|UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington,D.C. 20549FORM 10-Q


(Mark One)[X] QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2001.


OR


[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____________ TO ____________


COMMISSION FILE NUMBER:
000-24235


GUARANTY BANCSHARES,
INC.(Exact name of registrant as specified in its charter)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|TEXAS(State or other jurisdiction ofincorporation or organization) | 75-16516431(I.R.S. EmployerIdentification No.)
|------------------------------------------------------------------ | ----------------------------------------------

|100 W. ARKANSAS
MT. PLEASANT, TEXAS 75455(Address of principal executive offices, including zip code)



903-572-9881(Registrants
telephone number, including area code)



Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.[X] Yes     [   ] No




As of May 14, 2001, there
were 3,025,332 shares of the registrants Common Stock, par value $1.00 per
share, outstanding.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|GUARANTY
BANCSHARES, INC.


INDEX TO FORM
10-Q
|----------------------------------------------

|                                                                                              | 
|--------------------------------------------------------------------------------------------- | 
|PART I - FINANCIAL INFORMATION                                                                | 
|                                                                                              | 
|Item 1. Financial Statements                                                                  | 
|Consolidated Balance Sheets                                                                   | 
|Consolidated Statements of Earnings                                                           | 
|Condensed Consolidated Statements of Changes in
Shareholders Equity                          | 
|Condensed Consolidated Statements of Cash Flows                                               | 
|Consolidated Statements of Comprehensive Income                                               | 
|Notes to Consolidated Financial Statements                                                    | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations | 
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            | 
|                                                                                              | 
|PART II - OTHER INFORMATION                                                                   | 
|                                                                                              | 
|Item 1.  Legal Proceedings                                                                    | 
|Item 2.  Changes in Securities and Use of Proceeds                                            | 
|Item 3.  Defaults upon Senior Securities                                                      | 
|Item 4.  Submission of Matters to a Vote of Security Holders                                  | 
|Item 5.  Other Information                                                                    | 
|Item 6.  Exhibits and Reports on Form 8-K                                                     | 
|Signatures                                                                                    | 

|2
|-

|Part I - Financial
Information


Item 1. Financial
Statements




GUARANTY BANCSHARES,
INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(DOLLARS IN THOUSANDS)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                | March 31,2001 |            | December 31,2000 |           
|--------------------------------------------------------------- | ------------- | ---------- | ---------------- | ----------
|
|ASSETS                                                         
|Cash and due from banks                                         |               | $   10,707 |                  | $   10,109
|Interest bearing deposits in other banks                        |               | 74         |                  | 103       
|                                                               
|Total cash and cash equivalents                                 |               | 10,781     |                  | 10,212    
|Federal funds sold                                              |               | 29,035     |                  | 4,995     
|Securities available-for-sale                                   |               | 62,423     |                  | 81,620    
|Loans, net of allowance for loan losses of $2,799 and $2,578    |               | 289,946    |                  | 284,757   
|Premises and equipment, net                                     |               | 13,476     |                  | 13,532    
|Accrued interest receivable                                     |               | 3,127      |                  | 3,742     
|Other assets                                                    |               | 12,480     |                  | 12,173    
|                                                               
|Total assets                                                    |               | $ 421,268  |                  | $ 411,031 
|                                                               
|                                                               
|LIABILITIES AND SHAREHOLDERS EQUITY                           
|Liabilities                                                     |              
|Deposits:                                                       |              
|Noninterest-bearing                                             |               | $   54,186 |                  | $   55,274
|Interest-bearing                                                |               | 318,282    |                  | 302,991   
|                                                               
|Total deposits                                                  |               | 372,468    |                  | 358,265   
|FHLB advances                                                   |               | 7,327      |                  | 12,403    
|Long-term debt                                                  |               | 7,000      |                  | 7,000     
|Other liabilities                                               |               | 4,016      |                  | 3,938     
|                                                               
|Total liabilities                                               |               | 390,811    |                  | 381,606   
|                                                               
|Shareholders equity:                                           |              
|Preferred stock, $5.00 par value, 15,000,000 shares authorized, |              
|no shares issued                                                |               |           |                  |          
|Common stock, $1.00 par value, 50,000,000 shares authorized,    |              
|3,250,016 issued                                                |               | 3,250      |                  | 3,250     
|Additional capital                                              |               | 12,659     |                  | 12,659    
|Retained earnings                                               |               | 16,012     |                  | 15,274    
|Treasury stock, 221,284 and 205,983 shares at cost              |               | (2,385     | )                | (2,220    
|Accumulated other comprehensive income                          |               | 921        |                  | 462       
|                                                               
|Total shareholders equity                                      |               | 30,457     |                  | 29,425    
|                                                               
|Total liabilities and shareholders equity                      |               | $ 421,268  |                  | $ 411,031 
|                                                               

|See accompanying Notes
to Consolidated Financial Statements.



