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, 2001.

                                       OR

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

                        COMMISSION FILE NUMBER: 000-24235

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

              TEXAS                                      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

As of August 10, 2001, there were 3,004,428  shares of the  registrant's  Common
Stock, par value $1.00 per share, outstanding.

<PAGE>

                            GUARANTY BANCSHARES, INC.
                               INDEX TO FORM 10-Q

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

PART I - FINANCIAL INFORMATION                                              Page

    Item 1. Financial Statements
            Consolidated Balance Sheets........................................3
            Consolidated Statements of Earnings................................4
            Condensed Consolidated Statements of Changes in Shareholders'
            Equity.............................................................5
            Condensed Consolidated Statements of Cash Flows....................6
            Consolidated Statements of Comprehensive Income....................7
            Notes to Consolidated Financial Statements.........................8
    Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations.........................................10
    Item 3. Quantitative and Qualitative Disclosures about Market Risk........20


PART II - OTHER INFORMATION

    Item 1. Legal Proceedings.................................................21
    Item 2. Changes in Securities and Use of Proceeds.........................21
    Item 3. Defaults upon Senior Securities ..................................21
    Item 4. Submission of Matters to a Vote of Security Holders...............21
    Item 5. Other Information.................................................21
    Item 6. Exhibits and Reports on Form 8-K..................................21
    Signatures................................................................22


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                   GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         June 30,          December 31,
                                                                           2001                2000
                                                                         ---------          ---------
                                                                        (Unaudited)
<S>                                                                      <C>                <C>
                                     ASSETS

Cash and due from banks                                                  $   9,209          $  10,109
Interest bearing deposits in other banks                                        62                103
                                                                         ---------          ---------
      Total cash and cash equivalents                                        9,271             10,212
Federal funds sold                                                          19,470              4,995
Securities available-for-sale                                               72,369             81,620
Loans, net of allowance for loan losses of $2,794 and $2,578               297,528            284,757
Premises and equipment, net                                                 13,584             13,532
Accrued interest receivable                                                  3,291              3,742
Other assets                                                                12,630             12,173
                                                                         ---------          ---------
      Total assets                                                       $ 428,143          $ 411,031
                                                                         =========          =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
   Deposits:
      Noninterest-bearing                                                $  58,484          $  55,274
      Interest-bearing                                                     322,415            302,991
                                                                         ---------          ---------
        Total deposits                                                     380,899            358,265
FHLB advances                                                                5,249             12,403
Long-term debt                                                               7,000              7,000
Other liabilities                                                            4,493              3,938
                                                                         ---------          ---------
        Total liabilities                                                  397,641            381,606
                                                                         ---------          ---------
Shareholders' equity:
   Preferred stock, $5.00 par value, 15,000,000 shares authorized,
         no shares issued                                                     --                 --
   Common stock, $1.00 par value, 50,000,000 shares authorized,
         3,250,016 issued                                                    3,250              3,250
   Additional capital                                                       12,659             12,659
   Retained earnings                                                        16,344             15,274
   Treasury stock, 243,684 and 205,983 shares at cost                       (2,631)            (2,220)
   Accumulated other comprehensive income                                      880                462
                                                                         ---------          ---------
   Total shareholders' equity                                               30,502             29,425
                                                                         ---------          ---------
   Total liabilities and shareholders' equity                            $ 428,143          $ 411,031
                                                                         =========          =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Three Months Ended               Six Months Ended
                                                                         June 30,                        June 30,
                                                                   2001            2000            2001            2000
                                                                 --------        --------        --------        --------
<S>                                                              <C>             <C>             <C>             <C>
Interest income:
   Loans                                                         $  6,129        $  5,596        $ 12,339        $ 10,913
   Securities                                                       1,130           1,442           2,267           2,756
   Federal funds sold and other temporary investments                 234              74             503             118
                                                                 --------        --------        --------        --------
      Total interest income                                         7,493           7,112          15,109          13,787
Interest expense:
   Deposits                                                         3,983           3,633           8,120           7,067
   FHLB advances and other borrowed funds                             290             347             653             486
                                                                 --------        --------        --------        --------
      Total interest expense                                        4,273           3,980           8,773           7,553
                                                                 --------        --------        --------        --------
      Net interest income                                           3,220           3,132           6,336           6,234
Provision for loan losses                                             185             185             340             315
                                                                 --------        --------        --------        --------
      Net interest income after provision for loan losses           3,035           2,947           5,996           5,919
Noninterest income:
   Service charges                                                    687             597           1,305           1,139
   Other operating income                                             354             271             728             640
   Realized gain (loss) on available-for-sale securities               51            --               317             (34)
                                                                 --------        --------        --------        --------
      Total noninterest income                                      1,092             868           2,350           1,745
                                                                 --------        --------        --------        --------
Noninterest expense:
   Employee compensation and benefits                               1,790           1,639           3,710           3,409
   Occupancy expenses                                                 460             414             924             831
   Other operating expenses                                           957             871           1,838           1,803
                                                                 --------        --------        --------        --------
      Total noninterest expenses                                    3,207           2,924           6,472           6,043
                                                                 --------        --------        --------        --------
      Earnings before income taxes                                    920             891           1,874           1,621
Provision for income taxes                                            197             203             413             388
                                                                 --------        --------        --------        --------
      Net earnings                                               $    723        $    688        $  1,461        $  1,233
                                                                 ========        ========        ========        ========
      Basic earnings per common share                            $   0.24        $   0.22        $   0.48        $   0.39
                                                                 ========        ========        ========        ========
      Diluted earnings per common share                          $   0.24        $   0.22        $   0.48        $   0.39
                                                                 ========        ========        ========        ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                           Three Months Ended                     Six Months Ended
                                                                 June 30,                              June 30,
                                                        --------------------------          --------------------------
                                                          2001              2000              2001              2000
                                                        --------          --------          --------          --------
<S>                                                     <C>               <C>               <C>               <C>
Balance at beginning of period                          $ 30,457          $ 28,727          $ 29,425          $ 28,496
Net income                                                   723               688             1,461             1,233
Cash dividends declared on common stock                     (391)             (372)             (391)             (372)
Purchases of treasury stock                                 (246)           (1,549)             (411)           (1,549)
Change in unrealized gain (loss) on
    securities available for sale, net of tax                (41)               94               418              (220)
                                                        --------          --------          --------          --------
Balance at end of period                                $ 30,502          $ 27,588          $ 30,502          $ 27,588
                                                        ========          ========          ========          ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           Six Months
                                                                         Ended June 30,
                                                                     -----------------------
                                                                       2001           2000
                                                                     --------       --------
<S>                                                                  <C>            <C>
Net cash provided by (used by) operating activities                  $  2,428       $ (1,222)
                                                                     --------       --------

