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
September 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)


                                 (434) 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 November 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 September 30, 2001
              (unaudited) and December 31, 2000                                                  3

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

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

              Consolidated Statements of Cash Flows for the
              Nine Months Ended September 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                                               10

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

Item 1        Legal Proceedings                                                                 16

Item 2        Changes in Securities                                                             16

Item 3        Defaults upon Senior Securities                                                   16

Item 4        Submission of Matters to a Vote of Security Holders                               16

Item 5        Other Information                                                                 16

Item 6        Exhibits and Reports on Form 8-K                                                  16

Signatures                                                                                      17

</TABLE>




                                       2
<PAGE>

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

Item 1   Financial Statements

                         GUARANTY FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                     September 30,     December 31,
                                                         2001              2000
                                                     ------------      ------------
                                                     (Unaudited)
<S>                                                  <C>               <C>
ASSETS
Cash and cash equivalents                            $     23,858      $     15,550
Investment securities
   Held-to-maturity                                         1,004             1,200
   Available for sale                                      20,736            17,509
Investment in FHLB and other stocks                         1,972             1,972
Loans receivable, net                                     173,627           201,617
Accrued interest receivable                                 1,457             2,079
Real estate owned                                             837             1,301
Office properties and equipment, net                        8,321             9,707
Mortgage servicing rights                                       -             1,021
Other assets                                                2,687             2,067
                                                     ------------      ------------
          Total assets                               $    234,499      $    254,023
                                                     ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
-----------
Deposits:
   Interest bearing demand                           $     24,808      $     23,585
   Non-interest bearing demand                             19,673            16,986
   Money market accounts                                   21,950            18,894
   Savings accounts                                        12,202            10,311
   Certificates of deposit                                132,121           146,952
                                                     ------------      ------------
                                                          210,754           216,728
Bonds payable                                                 734               792
Advances from Federal Home Loan Bank                            -            14,000
Accrued interest payable                                      109               394
Payments by borrowers for taxes and insurance                 583               264
Other liabilities                                             426               795
                                                     ------------      ------------
          Total liabilities                               212,606           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 loss                               (589)           (1,218)
Retained earnings                                           5,065             4,851
                                                     ------------      ------------
          Total stockholders' equity                       15,881            15,038
                                                     ------------      ------------
Total liabilities and stockholders' equity           $    234,499      $    254,023
                                                     ============      ============
</TABLE>


           See accompanying notes to consolidated financial statements


                                       3
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                   Three Months Ended         Nine Months Ended
                                                      September 30,             September 30,
                                                  ---------------------     ---------------------
                                                    2001         2000         2001         2000
                                                  --------     --------     --------     --------
                                                       (unaudited)               (unaudited)
<S>                                               <C>          <C>          <C>          <C>
Interest income
   Loans                                          $  3,629     $  5,130     $ 12,186     $ 15,158
   Investment securities                               575          572        1,692        1,721
                                                  --------     --------     --------     --------
Total interest income                                4,204        5,702       13,878       16,879
                                                  --------     --------     --------     --------

Interest expense
   Deposits                                          2,167        2,729        7,342        7,783
   Borrowings                                          161          435          668        1,717
                                                  --------     --------     --------     --------
Total interest expense                               2,328        3,164        8,010        9,500
                                                  --------     --------     --------     --------

Net interest income                                  1,876        2,538        5,868        7,379

Provision for loan losses                               75          150          300        1,355
                                                  --------     --------     --------     --------

Net interest income after provision
      for loan losses                                1,801        2,388        5,568        6,024

Other income
   Loan and deposit fees and servicing income          137          197          546          562
   Gain on sale of loans and securities                293           46          763          158
   Gain on sale of branch                               79            -           79            -
   Other                                                74          157          293          395
                                                  --------     --------     --------     --------
Total other income                                     583          400        1,681        1,115
                                                  --------     --------     --------     --------

Other expenses
   Personnel                                         1,226        1,046        3,637        3,140
   Occupancy                                           336          226        1,098          673
   Data processing                                     273          199          782          574
   Marketing                                            47           86          164          232
   Deposit insurance premiums                           27           65           79          184
   Other                                               416          512        1,165        1,436
                                                  --------     --------     --------     --------
Total other expenses                                 2,325        2,134        6,925        6,239
                                                  --------     --------     --------     --------

Income before income taxes                              59          654          324          900
                                                  --------     --------     --------     --------

Provision for income taxes                              20          222          110          306
                                                  --------     --------     --------     --------

Net income                                        $     39     $    432     $    214     $    594
                                                  ========     ========     ========     ========

