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, 2000.

                                       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 14, 2000, there were 3,066,444 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 Interim 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..... 22

PART II - OTHER INFORMATION

    Item 1.  Legal Proceedings............................................... 22
    Item 2.  Changes in Securities and Use of Proceeds....................... 22
    Item 3.  Defaults upon Senior Securities ................................ 22
    Item 4.  Submission of Matters to a Vote of Security Holders............. 22
    Item 5.  Other Information............................................... 22
    Item 6.  Exhibits and Reports on Form 8-K................................ 22
    Signatures............................................................... 23

                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                            GUARANTY BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                       June 30,    December 31,
                                                                         2000          1999
                                                                      ----------   ------------
                                                                      (UNAUDITED)
<S>                                                                   <C>          <C>
ASSETS

Cash and due from banks ............................................  $   13,527   $     13,102
Interest bearing deposits in other banks ...........................          92             50
                                                                      ----------   ------------
       Total cash and cash equivalents .............................      13,619         13,152
Federal funds sold .................................................        --            1,140
Securities available-for-sale ......................................      86,205         79,761
Loans, net of allowance for loan losses of $2,491 and $2,491 .......     260,884        252,718
Premises and equipment, net ........................................      13,510         11,662
Accrued interest receivable ........................................       3,361          2,735
Other assets .......................................................      12,493          9,270
                                                                      ----------   ------------
       Total assets ................................................  $  390,072   $    370,438
                                                                      ==========   ============
LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
   Deposits:
      Noninterest-bearing ..........................................  $   57,954   $     56,404
      Interest-bearing .............................................     280,942        272,233
                                                                      ----------   ------------
         Total deposits ............................................     338,896        328,637
                                                                      ----------   ------------
FHLB advances ......................................................      11,553         10,699
Long-term debt .....................................................       7,000           --
Fed funds purchased ................................................       2,045           --
Other liabilities ..................................................       2,990          2,606
                                                                      ----------   ------------
          Total liabilities ........................................     362,484        341,942
                                                                      ----------   ------------
Shareholders' equity:
     Preferred stock, $5.00 par value, 15,000,000 shares authorized,
         none 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 ..................................................      14,396         13,535
Treasury stock 160,272, and 17,600 shares at cost ..................      (1,723)          (174)
Accumulated other comprehensive income .............................        (994)          (774)
                                                                      ----------   ------------
Total shareholders' equity .........................................      27,588         28,496
                                                                      ----------   ------------
Total liabilities and shareholders' equity .........................  $  390,072   $    370,438
                                                                      ==========   ============
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
                            GUARANTY BANCSHARES, INC.
                       CONSOLIDATED STATEMENTS OF EARNINGS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED   SIX MONTHS ENDED
                                                                JUNE 30,            JUNE 30,
                                                           ------------------  -------------------
                                                             2000      1999      2000       1999
                                                           --------  --------  --------   --------
<S>                                                        <C>       <C>       <C>        <C>
Interest income:
   Loans ................................................  $  5,596  $  3,933  $ 10,913   $  7,814
   Securities ...........................................     1,442       711     2,756      1,483
   Federal funds sold and other temporary investments ...        74       150       118        260
                                                           --------  --------  --------   --------
      Total interest income .............................     7,112     4,794    13,787      9,557
Interest expense:
   Deposits .............................................     3,633     2,293     7,067      4,514
   FHLB advances and federal funds purchased ............       155        52       275        104
   Long-term debt .......................................       192      --         211       --
                                                           --------  --------  --------   --------
      Total interest expense ............................     3,980     2,345     7,553      4,618
                                                           --------  --------  --------   --------
      Net interest income ...............................     3,132     2,449     6,234      4,939
Provision for loan losses ...............................       185        70       315        175
                                                           --------  --------  --------   --------
      Net interest income after provision for loan losses     2,947     2,379     5,919      4,764
Noninterest income:
   Service charges ......................................       597       435     1,139        840
   Other operating income ...............................       271       213       640        465
   Realized (loss) gain on available-for-sale securities       --           7       (34)        12
                                                           --------  --------  --------   --------
      Total noninterest income ..........................       868       655     1,745      1,317
                                                           --------  --------  --------   --------
Noninterest expense:
   Employee compensation and benefits ...................     1,639     1,226     3,409      2,494
   Net bank premises expense ............................       414       333       831        642
   Other operating expenses .............................       871       738     1,803      1,388
                                                           --------  --------  --------   --------
      Total noninterest expenses ........................     2,924     2,297     6,043      4,524
                                                           --------  --------  --------   --------
      Earnings before income taxes ......................       891       737     1,621      1,557
Provision for income taxes ..............................       203       180       388        345
                                                           --------  --------  --------   --------
      Net earnings ......................................  $    688  $    557  $  1,233   $  1,212
                                                           ========  ========  ========   ========
      Basic earnings per common share ...................  $   0.22  $   0.19  $   0.39   $   0.42
                                                           ========  ========  ========   ========
      Diluted earnings per common share .................  $   0.22  $   0.19  $   0.39   $   0.42
                                                           ========  ========  ========   ========
</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,
                                                       -------------------   -------------------
                                                         2000       1999       2000       1999
                                                       --------   --------   --------   --------
<S>                                                    <C>        <C>        <C>        <C>
Balance at beginning of period ......................  $ 28,727   $ 24,285   $ 28,496   $ 23,796
Net income ..........................................       688        557      1,233      1,212
Less cash dividends declared on common stock ........      (372)      (346)      (372)      (346)
Less purchases of treasury stock ....................    (1,549)      (116)    (1,549)      (116)
Change in unrealized gain/loss on
    securities available for sale, net of tax .......        94       (262)      (220)      (428)
                                                       --------   --------   --------   --------
Balance at end of period ............................  $ 27,588   $ 24,118   $ 27,588   $ 24,118
                                                       ========   ========   ========   ========
</TABLE>
   See accompanying Notes to Interim Consolidated Financial Statements.

