UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                  FORM 10-Q


(MARK ONE)
[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

                                      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 November 12, 1999, there were 3,250,016 shares of the registrant's Common
Stock, par value $1.00 per share, outstanding.
<PAGE>
                   GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                                             PAGE
<S>                                                                                                                         <C>
Item 1.  Financial Statements
             Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 .........................2
             Consolidated Statements of Earnings for the Nine Months and Three Months
                  Ended September 30, 1999 and 1998   (unaudited) ...........................................................3
             Consolidated Statement of Changes in Shareholders' Equity.......................................................4
             Consolidated Statements of Cash Flows for the Nine Months
                  Ended September 30, 1999 and 1998 (unaudited) .............................................................5
             Consolidated Statements of Comprehensive Income for the Nine Months and Three Months
                  Ended September 30, 1999 and 1998 (unaudited) .............................................................6
             Notes to Interim Consolidated Financial Statements..............................................................7
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations...............................9
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.........................................................22


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings..................................................................................................23
Item 2.  Changes in Securities and Use of Proceeds..........................................................................23
Item 3.  Defaults upon Senior Securities ...................................................................................23
Item 4.  Submission of Matters to a Vote of Security Holders................................................................23
Item 5.  Other Information..................................................................................................23
Item 6.  Exhibits and Reports on Form 8-K...................................................................................23
Signatures..................................................................................................................24
</TABLE>

                                       1
<PAGE>
                        PART I - FINANCIAL INFORMATION

                         ITEM 1. FINANCIAL STATEMENTS


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

                                                    SEPTEMBER 30,   DECEMBER 31,
                                                         1999          1998
                                                    -------------   ------------
                                                        (UNAUDITED)

                                      ASSETS

Cash and due from banks ............................. $  12,352     $  11,721

Federal funds sold ..................................       310        10,090
Securities:

   Available-for-sale ...............................    64,347        44,305

   Held-to-maturity .................................     6,960         7,062
                                                      ---------     ---------
      Total securities ..............................    71,307        51,367
                                                      ---------     ---------
Loans, net of allowance for loan losses of $2,483
and $1,512, respectively ............................   241,337       184,374

Premises and equipment, net .........................     9,872         7,032

Accrued interest receivable .........................     2,669         2,331

Other assets ........................................    10,019         5,991
                                                      ---------     ---------
      Total assets .................................. $ 347,866     $ 272,906
                                                      =========     =========

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
 Deposits:
   Noninterest-bearing .............................. $  55,928     $  47,360

   Interest-bearing .................................   257,106       194,965
                                                      ---------     ---------

      Total deposits ................................   313,034       242,325
                                                      ---------     ---------

Borrowed funds ......................................     3,771         3,980

Other liabilities ...................................     2,877         2,805
                                                      ---------     ---------

      Total liabilities .............................   319,682       249,110
                                                      ---------     ---------
Shareholders' equity:

   Common stock .....................................     3,250         2,898

   Additional capital ...............................    12,659         9,494

   Retained earnings ................................    12,755        11,181

   Accumulated other comprehensive income ...........      (364)          223
                                                      ---------     ---------
                                                         28,300        23,796

Less common stock held in treasury-at cost ..........      (116)         --
                                                      ---------     ---------
   Total shareholders' equity .......................    28,184        23,796
                                                      ---------     ---------
   Total liabilities and shareholders' equity ....... $ 347,866     $ 272,906
                                                      =========     =========

      See accompanying Notes to Interim Consolidated Financial Statements.

                                       2
<PAGE>
                     GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF EARNINGS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                    (UNAUDITED)
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED   NINE MONTHS ENDED
                                                                    SEPTEMBER 30,       SEPTEMBER 30,
                                                                 ------------------   -----------------
                                                                   1999       1998      1999      1998
                                                                 -------    -------   -------   -------
<S>                                                              <C>        <C>       <C>       <C>
Interest income:
   Loans .....................................................   $ 4,474    $ 3,703   $12,288   $10,699
   Securities ................................................       966        727     2,449     2,431
   Federal funds sold and other temporary investments ........        86        175       346       517
                                                                 -------    -------   -------   -------
      Total interest income ..................................     5,526      4,605    15,083    13,647
Interest expense .............................................     2,666      2,255     7,284     6,724
                                                                 -------    -------   -------   -------
      Net interest income ....................................     2,860      2,350     7,799     6,923
Provision for loan losses ....................................        95         60       270       490
                                                                 -------    -------   -------   -------
      Net interest income after provision for loan losses ....     2,765      2,290     7,529     6,433
Noninterest income:
   Service charges ...........................................       493        337     1,333       919
   Other operating income ....................................       248        193       713     1,239
   Net realized gain (loss) on available-for-sale securities .        (1)        81        11        81
                                                                 -------    -------   -------   -------
      Total noninterest income ...............................       740        611     2,057     2,239
                                                                 -------    -------   -------   -------
Noninterest expense:
   Employee compensation and benefits ........................     1,440      1,135     3,934     3,276
   Net bank premises expense .................................       360        300     1,002       883
   Other operating expenses ..................................       807        693     2,195     2,183
                                                                 -------    -------   -------   -------
      Total noninterest expenses .............................     2,607      2,128     7,131     6,342
                                                                 -------    -------   -------   -------
      Earnings before income taxes ...........................       898        773     2,455     2,330
Provision for income taxes ...................................       190         21       535       391

      Net earnings before preferred stock dividends ..........       708        752     1,920     1,939
      Preferred stock dividends ..............................      --         --        --          37
                                                                 -------    -------   -------   -------
      Net earnings available to common shareholders ..........   $   708    $   752   $ 1,920   $ 1,902
                                                                 =======    =======   =======   =======

      Basic earnings per common share ........................   $  0.23    $  0.26   $  0.65   $  0.69
                                                                 =======    =======   =======   =======

      Diluted earnings per common share ......................   $  0.23    $  0.26   $  0.65   $  0.69
                                                                 =======    =======   =======   =======
</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

                                       3
<PAGE>
                   GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                      ACCUMULATED
                                                                                         OTHER                   TOTAL
                                                                                        COMPRE-      COMMON      SHARE-
                                         PREFERRED    COMMON   ADDITIONAL   RETAINED    HENSIVE     STOCK IN    HOLDERS'
                                           STOCK      STOCK     CAPITAL     EARNINGS    INCOME      TREASURY     EQUITY
                                          --------   --------   --------    --------    --------    --------    --------
<S>                                       <C>        <C>        <C>         <C>         <C>         <C>         <C>
Balance at January 1, 1998 ............        827      2,548      5,396       9,240         242        --        18,253
                                          --------   --------   --------    --------    --------    --------    --------

Net earnings for the year 1998 ........       --         --         --         2,674        --          --         2,674
Accumulated other comprehensive
     income -- net change in unrealized
     gain (loss) on available-for-sale
     securities, net of tax of $10 ....       --         --         --          --           (19)       --           (19)
                                          --------   --------   --------    --------    --------    --------    --------