Cash flows from investing activities:
      Securities available for sale:
           Purchases                                                  (22,229)       (16,243)
           Sales                                                       18,368          5,314
           Maturities, calls, and principal repayments                 14,135          4,170
      Net increase in loans                                           (13,685)        (8,844)
      Purchases of premises and equipment                                (537)        (2,241)
      Proceeds from sale of other real estate                             376            156
      Net (decrease) increase in federal funds sold                   (14,475)         1,140
                                                                     --------       --------
            Net cash used by investing activities                     (18,047)       (16,548)
                                                                     --------       --------
Cash flows from financing activities:
      Net change in deposits                                           22,634         10,259
      Net change in short-term FHLB advances                           (7,000)         1,000
      Repayment of long-term FHLB advances                               (154)          (146)
      Proceeds from issuance of trust preferred securities               --            7,000
      Increase in federal funds purchased                                --            2,045
      Purchase of treasury stock                                         (411)        (1,549)
      Dividends paid                                                     (391)          (372)
                                                                     --------       --------
            Net cash provided from financing activities                14,678         18,237
                                                                     --------       --------
            Net (decrease) increase in cash and cash equivalents         (941)           467
Cash and cash equivalents at beginning of period                       10,212         13,152
                                                                     --------       --------
Cash and cash equivalents at end of period                           $  9,271       $ 13,619
                                                                     ========       ========

Supplemental disclosures:
     Cash paid for income taxes                                      $     58       $    420
     Cash paid for interest                                             8,448          7,193

Significant non-cash transactions:
     Transfers from loans to real estate owned                       $    574       $    582
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        Three Months                      Six Months
                                                                       Ended June 30,                   Ended June 30,
                                                                  -----------------------         -----------------------
                                                                    2001            2000            2001            2000
                                                                  -------         -------         -------         -------
<S>                                                               <C>             <C>             <C>             <C>
Net earnings                                                      $   723         $   688         $ 1,461         $ 1,233
Other comprehensive income:
  Unrealized gain (loss) on available for sale securities
    arising during the period                                         (11)            143             951            (366)
  Reclassification adjustment for amounts realized on
    securities sales included in net earnings                         (51)             --            (317)             34
                                                                  -------         -------         -------         -------
      Net unrealized gain (loss)                                      (62)            143             634            (332)
      Tax effect                                                       21             (49)           (216)            112
                                                                  -------         -------         -------         -------
         Total other comprehensive income                             (41)             94             418            (220)
                                                                  -------         -------         -------         -------
Comprehensive income                                              $   682         $   782         $ 1,879         $ 1,013
                                                                  =======         =======         =======         =======
</TABLE>

           See accompanying Notes to Consolidated Financial Statements


                                       7
<PAGE>

                            GUARANTY BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2001
                                   (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

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

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance  with the rules and  regulations  of the  Securities  and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes  required by generally accepted  accounting  principles for a complete
presentation  of  financial  position.   In  the  opinion  of  management,   the
accompanying unaudited consolidated financial statements reflect all adjustments
necessary  for a  fair  presentation  of  the  financial  position,  results  of
operations and cash flows of the Company on a consolidated  basis,  and all such
adjustments are of a normal recurring nature. These financial statements and the
notes thereto should be read in conjunction  with the Company's Annual Report on
Form 10-K filed with the  Securities  and Exchange  Commission on March 9, 2001.
The Company has consistently  followed the accounting  policies described in the
Annual Report in preparing this Form 10-Q.  Operating results for the six months
ended June 30, 2001, are not  necessarily  indicative of the results that may be
expected for the year ending December 31, 2001.

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

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


NOTE 2. EARNINGS PER SHARE

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


                                       8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                 Three Months                       Six Months
                                                                Ended June 30,                    Ended June 30,
                                                             2001             2000             2001             2000
                                                          ---------        ---------        ---------        ---------
                                                                  (Unaudited)                       (Unaudited)
<S>                                                       <C>              <C>              <C>              <C>
Weighted average common shares used in basic EPS          3,017,755        3,145,457        3,028,424        3,188,936
Potential dilutive common shares                              8,832               --            8,322               --
                                                          ---------        ---------        ---------        ---------
Weighted average common and potential dilutive
      common shares used in dilutive EPS                  3,026,587        3,145,457        3,036,746        3,188,936
                                                          =========        =========        =========        =========
</TABLE>

NOTE 3. STOCK OPTIONS

     In  2000,  the  Company  granted  nonqualified  stock  options  to  certain
executive  officers of the Company and Guaranty  Bank under the  Company's  1998
Stock  Incentive  Plan. The grants  consisted of eight-year  options to purchase
89,500  shares at an  exercise  price of $9.30 per  share,  which was the market
price of the Company's  stock on the date the options were granted.  The options
fully vest and become exercisable in five equal  installments  commencing on the
first  anniversary  of the date of grant and  annually  thereafter.  At June 30,
2001, none of the options are  exercisable and 910,500 options remain  available
for future grant under the 1998 Stock Incentive Plan.