                                       5
<PAGE>
                           GUARANTY BANCHSHARES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                SIX MONTHS
                                                                               ENDED JUNE 30,
                                                                            -------------------
                                                                              2000       1999
                                                                            --------   --------
<S>                                                                         <C>        <C>
  Net cash provided by operating activities ..............................  $ (1,222)  $  1,348

Cash flows from investing activities:
    Securities available for sale:
      Purchases ..........................................................   (16,243)    (8,115)
      Sales ..............................................................     5,314      5,021
      Maturities, calls, and principal repayments ........................     4,170      4,607
    Securities held to maturity:
      Purchases ..........................................................      --       (1,253)
      Maturities, calls, and principal repayments ........................      --          994
      Net increase in loans ..............................................    (8,844)   (17,886)
      Purchases of premises and equipment ................................    (2,241)      (950)
      Proceeds from sale of premises, equipment and other real estate ....       156         71
      Net decrease (increase) in federal funds sold ......................     1,140       (320)
                                                                            --------   --------
            Net cash used by investing activities ........................   (16,548)   (17,831)
                                                                            --------   --------
Cash flows from financing activities:
      Change in deposits .................................................    10,259     18,864
      Net change in short-term FHLB advances .............................     1,000       --
      Repayment of long-term FHLB advances ...............................      (146)      (139)
      Proceeds from issuance of trust preferred securities ...............     7,000       --
      Increase in federal funds purchased ................................     2,045       --
      Purchase of treasury stock .........................................    (1,549)      (116)
      Dividends paid .....................................................      (372)      (346)
                                                                            --------   --------
            Net cash provided from financing activities ..................    18,237     18,263
                                                                            --------   --------
            Net increase in cash and cash equivalents ....................       467      1,780
Cash and cash equivalents at beginning of period .........................    13,152     11,721
                                                                            --------   --------
Cash and cash equivalents at end of period ...............................  $ 13,619   $ 13,501
                                                                            ========   ========
Supplemental disclosures:
     Cash paid for income taxes ..........................................  $    420   $    527
     Cash paid for interest ..............................................  $  7,193   $  4,596

Significant non-cash transactions:
     Transfers from loans to real estate owned ...........................  $    582   $     67
</TABLE>
  See accompanying notes to consolidated financial statements.

                                       6
<PAGE>
                            GUARANTY BANCSHARES, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                      THREE MONTHS         SIX MONTHS
                                                                     ENDED JUNE 30,        ENDED JUNE 30,
                                                                  -------------------   -------------------
                                                                    2000       1999       2000       1999
                                                                  --------   --------   --------   --------
<S>                                                               <C>        <C>        <C>        <C>
Net income .....................................................  $    688   $    557   $  1,233   $  1,212
Other comprehensive income:
    Unrealized gain/(loss) on available for sale securities
        arising during the period ..............................       143       (389)      (366)      (636)
    Reclassification adjustment for amounts realized on
        securities sales included in net income ................      --           (7)        34        (12)
                                                                  --------   --------   --------   --------
            Net unrealized gain/(loss) .........................       143       (396)      (332)      (648)
            Tax effect .........................................       (49)       134        112        220
                                                                  --------   --------   --------   --------
                 Total other comprehensive income ..............        94       (262)      (220)      (428)
                                                                  --------   --------   --------   --------
Comprehensive income ...........................................  $    782   $    295   $  1,013   $    784
                                                                  ========   ========   ========   ========
</TABLE>
                                       7
<PAGE>
                            GUARANTY BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

NOTE 1.      BASIS OF PRESENTATION

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

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles 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 10, 2000.
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, 2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.

      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 collectibility of loans, fair value
of financial instruments and status of contingencies are particularly subject to
change.

NOTE 2.      EARNINGS PER SHARE

         The following table illustrates the computation of earnings per share
("EPS"):

<TABLE>
<CAPTION>
                                                             THREE MONTHS            SIX MONTHS
                                                            ENDED JUNE 30,         ENDED JUNE 30,
                                                        ----------------------  ----------------------
                                                           2000        1999        2000        1999
                                                        ----------  ----------  ----------  ----------
<S>                                                     <C>         <C>         <C>         <C>
Net earnings available to common shareholders ........  $      688  $      557  $    1,233  $    1,212
Weighted average common shares used in basic EPS .....   3,145,457   2,898,280   3,188,936   2,898,280
Potential dilutive common shares .....................        --          --          --          --
                                                        ----------  ----------  ----------  ----------
Weighted average common and potential dilutive
      common shares used in dilutive EPS .............   3,145,457   2,898,280   3,188,936   2,898,280
                                                        ==========  ==========  ==========  ==========
Basic earnings per common share ......................  $     0.22  $     0.19  $     0.39  $     0.42
                                                        ==========  ==========  ==========  ==========
Diluted earnings per common share ....................  $     0.22  $     0.19  $     0.39  $     0.42
                                                        ==========  ==========  ==========  ==========
</TABLE>
                                       8
<PAGE>
NOTE  3.      GUARANTEED PREFERED BENEFICIAL INTERESTS IN JUNIOR SUBORDINATED
              DEBENTURES


