|UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549FORM 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 MARCH 31, 2002.


OR


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


COMMISSION FILE NUMBER:
000-24235


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

|TEXAS(State or other jurisdiction ofincorporation or organization) | 75-16516431(I.R.S. EmployerIdentification No.)
|------------------------------------------------------------------ | ----------------------------------------------

|100 W. ARKANSASMT. 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 May 10, 2002, there
were 2,994,428 shares of the registrants Common Stock, par value $1.00 per
share, outstanding.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                                                                              | Page
|--------------------------------------------------------------------------------------------- | ----
|PART I - FINANCIAL INFORMATION                                                                |     
|                                                                                             
|Item 1.  Financial Statements                                                                 |     
|Consolidated Balance Sheets                                                                   |     
|Consolidated Statements of Earnings                                                           |     
|Condensed Consolidated Statements of Changes in Shareholders Equity                          |     
|Condensed Consolidated Statements of Cash Flows                                               |     
|Consolidated Statements of Comprehensive Income                                               |     
|Notes to Consolidated Financial Statements                                                    |     
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |     
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |     
|                                                                                             
|PART II - OTHER INFORMATION                                                                   |     
|                                                                                             
|Item 1. Legal Proceedings                                                                     |     
|Item 2. Changes in Securities and Use of Proceeds                                             |     
|Item 3. Defaults upon Senior Securities                                                       |     
|Item 4. Submission of Matters to a Vote of Security Holders                                   |     
|Item 5. Other Information                                                                     |     
|Item 6. Exhibits and Reports on Form 8-K                                                      |     
|Signatures                                                                                    |     

|2
|-

|PART I - FINANCIAL
INFORMATION


ITEM 1. FINANCIAL
STATEMENTS



GUARANTY BANCSHARES,
INC.CONSOLIDATED BALANCE SHEETS(DOLLARS IN THOUSANDS)(EXCEPT SHARE AMOUNTS)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                | March 31,2002 | December 31,2001
|--------------------------------------------------------------- | ------------- | ----------------
|
|ASSETS                                                          |               |                 
|Cash and due from banks                                         |               | $   11,910      
|Federal funds sold                                              |               | 11,205          
|Securities available-for-sale                                   |               | 88,307          
|Loans, net of allowance for loan losses of $3,481 and $3,346    |               | 332,408         
|Premises and equipment, net                                     |               | 13,460          
|Other real estate                                               |               | 893             
|Accrued interest receivable                                     |               | 2,858           
|Goodwill                                                        |               | 2,338           
|Other assets                                                    |               | 8,550           
|                                                                |               |                 
|Total assets                                                    |               | $ 471,929       
|                                                                |               |                 
|LIABILITIES AND SHAREHOLDERS EQUITY                            |              
|Liabilities                                                     |              
|Deposits                                                        |              
|Noninterest-bearing                                             |               | $   64,467      
|Interest-bearing                                                |               | 330,507         
|                                                                |               |                 
|Total deposits                                                  |               | 394,974         
|Federal Home Loan Bank advances                                 |               | 33,011          
|Long-term debt                                                  |               | 7,000           
|Accrued interest and other liabilities                          |               | 4,376           
|                                                                |               |                 
|Total liabilities                                               |               | 439,361         
|                                                                |               |                 
|Shareholders equity                                            |              
|Preferred stock, $5.00 par value, 15,000,000 shares authorized, |              
|no shares issued                                                |               |                
|Common stock, $1.00 par value, 50,000,000 shares authorized,    |              
|3,250,016 issued                                                |               | 3,250           
|Additional paid-in capital                                      |               | 12,659          
|Retained earnings                                               |               | 18,705          
|Treasury stock, 255,588 and 245,588 shares at cost              |               | (2,783          
|Accumulated other comprehensive income                          |               | 737             
|                                                                |               |                 
|Total shareholders equity                                      |               | 32,568          
|                                                                |               |                 
|Total liabilities and shareholders equity                      |               | $ 471,929       
|                                                                |               |                 

|See accompanying notes
to consolidated financial statements.


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

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

|                                                    | Three Months EndedMarch 31,
|--------------------------------------------------- | ---------------------------
|
|Interest income                                     |                            
|Loans, including fees                               |                            
|Securities                                          |                            
|Federal funds sold and other temporary investments  |                            
|                                                    |                            
|Total interest income                               |                            
|Interest expense                                    |                            
|Deposits                                            |                            
|FHLB advances and federal funds purchased           |                            
|Long-term debt                                      |                            
|                                                    |                            
|Total interest expense                              |                            
|                                                    |                            
|Net interest income                                 |                            
|Provision for loan losses                           |                            
|                                                    |                            
|Net interest income after provision for loan losses |                            
|Noninterest income                                  |                            
|Service charges                                     |                            
|Other operating income                              |                            
|Realized gain on available-for-sale securities      |                            
|                                                    |                            
|Total noninterest income                            |                            
|Noninterest expense                                 |                            
|Employee compensation and benefits                  |                            
|Occupancy expenses                                  |                            
|Other operating expenses                            |                            
|                                                    |                            
|Total noninterest expenses                          |                            
|                                                    |                            
|Earnings before income taxes                        |                            
|Provision for income taxes                          |                            
|                                                    |                            
|Net earnings                                        |                            
|                                                    |                            
|Basic earnings per common share                     |                            
|                                                    |                            
|Diluted earnings per common share                   |                            
|                                                    |                            

|See accompanying notes
to consolidated financial statements.


