 reflected  improvement in net earnings
with a reduction in total assets. This combination resulted in the strengthening
of both Guaranty's and the Bank's  regulatory  capital ratios.  The reduction in
total assets is indicative of Guaranty's emphasis changing from growth to profit
management.

Net Income

         Net income for the year ended  December 31, 2000,  was $607,000 or $.31
per diluted share.  The increased  earnings in 2000 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 $1,016,000  ($.68 per diluted share).
These decreased  earnings were primarily a result



                                       15
<PAGE>

of the sale of  approximately  $13  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 income for the year ended  December 31, 1998 was  $1,016,000  ($.68
per share),  a 13.3%  increase when compared to 1997 earnings of $898,000  ($.61
per share).  These  increased  earnings were primarily a result of increased net
interest  margin growth and expansion of the existing  branch  network,  and the
addition and expansion of the  commercial  and  construction  loan  departments.
These increased  revenues were partially offset by the one-time expenses related
to the conversion to a state chartered bank.

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 $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  increase  continues to reflect the bank 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%  increase in the yield on earning  assets
which  exceeded the .54% increase in the cost of interest  bearing  liabilities.
Declines  in the  prime  rate in early  2001 will  cause  the yield on  interest
earning assets to fall faster than the cost of interest bearing liabilities. The
net result will be a lower net interest margin in 2001.

         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.







                                       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.























                                       17
<PAGE>
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
  (Dollars in thousands)                                 2000                         1999                       1998
------------------------------------------------------------------------------------------------------------------------------------
                                                          Interest  Average            Interest  Average           Interest  Average
                                                  Average  income/   yield/    Average  income/   yield/   Average  income/   yield/
                                                  balance  expense    rate     balance  expense    rate    balance  expense    rate
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>      <C>       <C>      <C>      <C>       <C>      <C>
Assets
Interest earning assets:
   Securities                                     $25,065  $1,786     7.13%    $32,278  $2,157    6.68%    $18,388  $1,290    7.02%
   Loans                                          213,353  20,103     9.42%    184,340  15,765    8.55%    122,751  11,231    9.15%
   Interest bearing deposits
      in other banks                                6,668     469     7.03%      8,928     450    5.04%     10,500     539    5.13%
------------------------------------------------------------------------------------------------------------------------------------
   Total interest-earning
          assets/total interest income            245,086  22,358     9.12%    225,546  18,372    8.15%    151,639  13,060    8.61%
------------------------------------------------------------------------------------------------------------------------------------
   Noninterest earning assets:
      Cash and due from banks                       6,599                        5,484                       2,450
      Premises and equipment                        9,454                        8,399                       6,519
      Other assets                                  4,876                        5,256                       3,001
      Less allowance for loan losses               (1,798)                      (1,122)                     (1,104)
------------------------------------------------------------------------------------------------------------------------------------
          Total noninterest earning assets         19,131                       18,017                      10,866
------------------------------------------------------------------------------------------------------------------------------------
             Total Assets                        $264,217                     $243,563                    $162,505
===================================================================================================================================-

Liabilities and stockholders' equity
Interest bearing liabilities:
   Interest bearing deposits:
      Demand/MMDA accounts                        $42,034  $1,328     3.16%    $44,906  $1,571    3.50%    $24,936    $862    3.46%
      Savings                                      10,922     245     2.24%     10,968     253    2.31%      8,551     254    2.97%
      Certificates of deposit                     149,787   8,949     5.97%    126,015   6,541    5.19%     93,615   5,068    5.41%
------------------------------------------------------------------------------------------------------------------------------------
          Total interest bearing deposits         202,743  10,522     5.19%    181,889   8,365    4.60%    127,102   6,184    4.87%
------------------------------------------------------------------------------------------------------------------------------------
   FHLB advances and other borrowings              28,791   1,950     6.77%     34,955    1969    5.63%     13,893     899    6.47%
   Bonds payable                                      881     105    11.92%      1,468     305   20.78%      2,142     325   15.17%
------------------------------------------------------------------------------------------------------------------------------------
          Total interest bearing
             liabilities/total interest expense   232,415  12,577     5.41%    218,312  10,639    4.87%    143,137   7,408    5.18%
------------------------------------------------------------------------------------------------------------------------------------
      Non interest bearing liabilities:
        Demand deposits                            14,409                       10,232                       5,338
        Other liabilities                           1,991                        3,583                       3,531
------------------------------------------------------------------------------------------------------------------------------------
          Total liabilities                       248,815                      232,127                     152,006
------------------------------------------------------------------------------------------------------------------------------------
      Stockholders' equity                         15,402                       11,436                      10,499
------------------------------------------------------------------------------------------------------------------------------------
          Total liabilities and stockholders'
            equity                               $264,217                     $243,563                    $162,505
====================================================================================================================================
      Interest spread (1)                                             3.71%                       3.28%                       3.43%
      Net interest income/net interest
        margin (2)                                         $9,781     3.99%             $7,733    3.43%             $5,652    3.73%
====================================================================================================================================
</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.




                                       18
<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, 2000      Year Ended December 31, 1999
                                                      compared to                       compared to
                                             Year Ended December 31, 1999      Year Ended December 31, 1998
                                                     Change Due To:                    Change Due To:
--------------------------------------------------------------------------------------------------------------
                                                                 Increase                            Increase
(Dollars in thousands)                       Rate     Volume    (Decrease)      Rate      Volume    (Decrease)
--------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>           <C>        <C>        <C>
Interest income:
   Securities                                $145      ($516)      ($371)       ($63)       $930        $867
   Loans                                    1,604      2,734       4,338        (737)      5,271       4,534
   Interest bearing deposits
     in other banks                           178       (159)         19          (9)        (80)        (89)
--------------------------------------------------------------------------------------------------------------
        Total interests income              1,927      2,059       3,986        (809)      6,121       5,312
Interest expense:
   Interest bearing deposits:
      Demand/MMDA accounts                   (153)       (90)       (243)         10         699         709
      Savings                                  (8)         -          (8)        (56)         55          (1)
      Certificates of deposit                 983      1,425       2,408        (206)      1,679        1473
        Total interest bearing deposits       822      1,335       2,157        (252)      2,433       2,181
      FHLB advances and other                 398       (417)        (19)       (117)      1,187        1070
      Bonds payable                          (130)       (70)       (200)        120        (140)        (20)
--------------------------------------------------------------------------------------------------------------
      Total interest expense                1,090        848       1,938        (249)      3,480       3,231
--------------------------------------------------------------------------------------------------------------
      Net interest income                    $837      1,211      $2,048       ($560)      2,641      $2,081
==============================================================================================================
</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, 2000,  Guaranty had $41.1 million more liabilities than
assets that reprice within one year and therefore was in an  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.



                                       19
<PAGE>

         Guaranty  has an  Asset/Liability  Committee  ("ALCO"),  which meets to
discuss  deposit  pricing,  changes in borrowed  money,  investment  and trading
activity,  loan sale  activities,  liquidity  levels  and the  overall  interest
sensitivity.  The  actions  of this  committee  are  reported  to the  Board  of
Directors  monthly.  The daily monitoring of interest rate risk,  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, 2000
                                                                  Maturing or Repricing In:
----------------------------------------------------------------------------------------------------------
                                                    3 Months          4-12            1-5          Over
(Dollars in thousands)                               or less         Months          Years       5 Years
----------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>            <C>           <C>
Interest-sensitive assets:
  Loans                                              $ 94,248       $ 37,166       $ 42,633      $ 29,966
  Investments and mortgage-backed securities(1)             -          1,800            950        19,354
  Deposits at other institutions                        5,921              -              -             -
----------------------------------------------------------------------------------------------------------
     Total interest-sensitive assets                  100,169         38,966         43,583        49,320
==========================================================================================================

   Cumulative interest-sensitive assets               100,169        139,135        182,718       232,038
==========================================================================================================

Interest-sensitive liabilities:
  NOW accounts (2)                                          -              -              -        23,228
  Money market deposit accounts                        18,894              -              -             -
  Savings accounts                                     10,319              -              -             -
  Certificates of deposit                              39,280         97,689          9,982             -
  Borrowed money                                       14,000              -              -             -
  Convertible preferred securities                          -              -              -         6,013
  Bonds payable                                            23             72            144           588
----------------------------------------------------------------------------------------------------------
     Total interest-sensitive liabilities              82,516         97,761         10,126        29,829
==========================================================================================================

   Cumulative interest-sensitive liabilities         $ 82,516       $180,277       $190,403      $220,232
==========================================================================================================

   Period gap                                        $ 17,653       $(58,795)      $ 33,457      $ 19,491

   Cumulative gap                                    $ 17,653       $(41,142)      $ (7,685)     $ 11,806

   Ratio of cumulative interest-sensitive
    assets to interest-sensitive liabilities          121.39%         77.18%         95.96%       105.36%

   Ratio of cumulative gap to total assets              6.95%        -16.20%         -3.03%         4.65%
</TABLE>

(1)  Includes 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  $4.7 million have fixed  interest  rates and $5.7
million have variable interest rates.





                                       20
<PAGE>

Investments

         Total available for sale investment securities decreased 19.3% to $17.9
million at December 31,  2000,  from $22.2  million at December  31,  1999.  The
overall decrease was primarily a result of management's efforts to reduce market
rate risk in Guaranty's balance sheet.