      On March 23, 2000, the Company, in a private placement, issued $7,000,000
(7,000 shares with a liquidation amount of $1,000 per security) of 10.875% Fixed
Rate Capital Trust Pass-through Securities ("TruPS") through a newly formed,
wholly-owned subsidiary, Guaranty (TX) Capital Trust I (the "Trust"). The Trust
invested the total proceeds from the sale of the TruPS in 10.875% Junior
Subordinated Deferrable Interest Debentures (the "Debentures") issued by the
Company. The net proceeds from the sale of the Debentures will be used to buy
back shares of the Company's stock, provide a $1.5 million additional capital
contribution to Guaranty Bank and provide for additional working capital to
support growth.

      With certain exceptions, the amount of the principal and any accrued and
unpaid interest on the Debentures are subordinated in right of payment to the
prior payment in full of all senior indebtedness of the Company. The terms of
the Debentures are such that they qualify as Tier I capital under the Federal
Reserve Board's regulatory capital guidelines applicable to bank holding
companies. Interest on the Debentures is payable semi-annually on March 8 and
September 8 of each year, commencing September 8, 2000. The interest is
deferrable on a cumulative basis for up to five consecutive years following a
suspension of dividend payments on all other capital stock. No principal
payments are due until maturity on March 8, 2030.

      On any March 8 or September 8 on or after March 8, 2010 and prior to
maturity, the Debentures are redeemable for cash at the option of the Company,
on at least 30 but not more than 60 days notice, in whole or in part, at the
redemption prices set forth in the table below, plus accrued interest to the
date of redemption.


                                             IF REDEEMED
                                               DURING
IF REDEEMED DURING      PERCENTAGE OF         12 MONTHS        PERCENTAGE OF
12 MONTHS BEGINNING       PRINCIPAL           BEGINNING          PRINCIPAL
     MARCH 8,              AMOUNT             MARCH 31,           AMOUNT
--------------------  ------------------  ------------------  ----------------

       2010               105.438%              2016             102.175%
       2011               104.894%              2017             101.631%
       2012               104.350%              2018             101.088%
       2013               103.806%              2019             100.544%
       2014               103.263%         2020 and after        100.000%
       2015               102.719%

      Upon the occurrence of certain special events, the Company will have the
right to call the securities at par at any time with the permission of the
Federal Reserve.

      These special events include, among other things:

            1.    A change in the laws or regulations in the United States or
                  any taxing authority to the effect that the Trust becomes
                  subject to federal income tax and the interest paid by the
                  Company is no longer tax deductible.

            2.    A change in the law by any government agency that would make
                  the Trust an investment company under the Investment Company
                  Act of 1940.

            3.    A change in the law by any government agency that would cause
                  the Company to not be able to treat the liquidation amount of
                  the debt security as Tier I Capital.

                                       9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      This Management's Discussion and Analysis includes forward-looking
statements. When used in this document, the words or phrases such as, "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "projected," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties including changes in economic conditions in the Company's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Company's market area and competition, that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. Factors listed above could affect the
Company's financial performance and could cause the Company's results for future
periods to differ materially from any statements expressed with respect to
future periods.

      The Company does not undertake, and specifically disclaims any obligation,
to publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.

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.

FINANCIAL OVERVIEW

      Net earnings available to common shareholders for the six months ended
June 30, 2000 were $1.2 million or $0.39 per share compared with $1.2 million or
$0.42 per share for the six months ended June 30, 1999, an increase of $21,000
or 1.7%. The increase is due primarily to an increase in net interest income of
$1.3 million or 26.2% and an increase in noninterest income of $428,000 or 32.5%
offset by an increase in noninterest expense of $1.5 million or 33.6%. 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, 2000 were $688,000
or $0.22 per share compared with $557,000 or $0.19 per share for the three
months ended June 30, 1999, an increase of $131,000 or 23.5%. 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 2000 showed steady growth. Gross loans
increased to $263.3 million at June 30, 2000, from $255.2 million at December
31, 1999, an increase of $8.1 million or 3.2%. Total assets increased to $390.1
million at June 30, 2000, compared with $370.4 million at December 31, 1999. The
increase of $19.7 million in total assets resulted primarily from the investment
of increased deposits of $10.3 million, an increase in federal funds purchased
of $2.0 million and the issuance of the debentures of $7.0 million. Total
deposits increased to $338.9 million at June 30, 2000 compared to $328.6 million
at December 31, 1999, an increase of $10.3 million or 3.1%. There were no
debentures outstanding at December 31, 1999.

      Total shareholders' equity was $27.6 million at June 30, 2000, compared
with $28.5 million at December 31, 1999, a decrease of $908,000 or 3.2%. This
decrease was due to earnings for the period of $1.2 million offset by the
purchase of 142,672 shares of treasury stock at a cost of $1.5 million, the
payment of dividends of $372,000 and a decrease in accumulated other
comprehensive income of $220,000.