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

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

|                                          | Three Months EndedMarch 31,
|----------------------------------------- | ---------------------------
|
|Balance at beginning of period            |                            
|Net income                                |                            
|Purchases of treasury stock               |                            
|Change in unrealized (loss) gain on       |                            
|securities available for sale, net of tax |                            
|                                          |                            
|Balance at end of period                  |                            
|                                          |                            

|See accompanying notes
to consolidated financial statements.



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

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

|                                                                | Three Months EndedMarch 31,
|--------------------------------------------------------------- | ---------------------------
|
|Net cash provided by operating activities                       |                            
|                                                                |                            
|Cash flows from investing activities:                           |                            
|Securities available for sale:                                  |                            
|Purchases                                                       |                            
|Sales                                                           |                            
|Maturities, calls, and principal repayments                     |                            
|Net increase in loans                                           |                            
|Purchases of premises and equipment                             |                            
|Proceeds from sale of premises, equipment and other real estate |                            
|Net increase in federal funds sold                              |                            
|                                                                |                            
|Net cash used by investing activities                           |                            
|                                                                |                            
|Cash flows from financing activities:                           |                            
|Net change in deposits                                          |                            
|Net change in short-term FHLB advances                          |                            
|Repayment of long-term FHLB advances                            |                            
|Proceeds from issuance of trust preferred securities            |                            
|Purchase of treasury stock                                      |                            
|                                                                |                            
|Net cash provided from financing activities                     |                            
|                                                                |                            
|Net (decrease) increase in cash and cash equivalents            |                            
|Cash and cash equivalents at beginning of period                |                            
|                                                                |                            
|Cash and cash equivalents at end of period                      |                            
|                                                                |                            
|Supplemental disclosures:                                       |                            
|Cash paid for income taxes                                      |                            
|Cash paid for interest                                          |                            
|Significant non-cash transactions:                              |                            
|Transfers from loans to real estate owned                       |                            

|See accompanying notes
to consolidated financial statements.


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

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

|                                                        | Three Months EndedMarch 31,
|------------------------------------------------------- | ---------------------------
|
|Net earnings                                            |                            
|Other comprehensive income:                             |                            
|Unrealized (loss) gain on available for sale securities |                            
|arising during the period                               |                            
|Reclassification adjustment for amounts realized on     |                            
|securities sales included in net earnings               |                            
|                                                        |                            
|Net unrealized (loss) gain                              |                            
|Tax effect                                              |                            
|                                                        |                            
|Total other comprehensive (loss) income                 |                            
|                                                        |                            
|Comprehensive income                                    |                            
|                                                        |                            

|See accompanying notes
to consolidated financial statements


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

|GUARANTY
BANCSHARES, INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTSMARCH 31,
2002(DOLLARS IN
THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)


NOTE 1.     BASIS
OF PRESENTATION


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


The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles in the United
State of America for a complete presentation of financial position. In the
opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments necessary for a fair presentation of the
financial position, results of operations and cash flows of the Company on a
consolidated basis, and all such adjustments are of a normal recurring nature.
These financial statements and the notes thereto should be read in conjunction
with the Companys Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 15, 2002. The Company has consistently followed the
accounting policies described in the Annual Report in preparing this Form 10-Q.
Operating results for the three months ended March 31, 2002, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002.


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


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


NOTE 2.     RECENT
ACCOUNTING PRONOUNCEMENTS


In
July 2001, the Financial Accounting Standards Board issued two statements 
Statement 141, Business Combinations, and SFAS 142, Goodwill and Other
Intangible Assets, which impacts the Company accounting for its reported
goodwill and other intangible assets.


SFAS
141, Business Combinations  This statement eliminates the pooling
method of accounting for business combinations. It requires that intangible
assets that meet certain criteria be reported separately from goodwill and that
negative goodwill arising from a business combination be recorded as an
extraordinary gain.


SFAS
142, Goodwill and Other Intangible Assets  This statement
eliminates the amortization of goodwill and other intangibles that are
determined to have an indefinite life. It requires, at a minimum, annual
impairment tests for goodwill and other intangible assets that are determined to
have an indefinite life.


