UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934



For Quarter Ended                                    Commission File No. 0-25905
June 30, 2001




                         GUARANTY FINANCIAL CORPORATION




         Virginia                                                54-1786496
(State or other Jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)



                1658 State Farm Blvd., Charlottesville, VA 22911
                    (Address of Principal Executive Offices)


                                 (804) 970-1100
                (Issuer's Telephone Number, Including Area Code)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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.
                                                                  Yes _X_ No ___

         As of August 1, 2001, 1,961,727 shares of Common Stock, par value $1.25
per share, were outstanding.


<PAGE>

                         GUARANTY FINANCIAL CORPORATION

                         QUARTERLY REPORT ON FORM 10-QSB

                                      INDEX
                                      -----
<TABLE>
<CAPTION>
Part I.  Financial Information                                                   Page No.
------------------------------                                                   --------
<S>                                                                                 <C>
Item 1      Financial Statements

            Consolidated Balance Sheets as of June 30, 2001
            (unaudited) and December 31, 2000                                        3

            Consolidated Statements of Operations for the
            Three and Six Months Ended June 30, 2001 and
            2000 (unaudited)                                                         4

            Consolidated Statements of Comprehensive Income
            for the Three and Six Months Ended June 30, 2001
            and 2000 (unaudited)                                                     5

            Consolidated Statements of Cash Flows for the
            Six Months Ended June 30, 2001 and 2000 (unaudited)                      6

            Notes to Consolidated Financial Statements                               7

Item 2      Management's Discussion and Analysis of Financial
            Condition and Results of Operations                                      9

Part II.  Other Information
---------------------------

Item 1      Legal Proceedings                                                       14

Item 2      Changes in Securities                                                   14

Item 3      Defaults upon Senior Securities                                         14

Item 4      Submission of Matters to a Vote of Security Holders                     14

Item 5      Other Information                                                       14

Item 6      Exhibits and Reports on Form 8-K                                        14

Signatures                                                                          15

</TABLE>








                                       2
<PAGE>

Part I.  Financial Information
------------------------------

Item 1   Financial Statements

                         GUARANTY FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                June 30,         December 31,
                                                                  2001               2000
                                                              ------------       ------------
ASSETS                                                        (Unaudited)
<S>                                                           <C>                <C>
Cash and cash equivalents                                     $     16,695       $     15,550
Investment securities
   Held-to-maturity                                                  1,113              1,200
   Available for sale                                               30,617             17,931
Investment in FHLB stock                                             1,550              1,550
Loans receivable, net                                              189,981            201,617
Accrued interest receivable                                          1,736              2,079
Real estate owned                                                      532              1,301
Office properties and equipment, net                                 9,630              9,877
Mortgage servicing rights                                            1,010              1,021
Other assets                                                         1,966              1,897
                                                              ------------       ------------
          Total assets                                        $    254,830       $    254,023
                                                              ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
   Interest bearing demand                                    $     23,625       $     23,585
   Non-interest bearing demand                                      20,006             16,986
   Money market accounts                                            21,526             18,894
   Savings accounts                                                 11,439             10,311
   Certificates of deposit                                         150,376            146,952
                                                              ------------       ------------
                                                                   226,972            216,728
Bonds payable                                                          749                792
Advances from Federal Home Loan Bank                                 4,000             14,000
Accrued interest payable                                               763                394
Payments by borrowers for taxes and insurance                          240                264
Other liabilities                                                      405                795
                                                              ------------       ------------
          Total liabilities                                        233,129            232,973
                                                              ------------       ------------


Convertible preferred securities                                     6,012              6,012
                                                              ------------       ------------

STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share, 500,000
   shares authorized, none issued                                        -                  -
Common stock, par value $1.25 per share,
   4,000,000 shares authorized, 1,961,727
   issued and outstanding                                            2,452              2,452
Additional paid-in capital                                           8,953              8,953
Accumulated comprehensive income (loss)                               (742)            (1,218)
Retained earnings                                                    5,026              4,851
                                                              ------------       ------------
          Total stockholders' equity                                15,689             15,038
                                                              ------------       ------------
Total liabilities and stockholders' equity                    $    254,830       $    254,023
                                                              ============       ============
</TABLE>

           See accompanying notes to consolidated financialstatements.


