|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 JUNE 30, 2003.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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                           |  | 75-16516431         | 
|------------------------------- |  | ------------------- | 
|(State or other jurisdiction of |  | (I.R.S. Employer    | 
|incorporation or organization)  |  | Identification No.) | 

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


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


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


Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
|_| Yes  |X| No


As of August 8, 2003, there were
2,921,928 shares of the registrants Common Stock, par value $1.00 per share,
outstanding.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|GUARANTY BANCSHARES,
INC. INDEX TO FORM 10-Q
|--------------------------------------------

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|2
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|PART I  FINANCIAL
INFORMATIONITEM 1.  INTERIM FINANCIAL STATEMENTS


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

|                                                                           | June 30,2003 | December 31,2002
|-------------------------------------------------------------------------- | ------------ | ----------------
|
|                                                                          
|ASSETS                                                                    
|                                                                          
|Cash and cash equivalents                                                  |              | $   19,859      
|Interest-bearing  deposits                                                 |              | 204             
|                                                                           |              |                 
|Total cash and cash equivalents                                            |              | 20,063          
|Interest-bearing  time deposits                                            |              | 6,776           
|Federal funds sold                                                         |              |                
|Securities available-for-sale                                              |              | 115,611         
|Loans held for sale                                                        |              | 1,749           
|Loans, net of allowance for loan losses of $3,830 and $3,692, respectively |              | 356,429         
|Premises and equipment, net                                                |              | 13,356          
|Other real estate                                                          |              | 1,552           
|Accrued interest receivable                                                |              | 2,853           
|Goodwill                                                                   |              | 2,338           
|Other assets                                                               |              | 9,667           
|                                                                           |              |                 
|Total assets                                                               |              | $ 530,394       
|                                                                           |              |                 

|                                                                  |  |           
|----------------------------------------------------------------- |  | ----------
|LIABILITIES AND SHAREHOLDERS EQUITY                             
|                                                                 
|Liabilities                                                       |  |           
|Deposits                                                          | 
|Noninterest-bearing                                               |  | $   73,722
|Interest-bearing                                                  |  | 355,552   
|                                                                  |  |           
|Total deposits                                                    |  | 429,274   
|FHLB advances and federal funds purchased                         |  | 50,838    
|Company obligated mandatorily redeemable preferred                | 
|securities of subsidiary trusts                                   |  | 10,000    
|Other liabilities                                                 |  | 4,772     
|                                                                  |  |           
|Total liabilities                                                 |  | 494,884   
|                                                                  |  |           
|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 issued and outstanding at June 30, 2003 and             | 
|at December 31, 2002                                              |  | 3,252     
|Additional capital                                                |  | 12,725    
|Retained earnings                                                 |  | 22,472    
|Treasury stock, 330,088 and 320,088 shares, respectively, at cost |  | (3,981    
|Accumulated other comprehensive income                            |  | 1,042     
|                                                                  |  |           
|Total shareholders equity                                        |  | 35,510    
|                                                                  |  |           
|Total liabilities and shareholders equity                        |  | $ 530,394 
|                                                                  |  |           

|See accompanying Notes
to Interim Consolidated Financial Statements.


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

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

|                                                     | Three Months EndedJune 30, |         | Six Months EndedJune 30,
|---------------------------------------------------- | -------------------------- | ------- | ------------------------
|
|Interest income:                                     |                            |         |                         
|Loans                                                |                            | $5,964  |                         
|Securities                                           |                            | 1,014   |                         
|Federal funds sold                                   |                            | 16      |                         
|Interest-bearing deposits                            |                            | 7       |                         
|                                                     |                            |         |                         
|Total interest income                                |                            | 7,001   |                         
|Interest expense:                                    |                           
|Deposits                                             |                            | 2,010   |                         
|FHLB advances and federal funds purchased            |                            | 511     |                         
|Minority interest expense-trust preferred securities |                            | 250     |                         
|                                                     |                            |         |                         
|Total interest expense                               |                            | 2,771   |                         
|                                                     |                            |         |                         
|Net interest income                                  |                            | 4,230   |                         
|Provision for loan losses                            |                            | 150     |                         
|                                                     |                            |         |                         
|Net interest income after provision for loan losses  |                            | 4,080   |                         
|Noninterest income:                                  |                           
|Service charges                                      |                            | 724     |                         
|Other operating income                               |                            | 546     |                         
|Realized gain on available-for-sale securities       |                            | 30      |                         
|                                                     |                            |         |                         
|Total noninterest income                             |                            | 1,300   |                         
|Noninterest expense:                                 |                           
|Employee compensation and benefits                   |                            | 2,345   |                         
|Occupancy expenses                                   |                            | 508     |                         
|Other operating expenses                             |                            | 1,264   |                         
|                                                     |                            |         |                         
|Total noninterest expenses                           |                            | 4,117   |                         
|                                                     |                            |         |                         
|Earnings before income taxes                         |                            | 1,263   |                         
|Provision for income taxes                           |                            | 478     |                         
|                                                     |                            |         |                         
|Net earnings                                         |                            | $   785 |                         
|                                                     |                            |         |                         
|Basic earnings per common share                      |                            | $  0.27 |                         
|                                                     |                            |         |                         
|Diluted earnings per common share                    |                            | $  0.27 |                         
|                                                     |                            |         |                         

|See accompanying Notes
to Interim Consolidated Financial Statements.