Total comprehensive income ............       --         --         --         2,674         (19)       --         2,655

Purchase of Treasury Stock ............       --         --         --          --          --            (2)         (2)

Sale of Treasury Stock ................       --         --         --          --          --             2           2

Redemption of Preferred Stock .........       (827)      --         --          --          --          --          (827)

Sale of Common Stock ..................       --          350      4,098        --          --          --         4,448
Dividends
   Preferred - $0.23 per share ........       --         --         --           (37)       --          --           (37)

   Common - $0.24 per share ...........       --         --         --          (696)       --          --          (696)
                                          --------   --------   --------    --------    --------    --------    --------
Balance at December 31, 1998 ..........   $   --     $  2,898   $  9,494    $ 11,181    $    223    $   --      $ 23,796
                                          ========   ========   ========    ========    ========    ========    ========
Net earnings for the nine months
     ended September 30, 1999 .........       --         --         --         1,920        --          --         1,920
Accumulated other comprehensive
     income -- net change in unrealized
     gain (loss) on available-for-sale
     securities, net of tax of $302 ...       --         --         --          --          (587)       --          (587)
                                          --------   --------   --------    --------    --------    --------    --------

Total comprehensive income ............       --         --         --         1,920        (587)       --         1,333

Purchase of Treasury Stock ............       --         --         --          --          --          (116)       (116)

Sale of Treasury Stock ................       --         --         --          --          --          --          --

Stock issued to acquire First American        --          352      3,165        --          --          --         3,517

Dividends

     Common - $0.12 per share .........       --         --         --          (346)       --          --          (346)
                                          --------   --------   --------    --------    --------    --------    --------
Balance at September 30, 1999 (1) .....   $   --     $  3,250   $ 12,659    $ 12,755    $   (364)       (116)   $ 28,184
                                          ========   ========   ========    ========    ========    ========    ========
</TABLE>

(1) Unaudited
See accompanying Notes to Interim Consolidated Financial Statements.

                                       4
<PAGE>
                     GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (DOLLARS IN THOUSANDS)
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                 NINE MONTHS
                                                                                             ENDED SEPTEMBER 30,
                                                                                            --------------------
                                                                                              1999        1998
                                                                                            --------    --------
<S>                                                                                         <C>         <C>
Cash flows from operating activities:
      Net earnings ......................................................................   $  1,920    $  1,939
      Adjustments to reconcile net earnings to net cash provided by operating activities:
           Depreciation .................................................................        495         409
           Amortization of premiums, net of (accretion) of discounts on securities ......        181         128
           Net realized gain on available-for-sale securities ...........................        (11)        (81)
           Gain on sale of loans ........................................................       --          (674)
           Provision for loan loss ......................................................        270         490
           Gain on sale of premises, equipment and other real estate ....................        (11)        (56)
           Write down of ORE and repossessed assets .....................................         13          15
           Proceeds from sale of loans ..................................................       --         1,967
      Decrease (increase) in accrued interest receivable and other assets ...............        185      (3,360)
      Decrease in accrued interest and other liabilities ................................       (119)        (92)
                                                                                            --------    --------
            Net cash provided by operating activities ...................................      2,923         685
Cash flows from investing activities:
      Purchases of held-to-maturity securities ..........................................     (1,253)       --
      Proceeds from sales, maturities and repayments of available-for-sale securities ...     14,450      13,745
      Purchases of available-for-sale securities ........................................    (21,824)     (3,419)
      Proceeds from maturities and repayments of held-to-maturity securities ............      1,343       8,244
      Net increase in loans .............................................................    (20,218)    (21,375)
      Purchases of premises and equipment ...............................................     (2,252)     (1,066)
      Proceeds from sale of premises, equipment and other real estate ...................        223         574
      Cash paid for acquisitions ........................................................     (3,380)       --
      Cash and cash equivalents from acquisitions .......................................      1,983        --
      Net decrease (increase) in federal funds sold .....................................     16,815      (3,690)
                                                                                            --------    --------
            Net cash used by investing activities .......................................    (14,113)     (6,987)
                                                                                            --------    --------
Cash flows from financing activities:
      Change in deposits ................................................................     12,492       1,911
      Proceeds from borrowings ..........................................................       --         2,000
      Repayment of borrowings ...........................................................       (209)       --
      Purchase of treasury stock ........................................................       (116)         (2)
      Dividends paid ....................................................................       (346)       (356)
      Redemption of preferred stock .....................................................       --          (827)
      Sale of common stock ..............................................................       --         4,468
                                                                                            --------    --------
            Net cash provided by financing activities ...................................     11,821       7,194
                                                                                            --------    --------
            Net increase in cash and cash equivalents ...................................        631         892
Cash and cash equivalents at beginning of period ........................................     11,721       9,750
                                                                                            --------    --------
Cash and cash equivalents at end of period ..............................................   $ 12,352    $ 10,642
                                                                                            ========    ========
</TABLE>

           See accompanying Notes to Interim Consolidated Financial Statements.

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                            THREE MONTHS          NINE MONTHS
                                                         ENDED SEPTEMBER 30,  ENDED SEPTEMBER 30,
                                                         ------------------   -------    -------
                                                           1999       1998      1999       1998
                                                         -------    -------   -------    -------
<S>                                                      <C>        <C>       <C>        <C>
Net Earnings .........................................   $   708    $   752   $ 1,920    $ 1,939
Other comprehensive income, net of tax:
   Unrealized (losses) gains on securities:

   Unrealized (losses) gains arising during the period      (159)        32      (587)        25
                                                         -------    -------   -------    -------

Comprehensive income .................................   $   549    $   784   $ 1,333    $ 1,964
                                                         =======    =======   =======    =======
</TABLE>

See accompanying Notes to Interim Consolidated Financial Statements.

                                       6
<PAGE>
                  GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1999
          (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                 (UNAUDITED)

(1)      BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of Guaranty
Bancshares, Inc. ("the Company") and its wholly-owned subsidiary Guaranty
Financial Corp., Inc., which wholly owns Guaranty Bank, and one non-bank
subsidiary, Guaranty Company. Guaranty Bank has three 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 complete
financial statements. In the opinion of management, the 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
12, 1999. Operating results for the third quarter ended September 30, 1999, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.