The
standards have been applied by the Company, beginning January 1, 2002. The
Company has completed its initial impairment test, and believes no impairment
exists. In accordance with the new standards, goodwill of $2.3 million is no
longer being amortized. Below is a reconciliation of reported net income and
basic earnings per common share to the adjusted amounts assuming the new
standards were applied effective January 1, 2001 (dollars in thousands, except
per share amounts):
8
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|                                  | Three Months EndedMarch 31,
|--------------------------------- | ---------------------------
|
|
|Reported net income               |                            
|Add back amortization of goodwill |                            
|                                  |                            
|Adjusted net income               |                            
|                                  |                            
|                                  |                            
|Reported earnings per share       |                            
|Goodwill amortization             |                            
|                                  |                            
|Adjusted earnings per share       |                            
|                                  |                            

|NOTE 3.     
EARNINGS PER SHARE


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


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

|                                                 | Three Months EndedMarch 31,
|------------------------------------------------ | ---------------------------
|
|
|Weighted-average common shares used in basic EPS |                            
|Potential dilutive common shares                 |                            
|                                                 |                            
|Weighted-average common and potential dilutive   |                            
|common shares used in dilutive EPS               |                            
|                                                 |                            

|NOTE 4.     STOCK
OPTIONS


In
2000, the Company granted nonqualified stock options to certain executive
officers of the Company and Guaranty Bank under the Companys 1998 Stock
Incentive Plan. The grants consisted of eight-year options to purchase 89,500
shares at an exercise price of $9.30 per share, which was the market price of
the Companys stock on the date the options were granted. In February 2002,
the Company granted eight-year options to purchase 20,000 shares at an exercise
price of $12.50 per share, which was the market price of the Companys
stock on the date the options were granted. The options fully vest and become
exercisable in five equal installments commencing on the first anniversary of
the date of grant and annually thereafter. At March 31, 2002, none of the
options have been exercised and 890,500 options remain available for future
grant under the 1998 Stock Incentive Plan.


The
weighted-average fair value per share of options granted during 2002 was $4.09.
The fair value of options granted was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 2.24%; expected volatility of 28.7%; risk-free
interest rate of 5.0%, and an expected life of 8.00 years.
9
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, requires pro forma disclosures for companies not adopting
its fair value accounting method for stock-based employee compensation. No
compensation expense related to stock options is actually recognized.
Accordingly, the following pro forma information presents net income and
earnings per share for the three months ended March 31, 2002 and 2001 had the
SFAS No. 123 fair value method been used to measure compensation cost for stock
option plans (dollars in thousands, except per share amounts):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | Three Months EndedMarch 31,
|------------------- | ---------------------------
|
|
|Net earnings:       |                            
|As reported         |                            
|                    |                            
|Pro forma           |                            
|                    |                            
|Earnings per share: |                            
|As reported         |                            
|Basic               |                            
|                    |                            
|Diluted             |                            
|                    |                            
|Pro forma           |                            
|Basic               |                            
|                    |                            
|Diluted             |                            
|                    |                            

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


NOTE 5.     
COMMITMENT AND CONTINGENCIES


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


The
Company enters into contractual commitments to extend credit, normally with
fixed expiration dates or termination clauses, at specified rates and for
specific purposes. Customers use credit commitments to ensure that funds will be
available for working capital purposes, for capital expenditures and to ensure
access to funds at specified terms and conditions. Substantially all of the
Companys commitments to extend credit are contingent upon customers
maintaining specific credit standards at the time of loan funding. Management
assesses the credit risk associated with certain commitments to extend credit in
determining the level of the allowance for credit losses.
10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


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

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

|The
Company is involved in certain claims and lawsuits occurring in the normal
course of business. Management, after consultation with legal counsel, does not
believe that the outcome of these actions would have a material impact on the
financial statements of the Company.


Guaranty
Leasing Company, a non-bank subsidiary of the Bank, is a substantial partner in
various complex equipment leasing transactions primarily originated in 1992,
1994 and 1995 involving leveraged leases. During 2001 and 1998, Guaranty Leasing
was informed by the Internal Revenue Service (the Service) that
certain losses taken by the Partnership during 1992 and 1994 through 1996
amounting to approximately $1.7 million would be disallowed. The Partnership
plans to appeal the Services determination and to actively contest the
Services position. However, if the Service is ultimately successful in
re-determining the amount of the Partnerships taxable loss, the
Companys tax liability would be increased. Such adjustment may have a
material adverse effect on the Companys consolidated financial statements.


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



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


Certain
statements in this Quarterly Report on Form 10-Q include forward-looking
information within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the Safe Harbor created by those sections. These
forward-looking statements involve certain risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements. Such risks and uncertainties include, but are not limited to, the
following factors: competitive pressure in the banking industry significantly
increasing; changes in the interest rate environment reducing margins; general
economic conditions, either nationally or regionally, are less favorable than
expected, resulting in, among other things, a deterioration in credit quality
and an increase in the provision for possible loan losses; changes in the
regulatory environment; changes in business conditions; volatility of rate
sensitive deposits; operational risks including data process system failures or
fraud; asset/liability, matching risks and liquidity risks; and changes in the
securities markets and the factors contained in the Companys Annual Report
on Form 10-K for the year ended December 31, 2001 as filed with the Securities
and Exchange Commission.
11
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|GENERAL
OVERVIEW