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

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

|                                                             | Three Months EndedJune 30, |          | Six Months EndedJune 30,
|------------------------------------------------------------ | -------------------------- | -------- | ------------------------
|
|Balance at beginning of period                               |                            | $ 35,081 |                         
|Net income                                                   |                            | 785      |                         
|Cash dividends declared on common stock                      |                            | (497     | )                       
|Purchases of treasury stock                                  |                            |         |                         
|Proceeds from stock option exercises                         |                            |         |                         
|Change in accumulated other comprehensive income, net of tax |                            | 141      |                         
|                                                             |                            |          |                         
|Balance at end of period                                     |                            | $ 35,510 |                         
|                                                             |                            |          |                         

|See accompanying Notes
to Interim Consolidated Financial Statements.


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

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

|                                                 | Six MonthsEnded June 30,
|------------------------------------------------ | ------------------------
|
|Net cash from operating activities               |                         
|Cash flows from investing activities:            |                         
|Purchase of interest-bearing time deposits       |                         
|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           |                         
|Repayment of 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 Interim Consolidated Financial Statements.


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

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

|                                                        | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|------------------------------------------------------- | -------------------------- | ----- | ------------------------
|
|Net earnings                                            |                            | $ 785 |                         
|Other comprehensive income:                             |                           
|Unrealized gain (loss) on available for sale securities |                           
|arising during the period                               |                            | 244   |                         
|Reclassification adjustment for amounts realized on     |                           
|securities sales included in net earnings               |                            | (30   | )                       
|                                                        |                            |       |                         
|Net unrealized gain (loss)                              |                            | 214   |                         
|Tax effect                                              |                            | (73   | )                       
|                                                        |                            |       |                         
|Total other comprehensive income (loss)                 |                            | 141   |                         
|                                                        |                            |       |                         
|Comprehensive income                                    |                            | $ 926 |                         
|                                                        |                            |       |                         

|See accompanying Notes
to Interim Consolidated Financial Statements.


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

|GUARANTY BANCSHARES,
INC. NOTES TO INTERIM
CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2003 (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, Guaranty (TX) Capital Trust II, and Guaranty Financial Corp., Inc., which
wholly owns Guaranty Bond Bank (theBank). The Bank has three wholly owned
non-bank subsidiaries, Guaranty Leasing Company, Guaranty 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 accounting principles
generally accepted in the United States of America for a complete presentation of the
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 for the year ended December 31, 2002, filed with the Securities
and Exchange Commission on March 14, 2003. 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 six months ended June 30, 2003, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2003.


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.


Certain
items in prior financial statements have been reclassified to conform with the current
presentation.


NOTE 2.    NEW ACCOUNTING
PRONOUNCEMENTS


In
January 2003, the Financial Accounting Standards Board (FASB) issue Interpretation No. 46
(FIN 46), Consolidation of Variable Interest Entities, which establishes criteria to
identify and assess a companys interest in variable interest entities and for
consolidating those entities. FIN 46 is currently effective for variable interest entities
created or obtained after January 2003, and will be effective for all variable interest
entities for interim periods beginning after June 15, 2003. The adoption of FIN 46 is not
expected to require the consolidation by the Company of any additional entities.


In
May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS No.
150), Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, which establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15, 2003. It
is to be implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of the Statement and
still existing at the beginning of the interim period of adoption. Adoption of SFAS No.
150 on July 1, 2003 did not have a material effect on the Companys consolidated
financial statements.


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

|NOTE 3.    EARNINGS PER SHARE



Earnings
per share is computed in accordance with the 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 was as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | Three Months EndedJune 30, |           | Six Months EndedJune 30,
|------------------------------------------------ | -------------------------- | --------- | ------------------------
|
|
|                                                
|Weighted average common shares used in basic EPS |                            | 2,919,928 |                         
|Dilutive effect of stock options                 |                            | 27,584    |                         
|                                                 |                            |           |                         
|Weighted average common shares used in           |                           
|diluted EPS                                      |                            | 2,947,512 |                         
|                                                 |                            |           |                         

|NOTE 4.    STOCK OPTIONS


In
2000, the Company granted nonqualified stock options to certain officers of the Company
and the Bank under the Companys 1998 Stock Incentive Plan. The grants consisted of
options to purchase 89,500 shares for a term of eight years 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 options to purchase 20,000 shares for
a term of eight years 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. In April of 2003, the
Company granted options to purchase 38,000 shares at an exercise price of $15.23 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 grants and annually thereafter. At June
30, 2003, options for 2,000 shares have been exercised and 855,500 options remain
available for future grants under the 1998 Stock Incentive Plan.