3
|-----------------------------------------------------------------

|GUARANTY BANCSHARES,
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGS(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)(UNAUDITED)
|----------------------------------------------------------------------------------------------------------------------------------------

|                                                      | Three Months EndedMarch 31, |        
|----------------------------------------------------- | --------------------------- | -------
|
|Interest income:                                      |                             |        
|Loans                                                 |                             | $6,210 
|Securities                                            |                             | 1,137  
|Federal funds sold and other temporary investments    |                             | 269    
|                                                     
|Total interest income                                 |                             | 7,616  
|Interest expense:                                     |                            
|Deposits                                              |                             | 4,137  
|FHLB advances and other borrowed funds                |                             | 363    
|                                                     
|Total interest expense                                |                             | 4,500  
|                                                     
|Net interest income                                   |                             | 3,116  
|Provision for loan losses                             |                             | 155    
|                                                     
|Net interest income after provision for loan losses   |                             | 2,961  
|Noninterest income:                                   |                            
|Service charges                                       |                             | 618    
|Other operating income                                |                             | 374    
|Realized gain (loss) on available-for-sale securities |                             | 266    
|                                                     
|Total noninterest income                              |                             | 1,258  
|                                                     
|Noninterest expense:                                  |                            
|Employee compensation and benefits                    |                             | 1,920  
|Occupancy expenses                                    |                             | 464    
|Other operating expenses                              |                             | 881    
|                                                     
|Total noninterest expenses                            |                             | 3,265  
|                                                     
|Earnings before income taxes                          |                             | 954    
|Provision for income taxes                            |                             | 216    
|                                                     
|Net earnings                                          |                             | $   738
|                                                     
|Basic earnings per common share                       |                             | $  0.24
|                                                     
|Diluted earnings per common share                     |                             | $  0.24
|                                                     

|See accompanying Notes
to Consolidated Financial Statements.





4
|-------------------------------------------------------------------

|GUARANTY BANCHSHARES,
INC.CONDENSED CONSOLIDATED STATEMENTS OF CHANGESIN SHAREHOLDERS EQUITY(DOLLARS IN
THOUSANDS)(UNAUDITED)
|------------------------------------------------------------------------------------------------------------------------------

|                                          | Three MonthsEnded March 31, |         
|----------------------------------------- | --------------------------- | --------
|
|Balance at beginning of period            |                             | $ 29,425
|Net income                                |                             | 738     
|Cash dividends declared on common stock   |                             |        
|Purchases of treasury stock               |                             | (165    
|Change in unrealized gain (loss) on       |                            
|securities available for sale, net of tax |                             | 459     
|                                         
|Balance at end of period                  |                             | $ 30,457
|                                         

|See accompanying Notes
to Consolidated Financial Statements.





5
|-------------------------------------------------------------------

|GUARANTY BANCSHARES,
INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(DOLLARS IN
THOUSANDS)(UNAUDITED)
|--------------------------------------------------------------------------------------------------------------------------

|                                                                | Three MonthsEnded March 31, |           
|--------------------------------------------------------------- | --------------------------- | ----------
|
|Net cash provided by operating activities                       |                             | $      590
|                                                               
|                                                                |                            
|Cash flows from investing activities:                           |                            
|Securities available for sale:                                  |                            
|Purchases                                                       |                             | (26       
|Sales                                                           |                             | 11,236    
|Maturities, calls, and principal repayments                     |                             | 9,003     
|Net increase in loans                                           |                             | (5,072    
|Purchases of premises and equipment                             |                             | (185      
|Proceeds from sale of premises, equipment and other real estate |                             | 101       
|Net increase in federal funds sold                              |                             | (24,040   
|                                                               
|Net cash used by investing activities                           |                             | (8,983    
|                                                               
|Cash flows from financing activities:                           |                            
|Net change in deposits                                          |                             | 14,203    
|Net change in short-term FHLB advances                          |                             | (5,000    
|Repayment of long-term FHLB advances                            |                             | (76       
|Proceeds from issuance of trust preferred securities            |                             |          
|Purchase of treasury stock                                      |                             | (165      
|                                                               
|Net cash provided from financing activities                     |                             | 8,962     
|                                                               
|Net increase in cash and cash equivalents                       |                             | 569       
|Cash and cash equivalents at beginning of period                |                             | 10,212    
|                                                               
|Cash and cash equivalents at end of period                      |                             | $ 10,781  
|                                                               
|                                                                |                            
|Supplemental disclosures:                                       |                            
|Cash paid for income taxes                                      |                             | $        
|Cash paid for interest                                          |                             | 4,512     
|                                                                |                            
|Significant non-cash transactions:                              |                            
|Transfers from loans to real estate owned                       |                             | $      321

|See accompanying Notes
to Consolidated Financial Statements.




6
|------------------------------------------------------------------

|GUARANTY BANCSHARES,
INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)(UNAUDITED)
|--------------------------------------------------------------------------------------------------------------------------------

|                                                        | Three MonthsEnded March 31, |         
|------------------------------------------------------- | --------------------------- | --------
|
|Net earnings                                            |                             | $    738
|Other comprehensive income:                             |                            
|Unrealized gain (loss) on available for sale securities |                            
|arising during the period                               |                             | 962     
|Reclassification adjustment for amounts realized on     |                            
|securities sales included in net earnings               |                             | (266    
|                                                       
|Net unrealized gain (loss)                              |                             | 696     
|Tax effect                                              |                             | (237    
|                                                       
|Total other comprehensive income                        |                             | 459     
|                                                       
|Comprehensive income                                    |                             | $ 1,197 
|                                                       

|See accompanying Notes
to Consolidated Financial Statements




7
|-----------------------------------------------------------------

|GUARANTY
BANCSHARES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2001(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)



NOTE 1. BASIS
OF PRESENTATION


The
accompanying unaudited consolidated financial statements include the accounts of
Guaranty Bancshares, Inc. (the Company) and its wholly-owned
subsidiaries Guaranty (TX) Capital Trust I and Guaranty Financial Corp., Inc.,
which wholly owns Guaranty Bank, and one non-bank subsidiary, Guaranty Company.
Guaranty Bank has two wholly owned non-bank subsidiaries, Guaranty Leasing
Company and GB Com, Inc. and one 51% owned non-bank subsidiary, Guaranty
Technology, L.L.C. All significant intercompany balances and transactions have
been eliminated in consolidation.


