|UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 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 SEPTEMBER 30, 2002.


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
file 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 November 12, 2002, there were 2,996,428 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 |  | Page
|------------------------------ |  | ----

|Item 1. |  | Financial Statements - Unaudited                                                      |  |   
|------- |  | ------------------------------------------------------------------------------------- |  | --
|        |  | Consolidated Balance Sheets                                                           |  | 3 
|        |  | Consolidated Statements of Earnings                                                   |  | 4 
|        |  | Condensed Consolidated Statements of Changes in Shareholders Equity                  |  | 5 
|        |  | Condensed Consolidated Statements of Cash Flows                                       |  | 6 
|        |  | Consolidated Statements of Comprehensive Income                                       |  | 7 
|        |  | Notes to Consolidated Financial Statements                                            |  | 8 
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 23
|Item 4. |  | Controls and Procedures                                                               |  | 23

|PART II - OTHER INFORMATION |  | 
|--------------------------- |  | 

|Item 1. |  | Legal Proceedings                                   |  | 24
|------- |  | --------------------------------------------------- |  | --
|Item 2. |  | Changes in Securities and Use of Proceeds           |  | 24
|Item 3. |  | Defaults upon Senior Securities                     |  | 24
|Item 4. |  | Submission of Matters to a Vote of Security Holders |  | 24
|Item 5. |  | Other Information                                   |  | 24
|Item 6. |  | Exhibits and Reports on Form 8-K                    |  | 24

|Signatures |  | 25
|---------- |  | --

|2
PART I FINANCIAL
INFORMATION


ITEM 1. FINANCIAL
STATEMENTS




GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                | September 30,2002 |  | December 31,2001 |        
|--------------------------------------------------------------- | ----------------- |  | ---------------- | -------
|
|ASSETS                                                         
|                                                                |                   |  |                  |        
|Cash and cash equivalents                                       |                   |  | $                | 17,013 
|Federal funds sold                                              |                   |  |                  | 25,655 
|Securities available-for-sale                                   |                   |  |                  | 96,958 
|Loans, net of allowance for loan losses of $3,632 and $3,346    |                   |  |                  | 347,775
|Premises and equipment, net                                     |                   |  |                  | 13,333 
|Other real estate                                               |                   |  |                  | 889    
|Accrued interest receivable                                     |                   |  |                  | 2,872  
|Goodwill                                                        |                   |  |                  | 2,338  
|Other assets                                                    |                   |  |                  | 9,002  
|                                                                |                   |  |                  |        
|Total assets                                                    |                   |  | $                | 515,835
|                                                                |                   |  |                  |        
|                                                               
|LIABILITIES AND SHAREHOLDERS EQUITY                           
|                                                               
|Liabilities                                                     |                   | 
|Deposits:                                                       |                   | 
|Noninterest-bearing                                             |                   |  | $                | 66,646 
|Interest-bearing deposits                                       |                   |  |                  | 349,239
|                                                                |                   |  |                  |        
|Total deposits                                                  |                   |  |                  | 415,885
|FHLB advances                                                   |                   |  |                  | 52,847 
|Long-term debt                                                  |                   |  |                  | 7,000  
|Other liabilites                                                |                   |  |                  | 5,119  
|                                                                |                   |  |                  |        
|Total liabilities                                               |                   |  |                  | 480,851
|                                                                |                   |  |                  |        
|                                                               
|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,    |                   | 
|3,252,016 and 3,250,016 shares issued                           |                   |  |                  | 3,252  
|Additional capital                                              |                   |  |                  | 12,676 
|Retained earnings                                               |                   |  |                  | 20,440 
|Treasury stock, 255,588 and 245,588 shares, at cost             |                   |  |                  | (2,783 
|Accumulated other comprehensive income                          |                   |  |                  | 1,399  
|                                                                |                   |  |                  |        
|Total shareholders equity                                      |                   |  |                  | 34,984 
|                                                                |                   |  |                  |        
|Total liabilities and shareholders equity                      |                   |  | $                | 515,835
|                                                                |                   |  |                  |        

|See accompanying Notes to Consolidated Financial Statements.


3



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

|                                                    | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |      
|--------------------------------------------------- | ------------------------------- |  | ------------------------------ | -----
|
|Interest income:                                    |                                 |  |                                |      
|Loans                                               |                                 |  | $                              | 6,069
|Securities                                          |                                 |  |                                | 1,229
|Federal funds sold and other temporary investments  |                                 |  |                                | 59   
|                                                    |                                 |  |                                |      
|Total interest income                               |                                 |  |                                | 7,357
|Interest expense:                                   |                                 | 
|Deposits                                            |                                 |  |                                | 2,408
|FHLB advances and other borrowed funds              |                                 |  |                                | 653  
|                                                    |                                 |  |                                |      
|Total interest expense                              |                                 |  |                                | 3,061
|                                                    |                                 |  |                                |      
|Net interest income                                 |                                 |  |                                | 4,296
|Provision for loan losses                           |                                 |  |                                | 335  
|                                                    |                                 |  |                                |      
|Net interest income after provision for loan losses |                                 |  |                                | 3,961
|Noninterest income:                                 |                                 | 
|Service charges and fees                            |                                 |  |                                | 1,014
|Other operating income                              |                                 |  |                                | 166  
|Realized gain on available-for-sale securities      |                                 |  |                                | 47   
|                                                    |                                 |  |                                |      
|Total noninterest income                            |                                 |  |                                | 1,227
|                                                    |                                 |  |                                |      
|Noninterest expense:                                |                                 | 
|Employee compensation and benefits                  |                                 |  |                                | 2,140
|Occupancy expenses                                  |                                 |  |                                | 490  
|Other operating expenses                            |                                 |  |                                | 1,053
|                                                    |                                 |  |                                |      
|Total noninterest expenses                          |                                 |  |                                | 3,683
|                                                    |                                 |  |                                |      
|Earnings before income taxes                        |                                 |  |                                | 1,505
|Provision for income taxes                          |                                 |  |                                | 413  
|                                                    |                                 |  |                                |      
|Net earnings                                        |                                 |  | $                              | 1,092
|                                                    |                                 |  |                                |      
|Basic earnings per common share                     |                                 |  | $                              | 0.36 
|                                                    |                                 |  |                                |      
|Diluted earnings per common share                   |                                 |  | $                              | 0.36 
|                                                    |                                 |  |                                |      

|See accompanying Notes to Consolidated Financial Statements.