                                       3
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                  Three Months Ended          Six Months Ended
                                                        June 30,                  June 30,
                                                -----------------------    -----------------------
                                                   2001         2000          2001         2000
                                                ----------   ----------    ----------   ----------
                                                       (unaudited)               (unaudited)
<S>                                             <C>          <C>           <C>          <C>
Interest income
   Loans                                        $    3,959   $    5,260    $    8,557   $   10,028
   Investment securities                               610          590         1,117        1,149
                                                ----------   ----------    ----------   ----------
Total interest income                                4,569        5,850         9,674       11,177
                                                ----------   ----------    ----------   ----------

Interest expense
   Deposits                                          2,582        2,693         5,175        5,055
   Borrowings                                          171          624           507        1,281
                                                ----------   ----------    ----------   ----------
Total interest expense                               2,753        3,317         5,682        6,336
                                                ----------   ----------    ----------   ----------

Net interest income                                  1,816        2,533         3,992        4,841

Provision for loan losses                               75        1,075           225        1,205
                                                ----------   ----------    ----------   ----------

Net interest income after provision
      for loan losses                                1,741        1,458         3,767        3,636

Other income
   Loan and deposit fees and servicing income          175          201           409          365
   Gain on sale of loans and securities                295          183           470          112
   Other                                                90          117           219          238
                                                ----------   ----------    ----------   ----------
Total other income                                     560          501         1,098          715
                                                ----------   ----------    ----------   ----------

Other expenses
   Personnel                                         1,150        1,051         2,411        2,094
   Occupancy                                           423          226           762          447
   Data processing                                     255          157           509          376
   Marketing                                            89          126           117          146
   Deposit insurance premiums                           26           60            52          119
   Other                                               347          463           749          923
                                                ----------   ----------    ----------   ----------
Total other expenses                                 2,290        2,083         4,600        4,105
                                                ----------   ----------    ----------   ----------

Income (loss) before income taxes                       11         (124)          265          246
                                                ----------   ----------    ----------   ----------

Provision (benefit) for income taxes                     4          (42)           90           84
                                                ----------   ----------    ----------   ----------

Net income (loss)                               $        7   $      (82)   $      175   $      162
                                                ==========   ==========    ==========   ==========

Basic and diluted earnings (loss)
  per common share                              $     0.00   $    (0.04)   $     0.09   $     0.08
                                                ==========   ==========    ==========   ==========

</TABLE>

          See accompanying notes to consolidated financial statements.




                                       4
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                     Three Months Ended           Six Months Ended
                                                                          June 30,                    June 30,
                                                                  ------------------------    ------------------------
                                                                     2001          2000          2001          2000
                                                                  ----------    ----------    ----------    ----------
                                                                         (unaudited)                (unaudited)
<S>                                                               <C>           <C>           <C>           <C>
Net Income (loss)                                                 $        7    ($      82)   $      175    $      162
                                                                  ----------    ----------    ----------    ----------

Other comprehensive income:
   Unrealized gains (losses) on securities available for sale             81          (598)          722          (401)
                                                                  ----------    ----------    ----------    ----------

Other comprehensive income (loss), before tax                             81          (598)          722          (401)

Income tax (expense) benefit related to items of other
    comprehensive income                                                 (28)          203          (246)          136
                                                                  ----------    ----------    ----------    ----------

Other comprehensive income (loss), net of tax                             53          (395)          476          (265)
                                                                  ----------    ----------    ----------    ----------

Comprehensive Income (loss)                                       $       60    ($     477)   $      651    ($     103)
                                                                  ==========    ==========    ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       5
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                           Six Months Ended
                                                                                         2001             2000
                                                                                      ----------       ----------
                                                                                              (unaudited)
<S>                                                                                   <C>              <C>
Operating Activities
      Net Income                                                                      $      175       $      162
      Adjustments to reconcile net income to net cash provided
           (absorbed) by operating activities:
           Provision for loan losses                                                         225            1,205
           Depreciation and amortization                                                     719              361
           Deferred loan fees                                                                (75)             (31)
           Net amortization of premiums and accretion of discounts                            60               42
           Gain on sale of loans                                                            (586)            (112)
           Originations of loans held for sale                                           (36,255)         (21,736)
           Proceeds from sale of loans                                                    36,841           21,848
           Changes in:
                Accrued interest receivable                                                  343             (196)
                Other assets                                                                (151)          (1,447)
                Accrued interest payable                                                     369              496
                Prepayments by borrowers for taxes and insurance                             (24)            (122)
                Other liabilities                                                           (390)            (518)
                                                                                      ----------       ----------