                                       10
<PAGE>
RESULTS OF OPERATIONS

INTEREST INCOME

      Interest income for the six months ended June 30, 2000 was $13.8 million,
an increase of $4.2 million or 44.3% compared with the six months ended June 30,
1999. The increase in interest income was due primarily to higher interest
income on loans and securities. Average loans were $259.0 million for the six
months ended June 30, 2000, compared with $194.6 million for the six months
ended June 30, 1999, an increase of $64.4 million or 33.1%. Average securities
were $84.2 million for the six months ended June 30, 2000, compared with $49.4
million for the six months ended June 30, 1999, an increase of $34.8 million or
70.4%. Interest income for the three months ended June 30, 2000 was $7.1
million, an increase of $2.3 million or 48.4% compared with the three months
ended June 30, 1999. Growth in the average volume of interest-earning assets was
a result in part, of the acquisition of First American and an increase in the
average yield earned on interest-earnings assets during the three and six-months
period ended June 30, 2000.

INTEREST EXPENSE

      Interest expense on deposits and other interest-bearing liabilities was
$7.6 million for the six months ended June 30, 2000, compared with $4.6 million
for the six months ended June 30, 1999, an increase of $3.0 million or 63.6%.
The increase in interest expense was due primarily to a 43.1% increase in
average interest-bearing liabilities to $297.8 million for the six months ended
June 30, 2000, from $208.1 million for the six months ended June 30, 1999. The
increase is also due to a rise in average interest rate paid on interest-bearing
liabilities from 4.50% for the six months ended June 30, 1999 to 5.10% for the
six months ended June 30, 2000. Interest expense was $4.0 million for the three
months ended June 30, 2000, compared with $2.3 million for the three months
ended June 30, 1999, an increase of $1.7 million or 69.7%. The increase for the
comparable three-month periods was also due to increases in average balances and
average interest rates of interest-bearing liabilities.

NET INTEREST INCOME

      Net interest income was $6.2 million for the six months ended June 30,
2000 compared with $4.9 million for the six months ended June 30, 1999, an
increase of $1.3 million or 26.2%. The increase in net interest income resulted
primarily from growth in average interest-earning assets to $347.3 million for
the six months ended June 30, 2000, from $254.7 million for the six months ended
June 30, 1999, an increase of $92.6 million or 36.4%. Net interest income was
$3.1 million for the three months ended June 30, 2000, compared with $2.4
million for the three months ended June 30, 1999, an increase of $683,000 or
27.9%. The net interest margin decreased from 3.83% to 3.57% for the three
months ended June 30, 2000 and from 3.93% to 3.61% for the six months ended June
30, 2000 compared to the same three and six-month period ended June 30,1999.
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
and the rising interest rate environment.

      The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following tables set forth,
for each category of interest-earning assets and interest-bearing liabilities,
the average amounts outstanding, the interest earned or paid on such amounts,
and the average rate earned or paid for the three and six months ended June 30,
2000 and 1999, 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.

                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                                        THREE MONTHS ENDED JUNE 30,
                                                                     --------------------------------------------------------------
                                                                                  2000                          1999
                                                                     ------------------------------  ------------------------------
                                                                       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>
Interest-earning assets:
   Loans:
      Commercial and industrial ...................................  $    65,998  $  1,422     8.67% $    62,209  $  1,215     7.92%
      Agriculture .................................................        8,293       202     9.80%        --                  --
      Real estate-mortgage and
        construction ..............................................      158,509     3,263     8.28%     115,540     2,220     7.79%
      Installment and other .......................................       27,285       657     9.68%      21,363       487     9.25%
      Fees on loans ...............................................         --          52                  --          11
      Securities ..................................................       87,601     1,442     6.62%      47,593       711     6.06%
      Federal funds sold ..........................................        5,081        73     5.78%      10,474       124     4.80%
     Interest-bearing deposits in
        other financial institutions ..............................           23         1     4.36%       2,006        26     5.26%
                                                                     -----------  --------           -----------  --------
      Total interest-earning assets ...............................      352,790     7,112     8.11%     259,185     4,794     7.50%