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


FINANCIAL
OVERVIEW


Net
earnings available to common shareholders for the three months ended March 31,
2002 were $982,000 or $0.33 per share compared with $738,000 or $0.24 per share
for the three months ended March 31, 2001, an increase of $244,000 or 33.1%. The
increase is due primarily to an increase in net interest income of $824,000 or
26.4% offset by an increase in noninterest expenses of $225,000 and a decrease
in gain on sale of securities of $229,000. There was no material change during
the comparative periods in noninterest income. Noninterest expense increased by
$225,000 or 6.9% primarily due to increases in employee compensation and
benefits due to a slight increase in staff, higher benefits cost, and normal
salary increases. There was no significant change in non-staff expenses for the
two comparative periods.


Gross
loans increased to $335.9 million at March 31, 2002, from $331.3 million at
December 31, 2001, an increase of $4.6 million or 1.4%. Total assets increased
to $471.9 million at March 31, 2002, compared with $460.5 million at December
31, 2001. The increase of $11.4 million in total assets is primarily in gross
loans, securities, and federal funds sold which increased $4.6 million, $6.6
million, and $6.8 million, respectively offset by a decrease in cash and due
from banks and other assets of $3.5 million and $2.8 million, respectively. The
net increase in assets resulted from an increase in deposits of $11.7 million.
Total deposits increased to $395.0 million at March 31, 2002 compared to $383.3
million at December 31, 2001. This increase come primarily from an increase in
certificate of deposits of $10.4 million or 4.9% due to the offering of
competitive yields, and an increase in savings accounts of $941,000 or 9.1%.


Total
shareholders equity was $32.6 million at March 31, 2002, representing an
increase of $741,000 or 2.3% from December 31, 2001. This increase is due to the
earnings for the period of $982,000 offset by a decrease in accumulated other
comprehensive income of $111,000 and the purchase of 10,000 shares of treasury
stock at a cost of $130,000.


RESULTS OF
OPERATIONS


Interest Income


Interest
income for the three months ended March 31, 2002 was $7.1 million, a decrease of
$536,000 or 7.0% compared with the three months ended March 31, 2001. The
decrease in interest income is due primarily to lower yields on earning assets
partially offset by an increase in the average volume of earning assets. Average
loans were $330.9 million for the three months ended March 31, 2002, compared
with $289.4 million for the three months ended March 31, 2001, an increase of
$41.5 million or 14.3%. Average securities were $79.5 million for the three
months ended March 31, 2002, compared with $67.0 million for the three months
ended March 31, 2001, an increase of $12.5 million or 18.8%. Average federal
funds sold were $12.7 million for the three months ended March 31, 2002,
compared with $19.9 million for the three months ended March 31, 2001, a
decrease of $7.2 million or 36.2%. Growth in the average volume of
interest-earning assets is primarily due to the growth in deposits for the
period. The decreases in interest income are primarily due to a decrease in the
average yield earned on interest-earning assets from 8.21% during the
three-month period ended March 31, 2001 to 6.79% during the three-month period
ended March 31, 2002.
12
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Interest
Expense


Interest
expense on deposits and other interest-bearing liabilities was $3.1 million for
the three months ended March 31, 2002, compared with $4.5 million for the three
months ended March 31, 2001, a decrease of $1.4 million or 30.2%. The decrease
in interest expense is due primarily to a lower yield in average
interest-bearing liabilities from 5.51% for the three months ended March 31,
2001, to 3.48% for the three months ended March 31, 2002. The decrease was
partially offset by growth on the average volume of interest-bearing
liabilities. Average interest-bearing deposits were $326.1 million for the three
months ended March 31, 2002, compared to $313.2 million for the three months
ended March 31, 2001, an increase of $12.9 million or 4.1%. Average Federal Home
Loan Bank (FHLB) advances were $33.0 million for the three months ended March
31, 2002 compared to $11.0 million for the three months ended March 31, 2001, an
increase of $22.0 million or 201.1%. Long-term debt remained at $7.0 million for
both comparative periods.


Net Interest
Income


Net
interest income was $3.9 million for the three months ended March 31, 2002
compared with $3.1 million for the three months ended March 31, 2001, an
increase of $824,000 or 26.4%. The increase in net interest income resulted
primarily from growth in average interest-earning assets to $423.1 million for
the three months ended March 31, 2002, from $376.3 million for the three months
ended March 31, 2001, an increase of $46.8 million or 12.4%, offset by an
increase in total interest-bearing liabilities to $366.2 million for the three
months ended March 31, 2002, from $331.2 million for the three months ended
March 31, 2001, an increase of $35.0 million or 10.6%. The net interest margin
increased to 3.78% from 3.36% for the three months ended March 31, 2002 compared
to the same three-month period ended March 31, 2001. These increases can be
attributed to the fact that the percentage growth in average interest-earning
assets exceeded the percentage growth in average interest-bearing liabilities
causing the ratio of average interest-earning assets to average interest-bearing
liabilities to increase. Additionally, the average rate paid on interest-bearing
liabilities decreased at a slower rate than the average rate earned on
interest-earning assets due to Guaranty Banks positive gap position in the
falling interest rate environment.