(2)      EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                               THREE MONTHS                     NINE MONTHS
                                                                           ENDED SEPTEMBER 30,               ENDED SEPTEMBER 30,
                                                                       ---------------------------       ---------------------------
                                                                          1999             1998             1999             1998
                                                                       ----------       ----------       ----------       ----------
<S>                                                                    <C>              <C>              <C>              <C>
Net earnings available to common shareholders ..................       $      708       $      752       $    1,920       $    1,902
Weighted average common shares used in basic EPS ...............        3,132,771        2,898,280        2,976,444        2,742,724

Potential dilutive common shares ...............................             --               --               --               --
                                                                       ----------       ----------       ----------       ----------
Weighted average common and potential dilutive
      common shares used in dilutive EPS .......................        3,132,771        2,898,280        2,976,444        2,742,724
                                                                       ==========       ==========       ==========       ==========
Basic earnings per common share ................................       $     0.23       $     0.26       $     0.65       $     0.69
                                                                       ==========       ==========       ==========       ==========
Diluted earnings per common share ..............................       $     0.23       $     0.26       $     0.65       $     0.69
                                                                       ==========       ==========       ==========       ==========
</TABLE>

                                       7
<PAGE>
                  GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
       NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                              SEPTEMBER 30, 1999
          (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                 (UNAUDITED)

  (3)    COMPREHENSIVE INCOME

           Effective January 1, 1998, the Company adopted Financial Accounting
  Standards No. 130, "Reporting Comprehensive Income," which requires the
  reporting of comprehensive income in addition to net income from operations.
  Comprehensive income is a more inclusive financial reporting methodology,
  which includes disclosure of certain financial information that historically
  has not been recognized in the calculation of net earnings.

           The tax effects for components of comprehensive income are as
follows:

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED SEPTEMBER 30,
                                                      ------------------------------------------------------------------------------
                                                                     1999                                     1998
                                                      -------------------------------------    -------------------------------------
                                                        BEFORE          TAX        NET OF       BEFORE         TAX          NET OF
                                                         TAX         (EXPENSE)      TAX           TAX       (EXPENSE)        TAX
                                                        AMOUNT        BENEFIT      AMOUNT        AMOUNT      BENEFIT        AMOUNT
                                                      ----------    ----------   ----------    ----------   ----------    ----------
<S>                                                   <C>           <C>          <C>           <C>          <C>           <C>
Unrealized (losses) gains on
   securities arising during the period ...........   $     (241)   $       82   $     (159)   $       48   $      (16)   $       32
                                                      ----------    ----------   ----------    ----------   ----------    ----------
Other comprehensive income ........................   $     (241)   $       82   $     (159)   $       48   $      (16)   $       32
                                                      ==========    ==========   ==========    ==========   ==========    ==========

<CAPTION>
                                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                      ------------------------------------------------------------------------------
                                                                     1999                                     1998
                                                      -------------------------------------    -------------------------------------
                                                        BEFORE          TAX        NET OF       BEFORE         TAX          NET OF
                                                         TAX         (EXPENSE)      TAX           TAX       (EXPENSE)        TAX
                                                        AMOUNT        BENEFIT      AMOUNT        AMOUNT      BENEFIT        AMOUNT
                                                      ----------    ----------   ----------    ----------   ----------    ----------
Unrealized (losses) gains on
   securities arising during the period ...........   $     (889)   $      302   $     (587)   $       38   $      (13)   $       25
                                                      ----------    ----------   ----------    ----------   ----------    ----------
Other comprehensive income ........................   $     (889)   $      302   $     (587)   $       38   $      (13)   $       25
                                                      ==========    ==========   ==========    ==========   ==========    ==========

</TABLE>

                                       8
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

      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.

      Certain of the matters discussed in this Form 10-Q, that are not
historical facts, including matters discussed under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
constitute forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on assumptions and involve a number of
risks and uncertainties. The important factors that could cause actual results
to differ materially from the forward-looking statements include, without
limitation:

o     changes in interest rates and market prices;
o     changes in the levels of loan prepayments and the resulting effects on
      the value of Guaranty's loan portfolio;
o     changes in local economic and business conditions which adversely
      affect the Company's customers and their ability to transact profitable
      business with the Company, including the ability of the Company's
      borrowers to repay their loans according to their terms or a change in
      the value of the related collateral;
o     increased competition for deposits and loans adversely affecting rates
      and terms;
o     the timing, impact and other uncertainties of various strategic
      alternatives that the Company considers from time to time, including
      acquisitions of other depository institutions, their assets or their
      liabilities on favorable terms and the Company's ability to
      successfully integrate such acquisitions and enter new markets;
o     increased credit risk in the Company's assets and increased operating
      risk caused by a material change in commercial, consumer and/or real
      estate loans as a percentage of the total loan portfolio;
o     the failure of assumptions underlying the establishment of and
      provisions made to the allowance for loan losses;
o     changes in the availability of funds resulting in increased costs or
      reduced liquidity;
o     changes in the Company's ability to pay dividends on its common stock;
o     increased asset levels and changes in the composition of assets and the
      resulting impact on the Company's capital levels and regulatory
      capital ratios;
o     the Company's ability to acquire, operate and maintain cost effective
      and efficient systems without incurring unexpectedly difficult or
      expensive but necessary technological changes (including changes to
      address Year 2000 data systems issues);
o     the Company's ability to complete its project to assess and resolve any
      Year 2000 problems on time;
o     the loss of senior management or operating personnel and the potential
      inability to hire qualified personnel at reasonable compensation
      levels;
o     the effects of the Internal Revenue Service's examination regarding the
      Company's leveraged leasing transactions;
o     changes in applicable statutes and government regulations or their
      interpretations, including changes in tax requirements and tax
      rates; and
o     other uncertainties set forth in the Company's other public reports and
      filings and public statements.

                                       9
<PAGE>
OVERVIEW

      Net earnings available to common shareholders for the nine months ended
September 30, 1999 were $1.9 million or $0.65 per share compared with $1.9
million or $0.69 per share for the nine months ended September 30, 1998, an
increase of $18,000 or 0.9%. The increase in net earnings was due primarily to
an increase in net interest income of $876,000 or 12.7% and a decrease in the
provision for loan losses of $220,000 or 44.9%, offset by a decrease in
noninterest income of $182,000 or 8.1% and an increase in noninterest expense of
$789,000 or 12.4%. These variances were due in part to a gain on sale in March
1998 of approximately $2.0 million in aggregate principal amount of mortgage
loans that were originally purchased in 1991 at a discount from the Resolution
Trust Corporation ("RTC"). The Company sold the mortgage loans at par, which
resulted in a gain of $444,000, net of $230,000 in taxes expensed as a result of
the sale. The Company did not sell any loans during the first nine months of
1999. The gain on the sale of loans in 1998 was partially offset by an
additional provision for loan losses of $340,000 in March of 1998. Net earnings
available to common shareholders for the three months ended September 30, 1999
were $708,000 or $0.23 per share compared with $752,000 or $0.26 per share for
the three months ended September 30, 1998, a 5.9% decrease. The decrease in net
earnings was due primarily to an increase in noninterest expenses of $479,000 or
22.5% for the three months ended September 30, 1999 over the same three-month
period in 1998.