Basic and diluted earnings
  per common share                                $   0.02     $   0.22     $   0.11     $   0.30
                                                  --------     --------     --------     --------
</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            Nine Months Ended
                                                                              September 30,                 September 30,
                                                                        -------------------------     -------------------------
                                                                           2001           2000           2001           2000
                                                                        ----------     ----------     ----------     ----------
                                                                                (unaudited)                     (unaudited)
<S>                                                                     <C>            <C>            <C>            <C>
Net income                                                              $       39     $      432     $      214     $      594
                                                                        ----------     ----------     ----------     ----------

Other comprehensive income:
   Unrealized gains (losses) on securities available for sale                  232            332            953            (70)
                                                                        ----------     ----------     ----------     ----------

Other comprehensive income (loss), before tax                                  232            332            953            (70)

Income tax (expense) benefit related to items of other
    comprehensive income                                                       (79)          (113)          (324)            24
                                                                        ----------     ----------     ----------     ----------

Other comprehensive income (loss), net of tax                                  153            219            629            (46)
                                                                        ----------     ----------     ----------     ----------

Comprehensive income                                                    $      192     $      651     $      843     $      548
                                                                        ==========     ==========     ==========     ==========

</TABLE>

          See accompanying notes to consolidated financial statements.




                                       5
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                               2001             2000
                                                                           ------------     ------------
                                                                                    (unaudited)
<S>                                                                        <C>              <C>
Operating Activities
      Net Income                                                           $        214     $        594
      Adjustments to reconcile net income to net cash provided
           (absorbed) by operating activities:
           Provision for loan losses                                                300            1,355
           Depreciation and amortization                                          1,105              632
           Deferred loan fees                                                       (91)              68
           Net amortization of premiums and accretion of discounts                  131               45
           Gain on sale of loans                                                   (916)            (234)
           Originations of loans held for sale                                  (48,905)         (32,444)
           Proceeds from sale of loans                                           49,821           32,200
           Loss (gain) on sale of securities available for sale                      (3)              76
           Gain on sale of Branch                                                   (79)               -
           Changes in:
               Accrued interest receivable                                          622             (396)
               Other assets                                                        (961)            (563)
               Accrued interest payable                                            (285)            (184)
               Prepayments by borrowers for taxes and insurance                     319               68
               Other liabilities                                                   (370)            (244)
                                                                           ------------     ------------

Net cash provided by operating activities                                           902              973
                                                                           ------------     ------------

Investing activities
      Net decrease in loans                                                      23,074              444
      Mortgage-backed securities principal repayments                               196              134
      Purchase of securities available for sale                                 (18,000)               -
      Proceeds from sale of securities available for sale                        15,682            4,722
      Purchase of FHLB stock                                                          -              (50)
      Proceeds from sale of real estate owned                                       757                -
      Net increase (decrease) in cash from sale of branch:
           Proceeds from sale of loans                                            4,359                -
           Sale of Deposits                                                      (7,144)               -
           Proceeds from sale of office properties, equipment, and land           1,058                -
      Purchase of other real estate                                                   -             (407)
      Origination of servicing rights                                              (331)            (473)
      Purchase of servicing rights                                                    -              (47)
      Proceeds from sale of servicing rights                                        826                -
      Proceeds from sale of office properties and equipment                          33                -
      Purchase of office properties and equipment                                  (353)            (363)
                                                                           ------------     ------------

Net cash provided by investing activities                                        20,157            3,960
                                                                           ------------     ------------

Financing activities
      Net increase in deposits                                                    1,336           13,735
      Proceeds from FHLB advances                                                36,000           43,000
      Repayment of FHLB advances                                                (50,000)         (43,000)
      Decrease in securities sold under agreement to repurchase                       -          (16,650)
      Repurchase of convertible preferred securities                                  -              (53)
      Dividends paid on common stock                                                  -             (235)
      Principal payments on bonds payable, including unapplied payments             (87)             (48)
                                                                           ------------     ------------

Net cash absorbed by financing activities                                       (12,751)          (3,251)
                                                                           ------------     ------------

Increase in cash and cash equivalents                                             8,308            1,682

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

Cash and cash equivalents, end of period                                   $     23,858     $     14,316
                                                                           ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         For the Three and Nine Months Ended September 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 nine months ended  September  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 Corporation, which
was organized to sell 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 nine
months ended  September 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 comprised of the following:

                                    September 30,       December 31,
                                         2001               2000
                                    --------------     --------------

                                              (In thousands)

Commercial business loans           $       63,486     $       62,976
Mortgage loans                              47,574             59,613
Interim real estate loans                   40,630             54,437
Consumer loans                              24,502             26,987
                                    --------------     --------------

Total loans                                176,192            204,013

Less allowance for loan loss                (2,565)            (2,396)
                                    --------------     --------------