         The following  table shows the amortized  cost and fair market value of
investment securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                           December 31,
                                                      2000                     1999                       1998
------------------------------------------------------------------------------------------------------------------------
                                                Cost        Market        Cost       Market          Cost       Market
------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>           <C>         <C>            <C>         <C>
Held-to-maturity
     Mortgage-backed securities                 $ 950        $ 970       $ 1,086     $ 1,103        $ 2,094     $ 2,187
     Other                                        250          250           250         250            250         250
------------------------------------------------------------------------------------------------------------------------
     Total held-to-maturity                     1,200        1,220         1,336       1,353          2,344       2,437
------------------------------------------------------------------------------------------------------------------------

Available for sale
     Corporate bonds                           19,354       17,508        19,416      17,097         26,463      26,581
     U.S. Government Obligations                    -            -             -           -            301         328
     Mortgage-backed securities                     -            -         4,898       4,780              -           -
------------------------------------------------------------------------------------------------------------------------
     Total available for sale                  19,354       17,508        24,314      21,877         26,764      26,909
------------------------------------------------------------------------------------------------------------------------

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

Other
     Federal Reserve Bank & Other Stocks          422          422           320         320            328         328
     Federal Home Loan Bank Stock               1,550        1,550         1,500       1,500          1,300       1,300
------------------------------------------------------------------------------------------------------------------------
     Total                                   $ 22,526     $ 20,700      $ 27,470    $ 25,050       $ 31,736    $ 31,975
========================================================================================================================
</TABLE>










                                       21
<PAGE>

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

                                                                  December 31,
                                              2000                    1999                    1998
----------------------------------------------------------------------------------------------------------
                                        Book       % of         Book       % of         Book       % of
                                        Value      Total        Value      Total        Value      Total
----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                   <C>        <C>          <C>         <C>         <C>         <C>
Investment securities:

FHLMC mortgage-backed securities         $ 950     4.59%       $ 1,086      4.34%      $ 2,094      6.64%
FNMA mortgage-backed securities              0         -         4,781      19.10            -          -
Corporate bonds                         17,508     84.66        17,096      68.29       26,581      84.24
Treasury and agency notes                  250      1.21           250       1.00        1,250       3.96
Other                                      422      2.04           320       1.28          328       1.04
----------------------------------------------------------------------------------------------------------
Subtotal                                19,130     92.50        23,533      94.01       30,253      95.88

Other:
FHLB stock                               1,550      7.50         1,500       5.99        1,300       4.12
----------------------------------------------------------------------------------------------------------

Total Investment securities           $ 20,680   100.00%      $ 25,033    100.00%     $ 31,553    100.00%
==========================================================================================================
</TABLE>

Loans

         Net loans consist of total loans minus undisbursed loan funds, deferred
loan fees and the  allowance  for loan  losses.  Net loans  declined  by 1.9% to
$201.6  million at  December  31,  2000,  as Guaranty  controlled  its growth to
increase  its  regulatory  capital  ratios.  Net loans  were  $205.3  million at
December 31, 1999, an increase of 26.4% over  December 31, 1998.  Net loans were
$162.4  million at  December  31,  1998,  an increase of 62.9% over net loans at
December 31, 1997.

         The average  balance of total loans as a percentage  of average  assets
was  80.7%,  and  75.7%  for  the  years  ended  December  31,  2000  and  1999,
respectively.











                                       22
<PAGE>

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

                                 Loan Portfolio
<TABLE>
<CAPTION>
                                                                 December 31,
-----------------------------------------------------------------------------------------------------
                                              2000       1999        1998         1997        1996
-----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                        <C>         <C>         <C>          <C>         <C>
Mortgage Loans:
         Residential                       $ 54,911    $ 54,912    $ 61,945     $ 66,035    $ 67,016
         Commercial                           3,434       3,838       3,926       16,641       8,486
         Construction and land loans         59,363      70,009      52,530       18,263       5,220
-----------------------------------------------------------------------------------------------------
         Total real estate                  117,708     128,759     118,401      100,939      80,722
Commercial business loans                    59,120      53,505      25,635            -           -
Consumer loans                               27,158      24,422      19,141        6,705       4,175
-----------------------------------------------------------------------------------------------------
         Total loans receivable             203,986     206,686     163,177      107,644      84,897
-----------------------------------------------------------------------------------------------------
Adjustments:
         Undistributed loans in process           -           -           -        6,752       2,467
         Deferred fees (costs)                  (27)         40         113          282         290
         Allowance for losses                 2,397       1,303       1,002          935         870
-----------------------------------------------------------------------------------------------------
         Total net items                      2,370       1,343       1,115        7,969       3,627
-----------------------------------------------------------------------------------------------------
         Total loans receivable, net       $201,616    $205,343    $162,062     $ 99,675    $ 81,270
=====================================================================================================
</TABLE>

         The  growth of our loan  portfolio  and the  change in its  composition
reflects our growth  strategy and the conversion of Guaranty Bank from a savings
association  to a  commercial  bank.  At June  30,  1996,  we had no  commercial
business  loans.  Construction  loans  accounted  for only 10.0% of gross loans,
while residential  mortgage loans represented 75.2% of gross loans. In contrast,
at  December  31,  2000,  commercial  business  loans,  construction  loans  and
residential mortgage loans,  respectively represented 29.3%, 28.9%, and 13.2% of
gross loans.











                                       23
<PAGE>

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

                 Fixed Rate and Adjustable Rate Loans by Amount
<TABLE>
<CAPTION>
                                                                    December 31,
-----------------------------------------------------------------------------------------------------------
                                          2000           1999           1998          1997           1996
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                     <C>            <C>            <C>           <C>            <C>
Fixed-Rate Loans:
   Real Estate
      Residential                       $ 20,403       $ 18,277       $ 20,206      $ 26,514       $ 26,061
      Commercial                               -          1,155          3,623             -              -
      Construction and land loans              -              -              -            37            138
-----------------------------------------------------------------------------------------------------------
      Total real estate                   20,403         19,432         23,829        26,551         26,199
-----------------------------------------------------------------------------------------------------------
Commercial business loans                 12,891         21,681          4,178             -              -
Consumer loans                             3,832          2,825            242         3,099          1,396
-----------------------------------------------------------------------------------------------------------
   Total fixed-rate loans                 37,126         43,938         28,249        29,650         27,595
-----------------------------------------------------------------------------------------------------------
Adjustable-Rate Loans:
   Real Estate
   Residential                            34,508         44,519         46,163        39,521         40,955
   Commercial                              3,434         11,140          9,670        16,641          8,486
   Construction and land loans            59,138         66,181         60,088        18,226          5,082
-----------------------------------------------------------------------------------------------------------
      Total real estate                   97,080        121,840        115,921        74,388         54,523
Commercial business loans                 47,053         30,880         19,514             -              -
Consumer loans                            23,123         14,366          9,388         3,606          2,779
-----------------------------------------------------------------------------------------------------------
   Total adjustable-rate loans           167,256        167,086        144,823        77,994         57,302
-----------------------------------------------------------------------------------------------------------
       Total loans receivable            204,382        211,024        173,072       107,644         84,897
-----------------------------------------------------------------------------------------------------------

Less:
   Undisbursed loans in process              395          4,382          9,588         6,752          2,467
   Deferred loan fees                        (27)            40            113           282            290
   Allowances for losses                   2,397          1,203          1,002           935            870
-----------------------------------------------------------------------------------------------------------
       Total net items                     2,765          5,625         10,703         7,969          3,627
-----------------------------------------------------------------------------------------------------------
       Total loans receivable, net      $201,617       $205,399       $162,369      $ 99,675       $ 81,270
===========================================================================================================
</TABLE>

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

Asset Quality

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



                                       24
<PAGE>

         Assets which do not currently  expose  Guaranty to  sufficient  risk to
warrant  classification  in one  of the  aforementioned  categories  but  posses
potential  weaknesses  are  required  to  be  designated  "special  mention"  by
management.  On the basis of management's  review of its assets, at December 31,
2000,  Guaranty had classified  $7.1 million of its assets as  substandard,  and
$3,000  as  doubtful  or loss.  Not all of  Guaranty's  assets  that  have  been
classified are included in the table of  non-performing  assets set forth below.
Several of these loans are classified  because of previous  credit  problems but
are performing.

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

         The following table reflects the composition of nonperforming assets at
the dates indicated.
<TABLE>
<CAPTION>

                                                               December 31,
------------------------------------------------------------------------------------------------
                                          2000        1999         1998        1997        1996
------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S>                                      <C>         <C>          <C>         <C>         <C>
Nonaccrual loans                            238      $1,310       $1,686      $1,436      $1,670
Restructured loans                            -           -            -           -          11
------------------------------------------------------------------------------------------------
     Total non-performing loans             238       1,310        1,686       1,436       1,681
------------------------------------------------------------------------------------------------
Foreclosed assets                         1,301         843          488          65          51
------------------------------------------------------------------------------------------------
     Total non-performing assets         $1,539      $2,153       $2,174      $1,501      $1,732
================================================================================================

Loans past due 90 or more days and
     accruing interest                   $1,587      $   93       $  106      $  189      $    -
Non-performing loans to total loans, at
     period end                           0.12%       0.62%        0.97%       1.42%       1.98%
Non-performing assets to period end
     total loans and foreclosed assets    0.76%       1.02%        1.25%       1.49%       2.04%
</TABLE>


Delinquent and problem loans

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

Allowance for losses on loans and real estate

         Guaranty provides valuation  allowances for anticipated losses on loans
and real estate when its management determines that a significant decline in the
value of the collateral has occurred, and if the value of the collateral is less
than the amount of the unpaid principal of the related loan plus estimated costs
of acquisition and sale. In addition,  Guaranty also provides  reserves based on
the dollar amount and type of collateral securing its loans, in order to protect
against  unanticipated  losses. A loss experience



                                       25
<PAGE>

percentage  is  established  for  each  loan  type  and is  reviewed  quarterly.
Quarterly the loss  percentage is applied to the portfolio,  by product type, to
determine the minimum amount of reserves required.  Although management believes
that it uses the best information available to make such determinations,  future
adjustments to reserves may be necessary,  and net income could be significantly
affected,  if circumstances differ substantially from assumptions used in making
the initial determinations.