In
accordance with a new accounting standard,SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an Amendment of FASB Statement
No. 123, the Company transitioned to the fair value method of accounting for
stock-based compensation during 2002 using the modified prospective method prescribed by
the standard. Under the modified prospective method, the Company began recognizing
stock-based employee compensation expense from the beginning of 2002 as if the fair value
method had been used to account for all employee awards granted, modified, or settled in
fiscal years beginning after December 15, 1994. The fair value of options granted is
determined using the Black-Scholes option valuation model. Stock-based employee
compensation expense totaled approximately $13,000 for the three months ended June 30,
2003 and 2002, and approximately $26,000 and $23,000 for the six months ended June 30,
2003 and 2002, respectively. Under the modified prospective method, no stock-based
employee compensation expense is recognized for periods prior to adoption.


The
weighted-average fair value per share of options granted during 2003 was $4.19. The fair
value of options granted was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: Dividend yield of
1.97%; expected volatility of 26.0%; risk-free interest rate of 3.2%, and an expected life
of 8.00 years.


9
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 5.    COMMITMENT AND
CONTINGENCIES


In
the normal course of business, the Company enters into various transactions, which, in
accordance with accounting principles generally accepted 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 loan losses.


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. In the event the customer does not perform in accordance with the terms
of the agreement with the third party, the Company would be required to fund the
commitment. The maximum potential amount of future payments the Company could be required
to make is represented by the contractual amount shown in the table below. If the
commitment is funded, the Company would be entitled to seek recovery from the customer. As
of June 30, 2003 and December 31, 2002, no amounts have been recorded as liabilities for
the Banks potential obligations under these guarantees.


Outstanding
commitments and letters of credit are 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 operations.


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

|In
November 1998, Guaranty Leasing was informed by the Internal Revenue Service (the
Service) that it has taken the position that certain losses taken by one of
the three Partnerships during 1994, 1995 and 1996 of $302,000, $410,000 and $447,000,
respectively, would be disallowed. In October 2001, Guaranty Leasing was informed by the
Service that it has taken the position that certain losses taken by the Partnership during
1997 of $487,000 would also be disallowed. In September 2002, the Company received from
the Service a Notice of Final Partnership Administrative Adjustment (FPAA)
disallowing these deductions. Based upon the advice of counsel, the Company believes that
it has correctly reported these transactions for tax purposes and that it has obtained
appropriate legal, accounting and appraisal opinions and authority to support its
positions. However, as of December 31, 2002, the Company had recorded and expensed the tax
affect of the disallowed deductions. In February 2003, the Company filed a petition to
begin the process to litigate the matter in the United States District Court for the
Eastern District of Texas. Any final determination with respect to the Partnership will be
binding on the Company. Should the Service pursue an investigation of and ultimately
disallow the related tax deductions taken during the remaining years of the above
partnership as well as the other two partnerships, the Company would be required to
recognize an additional maximum tax liability of approximately $3.9 million plus possible
penalty and interest. The Company is actively contesting the position of the Service in
connection with this matter, and will take appropriate steps necessary to protect its
legal position. During 2002, the Company sold its ownership in one of the partnerships and
dissolved the other two, therefore no additional deductions have been taken in 2003.



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



Certain
statements in this Quarterly Report on Form 10-Q include forward-looking information
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and are subject to the Safe
Harbor created by those sections. 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. These forward-looking statements may involve known and unknown risks and
uncertainties and other factors beyond the Companys control 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,
2002 as filed with the Securities and Exchange Commission.


GENERAL OVERVIEW


Guaranty
Bancshares, Inc. (the Company) is a registered bank holding company that
derives substantially all of its revenues and income from the operation of its subsidiary,
Guaranty 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 an office in Fort Stockton, Texas that limits its
product offering to loans and time deposits.


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

|FINANCIAL OVERVIEW


Net
earnings for the six months ended June 30, 2003 were $1.8 million, or $0.62 per share,
compared with $2.1 million, or $0.69 per share, for the six months ended June 30, 2002, a
decrease of $255,000, or 12.3%. The decrease in net earnings is due primarily to an
increase in noninterest expense of $1.0 million, or 14.2%, partially offset by an increase
in noninterest income of $177,000, or 7.1% and a lower provision for loan losses of
$175,000 for the two comparable periods. Net earnings for the three months ended June 30,
2003 were $785,000, or $0.27 per share, compared with $1.1 million, or $0.36 per share,
for the three months ended June 30, 2002, a decrease of $308,000, or 28.2%. The decrease
is primarily due to an increase in noninterest expenses primarily due to additional
employee compensation and benefits cost and a decrease in noninterest income partially
offset by a decrease in the provision for loan losses.


Gross
loans decreased to $362.0 million at June 30, 2003, from $365.6 million at December 31,
2002, a decrease of $3.6 million, or 1.0%. Total assets increased to $530.4 million at
June 30, 2003, compared with $518.0 million at December 31, 2002. The increase of $12.4
million in total assets is primarily in interest bearing deposits in other banks which
increased $6.8 million and in securities available-for-sale which increased $8.6 million
partially offset by a decrease in loans held for sale of $4.0 million. The net increase in
total liabilities resulted primarily from an investment in deposits of $4.3 million, and a
net increase in Federal Home Loan Bank (FHLB) advances of $8.1 million. Total deposits
increased to $429.3 million at June 30, 2003 compared to $425.0 million at December 31,
2002, an increase of $4.3 million, or 1.0%. This increase comes primarily from an increase
in noninterest-bearing deposits of $5.2 million, or 7.6% and an increase in savings, Now
and money-market accounts of $7.7 million, or 6.7% partially offset by a decrease in
certificate of deposits of $8.6 million, or 3.6%.