4



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

|                                        | Three Months EndedSeptember 30, |  | Six Months EndedSeptember 30, |       
|--------------------------------------- | ------------------------------- |  | ----------------------------- | ------
|
|Balance at beginning of period          |                                 |  | $                             | 33,746
|Net income                              |                                 |  |                               | 1,092 
|Proceeds from stock options exercised   |                                 |  |                               |      
|Cash dividends declared on common stock |                                 |  |                               |      
|Purchases of treasury stock             |                                 |  |                               |      
|Change in accumulated other             |                                 | 
|comprehensive income, net of tax        |                                 |  |                               | 146   
|                                        |                                 |  |                               |       
|Balance at end of period                |                                 |  | $                             | 34,984
|                                        |                                 |  |                               |       

|See accompanying Notes to Consolidated Financial Statements.


5



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

|                                                 | Nine MonthsEnded September 30, | 
|------------------------------------------------ | ------------------------------ | 
|
|Net cash from operating activities               |                                | 
|                                                 |                                | 
|Cash flows from investing activities:            |                                | 
|Securities available for sale:                   |                                | 
|Purchases                                        |                                | 
|Sales                                            |                                | 
|Maturities, calls, and principal repayments      |                                | 
|Net increase in loans                            |                                | 
|Purchases of premises and equipment              |                                | 
|Proceeds from sale of other real estate          |                                | 
|Net change in federal funds sold                 |                                | 
|                                                 |                                | 
|Net cash from investing activities               |                                | 
|                                                 |                                | 
|Cash flows from financing activities:            |                                | 
|Net change in deposits                           |                                | 
|Net change in short-term FHLB advances           |                                | 
|Net change in long-term FHLB advances            |                                | 
|Net change in federal funds purchased            |                                | 
|Stock options exercised                          |                                | 
|Purchase of treasury stock                       |                                | 
|Dividends paid                                   |                                | 
|                                                 |                                | 
|Net cash from financing activities               |                                | 
|                                                 |                                | 
|Net change in cash and cash equivalents          |                                | 
|Cash and cash equivalents at beginning of period |                                | 
|                                                 |                                | 
|Cash and cash equivalents at end of period       |                                | 
|                                                 |                                | 
|Supplemental disclosures:                        |                                | 
|Cash paid for income taxes                       |                                | 
|Cash paid for interest                           |                                | 
|                                                
|Significant non-cash transactions:               |                                | 
|Transfers from loans to real estate owned        |                                | 

|See accompanying Notes to Consolidated Financial Statements.


6



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

|                                                    | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |      
|--------------------------------------------------- | ------------------------------- |  | ------------------------------ | -----
|
|Net earnings                                        |                                 |  | $                              | 1,092
|Other comprehensive income:                         |                                 | 
|Unrealized gain on available for sale securities    |                                 | 
|arising during the period                           |                                 |  |                                | 268  
|Reclassification adjustment for amounts realized on |                                 | 
|securities sales included in net earnings           |                                 |  |                                | (47  
|                                                    |                                 |  |                                |      
|Net unrealized gain                                 |                                 |  |                                | 221  
|Tax effect                                          |                                 |  |                                | (75  
|                                                    |                                 |  |                                |      
|Total other comprehensive income                    |                                 |  |                                | 146  
|                                                    |                                 |  |                                |      
|Comprehensive income                                |                                 |  | $                              | 1,238
|                                                    |                                 |  |                                |      

|See accompanying Notes to Consolidated Financial Statements.


7



GUARANTY
BANCSHARES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002(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 Bond Bank, formally Guaranty Bank and one non-bank
subsidiary, Guaranty Company. Guaranty Bond Bank has two wholly owned non-bank
subsidiaries, Guaranty Leasing Company, and GB Com, Inc. 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 in the United
States of America 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 15, 2002. Except for changes implemented due to
recent accounting pronouncements as discussed below, the Company has
consistently followed the accounting policies described in the Annual Report in
preparing this Form 10-Q. Operating results for the three and nine months ended
September 30, 2002, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002.


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 other real estate and status of contingencies are particularly
subject to change.


NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS


On
January 1, 2002, the Company adopted new accounting policies related to
goodwill, intangibles and other long-lived assets in accordance with several
recently issued accounting pronouncements. Our new accounting policies are
discussed below:


Goodwill:
On January 1, 2002, the Company stopped amortizing goodwill and adopted a
new policy for measuring goodwill for impairment. The Company has completed its
initial impairment test and no impairment of goodwill was recognized in
connection with the adoption of this new policy. Under the new policy, goodwill
is assigned to reporting units. The Company currently operates as a single
reporting unit and all of our goodwill is associated with the entire Company.
Goodwill is then tested for impairment at least annually, or on an interim basis
if an event occurs or circumstances change that would more-likely-than-not
reduce the fair value of the reporting unit below its carrying value. Goodwill
is tested for impairment using a two-step approach. The first step is to compare
the fair value of the reporting unit to its carrying amount, including goodwill.
If the fair value of the reporting unit is greater than its carrying amount,
goodwill is not considered impaired and the second step is not required. If the
fair value of the reporting unit is less than its carrying amount, the second
step of the impairment test measures the amount of the impairment loss, if any.
The second step of the impairment test is to compare the implied fair value of
goodwill to its carrying amount. If the carrying amount of goodwill exceeds its
implied fair value, an impairment loss is recognized equal to that excess. The
implied fair value of goodwill is calculated in the same manner that goodwill is
calculated in a business combination, whereby the fair value of the reporting
unit is allocated to all of the assets and liabilities of that unit (including
any unrecognized intangible assets) as if the reporting unit had been acquired
in a business combination and the fair value of the reporting unit was the
purchase price. The excess purchase price over the amounts assigned
to assets and liabilities would be the implied fair value of goodwill.


8
The
following table presents reported net income and basic earnings per common share
for the three and nine months ended September 30, 2001 and 2002 adjusted to
exclude goodwill amortization expense assuming the new standards were applied
effective January 1, 2001 (dollars in thousands, except per share amounts):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | Three Months EndedSeptember 30, |  | Six Months EndedSeptember 30, |      
|--------------------------------- | ------------------------------- |  | ----------------------------- | -----
|
|                                 
|Reported net income               |                                 |  | $                             | 1,092
|Add back amortization of goodwill |                                 |  |                               |     
|                                  |                                 |  |                               |      
|Adjusted net income               |                                 |  | $                             | 1,092
|                                  |                                 |  |                               |      
|                                 
|Reported earnings per share       |                                 |  | $                             | 0.36 
|Goodwill amortization             |                                 |  |                               |     
|                                  |                                 |  |                               |      
|Adjusted earnings per share       |                                 |  | $                             | 0.36 
|                                  |                                 |  |                               |      

|Intangible
Assets and Other Long-Lived Assets: Intangible assets with definite useful
lives are amortized on a straight-line basis over their estimated useful life.
Intangible assets, premises and equipment and other long-lived assets are tested
for impairment whenever events or changes in circumstances indicate the carrying
amount of the assets may not be recoverable from future undiscounted cash flows.
If impaired, the assets are recorded at fair value.


The following accounting
standards were issued during the nine months ended September 30, 2002:


Statement
of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 clarifies and simplifies existing accounting
pronouncements related to gains and losses from debt extinguishments and certain
lease modifications and eliminates certain transitional accounting standards
that are no longer necessary. This statement also makes minor technical
corrections to various other existing pronouncements. Certain provisions of this
statement will become effective for the Company on January 1, 2003, while
other provisions became effective for transactions occurring and financial
statements issued after May 15, 2002. Adoption of the provisions of this
statement that were effective after May 15, 2002 did not have a significant
impact on the Companys financial statements. Furthermore, adoption of the
remaining provisions of this statement on January 1, 2003 is not expected
to have a significant impact on the Companys financial statements.


SFAS
No. 147, Acquisitions of Certain Financial Institutions, an Amendment of
FASB Statements No. 72 and 144 and FASB Interpretation No. 9.
SFAS 147 removes acquisitions of financial institutions from the scope of
both SFAS 72, Accounting for Certain Acquisitions of Banking or
Thrift Institutions,and FASB Interpretation (FIN) No. 9,Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or
a Similar Institution Is Acquired in a Business Combination Accounted for by the
Purchase Method, and requires such transactions be accounted for in
accordance with SFAS 141,Business Combinations,and
SFAS 142, Goodwill and Other Intangible Assets. In
addition, SFAS 147 amends SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,to include in its scope
long-term customer-relationship intangible assets of financial institutions such
as depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. The provisions of SFAS 147 became effective on October
1, 2002. Adoption of this statement is not expected to have a significant impact
on our financial statements.


9
NOTE 3. 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.


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

|                                                 | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |          
|------------------------------------------------ | ------------------------------- |  | ------------------------------ | ---------
|
|Weighted average common shares used in basic EPS |                                 |  |                                | 2,996,428
|Dilutive effect of stock options                 |                                 |  |                                | 20,276   
|                                                 |                                 |  |                                |          
|Weighted average common shares used              |                                 | 
|in dilutive EPS                                  |                                 |  |                                | 3,016,704
|                                                 |                                 |  |                                |          

|NOTE 4. STOCK OPTIONS


In
2000, the Company granted nonqualified stock options to certain executive
officers of the Company and Guaranty Bond Bank under the Companys 1998
Stock Incentive Plan. The grants consist 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. In
February 2002, the Company granted eight-year options to purchase 20,000 shares
at an exercise price of $12.50 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 September 30, 2002,
2,000 shares of the options have been exercised and 890,500 options remain
available for future grant under the 1998 Stock Incentive Plan.


The
weighted-average fair value per share of options granted during 2002 is $4.09.
The fair value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: Dividend yield of 2.24%, expected volatility of 28.7%, risk-free
interest rate of 5.0%, and an expected life of 8.00 years.


NOTE 5. COMMITMENTS AND CONTINGENCIES


In
the normal course of business, the Company enters into various transactions,
which, in accordance with generally accepted accounting principles in the United
States of America, are not included in the consolidated balance sheets. These
transactions are referred to as off-balance sheet commitments. The
Company enters into these transactions to meet the financing needs of its
customers. These transactions include commitments to extend credit and letters
of credit, which involve elements of credit risk in excess of the amounts
recognized in the consolidated balance sheets. The Company minimizes its
exposure to loss under these commitments by subjecting them to credit approval
and monitoring procedures.