The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for a complete
presentation of financial position. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company on a consolidated basis, and all such
adjustments are of a normal recurring nature. These financial statements and the
notes thereto should be read in conjunction with the Companys Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
9, 2001. The Company has consistently followed the accounting policies described
in the Annual Report in preparing this Form 10-Q. Operating results for the
three months ended March 31, 2001, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001.


In
preparation of the accompanying unaudited consolidated financial statements,
management is required to make estimates and assumptions, which are based on
information available at the time such estimates and assumptions are made. These
estimates and assumptions affect the amounts reported in the accompanying
unaudited consolidated financial statements. Accordingly, future results may
differ if the actual amounts and events are not the same as the estimates and
assumptions of management. The collectability of loans, fair value of financial
instruments and status of contingencies are particularly subject to change.


Employee
compensation expense under stock option plans is reported if options are granted
below market price at grant date. Pro forma disclosures of net income and
earnings per share are shown using the fair value method of Statement of
Financial Accounting Standards No. 123 to measure expense for options
granted, using an option pricing model to estimate fair value.


NOTE 2.
EARNINGS PER SHARE


Earnings
per share is computed in accordance with Statement of Financial Accounting
Standards No. 128, which requires dual presentation of basic and diluted
earnings per share (EPS) for entities with complex capital
structures. Basic EPS is based on net earnings divided by the weighted-average
number of shares outstanding during the period. Diluted EPS includes the
dilutive effect of stock options granted using the treasury stock method.




8
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
weighted-average number of common shares outstanding for basic and diluted
earnings per share computations was as follows:
|------------------------------------------------------------------------------------------------------------------------------

|                                                 | Three MonthsEnded March 31, |          
|------------------------------------------------ | --------------------------- | ---------
|
|
|Weighted average common shares used in basic EPS |                             | 3,039,211
|Potential dilutive common shares                 |                             | 7,734    
|                                                
|Weighted average common and potential dilutive   |                            
|common shares used in dilutive EPS               |                             | 3,046,945
|                                                

|NOTE 3. STOCK
OPTIONS


In
2000, the Company granted nonqualified stock options to certain executive
officers of the Company and Guaranty Bank under the Companys 1998 Stock
Incentive Plan. The grants consisted of eight-year options to purchase 89,500
shares at an exercise price of $9.30 per share, which was the market price of
the Companys stock on the date the options were granted. The options fully
vest and become exercisable in five equal installments commencing on the first
anniversary of the date of grant and annually thereafter. At March 31, 2001,
none of the options are exercisable and 910,500 options remain available for
future grant under the 1998 Stock Incentive Plan.


The
weighted-average fair value per share of options granted during 2000 was $2.03.
The fair value of options granted was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: Dividend yield of 2.59%; expected volatility of 7.67%; risk-free
interest rate of 6.42%, and an expected life of 8.00 years.


Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, requires pro forma disclosures for companies not adopting
its fair value accounting method for stock-based employee compensation. No
compensation expense related to stock options is actually recognized.
Accordingly, the following pro forma information presents net income and
earnings per share for the three months ended March 31, 2001 and 2000 had the
SFAS No. 123 fair value method been used to measure compensation cost for stock
option plans (dollars in thousands, except per share amounts):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | Three MonthsEnded March 31, |           
|------------------- | --------------------------- | ----------
|
|
|Net earnings:       |                             |           
|As reported         |                             | $      738
|                   
|Pro forma           |                             | $      732
|                   
|                    |                            
|Earnings per share: |                            
|As reported         |                            
|Basic               |                             | $    0.24 
|                   
|Diluted             |                             | $    0.24 
|                   
|Pro forma           |                            
|Basic               |                             | $    0.24 
|                   
|Diluted             |                             | $    0.24 
|                   

|9
|-

|The
effects of applying Statement of Financial Accounting Standards No. 123 in this pro forma
disclosure are not indicative of future amounts. The pro forma effect may increase in the
future if more options are granted.




ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Certain
statements in this Quarterly Report on Form 10-Q include forward-looking
information within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe Harbor created by those sections. These
forward-looking statements involve certain risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements. Such risks and uncertainties include, but are not limited to, the
following factors: competitive pressure in the banking industry significantly
increasing; changes in the interest rate environment reducing margins; general
economic conditions, either nationally or regionally, are less favorable than
expected, resulting in, among other things, a deterioration in credit quality
and an increase in the provision for possible loan losses; changes in the
regulatory environment; changes in business conditions; volatility of rate
sensitive deposits; operational risks including data process system failures or
fraud; asset/liability, matching risks and liquidity risks; and changes in the
securities markets.