The
Companys net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as a
volume change. It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a rate change. The following tables
set forth, for each category of interest-earning assets and interest-bearing
liabilities, the average amounts outstanding, the interest earned or paid on
such amounts, and the average rate earned or paid for the three months ended
March 31, 2002 and 2001, respectively. The tables also set forth the average
rate earned on total interest-earning assets, the average rate paid on total
interest-bearing liabilities, the net interest spread and the net interest
margin for the same periods. The net interest spread is the difference between
the average rate earned on total interest-earning assets less the average rate
paid on total interest-bearing liabilities. The net interest margin is net
interest income as a percentage of average interest-earning assets.
13
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|                                     | Three Months Ended March 31,
|------------------------------------ | ----------------------------
|
|
|
|Assets                               |                             
|Interest-earning assets              |                             
|Loans                                |                             
|Securities                           |                             
|Federal funds sold                   |                             
|Interest-bearing deposits in         |                             
|other financial institutions         |                             
|                                     |                             
|Total interest-earning assets        |                             
|                                     |                             
|Less allowance for loan losses       |                             
|                                     |                             
|Total interest-earning               |                             
|assets,  net of allowance            |                             
|Non-earning assets:                  |                             
|Cash and due from banks              |                             
|Premises and equipment               |                             
|Interest receivable and              |                             
|other assets                         |                             
|Other real estate owned              |                             
|                                     |                             
|Total assets                         |                             
|                                     |                             
|Liabilities and shareholders equity |                             
|Interest-bearing liabilities         |                             
|NOW, savings, and money              |                             
|market accounts                      |                             
|Time deposits                        |                             
|                                     |                             
|Total interest-bearing               |                             
|deposits                             |                             
|FHLB advances and federal            |                             
|funds purchased                      |                             
|Long-term debt                       |                             
|                                     |                             
|Total interest-bearing               |                             
|liabilities                          |                             
|                                     |                             
|Noninterest-bearing liabilities      |                             
|Demand deposits                      |                             
|Accrued interest, taxes and          |                             
|other liabilities                    |                             
|                                     |                             
|Total liabilities                    |                             
|Shareholders equity                 |                             
|                                     |                             
|Total liabilities and                |                             
|shareholders equity                 |                             
|                                     |                             
|Net interest income                  |                             
|                                     |                             
|Net interest spread                  |                             
|                                     |                             
|Net interest margin                  |                             
|                                     |                             

|14
|--

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

|                                              | Three Months Ended March 31,
|--------------------------------------------- | ----------------------------
|
|
|
|
|Interest-earning assets:                      |                             
|Loans                                         |                             
|Securities                                    |                             
|Federal funds sold                            |                             
|Interest-bearing deposits in other            |                             
|financial institutions                        |                             
|                                              |                             
|Total increase (decrease) in interest income  |                             
|                                              |                             
|Interest-bearing liabilities:                 |                             
|NOW, savings, and money market                |                             
|accounts                                      |                             
|Time deposits                                 |                             
|Other borrowed funds                          |                             
|Trust preferred                               |                             
|                                              |                             
|Total increase (decrease) in interest expense |                             
|                                              |                             
|Increase (decrease) in net interest income    |                             
|                                              |                             

|Provision for
Loan Losses


Provisions
for loan losses are charged to income to bring the total allowance for loan
losses to a level deemed appropriate by management of the Company based on such
factors as the industry diversification of the Companys commercial loan
portfolio, the effect of changes in the local real estate market on collateral
values, the results of recent regulatory examinations, the effects on the loan
portfolio of current economic indicators and their probable impact on borrowers,
the amount of charge-offs for the period, the amount of nonperforming loans and
related collateral security, and the evaluation of the Companys loan
portfolio by Independent Bank Services, L.C. The provision for loan losses for
the three months ended March 31, 2002, is $250,000 compared with $155,000 for
the three months ended March 31, 2001, an increase of $95,000 or 61.3%. The
increase is due to the increase in average loans of 14.3% over the comparable
three-month period. Management believes increasing the allowance for loan losses
is prudent as total loans, particularly higher-risk commercial, construction,
and consumer loans, increase.
15
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Noninterest
Income