The
Company enters into contractual commitments to extend credit, normally with
fixed expiration dates or termination clauses, at specified rates and for
specific purposes. Customers use credit commitments to ensure that funds will be
available for working capital purposes, for capital expenditures and to ensure
access to funds at specified terms and conditions. Substantially all of the
Companys commitments to extend credit are contingent upon customers
maintaining specific credit standards at the time of loan funding. Management
assesses the credit risk associated with certain commitments to extend credit in
determining the level of the allowance for credit losses.


10
Letters
of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The Companys policies
generally require that letters of credit arrangements contain security and debt
covenants similar to those contained in loan agreements.


Outstanding
commitments and letters of credit are approximately as follows (dollars in
thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | Contract orNotional Amount |  |  
|---------------------------- | -------------------------- |  | -
|
|                            
|Commitments to extend credit |                            |  | $
|Letters of credit            |                            |  |  

|The
Company is subject to various claims and legal actions occurring in the normal
course of business. The Company accrues for estimated losses in the accompanying
financial statements for those matters where management believes the likelihood
of an adverse outcome is probable and the amount of the loss is reasonably
estimable. After consultation with legal counsel, management currently believes
the outcome of outstanding legal proceedings, claims and litigation involving
the Company will not have a material adverse effect on the Companys
business, financial condition or results of operation.


Guaranty
Leasing Company, a non-bank subsidiary of the Bank, is a substantial partner in
various complex equipment leasing transactions primarily originated in 1992,
1994 and 1995 involving leveraged leases. During 2001 and 1998, Guaranty Leasing
was informed by the Internal Revenue Service (the Service) that
certain losses taken by the Partnership during 1992 and 1994 through 1996
amounting to approximately $1.6 million would be disallowed. In September 2002,
the Partnership received a final notice. The notice proposes adjustments to the
partnership tax return as outlined above. The Company plans to
appeal the Services proposed adjustments and to actively contest the
Services position. If the Service is ultimately successful in
re-determining the amount of the Partnerships taxable loss, the Company
would be required to pay an estimated $540,000 in additional taxes for these tax
years.


There
can be no assurance that the Service will not contest and ultimately disallow
additional similar types of deductions and losses for other open tax years by
the Partnerships in which Guaranty Leasing has ownership. If the Service is
successful in its challenge of the Partnerships losses, the potential
additional tax liability to the Company may have a material adverse effect on
its consolidated financial statements.




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


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 loan losses; changes in the regulatory
environment; changes in business conditions; volatility of rate sensitive
deposits; operational risks including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets and the factors contained in the Companys Annual Report
on Form 10-K for the year ended December 31, 2001 as filed with the Securities
and Exchange Commission.



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

|These
risks and uncertainties are beyond the Companys control and, in many
cases, the Company cannot predict the risks and uncertainties that could cause
its actual results to differ materially from those indicated by the
forward-looking statements. When used in this document, the words
believes, plans, expects,
anticipates, intends, continue,
may, will, should or the negative of such
terms and similar expressions as they relate to the Company, its customers or
its management are intended to identify forward-looking statements.


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 Bond 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.


FINANCIAL OVERVIEW


Net
earnings for the nine months ended September 30, 2002 were $3.2 million or $1.06
per share (basic) and $1.05 per share (diluted) compared with $2.3 million or
$0.76 per share (basic and diluted) for the nine months ended September 30,
2001, an increase of $887,000 or 38.9%. The increase is due primarily to an
increase in net interest income of $2.5 million or 25.4% and an increase in
noninterest income of $140,000 or 3.9% offset by an increase in noninterest
expense of $930,000 or 9.5%, an increase in provision for loan losses of
$354,000 or 52.0%, and an increase in provision for income tax expense of
$466,000 or 71.5%. These increases are due in part to the growth in loans, in
deposits, and in Federal Home Loan Bank (FHLB) advances. Net earnings for the three months ended
September 30, 2002 were $1.1 million or $0.36 per share (basic and diluted)
compared with $819,000 or $0.27 per share for the three months ended September
30, 2001, an increase of $273,000 or 33.3%. The increase is primarily due to an
increase in net interest income partly offset by an increase in noninterest
expense primarily due to additional employee compensation and benefits costs.


The
first nine months of 2002 showed steady growth. Gross loans increased to $351.4
million at September 30, 2002, from $331.3 million at December 31, 2001, an
increase of $20.1 million or 6.1%. Total assets increased to $515.8 million at
September 30, 2002, compared with $460.5 million at December 31, 2001. The
increase of $55.3 million or 12.0% in total assets resulted primarily from the
investment of increased deposits of $32.6 million, and an increase in FHLB
advances of $19.8 million. Total deposits increased to $415.9 million at
September 30, 2002 compared to $383.3 million at December 31, 2001, an increase
of $32.6 million or 8.5%. Total FHLB advances increased from
$33.1 million to $52.9 million to help fund the growth in loans.


Total
shareholders equity was $35.0 million at September 30, 2002, representing
an increase of $3.2 million or 9.9% from December 31, 2001. This increase is due
to earnings for the period of $3.2 million and an increase in accumulated other
comprehensive income of $551,000 and the issuance of 2,000 shares exercised
under the Companys stock option plan for $19,000 offset by the purchase of
10,000 shares of treasury stock at a cost of $130,000, and the payment of
dividends of $450,000.