The
following discussion addresses information pertaining to the financial condition
and results of operations of Guaranty Bancshares, Inc. and subsidiaries that may
not be otherwise apparent from a review of the consolidated financial statements
and related footnotes. It should be read in conjunction with those statements,
as well as with the other information presented throughout the report. In
additional to historical information, this discussion and other sections
contained in the Quarterly Report include certain forward-looking statements
regarding events and trends, which may affect the companys future results.
Such statements are subject to risk and uncertainties that could cause the
Companys actual results to differ materially. Such factors include, but
are not limited to, those described in this discussion and analysis and the
factors contained in the Companys Annual Report on Form 10-K for the year
ended December 31, 2000 as filed with the Securities and Exchange Commission.


GENERAL
OVERVIEW


Guaranty
Bancshares, Inc. (the Company) is a registered bank holding company
that derives substantially all of its revenues and income from the operation of
its subsidiary, Guaranty Bank (the Bank). The Bank is a full service
bank that provides a broad line of financial products and services to small and
medium-sized businesses and consumers through ten banking locations in the Texas
communities of Mount Pleasant (two offices), Bogata, Commerce, Deport, Paris,
Pittsburg, Sulphur Springs, Talco and Texarkana. The Company also maintains a
loan production office in Fort Stockton, Texas to facilitate the process of
securing loans in that market.


FINANCIAL
OVERVIEW


Net
earnings available to common shareholders for the three months ended March 31,
2001 were $738,000 or $0.24 per share compared with $545,000 or $0.17 per share
for the three months ended March 31, 2000, an increase of $193,000 or 35.4%. The
increase is due primarily to a gain on sale of mortgage-backed securities during
the first quarter 2001, net of tax, of $212,000, and a loss on sale of
mortgage-backed securities during the first quarter 2000, net of tax, of
$41,000. Net interest income increased $14,000 or 0.4% and noninterest income,
other than the sales of securities, increased $81,000 or 8.9%. This increase is
due in part to additional income generated from a growth in service charges. Noninterest expense increased by $146,000 or 4.7% primarily due to
increases in employee compensation and benefits due to increased staff to handle
larger customer activity. There was no significant change in non-staff expenses
for the two comparative periods.


10
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Gross
loans increased to $292.7 million at March 31, 2001, from $287.3 million at
December 31, 2000, an increase of $5.4 million or 1.9%. Total assets increased
to $421.3 million at March 31, 2001, compared with $411.0 million at December
31, 2000. The increase of $10.3 million in total assets is primarily in net
loans and Federal Funds sold which increased $5.2 million, and $24.0 million,
respectively. These increases result from an increase in deposits of $14.2
million, a decrease of $5.1 million in FHLB advances, and a decrease in
securities available for sale of $19.2 million. Total deposits increased to
$372.5 million at March 31, 2001 compared to $358.3 million at December 31,
2000, an increase of $14.2 million or 4.0%. Total FHLB advances decreased from
$12.4 million to $7.3 million and the securities decreased from $81.6 million to
$62.4 million or 23.5%. The securities decrease resulted primarily from the sale
of securities of $11.2 million, securities that were called, and ordinary pay
downs of mortgage-backed securities during the quarter ending March 31, 2001.


Total
shareholders equity was $30.5 million at March 31, 2001, representing an
increase of $1.0 million or 3.5% from December 31, 2000. This increase is due to
the earnings for the period of $738,000 and an increase in accumulated other
comprehensive income of $459,000, offset by the purchase of 15,301 shares of
treasury stock at a cost of $165,000.


RESULTS OF
OPERATIONS


Interest Income


Interest
income for the three months ended March 31, 2001 was $7.6 million, an increase
of $941,000 or 14.1% compared with the three months ended March 31, 2000. The
increase in interest income is due primarily to higher interest income on loans
and federal funds sold. Average loans were $289.4 million for the three months
ended March 31, 2001, compared with $257.9 million for the three months ended
March 31, 2000, an increase of $31.5 million or 12.2%. Average securities were
$67.0 million for the three months ended March 31, 2001, compared with $80.8
million for the three months ended March 31, 2000, a decrease of $13.8 million
or 17.1%. Average federal funds sold were $19.9 million for the three months
ended March 31, 2001, compared with $3.2 million for the three months ended
March 31, 2000, an increase of $16.8 million or 527.7%. Growth in the average
volume of interest-earning assets is primarily due to the internal growth in
deposits for the period. The increases in interest income are also due to an
increase in the average yield earned on interest-earning assets during the
three-month period ended March 31, 2001.


Interest
Expense


Interest
expense on deposits and other interest-bearing liabilities was $4.5 million for
the three months ended March 31, 2001, compared with $3.6 million for the three
months ended March 31, 2000, an increase of $927,000 or 25.9%. The increase in
interest expense is due primarily to a 13.4% increase in average
interest-bearing liabilities to $331.2 million for the three months ended March
31, 2001, from $292.1 million for the three months ended March 31, 2000. The
increase is also due to a rise in average interest rate paid on interest-bearing
liabilities from 4.92% for the three months ended March 31, 2000 to 5.51% for
the three months ended March 31, 2001.