Total
shareholders equity was $35.5 million at June 30, 2003, compared with $34.6 million
at December 31, 2002, an increase of $866,000, or 2.5%. This increase was due to earnings
for the period of $1.8 million, partially offset by the purchase of 10,000 shares of
treasury stock at a cost of $161,000, the payment of dividends of $497,000 and a decrease
in accumulated other comprehensive income of $296,000.


RESULTS OF OPERATIONS


Interest Income


Interest
income for the six months ended June 30, 2003 was $14.0 million, a decrease of $231,000,
or 1.6%, compared with the six months ended June 30, 2002. Despite the increase in average
interest-earning assets, interest income decreased due to lower interest rates earned on
earning assets as a result of the current low interest rate environment. The average
interest rate earned on interest-earning assets decreased from 6.66% during the six months
ended June 30, 2002 to 5.91% during the six months ended June 30, 2003. Average loans were
$361.4 million for the six months ended June 30, 2003, compared with $334.3 million for
the six months ended June 30, 2002, an increase of $27.1 million, or 8.1%. Average
securities were $111.5 million for the six months ended June 30, 2003, compared with $84.9
million for the six months ended June 30, 2002, an increase of $26.6 million, or 31.3%.
Growth in the average volume of interest-earning assets was primarily funded by the growth
in deposits for the period and an increase in FHLB advances. Interest income for the three
months ended June 30, 2003 was $7.0 million, a decrease of $193,000, or 2.7%, compared
with the three months ended June 30, 2002. The decrease was primarily due to a decrease in
the average yield on interest-earning assets from 6.54% during the three months ended June
30, 2002 to 5.80% during the three months ended June 30, 2003.


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

|Interest Expense


Interest
expense on deposits and other interest-bearing liabilities was $5.6 million for the six
months ended June 30, 2003, compared with $6.2 million for the six months ended June 30,
2002, a decrease of $639,000, or 10.2%. The decrease in interest expense is due primarily
to a lower average rate paid on interest-bearing liabilities, which decreased from 3.35%
for the six months ended June 30, 2002, to 2.69% for the six months ended June 30, 2003.
The effect of this decrease was partially offset by growth in the average volume of
interest-bearing liabilities. Average interest bearing deposits were $361.5 million for
the six months ended June 30, 2003, compared to $331.8 million for the six months ended
June 30, 2002, an increase of $29.7 million, or 9.0%. Average FHLB advances and federal
funds purchased were $49.1 million for the six months ended June 30, 2003 compared to
$36.3 million for the six months ended June 30, 2002, an increase of $12.8 million, or
35.1%. Average long-term debt increased from $7.0 million for the six months ended June
30, 2002 to $10.0 million for the six months ended June 30, 2003 due to the issuance of
$3.0 million in trust preferred securities by the Company in October 2002. Interest
expense was $2.8 million for the three months ended June 30, 2003, compared with $3.1
million for the three months ended June 30, 2002, a decrease of $328,000, or 10.6%. The
decrease for the comparable three-month periods was also due to decreases in average
interest rates of interest-bearing liabilities partially offset by increases in average
balances.


Net Interest Income


Net
interest income was $8.4 million for the six months ended June 30, 2003 compared with $8.0
million for the six months ended June 30, 2002, an increase of $408,000, or 5.1%. The
increase in net interest income resulted primarily from growth in average interest-earning
assets to $479.5 million for the six months ended June 30, 2003, from $432.3 million for
the six months ended June 30, 2002, an increase of $47.2 million, or 10.9%, partially
offset by growth in average interest-bearing liabilities to $420.6 million for the six
months ended June 30, 2003, from $375.1 million for the six months ended June 30, 2002, an
increase of $45.5 million, or 12.1%. Net interest income was $4.2 million for the three
months ended June 30, 2003, compared with $4.1 million for the three months ended June 30,
2002, an increase of $135,000, or 3.3%. The net interest margin decreased from 3.72% to
3.51% for the three months ended June 30, 2003 and from 3.75% to 3.55% for the six months
ended June 30, 2003 compared to the same three and six month periods ended June 30, 2002.
These decreases can be attributed to the fact that the percentage growth in average
interest-bearing liabilities exceeded the percentage growth in average interest-earning
assets thereby causing the ratio of average interest-earning assets to average
interest-bearing liabilities to decrease. Additionally, the average rate paid on
interest-earning assets decreased at a faster rate than the average rate earned on
interest-bearing liabilities due to the Banks positive gap position in a falling
interest rate environment.