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

|                                    | Three Months EndedMarch 31,
|----------------------------------- | ---------------------------
|
|
|Service charges on deposit accounts |                            
|Fee income                          |                            
|Fiduciary income                    |                            
|Other noninterest income            |                            
|Realized gain on securities         |                            
|                                    |                            
|Total noninterest income            |                            
|                                    |                            

|The
Companys primary sources of recurring noninterest income are service
charges on deposit accounts and fee income. Noninterest income for the
three-month period ended March 31, 2002 decreased $224,000, or 17.8% over the
same period ended March 31, 2001. The decrease in noninterest income for the
three-month period ending March 31, 2002 is primarily due to the gain on sale of
securities realized in 2001 partially offset by an increase in service charges
on deposit accounts created by an increase in the number of deposit accounts. In
the three months ended March 31, 2001, the Company realized a gain on sale of
mortgage-backed securities of $266,000 from the sale of $11.2 million of
securities compared to a gain on the sale of mortgage-backed securities of
$37,000 from the sale of $4.2 million of securities during the three months
ended March 31, 2002. Disregarding the gain on sale of securities, there was no
material change in the Companys normal recurring noninterest income. Other
noninterest income decreased $21,000 or 13.0% during the same period due
primarily to a decrease in income from subsidiaries of $60,000 during the three
months ended March 31, 2001 compared to ($12,000) during the three month period
ended March 31, 2002 offset by a net gain on the sale of assets recorded in the
three month period ended March 31, 2002 of $27,000. There was not a net gain on
sale of assets recorded during the three-month period ended March 31, 2001.
16
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Noninterest
Expenses


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

|                                   | Three Months EndedMarch 31,
|---------------------------------- | ---------------------------
|
|
|Employee compensation and benefits |                            
|                                   |                            
|Non-staff expenses:                |                            
|Net bank premises expense          |                            
|Office and computer supplies       |                            
|Legal and professional fees        |                            
|Advertising                        |                            
|Postage                            |                            
|FDIC insurance                     |                            
|Other                              |                            
|                                   |                            
|Total non-staff expenses           |                            
|                                   |                            
|Total noninterest expenses         |                            
|                                   |                            

|Employee
compensation and benefits expense increased $187,000, or 9.7% for the
three-month period ending March 31, 2002 compared to the same period in 2001.
The increase for the three-month period ending March 31, 2002 is due primarily
to normal salary increases, benefits cost, and additional staff placement in the
Texarkana and Paris locations to handle customer growth. The number of full-time
equivalent employees was 193 at March 31, 2002, compared with 191 at March 31,
2001, an increase of 1.0%.


Non-staff
expenses increased $38,000 or 2.8%, for the three-month period ending March 31,
2002, compared with the same period in 2001. Net bank premises expense increased
$10,000, or 2.2%, over the comparable period due to additional depreciation and
property tax expense. Other non-staff expenses increased $11,000 for the
three-month period ending March 31, 2002, compared to the same period in 2001.
The minimal non-staff expense increases are due to cost controls established and
put into force by the Company.


Income Taxes


Income
tax expense increased $36,000 to $252,000 for the three months ended March 31,
2002 from $216,000 for the same period in 2001. The increase is a result of
increased earnings before income tax and fewer tax deductions available from the
Companys leasing activities. The income stated on the consolidated
statement of earnings differs from the taxable income due to tax-exempt income,
the amount of non-deductible interest expense and the amount of other
non-deductible expense.


FINANCIAL
CONDITION


Loan Portfolio


Gross
loans are $335.9 million at March 31, 2002, an increase of $4.6 million or 1.4%
from $331.3 million at December 31, 2001. Loan growth occurred primarily in
1-4 family residential loans and non-residential and non-farmland loans due
to continued good loan demand in the various markets that the Company serves.
Average loans comprised 78.2% of total average interest-earning assets at March
31, 2002 compared with 76.9% at March 31, 2001.
17
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                  | March 31, 2002 | December 31, 2001
|--------------------------------- | -------------- | -----------------
|
|
|Commercial and industrial         |                | $  67,015        
|Agriculture                       |                | 8,010            
|Real estate:                      |               
|Construction and land development |                | 10,263           
|1-4 family residential            |                | 128,969          
|Farmland                          |                | 9,188            
|Non-residential and non-farmland  |                | 70,821           
|Multi-family residential          |                | 8,647            
|Consumer                          |                | 32,976           
|                                  |                |                  
|Total loans                       |                | $335,889         
|                                  |                |                  