11
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Net Interest
Income


Net
interest income increased by $14,000 or 0.4%. The increase in net interest
income resulted primarily from growth in average interest-earning assets to
$373.7 million for the three months ended March 31, 2001, from $339.4 million
for the three months ended March 31, 2000, an increase of $34.3 million or
10.1%, offset by an increase in total interest-bearing liabilities to $331.2
million for the three months ended March 31, 2001, from $292.1 million for the
three months ended March 31, 2000, an increase of $39.1 million or 13.4%. The
net interest margin decreased from 3.65% to 3.36% for the three months ended
March 31, 2001 compared to the same three-month period ended March 31, 2000.
These decreases can be attributed to the fact that the percentage growth in
average interest-bearing liabilities exceeded the percentage growth in average
interest-earning assets causing the ratio of average interest-earning assets to
average interest-bearing liabilities to decrease. Additionally, the average rate
paid on interest-bearing liabilities increased at a slower rate than the average
rate earned on interest-earning assets due to Guaranty Banks negative gap
position and the falling interest rate environment.


The
Companys net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as a
volume change. It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a rate change. The following tables
set forth, for each category of interest-earning assets and interest-bearing
liabilities, the average amounts outstanding, the interest earned or paid on
such amounts, and the average rate earned or paid for the three months ended
March 31, 2001 and 2000, respectively. The tables also set forth the average
rate earned on total interest-earning assets, the average rate paid on total
interest-bearing liabilities, the net interest spread and the net interest
margin for the same periods. The net interest spread is the difference between
the average rate earned on total interest-earning assets less the average rate
paid on total interest-bearing liabilities. The net interest margin is net
interest income as a percentage of average interest-earning assets.




12
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|                                                       | Three Months Ended March 31,
|------------------------------------------------------ | ----------------------------
|
|
|
|Assets                                                 |                             
|Interest-earning assets:                               |                             
|Loans                                                  |                             
|Securities                                             |                             
|Federal funds sold                                     |                             
|Interest-bearing deposits in                           |                             
|other financial institutions                           |                             
|                                                      
|Total interest-earning assets                          |                             
|                                                      
|                                                       |                             
|Less allowance for loan losses                         |                             
|                                                      
|                                                       |                             
|Total interest-earning                                 |                             
|assets,  net of allowance                              |                             
|Non-earning assets:                                    |                             
|Cash and due from banks                                |                             
|Premises and equipment                                 |                             
|Interest receivable and                                |                             
|other assets                                           |                             
|Other real estate owned                                |                             
|                                                      
|                                                       |                             
|Total assets                                           |                             
|                                                      
|                                                       |                             
|Liabilities and shareholders equity                   |                             
|Interest-bearing liabilities:                          |                             
|NOW, savings, and money                                |                             
|market accounts                                        |                             
|Time deposits                                          |                             
|                                                      
|Total interest-bearing                                 |                             
|deposits                                               |                             
|FHLB advances and federal funds              purchased |                             
|Long-term debt                                         |                             
|                                                      
|Total interest-bearing                                 |                             
|liabilities                                            |                             
|                                                      
|                                                       |                             
|Noninterest-bearing liabilities:                       |                             
|Demand deposits                                        |                             
|Accrued interest, taxes and                            |                             
|other liabilities                                      |                             
|                                                      
|Total liabilities                                      |                             
|Shareholders equity                                   |                             
|                                                      
|                                                       |                             
|Total liabilities and                                  |                             
|shareholders equity                                   |                             
|                                                      
|Net interest income                                    |                             
|                                                      
|Net interest spread                                    |                             
|                                                      
|Net interest margin                                    |                             
|                                                      

|13
|--

|The
following tables present the dollar amount of changes in interest income and
interest expense for the major components of interest-earning assets and
interest-bearing liabilities and distinguishes between the increase (decrease)
related to outstanding balances and the volatility of interest rates. For
purposes of these tables, changes attributable to both rate and volume that can
be segregated have been allocated (dollars in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Three Months Ended March 31, |       
|------------------------------------------ | ---------------------------- | ------
|
|
|
|
|Interest-earning assets:                   |                              |       
|Loans                                      |                              | $ 599 
|Securities                                 |                              | (234  
|Federal funds sold                         |                              | 232   
|Interest-bearing deposits in other         |                             
|financial institutions                     |                              |      
|                                          
|Total increase in interest income          |                              | 597   
|                                          
|                                           |                             
|Interest-bearing liabilities:              |                             
|NOW, savings, and money market             |                             
|accounts                                   |                              | 92    
|Time deposits                              |                              | 264   
|Other borrowed funds                       |                              | 12    
|Trust preferred                            |                              | 169   
|                                          
|Total increase in interest expense         |                              | 537   
|                                          
|Increase (decrease) in net interest income |                              | $   60
|                                          

|Provision for
Loan Losses


Provisions
for loan losses are charged to income to bring the total allowance for loan
losses to a level deemed appropriate by management of the Company based on such
factors as the industry diversification of the Companys commercial loan
portfolio, the effect of changes in the local real estate market on collateral
values, the results of recent regulatory examinations, the effects on the loan
portfolio of current economic indicators and their probable impact on borrowers,
the amount of charge-offs for the period, the amount of nonperforming loans and
related collateral security, the evaluation of the Companys loan portfolio
by Independent Bank Services, L.C. and the annual examination of the
Companys financial statements by its independent auditors. The provision
for loan losses for the three months ended March 31, 2001, is $155,000 compared
with $130,000 for the three months ended March 31, 2000, an increase of $25,000
or 19.2%. The increase is due to the increase in average loans of 12.2% over the
comparable three-month period. Management believes increasing the allowance for
loan losses is prudent as total loans, particularly higher-risk commercial,
construction, and consumer loans, increase.