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

     Statement of Financial  Accounting Standards No. 123, "Accounting for Stock
Based  Compensation,"  requires pro forma disclosures for companies not adopting
its fair value  accounting  method for  stock-based  employee  compensation.  No
compensation   expense   related  to  stock  options  is  actually   recognized.
Accordingly,  the  following  pro forma  information  presents  net  income  and
earnings  per share for the three  months  ended June 30,  2001 and 2000 had the
SFAS No. 123 fair value method been used to measure  compensation cost for stock
option plans (dollars in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                       Three Months                       Six Months
                                      Ended June 30,                    Ended June 30,
                                   2001             2000             2001             2000
                                ---------        ---------        ---------        ---------
                                        (Unaudited)                       (Unaudited)
<S>                             <C>              <C>              <C>              <C>
     Net earnings:
       As reported              $     723        $     688        $   1,461        $   1,233
                                =========        =========        =========        =========
       Pro forma                $     717        $     682        $   1,449        $   1,226
                                =========        =========        =========        =========

     Earnings per share:
       As reported
         Basic                  $    0.24        $    0.22        $    0.48        $    0.39
                                =========        =========        =========        =========
         Diluted                $    0.24        $    0.22        $    0.48        $    0.39
                                =========        =========        =========        =========
       Pro forma
         Basic                  $    0.24        $    0.22        $    0.48        $    0.39
                                =========        =========        =========        =========
         Diluted                $    0.24        $    0.22        $    0.48        $    0.39
                                =========        =========        =========        =========
</TABLE>


                                       9
<PAGE>

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


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

     The following discussion addresses information  pertaining to the financial
condition  and  results  of  operations   of  Guaranty   Bancshares,   Inc.  and
subsidiaries  that  may  not  be  otherwise   apparent  from  a  review  of  the
consolidated  financial  statements and related footnotes.  It should be read in
conjunction  with  those  statements,  as  well as with  the  other  information
presented throughout the report.  Certain statements in this Quarterly Report on
Form 10-Q include forward-looking  information within the meaning of Section 27A
of the  Securities  Act of 1933, as amended,  and Section 21E of the  Securities
Exchange Act of 1934, as amended,  and are subject to the "Safe Harbor"  created
by those sections.  These  forward-looking  statements involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking  statements.  Such risks and uncertainties  include, but are
not  limited  to, the  following  factors:  competitive  pressure in the banking
industry  significantly  increasing;  changes in the interest  rate  environment
reducing margins; general economic conditions,  either nationally or regionally,
are  less  favorable  than  expected,   resulting  in,  among  other  things,  a
deterioration  in credit  quality and an increase in the  provision for possible
loan  losses;  changes  in  the  regulatory  environment;  changes  in  business
conditions;  volatility of rate sensitive deposits;  operational risks including
data 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, 2000
as filed with the Securities and Exchange Commission.

GENERAL OVERVIEW

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

FINANCIAL OVERVIEW

     Net earnings available to common shareholders for the six months ended June
30,  2001 were $1.5  million or $0.48 per share  compared  with $1.2  million or
$0.39 per share for the six months ended June 30, 2000,  an increase of $228,000
or 18.5%. The increase is due primarily to an increase in net interest income of
$102,000  or 1.6% and an  increase  in  noninterest  income of $605,000 or 34.7%
offset  by an  increase  in  noninterest  expense  of  $429,000  or 7.1%.  These
increases  are due in part to the  growth in  loans,  in  deposits  and in other
liabilities. Net earnings for the three months ended June 30, 2001 were $723,000
or $0.24  per  share  compared  with  $688,000  or $0.22 per share for the three
months  ended June 30,  2000,  an increase of $35,000 or 5.1%.  The  increase is
primarily  due to an  increase in net  interest  income and  noninterest  income
partly offset by an increase in noninterest expense.

     The  first six  months  of year 2001  showed  steady  growth.  Gross  loans
increased to $300.3  million at June 30, 2001,  from $287.3  million at December
31, 2000, an increase of $13.0 million or 4.5%. Total assets increased to $428.1
million at June 30, 2001, compared with $411.0 million at December 31, 2000. The
increase of $17.1 million in total assets resulted primarily from the investment
of increased  deposits of $22.6 million,  offset by a reduction in FHLB advances
of $7.2 million.  Total  deposits  increased to $380.9  million at June 30, 2001
compared to $358.3 million at December 31, 2000, an increase of $22.6 million or
6.3%.

     Total  shareholders'  equity was $30.5  million at June 30, 2001,  compared
with $29.4  million at December 31,  2000,  an increase of $1.1 million or 3.7%.
This increase was due to earnings for the period of $1.5 million and an increase
in accumulated other comprehensive  income of $418,000 offset by the purchase of
37,701  shares  of  treasury  stock  at cost of  $411,000,  and the  payment  of
dividends of $391,000.


                                       10
<PAGE>

RESULTS OF OPERATIONS

Interest Income

     Interest  income for the six months ended June 30, 2001 was $15.1  million,
an increase of $1.3 million or 9.6%  compared with the six months ended June 30,
2000.  The  increase in interest  income was due  primarily  to higher  interest
income on loans offset by decreased  income on  securities.  Average  loans were
$290.6  million for the six months  ended June 30,  2001,  compared  with $259.0
million for the six months ended June 30, 2000,  an increase of $31.6 million or
12.2%.  Average  securities were $68.5 million for the six months ended June 30,
2001,  compared  with $84.2  million for the six months  ended June 30,  2000, a
decrease of $15.7 million or 18.6%.  Interest  income for the three months ended
June 30, 2001 was $7.5  million,  an increase of $381,000 or 5.4%  compared with
the  three  months  ended  June  30,  2000.  Growth  in the  average  volume  of
interest-earning  assets was a result in part, due to the growth in loans during
the three and six months  periods ended June 30, 2001.  The increase in interest
income  is  also  due  to  an   increase  in  the   average   yield   earned  on
interest-earnings assets during the six months period ended June 30, 2001.