Net cash provided (absorbed) by operating activities                                       1,251              (48)
                                                                                      ----------       ----------

Investing activities
      Net (increase) decrease in loans                                                    11,487           (5,006)
      Mortgage-backed securities principal repayments                                         88              328
      Purchase of securities available for sale                                          (12,000)             (81)
      Purchase of FHLB stock                                                                   -              (50)
      Proceeds from sale of real estate owned                                                757                -
      Origination of servicing rights                                                       (314)             (47)
      Purchases of office properties and equipment                                          (312)            (478)
                                                                                      ----------       ----------

Net cash absorbed by investing activities                                                   (294)          (5,334)
                                                                                      ----------       ----------

Financing activities
      Net increase in deposits                                                            10,244           27,450
      Proceeds from FHLB advances                                                         31,000           28,000
      Repayment of FHLB advances                                                         (41,000)         (30,000)
      Decrease in securities sold under agreement to repurchase                                -          (12,162)
      Repurchase of convertible preferred securities                                           -              (63)
      Dividends paid on common stock                                                           -             (235)
      Principal payments on bonds payable, including unapplied payments                      (56)             (35)
                                                                                      ----------       ----------

Net cash provided  by financing activities                                                   188           12,955
                                                                                      ----------       ----------

Increase in cash and cash equivalents                                                      1,145            7,573

Cash and cash equivalents, beginning of period                                            15,550           12,634
                                                                                      ----------       ----------

Cash and cash equivalents, end of period                                              $   16,695       $   20,207
                                                                                      ==========       ==========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       6
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            For the Three and Six Months Ended June 30, 2001 and 2000



Note 1  Principles of Presentation

The  accompanying   consolidated  financial  statements  of  Guaranty  Financial
Corporation  (the "Company")  have not been audited by independent  accountants,
except for the balance sheet at December 31, 2000.  These  financial  statements
have been prepared in accordance  with the  regulations  of the  Securities  and
Exchange Commission in regard to quarterly (interim)  reporting.  In the opinion
of management,  the financial  information  presented  reflects all adjustments,
comprised  only of normal  recurring  accruals,  that are  necessary  for a fair
presentation  of the  results for the interim  periods.  Significant  accounting
policies and accounting  principles have been  consistently  applied in both the
interim and annual  consolidated  financial  statements.  Certain  notes and the
related  information  have been condensed or omitted from the interim  financial
statements presented in this Quarterly Report on Form 10-QSB.  Therefore,  these
financial  statements  should be read in conjunction  with the Company's  Annual
Report on Form 10-KSB for the year ended  December 31, 2000. The results for the
three months and six months ended June 30, 2001, are not necessarily  indicative
of future financial results.

The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Guaranty Capital Trust I and Guaranty
Bank, and Guaranty  Bank's  wholly-owned  subsidiaries,  GMSC,  Inc.,  which was
organized as a financing  subsidiary,  and Guaranty Investments Corp., which was
organized to sell insurance annuities and other non-deposit investment products.
All material  intercompany  accounts and  transactions  have been  eliminated in
consolidation.

Amounts in the year 2000 financial  statements have been reclassified to conform
to  the  year  2001  presentation.  These  reclassifications  had no  effect  on
previously reported net income.

Note 2  Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of  assets  and  liabilities  at the date of the
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates.

Note 3  Earnings Per Share

Basic earnings per share is based on net income divided by the weighted  average
number of common  shares  outstanding  during the period.  Diluted  earnings per
share shows the dilutive effect of additional common shares issuable under stock
option  plans.  The basic and diluted  earnings  per share for the three and six
months ended June 30, 2001 and 2000, have been determined by dividing net income
by the  weighted  average  number of shares of common stock  outstanding  during
these periods,  1,961,727.  All options  outstanding were anti-dilutive for each
period presented and, therefore,  not included in the diluted earnings per share
calculations.