The
Companys net interest income is affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities, referred to as a volume
change. It is also affected by changes in yields earned on interest-earning assets
and rates paid on interest-bearing deposits and other borrowed funds, referred to as a
rate change.


The
following tables set forth, for each category of interest-earning assets and
interest-bearing liabilities, the average amounts outstanding, the interest earned or paid
on such amounts, and the annualized average rate earned or paid for the three and six
months ended June 30, 2003 and 2002, 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. No tax equivalent adjustments were made and all average balances
are derived from average daily balances. Nonaccruing loans have been included in the
tables as loans carrying a zero yield.



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

|                                             | Three Months Ended June 30,
|-------------------------------------------- | ---------------------------
|
|
|
|Assets                                       |                            
|Interest-earning assets:                     |                            
|Loans                                        |                            
|Securities                                   |                            
|Federal funds sold                           |                            
|Interest-bearing deposits in                 |                            
|other financial institutions                 |                            
|                                             |                            
|Total interest-earning assets                |                            
|                                            
|Less allowance for loan losses               |                            
|                                             |                            
|                                            
|Total interest-earning                       |                            
|assets,  net of allowance                    |                            
|Non-earning assets:                          |                            
|Cash and due from banks                      |                            
|Premises and equipment                       |                            
|Interest receivable and                      |                            
|other assets                                 |                            
|Other real estate owned                      |                            
|                                             |                            
|                                            
|Total assets                                 |                            
|                                             |                            
|                                            
|Liabilities and shareholders equity         |                            
|Interest-bearing liabilities:                |                            
|NOW, savings, and money                      |                            
|market accounts                              |                            
|Time deposits                                |                            
|                                             |                            
|Total interest-bearing                       |                            
|deposits                                     |                            
|FHLB advances and federal funds purchased    |                            
|Minority interest-trust preferred securities |                            
|                                             |                            
|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
|--

|                                             | Six Months Ended June 30,
|-------------------------------------------- | -------------------------
|
|
|
|Assets                                       |                          
|Interest-earning assets:                     |                          
|Loans                                        |                          
|Securities                                   |                          
|Federal funds sold                           |                          
|Interest-bearing deposits in                 |                          
|other financial institutions                 |                          
|                                             |                          
|Total interest-earning assets                |                          
|Less allowance for loan losses               |                          
|                                             |                          
|Total interest-earning                       |                          
|assets,  net of allowance                    |                          
|Non-earning assets:                          |                          
|Cash and due from banks                      |                          
|Premises and equipment                       |                          
|Interest receivable and                      |                          
|other assets                                 |                          
|Other real estate owned                      |                          
|                                             |                          
|Total assets                                 |                          
|                                             |                          
|Liabilities and shareholders equity         |                          
|Interest-bearing liabilities:                |                          
|NOW, savings, and money                      |                          
|market accounts                              |                          
|Time deposits                                |                          
|                                             |                          
|Total interest-bearing                       |                          
|deposits                                     |                          
|FHLB advances and federal funds purchased    |                          
|Minority interest-trust preferred securities |                          
|                                             |                          
|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
proportionately to changes due to rate and changes due to volume (dollars in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Three Months Ended June 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                                        |                            
|Minority interest expense-trust preferred securities |                            
|                                                     |                            
|Total change in interest expense                     |                            
|                                                     |                            
|Total change in net interest income                  |                            
|                                                     |                            

|16
|--

|                                                     | Six Months Ended June 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                                        |                          
|Minority interest expense-trust preferred securities |                          
|                                                     |                          
|Total change in interest expense                     |                          
|                                                     |                          
|Total change in net interest income                  |                          
|                                                     |                          

|Provision for Loan Losses


Provisions
for loan losses are charged to expense 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 and the
amount of nonperforming loans and related collateral security. The provision for loan
losses for the six months ended June 30, 2003, was $525,000 compared with $700,000 for the
six months ended June 30, 2002, a decrease of $175,000, or 25.0%. The provision for loan
losses for the three months ended June 30, 2003 was $150,000 compared to $450,000 for the
three months ended June 30, 2002 a decrease of $300,000, or 66.7%. The decrease for the
periods was partially due to the decrease in the ratio of net charge-offs to average loans
from 0.14% for the six months ended June 30, 2002 to 0.11% for the six month ended June
30, 2003. Management believes the allowance for loan losses is adequate based on the
Companys loan asset quality, its low historical charge-off experience and its
increased ratio of allowance for loan losses to end of period nonperforming loans.


17
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Noninterest Income


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

|                                    | Three months endedJune 30, |             | Six months endedJune 30,
|----------------------------------- | -------------------------- | ----------- | ------------------------
|
|
|                                   
|Service charges on deposit accounts |                            | $       724 |                         
|Fee income                          |                            | 231         |                         
|Fiduciary income                    |                            | 41          |                         
|Other noninterest income            |                            | 274         |                         
|Realized gain on securities         |                            | 30          |                         
|                                    |                            |             |                         
|Total noninterest income            |                            | $    1,300  |                         
|                                    |                            |             |                         

|As
indicated above, the Companys primary sources of recurring noninterest income are
service charges on deposit accounts, fee income and other noninterest income. Noninterest
income for the six months ended June 30, 2003 increased $177,000, or 7.1% over the same
period in 2002. The increase was primarily due to increases in check cashing fee income
and debit card fee income and an increase in other noninterest income due to the increased
volume of sales of mortgage loans into the secondary market. These increases were
partially offset by a decrease in realized gain on sale of securities of $146,000, or
46.1% for the same comparable period. Noninterest income for the three month period ended
June 30, 2003 decreased $175,000, or 11.9% primarily due to a smaller gain on sale of
securities compared with the gain during the same period in 2002.