|Allowance for
Loan Losses


In
originating loans, the Company recognizes that it will experience credit losses
and the risk of loss will vary with, among other things, general economic
conditions, the type of loan being made, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized loan, the quality
of the collateral for such loan. The Company maintains an allowance for loan
losses in an amount that it believes is adequate for estimated losses in its
loan portfolio. Management determines the adequacy of the allowance through its
evaluation of the loan portfolio. In addition to unallocated allowances,
specific allowances are provided for individual loans when ultimate collection
is considered questionable by management after reviewing the current status of
loans which are contractually past due and considering the net realizable value
of the collateral for the loan. Loans are charged-off against the allowance for
loan losses when appropriate. Although management believes it uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions differ
from the assumptions used in making the initial determinations. Loan
charge-offs, net of recoveries, during the three-month period ending March 31,
2002 increased $182,000 or 275.8% over the same period ending March 31, 2001.
This increase is due primarily to additional charge-offs recognized during the
period caused by the Companys aggressive position on identifying problem
assets. At March 31, 2002 and March 31, 2001, the allowance for loan losses
totaled $3.5 million or 1.04% of gross loans and $2.8 million or 0.96% of gross
loans respectively. The allowance for loan losses as a percentage of
nonperforming loans was 99.17% at March 31, 2002.
18
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                                        | Three Months EndedMarch 31,
|------------------------------------------------------- | ---------------------------
|
|
|Average loans outstanding                               |                            
|                                                        |                            
|Gross loans outstanding at end of period                |                            
|                                                        |                            
|Allowance for loan losses at beginning of period        |                            
|Provision for loan losses                               |                            
|Charge-offs:                                            |                            
|Commercial and industrial                               |                            
|Real estate                                             |                            
|Consumer                                                |                            
|Recoveries:                                             |                            
|Commercial and industrial                               |                            
|Real estate                                             |                            
|Consumer                                                |                            
|                                                        |                            
|Net loan (charge-offs) recoveries                       |                            
|                                                        |                            
|Allowance for loan losses at end of period              |                            
|                                                        |                            
|Ratio of allowance to end of period loans               |                            
|Ratio of net charge-offs to average loans               |                            
|Ratio of allowance to end of period nonperforming loans |                            

|Nonperforming
Assets


Nonperforming
assets were $4.4 million at March 31, 2002 compared with $6.2 million at
December 31, 2001. Nonaccrual loans decreased $811,000 from $3.7 million at
December 31, 2001 to $2.9 million at March 31, 2002. This decrease is due
primarily to six lines of credits taken off nonaccrual status totaling $2.1
million partially offset by three lines added totaling $1.1 million. The new
lines have collateral value which exceeds the total debts and no loss is
anticipated. Accruing loans 90 or more days past due decreased $1.3 million,
from $1.9 million at December 31, 2001 to $583,000 at March 31, 2002. This
decrease is due primarily to collection efforts of previously past due credits.
Other real estate increased $331,000 during the same period. This increase is
primarily the result of loans that were foreclosed on during the period totaling
$390,000, net of sales of properties with a carrying value of $59,000.
Management anticipates minimal losses on the total of these new nonperforming
assets.


The
ratio of nonperforming assets to total loans and other real estate was 1.31% and
1.87% at March 31, 2002, and December 31, 2001, respectively.
19
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                        | March 31,2002 | December 31,2001
|--------------------------------------- | ------------- | ----------------
|
|Nonaccrual loans                        |               | $2,926          
|Accruing loans 90 or more days past due |               | 583             
|                                        |               |                 
|Total nonperforming loans               |               | 3,509           
|Other real estate                       |               | 893             
|                                        |               |                 
|Total nonperforming assets              |               | $4,402          
|                                        |               |                 

|Securities


Securities
totaled $88.3 million at March 31, 2002, an increase of $6.6 million from $81.7
million at December 31, 2001. At March 31, 2002, securities represented 18.7% of
total assets compared with 17.7% of total assets at December 31, 2001. The yield
on average securities for the three-months ended March 31, 2002, is 5.55%
compared with 6.89% for the same period in 2001. At March 31, 2002 securities
included $11.5 million in U.S. Government securities, $38.9 million in
mortgage-backed securities, $30.6 million in collateralized mortgage
obligations, $2.1 million in equity securities, and $5.2 million in municipal
securities. The average life of the securities portfolio at March 31, 2002 is
approximately 2.3 years, however, all of the Companys securities are
classified as available-for-sale.


Other Assets


Other
assets totaled $8.6 million at March 31, 2002 compared to $11.4 million at
December 31, 2001, a decrease of $2.8 million or 25.0%. This decrease resulted
primarily from the collection of a receivable of $3.0 million as of December 31,
2001 reflecting the settlement of the Companys lawsuit against Guaranty
Federal.


Deposits


At
March 31, 2002, demand, money market and savings deposits account for
approximately 43.3% of total deposits, while certificates of deposit make up
56.7% of total deposits. Total deposits increased $11.7 million or 3.1% from
December 31, 2001 to March 31, 2002. This increase comes primarily from an
increase in certificates of deposits of $10.4 million or 4.9% due to the
offering of competitive yields on these deposits, and an increase in savings
accounts of $941,000 or 9.1%. Noninterest-bearing demand deposits totaled $64.5
million or 16.3% of total deposits at March 31, 2002, compared with $63.7
million or 16.6% of total deposits at December 31, 2001. The average cost of
deposits, including noninterest-bearing demand deposits, is 2.98% for the three
months ended March 31, 2002 compared with 4.76% for the same period in 2001.