                                       7
<PAGE>

Note 4  Loans

The loan portfolio is composed of the following:

                                                    June 30,       December 31,
                                                      2001             2000
                                                  ------------     ------------
                                                         (In thousands)

Commercial business loans                         $     65,782     $     62,976
Mortgage loans                                          51,471           59,613
Interim real estate loans                               48,703           54,437
Consumer loans                                          26,603           26,987
                                                  ------------     ------------

Total loans                                            192,559          204,013

Less allowance for loan loss                            (2,578)          (2,396)
                                                  ------------     ------------

                                                  $    189,981     $    201,617
                                                  ============     ============

Note 5  Allowance for Loan Loss

The following is a summary of transactions in the allowance for loan loss:

                                                    June 30,       December 31,
                                                      2001             2000
                                                  ------------     ------------
                                                          (In thousands)

Balance at January 1                              $      2,396     $      1,303
Provision charged to operating expense                     225            1,505
Recoveries added to the reserve                              0               23
Loans charged off                                          (43)            (435)
                                                  ------------     ------------

Balance at the end of the period                  $      2,578     $      2,396
                                                  ============     ============








                                       8
<PAGE>

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


Changes in Financial Condition

Total assets  increased  0.3% to $254.8  million at June 30,  2001,  from $254.0
million at December 31, 2000. Cash and cash  equivalents  increased $1.1 million
or 7.4%, to $16.7  million at June 30, 2001,  from $15.6 million at December 31,
2000.  During  this  period,  the  Company's  liability  mix shifted as deposits
increased  by $10.3  million and FHLB  borrowings  decreased  by $10.0  million.
Deposits at June 30, 2001,  totaled $227.0 million compared to $216.7 million at
December 31, 2000. FHLB  borrowings  decreased to $4.0 million at June 30, 2001,
compared to $14.0 million at December 31, 2000. In addition, the Company's asset
mix shifted during the same period.  Net loans  decreased by $11.6 million while
total  investments  increased by $12.6 million.  These changes resulted from the
Company's  strategy to increase its liquidity and reduce its lending in the real
estate development and construction sectors.

The investment portfolio was comprised of the following:

                                                    June 30,       December 31,
                                                      2001             2000
                                                  ------------     ------------

Held to maturity:
    Mortgage-backed securities                    $        863     $        950
    U.S. Government obligations                            250              250

Available for sale:
    Corporate Bonds                                     18,195           17,509
    U.S. Government obligations                         12,000                -

Other:
    Federal Reserve Bank & other stocks                    422              422
    Federal Home Loan Bank stock                         1,550            1,550
                                                  ------------     ------------

                                                  $     33,280     $     20,681
                                                  ============     ============


Net loans were $190.0 million at June 30, 2001, a decrease of $11.6 million,  or
5.8%, from net loans of $201.6 million at December 31, 2000. The decrease in the
loan  portfolio was primarily due to the sale of $6.9 million of seasoned  fixed
rate  mortgage  loans and a  reduction  of $5.7  million in interim  real estate
loans.  This  decrease  was  partially  offset  by a $3.7  million  increase  in
commercial business loans.

Real estate owned  decreased to $532,000 at June 30, 2001,  from $1.3 million at
December 31, 2000.  The decline was due to the sale of a commercial  real estate
property  during the period.  The  remainder  of real estate  owned  consists of
developed  lots  located  within a  residential  subdivision.  Net  proceeds are
anticipated  to  approximate  the carrying  value at June 30, 2001.  No material
losses are anticipated on the ultimate sale of these properties.

Deposits were $227.0 million at June 30, 2001, an increase of $10.3 million,  or
4.7%,  from total  deposits of $216.7  million at December 31, 2000. The deposit
growth  was  evenly  spread  between  growth in  certificates  of  deposits  and
transaction accounts. New deposits at the Forest Lakes branch accounted for $2.4
million of the increase in deposits.




                                       9
<PAGE>

Results of Operations

Net Income

The Company  reported  net income of $7,000 for the three  months ended June 30,
2001,  compared  with a net loss of $82,000 for the three  months ended June 30,
2000.  While net income in the  current  quarter  was  negatively  impacted by a
compression  of the Company's net interest  margin,  net income was favorable to
the same quarter of the prior year due to a lower provision for loan losses. Net
income of $175,000 for the six months ended June 30, 2001, was slightly improved
over the $162,000 reported for the same period a year ago.