RESULTS OF OPERATIONS


Interest Income


Interest
income for the nine months ended September 30, 2002 was $21.6 million, a
decrease of $1.0 million or 4.4% compared with the nine months ended September
30, 2001. Despite the increase in average interest-earning assets, interest
income decreased primarily due to lower rates earned on earnings assets as a
result of the falling interest rate environment. The average interest rate
earned on interest-earnings assets decreased from, 7.90% during the nine months
ended September 30, 2001 to 6.58% during the nine months ended September 30,
2002. Average loans were $338.7 million for the nine months ended September 30,
2002, compared with $296.3 million for the nine months ended September 30, 2001,
an increase of $42.4 million or 14.3%. Average securities were $87.6 million for
the nine months ended September 30, 2002, compared with $71.2 million for the
nine months ended September 30, 2001, an increase of $16.4 million or 23.0%.
Interest income for the three months ended September 30, 2002 was $7.4 million,
a decrease of $165,000 or 2.2% compared with the three months ended September
30, 2001. The decrease was primarily due to a decrease in the average yield on
interest-earning assets from 7.66% during the three months ended September 30,
2001 to 6.43% during the three months ended September 30, 2002, partly offset by
a $64.3 million increase in average interest earning assets.


12
Interest Expense


Interest
expense on deposits and other interest-bearing liabilities was $9.3 million for
the nine months ended September 30, 2002, compared with $12.8 million for the
nine months ended September 30, 2001, a decrease of $3.5 million or 27.3%. The
decrease in interest expense is due primarily to a decrease in average interest
rate paid on interest-bearing liabilities from 5.10% for the nine months ended
September 30, 2001 to 3.26% for the nine months ended September 30, 2002. The
decrease is partially offset by a $46.3 million or 13.8% increase in average
interest-bearing liabilities to $381.8 million for the nine months ended
September 30, 2002, from $335.5 million for the nine months ended September 30,
2001. Interest expense was $3.1 million for the three months ended September 30,
2002, compared with $4.0 million for the three months ended September 30, 2001,
a decrease of $963,000 or 23.9%. The decrease in interest expense for the
comparable three month periods is also due to decreases in average interest
rates of interest-bearing liabilities partly offset by a $55.1 million increase
in average interest-bearing liabilities.


Net Interest Income


Net
interest income was $12.3 million for the nine months ended September 30, 2002
compared with $9.8 million for the nine months ended September 30, 2001, an
increase of $2.5 million or 25.5%. The increase in net interest income resulted
primarily from growth in average interest-earnings assets to $439.5 million for
the nine months ended September 30, 2002, from $383.1 million for the nine
months ended September 30, 20001 an increase of $56.4 million or 14.7%, offset
by growth in average interest-bearing liabilities to $381.8 million for the nine
months ended September 30, 2002, from $335.5 million for the nine months ended
September 30, 2001, an increase of $46.3 million, or 13.8%. Net interest income
was $4.3 million for the three months ended September 30, 2002, compared with
$3.5 million for the three months ended September 30, 2001, an increase of
$798,000 or 22.8%. The net interest margin increased from 3.56% to 3.75% for the
three months ended September 30, 2002 and increased from 3.43% to 3.75% for the
nine months ended September 30, 2002 compared to the same three and nine-month
periods ended September 30, 2001. The increase for the three and nine months
ended September 30, 2002 can be attributed to the fact that the percentage
growth in average interest-earning assets exceeded the percentage growth in
average interest-bearing liabilities causing the ratio of average
interest-earning assets to average interest-bearing liabilities to increase.


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 and nine months
ended September 30, 2002 and 2001, 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.


13
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   | Three Months Ended September 30,
|-------------------------------------------------- | --------------------------------
|
|
|
|Assets                                             |                                 
|Interest-earning assets:                           |                                 
|Loans                                              |                                 
|Securities                                         |                                 
|Federal funds sold and other temporary investments |                                 
|                                                   |                                 
|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                      |                                 
|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                                |                                 
|                                                   |                                 

|14
|--

|                                                   | Nine Months Ended September 30,
|-------------------------------------------------- | -------------------------------
|
|
|
|Assets                                             |                                
|Interest-earning assets:                           |                                
|Loans                                              |                                
|Securities                                         |                                
|Federal funds sold and other temporary investments |                                
|                                                   |                                
|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                      |                                
|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                                |                                
|                                                   |                                

|15
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 September 30, | 
|----------------------------------- | -------------------------------- | 
|
|
|
|                                   
|Interest-earning assets:            |                                  | 
|Loans                               |                                  | 
|Securities                          |                                  | 
|Federal funds sold                  |                                  | 
|Interest-bearing deposits in other  |                                  | 
|financial institutions              |                                  | 
|                                    |                                  | 
|Total change in interest income     |                                  | 
|                                    |                                  | 
|                                   
|Interest-bearing liabilities:       |                                  | 
|NOW, savings, and money market      |                                  | 
|accounts                            |                                  | 
|Time deposits                       |                                  | 
|FHLB advances                       |                                  | 
|Long-term debt                      |                                  | 
|                                    |                                  | 
|Total change in interest expense    |                                  | 
|                                    |                                  | 
|Total change in net interest income |                                  | 
|                                    |                                  | 

|16
|--

|                                    | Nine Months Ended September 30, | 
|----------------------------------- | ------------------------------- | 
|
|
|
|Interest-earning assets:            |                                 | 
|Loans                               |                                 | 
|Securities                          |                                 | 
|Federal funds sold                  |                                 | 
|Interest-bearing deposits in other  |                                 | 
|financial institutions              |                                 | 
|                                    |                                 | 
|Total change in interest income     |                                 | 
|                                    |                                 | 
|                                   
|Interest-bearing liabilities:       |                                 | 
|NOW, savings, and money market      |                                 | 
|accounts                            |                                 | 
|Time deposits                       |                                 | 
|FHLB advances                       |                                 | 
|Long-term debt                      |                                 | 
|                                    |                                 | 
|Total change in interest expense    |                                 | 
|                                    |                                 | 
|Total change in net interest income |                                 | 
|                                    |                                 | 