         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,
------------------------------------------------------------------------------------------------------------
                                             2000           1999          1998          1997          1996
------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>           <C>           <C>           <C>
Balance at beginning of period              $1,203         $1,002          $935          $870          $747
Provision charged to operations              1,505            486           184           122            57
Charge-offs:
     Real estate                               229            122           120            57            39
     Consumer                                   72              -             -             -             -
     Commercial                                 34            165             -             -             -
Recoveries:
     Real estate                                20              -             3             -            19
     Consumer                                    2              2             -             -
     Commercial                                  1              -             -             -             4
------------------------------------------------------------------------------------------------------------
Net Charge-offs                                312            285           117            57            16
------------------------------------------------------------------------------------------------------------
Balance, end of period                      $2,396         $1,203        $1,002          $935          $788
============================================================================================================

Allowance for loan losses to period
     end total loans                         1.19%          0.57%         0.58%         0.93%         0.93%
Allowance for loan losses to
     nonaccrual loans                     1006.72%         91.83%        59.43%        67.20%        54.05%
Net charge-offs to average loans             0.15%          0.15%         0.10%         0.06%         0.02%
</TABLE>


Provision for loan losses

         For the years ended December 31, 2000, 1999 and 1998, the provision for
loan  losses  was  $1.5  million,  $486,000,  and  $184,200,  respectively.  The
provision  for loan  losses  has  increased  during  these time  periods  due to
Guaranty's continued movement towards commercial business,  and construction and
land  development  lending which carries a higher risk of loss than  traditional
mortgage  lending.  The increase in the provision for loan losses in 2000 was to
increase  Guaranty's  allowance for possible loan losses to an amount consistent
with its peer  institutions.  The increase was not  attributable to any specific
asset quality problems.

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



                                       26
<PAGE>

         A  breakdown  of the general  allowance  for loan losses in dollars and
loans  in each  category  to total  loans  in  percentages  is  provided  in the
following  tables.  Because  all of these  factors  are  subject to change,  the
breakdown is not  necessarily  predictive of future loan losses in the indicated
categories.
<TABLE>
<CAPTION>
December 31,                       2000                  1999                  1998
----------------------------------------------------------------------------------------------
                                      Ratio of               Ratio of               Ratio of
                                      Loans to               Loans to               Loans to
                                     Total Gross            Total Gross            Total Gross
                           Allowance    Loans     Allowance    Loans     Allowance    Loans
----------------------------------------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------------------------
<S>                         <C>      <C>          <C>        <C>         <C>        <C>
Residential real estate       $ 109    26.9%         $ 78      29.8%       $ 101      38.4%
Commercial real estate            -     1.7           109       5.8          144       7.7
Construction and land         1,056    29.1           383      31.4          384      34.7
Commercial business             861    29.0           466      24.9          258      13.7
Consumer and other loans        137    13.3           167       8.1          115       5.6
Unallocated                     233      -             -         -            -         -
----------------------------------------------------------------------------------------------
     Total                  $ 2,396   100.0%      $ 1,203     100.0%     $ 1,002     100.0%
==============================================================================================



December 31,
---------------------------------------------------------------------------------------------
                                   1997                  1996
---------------------------------------------------------------------------------------------
                                      Ratio of               Ratio of
                                      Loans to               Loans to
                                     Total Gross            Total Gross
                           Allowance    Loans     Allowance    Loans
---------------------------------------------------------------------------------------------
(Dollars in thousands)
---------------------------------------------------------------------------------------------

Residential real estate       $ 477     61.4%       $ 327      75.2%
Commercial real estate          212     15.5          194       8.7
Construction and land            52     17.0           70      10.0
Commercial business               -       -             -        -
Consumer and other loans         43      6.2           40       6.1
Unallocated                     151       -           157        -
---------------------------------------------------------------------------------------------
     Total                    $ 935    100.0%       $ 788     100.0%
=============================================================================================
</TABLE>












                                       27
<PAGE>

Non-Interest Income

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

                                         Year Ended December 31,
--------------------------------------------------------------------------------
                                                2000        1999        1998
--------------------------------------------------------------------------------
Non Interest Income
--------------------------------------------------------------------------------
(Dollars in thousands)
Servicing income (loss)
    Gross servicing income                    $   197     $   560     $   452
    Amortization expense                         (138)       (563)       (169)
                                            ------------------------------------
Net servicing income (loss)                        59          (3)        283
Gain (loss)on sale of loans and securities        137        (870)      1,063
Service charges on checking                       718         578         424
Late charges and other consumer fees              238         105          69
Annuity and investment sales                      195         140          61
Other                                              93         175          66
--------------------------------------------------------------------------------
Total                                         $ 1,440     $   125     $ 1,966
--------------------------------------------------------------------------------

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

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

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



                                       28
<PAGE>

         Historically,  mortgage loan  servicing was a significant  business for
Guaranty.  Loan  servicing  includes  collecting  and remitting  loan  payments,
accounting for principal and interest, holding escrow funds for payment of taxes
and insurance, making required inspections of the mortgaged premises, contacting
delinquent  mortgagors,  supervising  foreclosures  in the  event of  unremitted
defaults and  generally  administering  the loans for the investors to whom they
have been sold. MSRs are intangible  assets that represent the rights to service
mortgage loans and in turn to receive the service fee income associated with the
mortgage  loans.  MSRs are amortized  against income over the estimated  average
lives of the loans  serviced.  If loans are  prepaid at rates  faster than those
originally  assumed,  adjustments  may be required to the  unamortized  balance,
which  could  result  in  charges  to  current  earnings.   Conversely,   slower
prepayments rates could result in increases in mortgage loan servicing income in
future periods.  Impairment of MSRs is assessed based on the fair value of those
rights. Fair values are estimated using discounted cash flows based on a current
market interest rate. For the purposes of measuring  impairment,  the rights are
stratified  based on the  predominant  risk  characteristics  of the  underlying
loans.  The amount of impairment  recognized is the amount by which  capitalized
MSRs for a stratum  exceed their fair value.  At December 31, 2000 and 1999 MSRs
totaled $1.0 million and $568,000, respectively.  Impairment on these rights was
$55,000 and $1,000 for the years ended December 31, 2000 and 1999, respectively.
See  "Financial  Statements - Summary of  Accounting  Policies." At December 31,
2000 and 1999,  loans  serviced  for others  totaled  $92.0  million  and $241.9
million,  respectively.  Approximately $189,000,000 of loans serviced for others
at  December  31,  1999 were sold to a third  party with  transfer  of the loans
having occurred in February 2000.

         Guaranty sells fixed rate residential  production on an individual loan
basis and securitizes  loans through the creation of Federal  National  Mortgage
Association  ("FNMA"),  Federal Home Loan  Mortgage  Corporation  ("FHLMC")  and
Governmental National Mortgage Association ("GMNA") mortgage-backed  securities.
During the years ended  December 31, 2000 and 1999,  Guaranty sold $39.9 million
and $80.0 million, respectively, of loans and securitized loans.

         Prior to 2000,  Guaranty has 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 2000. Sales of trading account
securities  totaled $ 30.8  million  during the year ended  December  31,  1999.
Guaranty experienced losses of $304,000 and $302,000, respectively on such sales
for the years ended December 31, 1999 and 1998.

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

Non-Interest Expenses

         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 the year.
For the year ended  December 31, 1998,  non-interest  expenses were $5.8 million
compared to $3.8 million for the year ended December 31, 1997. This increase was
due primarily to increased costs associated with the expanded branch network and
the new commercial loan department.




                                       29
<PAGE>

                                            Year Ended December 31,
------------------------------------------------------------------------
Non Interest Expense                     2000        1999        1998
------------------------------------------------------------------------
(Dollars in thousands)
Personnel                               $ 4,227     $ 3,998     $ 3,089
Occupancy                                 1,353         918         783
Data processing                             926         762         585
Marketing and professional fees             740         471         513
Other                                     1,549       1,216         823
------------------------------------------------------------------------
Total                                   $ 8,795     $ 7,365     $ 5,793
------------------------------------------------------------------------

Income Taxes

         Income tax expense  for the years ended  December  31,  2000,  1999 and
1998,  was  $313,000,  $2,300 and  $624,000,  respectively.  The  decreases  and
increases are a direct result of earnings  levels for the respective  year ends.
The effective income tax rate for each year is substantially the same.

Sources of Funds

Deposits

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

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

         At December 31, 2000,  deposits were $216.7  million,  an 8.6% increase
from $199.6  million at December 31, 1999. The deposit growth is a reflection of
management's  emphasis on core deposit growth,  aggressive pricing and increased
marketing.  In  order  to  reduce  the  overall  cost of funds  and  reduce  the
Corporation's reliance on high cost time deposits and short term borrowings as a
funding  source,  management  continues to direct  extensive  marketing  efforts
towards  attracting  lower  cost  transaction  accounts.  However,  there  is no
assurance that these efforts will be successful,  or if successful,  will reduce
the Corporations reliance on time deposits and short term borrowings.





                                       30
<PAGE>

         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,                                 2000          1999         1998
--------------------------------------------------------------------------------
(Dollars in thousands)
Statement savings accounts                 $ 10,311      $ 11,203      $ 9,863
Demand deposit accounts                      40,571        30,206       23,433
Money market accounts                        18,894        27,878       22,319
30-to-180-day certificates                    4,613         3,250          825
Seven to eleven month certificates           37,027             -            -
One-to five-year fixed-rate certificates     98,540       119,350      106,953
Eighteen-month prime rate certificates        6,771         7,708        9,412
--------------------------------------------------------------------------------
     Total                                 $216,727      $199,595     $172,805
================================================================================

         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,             2000                   1999                    1998
------------------------------------------------------------------------------------------------
                                         Average                Average                 Average
                              Average     Rate       Average      Rate       Average      Rate
                              Balance     Paid       Balance      Paid       Balance      Paid
------------------------------------------------------------------------------------------------
<S>                          <C>          <C>       <C>           <C>       <C>           <C>
(Dollars in thousands)
Noninterest bearing
  demand deposits             $14,409     0.00%      $10,232      0.00%      $ 5,338      0.00%
Interest bearing
  demand deposits              42,034     3.16%       44,906      3.50%       24,936      3.46%
Savings deposits               10,922     2.24%       10,968      2.31%        8,551      2.97%
Time deposits                 149,787     5.97%      126,015      5.19%       93,615      5.41%
------------------------------------------------------------------------------------------------
Total deposits               $217,152     4.84%     $192,121      4.35%     $132,440      4.67%
================================================================================================
</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.