      The nine-month period ended September 30, 1999 showed steady growth. The
primary factors contributing to this growth include the opening of the Pittsburg
location in April 1999 and the acquisition of First American Financial
Corporation, Sulphur Springs, Texas ("First American") in September of 1999
("First American Acquisition"). Total loans increased to $243.8 million at
September 30, 1999, from $185.9 million at December 31, 1998, an increase of
$57.9 million or 31.2%. Total assets were $347.9 million at September 30, 1999,
compared with $272.9 million at December 31, 1998. The increase of $75.0 million
in total assets resulted primarily from a 29.2% increase in total deposits to
$313.0 million at September 30, 1999, from $242.3 million at December 31, 1998,
and an increase in shareholders' equity of $4.4 million. Total shareholders'
equity was $28.2 million at September 30, 1999, compared with $23.8 million at
December 31, 1998, an increase of 18.4%. This increase was due to the issuance
of common stock in connection with the First American Acquisition, net earnings
for the period of $1.9 million, offset by a decrease in accumulated other
comprehensive income of $587,000, dividends paid on common stock of $346,000 and
the purchase of $116,000 of treasury stock.

      On September 1, 1999, the Company completed the First American
Acquisition. Pursuant to the Agreement and Plan of Reorganization dated April
23, 1999 between the Company and First American (the "Agreement"), the Company
issued an aggregate of 351,736 shares of its common stock and paid $3,379,620 in
cash to the former shareholders of First American. The shares of common stock
issued were registered under the Securities Act of 1933, as amended, on a
Registration Statement on Form S-4 (Registration No. 333-91881). In connection
with the First American Acquisition, First American Bank, N.A., a wholly owned
subsidiary of First American, was merged with and into the Bank. The two former
banking locations of First American Bank, N.A. located in Sulphur Springs and
Commerce, Texas are being operated as branches of the Bank. The operations of
First American Mortgage Company, a wholly owned subsidiary of First American,
are being continued by the Company under the name Guaranty Mortgage Company.


                                       10
<PAGE>
RESULTS OF OPERATIONS

INTEREST INCOME

      Interest income for the nine months ended September 30, 1999 was $15.1
million, an increase of $1.4 million or 10.5% compared with the nine months
ended September 30, 1998. The increase in interest income was due primarily to
higher interest income on loans. Average loans were $202.6 million for the nine
months ended September 30, 1999, compared with $165.7 million for the nine
months ended September 30, 1998, an increase of $36.9 million or 22.3%. Average
securities were $53.6 million for the nine months ended September 30, 1999,
compared with $50.2 million for the nine months ended September 30, 1998, an
increase of $3.4 million or 6.8%. Interest income for the three months ended
September 30, 1999 was $5.5 million, an increase of $921,000 or 20.0% compared
with the three months ended September 30, 1998. We estimate that internal growth
accounted for a significant portion of the increase in average loans during both
the three- and nine-month periods ended September 30, 1999.

INTEREST EXPENSE

      Interest expense on deposits and other interest-bearing liabilities was
$7.3 million for the nine months ended September 30, 1999, compared with $6.7
million for the nine months ended September 30, 1998, an increase of $560,000 or
8.3%. The increase in interest expense was due primarily to an 18.6% increase in
average interest-bearing liabilities to $216.8 million for the nine months ended
September 30, 1999, from $182.8 million for the nine months ended September 30,
1998. The increase is mitigated by a decrease in average interest rates from
4.92% for the first nine months in 1998 to 4.49% for the first nine months in
1999. Interest expense was $2.7 million for the three months ended September 30,
1999, compared with $2.3 million for the three months ended September 30, 1998,
an increase of $411,000 or 18.2%.

NET INTEREST INCOME

      Net interest income was $7.8 million for the nine months ended September
30, 1999 compared with $6.9 million for the nine months ended September 30,
1998, an increase of $876,000 or 12.7%. The increase in net interest income
resulted primarily from growth in average earning assets to $265.8 million for
the nine months ended September 30, 1999, from $228.0 million for the nine
months ended September 30 1998, an increase of $37.8 million or 16.6%. Net
interest income was $2.9 million for the three months ended September 30, 1999,
compared with $2.4 million for the three months ended September 30, 1998, an
increase of $510,000 or 21.7%.

      The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following tables set forth,
for each category of interest-earning assets and interest-bearing liabilities,
the average amounts outstanding, the interest earned or paid on such amounts,
and the average rate earned or paid for the three- and nine-months ended
September 30, 1999 and 1998. The tables also set forth the average rate earned
on total interest-earning assets, the average rate paid on total
interest-bearing liabilities, and the net interest margin on average total
interest-earning assets for the same periods.

                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED SEPTEMBER 30,
                                                  ----------------------------------------------------------------------------
                                                                   1999                                 1998
                                                  -------------------------------------   ------------------------------------
                                                    AVERAGE        INTEREST   AVERAGE     AVERAGE        INTEREST   AVERAGE
                                                  OUTSTANDING       EARNED/   YIELD/    OUTSTANDING       EARNED/    YIELD/
                                                    BALANCE          PAID      RATE       BALANCE          PAID       RATE
                                                  -----------      --------   -------   -----------      --------   --------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                               <C>              <C>        <C>       <C>              <C>        <C>
ASSETS
Interest-earning assets:
   Loans
      Commercial and industrial.............        $  65,839      $  1,393      8.58%   $   50,848      $  1,066      8.50%
      Real estate-mortgage and construction.          128,856         2,518      7.93       100,374         2,095      8.46
      Installment and other.................           23,935           563      9.54        21,764           542     10.10
   Securities...............................           62,130           966      6.31        45,231           727      6.52
   Federal funds sold.......................            5,458            68      5.05        11,568           175      6.14
   Interest-bearing deposits in other
      financial institutions................            1,750            18      4.17           291             -         -
                                                  -----------      --------             -----------      --------
      Total interest-earning assets.........          287,968         5,526      7.78%      230,076         4,605      8.12%
Less allowance for loan losses..............           (1,926)                               (1,450)
                                                  -----------                           -----------
       Total interest-earning assets,
           net of allowance.................          286,042                               228,626
Non-earning assets:
   Cash & due from banks....................            9,914                                 8,495
   Premises and equipment...................            8,600                                 6,884
   Interest receivable and other assets.....           11,126                                 9,168
Other real estate owned.....................              159                                   131
                                                  -----------                           -----------
        Total assets........................        $ 315,841                            $  253,304
                                                  ===========                           ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
   NOW, savings, and money market
      accounts..............................        $  76,518       $   664      3.52%    $  58,725       $   513      3.54%
   Time deposits............................          153,444         1,943      5.14       125,184         1,742      5.64
                                                  -----------      --------             -----------      --------