14
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Noninterest
Income


The
following table presents, for the periods indicated, the major categories of noninterest
income (dollars in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Three months endedMarch 31, |        
|----------------------------------- | --------------------------- | -------
|
|
|                                    |                            
|Service charges on deposit accounts |                             | $   618
|Fee income                          |                             | 179    
|Fiduciary income                    |                             | 33     
|Other noninterest income            |                             | 162    
|Realized gain (loss) on securities  |                             | 266    
|                                   
|Total noninterest income            |                             | $1,258 
|                                   

|The
Companys primary sources of recurring noninterest income are service
charges on deposit accounts and fee income. Noninterest income for the
three-month period ended March 31, 2001 increased $381,000, or 43.4% over the
same period ended March 31, 2000. The increase in noninterest income for the
three-month period ending March 31, 2001 is primarily due to the gain on sale of
securities and an increase in service charges on deposit accounts created by an
increase in the number of deposit accounts. In the three months ended March 31,
2001, the Company realized a gain on sale of mortgage-backed securities of
$266,000 from the sale of $11.2 million of securities compared to a loss on the
sale of mortgage-backed securities of $34,000 during the three months ended
March 31, 2000. Other noninterest income increased $10,000 or 6.6% during the
same period due primarily to additional earnings generated from the key man life
insurance policies that the Company owns.


Noninterest
Expenses


The
following table presents, for the periods indicated, the major categories of
noninterest expenses (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Three months endedMarch 31, |       
|---------------------------------- | --------------------------- | ------
|
|
|                                   |                            
|Employee compensation and benefits |                             | $1,920
|                                  
|Non-staff expenses:                |                            
|Net bank premises expense          |                             | 464   
|Office and computer supplies       |                             | 82    
|Legal and professional fees        |                             | 70    
|Advertising                        |                             | 72    
|Postage                            |                             | 43    
|FDIC insurance                     |                             | 17    
|Other                              |                             | 597   
|                                  
|Total non-staff expenses           |                             | 1,345 
|                                  
|Total noninterest expenses         |                             | $3,265
|                                  

|15
|--

|Employee
compensation and benefits expense increased $150,000, or 8.5% for the
three-month period ending March 31, 2001 compared to the same period in 2000.
The increase for the three-month period ending March 31, 2001 is due primarily
to normal salary increases and additional staff placement in the Texarkana, Mt.
Pleasant, and Paris locations to handle customer growth, and the new loan
production office opened in September 2000 in Fort Stockton, Texas. The number
of full-time equivalent employees is 191 at March 31, 2001, compared with 189 at
March 31, 2000, an increase of 1.1%.


Non-staff
expenses decreased $4,000 or 0.3%, for the three-month period ending March 31,
2001, compared with the same period in 2000. Net bank premises expense increased
$47,000, or 11.3%, over the comparable period due to construction and remodeling
projects completed in 2000. Other non-staff expenses decreased $38,000 for the
three-month period ending March 31, 2001, compared to the same period in 2000.


Income Taxes


Income
tax expense increased $31,000 to $216,000 for the three months ended March 31,
2001 from $185,000 for the same period in 2000. The increase is a result of
increased earnings before income tax and fewer tax deductions available from the
Companys leveraged leasing activities. The income stated on the
consolidated statement of earnings differs from the taxable income due to
tax-exempt income, the amount of non-deductible interest expense and the amount
of other non-deductible expense.


FINANCIAL
CONDITION


Loan Portfolio


Gross
loans are $292.7 million at March 31, 2001, an increase of $5.4 million or 1.9%
from $287.3 million at December 31, 2000. Loan growth occurred primarily in
1 4 family residential loans and multi-family residential loans due to
continued good loan demand in the various markets that the Company serves. Loans
comprised 76.9% of total average interest-earning assets at March 31, 2001
compared with 75.4% at March 31, 2000.


The
following table summarizes the loan portfolio of the Company by type of loan as
of March 31, 2001 and December 31, 2000 (dollars in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | March 31, 2001 |           | December 31, 2000 |       
|--------------------------------- | -------------- | --------- | ----------------- | ------
|
|
|                                  |               
|Commercial and industrial         |                | $  66,184 |                   | 22.61 
|Agriculture                       |                | 9,206     |                   | 3.14  
|Real estate:                      |               
|Construction and land development |                | 7,088     |                   | 2.42  
|1-4 family residential            |                | 106,881   |                   | 36.51 
|Farmland                          |                | 8,322     |                   | 2.84  
|Non-residential and non-farmland  |                | 59,296    |                   | 20.26 
|Multi-family residential          |                | 6,598     |                   | 2.25  
|Consumer                          |                | 29,170    |                   | 9.97  
|                                 
|Total loans                       |                | $292,745  |                   | 100.00
|                                 

|16
|--

|Allowance for
Loan Losses


In
originating loans, the Company recognizes that it will experience credit losses
and the risk of loss will vary with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the quality
of the collateral for such loan. The Company maintains an allowance for loan
losses in an amount that it believes is adequate for estimated losses in its
loan portfolio. Management determines the adequacy of the allowance through its
evaluation of the loan portfolio. In addition to unallocated allowances,
specific allowances are provided for individual loans when ultimate collection
is considered questionable by management after reviewing the current status of
loans which are contractually past due and considering the net realizable value
of the collateral for the loan. Loans are charged-off against the allowance for
loan losses when appropriate. Although management believes it uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions differ
from the assumptions used in making the initial determinations. Loan recoveries,
net of charge-offs, during the three-month period ending March 31, 2001
increased $138,000 or 191.7% over the same period ending March 31, 2000. This
increase is due primarily to the Companys collection efforts in pursuing
loans previously charged off. At March 31, 2001 and March 31, 2000, the
allowance for loan losses totaled $2.8 million or 0.96% of gross loans and $2.5
million or 0.98% of gross loans respectively. The allowance for loan losses as a
percentage of nonperforming loans was 55.9% at March 31, 2001.