                                       31
<PAGE>

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

------------------------------------------------------------------
Year Ended December 31,        2000          1999          1998
------------------------------------------------------------------
(Dollars in thousands)
------------------------------------------------------------------
Opening balance              $199,595      $172,805      $112,947
Net deposits                    6,610        18,425        53,673
Interest credited              10,522         8,365         6,185
------------------------------------------------------------------
Ending balance               $216,727      $199,595      $172,805
------------------------------------------------------------------

Net increase                 $ 17,132      $ 26,790      $ 59,858
Percent increase                 8.58%        15.50%        53.00%
==================================================================

         The following table indicates the amount of Guaranty's  certificates of
deposit by time remaining until maturity as of December 31, 2000.

<TABLE>
<CAPTION>
                                                                    Maturity
--------------------------------------------------------------------------------------------------------
                                             3 Months    Over 3 to   Over 6 to      Over
                                             or less     6 months    12 months    12 months     Total
--------------------------------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>          <C>          <C>        <C>
Certificates of deposit less than $100,000   $ 35,246    $ 20,627     $ 57,390     $ 6,941    $ 120,204
Certificates of deposit of $100,000 or more     8,326       6,184       10,618       1,619       26,747
--------------------------------------------------------------------------------------------------------
     Total certificates of deposit           $ 43,572    $ 26,811     $ 68,008     $ 8,560    $ 146,951
========================================================================================================
</TABLE>

Borrowings

         As a member of the FHLB of Atlanta, Guaranty is required to own capital
stock in the FHLB of Atlanta and is  authorized  to apply for advances  from the
FHLB of Atlanta.  Each FHLB credit program has its own interest rate,  which may
be fixed or variable, and range of maturities. The FHLB of Atlanta may prescribe
the  acceptable  uses to which these advances may be put, as well as on the size
of the advances and repayment  provisions.  The advances are  collateralized  by
Guaranty's  investment  in  Federal  Home Loan Bank stock and  certain  mortgage
loans.  See the  Notes to  Consolidated  Financial  Statements  for  information
regarding the  maturities and rate  structure of Guaranty's  FHLB  advances.  At
December 31, 2000,  Guaranty had $14.0 million  outstanding to the FHLB compared
to $20 million and $21 million outstanding at the end of the prior two years.

         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, 2000,  Guaranty did not have any amount  outstanding  in securities
sold under  agreement to repurchase,  as compared to $16.6 million at the end of
the prior year.

         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.



                                       32
<PAGE>

         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,              2000              1999                1998
----------------------------------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------------------
<S>                                <C>                <C>                 <C>
Maximum Balance:
     FHLB Advances                 $31,000            $30,000             $26,000
     Securities sold under
        agreements to repurchase    16,684             16,650              6,856
----------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                        Weighted            Weighted            Weighted
                               Average  Average    Average  Average    Average  Average
                               Balance    Rate     Balance    Rate     Balance    Rate
----------------------------------------------------------------------------------------
<S>                             <C>       <C>      <C>        <C>       <C>       <C>
FHLB Advances                   $18,637   6.51%    $26,226    4.88%     $9,748    5.57%
Securities sold under
     agreements to repurchase     4,137   6.59%      9,387    5.10%      2,336    5.00%
========================================================================================
</TABLE>


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

--------------------------------------------------------------------------------
December 31,                                     2000         1999        1998
--------------------------------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------------------------------
FHLB advances                                   $14,000     $20,000     $21,000
Securities sold under agreements
  to repurchase                                       -      16,650       1,008
--------------------------------------------------------------------------------
     Total short-term borrowings                 14,000     $36,650     $22,008
================================================================================
Weighted average interest rate of
  short-term FHLB advances                        6.35%       5.57%       5.57%
Weighted average interest rate of
  securities sold under agreements to
  repurchase                                          -       6.14%       5.00%
================================================================================

See notes to the Consolidated Financial Statements.


Liquidity and Capital Resources

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

         Guaranty's  primary  sources  of funds are  deposits,  borrowings,  and
amortization,  prepayments and maturities of outstanding  loans and investments,
and loan sales.  While  scheduled  payments from the


                                       33
<PAGE>

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.

         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 of the company
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.

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

         Guaranty uses its sources of funds  primarily to meet operating  needs,
to pay deposit  withdrawals and fund loan commitments.  At December 31, 2000 and
1999  total  approved  loan  commitments  were  $6.2  million  and $4.4  million
respectively.  In addition, at December 31, 2000 and 1999 and 1998,  commitments
under  unused  lines of credit  were  $49.7  million,  $61.7  million  and $52.3
million,  respectively.  Certificates of deposit scheduled to mature in one year
or less at December  31,  2000,  1999 and 1998 totaled  $138.4  million,  $112.8
million,  $91.5 million,  respectively.  Management  believes that a significant
portion of maturing deposits will remain with Guaranty.

         Management  intends to fund  anticipated  loan  closings and  operating
needs  during 2001  through  cash on hand,  proceeds  from the sale of loans and
securities,   cash  generated  from  operations  and  anticipated  increases  in
deposits.  Current and anticipated marketing programs will be primarily targeted
at the  attraction  of lower  cost  transaction  accounts.  Concurrent  with the
strategies  employed to attract these  accounts,  management  plans to gradually
reduce the rate paid on time deposits in comparison to the competition. However,
the pricing of time deposits  will be balanced  against  upcoming  maturities to
ensure  that  liquidity  is not  adversely  impacted  by a large run off of time
deposits.

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



                                       34
<PAGE>

Trust I issued  $6.9  million of 7.0%  cumulative  convertible  trust  preferred
securities.  The proceeds,  less issuance costs of  approximately  $276,000 were
added to the Bank's additional paid in capital.

         Guaranty and the Bank are subject to regulatory capital requirements of
the Federal Reserve. At December 31, 2000, Guaranty exceeded all such regulatory
capital as shown in the following table.
<TABLE>
<CAPTION>
                                                 December 31, 2000
                                                 Guaranty Financial   Guaranty
                                                     Corporation        Bank
-------------------------------------------------------------------------------
(Dollars in thousands)
-------------------------------------------------------------------------------
<S>                                                    <C>            <C>
Tier 1 Capital:
  Common stock                                         $  2,452       $  2,000
  Capital surplus                                         8,953          9,742
  Cumulative preferred securities (2)                     5,419              -
  Retained earnings                                       4,851         10,217
-------------------------------------------------------------------------------
  Disallowed intangible assets                              102            102
-------------------------------------------------------------------------------
    Total Tier 1 Capital                                 21,573         21,857
-------------------------------------------------------------------------------

Tier 2 Capital:
  Allowance for loan losses (1)                           2,396          2,396
  Cumulative preferred securities                           594              -
-------------------------------------------------------------------------------
    Total Tier 2 Capital                                  2,990          2,396
-------------------------------------------------------------------------------
      Total Risk Based Capital                         $ 24,563       $ 24,253
-------------------------------------------------------------------------------

Risk Weighted Assets                                   $216,439       $218,065

Capital Ratios:
  Tier 1 Risk-based                                        9.97%         10.02%
  Total Risk-based                                        11.35%         11.12%
  Tier 1 Capital to average adjusted total assets          8.50%          8.62%
===============================================================================
</TABLE>
(1)  Limited to 1.25% of risk weighted assets.
(2)  Limited to 1/3 of core capital.


Impact of Inflation and Changing Prices and Seasonality

         The  financial  statements  in this  document  have  been  prepared  in
accordance  with  generally  accepted  accounting  principles  which require the
measurement of financial  position and operating  results in terms of historical
dollars,  without  considering changes in the relative purchasing power of money
over time due to inflation.

         Unlike   industrial   companies,   virtually  all  of  the  assets  and
liabilities  of a financial  institution  are  monetary in nature.  As a result,
interest  rates  have a more  significant  impact on a  financial  institution's
performance  than the effects of general levels of inflation.  Interest rates do
not necessarily move in the same direction or in the same magnitude as the price
of goods and services, since such prices are affected by inflation.

Accounting Rules

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), which establishes  accounting and reporting
standards for derivative  instruments,  including certain



                                       35
<PAGE>

derivative instruments embedded in other contracts,  and for hedging activities.
SFAS 133, which was  subsequently  amended by SFAS 138  "Accounting  for Certain
Derivative Instruments and Certain Hedging Activities",  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 if
the  hedging  derivative  and  the  measurement  approach  for  determining  the
ineffective  aspect of the hedge.  Those  methods  must be  consistent  with the
entity's approach to managing risk. SFAS 133, as amended,  was effective for all
quarters of fiscal years beginning after June 15, 2000, and required application
prospectively.  The  adoption of SFAS 133,  as amended,  did not have a material
impact on the consolidated 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. The  Corporation  believes that adoption of FIN 44
will not have a material effect on the  Corporation's  financial  statements but
may impact the accounting for grants or awards in future periods.

Subisdiary 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 $42,500  and $2,400 for the years  ended  December  31, 2000 and
1999,  respectively,  and a net loss of $15,800 for the year ended  December 31,
1998.

         In 1987,  Guaranty  formed  GMSC and  entered  into a REMIC in order to
create  liquidity.  Guaranty  utilized the REMIC to pool $19.9  million of fixed
rate mortgages into mortgage  backed  securities,  which were used as collateral
for bonds sold to private investors. The bonds bore a coupon of 8% and were sold
at a discount and costs of issuance of  approximately  $3.3 million.  The bonds'
discount and issuance costs are amortized against income as mortgages underlying
the  bonds  repay.  For the  years  ended  December  31,  2000,  1999 and  1998,
amortization  expense was  $21,000,  $156,000  and  $101,000  respectively.  The
amortization of the REMIC expenses is treated as interest expense.