       Total interest-bearing deposits......          229,962         2,607      4.60       183,909         2,255      4.97
   Other borrowed funds.....................            4,174            59      5.73           109             -         -
                                                  -----------      --------             -----------      --------
       Total interest-bearing liabilities...          234,136         2,666      4.62%      184,018         2,255      4.97%
                                                                   --------                              --------
Noninterest-bearing liabilities:
   Demand deposits..........................           52,336                                43,318
   Accrued interest, taxes and other
       liabilities..........................            2,619                                 2,723
                                                  -----------                           -----------
       Total liabilities....................          289,091                               230,059
Shareholders' equity........................           26,750                                23,245
                                                  -----------                           -----------
        Total liabilities and shareholders'
          equity............................        $ 315,841                            $  253,304
                                                  ===========                           ===========
Net interest income.........................                       $  2,860                              $  2,350
                                                                   ========                              ========
Net interest spread.........................                                     3.16%                                 3.15%
                                                                              =======                               =======
Net interest margin.........................                                     4.03%                                 4.14%
                                                                              =======                               =======
</TABLE>

                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                                      NINE MONTHS ENDED SEPTEMBER 30,
                                                  ----------------------------------------------------------------------------
                                                                   1999                                 1998
                                                  -------------------------------------   ------------------------------------
                                                    AVERAGE        INTEREST   AVERAGE     AVERAGE        INTEREST   AVERAGE
                                                  OUTSTANDING       EARNED/   YIELD/    OUTSTANDING       EARNED/    YIELD/
                                                    BALANCE          PAID      RATE       BALANCE          PAID       RATE
                                                  -----------      --------   -------   -----------      --------   --------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                               <C>              <C>        <C>       <C>              <C>        <C>
ASSETS
Interest-earning assets:
   Loans
      Commercial and industrial.............        $  61,727      $   3,771     8.17%    $  47,253     $   2,969      8.40%
      Real estate-mortgage and construction.          118,827          6,966     7.84        96,839         6,127      8.46
      Installment and other.................           22,056          1,551     9.40        21,622         1,603      9.91
   Securities...............................           53,641          2,449     6.10        50,200         2,431      6.47
   Federal funds sold.......................            7,628            275     4.82        12,124           517      5.70
   Interest-bearing deposits in other
      financial institutions................            1,904             71     4.99             -             -         -
                                                    ---------       --------                --------     --------
      Total interest-earning assets.........          265,783         15,083     7.59%       228,038       13,647     8.00%
                                                                    --------                             --------
Less allowance for loan losses..............           (1,661)                                (1,364)
                                                    ---------                               --------
       Total interest-earning assets,
           net of allowance.................          264,122                                226,674
Non-earning assets:
   Cash and due from banks..................            9,265                                  8,549
   Premises and equipment...................            7,912                                  6,539
   Interest receivable and other assets.....            9,928                                  7,456
Other real estate owned.....................              142                                     489
                                                    ---------                               ---------
        Total assets.........................       $ 291,369                               $ 249,707
                                                    =========                               =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
   NOW, savings, and money market
      accounts...............................      $   70,128      $   1,733     3.30%        $  58,406    $  1,538     3.52%
   Time deposits.............................         142,626          5,388     5.05           124,386       5,186     5.57
                                                   ----------       --------                  ---------    --------
       Total interest-bearing deposits.......         212,754          7,121     4.48           182,792       6,724     4.92
   Other borrowed funds......................           4,013            163     5.43                37           -        -
                                                   ----------       --------                  ---------    --------
       Total interest-bearing liabilities....         216,767          7,284     4.49%          182,829       6,724     4.92%
                                                                    --------                               --------
Noninterest-bearing liabilities:
   Demand deposits...........................          46,835                                    43,069
   Accrued interest, taxes and other
       liabilities...........................           2,627                                     2,662
                                                   ----------                                 ---------
       Total liabilities.....................         266,229                                   228,560
                                                  -----------                                 ---------
Shareholders' equity.........................          25,140                                    21,147
                                                  -----------                                 ---------
        Total liabilities and shareholders'
          equity.............................     $   291,369                                 $ 249,707
                                                  ===========                                 =========
Net interest income.............................                    $   7,799                              $   6,923
                                                                    =========                              =========
Net interest spread.............................                                 3.10%                                  3.08%
                                                                                 ====                                   ====
Net interest margin.............................                                 3.92%                                  4.06%
                                                                                 ====                                   ====
</TABLE>

                                       13
<PAGE>
      The following table presents 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 this table, changes attributable to both rate and volume which
can be segregated have been allocated.

                                              THREE MONTHS ENDED SEPTEMBER 30,
                                               -----------------------------
                                                       1999 VS. 1998
                                               -----------------------------
                                               INCREASE (DECREASE)
                                                     DUE TO
                                               -------------------
                                               VOLUME        RATE     TOTAL
                                               -------     -------   -------
                                                   (DOLLARS IN THOUSANDS)
Interest-earning assets:
   Loans ...................................   $   977    $  (206)   $   771
   Securities ..............................       272        (33)       239
   Federal funds sold ......................       (92)       (15)      (107)
   Interest-bearing deposits in other
      financial institutions ...............        18       --           18
                                               -------    -------    -------
        Total increase (decrease) in
          interest income ..................     1,175       (254)       921
                                               -------    -------    -------
Interest-bearing liabilities:
   NOW, savings, and money market accounts..       155         (4)       151
   Time deposits ...........................       393       (192)       201
   Other borrowed funds ....................        59       --           59
                                               -------    -------    -------
        Total increase (decrease) in
          interest expense .................       607       (196)       411
                                               -------    -------    -------
   Increase (decrease) in net interest
     income ................................   $   568        (58)   $   510
                                               =======    =======    =======


                                               NINE MONTHS ENDED SEPTEMBER 30,
                                               -------------------------------
                                                       1999 VS. 1998
                                               -----------------------------
                                               INCREASE (DECREASE)
                                                     DUE TO
                                               -------------------
                                               VOLUME        RATE     TOTAL
                                               -------     -------   -------
                                                   (DOLLARS IN THOUSANDS)
Interest-earning assets:
   Loans ...................................   $ 2,382    $  (793)   $ 1,589
   Securities ..............................       167       (149)        18
   Federal funds sold ......................      (192)       (50)      (242)
   Interest-bearing deposits in other
      financial institutions ...............        71       --           71
                                               -------    -------    -------
         Total increase (decrease) in
          interest income ..................     2,428       (992)     1,436
                                               -------    -------    -------
Interest-bearing liabilities:
   NOW, savings, and money market accounts..       309       (114)       195
   Time deposits ...........................       760       (558)       202
   Other borrowed funds ....................       163       --          163
                                               -------    -------    -------
         Total increase (decrease) in
          interest expense .................     1,232       (672)       560
                                               -------    -------    -------
   Increase (decrease) in net interest
     income ................................   $ 1,196    $  (320)   $   876
                                               =======    =======    =======

                                       14
<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 nine months ended September 30,
1999, was $270,000 compared with $490,000 for the nine months ended September
30, 1998, a decrease of $220,000 or 44.9%. The 1998 provision included an
extraordinary charge to the provision of $340,000 made in order to bring the
allowance for loan losses to a level management deemed appropriate based on its
current methodology. The provision for loan losses for the three months ended
September 30, 1999, was $95,000 compared with $60,000 for the three months ended
September 30, 1998, an increase of $35,000 or 58.3%.