Interest Expense

     Interest  expense on deposits and other  interest-bearing  liabilities  was
$8.8 million for the six months ended June 30, 2001,  compared with $7.6 million
for the six months  ended June 30,  2000,  an increase of $1.2 million or 16.2%.
The  increase in  interest  expense  was due  primarily  to an increase of $35.4
million or 11.9% in average  interest-bearing  liabilities to $333.2 million for
the six months ended June 30, 2001, from $297.8 million for the six months ended
June 30, 2000. The increase is also due to a rise in average  interest rate paid
on  interest-bearing  liabilities  from 5.10% for the six months  ended June 30,
2000 to 5.31% for the six months ended June 30, 2001.  Interest expense was $4.3
million for the three months ended June 30, 2001, compared with $4.0 million for
the three  months  ended June 30,  2000,  an increase  of $293,000 or 7.4%.  The
increase for the  comparable  three -month  periods was also due to increases in
average   balances   offset  by  a  decrease  in  average   interest   rates  of
interest-bearing liabilities.

Net Interest Income

     Net interest income was $6.3 million for the six months ended June 30, 2001
compared  with $6.2 million for the six months ended June 30, 2000,  an increase
of $102,000 or 1.6%. The increase in net interest income resulted primarily from
growth in average  interest-earning  assets to $379.7 million for the six months
ended June 30, 2001, from $347.3 million for the six months ended June 30, 2000,
an   increase   of  $32.4   million   or  9.3%   offset  by  growth  in  average
interest-bearing liabilities to $333.2 million for the six months ended June 30,
2001, from $297.8 million for the six months ended June 30, 2000, an increase of
$35.4  million or 11.9%.  Net  interest  income was $3.2  million  for the three
months  ended June 30,  2001,  compared  with $3.1  million for the three months
ended June 30, 2000,  an increase of $88,000 or 2.8%.  The net  interest  margin
decreased  from 3.57% to 3.37% for the three months ended June 30, 2001 and from
3.61% to 3.36% for the six months ended June 30, 2001 compared to the same three
and six-month  periods  ended June 30, 2000.  This decrease can be attributed to
the fact that the  percentage  growth in  average  interest-bearing  liabilities
exceeded the percentage  growth in average  interest-earning  assets causing the
ratio of average interest-earning assets to average interest-bearing liabilities
to decrease. Additionally, the average rate paid on interest-bearing liabilities
increased  at a faster  rate than the average  rate  earned on  interest-earning
assets due to the Bank's negative gap position.

     The Company's net interest  income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities,  referred to as
a  "volume  change."  It is  also  affected  by  changes  in  yields  earned  on
interest-earning  assets and rates paid on  interest-bearing  deposits and other
borrowed funds,  referred to as a "rate change." The following tables set forth,
for each category of interest-earning  assets and interest-bearing  liabilities,
the average  amounts  outstanding,  the interest earned or paid on such amounts,
and the average  rate earned or paid for the three and six months ended June 30,
2001 and 2000,  respectively.  The tables also set forth the average rate earned
on   total   interest-earning   assets,   the   average   rate   paid  on  total
interest-bearing  liabilities,  the net  interest  spread  and the net  interest
margin for the same periods.  The net interest spread is the difference  between
the average rate earned on total  interest-earning  assets less the average rate
paid on total  interest-bearing  liabilities.  The net  interest  margin  is net
interest income as a percentage of average  interest-earning  assets (dollars in
thousand):


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                                Three Months Ended June 30,
                                                       --------------------------------------------------------------------------
                                                                          2001                                 2000
                                                       --------------------------------------------------------------------------
                                                          Average      Interest     Average     Average      Interest    Average
                                                       Outstanding      Earned/     Yield/    Outstanding     Earned/     Yield/
                                                          Balance        Paid        Rate       Balance        Paid       Rate
                                                         ---------    ---------   ---------    ---------    ---------   ---------
                                                                                   (Dollars in thousands)
                                                                                         (Unaudited)
<S>                                                      <C>          <C>              <C>     <C>          <C>              <C>
Assets
Interest-earning assets:
   Loans .............................................   $ 291,814    $   6,129        8.42%   $ 260,085    $   5,596        8.65%
   Securities ........................................      70,112        1,130        6.46%      87,601        1,442        6.62%
   Federal funds sold ................................      21,135          234        4.44%       5,081           73        5.78%
   Interest-bearing deposits in
        other financial institutions .................         106           --        3.90%          23            1        4.36%
                                                         ---------    ---------   ---------    ---------    ---------   ---------
      Total interest-earning assets ..................     383,167        7,493        7.84%     352,790        7,112        8.11%

 Less allowance for loan losses ......................      (2,778)                               (2,476)
                                                         ---------                             ---------

     Total interest-earning
           assets, net of allowance ..................     380,389                               350,314
Non-earning assets:
     Cash and due from banks .........................      11,803                                11,543
     Premises and equipment ..........................      13,561                                13,316
     Interest receivable and
           other assets ..............................      18,023                                14,117
     Other real estate owned .........................         511                                   312
                                                         ---------                             ---------

            Total assets .............................   $ 424,287                             $ 389,602
                                                         =========                             =========


Liabilities and shareholders'
Interest-bearing liabilities:
     NOW, savings, and money
          market accounts ............................   $ 105,759    $     719        2.73%   $  96,728    $     984        4.09%
      Time deposits ..................................     216,020        3,264        6.06%     188,442        2,649        5.65%
                                                         ---------    ---------                ---------    ---------
         Total interest-bearing
             deposits ................................     321,779        3,983        4.96%     285,170        3,633        5.12%
      FHLB advances and federal funds purchased ......       6,418           97        6.06%      11,236          155        5.55%
      Long-term debt .................................       7,000          193       11.06%       7,000          192       11.03%
                                                         ---------    ---------   ---------    ---------    ---------   ---------
         Total interest-bearing
             liabilities .............................     335,197    $   4,273        5.11%     303,406    $   3,980        5.28%
                                                                      ---------                             ---------