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, 2000 and 1999
         Consolidated  Statements of Operations for the years ended December 31,
             2000, 1999 and 1998
         Consolidated  Statements of  Comprehensive  Income (Loss) for the years
             ended December 31, 2000, 1999 and 1998


                                       36
<PAGE>

         Consolidated  Statements  of  Stockholders'  Equity for the years ended
             December 31, 2000, 1999 and 1998
         Consolidated  Statements of Cash Flows for the years ended December 31,
             2000, 1999 and 1998
         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
2001 Annual Meeting of  Shareholders,  which Proxy  Statement will be filed with
the Securities and Exchange  Commission within 120 days of the end of Guaranty's
2000  fiscal  year (the  "2001  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 2001 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 2001
Proxy Statement is incorporated by reference.


Item 12.     Certain Relationships and Related Transactions

         Information set forth under the heading  "Transactions with Management"
in the 2001 Proxy Statement is hereby incorporated by reference.






                                       37
<PAGE>

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
                   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,   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  Guaranty's  definitive
                   Proxy Statement for the 1998 Annual Meeting of  Shareholders,
                   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, 2000.




















                                       38

<PAGE>









                Guaranty Financial Corporation
                              and Subsidiaries



















                                               Consolidated Financial Statements
                                            As of December 31, 2000 and 1999 and
                            For the Years Ended December 31, 2000, 1999 and 1998












<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries


                                                                        Contents

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

     Report of Independent Certified Public Accountants                        3

     Consolidated Financial Statements

       Balance Sheets                                                          4

       Statements of Operations                                            5 - 6

       Statements of Comprehensive Income (Loss)                               7

       Statements of Stockholders' Equity                                      8

       Statements of Cash Flows                                           9 - 11

     Summary of Accounting Policies                                      12 - 17

     Notes to Consolidated Financial Statements                          18 - 38












                                                                               2
<PAGE>

                        [LETTERHEAD OF BDO SEIDMAN, LLP]



Report of Independent Certified Public Accountants



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

We  have  audited  the  consolidated   balance  sheets  of  Guaranty   Financial
Corporation  and  subsidiaries as of December 31, 2000 and 1999, 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, 2000.  These  financial  statements are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Guaranty  Financial  Corporation  and  subsidiaries  as of December 31, 2000 and
1999,  and the results of their  operations and their cash flows for each of the
three years in the period ended  December 31, 2000 in conformity  with generally
accepted accounting principles.


                                                   /s/ BDO Seidman, LLP

                                                   BDO Seidman, LLP

Richmond, Virginia
January 19, 2001







                                                                               3
<PAGE>


<TABLE>
<CAPTION>
===================================================================================================
December 31,                                                       2000                 1999
---------------------------------------------------------------------------------------------------
<S>                                                           <C>                  <C>
     Assets

Cash and cash equivalents (including interest
   bearing deposits of approximately
   $5,158,000 and $4,659,000)                                 $  15,550,212        $  12,634,518
Investment securities (Note 1)
   Held-to-maturity                                               1,199,609            1,335,625
   Available for sale                                            17,930,719           22,196,717
   Trading                                                                -                    -
Investment in Federal Home Loan Bank
   stock, at cost (Note 8)                                        1,550,000            1,500,000
Loans receivable, net (Notes 2 and 10)                          201,616,735          205,399,169
Accrued interest receivable                                       2,078,691            1,742,936
Real estate owned                                                 1,301,277              842,981
Office properties and equipment, net (Note 3)                     9,877,175            9,331,484
Mortgage servicing rights (Note 2)                                1,020,982              567,697
Other assets (Note 9)                                             1,896,977            3,788,163
---------------------------------------------------------------------------------------------------

















                                                               $254,022,377         $259,339,290
===================================================================================================
</TABLE>




<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                     Consolidated Balance Sheets

<TABLE>
<CAPTION>
===================================================================================================
December 31,                                                       2000                 1999
---------------------------------------------------------------------------------------------------
<S>                                                            <C>                  <C>
     Liabilities and Stockholders' Equity

Liabilities
   Deposits (Note 4)                                           $216,727,197         $199,594,671
   Advances from Federal Home Loan Bank
     (Note 8)                                                    14,000,000           20,000,000
   Securities sold under agreement to
     repurchase (Notes 1 and 7)                                           -           16,650,250
   Bonds payable (Notes 1 and 6)                                    792,153              902,513
   Accrued interest payable                                         393,787              257,879
   Prepayments by borrowers for taxes and
     insurance                                                      263,973              493,725
   Other liabilities                                                794,597            1,098,681
---------------------------------------------------------------------------------------------------

Total liabilities                                               232,971,707          238,997,719
---------------------------------------------------------------------------------------------------

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

Convertible preferred securities (Notes 12 and 13)                6,012,500            6,075,000
--------------------------------------------------------------------------------------------------

Stockholders' Equity (Notes 13 and 14)
   Preferred stock, par value $1 per share,
     500,000 shares authorized, none issued                               -                    -
   Common stock, par value $1.25 per share,
     4,000,000 shares authorized, 1,961,727
     shares issued and outstanding                                2,452,159            2,452,159
   Additional paid-in capital                                     8,953,230            8,943,119
   Accumulated other comprehensive loss                          (1,218,309)          (1,608,089)
   Retained earnings - substantially restricted                   4,851,090            4,479,382
---------------------------------------------------------------------------------------------------

Total stockholders' equity                                       15,038,170           14,266,571
---------------------------------------------------------------------------------------------------

                                                               $254,022,377         $259,339,290
===================================================================================================
    See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>



                                                                               4
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Operations


<TABLE>
<CAPTION>
=======================================================================================================
Year Ended December 31,                                    2000              1999              1998
-------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>               <C>
Interest income
   Loans                                            $20,102,511       $15,764,851       $11,230,838
   Investment securities                              2,254,749         2,607,285         1,829,428
-------------------------------------------------------------------------------------------------------

Total interest income                                22,357,260        18,372,136        13,060,266
-------------------------------------------------------------------------------------------------------

Interest expense
   Deposits                                          10,522,255         8,365,324         6,184,500
   Borrowings                                         2,054,883         2,273,678         1,224,475
-------------------------------------------------------------------------------------------------------

Total interest expense                               12,577,138        10,639,002         7,408,975
-------------------------------------------------------------------------------------------------------

Net interest income                                   9,780,122         7,733,134         5,651,291

Provision for loan losses (Note 2)                    1,505,000           486,000           184,200
-------------------------------------------------------------------------------------------------------

Net interest income after provision
   for loan losses                                    8,275,122         7,247,134         5,467,091
-------------------------------------------------------------------------------------------------------

Other income
   Loan and deposit fees and servicing income           775,743           517,585           656,293
   Net gain (loss) on sale of loans and
     securities                                         136,704          (870,376)        1,062,670
   Other                                                527,533           477,794           247,240
-------------------------------------------------------------------------------------------------------

Total other income                                    1,439,980           125,003         1,966,203
-------------------------------------------------------------------------------------------------------

Other expense
   Personnel                                          4,226,707         3,998,107         3,089,212
   Occupancy (Note 11)                                1,352,678           918,099           783,473
   Data processing (Note 11)                            925,751           762,159           585,282
   Other                                              2,289,747         1,687,039         1,334,848
-------------------------------------------------------------------------------------------------------

Total other expenses                                  8,794,883         7,365,404         5,792,815
-------------------------------------------------------------------------------------------------------


                                                                                           continued...

</TABLE>

                                                                               5
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Operations
                                                                     (continued)


<TABLE>
<CAPTION>
======================================================================================================
Year Ended December 31,                                    2000              1999              1998
------------------------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>           <C>
Income before income taxes                             $920,219            $6,733        $1,640,479

Provision for income taxes (Note 9)                     313,103             2,300           624,200
------------------------------------------------------------------------------------------------------

Net income                                             $607,116            $4,433        $1,016,279
======================================================================================================

Basic and Diluted Earnings Per Share                   $    .31            $    -        $      .68
======================================================================================================
       See accompanying summary of accounting policies and notes to consolidated finanical statements.

</TABLE>














                                                                               6
<PAGE>


                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                          Consolidated Statements of Comprehensive Income (Loss)

<TABLE>
<CAPTION>
======================================================================================================
Year Ended December 31,                                     2000              1999             1998
------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>               <C>
Net income                                              $607,116       $     4,433       $1,016,279
------------------------------------------------------------------------------------------------------

   Other comprehensive income (loss)
     Unrealized gains on securities
       Unrealized holding gains (losses)
         arising during period                           514,370        (2,385,032)         (19,865)
       Less: reclassification adjustment for
         gains (losses) included in net
         income                                          (76,206)          187,262          (82,211)
------------------------------------------------------------------------------------------------------

   Other comprehensive income (loss),
     before tax                                          590,576        (2,572,294)          62,346

     Income tax (expense) benefit related
       to items of other comprehensive
       income (loss)                                    (200,796)          874,580          (23,692)
------------------------------------------------------------------------------------------------------

   Other comprehensive income (loss)
     net of tax                                          389,780        (1,697,714)          38,654
------------------------------------------------------------------------------------------------------

Comprehensive income (loss)                             $996,896       $(1,693,281)      $1,054,933
======================================================================================================
       See accompanying summary of accounting policies and notes to consolidated finanical statements.