NONINTEREST INCOME

         The Company's primary sources of recurring noninterest income are
service charges on deposit accounts and fee income. Excluding a $674,000
nonrecurring gain from the sale of loans in March 1998, noninterest income for
the nine months ended September 30, 1999 increased to $2.1 million from $1.6
million for the nine months ended September 30, 1998, an increase of $492,000 or
31.4%. The gain on sale of loans was recorded in March 1998, when the Company
sold approximately $2.0 million of loans originally purchased at a discount in
June 1991 from the RTC. After excluding the nonrecurring gain on the sale of
loans, the increase in noninterest income for the nine months ended September
30, 1999, resulted primarily from an increase in service charges on deposit
accounts due to an increase in the number of deposit accounts. Additionally,
other noninterest income increased $121,000 primarily due to earnings generated
from key man life insurance policies that were purchased in July 1998.
Noninterest income was $740,000 for the three months ended September 30, 1999
compared with $611,000 for the three months ended September 30, 1998, an
increase of $129,000 or 21.1%. The increase in noninterest income for the three
months ended September 30, 1998 was primarily due to an increase in service
charges on deposit accounts.

The following table presents, for the periods indicated, the major categories of
noninterest income:

                                        THREE MONTHS ENDED NINE MONTHS ENDED
                                           SEPTEMBER 30,      SEPTEMBER 30,
                                         ----------------   ---------------
                                          1999      1998     1999     1998
                                         ------    ------   ------   ------
                                               (Dollars in thousands)

Service charges on deposit accounts ...     493    $  337   $1,333   $  919
Fee income ............................     128        91      359      345
Fiduciary income ......................      17        11       47       34
Gain on sale of loans .................    --        --       --        674
Other noninterest income ..............     103        91      307      186
Realized (loss) gain on
  securities ..........................      (1)       81       11       81
                                         ------    ------   ------   ------
      Total noninterest income ........  $  740    $  611   $2,057   $2,239
                                         ======    ======   ======   ======

                                       15
<PAGE>
NONINTEREST EXPENSES

      Noninterest expenses totaled $7.1 million for the nine months ended
September 30, 1999 compared with $6.3 million for the nine months ended
September 30, 1998, an increase of $789,000 or 12.4%. Noninterest expense
totaled $2.6 million for the three months ended September 30, 1999 compared with
$2.1 million for the three months ended September 30, 1998, an increase of
$479,000 or 22.5%. The following table presents, for the periods indicated, the
major categories of noninterest expenses:

                                            THREE MONTHS ENDED NINE MONTHS ENDED
                                               SEPTEMBER 30,      SEPTEMBER 30,
                                              ---------------   ---------------
                                               1999     1998     1999     1998
                                              ------   ------   ------   ------
                                                    (DOLLARS IN THOUSANDS)

Employee compensation and benefits ........   $1,440   $1,135   $3,934   $3,276
                                              ------   ------   ------   ------
Non-staff expenses:
   Net bank premises expense ..............      360      300    1,002      883
   Office and computer supplies ...........       84       88      229      219
   Legal and professional fees ............      122       85      349      273
   Advertising ............................       46       51      135      183
   Postage ................................       33       32      100       99
   FDIC insurance .........................        9        7       22       20
   Other ..................................      513      430    1,360    1,389
                                              ------   ------   ------   ------
      Total non-staff expenses ............    1,167      993    3,197    3,066
                                              ------   ------   ------   ------
      Total noninterest expenses ..........   $2,607   $2,128   $7,131   $6,342
                                              ======   ======   ======   ======

     Employee compensation and benefits expense for the nine months ended
September 30, 1999 was $3.9 million, an increase of $658,000 or 20.1% compared
with $3.3 million for the same period in 1998. For the three months ended
September 30, 1999, employee compensation and benefits expense increased
$305,000 or 26.9%. The increase for both the three- and nine-month periods ended
September 30, 1999 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 Pittsburg, Sulphur Springs and Commerce
locations. The number of full-time equivalent employees was 178.0 at September
30, 1999, compared with 133.5 at September 30, 1998, an increase of 33.3%.

      Non-staff expenses were $3.2 million for the nine months ended September
30, 1999, compared with $3.1 million for the same period in 1998, an increase of
$131,000 or 4.3%. Net bank premises expense increased $119,000 or 13.5% during
the same period to $1.0 million due to the addition of the Pittsburg, Sulphur
Springs and Commerce locations. For the three months ended September 30, 1999,
non-staff expenses increased $174,000 or 17.5% to $1.2 million from $1.0 million
for the same period in 1998. The increase was primarily attributed to additional
legal and professional fees related to the First American Acquisition and
increased depreciation cost.

                                       16
<PAGE>
INCOME TAXES

         Income tax expense increased approximately $144,000 to $535,000 for the
nine months ended September 30, 1999 from $391,000 for the same period in 1998.
The increase is primarily a result of higher earnings before income taxes and
fewer taxable deductions available from the Company's leveraged leasing
activities. In addition, the Company recorded a gain on sale of loans of
$674,000 during the first three months of 1998 creating an additional tax
expense in 1998, which the Company did not have in 1999. 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. Income tax expense was $190,000 for the three
months ended September 30, 1999 compared with $21,000 for the three months ended
September 30, 1998, an increase of $169,000. The increase is primarily a result
of fewer taxable deductions available from the Company's leveraged leasing
activities and the effect of selling other real estate at a loss during the
three-month period ended September 30, 1998.


FINANCIAL CONDITION

LOAN PORTFOLIO

         Total loans were $243.8 million at September 30, 1999, an increase of
$57.9 million or 31.2% from $185.9 million at December 31, 1998. Loan growth
occurred primarily in 1- 4 family residential loans, consumer and commercial
loans. Loans comprised 77.2% of total earning assets at September 30, 1999
compared with 74.5% at December 31, 1998.

         The following table summarizes the loan portfolio of the Company by
type of loan as of September 30, 1999 and December 31, 1998:

                                        SEPTEMBER 30, 1999    DECEMBER 31, 1998
                                         -----------------    -----------------
                                          AMOUNT   PERCENT     AMOUNT   PERCENT
                                         -------- --------    --------  -------
                                                 (Dollars in thousands)

Commercial and industrial ............   $ 69,662    28.57%  $ 59,241    31.86%
Real estate:
    Construction and land
      development ....................      6,633     2.72      3,130     1.68
    1-4 family residential ...........     80,699    33.10     48,376    26.02
    Commercial mortgages .............     48,986    20.09     47,977    25.81
    Farmland .........................      8,051     3.30      7,258     3.90
    Multi-family residential .........      3,176     1.30        844     0.45

Consumer .............................     26,613    10.92     19,060    10.28
                                         -------- --------   --------   ------

    Total loans ......................   $243,820   100.00%  $185,886   100.00%
                                         ======== ========   ========   ======

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 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

                                       17
<PAGE>
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. As of September 30, 1999, the allowance for
loan losses amounted to $2.5 million or 1.02% of total loans compared with $1.5
million or 0.81% of total loans at December 31, 1998. The allowance for loan
losses as a percentage of nonperforming loans was 130.55% at September 30, 1999.