Net Interest Income

Net  interest  income  decreased to $1.8 million for the three months ended June
30, 2001, from the $2.5 million reported during the same period in 2000. For the
six months ended June 30, 2001,  net interest  income  decreased to $4.0 million
from $4.8  million  for the same  period  in 2000.  The  compression  in the net
interest margin was due to a decrease in the average amount of loans outstanding
and the  impact of six  prime  rate  decreases  during  the first  half of 2001.
Because of the Company's  reliance on fixed rate certificates of deposit,  prime
rate decreases lowered its yield on earning assets (especially those loans whose
interest  rates are indexed to prime)  faster than its cost of interest  bearing
deposits fell.  Certificates of deposits  totaling $38.4 million with an average
cost of 6.38% mature during the third quarter of 2001. During the fourth quarter
of 2001,  certificates of deposit totaling $33.7 million with an average cost of
6.24%  mature.  The net  interest  margin was 3.48% for the most recent  quarter
compared  with  3.95%  for the  same  period a year  ago.  The  following  table
summarizes the factors determining net interest income ($ in thousands).
<TABLE>
<CAPTION>
                                                Three Months       Three Months        Six Months         Six Months
                                                    Ended              Ended             Ended              Ended
                                                June 30, 2001      June 30, 2000     June 30, 2001      June 30, 2000
                                                -------------      -------------     -------------      -------------
<S>                                              <C>                <C>               <C>                <C>
     Average Interest Earning Assets             $ 233,052          $ 257,163         $ 232,945          $ 253,215

              Average Yield                         8.22%              9.12%             8.55%              8.85%


  Average Interest Bearing Liabilities           $ 216,690          $ 244,161         $ 217,938           $240,571

              Average Cost                          5.10%              5.45%             5.26%              5.28%


             Interest Spread                        3.12%              3.67%             3.29%              3.57%

             Interest Margin                        3.48%              3.95%             3.64%              3.83%

</TABLE>









                                       10
<PAGE>

Provision for Loan Losses

The Company provides  valuation  allowances for anticipated losses on loans when
its  management  determines  that a  significant  decline  in the  value  of the
collateral  has  occurred,  and if the value of the  collateral is less than the
amount of the unpaid  principal of the related  loan,  plus  estimated  costs of
acquisition and sale. In addition,  the Company  provides  reserves based on the
dollar  amount and type of  collateral  securing its loans,  in order to protect
against  unanticipated  losses. A loss experience  percentage is established for
each loan type and is reviewed quarterly.  Each quarter,  the loss percentage is
applied to the  portfolio,  by product type, to determine the minimum  amount of
reserves required.  The Company recorded a provision of $75,000 and $1.1 million
for the three months ended June 30, 2001 and 2000,  respectively.  The provision
recorded in the prior year was to increase the  allowance  for loan losses to an
amount that properly reflected the credit risk in the loan portfolio.

Net  charge-offs  for the three months ended June 30, 2001, were $9,000 compared
to $379,000  for the same period a year ago. At June 30,  2001,  the Company had
$1.6  million of loans that were 90 days or more past due. Of this  total,  only
$118,000 of loans were  considered  to be  non-accrual.  At June 30,  2001,  the
allowance  for loan losses was $2.6 million or 1.34% of total loans.  Management
believes  that the  allowance  for loan  losses is adequate to cover loan losses
inherent in the loan  portfolio at June 30, 2001.  Loans  classified  as special
mention, substandard,  doubtful and loss have been adequately reserved. Although
management  believes  that it uses the best  information  available to make such
determinations,  future  adjustments  to the  allowance  for loan  losses may be
necessary,  and net income could be  significantly  affected,  if  circumstances
differ substantially from assumptions used in making the initial determinations.