</TABLE>









                                                                               7
<PAGE>


                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                 Consolidated Statements of Stockholders' Equity


<TABLE>
<CAPTION>
=======================================================================================================================
                                                                       Accumulated
                                                       Additional         Other                             Total
                                        Common          Paid-in       Comprehensive       Retained      Stockholders'
                                         Stock          Capital       Income (Loss)       Earnings         Equity
-----------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>          <C>                  <C>             <C>
Balance, December 31, 1997               $1,876,729     $5,724,954   $      50,971        $4,207,500      $11,860,154
Cash dividend                                     -              -               -          (360,816)        (360,816)
Other comprehensive
   income                                         -              -          38,654                 -           38,654
Stock options exercised
   (Note 14)                                  2,500         21,500               -                 -           24,000
Repurchase of common stock                   (2,070)       (21,930)              -                 -          (24,000)
Net income                                        -              -               -         1,016,279        1,016,279
-----------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998                1,877,159      5,724,524          89,625         4,862,963       12,554,271
Cash dividend                                     -              -               -          (388,014)        (388,014)
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
=======================================================================================================================
                        See accompanying summary of accounting policies and notes to consolidated finanical statements.
</TABLE>




                                                                               8
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,                                              2000                 1999                1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>                  <C>
Operating activities
   Net income                                               $     607,116      $         4,433      $    1,016,279
   Adjustments to reconcile net income
     to net cash provided (absorbed) by
     operating activities
       Provision for loan losses                                1,505,000              486,000             184,200
       Depreciation and amortization                              721,954              632,665             487,073
       Amortization of deferred loan fees                         (63,298)             (43,797)           (529,287)
       Net amortization of premiums and
         accretion of discounts                                   (92,757)             111,133             194,913
       Gain on sale of loans                                     (338,318)            (319,689)         (1,328,575)
       Originations of loan held for sale                     (40,142,264)         (79,669,584)        (58,985,227)
       Proceeds from sale of loans                             39,803,946           79,989,273          60,313,802
       Loss (gain) on sale of held to maturity
         and securities available for sale                         76,206            1,212,750            (378,082)
       Loss on disposal of office properties
         and equipment                                             27,554                5,657               6,316
       Loss on sale of trading account
         securities                                                     -              303,968             301,869
       Purchases of trading account securities                          -          (30,061,752)       (106,204,637)
       Sales of trading account securities                              -           30,757,784         105,934,956
       Changes in
         Accrued interest receivable                             (335,755)             (92,060)           (806,664)
         Other assets                                           1,865,189              (66,672)         (1,014,818)
         Accrued interest payable                                 135,908              133,053              66,422
         Income taxes                                              36,108             (242,649)             61,549
         Prepayments by borrowers for
           taxes and insurance                                   (229,752)             365,592              47,309
         Other liabilities                                       (186,381)             628,542             238,239
--------------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by operating
   activities                                                   3,390,456            4,134,647            (394,363)
--------------------------------------------------------------------------------------------------------------------






                                                                                                        continued...
</TABLE>


                                                                               9
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows
                                                                     (continued)


<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,                                             2000                  1999                1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                   <C>                 <C>
Investing activities
   Net decrease (increase) in loans                         $  2,559,072          $(43,826,795)       $(62,772,937)
   Repayments on held to maturity
     securities                                                  383,340             1,049,891             555,607
   Purchase of held to maturity securities                      (250,000)                    -            (150,000)
   Purchase of securities available for sale                           -           (53,120,948)       (105,361,247)
   Proceeds from sales of securities
     available for sale                                        4,798,122            54,923,087          90,471,571
   Sale of FHLB stock                                            500,000             1,100,000                   -
   Purchase of FHLB stock                                       (550,000)           (1,300,000)           (439,900)
   Purchase of other stock                                      (102,500)                    -                   -
   Origination of mortgage servicing rights                     (453,285)             (806,650)           (499,000)
   Purchase of office properties and
     equipment                                                (1,295,199)           (2,919,824)         (1,543,593)
--------------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by investing
   activities                                                  5,589,550           (44,901,239)        (79,739,499)
--------------------------------------------------------------------------------------------------------------------

Financing activities
   Net increase in deposits                                   17,132,526            26,789,387          59,858,272
   Repayment of Federal Home Loan
     Bank advances                                           (62,000,000)          (30,000,000)        (39,000,000)
   Proceeds from Federal Home Loan
     Bank advances                                            56,000,000            29,000,000          60,000,000
   Payments on bonds payable, including
     unapplied payments                                         (130,977)           (1,036,063)           (673,116)
   Increase (decrease) in securities sold
     under agreements to repurchase                          (16,650,250)           15,641,500          (1,980,250)
   Proceeds from issuance of convertible
     preferred securities                                              -                     -           6,900,000
   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)           (360,816)
--------------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by financing
   activities                                                 (6,064,312)           42,874,378          84,744,090
--------------------------------------------------------------------------------------------------------------------

                                                                                                         continued...
</TABLE>


                                                                              10
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows
                                                                     (continued)


<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,                                              2000                 1999                1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                  <C>                 <C>
Increase in cash and cash equivalents                         $ 2,915,694          $ 2,107,786         $ 4,610,228

Cash and cash equivalents, beginning
   of year                                                     12,634,518           10,526,732           5,916,504
--------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                        $15,550,212          $12,634,518         $10,526,732
====================================================================================================================
                     See accompanying summary of accounting policies and notes to consolidated finanical statements.
</TABLE>



















                                                                              11
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies


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

Nature of Business and Regulatory Environment

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

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, 2000 presentation.

Investment Securities

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

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



                                                                              12
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

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

Investment Securities (continued)

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

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

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

Loans Held for Sale

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

The Corporation had approximately  $2,193,000,  $630,000 and $1,080,000 of loans
held for sale at December 31, 2000, 1999 and 1998,  respectively.  The estimated
market value of these loans exceeded their carrying cost.

Loans Receivable

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

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

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





                                                                              13
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

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

Sale of Loans and Participation in Loans

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

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

The cost of mortgage  servicing  rights is amortized in proportion  to, and over
the  period  of,  estimated  net  servicing  revenues.  Impairment  of  mortgage
servicing  rights is  assessed  based on the fair  value of those  rights.  Fair
values are  estimated  using  discounted  cash flows  based on a current  market
interest rate. For purposes of measuring  impairment,  the rights are stratified
based on the  predominant  risk  characteristics  of the underlying  loans.  The
amount of impairment  recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed their fair value. At December 31, 2000 and
1999 an impairment of  approximately  $55,000 and $1,000 was recognized on those
rights, respectively.

Allowance for Possible Loan Losses

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

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







                                                                              14
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

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

Allowance for Possible Loan Losses (continued)

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

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

At December 31, 2000 and 1999 the  Corporation had no loans that were considered
impaired.

Real Estate Owned

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

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

Securities Sold Under Agreements to Repurchase

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

Office Properties and Equipment

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



                                                                              15
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                                  Summary of Accounting Policies
                                                                     (continued)

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

Income Taxes

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

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

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

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

Basic and Diluted Earnings Per Share

Basic earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity.  The basic
and diluted weighted  average number of shares of common stock  outstanding were
1,961,727,  1,558,439 and 1,501,604 for the years ended December 31, 2000,  1999
and 1998, 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  $12,713,000,  $10,772,000
and  $7,343,000  for  the  years  ended  December  31,  2000,   1999  and  1998,
respectively.  Cash paid for income taxes was approximately  $697,000,  $360,000
and $656,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Real estate  acquired in the  settlement  of loans was  approximately  $941,000,
$1,141,000  and $488,000 for the years ended  December 31, 2000,  1999 and 1998,
respectively.

New Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and Hedging Activities ("SFAS 133"), which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  SFAS 133, which was
subsequently amended by SFAS 138 "Accounting for Certain Derivative  Instruments
and  Certain  Hedging  Activities",   requires  that  an  entity  recognize  all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those  instruments at fair value.  If certain  requirements
are met, a derivative  may be  specifically  designated as a hedge and an entity
that elects to apply hedge  accounting is required to establish at the inception
of the  hedge the  method it will use for  assessing  the  effectiveness  of the
hedging derivative and the measurement  approach for determining the ineffective
aspect of the hedge. Those methods must be consistent with the entity's approach
to managing risk. SFAS 133, as amended, was effective for all fiscal quarters of
fiscal  years   beginning   after  June  15,  2000  and   required   application
prospectively.  The  adoption of SFAS 133,  as amended,  did not have a material
impact on the Corporation's consolidated 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. The Corporation believes that adoption of FIN 44 will not have
a material effect on the Corporation's  financial  statements but may impact the
accounting for grants or awards in future periods.






                                                                              17
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements


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


1.     Investment Securities

A  summary  of the  carrying  value and  estimated  market  value of  investment
securities is as follows:
<TABLE>
<CAPTION>
December 31, 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
   Other                                           250,000                    -                        -            250,000
---------------------------------------------------------------------------------------------------------------------------

                                                 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
---------------------------------------------------------------------------------------------------------------------------

                                                19,776,642                    -                1,845,923         17,930,719
---------------------------------------------------------------------------------------------------------------------------

                                               $20,976,251          $    20,335              $ 1,845,923        $19,150,663
===========================================================================================================================
</TABLE>









                                                                              18
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


1.      Investment Securities (continued)
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------------------------------------------------------------

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

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

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

Available for Sale

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

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

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











                                                                              19
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


1.     Investment Securities (continued)

The amortized cost and estimated  market value of available for sale and held to
maturity securities at December 31, 2000 by maturity is as follows:

<TABLE>
<CAPTION>
                                                                                            Estimated
                                                                    Amortized                 Market
                                                                      Cost                    Value
--------------------------------------------------------------------------------------------------------
<S>                                                               <C>                      <C>
Held to Maturity
   Mortgage-backed securities                                     $    949,609             $    969,944
   Other                                                               250,000                  250,000
--------------------------------------------------------------------------------------------------------

                                                                     1,199,609                1,219,944
--------------------------------------------------------------------------------------------------------

Available for Sale
   Corporate bonds and other due after five years                   19,776,642               17,930,719
--------------------------------------------------------------------------------------------------------

                                                                    19,776,642               17,930,719
--------------------------------------------------------------------------------------------------------

                                                                  $ 20,976,251             $ 19,150,663
========================================================================================================
</TABLE>

Gross  gains and  losses  from the sale of  securities  during  the years  ended
December 31, 2000, 1999 and 1998 were as follows (in 000's):
<TABLE>
<CAPTION>
                                                        2000                         1999                       1998
                                                Gains          Losses         Gains        Losses        Gains       Losses
-------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>         <C>           <C>          <C>
Held to Maturity                                $  -           $   -          $   -       $     -       $    -       $  202
Available for Sale                                 -              77            256         1,468          579            -
Trading                                            -               -             77           381          162          464
</TABLE>

Mortgage backed securities of approximately  $950,000 and $1,086,000 at December
31, 2000 and 1999,  respectively,  were pledged for bonds  payable  (Note 6). At
December  31,  2000 and  1999,  investment  securities  with a  market  value of
approximately $16,650,000 were pledged as collateral under repurchase agreements
(Note 7).