 Less allowance for loan losses ...................................       (2,476)                         (1,530)
                                                                     -----------                     -----------
     Total interest-earning
           assets,  net of allowance ..............................      350,314                         257,655
Non-earning assets:
     Cash and due from banks ......................................       11,543                           9,135
     Premises and equipment .......................................       13,316                           7,581
     Interest receivable and
           other assets ...........................................       14,117                           8,431
     Other real estate owned ......................................          312                             133
                                                                     -----------                     -----------
            Total assets ..........................................  $   389,602                     $   282,935
                                                                     ===========                     ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
     NOW, savings, and money
          market accounts .........................................  $    96,728  $    984     4.09% $    67,468  $    557     3.35%
      Time deposits ...............................................      188,442     2,649     5.65%     137,341     1,736     5.13%
                                                                     -----------  --------           -----------  --------
         Total interest-bearing
             deposits .............................................      285,170     3,633     5.12%     204,809     2,293     4.54%
      FHLB advances and federal funds purchased....................       11,236       155     5.55%       3,872        52     5.45%
      Long-term debt ..............................................        7,000       192    11.03%        --        --       --
                                                                     -----------  --------           -----------  --------
         Total interest-bearing
             liabilities ..........................................      303,406  $  3,980     5.28%     208,681  $  2,345     4.56%
                                                                                  --------                        --------
Noninterest-bearing liabilities:
      Demand deposits .............................................       56,101                          47,326
      Accrued expenses and other liabilities ......................        2,542                           2,674
                                                                     -----------                     -----------
          Total liabilities .......................................      362,049                         258,681
 Shareholders' equity .............................................       27,553                          24,254
                                                                     -----------                     -----------
         Total liabilities and
              shareholders' equity ................................  $   389,602                     $   282,935
                                                                     ===========                     ===========
Net interest income ...............................................               $  3,132                        $  2,449
                                                                                  ========                        ========
Net interest spread ...............................................                   2.83%                           2.94%
                                                                                  --------                        --------
Net interest margin ...............................................                   3.57%                           3.83%
                                                                                  --------                        --------
</TABLE>
                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                                                     SIX MONTHS ENDED JUNE 30,
                                                                -------------------------------------------------------------------
                                                                               2000                               1999
                                                                ---------------------------------  --------------------------------
                                                                  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:
      Commercial and industrial ..............................  $    66,912   $  2,815      8.46%  $    59,671   $  2,378      8.08%
      Agriculture ............................................        8,508        410      9.69%                              --
      Real estate-mortgage and
         construction ........................................      156,223      6,347      8.17%      113,813      4,426      7.89%
      Installment and other ..................................       27,367      1,286      9.45%       21,117        988      9.49%
      Fees on loans ..........................................         --           55                    --           22
      Securities .............................................       84,183      2,756      6.58%       49,396      1,483      6.09%
      Federal funds sold .....................................        4,129        117      5.70%        8,714        207      4.82%
      Interest-bearing deposits in
        other financial institutions .........................           19          1      4.36%        1,980         53      5.43%
                                                                -----------   --------             -----------   --------
      Total interest-earning assets ..........................      347,341     13,787      7.98%      254,691      9,557      7.61%

 Less allowance for loan losses ..............................       (2,477)                            (1,528)
                                                                -----------                        -----------
     Total interest-earning
           assets,  net of allowance .........................      344,864                            253,163
Non-earning assets:
     Cash and due from banks .................................       12,248                              8,940
     Premises and equipment ..................................       12,807                              7,568
     Interest receivable and
           other assets ......................................       13,062                              9,329
     Other real estate owned .................................          231                                134
                                                                -----------                        -----------
            Total assets .....................................  $   383,212                        $   279,134
                                                                ===========                        ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
     NOW, savings, and money
          market accounts ....................................  $    95,064   $  1,913      4.05%  $    66,932   $  1,069      3.24%
      Time deposits ..........................................      188,296      5,154      5.50%      137,217      3,445      5.09%
                                                                -----------   --------             -----------   --------
         Total interest-bearing
             deposits ........................................      283,360      7,067      5.02%      204,149      4,514      4.48%
        FHLB advances and federal funds purchased ............       10,556        275      5.24%        3,933        104      5.36%
         Long-term debt ......................................        3,846        211     11.03%         --         --        --
                                                                -----------   --------             -----------   --------
         Total interest-bearing
             liabilities .....................................      297,762   $  7,553      5.10%      208,082   $  4,618      4.50%
                                                                              --------                           --------
Noninterest-bearing liabilities:
      Demand deposits ........................................       55,131                             44,085
      Accrued expenses and
          other liabilities ..................................        2,367                              2,631
                                                                -----------                        -----------
          Total liabilities ..................................      355,260                            254,798
 Shareholders' equity ........................................       27,952                             24,336
                                                                -----------                        -----------
         Total liabilities and
              shareholders' equity ...........................  $   383,212                        $   279,134
                                                                ===========                        ===========
Net interest income ..........................................                $  6,234                           $  4,939
                                                                              ========                           ========
Net interest spread ..........................................                    2.88%                              3.11%
                                                                              --------                           --------
Net interest margin ..........................................                    3.61%                              3.93%
                                                                              --------                           --------
</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,
                                                        ------------------------------
                                                                 2000 VS. 1999
                                                        ------------------------------
                                                        INCREASE (DECREASE)
                                                              DUE TO
                                                        -------------------
                                                         VOLUME      RATE      TOTAL
                                                        --------   --------  ---------
                                                                 (UNAUDITED)
<S>                                                     <C>        <C>       <C>
Interest-earning assets:
   Loans .............................................  $  1,247   $    416  $   1,663
   Securities ........................................       609        122        731
   Federal funds sold ................................       (63)        12        (51)
   Interest-bearing deposits in other
      financial institutions .........................       (25)      --          (25)
                                                        --------   --------  ---------
        Total increase (decrease) in interest income .     1,768        550      2,318
                                                        --------   --------  ---------

Interest-bearing liabilities:
   NOW, savings, and money market
      accounts .......................................       248        179        427
   Time deposits .....................................       666        247        913
   FHLB advances and federal funds purchased .........       100          3        103
   Long-term debt ....................................       192       --          192
                                                        --------   --------  ---------
       Total increase (decrease) in interest expense .     1,206        429      1,635
                                                        --------   --------  ---------
        Increase (decrease) in net interest income ...  $    562   $    121  $     683
                                                        ========   ========  =========
</TABLE>
                                       14
<PAGE>
                                                   SIX MONTHS ENDED JUNE 30,
                                               --------------------------------
                                                        2000 VS. 1999
                                               --------------------------------
                                               INCREASE (DECREASE)
                                                      DUE TO
                                               -------------------
                                                VOLUME      RATE       TOTAL
                                               --------   --------   ---------
                                                        (UNAUDITED)