Noninterest-bearing liabilities:
      Demand deposits ................................      54,295                                56,101
      Accrued interest, taxes and
          other liabilities ..........................       4,283                                 2,542
                                                         ---------                             ---------
          Total liabilities ..........................     393,775                               362,049
 Shareholders' equity ................................      30,512                                27,553
                                                         ---------                             ---------

         Total liabilities and
              shareholders' equity ...................   $ 424,287                             $ 389,602
                                                         =========                             =========

 Net interest income .................................                $   3,220                             $   3,132
                                                                      =========                             =========

 Net interest spread .................................                                 2.73%                                 2.83%
                                                                                       ====                                  ====

 Net interest margin .................................                                 3.37%                                 3.57%
                                                                                       ====                                  ====
</TABLE>


                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                             Six Months Ended June 30,
                                                       -------------------------------------------------------------------------
                                                                       2001                                   2000
                                                       -----------------------------------   -----------------------------------
                                                         Average     Interest     Average      Average      Interest    Average
                                                       Outstanding    Earned/      Yield/    Outstanding     Earned/     Yield/
                                                         Balance       Paid         Rate       Balance        Paid        Rate
                                                        ---------    ---------   ---------    ---------    ---------   ---------
                                                                                 (Dollars in thousands)
                                                                                       (Unaudited)
<S>                                                     <C>          <C>              <C>     <C>          <C>              <C>
Assets
Interest-earning assets:
   Loans ............................................   $ 290,607    $  12,339        8.56%   $ 259,010    $  10,913        8.47%
   Securities .......................................      68,531        2,267        6.67%      84,183        2,756        6.58%
   Federal funds sold ...............................      20,539          503        4.94%       4,129          117        5.70%
   Interest-bearing deposits in
        other financial institutions ................          66           --        3.90%          19            1        4.36%
                                                        ---------    ---------   ---------    ---------    ---------   ---------
      Total interest-earning assets .................     379,743       15,109        8.02%     347,341       13,787        7.98%

 Less allowance for loan losses .....................      (2,716)                               (2,477)
                                                        ---------                             ---------

     Total interest-earning
           assets, net of allowance .................     377,027                               344,864
Non-earning assets:
     Cash and due from banks ........................      11,840                                12,248
     Premises and equipment .........................      13,560                                12,807
     Interest receivable and
           other assets .............................      17,875                                13,062
     Other real estate owned ........................         424                                   231
                                                        ---------                             ---------

            Total assets ............................   $ 420,726                             $ 383,212
                                                        =========                             =========


Liabilities and shareholders'
Interest-bearing liabilities:
     NOW, savings, and money
          market accounts ...........................   $ 104,654    $   1,615        3.11%   $  95,064    $   1,913        4.05%
      Time deposits .................................     212,853        6,505        6.16%     188,296        5,154        5.50%
                                                        ---------    ---------                ---------    ---------
         Total interest-bearing
             deposits ...............................     317,507        8,120        5.16%     283,360        7,067        5.02%
      FHLB advances and federal funds purchased .....       8,697          270        6.26%      10,556          275        5.24%
      Long-term debt ................................       7,000          383       11.03%       3,846          211       11.03%
                                                        ---------    ---------    --------    ---------    ---------
         Total interest-bearing
             liabilities ............................     333,204    $   8,773        5.31%     297,762    $   7,553        5.10%
                                                                     ---------                             ---------

Noninterest-bearing liabilities:
      Demand deposits ...............................      53,141                                55,131
      Accrued interest, taxes and
          other liabilities .........................       4,009                                 2,367
                                                        ---------                             ---------
          Total liabilities .........................     390,354                               355,260
 Shareholders' equity ...............................      30,372                                27,952
                                                        ---------                             ---------

         Total liabilities and
              shareholders' equity ..................   $ 420,726                             $ 383,212
                                                        =========                             =========

 Net interest income ................................                $   6,336                             $   6,234
                                                                     =========                             =========

 Net interest spread ................................                                 2.71%                                 2.88%
                                                                                      ====                                  ====

 Net interest margin ................................                                 3.36%                                 3.61%
                                                                                      ====                                  ====
</TABLE>


                                       13
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     Three Months Ended June 30,
                                                               ----------------------------------------
                                                                             2001 vs. 2000
                                                               ----------------------------------------
                                                                 Increase (Decrease)
                                                                       Due to
                                                               ------------------------
                                                                Volume           Rate            Total
                                                               --------        --------        --------
                                                                              (Unaudited)
<S>                                                            <C>             <C>             <C>
Interest-earning assets:
   Loans                                                       $    700        $   (167)       $    533
   Securities                                                      (285)            (27)           (312)
   Federal funds sold                                               231             (70)            161
   Interest-bearing deposits in other
      financial institutions                                       --                (1)             (1)
                                                               --------        --------        --------
         Total increase in interest income                          646            (265)            381
                                                               --------        --------        --------

Interest-bearing liabilities:
   NOW, savings, and money market
      accounts                                                       95            (360)           (265)
   Time deposits                                                    396             219             615
   FHLB advances                                                    (66)              8             (58)
   Long-term debt                                                     1            --                 1
                                                               --------        --------        --------
         Total increase in interest expense                         426            (133)            293
                                                               --------        --------        --------
   Increase (decrease) in net interest income                  $    220        $   (132)       $     88
                                                               ========        ========        ========
</TABLE>


                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                     Six Months Ended June 30,
                                                           ----------------------------------------------
                                                                           2001 vs. 2000
                                                           ----------------------------------------------
                                                               Increase (Decrease)
                                                                      Due to
                                                           ----------------------------
                                                             Volume             Rate              Total
                                                           ----------        ----------        ----------
                                                                             (Unaudited)
<S>                                                        <C>               <C>               <C>
Interest-earning assets:
   Loans                                                   $    1,297        $      129        $    1,426
   Securities                                                    (519)               30              (489)
   Federal funds sold                                             463               (77)              386
   Interest-bearing deposits in other
      financial institutions                                     --                  (1)               (1)
                                                           ----------        ----------        ----------
         Total increase in interest income                      1,241                81             1,322
                                                           ----------        ----------        ----------