                                                                              20
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


2.      Loans Receivable

Loans receivable are summarized as follows
<TABLE>
<CAPTION>
December 31,                                                            2000                    1999
-------------------------------------------------------------------------------------------------------
<S>                                                             <C>                    <C>
Mortgage loans
   Residential                                                  $  54,910,973          $  54,912,431
   Commercial                                                       3,434,287              3,838,316
   Construction and land loans                                     59,363,432             70,008,650
-------------------------------------------------------------------------------------------------------

Total real estate                                                 117,708,692            128,759,397

Commercial business loans                                          59,119,906             53,504,589
Consumer loans                                                     27,157,528             24,378,061
-------------------------------------------------------------------------------------------------------

Total loans receivable                                            203,986,126            206,642,047
-------------------------------------------------------------------------------------------------------

Less
   Deferred loan fees (costs), net                                    (27,121)                39,640
   Allowance for loan losses                                        2,396,512              1,203,238
-------------------------------------------------------------------------------------------------------

                                                                    2,369,391              1,242,878
-------------------------------------------------------------------------------------------------------

                                                                $ 201,616,735          $ 205,399,169
=======================================================================================================

The allowance for loan losses is summarized as follows:

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

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

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

Balance at December 31, 1999                                                                1,203,238
Provision charged to expense                                                                1,505,000
Net charge-offs                                                                              (311,726)
-------------------------------------------------------------------------------------------------------

Balance at December 31, 2000                                                               $2,396,512
=======================================================================================================
</TABLE>


                                                                              21
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


2.     Loans Receivable (continued)

The Corporation serviced loans for others aggregating  approximately $91,963,000
and  $241,930,000  at December 31, 2000 and 1999,  respectively.  The  servicing
rights to  approximately  $189,000,000 in loans were sold during 1999,  however,
the  transfer of the  servicing  portfolio  did not occur until  February  2000.
Mortgage  servicing  rights,  net  of  valuation  reserve,   were  approximately
$1,021,000  and $568,000 at December 31, 2000 and 1999,  respectively.  Mortgage
servicing  rights of  approximately  $599,000 and  $1,571,000  were  capitalized
during the years ended December 31, 2000 and 1999, respectively.

Gross  gains  and  gross  losses  on the  sale of loans  totaling  approximately
$643,000  and  $305,000,  $911,000  and  $592,000,  $1,374,000  and $46,000 were
realized during the years ended December 31, 2000, 1999 and 1998, respectively.

3.     Office Properties and Equipment

Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,                                                             2000              1999
-------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
Land                                                             $  3,494,851      $  3,494,851
Building and leasehold improvements                                 4,459,307         4,389,136
Furniture and fixtures                                              1,253,539         1,223,340
Equipment                                                           3,114,318         2,032,628
Automobiles                                                           163,165           129,743
-------------------------------------------------------------------------------------------------

                                                                   12,485,180        11,269,398
Less accumulated depreciation and amortization                      2,608,005         1,938,214
-------------------------------------------------------------------------------------------------

Net office properties and equipment                              $  9,877,175      $  9,331,484
=================================================================================================
</TABLE>







                                                                              22
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


4.      Deposits

Deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31,                                                    2000                 1999
-------------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>
Statement savings accounts                             $  10,310,764        $  11,202,630
Demand deposit accounts                                   40,571,422           30,205,914
Money market accounts                                     18,893,556           27,877,742
-------------------------------------------------------------------------------------------

                                                          69,775,742           69,286,286
-------------------------------------------------------------------------------------------

Time deposits                                            146,951,455          130,308,385
-------------------------------------------------------------------------------------------

                                                       $ 216,727,197         $199,594,671
===========================================================================================
</TABLE>

The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000 was approximately  $26,746,000 and $40,596,000 at December 31, 2000 and
1999, respectively.

At December 31, 2000, scheduled maturities of time deposits are as follows:

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

                        2001                               $136,969,152
                        2002                                  7,464,226
                        2003                                  1,552,047
                        2004                                    814,025
                 2005 and thereafter                            152,005
           ----------------------------------------------------------------

                                                           $146,951,455
           ================================================================






                                                                              23
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


5.      Fair Value of Financial Instruments

The estimated  fair values of the  Corporation's  financial  instruments  are as
follows:
<TABLE>
<CAPTION>
December 31,                                                            2000                               1999
-------------------------------------------------------------------------------------------------------------------------------
                                                            Carrying            Fair           Carrying            Fair
                                                             Amount             Value           Amount             Value
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>             <C>                <C>
Financial assets
   Cash and short-term investments                          $ 15,550,212      $ 15,550,000    $ 12,634,518       $ 12,635,000
   Securities                                                 19,130,328        19,151,000      23,532,342         23,549,000
   Loans, net of allowance for loan losses                   201,616,735       203,822,000     205,399,169        206,287,000

Financial liabilities
   Deposits                                                  216,727,197       216,733,000     199,594,671        199,951,000
   Advances from Federal Home Loan Bank                       14,000,000        14,000,000      20,000,000         20,000,000
   Securities sold under agreement to repurchase                       -                 -      16,650,250         16,650,000
   Bonds payable                                                 792,153               N/A         902,513                N/A

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

Unrecognized financial instruments
   Commitments to extend credit                              $49,674,000       $49,674,000     $66,134,000        $66,134,000
</TABLE>

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

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

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

Securities
----------

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




                                                                              24
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


5.      Fair Value of Financial Instruments (continued)

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

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

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

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

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

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

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

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

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

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

Due to the nature and terms (Note 6) of the bonds payable held by GMSC,  Inc. at
December 31, 2000 and 1999, it was not deemed  practicable  to estimate the fair
value.

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

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



                                                                              25
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


5.     Fair Value of Financial Instruments (continued)

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

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

6.     Bonds Payable

In October 1987, GMSC, Inc. issued serial bonds (the "Bonds")  collateralized by
mortgage-backed   securities  which  are  treated  as  a  real  estate  mortgage
investment conduit ("REMIC") under the Internal Revenue Code of 1986 for federal
tax purposes.  The Bonds are secured by an indenture  between GMSC, Inc. and the
Bank  of New  York,  acting  as  trustee  for the  bondholders.  The  Bonds  are
summarized as follows:
<TABLE>
<CAPTION>
December 31,                                                          2000              1999
-----------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>
Serial Bonds

   Class A-3, maturing January 20, 2019, at 8.0%                  $971,042        $1,152,698
   Unapplied payments                                              (34,949)          (85,628)
-----------------------------------------------------------------------------------------------

                                                                   936,093         1,067,070
   Less unamortized discount                                      (143,940)         (164,557)
-----------------------------------------------------------------------------------------------

                                                                  $792,153       $   902,513
===============================================================================================
</TABLE>

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








                                                                              26
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


7.     Securities Sold Under Agreements to Repurchase

The  following  is  a  summary  of  certain  information  regarding  the  Bank's
repurchase agreements:
<TABLE>
<CAPTION>
Year Ended December 31,                                                     2000                   1999
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                    <C>
Maximum amount outstanding at any month end during
   the year                                                          $16,684,364            $16,650,250
Average amount outstanding during the year                           $ 4,265,035            $ 9,387,194
Weighted average interest rate during the year                           6.39%                   5.10%
</TABLE>

8.     Advances From Federal Home Loan Bank

Information  related to borrowing activity from the Federal Home Loan Bank is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,                                                     2000                   1999
----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                    <C>
Maximum amount outstanding during the year                           $31,000,000            $30,000,000
Average amount outstanding during the year                           $18,147,059            $26,225,806
Average interest rate during the year                                    6.68%                   4.88%
</TABLE>

9.      Income Taxes

The  provision for income taxes as presented in the  consolidated  statements of
operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31,                                       2000                1999              1998
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                   <C>             <C>
Current income tax                                        $744,103              $2,300          $624,200
Deferred income tax expense (benefit)                     (431,000)                  -                 -
----------------------------------------------------------------------------------------------------------

                                                          $313,103              $2,300          $624,200
==========================================================================================================
</TABLE>

Reconciliations  of the  provision  for income  taxes  computed  at the  federal
statutory income tax rate to the effective rate follows:
<TABLE>
<CAPTION>
Year ended December 31,                                       2000                1999              1998
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>                   <C>             <C>
Tax expense at statutory rate                             $312,874              $2,300          $557,800
Adjustments
   Other                                                       229                   -            66,400
----------------------------------------------------------------------------------------------------------

                                                          $313,103              $2,300          $624,200
==========================================================================================================
</TABLE>


                                                                              27
<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,                                          2000               1999
--------------------------------------------------------------------------------

Deferred tax asset
   Bad debt reserves                           $   755,000        $   363,000
   REO reserves                                    117,000                  -
   Deferred loan fees                               14,000             22,000
   Servicing rights                                 19,000                  -
   Available for sale securities                   628,000            828,000
   Other                                            37,000             70,000
--------------------------------------------------------------------------------

Total deferred tax asset                         1,570,000          1,283,000
--------------------------------------------------------------------------------

Deferred tax liability
   GMSC REMIC                                       91,000             97,000
   FHLB stock                                            -             26,000
   Fixed assets                                    309,000            221,000
--------------------------------------------------------------------------------

Total deferred tax liability                       400,000            344,000
--------------------------------------------------------------------------------

Net deferred tax asset                          $1,170,000        $   939,000
================================================================================

10.    Related Party Transactions

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

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

December 31,                                          2000               1999
--------------------------------------------------------------------------------

Balance at the beginning of year                $1,469,000        $   975,000
Additional loans                                   598,000            798,000
Loan reductions                                   (902,000)          (304,000)
--------------------------------------------------------------------------------

Balance at end of year                          $1,165,000         $1,469,000
================================================================================



                                                                              28
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


11.     Commitments and Contingencies

The Corporation  leases office space under operating  leases expiring at various
dates through 2002 and has a contract for data processing services whose initial
term  expires in  February  2004 and  requires  minimum  payments of $25,800 per
month.  Future minimum rental and data  processing  payments  required that have
initial or  remaining  noncancelable  terms in excess of one year as of December
31, 2000, are as follows:

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

2001                                             $106,000          $309,600
2002                                               88,400           309,600
2003                                               69,600           309,600
2004                                               43,000            51,600
2005                                                5,000                 -
--------------------------------------------------------------------------------

                                                 $312,000          $980,400
================================================================================

Total rental expense amounted to approximately $108,000, $91,600 and $70,000 for
the years ended  December  31,  2000,  1999 and 1998,  respectively.  Total data
processing expense amounted to approximately $926,000, $762,000 and $585,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.