Noninterest Expenses


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

|                                   | Three months endedJune 30, |            | Six months endedJune 30,
|---------------------------------- | -------------------------- | ---------- | ------------------------
|
|
|                                  
|Employee compensation and benefits |                            | $    2,345 |                         
|                                   |                            |            |                         
|Non-staff expenses:                |                           
|Net bank premises expense          |                            | 508        |                         
|Office and computer supplies       |                            | 68         |                         
|Legal and professional fees        |                            | 178        |                         
|Advertising                        |                            | 60         |                         
|Postage                            |                            | 44         |                         
|FDIC insurance                     |                            | 17         |                         
|Other                              |                            | 897        |                         
|                                   |                            |            |                         
|Total non-staff expenses           |                            | 1,772      |                         
|                                   |                            |            |                         
|Total noninterest expenses         |                            | $    4,117 |                         
|                                   |                            |            |                         

|18
|--

|Employee
compensation and benefits expense increased $238,000, or 11.3%, and $470,000, or 11.2%,
for the three and six months ended June 30, 2003 compared with the same periods in 2002.
The increase for both the three and six month periods ended June 30, 2003 was due
primarily to normal salary increases and additional staff placement in the Mt. Pleasant,
Texarkana, and Sulphur Springs locations to handle customer growth. The number of
full-time equivalent employees was 225 at June 30, 2003, compared with 215 at June 30,
2002, an increase of 4.7%.


Non-staff
expenses increased $305,000, or 20.8%, and $535,000, or 18.8%, for the three and six
months ended June 30, 2003, respectively, compared with the same periods in 2002. Net bank
premises expense increased $22,000, or 4.5% and $48,000, or 5.0%, respectively, in 2003
over the comparable periods in 2002 due to higher building maintenance expense and
increased property tax expense. Legal and professional expense also increased during the
same periods by $94,000, or 112.0% and $104,000, or 38.0% respectively, in 2003 primarily
due to the cost incurred to contest the position the Internal Revenue Service took
regarding Guaranty Leasing Partnership deductions.


Other
non-staff expenses increased $223,000, or 33.1% and $399,000, or 33.5%, for the three and
six month periods ended June 30, 2003, respectively, compared with the same periods in
2002. These increases were primarily the result of an increase in software support fees,
ATM and debit card expenses, a permanent impairment charge to the Aircraft Finance Trust
lease in the amount of $113,000 taken in the second quarter of 2003, and the upgrading of
telephone communication lines.


Income Taxes


Income
tax expense increased $10,000 to $715,000 for the six months ended June 30, 2003 from
$705,000 for the same period in 2002. Income tax expense was $478,000 for the three months
ended June 30, 2003 compared with $453,000 for the three months ended June 30, 2002, an
increase of $25,000. The increase for the three and six month periods is primarily
attributable to the decrease of tax deductions available from the Companys leveraged
leasing activities. The income stated on the consolidated statement of earnings differs
from the taxable income due to tax-exempt income, the amount of non-deductible interest
expense and the amount of other non-deductible expense.


FINANCIAL CONDITION


Loan Portfolio
(including loans held for sale)


Gross
loans were $362.0 million at June 30, 2003, a decrease of $3.6 million, or 1.0%, from
$365.6 million at December 31, 2002. The decrease occurred primarily in 1 4 family
residential loans and in loans held for sale due to an increased volume of loans
refinanced and placed into the secondary market. Average loans comprised 75.4% of total
average interest-earning assets at June 30, 2003 compared with 77.3% at June 30, 2002.


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

|The
following table summarizes the loan portfolio (including loans held for sale) of the
Company by type of loan as of June 30, 2003 and December 31, 2002 (dollars in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | June 30, 2003 |           | December 31, 2002
|----------------------------------- | ------------- | --------- | -----------------
|
|
|                                   
|Commercial and industrial           |               | $  60,567 |                  
|Agriculture                         |               | 10,895    |                  
|Real estate:                        |              
|Construction and land development   |               | 15,716    |                  
|1-4 family residential              |               | 136,965   |                  
|Loans, held for sale                |               | 1,749     |                  
|Farmland                            |               | 15,409    |                  
|Commercial                          |               | 81,114    |                  
|Multi-family residential            |               | 8,821     |                  
|Consumer, net of unearned discounts |               | 30,772    |                  
|                                    |               |           |                  
|Total gross loans                   |               | $362,008  |                  
|                                    |               |           |                  