Non-Interest Income

Non-interest  income was  $560,000  for the three  months  ended June 30,  2001,
compared with $501,000 for the same period a year ago. Fees on deposit  accounts
increased  by 11.6% to  $204,400  for the most  recent  quarter as  compared  to
$183,200  for the  same  period a year  ago.  A higher  volume  of loan  payoffs
accelerated the  amortization of originated  mortgage loan servicing  rights and
negatively  impacted loan servicing income.  Loan servicing revenue increased by
69.8% to $73,000  for the most recent  quarter  compared to $43,000 for the same
period a year ago. However,  the amortization of loan servicing rights increased
to $155,000 in the most recent  quarter  from $25,000 for the same period of the
prior year.  The Company  shifted its operating  strategy in the past quarter to
sell the majority of its mortgage loan production on a servicing  released basis
going  forward.  Net gains on the sale of  mortgage  loans and  securities  were
$295,000 for the three  months ended June 30, 2001,  compared to $183,000 in the
prior year.  Non-interest  income was $1.1 million for the six months ended June
30, 2001, compared with $715,000 for the same period a year ago.

Non-Interest Expense

Other expenses during the three months ended June 30, 2001, were $2.3 million, a
$207,000  increase  over those  incurred  during the same quarter of 2000.  This
increase is primarily  attributable to the additional  operating expenses of the
Forest Lakes branch in Albemarle County. For the six months ended June 30, 2001,
other expenses  increased to $4.6 million  compared to $4.1 million for the same
period a year  ago.  This  increase  was  also  attributable  to the  additional
operating expenses of the Forest Lakes branch, severance expense of $165,000 for
former  employees  and a  $51,000  loss on the sale of a  foreclosed  commercial
property.




                                       11
<PAGE>

The Company currently operates eight full-service  banking offices. A new branch
opened in early February in northern Albemarle County.  The Company  consummated
the sale of its retail branch in Henrico County to Central Virginia Bank on July
13, 2001. This transaction included the assumption of approximately $7.3 million
of deposit  accounts  and the sale of consumer  and  commercial  loans  totaling
approximately  $4.4  million.  A small gain on the sale will be  recorded in the
Company's third quarter results. There are no current plans to open or close any
additional offices.

Income Tax Expense

The Company  recognized  income tax expense of $4,000 for the three months ended
June 30, 2001,  compared to an income tax benefit of $42,000 for the same period
in 2000. The Company recognized income tax expense of $90,000 for the six months
ended June 30, 2001, compared to $84,000 for the same period in 2000. Changes in
tax expense  between  periods are  primarily a result of changes in the level of
taxable income.


Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either
through the sale of existing  assets or through the  acquisition  of  additional
funds through asset and liability  management.  The Company's primary sources of
funds are deposits,  borrowings and amortization,  prepayments and maturities of
outstanding loans and securities. While scheduled payments from the amortization
of loans and  securities are relatively  predictable  sources of funds,  deposit
flows and loan  prepayments  are greatly  influenced by general  interest rates,
economic  conditions  and  competition.  Excess  funds are invested in overnight
deposits to fund cash requirements experienced in the normal course of business.
The Company has been able to generate  sufficient  cash  through its deposits as
well as through its borrowings.

The Company uses its sources of funds  primarily to meet its on-going  operating
expenses,  to pay deposit withdrawals and to fund loan commitments.  At June 30,
2001,  total  approved loan  commitments  outstanding  were  approximately  $7.0
million.  At the same  date,  commitments  under  unused  lines of  credit  were
approximately $41.8 million.  Certificates of deposit scheduled to mature in one
year or less at June 30, 2001, were $126.7 million.  Management  believes that a
significant  portion of maturing deposits will remain with the Company. If these
certificates  of deposit do not remain  with the  Company,  it will have to seek
other sources of funding that may be at higher rates or reduce assets.

At June 30,  2001,  regulatory  capital  was in excess of  amounts  required  by
Federal Reserve  regulations to be considered  well  capitalized as shown in the
following table:
<TABLE>
<CAPTION>
                                       Actual        Actual          Amount         Percent          Excess
                                       Amount      Percentage       Required        Required         Amount
                                 --------------  --------------  --------------  --------------  --------------
<S>                                <C>                 <C>          <C>                  <C>        <C>
Leverage Ratio                     $  21,808            8.62%       $  10,134            4.00%      $  11,674

Tier 1 Risk Based Capital             21,808           10.59%           8,240            4.00%         13,568

Total Risk Based Capital              24,919           12.10%          16,640            8.00%          8,279