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

12.    Convertible Preferred Stock

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

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



                                                                              29
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


12.    Convertible Preferred Stock (continued)

In January 2000,  the  Corporation  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,  the  Corporation  completed  a secondary  offering of its
common stock  through the sale of 460,000  shares at a price of $9.00 per share.
Proceeds to the  Corporation  from the  offering  (net of  offering  expenses of
approximately $447,000) were approximately $3,693,000.

The following table represents the Bank's regulatory capital levels.
<TABLE>
<CAPTION>
                                           Amount           Percent           Actual          Actual           Excess
 December 31, 2000                        Required         Required           Amount          Percent          Amount
--------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>           <C>                <C>           <C>
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

                                           Amount           Percent           Actual          Actual           Excess
 December 31, 1999                        Required         Required           Amount          Percent          Amount
--------------------------------------------------------------------------------------------------------------------------

Tier 1 risk based                       $  8,952,000         4.00%         $21,513,000         9.61%        $12,561,000
Total risk based capital                  17,904,000         8.00           22,716,000        10.15           4,812,000
</TABLE>

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

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

On October 26, 2000,  Guaranty  Financial  Corporation and Guaranty 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.



                                                                              30
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


13.    Stockholders' Equity (continued)

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

14.    Stock Option Plan

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

The following table summarizes options outstanding:
<TABLE>
<CAPTION>
                                           2000                          1999                          1998
------------------------------------------------------------------------------------------------------------------------

                                              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              130,000       $13.69          88,000        $15.48           71,200        $15.25
Granted                                 -         -             44,500         12.00           37,500         15.86
Forfeited                         (28,100)       12.00          (2,500)        12.00          (18,700)        16.03
Exercised                               -         -                  -          -              (2,000)        12.00
------------------------------------------------------------------------------------------------------------------------

Options outstanding
   at end of year                 101,900       $14.16         130,000        $13.69           88,000        $15.48
========================================================================================================================

Options exercisable
   at end of year                  73,200                       49,700                         24,200
========================================================================================================================
</TABLE>

No options were granted  during the year ended  December 31, 2000.  The weighted
average fair value of options  granted  during the year ended  December 31, 1999
and 1998 was $3.17 and $4.85, respectively.




                                                                              31
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


14.    Stock Option Plan (continued)

The Corporation applies Accounting Principals Board Opinion No. 25 in accounting
for stock options granted to employees. Had compensation expense been determined
based upon the fair value of the  awards at the grant date and  consistent  with
the  method  under  Statement  of  Financial   Accounting   Standards  123,  the
Corporation's  net earnings and net earnings per share would have been decreased
to the pro forma amounts indicated in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,                                            2000             1999              1998
------------------------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>                 <C>
Net income (loss)
   As reported                                                 $607,116       $    4,433          $1,016,279
   Pro forma                                                    607,116          (88,670)            896,242

Net income (loss)per share (basic and diluted)
   As reported                                                 $   0.31       $      .00          $   0.61
   Pro forma                                                       0.31             (.06)             0.58
</TABLE>

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

15.    Employee Benefit Plans

Effective  February 16, 1989, the  Corporation  adopted a 401(k)  profit-sharing
plan in which  all  employees  are  eligible  to  participate  after one year of
service  and are at least  twenty-one  years of age.  Participants  may elect to
contribute a percentage of their  compensation  to the plan. The Corporation may
make contributions to the plan at its discretion.  Corporation contributions are
allocated to employee  accounts using a systematic  formula based on participant
compensation.  The Corporation  contributed  approximately $65,000,  $56,000 and
$14,900 for the years ended December 31, 2000, 1999 and 1998, respectively.

16.    Financial Instruments With Off-Balance-Sheet Risk

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



                                                                              32
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


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

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

Unless noted  otherwise,  the Corporation  does not require  collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
December 31,                                                                      2000             1999
---------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>
Financial instruments whose contract amounts represent credit risk
   Commitments to extend credit                                            $49,674,000      $66,134,000
   Standby letters of credit written                                         3,776,000        4,719,000
</TABLE>


Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  completely  drawn  upon,  the total  commitment  amounts  do not
necessarily  represent future cash requirements.  The Corporation evaluates each
customer's creditworthiness on a case-by-case basis.

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

Substantially all of the Corporation's  loan activity was with customers located
in  Charlottesville  and  Richmond,  Virginia  and  surrounding  counties,  with
approximately 24% of the loans  collateralized by one to four family residential
properties.






                                                                              33
<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, 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                2,583                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                                             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>







                                                                              34
<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, 1999                          Quarter              Quarter              Quarter           Quarter
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>                  <C>                <C>
Total interest income                                   $3,906               $4,679               $4,652             $5,135
Total interest expense                                   2,526                2,649                2,721              2,743
-------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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








                                                                              35
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


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

                   Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,                                                  2000                  1999
------------------------------------------------------------------------------------------
<S>                                                    <C>                   <C>
     Assets

Investment in subsidiaries, at equity                  $22,032,092           $21,695,484
Cash                                                         1,876               129,640
Prepaid expenses and other assets                          463,967               455,664
------------------------------------------------------------------------------------------

                                                       $22,497,935           $22,280,788
==========================================================================================


     Liabilities and Stockholders' Equity

Other liabilities                                      $    15,531           $   117,703
------------------------------------------------------------------------------------------

Total liabilities                                           15,531               117,703
------------------------------------------------------------------------------------------

Subordinated debt                                        6,225,925             6,288,425
------------------------------------------------------------------------------------------

Stockholders' equity
   Common stock                                          2,452,159             2,452,159
   Additional paid-in capital                            8,953,230             8,943,119
   Retained earnings                                     4,851,090             4,479,382
------------------------------------------------------------------------------------------

Total stockholders' equity                              16,256,479            15,874,660
------------------------------------------------------------------------------------------

                                                       $22,497,935           $22,280,788
==========================================================================================
</TABLE>






                                                                              36
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


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

                       Condensed Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,                                               2000              1999
----------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>
Income
   Dividends received from Bank                                   $666,291          $886,278
----------------------------------------------------------------------------------------------

Total income                                                       666,291           886,278
----------------------------------------------------------------------------------------------

Interest expense                                                  (420,875)         (497,940)
Noninterest expense                                                (23,867)          (23,473)
----------------------------------------------------------------------------------------------

Income before undistributed net income of the Bank                 221,549           364,865
Undistributed net income                                           385,567          (360,432)
----------------------------------------------------------------------------------------------

Net income                                                        $607,116          $  4,433
==============================================================================================
</TABLE>











                                                                              37
<PAGE>

                                                  Guaranty Financial Corporation
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements
                                                                     (continued)


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


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

                       Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,                                                            2000                  1999
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>
Operating activities
   Net income                                                               $   607,116          $      4,433
   Adjustments
     Undistributed earnings of the Bank                                        (385,567)              360,432
     Gain on repurchase of subordinated debt                                     10,111               101,027
     (Increase) decrease in prepaid and other assets                             (8,304)               71,453
     (Decrease) increase in other liabilities                                    15,531              (132,369)
     Other                                                                            -                39,788
---------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                       238,887               444,764
---------------------------------------------------------------------------------------------------------------

Investing activities
   Dividends received from Bank                                                 666,291               886,278
   Investment in the Bank                                                      (617,331)           (3,692,568)
---------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by investing activities                             48,960            (2,806,290)
---------------------------------------------------------------------------------------------------------------

Financing activities
   Cash dividends paid on common stock                                         (353,111)             (388,014)
   Repurchase of subordinated debt                                              (62,500)             (825,000)
   Issuance of common stock                                                           -             3,692,568
---------------------------------------------------------------------------------------------------------------

Net cash provided (absorbed) by financing activities                           (415,611)            2,479,554
---------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash                                                    (127,764)              118,028

Cash, beginning of year                                                         129,640                11,612
---------------------------------------------------------------------------------------------------------------

Cash, end of year                                                          $      1,876           $   129,640
===============================================================================================================
</TABLE>




                                                                              38
<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 30, 2001                    By:   /s/ Richard L. Saunders
                                             -----------------------------------
                                               Richard L. Saunders
                                               Chief Executive Officer (interim)


         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/ Richard L. Saunders                Chief Executive Officer (interim)               March 30, 2001
-------------------------------------            (Principal Executive Officer)
          Richard L. Saunders


          /s/ Thomas F. Crump                       Chief Financial Officer                    March 30, 2001
-------------------------------------              (Principal Financial and
            Thomas F. Crump                           Accounting Officer)


          /s/ Douglas E. Caton                       Chairman of the Board                     March 30, 2001
-------------------------------------
           Douglas E. Caton


          /s/ Harry N. Lewis                       Vice Chairman of the Board                  March 30, 2001
-------------------------------------
            Harry N. Lewis


                                                           Director                            March __, 2001
-------------------------------------
           Henry J. Browne


                                                           Director                            March __, 2001
-------------------------------------
         Jason I. Eckford, Jr.


        /s/ Robert P. Englander                            Director                            March 30, 2001
-------------------------------------
         Robert P. Englander

<PAGE>

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


           /s/ John R. Metz                                Director                            March 30, 2001
-------------------------------------
             John R. Metz


                                                           Director                            March __, 2001
-------------------------------------
          James R. Sipe, Jr.


         /s/ Oscar W. Smith, Jr.                           Director                            March 30, 2001
-------------------------------------
          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.

        21           Subsidiaries of Guaranty Financial Corporation.