   Loans ....................................  $  2,673   $    426   $   3,099
   Securities ...............................     1,065        208       1,273
   Federal funds sold .......................      (108)        18         (90)
   Interest-bearing deposits in other
      financial institutions ................       (52)      --           (52)
                                               --------   --------   ---------
Total increase (decrease) in interest
   income ...................................     3,578        652       4,230
                                               --------   --------   ---------

Interest-bearing liabilities:
   NOW, savings, and money market
      accounts ..............................       462        382         844
   Time deposits ............................     1,322        387       1,709
   FHLB advances and federal funds purchased.       177         (6)        171
   Long-term debt ...........................       211       --           211
                                               --------   --------   ---------
       Total increase (decrease) in interest
             expense ........................     2,172        763       2,935
                                               --------   --------   ---------
   Increase (decrease) in net interest income  $  1,406   $   (111)  $   1,295
                                               ========   ========   =========

                                       15
<PAGE>
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, 2000, was
$315,000 compared with $175,000 for the six months ended June 30, 1999, an
increase of $140,000 or 80.0%. The provision for loan losses for the three
months ended June 30, 2000, was $185,000 compared with $70,000 for the three
months ended June 30, 1999, an increase of $115,000 or 164.3%. The increases
were due to the increases in average loans of 30.6% and 33.1% over the
comparable three- and six-month periods. Management believes increasing the
allowance for loan losses is prudent as total loans, particularly higher-risk
commercial, construction, and consumer loans, increase.

NONINTEREST INCOME

      The following table presents, for the periods indicated, the major
categories of noninterest income (dollars in thousands):
<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED   SIX MONTHS ENDED
                                                   JUNE 30,           JUNE 30,
                                             ------------------  -------------------
                                               2000      1999      2000       1999
                                             --------  --------  --------   --------
                                                          (UNAUDITED)
<S>                                          <C>       <C>       <C>        <C>
Service charges on deposit accounts .......  $    597  $    435  $  1,139   $    840
Fee income ................................       134       114       326        231
Fiduciary income ..........................        18        13        43         30
Other noninterest income ..................       119        86       271        204
Realized gain (loss) on securities ........      --           7       (34)        12
                                             --------  --------  --------   --------
      Total noninterest income ............  $    868  $    655  $  1,745   $  1,317
                                             ========  ========  ========   ========
</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, 2000 increased $213,000, or 32.5%, and $428,000
or 32.5%, respectively, over the same periods ended June 30, 1999. The increase
in noninterest income for the three and six-months ended June 30, 2000 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 $20,000 or 17.5%, and $95,000 or 41.1% for the three and six-months
ended June 30, 2000, over the three and six-months ended June 30, 1999. The
increase was primarily due to fee income from the Cash Flow Manager program
initiated in September 1999 and additional legal fee income generated from the
Company's internal legal counsel. Other noninterest income increased $33,000 or
38.4% and $67,000 or 32.8% during the same periods due primarily to additional
earnings generated from the key man life insurance policies that the Company
owns.

                                       16
<PAGE>
NONINTEREST EXPENSES

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

                                          THREE MONTHS ENDED   SIX MONTHS ENDED
                                               JUNE 30,            JUNE 30,
                                          ------------------  ------------------
                                            2000      1999      2000      1999
                                          --------  --------  --------  --------
                                                        (UNAUDITED)

Employee compensation and benefits .....  $  1,639  $  1,226  $  3,409  $  2,494
                                          --------  --------  --------  --------
Non-staff expenses:
   Net bank premises expense ...........       414       333       831       642
   Office and computer supplies ........        72        94       174       145
   Legal and professional fees .........       176       126       247       227
   Advertising .........................        93        47       162        89
   Postage .............................        35        33        74        67
   FDIC insurance ......................        17         6        33        13
   Other ...............................       478       432     1,113       847
                                          --------  --------  --------  --------
      Total non-staff expenses .........     1,285     1,071     2,634     2,030
                                          --------  --------  --------  --------
      Total noninterest expenses .......  $  2,924  $  2,297  $  6,043  $  4,524
                                          ========  ========  ========  ========

      Employee compensation and benefits expense increased $413,000, or 33.7%,
and $915,000, or 36.7%, for the three and six months ended June 30, 2000
compared to the same periods in 1999. The increase for both the three and six-
month periods ended June 30, 2000 was due primarily to normal salary increases
and additional staff placement in the Texarkana, Mt. Pleasant, and Paris
locations to handle customer growth and the recently opened Sulphur Springs, and
Commerce locations. The number of full-time equivalent employees was 185 at June
30, 2000, compared with 146 at June 30, 1999, an increase of 26.7%.

      Non-staff expenses increased $214,000 or 20.0%, and $604,000 or 29.8%, for
the three and six months ended June 30, 2000, compared with the same periods in
1999. Advertising expense increased $46,000 or 97.8% and $73,000 or 82.0% for
the three and six-month periods ended June 30, 2000 due to the hiring of an
advertising agency and stronger emphasis on Company recognition in its newer
markets. Net bank premises expense increased $81,000, or 24.3%, and $189,000, or
29.4%, over the comparable periods due to construction and remodeling projects
and the addition of the new Operations Center in Mt. Pleasant, Texas.