Set
forth below is an analysis of the allowance for loan losses for the periods
indicated (dollars in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                        | Three monthsendedMarch 31,2001 |             | Three monthsendedMarch 31,2000 |            
|------------------------------------------------------- | ------------------------------ | ----------- | ------------------------------ | -----------
|
|                                                       
|Average loans outstanding                               |                                | $ 289,398   |                                | $ 257,930  
|                                                       
|Gross loans outstanding at end of period                |                                | $ 292,745   |                                | $ 259,108  
|                                                       
|Allowance for loan losses at beginning of period        |                                | $     2,578 |                                | $     2,491
|Provision for loan losses                               |                                | 155         |                                | 130        
|Charge-offs:                                            |                               
|Commercial and industrial                               |                                | (10         | )                              | (82        
|Real estate                                             |                                | (26         | )                              | (21        
|Consumer                                                |                                | (44         | )                              | (25        
|Recoveries:                                             |                               
|Commercial and industrial                               |                                | 14          |                                | 22         
|Real estate                                             |                                | 116         |                                | 8          
|Consumer                                                |                                | 16          |                                | 26         
|                                                       
|Net loan recoveries (charge-offs)                       |                                | 66          |                                | (72        
|                                                       
|Allowance for loan losses at end of period              |                                | $     2,799 |                                | $     2,549
|                                                       
|Ratio of allowance to end of period loans               |                                | 0.96        | %                              | 0.98       
|Ratio of net charge-offs to average loans               |                                | (0.02       | %)                             | 0.03       
|Ratio of allowance to end of period nonperforming loans |                                | 55.90       | %                              | 140.29     

|17
|--

|NONPERFORMING
ASSETS


Nonperforming
assets were $5.5 million at March 31, 2001 compared with $5.0 million at December 31,
2000. Nonaccrual loans increased $1.8 million from $1.2 million at December 31, 2000 to
$3.0 million at March 31, 2001. This increase is due primarily to two large commercial
lines added to non-accrual status totaling $1.7 million. These lines are currently in a
liquidation mode. They have collateral values, which exceed the total debt, and no loss
is anticipated. Accruing loans 90 or more days past due decreased $1.5 million, from $3.5
million at December 31, 2000 to $2.0 million at March 31, 2001. This decrease is due
primarily to collection efforts of previously past due credits. Other real estate
increased $227,000 during the same period. This increase is primarily the result of loans
that are foreclosed during the period totaling $321,000, net of sales of properties with
a carrying value of $94,000. Management anticipates minimal losses on the total of these
new nonperforming assets.


The
ratio of nonperforming assets to total loans and other real estate was 1.88% and 1.73% at
March 31, 2001, and December 31, 2000, respectively.


The
following table presents information regarding nonperforming assets as of the dates
indicated (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | March 31,2001 |        | December 31,2000 |       
|--------------------------------------- | ------------- | ------ | ---------------- | ------
|
|                                       
|Nonaccrual loans                        |               | $3,027 |                  | $1,214
|Accruing loans 90 or more days past due |               | 1,980  |                  | 3,488 
|                                       
|Total nonperforming loans               |               | 5,007  |                  | 4,702 
|Other real estate                       |               | 501    |                  | 274   
|                                       
|Total nonperforming assets              |               | $5,508 |                  | $4,976
|                                       

|SECURITIES


Securities
totaled $62.4 million at March 31, 2001, a decrease of $19.2 million from $81.6
million at December 31, 2000. At March 31, 2001, securities represented 14.8% of
total assets compared with 19.9% of total assets at December 31, 2000. The yield
on average securities for the three-months ended March 31, 2001, is 6.89%
compared with 6.54% for the same period in 2000. At March 31, 2001, securities
included $8.5 million in U.S. Government securities, $25.3 million in
mortgage-backed securities, $17.7 million in collateralized mortgage
obligations, $1.7 million in equity securities, and $9.2 million in municipal
securities. The average life of the securities portfolio at March 31, 2001, is
approximately 3.7 years, however, all of the Companys securities are
classified as available-for-sale.


PREMISES AND
EQUIPMENT


Premises
and equipment reflected a decrease of $56,000 or 0.4% during the three months
ended March 31, 2001. This decrease is primarily due to depreciation for the
period of $241,000 offset by the capitalization of furniture and equipment of
$185,000.





18
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|OTHER ASSETS


The
Companys investment in Guaranty Leasing Company, a wholly owned non-bank
subsidiary of Guaranty Bank increased from $2.9 million at December 31, 2000 to
$3.0 million at March 31, 2001. This increase is the result of income recorded
during the three-month period from its ownership in the Aircraft Finance Trust.