Set forth below is an analysis of the allowance for loan losses for the periods
indicated:

                                                    NINE MONTHS        YEAR
                                                       ENDED           ENDED
                                                   SEPTEMBER 30,    DECEMBER 31,
                                                       1999             1998
                                                     ---------       ---------
                                                       (DOLLARS IN THOUSANDS)

Average loans outstanding ......................     $ 202,610       $ 169,754
                                                     =========       =========
Gross loans outstanding at end of period .......     $ 243,820       $ 185,886
                                                     =========       =========
Allowance for loan losses at beginning of
    period ......    ...........................         1,512           1,129
Provision for loan losses ......................           270             540
Balance acquired with First American
    Acquisition ................................           846            --
Charge-offs:
          Commercial and industrial ............           (54)           (113)
          Real estate ..........................            (2)            (14)
          Consumer .............................          (184)           (149)
Recoveries:
          Commercial and industrial ............            41              33
          Real estate ..........................            25              26
          Consumer .............................            29              60
                                                     ---------       ---------
Net loan (charge-offs) recoveries ..............          (145)           (157)
                                                     ---------       ---------
Allowance for loan losses at beginning of
    period .....................................     $   2,483       $   1,512
                                                     =========       =========

Ratio of allowance to end of period loans ......          1.02%           0.81%
Ratio of net charge-offs to average loans ......          0.07%           0.09%
Ratio of allowance to end of period
    nonperforming loans ........................        130.55%         130.80%


                                       18
<PAGE>
NONPERFORMING ASSETS

         Nonperforming assets were $2.1 million at September 30, 1999 compared
with $1.3 million at December 31, 1998, reflecting continued strong asset
quality. The ratio of nonperforming assets to total loans and other real estate
was 0.85% and 0.67% at September 30, 1999, and December 31, 1998, respectively.

         The following table presents information regarding nonperforming assets
as of the dates indicated:

                                                  SEPTEMBER 30,     DECEMBER 31,
                                                      1999              1998
                                                  -------------     ------------
                                                     (Dollars in thousands)

Nonaccrual loans ...............................    $1,337            $  290
Accruing loans 90 or more days past due ........       565               866
                                                    ------            ------
   Total nonperforming loans ...................     1,902             1,156
Other real estate ..............................       175                97
                                                    ------            ------
   Total nonperforming assets ..................    $2,077            $1,253
                                                    ======            ======

SECURITIES

         Securities totaled $71.3 million at September 30, 1999, an increase of
$19.9 million from $51.4 million at December 31, 1998. The increase is primarily
attributable to the addition of $13.4 million of securities acquired in
connection with the First American Acquisition and the purchase of additional
securities to invest the excess cash of First American. At September 30, 1999,
securities represented 20.5% of total assets compared with 18.8% of total assets
at December 31, 1998. The yield on average securities for the nine months ended
September 30, 1999, was 6.10% compared with 6.47% for the same period in 1998.
At September 30, 1999, securities included $1.2 million in U.S. Treasury
securities, $26.7 million in U.S. Government securities, $39.2 million in
mortgage-backed securities, $1.4 million in equity securities and $2.9 million
in municipal securities. The average life of the securities portfolio at
September 30, 1999, was approximately three years.

PREMISES AND EQUIPMENT

         Premises and equipment totaled $9.9 million at September 30, 1999 and
$7.0 million at December 31, 1998. The net change reflects an increase of $2.9
million or 40.4%, in fixed assets. The increase is primarily due to the opening
of a full-service location in Pittsburg, Texas, the purchase of additional land
in Paris, Texas for potential future bank expansion, and the addition of the
premises and equipment received in connection with the First American
Acquisition.

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 September 30, 1999, the net surrender values of these policies
totaled $3.5 million.

                                       19
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DEPOSITS

         At September 30, 1999, demand, money market and savings deposits
accounted for approximately 45.3% of total deposits, while certificates of
deposit made up 54.7% of total deposits. Noninterest-bearing demand deposits
totaled $55.9 million or 17.9% of total deposits at September 30, 1999, compared
with $47.4 million or 19.5% of total deposits at December 31, 1998. The average
cost of deposits, including noninterest-bearing demand deposits, was 3.67% for
the nine months ended September 30, 1999 compared with 3.98% for the same period
in 1998. The decrease in the average cost of deposits was primarily due to the
lower interest rate environment during the first nine months in 1999 compared to
the same period in 1998.

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 an ongoing 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 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. Net cash provided by operating activities was
$2.9 million and $685,000 for the nine months ended September 30, 1999 and 1998,
respectively. The increase was due primarily to the salary retention premiums
paid on executive officers of $3.1 million in the first nine months of 1998
offset by the proceeds from the sale of loans of $2.0 million during the same
period. The Company did not pay any retention premiums or sell any loans during
the first nine months of 1999.

         Net cash (used) by investing activities was $(14.1) million and $(7.0)
million for the nine months ended September 30, 1999 and 1998, respectively. The
increase is primarily due to an increase in the amount of investment securities
purchased and the payment of $3.4 million in connection with the First American
Acquisition.

         Net cash provided by financing activities was $11.8 million and $7.2
million for the nine months ended September 30, 1999 and 1998, respectively. The
difference was due primarily to a larger net increase in deposits of $12.5 in
1999 as compared to a net increase of $1.9 million in 1998, offset by proceeds
from borrowings in 1998 of $2.0 million and the sale of common stock in 1998 of
$4.5 million.

CAPITAL RESOURCES

         Total shareholders' equity as of September 30, 1999, was $28.2 million,
an increase of $4.4 million or 18.4% compared with shareholders' equity of $23.8
million at December 31, 1998. The increase was due to the issuance of common
stock in connection with the First American Acquisition, net earnings for the
period of $1.9 million, offset by the decrease in accumulated other
comprehensive income of $587,000, dividends paid on common stock of $346,000 and
the purchase of treasury stock of $116,000.

                                       20
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Both the Board of Governors of the Federal Reserve System ("Federal Reserve"),
with respect to the Company, and the Federal Deposit Insurance Corporation
("FDIC"), with respect to the Bank, have established certain minimum risk-based
capital standards that apply to bank holding companies and federally insured
banks, respectively. As of September 30, 1999, the Company's Tier 1 risk-based
capital, total risk-based capital and leverage capital ratios were 10.22%,
11.24% and 8.59%, respectively. As of September 30, 1999, 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 9.52%, 10.52% and 7.97%, respectively.