Interest-bearing liabilities:
   NOW, savings, and money market
      accounts                                                    187              (485)             (298)
   Time deposits                                                  656               695             1,351
   FHLB advances                                                  (49)               44                (5)
   Long-term debt                                                 172              --                 172
                                                           ----------        ----------        ----------
         Total increase in interest expense                       966               254             1,220
                                                           ----------        ----------        ----------
   Increase (decrease) in net interest income              $      275        $     (173)       $      102
                                                           ==========        ==========        ==========
</TABLE>

Provision for Loan Losses

     Provisions  for loan  losses  are  charged  to  income  to bring  the total
allowance  for loan losses to a level deemed  appropriate  by  management of the
Company based on such factors as the industry  diversification  of the Company's
commercial loan portfolio, the effect of changes in the local real estate market
on collateral values, the results of recent regulatory examinations, the effects
on the loan portfolio of current  economic  indicators and their probable impact
on  borrowers,  the  amount  of  charge-offs  for  the  period,  the  amount  of
nonperforming  loans and related  collateral  security,  the  evaluation  of the
Company's  loan  portfolio by  Independent  Bank  Services,  L.C. and the annual
examination of the Company's financial  statements by its independent  auditors.
The  provision  for loan  losses for the six months  ended  June 30,  2001,  was
$340,000  compared  with  $315,000 for the six months  ended June 30,  2000,  an
increase of $25,000 or 7.9%.  The  provision  for loan losses for both the three
months  ended  June 30,  2001 and 2000,  were  $185,000.  The  increase  for the
six-month  period was due to the  increase  in  average  loans of 12.2% over the
period.  Management believes increasing the allowance for loan losses is prudent
as total loans, particularly higher-risk commercial,  construction, and consumer
loans, increased.

Noninterest Income

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


                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                   Three months ended              Six months ended
                                                         June 30,                       June 30,
                                                ---------------------------------------------------------
                                                   2001            2000            2001             2000
                                                ---------       ---------       ---------       ---------
                                                       (Unaudited)                     (Unaudited)
<S>                                             <C>             <C>             <C>             <C>
Service charges on deposit accounts             $     687       $     597       $   1,305       $   1,139
Fee income                                            157             134             336             326
Fiduciary income                                       30              18              63              43
Other noninterest income                              167             119             329             271
Realized gain (loss) on securities                     51              --             317             (34)
                                                ---------       ---------       ---------       ---------
      Total noninterest income                  $   1,092       $     868       $   2,350       $   1,745
                                                =========       =========       =========       =========
</TABLE>

     The Company's primary sources of recurring  noninterest  income are service
charges on deposit accounts and fee income. Noninterest income for the three and
six-months period ended June 30, 2001 increased $224,000,  or 25.8% and $605,000
or 34.7%, respectively,  over the same periods ended June 30, 2000. The increase
in  noninterest  income for the three and  six-months  ended  June 30,  2001 was
primarily due to an increase in service charges on deposit  accounts  created by
an  increase  in the  number  of  deposit  accounts.  Additionally,  fee  income
increased  $23,000 or 17.2%,  and  $10,000 or 3.1% for the three and  six-months
ended June 30, 2001,  over the three and  six-months  ended June 30,  2000.  The
increase was  primarily  due to increases in credit life  commission  income and
debit card fee income.  Other noninterest  income increased $48,000 or 40.3% and
$58,000 or 21.4%  during the same  periods due  primarily to the gain on sale of
loans sold into the  secondary  market and  additional  income  generated by the
bank's  subsidiary,  Guaranty  Leasing.  The  Company  had net gains on sales of
securities  for the three and  six-months  period ended June 30, 2001 of $51,000
and $317,000 respectively.

Noninterest Expenses

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

<TABLE>
<CAPTION>
                                                Three months ended               Six months ended
                                                     June 30,                        June 30,
                                             ---------------------------------------------------------
                                                2001            2000            2001            2000
                                             ---------       ---------       ---------       ---------
                                                    (Unaudited)                     (Unaudited)
<S>                                          <C>             <C>             <C>             <C>
Employee compensation and benefits           $   1,790       $   1,639       $   3,710       $   3,409
                                             ---------       ---------       ---------       ---------
Non-staff expenses:
   Net bank premises expense                       460             414             924             831
   Office and computer supplies                     63              72             145             174
   Legal and professional fees                     121             176             191             247
   Advertising                                      69              93             141             162
   Postage                                          53              35              96              74
   FDIC insurance                                   21              17              38              33
   Other                                           630             478           1,227           1,113
                                             ---------       ---------       ---------       ---------
      Total non-staff expenses                   1,417           1,285           2,762           2,634
                                             ---------       ---------       ---------       ---------
      Total noninterest expenses             $   3,207       $   2,924       $   6,472       $   6,043
                                             =========       =========       =========       =========
</TABLE>

     Employee compensation and benefits expense increased $151,000, or 9.2%, and
$301,000,  or 8.8%, for the three and six-months ended June 30, 2001 compared to
the same periods in 2000. The increase for both the three and six-month  periods
ended June 30, 2001 was due primarily to normal salary  increases and additional
staff placement in the Texarkana, Sulphur Springs, Commerce, and Paris locations
to handle customer growth. The number of full-time  equivalent employees was 195
at June 30, 2001, compared with 185 at June 30, 2000, an increase of 5.4%.