|Allowance for Loan Losses


In
originating loans, the Company recognizes that it will experience credit losses and the
risk of loss will vary with, among other things, general economic conditions, the type of
loan being made, the creditworthiness of the borrower over the term of the loan and, in
the case of a collateralized loan, the quality of the collateral for such loan. The
Company maintains an allowance for loan losses in an amount that it believes is adequate
for estimated losses in its loan portfolio. Management determines the adequacy of the
allowance through its evaluation of the loan portfolio. In addition to unallocated
allowances, specific allowances are provided for individual loans when ultimate collection
is considered questionable by management after reviewing the current status of loans which
are contractually past due and considering the net realizable value of the collateral for
the loan. Loans are charged-off against the allowance for loan losses when appropriate.
Although management believes it uses the best information available to make determinations
with respect to the allowance for loan losses, future adjustments may be necessary if
economic conditions differ from the assumptions used in making the initial determinations.
Loan charge-offs, net of recoveries, during the six month period ended June 30, 2003
decreased $83,000 or 17.7% over the same period ended June 30, 2002. At June 30, 2003, the
allowance for loan losses totaled $3.8 million or 1.06% of gross loans and $3.6 million or
1.03% of gross loans, respectively. The allowance for loan losses as a percentage of
nonperforming loans was 116.77% and 77.69% at June 30, 2003 and 2002, respectively.


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

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

|                                                        | Six monthsendedJune 30,2003 |             | Six monthsendedJune 30,2002
|------------------------------------------------------- | --------------------------- | ----------- | ---------------------------
|
|                                                       
|Average loans outstanding                               |                             | $ 361,402   |                            
|                                                        |                             |             |                            
|Gross loans outstanding at end of period                |                             | $ 362,008   |                            
|                                                        |                             |             |                            
|Allowance for loan losses at beginning of period        |                             | $     3,692 |                            
|Provision for loan losses                               |                             | 525         |                            
|Charge-offs:                                            |                            
|Commercial and industrial                               |                             | (319        | )                          
|Real estate                                             |                             | (8          | )                          
|Consumer                                                |                             | (105        | )                          
|Recoveries:                                             |                            
|Commercial and industrial                               |                             | 3           |                            
|Real estate                                             |                             | 7           |                            
|Consumer                                                |                             | 35          |                            
|                                                        |                             |             |                            
|Net loan charge-offs                                    |                             | (387        | )                          
|                                                        |                             |             |                            
|Allowance for loan losses at end of period              |                             | $     3,830 |                            
|                                                        |                             |             |                            
|                                                       
|Ratio of allowance to end of period loans               |                             | 1.06        | %                          
|Ratio of net charge-offs to average loans               |                             | 0.11        | %                          
|Ratio of allowance to end of period nonperforming loans |                             | 116.77      | %                          

|NONPERFORMING ASSETS


Nonperforming
assets were $4.8 million at June 30, 2003 compared with $4.3 million at December 31, 2002.
Nonaccrual loans decreased $317,000 from $2.8 million at December 31, 2002 to $2.5 million
at June 30, 2003. This decrease is due primarily to several smaller loans being removed
from non-accrual status. Accruing loans 90 or more days past due increased $383,000, from
$404,000 at December 31, 2002 to $787,000 at June 30, 2003. This increase is due primarily
to general economic conditions being less favorable than expected. Other real estate
increased $441,000 during the same period. This increase is primarily the result of loans
that were foreclosed on during the period totaling $763,000, net of sales of properties
with a carrying value of $325,000. Management anticipates to incur minimal losses with
respect to these nonperforming assets.


The
ratio of nonperforming assets to total loans and other real estate was 1.33% and 1.18% at
June 30, 2003, and December 31, 2002, respectively.


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

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

|                                        | June 30,
2003 |                | December 31,
2002
|--------------------------------------- | ------------- | -------------- | -----------------
|
|                                       
|Nonaccrual loans                        |               | $        2,493 |                  
|Accruing loans 90 or more days past due |               | 787            |                  
|                                        |               |                |                  
|Total nonperforming loans               |               | 3,280          |                  
|Other real estate                       |               | 1,552          |                  
|                                        |               |                |                  
|Total nonperforming assets              |               | $        4,832 |                  
|                                        |               |                |                  

|SECURITIES


Securities
totaled $115.6 million at June 30, 2003, an increase of $8.6 million from $107.0 million
at December 31, 2002. At June 30, 2003, securities represented 21.8% of total assets
compared with 20.7% of total assets at December 31, 2002. The average yield on securities
for the six months ended June 30, 2003 was 3.77% compared with 5.44% for the same period
in 2002. At June 30, 2003, securities included $8.2 million in U.S. Government securities,
$94.7 million in mortgage-backed securities, $8.1 million in collateralized mortgage
obligations, $3.3 million in equity securities, and $1.3 million in municipal securities.
The average life of the securities portfolio at June 30, 2003, was approximately 3.38
years, however, all of the Companys securities are classified as available-for-sale.