YEAR 2000 COMPLIANCE

      GENERAL The Year 2000 risk involves computer programs and computer
software that are not able to perform without interruption into the Year 2000.
If computer systems do not correctly recognize the date change from December 31,
1999, to January 1, 2000, computer applications that rely on the date field
could fail or create erroneous results. Such erroneous results could affect
interest, payment or due dates or cause the temporary inability to process
transactions, send invoices or engage in similar normal business activities. If
these issues are not addressed by the Company, its suppliers and its borrowers,
there could be a material adverse impact on the Company's financial condition or
results of operations.

      STATE OF READINESS The Company formally initiated its Year 2000 project
and plan in August 1997 to insure that its operational and financial systems
will not be adversely affected by Year 2000 problems. The Company has formed a
Year 2000 project team, and the Board of Directors and management are supporting
all compliance efforts and allocating the necessary resources to ensure
completion. An inventory of all systems and products (including both information
technology ("IT") and non-informational technology ("non-IT") systems) that
could be affected by the Year 2000 date change has been developed, verified and
categorized as to their importance to the Company and an assessment of all
mission critical IT and mission critical non-IT systems has been completed. This
assessment involved inputting test data which simulates the Year 2000 date
change into such IT systems and reviewing the system output for accuracy. The
Company's assessment of mission critical non-IT systems involved reviewing such
systems to determine whether they were date dependent. Based on such assessment,
the Company believes that none of its mission critical non-IT systems are date
dependent. The software for the Company's systems is provided through service
bureaus and software vendors. The Company has contacted all of its third party
vendors and software providers and is requiring them to demonstrate and
represent that the products provided are or will be Year 2000 compliant and has
planned a program of testing compliance. The Company's item processing software
provider, which performs substantially all of the Company's data processing
functions, has stated that its software is Year 2000 compliant and the Company
has tested the hardware and software to verify these assertions. In addition,
the Company's compliance efforts regarding Year 2000 issues were reviewed by the
FDIC in January 1999.

      The Company has completed the following phases of its Year 2000 plan: (i)
recognizing Year 2000 issues, (ii) assessing the impact of Year 2000 issues on
the Company's mission critical systems, (iii) upgrading systems as necessary to
resolve the Year 2000 issues which have been identified, and (iv) developing a
business resumption contingency plan.

      COSTS OF COMPLIANCE Management does not expect that the cost of bringing
the Company's systems into Year 2000 compliance will have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
The Company has budgeted $50,000 to address Year 2000 issues. As of September
30, 1999, the Company has not incurred any significant costs in relation to Year
2000. The largest potential internal risk to the Company concerning Year 2000 is
the malfunction of its data processing system. In the event its data processing
system does not function properly, the Company is prepared to perform functions
manually. The Company believes it is in compliance with regulatory guidelines
regarding Year 2000 compliance, including the timetable for achieving
compliance.

                                       21
<PAGE>
      RISKS RELATED TO THIRD PARTIES The impact of Year 2000 noncompliance by
third parties with which the Company transacts business cannot be accurately
gauged. The Company identified its largest dollar depositors (aggregate deposits
over $100,000) and loan customers ($150,000 or more) and, based on information
available to the Company, conducted a preliminary evaluation to determine which
of those customers are likely to be affected by Year 2000 issues. In addition,
corporate borrowers have been contacted and assessed by their respective lending
officers and scored on a scale of one, two or three, with three being the least
affected by Year 2000 issues. A corporate borrower which received a rating of
one or two was subsequently contacted to assess Year 2000 readiness efforts. To
the extent a problem is identified with respect to a customer, the Company
intends to monitor the customer's progress in resolving such problem. In the
event that Year 2000 noncompliance adversely affects borrowers, the Company may
be required to charge-off the loan to such borrowers. For a discussion of
possible effects of such charge-offs, see "--Contingency Plans" below. In the
event that Year 2000 noncompliance causes depositors to withdraw funds, the
Company plans to maintain additional cash on hand. The Company relies on the
Federal Reserve for electronic fund transfers and check clearing and understands
that the Federal Reserve has certified its systems to be Year 2000 compliant and
continues to test product upgrades. With respect to its borrowers, the Company
includes in its loan documents a Year 2000 disclosure form and an addendum to
the loan agreement in which the borrower represents and warrants its Year 2000
compliance to the Company.

      CONTINGENCY PLANS The Company has finalized its contingency plans with
respect to the Year 2000 date change for each mission critical system and the
Company's core business processes. The Company believes that if its own system
should fail, it could convert to a manual entry system for a period up to three
months without significant losses. The Company further believes that any mission
critical system could be recovered and operating within three to five days. In
the event that the Federal Reserve is unable to handle electronic funds
transfers and check clearing, the Company does not expect the impact to be
material to its financial condition or results of operations as long as the
Company is able to utilize an alternative funds transfer and clearing source. As
part of its contingency planning, the Company reviewed its loan customer base
and the potential impact on capital of Year 2000 noncompliance. Based upon such
review, using what it considers to be a reasonable worst case scenario, the
Company has assumed that certain of its commercial borrowers whose businesses
are most likely to be affected by Year 2000 noncompliance would be unable to
repay their loans, resulting in charge-offs of loan amounts in excess of
collateral values. If such were the case, the Company believes that it is
unlikely that its exposure would exceed $100,000, although there are no
assurances that this amount will not be substantially higher. Management does
not believe that this amount is material enough for the Company to adjust its
current methodology for making provisions to the allowance for loan losses. In
addition, the Company plans to maintain additional cash on hand to meet any
unusual deposit withdrawal activity.

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, 1998. See
Form 10-K, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Interest Rate Sensitivity and Liquidity."

                                       22
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                         PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Not applicable

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         (a)  Not applicable

         (b)  Not applicable

         (c)  Not applicable

         (d)  Not applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable


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

         Not applicable


ITEM 5.  OTHER INFORMATION

         Not applicable


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) The following exhibit is filed with this report:

                Exhibit 27.   Financial Data Schedule

         (b) Reports on Form 8-K.

             On September 8, 1999, the Company filed a current report on Form
             8-K under Item 5 of Form 8-K announcing the completion of the First
             American Acquisition.

                                       23
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                                  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:  November 15, 1999              By:
                                          /S/ ARTHUR B. SCHARLACH, JR.
                                              Arthur B. Scharlach, Jr.
                                              President
                                              (Principal Executive Officer)

Date:  November 15, 1999              By:
                                          /S/ CLIFTON A. PAYNE
                                              Clifton A. Payne
                                              Senior Vice President and Chief
                                              Financial Officer
                                             (Principal Financial Officer)

                                       24
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