                                       16
<PAGE>

     Non-staff  expenses  increased $132,000 or 10.3%, and $128,000 or 4.9%, for
the three and six-months ended June 30, 2001,  compared with the same periods in
2000. Net bank premises  expense  increased  $46,000,  or 11.1% and $93,000,  or
11.2%, over the comparable periods due to the additions to fixed assets from the
construction and remodeling projects completed in 2000.

     Other non-staff  expenses  increased  $152,000,  or 31.8% and $114,000,  or
10.2%,  over the comparable  three and six-month  periods due to the addition of
new locations  which,  among other  expenses,  resulted in increases in director
fees,  supplies  expense,  ATM and debit  card  expenses,  and  amortization  of
goodwill.

Income Taxes

     Income tax expense  increased  $25,000 to $413,000 for the six months ended
June 30, 2001 from $388,000 for the same period in 2000.  Income tax expense was
$197,000 for the three months ended June 30, 2001 compared with $203,000 for the
three months ended June 30, 2000, a decrease of $6,000. The change in income tax
expense is primarily  attributable  to the change in income before income taxes.
The increase for the six-month  period is also a result of fewer tax  deductions
available from the Company's leveraged leasing activities.  The income stated on
the  consolidated  statement of earnings  differs from the taxable income due to
tax-exempt income, the amount of non-deductible  interest expense and the amount
of other non-deductible expense.

FINANCIAL CONDITION

Loan Portfolio

     Gross  loans were  $300.3  million at June 30,  2001,  an increase of $13.0
million or 4.5% from $287.3 million at December 31, 2000.  Loan growth  occurred
primarily in 1- 4 family  residential  loans and multi-family  residential loans
due to the  Company's  emphasis  to have a higher  concentration  of real estate
based loans. Loans comprised 76.6% of total interest-earning  assets at June 30,
2001 compared with 76.8% at December 31, 2000.

     The following table summarizes the loan portfolio of the Company by type of
loan as of June 30, 2001 and December 31, 2000 (dollars in thousands):

<TABLE>
<CAPTION>
                                                       June 30, 2001                  December 31, 2000
                                                 -------------------------        -------------------------
                                                   Amount         Percent           Amount         Percent
                                                 ---------       ---------        ---------       ---------
                                                        (Unaudited)
<S>                                              <C>                <C>           <C>                <C>
Commercial and industrial                        $  62,300           20.74%       $  66,616           23.18%
Agriculture                                          9,415            3.13            8,318            2.89
Real estate:
    Construction and land development                6,916            2.30            7,316            2.55
    1-4 family residential                         110,884           36.92          102,614           35.71
    Farmland                                         9,671            3.22            7,716            2.69
    Non-residential and non-farmland                63,806           21.25           61,224           21.31
    Multi-family residential                         7,431            2.47            4,946            1.72
Consumer                                            29,899            9.97           28,585            9.95
                                                 ---------       ---------        ---------       ---------
            Total loans                          $ 300,322          100.00%       $ 287,335          100.00%
                                                 =========       =========        =========       =========
</TABLE>

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.


                                       17
<PAGE>

Management  determines  the adequacy of the allowance  through its evaluation of
the loan portfolio. In addition to unallocated  allowances,  specific allowances
are  provided  for  individual  loans when  ultimate  collection  is  considered
questionable by management after reviewing the current status of loans which are
contractually  past  due  and  considering  the  net  realizable  value  of  the
collateral for the loan.  Loans are  charged-off  against the allowance for loan
losses  when  appropriate.   Although  management  believes  it  uses  the  best
information  available to make  determinations with respect to the allowance for
loan losses,  future adjustments may be necessary if economic  conditions differ
from  the  assumptions  used  in  making  the  initial   determinations.   Loans
charged-off  during the six-month period ended June 30, 2001 decreased  $103,000
or 25.4% over the same period  ended June 30, 2000.  At June 30, 2001,  and June
30, 2000,  the allowance for loan losses  totaled $2.8 million or 0.93% of gross
loans and $2.5 million or 0.95% of gross loans  respectively.  The allowance for
loan losses as a percentage of nonperforming loans was 57.89% at June 30, 2001.

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

<TABLE>
<CAPTION>
                                                               Six months          Six months
                                                                 ended                ended
                                                                June 30,            June 30,
                                                                  2001                2000
                                                              -----------         -----------
                                                                        (Unaudited)
<S>                                                           <C>                 <C>
Average loans outstanding                                     $   290,607         $   259,010
                                                              ===========         ===========
Gross loans outstanding at end of period                      $   300,322         $   263,375
                                                              ===========         ===========
Allowance for loan losses at beginning of period              $     2,578         $     2,491
Provision for loan losses                                             340                 315
Charge-offs:
     Commercial and industrial                                       (117)               (238)
     Real estate                                                      (44)                (65)
     Consumer                                                        (141)               (102)
Recoveries:
     Commercial and industrial                                         24                  29
     Real estate                                                      118                   7
     Consumer                                                          36                  54
                                                              -----------         -----------
Net loan recoveries (charge-offs)                                    (124)               (315)
                                                              -----------         -----------
Allowance for loan losses at end of period                    $     2,794         $     2,491
                                                              ===========         ===========

Ratio of allowance to end of period loans                            0.93%               0.95%
Ratio of net charge-offs to average loans                            0.04%               0.12%
Ratio of allowance to end of period nonperforming loans             57.89%             154.24%
</TABLE>


                                       18
<PAGE>

NONPERFORMING ASSETS

     Nonperforming  assets were $5.3 million at June 30, 2001 compared with $5.0
million at December 31, 2000.  Nonaccrual loans increased $1.6 million from $1.2
million at December 31, 2000 to $2.8 million at June 30, 2001.  This increase is
due primarily to two large commercial lines added to non-accrual status totaling
$1.7  million.  These  lines are  currently  in a  liquidation  mode.  They have
collateral  values,  which  exceed the total debt,  and no loss is  anticipated.
Accruing  loans 90 or more  days  past due  decreased  $1.5  million,  from $3.5
million at December 31, 2000 to $2.0 million at June 30, 2001.  This decrease is
due primarily to collection  efforts of previously past due credits.  Other real
estate increased $212,000 during the same period. This increase is primarily the
result of loans that were foreclosed on during the period totaling $585,000, net
of sales of properties with a carrying value of $373,000. Management anticipates
minimal  losses  on the total of these new  nonperforming  assets.  The ratio of
nonperforming assets to total loans and other real estate was 1.83% and 1.73% at
June 30, 2001, and December 31, 2000, respectively.