OTHER ASSETS


Other
assets totaled $9.7 million at June 30, 2003 compared to $9.3 million at December 31,
2002, an increase of $404,000, or 4.4%. This increase resulted primarily from the
recording of additional cash value on key-man life insurance that the Company owns.


DEPOSITS


At
June 30, 2003, demand, money market and savings deposits account for approximately 45.8%
of total deposits, while certificates of deposit made up 54.2% of total deposits. Total
deposits increased $4.3 million, or 1.0% from December 31, 2002 to June 30, 2003. This
increase comes primarily from an increase in noninterest bearing deposits of $5.2 million,
or 7.6%, and an increase in savings and money market deposits of $4.4 million, or 5.8%
both due to increases in the number of deposit accounts from new customer relationships.
Noninterest-bearing demand deposits totaled $73.7 million, or 17.2% of total deposits, at
June 30, 2003, compared with $68.5 million, or 16.1% of total deposits, at December 31,
2002. The average cost of deposits, including noninterest-bearing demand deposits, was
1.93% for the six months ended June 30, 2003 compared with 2.61% for the same period in
2002.


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 and the FHLB 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.


22
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 six months of 2003 were
securities purchases of $75.2 million, securities sales of $32.6 million, securities call,
maturities, and principal repayments of $32.8 million, and the net increase in short-term
FHLB advances of $7.5 million.


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 June
30, 2003, the Companys Tier 1 risk-based capital, total risk-based capital and
leverage capital ratios were 11.63%, 12.69%, and 8.01%, respectively. As of June 30, 2003,
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 11.04%, 12.09%, and 7.64%,
respectively.


RECENT ACCOUNTING
PRONOUNCEMENTS


In
January 2003, the Financial Accounting Standards Board (FASB) issue Interpretation No. 46
(FIN 46), Consolidation of Variable Interest Entities, which establishes criteria to
identify and assess a companys interest in variable interest entities and for
consolidating those entities. FIN 46 is currently effective for variable interest entities
created or obtained after January 2003, and will be effective for all variable interest
entities for interim periods beginning after June 15, 2003. The adoption of FIN 46 is not
expected to require the consolidation by the Company of any additional entities.


In
May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS No.
150), Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, which establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15, 2003. It
is to be implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of the Statement and
still existing at the beginning of the interim period of adoption. Adoption of SFAS No.
150 on July 1, 2003 did not have a material effect on the Companys consolidated
financial statements.


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, 2002. 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.



23
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As
of the end of the period covered by this report, the Company conducted an evaluation,
under the supervision and with the participation of the principal executive officer and
principal financial officer, of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)). Based on this evaluation, the principal executive officer and
principal financial officer concluded that the Companys disclosure controls and
procedures are effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms.


     (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 date of the Companys most recent evaluation.


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


The Company held its 2003 Annual Meeting of Shareholders on April 15, 2003 to
consider the following proposals:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1. |  | The following were elected as Class III directors to serve until the 2006 Annual
               Meeting of Shareholders. The shares voted and withheld for each director were as
               follows:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Tyson T. Abston |  | For 2,027,397 |  | Withheld 91 | 
| | --------------- |  | ------------- |  | ----------- | 
| | Bill G. Jones   |  | For 2,027,397 |  | Withheld 91 | 
| | Weldon Miller   |  | For 2,027,397 |  | Withheld 91 | 
| | Bill Preifert   |  | For 2,027,397 |  | Withheld 91 | 

| | The
following Class I and Class II directors continued in office after the 2003 Annual
Meeting: John Conroy, Jonice Crane, C. A. Hinton, Sr., Clifton A. Payne, Arthur B.
Scharlach, Jr., Gene Watson and D. R. Zachry, Jr.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | The appointment of McGladrey & Pullen, LLP as the independent auditors of
               the books and accounts of the Company for the year ending December 31, 2003 was
               ratified. A total of 2,025,676 shares were voted for the proposal, 191 shares
               were voted against the proposal and 1,621 shares abstained from voting on the
               proposal.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|24
|--

|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 10-Q:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Exhibit Number | Description of Exhibit
| | -------------- | ----------------------

| | 31.1 | Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------

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

| | No
report on Form 8-K was filed by Guaranty Bancshares, Inc. during the three months ended
June 30, 2003.
| | ---------------------------------------------------------------------------------------------------------

|SIGNATURES


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

|Date: August 13, 2003 |  | GUARANTY BANCSHARES, INC.
(Registrant)
By: /s/ Arthur B. Scharlach, Jr.
Arthur B. Scharlach, Jr.President & Chief Executive Officer(Principal Executive Officer)
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: August 13, 2003 |  | By: /s/ Clifton A. Payne
Clifton A. PayneSenior Vice President and ChiefFinancial Officer(Principal Financial Officer)
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------

|25
|--

|Index to Exhibits
|-----------------

| |  |  | Exhibit Number |  | Description of Exhibit
| |  |  | -------------- |  | ----------------------

| |  |  |  | 31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13(a)-14(a) of the
Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
| |  |  |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | 31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13(a)-14(a) of the
Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
| |  |  |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | 32.1 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| |  |  |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | 32.2 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| |  |  |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|26
|--