|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 an external loan review firm. The provision for loan losses for the nine
months ended September 30, 2002, was $1.0 million compared to $681,000 for the
nine months ended September 30, 2001, an increase of $354,000 or 52.0%. The
provision for loan losses for the three months ended September 30, 2002, was
$335,000 compared to $341,000 for the three months ended September 30, 2001, a
decrease of $6,000 or 1.8%. The increase for the nine-months ended September 30,
2002 was due to the increase in average loans of $42.4 million, or 14.3% over
the comparable nine-month period ended September 30, 2001. Management believes
increasing the allowance for loan losses is prudent as total loans, particularly
higher-risk commercial, construction, and consumer loans, increase. The increase
is also due to the unstable economic conditions.


17
Noninterest Income


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

|                                    | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |      
|----------------------------------- | ------------------------------- |  | ------------------------------ | -----
|
|Service charges on deposit accounts |                                 |  | $                              | 780  
|Fee income                          |                                 |  |                                | 234  
|Fiduciary income                    |                                 |  |                                | 45   
|Other noninterest income            |                                 |  |                                | 121  
|Realized gain on securities         |                                 |  |                                | 47   
|                                    |                                 |  |                                |      
|Total noninterest income            |                                 |  | $                              | 1,227
|                                    |                                 |  |                                |      

|As the table above
indicates, the Companys primary sources of recurring noninterest income
are service charges on deposit accounts and fee income. The increase in
noninterest income for the nine-month period ended September 30, 2002 was
primarily due to an increase in service charges on deposit accounts created by
an increase in the number of deposit accounts and increases in fee income due to
increases in check cashing fee income and debit card fee income.


The
decrease in other noninterest income for the three month period is due primarily
to more gain on sale of other real estate and mortgage loans recorded in 2001
over and above that which was recorded in 2002. The decrease in the nine-month
period is due primarily to a decline in income recorded from Guaranty Leasing
Company of $132,000


18
Noninterest Expenses


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

|                                   | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30, |      
|---------------------------------- | ------------------------------- |  | ------------------------------ | -----
|
|Employee compensation and benefits |                                 |  | $                              | 2,140
|                                   |                                 |  |                                |      
|Non-staff expenses:                |                                 | 
|Net bank premises expense          |                                 |  |                                | 490  
|Office and computer supplies       |                                 |  |                                | 63   
|Legal and professional fees        |                                 |  |                                | 236  
|Advertising                        |                                 |  |                                | 65   
|Postage                            |                                 |  |                                | 47   
|FDIC insurance                     |                                 |  |                                | 17   
|Other                              |                                 |  |                                | 625  
|                                   |                                 |  |                                |      
|Total non-staff expenses           |                                 |  |                                | 1,543
|                                   |                                 |  |                                |      
|Total noninterest expenses         |                                 |  | $                              | 3,683
|                                   |                                 |  |                                |      

|The
increase in employee compensation and benefits for both the three and nine-month
periods ended September 30, 2002 is due primarily to normal salary increases and
additional staff placement in the Mt. Pleasant, Texarkana, and Paris locations
to handle customer growth. The number of full-time equivalent employees was 208
at September 30, 2002, compared with 197 at September 30, 2001.


Other
non-staff expenses increased $193,000, or 36.1% and $253,000, or 14.5%, over the
comparable three and nine month periods. Increases in other non-staff expenses
were partially the result of increases in software support fees, ATM and debit
card expenses.


Income Taxes


Income
tax expense increased $466,000 or 71.5% to $1.1 million for the nine months
ended September 30, 2002 from $652,000 for the same period in 2001. Income tax
expense was $413,000 for the three months ended September 30, 2002 compared with
$239,000 for the three months ended September 30, 2001, an increase of $174,000
or 72.8%. The increase for the three and nine-month periods was primarily
attributable to the increase in income before income taxes and also the result
of fewer tax deductions available from the Companys leveraged leasing
activities. The income stated on the consolidated statement of earnings differ
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 were $351.4 million at September 30, 2002, an increase of $20.1 million or
6.1% from $331.3 million at December 31, 2001. Loan growth occurred primarily in
1-4 family residential loans and in the construction and land development loans
due to continued good loan demand in the various markets that the Company
serves.


19
The
following table summarizes the loan portfolio of the Company by type of loans as
of September 30, 2002 and December 31, 2001 (dollars in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | September 30, 2002 |  | December 31, 2001 |        
|--------------------------------- | ------------------ |  | ----------------- | -------
|
|                                 
|Commercial and industrial         |                    |  | $                 | 58,149 
|Agriculture                       |                    |  |                   | 9,607  
|Real estate:                      |                    | 
|Construction and land development |                    |  |                   | 15,946 
|1-4 family residential            |                    |  |                   | 140,191
|Farmland                          |                    |  |                   | 10,440 
|Commercial real estate            |                    |  |                   | 73,921 
|Multi-family residential          |                    |  |                   | 9,656  
|Consumer                          |                    |  |                   | 33,497 
|                                  |                    |  |                   |        
|Total gross loans                 |                    |  | $                 | 351,407
|                                  |                    |  |                   |        

|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. Loans
charged-off, net of recoveries, during the nine month period ended September 30,
2002 increased $286,000 or 61.8% over the same period ended September 30, 2001.
This increase is due primarily to additional charge-offs recognized during the
period caused by the Companys aggressive position on identifying problem
assets. At September 30, 2002 and September 30, 2001, the allowance for loan
losses totaled $3.6 million or 1.03% of gross loans and $2.8 million or 0.88% of
gross loans respectively. The allowance for loan losses as a percentage of
nonperforming loans was 102.66% at September 30, 2002.