      Other non-staff expenses increased $46,000, or 10.6% and $266,000, or
31.4%, 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 $43,000 to $388,000 for the six months
ended June 30, 2000 from $345,000 for the same period in 1999. Income tax
expense was $203,000 for the three months ended June 30, 2000 compared with
$180,000 for the three months ended June 30, 1999, an increase of $23,000. The
change in income tax expense is primarily attributable to the change in income
before income taxes. The increase 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.

                                       17
<PAGE>
FINANCIAL CONDITION

LOAN PORTFOLIO

         Gross loans were $263.4 million at June 30, 2000, an increase of $8.2
million or 3.2% from $255.2 million at December 31, 1999. Loan growth occurred
primarily in 1- 4 family residential loans and construction and land development
loans due to the Company's emphasis to have a higher concentration of real
estate based loans. Loans comprised 75.3% of total interest-earning assets at
June 30, 2000 compared with 75.9% at December 31, 1999.

         The following table summarizes the loan portfolio of the Company by
type of loan as of June 30, 2000 and December 31, 1999 (dollars in thousands):

<TABLE>
<CAPTION>
                                               JUNE 30, 2000     DECEMBER 31, 1999
                                             -----------------   -----------------
                                              AMOUNT   PERCENT    AMOUNT   PERCENT
                                             --------  -------   --------  -------
                                                          (UNAUDITED)
<S>                                          <C>         <C>     <C>         <C>
Commercial and industrial .................  $ 61,557    23.37%  $ 61,153    23.96%
Agriculture ...............................     9,610     3.65      9,102     3.57
Real estate:
          Construction and land development     8,926     3.39      7,926     3.11
          1-4 family residential ..........    92,956    35.30     83,777    32.83
          Farmland ........................     7,845     2.98      7,976     3.13
          Non-residential and non-farmland     52,209    19.82     52,303    20.49
          Multi-family residential ........     4,278     1.62      6,239     2.44
Consumer ..................................    25,994     9.87     26,733    10.47
                                             --------  -------   --------  -------
                    Total loans ...........  $263,375   100.00%  $255,209   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. 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,
2000 increased $252,000 or 164.7% over the same period ended June 30, 1999. This
increase is due primarily to the Company's recognition of loan losses associated
with loans acquired in the First American acquisition. At June 30, 2000, and
June 30, 1999, the allowance for loan losses totaled $2.5 million or 0.95% of
gross loans and $1.6 million or 0.77% of gross loans respectively. The allowance
for loan losses as a percentage of nonperforming loans was 154.24% at June 30,
2000.

                                       18
<PAGE>
      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,
                                                            2000          1999
                                                         ----------    ----------
                                                                (UNAUDITED)
<S>                                                      <C>           <C>
Average loans outstanding .............................  $  259,010    $  194,601
                                                         ==========    ==========
Gross loans outstanding at end of period ..............  $  263,375    $  203,652
                                                         ==========    ==========
Allowance for loan losses at beginning of period ......       2,491         1,512
Provision for loan losses .............................         315           175
Charge-offs:
          Commercial and industrial ...................        (238)          (29)
          Real estate .................................         (65)         --
          Consumer ....................................        (102)         (124)
Recoveries:
          Commercial and industrial ...................          29            13
          Real estate .................................           7             2
          Consumer ....................................          54            18
                                                         ----------    ----------
Net loan (charge-offs) recoveries .....................        (315)         (120)
                                                         ----------    ----------
Allowance for loan losses at beginning of period ......  $    2,491    $    1,567
                                                         ==========    ==========

Ratio of allowance to end of period loans .............        0.95%         0.77%
Ratio of net charge-offs to average loans .............        0.12%         0.06%
Ratio of allowance to end of period nonperforming loans      154.24%       106.31%
</TABLE>
                                       19
<PAGE>
NONPERFORMING ASSETS

      Nonperforming assets were $2.1 million at June 30, 2000 compared with $1.1
million at December 31, 1999. Nonaccrual loans increased $672,000 from $443,000
at December 31, 1999 to $1.1 million at June 30, 2000. This increase was due
primarily to the addition of one line of credit totaling $703,000 to nonaccrual
status during the period. Other real estate increased $434,000 during the same
period. This increase is primarily the result of four loans that were foreclosed
during the period totaling $470,000. 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
0.81% and 0.43% at June 30, 2000, and December 31, 1999, respectively.

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

                                                          JUNE 30,  DECEMBER 31,
                                                            2000       1999
                                                          --------  ------------
                                                               (UNAUDITED)

Nonaccrual loans .......................................  $  1,115  $        443
Accruing loans 90 or more days past due ................       500           574
                                                          --------  ------------
          Total nonperforming loans ....................     1,615         1,017
Other real estate ......................................       513            79
                                                          --------  ------------
          Total nonperforming assets ...................  $  2,128  $      1,096
                                                          ========  ============

SECURITIES

      Securities totaled $86.2 million at June 30, 2000, an increase of $6.4
million from $79.8 million at December 31, 1999. At June 30, 2000, securities
represented 22.1% of total assets compared with 21.5% of total assets at
December 31, 1999. The yield on average securities for the six months ended June
30, 2000, was 6.58% compared with 6.09% for the same period in 1999. At June 30,
2000, securities included $28.6 million in U.S. Government securities, $28.6
million in mortgage-backed securities, $18.7 million in collateralized mortgage
obligations, $1.6 million in equity securities, and $8.7 million in municipal
securities. The average life of the securities portfolio at June 30, 2000, was
approximately four years, however, all of the Company's securities are
classified as available-for-sale.