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

                                                 June 30,        December 31,
                                                   2001              2000
                                                ---------         ---------
                                                (Unaudited)

Nonaccrual loans                                $   2,810         $   1,214
Accruing loans 90 or more days past due             2,016             3,488
                                                ---------         ---------
     Total nonperforming loans                      4,826             4,702
Other real estate                                     486               274
                                                ---------         ---------
     Total nonperforming assets                 $   5,312         $   4,976
                                                =========         =========

SECURITIES

     Securities  totaled  $72.4  million at June 30,  2001,  a decrease  of $9.3
million from $81.6  million at December 31, 2000.  At June 30, 2001,  securities
represented  16.9% of total  assets  compared  with  19.9%  of total  assets  at
December 31, 2000. The yield on average securities for the six-months ended June
30, 2001, was 6.67% compared with 6.58% for the same period in 2000. At June 30,
2001,  securities  included $7.5 million in U.S.  Government  securities,  $18.4
million in mortgage-backed securities,  $35.0 million in collateralized mortgage
obligations,  $1.8 million in equity  securities,  and $9.7 million in municipal
securities.  The average life of the  securities  portfolio at June 30, 2001, is
approximately 3.9 years, however, all of the Company's securities are classified
as available-for-sale.

DEPOSITS

     At June 30, 2001,  demand,  money market and savings  deposits  account for
approximately  43.8% of total  deposits,  while  certificates of deposit made up
56.2% of total  deposits.  Total deposits  increased  $22.6 million or 6.3% from
December  31, 2000 to June 30,  2001.  This  increase  comes  primarily  from an
increase  in  certificate  of  deposits  of $12.4  million  or 6.2%,  due to the
offering  of  competitive  yields on these  deposits,  and an  increase in money
market  accounts  of $6.0  million  or 10.2% due to an  attractive  yield on the
Company's  Premier Money Market  account.  Noninterest-bearing  demand  deposits
totaled $58.5 million or 15.4% of total deposits at June 30, 2001, compared with
$55.3 million or 15.4% of total  deposits at December 31, 2000. The average cost
of deposits,  including  noninterest-bearing  demand deposits,  is 5.36% for the
three  months  ended June 30,  2001  compared  with 4.91% for the same period in
2000.


                                       19
<PAGE>

LIQUIDITY

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

     The Company's cash flows are composed of three classifications:  cash flows
from operating activities,  cash flows from investing activities, and cash flows
from financing activities. As summarized in the unaudited condensed consolidated
statements of cash flows, the most significant  transactions  which affected the
Company's level of cash and cash  equivalents,  cash flows, and liquidity during
the first six months of 2001 were the net  increase  in loans of $13.7  million,
securities  purchases  of $22.2  million,  securities  sales  of $18.4  million,
securities calls, maturities, and principal repayments of $14.1 million, the net
increase in deposits of $22.6  million,  and the net  increase in federal  funds
sold of $14.5 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 Guaranty Bank, have established  certain
minimum  risk-based  capital  standards that apply to bank holding companies and
federally insured banks, respectively. As of June 30, 2001, the Company's Tier 1
risk-based  capital,  total risk-based  capital and leverage capital ratios were
11.71%,  12.64%,  and  8.34%,  respectively.  As of June 30,  2001,  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 11.30%,  12.24%,  and
7.98%, respectively.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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


                                       20
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

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

     In March 2000,  the Company filed an action in the District  Court of Titus
County, Texas against Guaranty Federal Bank, F.S.B., a thrift institution, after
the Company  discovered that Guaranty  Federal Bank,  F.S.B. was using the name,
"Guaranty  Bank",  in its  business  dealings.  The  case  seeks  a  declaratory
judgement  that the Company has the sole right to the name "Guaranty  Bank".  As
this action involves a determination of intellectual property rights, management
does not  believe  the case  will  have any  material  effect  on the  financial
condition of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     The  Annual  Meeting  of  shareholders  was held on  April  17,  2001.  The
     following matters were submitted for approval to the shareholders:

     1.   The  election  of three Class I  directors,  John  Conroy,  Clifton A.
          Payne, and D.R. Zachry, Jr. 2,339,637 votes for and no votes against.

     2.   To ratify the  appointment  of Fisk & Robinson,  P.C.  as  independent
          auditors, 2,339,637 votes for and no votes against.

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

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

               11   Statement regarding computation of earnings per share

     (b)  Reports on Form 8-K

          No report on Form 8-K was filed by Guaranty  Bancshares,  Inc., during
          the three months ended June 30, 2001.


                                       21
<PAGE>

                                   SIGNATURES

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


                                          GUARANTY BANCSHARES, INC.
                                          (Registrant)

Date:  August 14, 2001                    By: /s/ ARTHUR B. SCHARLACH, JR.
                                              --------------------------------
                                          Arthur B. Scharlach, Jr.
                                          President
                                          (Principal Executive Officer)



Date:  August 14, 2001                    By: /s/ CLIFTON A. PAYNE
                                              --------------------------------
                                          Clifton A. Payne
                                          Senior Vice President and Chief
                                          Financial Officer
                                          (Principal Financial Officer)


                                       22
<PAGE>

                                INDEX TO EXHIBITS

Exhibit
Number       Description                            Page Number
------       -----------                            -----------

11           Statement regarding computation        Reference is hereby made
               of earnings per share                to Note 2 of Notes to
                                                    Consolidated Financial
                                                    Statements on page 8 hereof.



                                       23