</TABLE>





                                       12
<PAGE>

Regulatory Issues

In October 2000,  the Company and it subsidiary,  Guaranty Bank,  entered into a
written  agreement  with the Federal  Reserve  Bank of Richmond  ("FRB") and the
Bureau of Financial  Institutions of the  Commonwealth of Virginia  ("BFI") with
respect to various  operating  policies and  procedures.  Various bank operating
policies including asset/liability management,  liquidity, risk management, loan
administration  and capital  adequacy  have been  rewritten and approved by bank
regulators.  The Company is restricted from paying future dividends or incurring
any debt at the parent  company  level  without prior  regulatory  approval.  In
addition,  Guaranty Bank is prohibited from paying intercompany dividends to the
Company without prior regulatory  approval.  Absent this intercompany  dividend,
the Company does not have  sufficient  resources to make the payments due on its
outstanding subordinated debt securities.

The  Company  and  Guaranty  Bank  have  requested  regulatory  approval  for an
intercompany  dividend in an amount  sufficient  to make the September 15, 2001,
payment due on its subordinated debt securities.  While the FRB and the BFI have
approved  all prior  quarterly  dividend  payment  requests  since  the  written
agreement  was executed,  no  assurances  can be given that this request will be
approved.


Forward Looking Statements

Certain  statements  in  this  quarterly  report  on  Form  10-QSB  may  include
"forward-looking statements" 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. These forward-looking statements are generally identified by the use
of  words  such  as  "believe",  "expect",  "anticipate",  "should",  "planned",
"estimated",  and  "potential".  These  statements  are  based on the  Company's
current  expectations.  A variety of factors  could cause the  Company's  actual
results to differ materially from the anticipated  results or other expectations
expressed in such forward-looking  statements.  The risks and uncertainties that
may  affect  the  operations,  performance,  development,  and  results  of  the
Company's  business  include  interest  rate  movements,  competition  from both
financial  and  non-financial  institutions,   the  timing  and  occurrence  (or
nonoccurrence)  of transactions  and events that may be subject to circumstances
beyond the Company's control, and general economic conditions.














                                       13
<PAGE>

Part II.  Other Information
---------------------------

Item 1      Legal Proceedings
                   Not Applicable

Item 2      Changes in Securities
                   Not Applicable

Item 3      Defaults Upon Senior Securities
                   Not Applicable

Item 4      Submission of Matters to a Vote of Security Holders

         On May 24, 2001, the Company's  Annual Meeting of Shareholders was held
to elect two  directors  to serve on its Board of  Directors  for terms of three
years each. The results of the votes were as follows:

                                                         For           Withheld
            For Terms Expiring in 2004                   ---           --------
            --------------------------

            Henry J. Browne                           1,496,030        176,232
            Oscar W. Smith, Jr.                       1,496,030        176,232


Item 5      Other Information
                   Not Applicable

Item 6      Exhibits and Reports on 8-K

            (a)  Exhibits

                     10.1   Employment  Agreement,  dated as of May 10, 2001, by
                            and  between  Guaranty  Financial   Corporation  and
                            William E. Doyle, Jr.

                     10.2   Severance and Release  Agreement,  dated as of March
                            19,  2001,   by  and  between   Guaranty   Financial
                            Corporation and Thomas P. Baker.

            (b)  Reports on Form 8-K - None













                                       14
<PAGE>

                                   SIGNATURES

         In accordance with the  requirements of the Securities  Exchange Act of
1934, as amended,  the registrant  caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                       GUARANTY FINANCIAL CORPORATION



Date:  August 13, 2001                 By:       /s/ William E. Doyle, Jr.
                                           -------------------------------------
                                           William E. Doyle, Jr.
                                           President and Chief Executive Officer



Date:  August 13, 2001                 By:          /s/ Thomas F. Crump
                                           -------------------------------------
                                           Thomas F. Crump
                                           Senior Vice President and
                                              Chief Financial Officer

















                                       15

<PAGE>


                                  EXHIBIT INDEX

Exhibit
  No.             Document
  ---             --------

  10.1            Employment Agreement, dated as of May 10, 2001, by and between
                  Guaranty Financial Corporation and William E. Doyle, Jr.

  10.2            Severance and Release  Agreement,  dated as of March 19, 2001,
                  by and between  Guaranty  Financial  Corporation and Thomas P.
                  Baker.