PREMISES AND EQUIPMENT

      Premises and equipment totaled $13.5 million at June 30, 2000 and $11.7
million at December 31, 1999 reflecting an increase of $1.8 million, or 15.4%.
The increase is primarily due to the capitalized construction cost incurred for
the Mt. Pleasant Operations Center, the new full-service bank location in
Pittsburg, Texas, and major remodeling projects in the Sulphur Springs,
Commerce, and Mt. Pleasant, Texas locations.

OTHER ASSETS

        On July 1, 1998, the Company invested $3.1 million in single insurance
premium policies, which insure the lives of certain senior officers of the
Company. As of June 30, 2000, and December 31, 1999, the net surrender values of
these policies totaled $4.0 million and $3.9 million respectively. Goodwill
recorded in connection with the First American acquisition in September 1999,
the Deport acquisition in 1992 and the Bogata acquisition in 1993 totaled $3.1
million at June 30, 2000, and at December 31, 1999. The Company's investment in
Guaranty Leasing Company, a wholly-owned non-bank subsidiary of Guaranty Bank
increased from $382,000 at December 31, 1999 to $2.8 million at

                                       20
<PAGE>
June 30, 2000. This increase is the result of acquiring a 2.5% ownership in an
Aircraft Finance Trust, a special-purpose business trust formed to acquire,
finance, refinance, own, lease, sublease, sell, and maintain aircraft.

DEPOSITS

      At June 30, 2000, demand, money market and savings deposits accounted for
approximately 45.2% of total deposits, while certificates of deposit made up
54.8% of total deposits. Total deposits increased $10.3 million or 3.1% from
December 31, 1999 to June 30, 2000. This increase came primarily from an
increase in money market accounts of $6.0 million or 11.8% due to an attractive
yield on the Company's Premier Money Market account, and an increase in
certificates of deposits of $4.3 million or 2.4% due to the offering of
competitive yields on these deposits. Noninterest-bearing demand deposits
totaled $58.0 million or 17.1% of total deposits at June 30, 2000, compared with
$56.4 million or 17.2% of total deposits at December 31, 1999. The average cost
of deposits, including noninterest-bearing demand deposits, was 4.20% for the
six months ended June 30, 2000 compared with 3.65% for the same period in 1999.

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 2000 were the net increase in loans of $8.8 million,
securities purchases of $16.2 million, securities sales of $5.3 million,
securities calls, maturities, and principal repayments of $4.2 million, the net
increase in deposits of $10.3 million, and proceeds from the issuance of
long-term debt of $7.0 million.

CAPITAL RESOURCES

      Total shareholders' equity as of June 30, 2000, was $27.6 million, a
decrease of $908,000 or 3.2% compared with shareholders' equity of $28.5 million
at December 31, 1999. This decrease was due to earnings for the period of $1.2
million offset by the purchase of 142,672 shares of treasury stock at a cost of
$1.5 million, the payment of dividends of $372,000 and a decrease in accumulated
other comprehensive income of $220,000.

      Both the Board of Governors of the Federal Reserve System ("Federal
Reserve"), with respect to the Company, and the Federal Deposit Insurance
Corporation ("FDIC"), with respect to 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, 2000, the Company's Tier 1
risk-based capital, total risk-based capital and leverage capital ratios were
11.65%, 12.57%, and 8.22%, respectively. As of June 30, 2000, 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 10.05%, 10.97%, and
7.09%, respectively.

                                       21
<PAGE>
YEAR 2000 PREPAREDNESS

      The Company successfully completed the Year 2000 changeover without any
problems in its core business processes. The Company has confirmed normal
business operations across all products and markets on a sustained basis.

      While management believes it is unlikely, problems associated with
non-compliant third parties could still occur. Management will continue to
monitor all business processes and relationships with third parties during 2000
to ensure that all processes continue to function properly.

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, 1999. See
Form 10-K, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Interest Rate Sensitivity and Liquidity."

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

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

         None

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

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

                     11  Statement regarding computation of earnings per share

                     27  Financial Data Schedule.

         (b) Reports on Form 8-K

                     No report on Form 8-K was filed by Guaranty Bancshares,
                     Inc., during the three months June 30, 2000.

                                       22
<PAGE>
                                   SIGNATURES

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

                                                  GUARANTY BANCSHARES, INC.
                                                       (Registrant)

Date:  August 14, 2000                        By:
                                                 /S/  ARTHUR B. SCHARLACH
                                                 Arthur B. Scharlach, Jr.
                                                 President
                                                 (Principal Executive Officer)






Date:  August 14, 2000                        By:
                                                 /S/  CLIFTON A. PAYNE
                                                 Clifton A. Payne
                                                 Senior Vice President and Chief
                                                 Financial Officer
                                                 (Principal Financial Officer)

                                       23
<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
                                                        unaudited Consolidated
                                                        Financial Statements on
                                                        page 8 hereof.

27               Financial Data Schedule                25


                                       24