LIQUIDITY


The
Companys asset/liability management policy is intended to maintain
adequate liquidity for the Company. Liquidity involves the Companys
ability to raise funds to support asset growth or reduce assets to meet deposit
withdrawals and other payment obligations, to maintain reserve requirements and
otherwise to operate the Company on a continuing basis. The Companys
liquidity needs are primarily met by growth in core deposits. Although access to
purchased funds from correspondent banks is available and has been utilized on
occasion to take advantage of investment opportunities, the Company does not
continually rely on these external-funding sources. The cash and federal funds
sold position, supplemented by amortizing investments along with payments and
maturities within the loan portfolio, has historically created an adequate
liquidity position.
20
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Companys cash flows are composed of three classifications: cash flows from
operating activities, cash flows from investing activities, and cash flows from
financing activities. As summarized in the unaudited condensed consolidated
statements of cash flows, the most significant transactions which affected the
Companys level of cash and cash equivalents, cash flows, and liquidity
during the first three months of 2002 are the purchases of securities available
for sale of $19.2 million, the net increase in deposits of $11.7 million,
maturities, calls, and principal repayments of securities totaling $8.1 million,
the net increase in federal funds sold of $6.8 million, and the net increase in
loans of $6.2 million.


CAPITAL
RESOURCES


Both
the Board of Governors of the Federal Reserve System (Federal
Reserve), with respect to the Company, and the Federal Deposit Insurance
Corporation (FDIC), with respect to Guaranty Bank, have established
certain minimum risk-based capital standards that apply to bank holding
companies and federally insured banks, respectively. As of March 31, 2002, the
Companys Tier 1 risk-based capital, total risk-based capital and leverage
capital ratios are 11.12%, 12.16%, and 8.02%, respectively. As of March 31,
2002, Guaranty Banks risk-based capital ratios remain above the levels
required for Guaranty Bank to be designated as well capitalized by
the FDIC with Tier 1 risk-based capital, total risk-based capital and leverage
capital ratios of 11.01%, 12.06%, and 7.88%, respectively.


RECENT
ACCOUNTING PRONOUNCEMENTS


In
July 2001, the Financial Accounting Standards Board issued two statements 
Statement 141, Business Combinations, and SFAS 142, Goodwill and Other
Intangible Assets, which will potentially impact the Companys
accounting for its reported goodwill and other intangible assets.


SFAS
141, Business Combinations  This statement eliminates the pooling
method of accounting for business combinations. It requires that intangible
assets that meet certain criteria be reported separately from goodwill and that
negative goodwill arising from a business combination be recorded as an
extraordinary gain.


SFAS
142, Goodwill and Other Intangible Assets  This statement
eliminates the amortization of goodwill and other intangibles that are
determined to have an indefinite life. It requires, at a minimum, annual
impairment tests for goodwill and other intangible assets that are determined to
have an indefinite life.


The
standards have been applied by the Company, beginning January 1, 2002. The
Company has completed its initial impairment test, and believes no impairment
exists. In accordance with the new standards, goodwill of $2.3 million is no
longer being amortized.


SFAS
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities This statement replaces SFAS 125 and
resolves various implementation issues while carrying forward most of the
provisions of SFAS 125 without change. SFAS 140 revises standards for transfers
of financial assets by clarifying criteria and expanding guidance for
determining whether the transfers of financial assets by clarifying criteria and
expanding guidance for determining whether the transfer has relinquished control
and the transfer is therefore accounted for as a sale. SFAS 140 also adopts new
accounting requirements for pledged collateral and requires new disclosures
about securitization and pledge collateral. SFAS 140 is effective for transfers
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Management does not expect this standard to have a material effect on the
Companys consolidated financial statements.
21
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


There
have been no material changes in the market risk information disclosed in the
Companys Form 10-K for the year ended December 31, 2001. See Form 10-K,
Item 7A, Quantitative and Qualitative Disclosures about Market Risk.


PART II
 OTHER INFORMATION



ITEM 1. LEGAL
PROCEEDINGS


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



ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS


None



ITEM 3. DEFAULTS
UPON SENIOR SECURITIES


None



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


None



ITEM 5. OTHER
INFORMATION


None



ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| |  |  |  |  |  | 11 |  | Statement
regarding computation of earnings per share
| |  |  |  |  |  | -- |  | -----------------------------------------------------

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

| | No
report on Form 8-K was filed by Guaranty Bancshares, Inc., during the three months ended
March 31, 2002.
| | -----------------------------------------------------------------------------------------------------------

|22
|--

|SIGNATURES


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

| |  | GUARANTY BANCSHARES, INC.
 (Registrant)
| |  | -----------------------------------------------------

|Date:  May 10, 2002 |  | By:  /s/ Arthur B. Scharlach, Jr.        
       Arthur B. Scharlach, Jr.
       President
       (Principal Executive Officer)
|------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|Date:  May 10, 2002 |  | By:  /s/ Clifton A. Payne        
       Clifton A. Payne
       Senior Vice President and Chief
       Financial Office
       (Principal Financial Officer)
|------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23
|--

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

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

|11 | Statement regarding computationof earnings per share | Reference is hereby madeto Note 3 of Notes toConsolidated FinancialStatements on page 9hereof.
|-- | ---------------------------------------------------- | ----------------------------------------------------------------------------------------------

|24
|--