DEPOSITS


At
March 31, 2001, demand, money market and savings deposits account for
approximately 42.6% of total deposits, while certificates of deposit make up
57.4% of total deposits. Total deposits increased $14.2 million or 4.0% from
December 31, 2000 to March 31, 2001. This increase comes primarily from an
increase in certificates of deposits of $12.2 million or 6.0% due to the
offering of competitive yields on these deposits, and an increase in money
market accounts of $2.8 million or 4.8% due to an attractive yield on the
Companys Premier Money Market account. Noninterest-bearing demand deposits
totaled $54.2 million or 14.5% of total deposits at March 31, 2001, compared
with $55.3 million or 15.4% of total deposits at December 31, 2000. The average
cost of deposits, including noninterest-bearing demand deposits, is 5.36% for
the three months ended March 31, 2001 compared with 4.91% for the same period in
2000.


LIQUIDITY


The
Companys asset/liability management policy is intended to maintain
adequate liquidity for the Company. Liquidity involves the Companys
ability to raise funds to support asset growth or reduce assets to meet deposit
withdrawals and other payment obligations, to maintain reserve requirements and
otherwise to operate the Company on a continuing basis. The Companys
liquidity needs are primarily met by growth in core deposits. Although access to
purchased funds from correspondent banks is available and has been utilized on
occasion to take advantage of investment opportunities, the Company does not
continually rely on these external-funding sources. The cash and federal funds
sold position, supplemented by amortizing investments along with payments and
maturities within the loan portfolio, has historically created an adequate
liquidity position.


The
Companys cash flows are composed of three classifications: cash flows from
operating activities, cash flows from investing activities, and cash flows from
financing activities. As summarized in the unaudited condensed consolidated
statements of cash flows, the most significant transactions which affected the
Companys level of cash and cash equivalents, cash flows, and liquidity
during the first three months of 2001 are the net increase in federal funds sold
of $24.0 million, securities sales of $11.2 million, securities, maturities,
calls, and principal repayments of $9.0 million, the net increase in deposits of
$14.2 million, and the net decrease in short-term debt of $5.0 million.



19
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CAPITAL
RESOURCES


Total
shareholders equity as of March 31, 2001, is $30.5 million, an increase of
$1.0 million or 3.5% compared with shareholders equity of $29.4 million at
December 31, 2000. This increase is due to earnings for the period of $738,000,
and an increase in accumulated other comprehensive income of $459,000, offset by
the purchase of 15,301 shares of treasury stock at a cost of $165,000.


Both
the Board of Governors of the Federal Reserve System (Federal
Reserve), with respect to the Company, and the Federal Deposit Insurance
Corporation (FDIC), with respect to Guaranty Bank, have established
certain minimum risk-based capital standards that apply to bank holding
companies and federally insured banks, respectively. As of March 31, 2001, the
Companys Tier 1 risk-based capital, total risk-based capital and leverage
capital ratios are 11.99%, 12.95%, and 8.39%, respectively. As of March 31,
2001, Guaranty Banks risk-based capital ratios remain above the levels
required for Guaranty Bank to be designated as well capitalized by
the FDIC with Tier 1 risk-based capital, total risk-based capital and leverage
capital ratios of 11.28%, 12.25%, and 7.81%, respectively.




ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


There
have been no material changes in the market risk information disclosed in the
Companys Form 10-K for the year ended December 31, 2000. See Form 10-K,
Item 7A, Quantitative and Qualitative Disclosures about Market Risk.



20
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II
 OTHER INFORMATION


ITEM 1. LEGAL
PROCEEDINGS


The
Company faces ordinary routine litigation arising in the normal course of business. In
the opinion of management, liabilities (if any) arising from such claims will not have a
material adverse effect upon the business, results of operations or financial condition
of the Company.



ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS


None



ITEM 3. DEFAULTS
UPON SENIOR SECURITIES


None




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


None



ITEM 5. OTHER
INFORMATION


None



ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (a) |  | The
following documents are filed as part of this Quarterly Report on Form 10Q:
| |  | --- |  | -------------------------------------------------------------------------------

| |  |  |  | (1) |  | Exhibits
- The following exhibits are filed as a part of this Quarterly Report on Form 10Q:
| |  |  |  | --- |  | -------------------------------------------------------------------------------------------

| |  |  |  |  |  | 11 |  | Statement
regarding computation of earnings per share
| |  |  |  |  |  | -- |  | -----------------------------------------------------

| |  | (b) |  | Reports
on Form 8-K
| |  | --- |  | -------------------

| | No
report on Form 8-K was filed by Guaranty Bancshares, Inc., during the three months ended
March 31, 2001.
| | -----------------------------------------------------------------------------------------------------------

|21
|--

|SIGNATURES


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | GUARANTY BANCSHARES, INC.(Registrant)                                                                           
|------------------- | ----------------------------------------------------------------------------------------------------------------
|Date:  May 14, 2001 | By:Arthur B. Scharlach, Jr.President(Principal Executive Officer)                               
|Date:  May 14, 2001 | By:Clifton A. PayneSenior Vice President and ChiefFinancial
Officer(Principal Financial Officer)

|22
|--

|INDEX TO
EXHIBITS
|-----------------

|ExhibitNumber | Description                                          | Page Number                                                                                   
|------------- | ---------------------------------------------------- | ----------------------------------------------------------------------------------------------
|11            | Statement regarding computationof earnings per share | Reference is hereby madeto Note 2 of Notes toConsolidated FinancialStatements on page 8hereof.

|23
|--