20
Set
forth below is an analysis of the allowance for loan losses for the periods
indicated (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                        | Nine monthsendedSeptember 30,2002 |  | Nine monthsendedSeptember 30,2001 |        
|------------------------------------------------------- | --------------------------------- |  | --------------------------------- | -------
|                                                       
|Average loans outstanding                               |                                   |  | $                                 | 338,702
|                                                        |                                   |  |                                   |        
|Gross loans outstanding at end of period                |                                   |  | $                                 | 351,407
|                                                        |                                   |  |                                   |        
|Allowance for loan losses at beginning of period        |                                   |  | $                                 | 3,346  
|Provision for loan losses                               |                                   |  |                                   | 1,035  
|Charge-offs:                                            |                                   | 
|Commercial and industrial                               |                                   |  |                                   | (236   
|Real estate                                             |                                   |  |                                   | (370   
|Consumer                                                |                                   |  |                                   | (283   
|Recoveries:                                             |                                   | 
|Commercial and industrial                               |                                   |  |                                   | 26     
|Real estate                                             |                                   |  |                                   | 56     
|Consumer                                                |                                   |  |                                   | 58     
|                                                        |                                   |  |                                   |        
|Net loan  (charge-offs)                                 |                                   |  |                                   | (749   
|                                                        |                                   |  |                                   |        
|Allowance for loan losses at end of period              |                                   |  | $                                 | 3,632  
|                                                        |                                   |  |                                   |        
|                                                       
|Ratio of allowance to end of period loans               |                                   |  |                                   | 1.03   
|Ratio of net charge-offs to average loans               |                                   |  |                                   | 0.22   
|Ratio of allowance to end of period nonperforming loans |                                   |  |                                   | 102.66 

|NONPERFORMING ASSETS


Nonperforming
assets were $4.4 million at September 30, 2002 compared with $6.2 million at
December 31, 2001. Nonaccrual loans decreased $544,000 from $3.7 million at
December 31, 2001 to $3.2 million at September 30, 2002. This decrease is due
primarily to three large commercial lines paid and taken off of non-accrual
status totaling $1.9 million offset by the addition of a number of smaller
credits added to nonaccrual status totaling approximately $1.4 million. These
new 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 $1.6 million, from $1.9 million at December 31,
2001 to $345,000 at September 30, 2002. This decrease is due primarily to
collection efforts of previously past due credits. Other real estate increased
$326,000 during the same comparative dates. The increase is primarily the result
of loans that were foreclosed on during the period totaling $3.2 million, net of
sales of properties with a carrying value of $2.9 million. Management
anticipates minimal losses on the total of these new nonperforming assets. The Company
had no restructured loans at September 30, 2002 or at December 31, 2001.


The
ratio of nonperforming assets to total loans and other real estate was 1.26% and
1.87% at September 30, 2002 and December 31, 2001, respectively.


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


21
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | September 30,2002 |  | December 31,2001 |      
|--------------------------------------- | ----------------- |  | ---------------- | -----
|Nonaccrual loans                        |                   |  | $                | 3,193
|Accruing loans 90 or more days past due |                   |  |                  | 345  
|                                        |                   |  |                  |      
|Total nonperforming loans               |                   |  |                  | 3,538
|Other real estate                       |                   |  |                  | 889  
|                                        |                   |  |                  |      
|Total nonperforming assets              |                   |  | $                | 4,427
|                                        |                   |  |                  |      

|SECURITIES


Securities
totaled $96.9 million at September 30, 2002, an increase of $15.2 million or
18.7% from $81.7 million at December 31, 2001. At September 30, 2002, securities
represented 18.8% of total assets compared with 17.7% of total assets at
December 31, 2001. The average yield on securities for the nine months ended
September 30, 2002, was 5.37% compared with 6.53% for the same period in 2001.
At September 30, 2002, securities included $9.9 million in U.S. Government
securities, $60.6 million in mortgage-backed securities, $22.0 million in
collateralized mortgage obligations, $3.1 million in equity securities, and $1.3
million in municipal securities. The average life of the securities portfolio at
September 30, 2002, is approximately 2.8 years, however, all of the
Companys securities are classified as available-for-sale.


OTHER ASSETS


Other
assets totaled $9.0 million at September 30, 2002 compared to $11.4 million at
December 31, 2001, a decrease of $2.4 million or 21.0%. This decrease resulted
primarily from the collection of a receivable of $3.0 million as of December 31,
2001 reflecting the settlement of the Companys lawsuit against another
financial institution.


DEPOSITS


At
September 30, 2002, demand, money market and savings deposits account for
approximately 42.5% of total deposits, while certificates of deposit made up
57.5% of total deposits. Total deposits increased $32.6 million or 8.5% from
December 31, 2001 to September 30, 2002. This increase comes primarily from an
increase in certificate of deposits of $25.8 million or 12.1% and an increase in
interest-bearing demand deposits of $3.6 million or 10.8%. Noninterest-bearing
demand deposits totaled $66.6 million or 16.0% of total deposits at September
30, 2002, compared with $63.7 million or 16.6% of total deposits at December 31,
2001. The average cost of deposits, including noninterest-bearing demand
deposits, was 2.54% for the nine months ended September 30, 2002 compared with
4.23% for the same period in 2001.


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 nine months of 2002 are the securities purchases of $64.8
million, the net increase in deposits of $32.6 million, securities sales of
$28.0 million, the net increase in loans of $24.1 million, securities calls,
maturities, and principals repayments of $23.4 million, the net increase in
federal funds sold of $21.3 million, and the net increase in FHLB advances of
$20.0 million.


22
CAPITAL RESOURCES


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 the Bank, have established certain
minimum risk-based capital standards that apply to bank holding companies and
federally insured banks, respectively. As of September 30, 2002, the
Companys Tier 1 risk-based capital, total risk-based capital and leverage
capital ratios are 11.62%, 12.69%, and 8.22%, respectively. As of September 30,
2002, the Banks risk-based capital ratios remain above the levels required
for the 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 11.02%, 12.07%, and 7.92%, respectively. Management is not aware of any
conditions or events subsequent to September 30, 2002 that would change the
Companys or the Banks capital category.


RECENT ACCOUNTING PRONOUNCEMENTS


As
discussed in Note 2  Recent Accounting Pronouncements in the Notes to
Consolidated Financial Statements included elsewhere in this report, the Company
implemented new accounting standards related to accounting for goodwill and
intangible assets beginning January 1, 2002. Also refer to this note for a
summary of new accounting standards issued during the nine months ended
September 30, 2002.




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, 2001. See Form 10-K,
Item 7A, Quantitative and Qualitative Disclosures about Market Risk.




ITEM 4. CONTROLS AND PROCEDURES


(a) Evaluation
of Disclosure Controls and Procedures.


The
Companys chief executive officer and chief financial officer, after
evaluating the effectiveness of the Companys disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15d-14(c)) as of a date (the Evaluation Date) within
90 days before the filing date of this quarterly report on Form 10-Q, have
concluded that as of the Evaluation Date, the Companys disclosure controls
and procedures were adequate and designed to ensure that material information
relating to the Company and its consolidated subsidiaries would be made known to
them by others within those entities.


(b) Changes
in internal controls


There
were no significant changes in the Companys internal controls or, to the
knowledge of the Companys chief executive officer and chief financial
officer, in other factors that could significantly affect the Companys
disclosure controls and procedures subsequent to the Evaluation Date.


23
PART II
 OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS


The
Company is subject to various claims and legal actions occurring in the normal
course of business. The Company accrues for estimated losses in the accompanying
financial statements for those matters where management believes the likelihood
of an adverse outcome is probable and the amount of the loss is reasonably
estimable. After consultation with legal counsel, management currently believes
the outcome of outstanding legal proceedings, claims and litigation involving
the Company will not have a material adverse effect on the Companys
business, financial condition or results of operation.




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
| |  |  |  | -- |  | -----------------------------------------------------

| |  |  |  | 99.1 |  | Certification
of Chief Executive Officer
| |  |  |  | ---- |  | ----------------------------------------

| |  |  |  | 99.2 |  | Certification
of Chief Financial Officer
| |  |  |  | ---- |  | ----------------------------------------

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

| | No
reports on Form 8-K were filed by Guaranty Bancshares, Inc., during the three months
ended September 30, 2002.
| | -----------------------------------------------------------------------------------------------------------------

|24
|--

|SIGNATURE


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: November 12, 2002 |  | By: /s/ Arthur B. Scharlach, Jr.

Arthur B. Scharlach, Jr.
President & Chief Executive Officer
(Principal Executive Officer)
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|Date: November 12, 2002 |  | By: /s/ Clifton A. Payne

Clifton A. Payne
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|25
Certification


I, Arthur B. Scharlach, Jr. certify that:


1. I have reviewed this quarterly
report on Form 10-Q of Guaranty Bancshares, Inc.;


2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;


3. Based on my knowledge,
the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;


4. The registrants
other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:


a.
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;


b.
evaluated the effectiveness of the registrants disclosure controls and procedures as of
a date within 90 days prior to the filing date of this quarterly report (the Evaluation
Date); and


c.
presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5. The registrants
other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):


a.
all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and


b. any
fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls; and


6. The registrants
other certifying officers and I have indicated in this quarterly report whether
or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:  November 12, 2002 | By: | /s/ Arthur B. Scharlach, Jr.

Name: Arthur B. Scharlach, Jr.
Title: President and Chief Executive Officer
|------------------------- | --- | -----------------------------------------------------------------------------------------------------------------------

|26
Certification


I, Clifton A. Payne certify that:


1. I have reviewed this quarterly
report on Form 10-Q of Guaranty Bancshares, Inc.;


2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;


3. Based on my knowledge,
the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;


4. The registrants
other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:


a.
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;


b.
evaluated the effectiveness of the registrants disclosure controls and procedures as of
a date within 90 days prior to the filing date of this quarterly report (the Evaluation
Date); and


c.
presented in this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;


5. The registrants
other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):


a.
all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and


b. any
fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls; and


6. The registrants
other certifying officers and I have indicated in this quarterly report whether
or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:  November 12, 2002 | By: | /s/ Clifton A. Payne

Name: Clifton A. Payne
Title: Senior Vice President, and Chief Financial           Officer
|------------------------- | --- | ------------------------------------------------------------------------------------------------------------------------------

|27
INDEX TO
EXHIBITS
|--------------------

|ExhibitNumber |  | Description |  | Page Number
|------------- |  | ----------- |  | -----------

|11 |  | Statement regarding computation of earnings per share |  | Reference is hereby made to Note 3 of Notes to Consolidated Financial Statements on page 10 hereof.
|-- |  | ----------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------

|99.1 |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Page 29
|---- |  | -------------------------------------------------------------------------------------------------- |  | -------

|99.2 |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Page 30
|---- |  | -------------------------------------------------------------------------------------------------- |  | -------

|28
|--