                                    $      173,627     $      201,617
                                    ==============     ==============



Note 5  Allowance for Loan Loss

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

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

Balance at January 1                          $        2,396     $        1,303
Provision charged to operating expense                   300              1,505
Recoveries added to the reserve                            8                 23
Loans charged off                                       (139)              (435)
                                              --------------     --------------

Balance at the end of the period              $        2,565     $        2,396
                                              ==============     ==============












                                       8
<PAGE>

Note 6  Investments

The investment portfolio was comprised of the following:

                                                    September 30,   December 31,
                                                        2001            2000
                                                    ------------    ------------
                                                            (In thousands)
Held to maturity:
    Mortgage-backed securities                      $        754    $        950
    U.S. Government obligations                              250             250

Available for sale:
    Corporate Bonds                                       12,736          17,509
    U.S. Government obligations                            8,000               -

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

                                                    $     23,712    $     20,681
                                                    ============    ============












                                       9
<PAGE>

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


Guaranty Financial  Corporation ("the Company") is a single bank holding company
organized  under  Virginia  law that  provides  financial  services  through its
primary  operating  subsidiary,  Guaranty Bank.  Guaranty Bank is a full service
commercial bank offering a wide range of banking and related financial services,
including  time  and  demand  deposits,  as  well  as  commercial,   industrial,
residential  construction,  residential  and  commercial  mortgage  and consumer
loans. Guaranty Investments Corporation, a subsidiary of Guaranty Bank, provides
a full range of investment services and, through a contractual  arrangement with
a third party, sells mutual funds, stocks, bonds and annuities.

Management's  discussion  and  analysis  is  presented  to  aid  the  reader  in
understanding  and evaluating the financial  condition and results of operations
of the Company. The analysis focuses on the consolidated  financial  statements,
the footnotes thereto,  and the other financial data herein.  Highlighted in the
discussion  are  material   changes  from  prior   reporting   periods  and  any
identifiable trends affecting the Company.  Amounts are rounded for presentation
purposes,  while the  percentages  presented  are  computed  based on  unrounded
amounts.

Analysis of Financial Condition

Total assets decreased 7.7% to $234.5 million at September 30, 2001, from $254.0
million at December 31, 2000. Cash and cash  equivalents  increased $8.3 million
or 53.4%, to $23.9 million at September 30, 2001, from $15.6 million at December
31, 2000.  Net loans were $173.6  million at  September  30, 2001, a decrease of
$28.0 million,  or 13.9%, from net loans of $201.6 million at December 31, 2000.
The change in the loan  portfolio  was  primarily due to a net decrease in $12.0
million of mortgage loans and $13.8 million in interim real estate loans.  Total
deposits at September 30, 2001,  were $210.8 million  compared to $216.7 million
at December 31, 2000. No FHLB borrowings were outstanding at September 30, 2001,
compared to $14.0 million at December 31, 2000.  Total  stockholders'  equity at
September 30, 2001, increased by $900,000 to $15.9 million from $15.0 million at
December 31, 2000.

During the third quarter of 2001,  the Company sold its retail banking branch in
western  Henrico County in order to concentrate  its management and resources on
its core markets of Charlottesville and Harrisonburg.  In addition,  the Company
changed its  residential  mortgage loan sales  process in the second  quarter of
2001 to sell all newly  originated  fixed  rate  mortgage  loans on a  servicing
released basis. To complement this change in business strategy, the Company sold
its  residential  mortgage  loan  servicing  for others  portfolio  in the third
quarter of 2001.

The factors causing the  fluctuations in the major balance sheet  categories are
further discussed in the following sections.

Loans

During the first nine months of 2001, the Company has  experienced  limited loan
demand for  products  other  than  residential  mortgage  loans.  Influenced  by
declining  interest rates,  originations of residential  mortgage loans held for
sale  increased to $48.9  million for the nine months ended  September 30, 2001,
from $32.4  million for the same period a year ago.  For the same time  periods,
sales of  residential  mortgage  loans  increased  to $49.8  million  from $32.2
million.  The Company has reduced  interim real estate loans by $13.8 million in
2001 to reduce a higher than desired  concentration  of real estate  development
and construction loans in its loan portfolio. The Company also sold $4.4 million
in commercial  and consumer  loans in connection  with the third quarter sale of
the Henrico County retail banking branch.



                                       10
<PAGE>

Investments

Total  investments  increased by 14.7% to $23.7  million at September  30, 2001,
compared to $20.7 million at December 31, 2000.  The majority of this change was
due to an increase of $3.2 million in investments available for sale. The mix of
these investments  changed as investments in medium term U.S.  Government agency
securities increased by $8.0 million and sales of long term corporate securities
totaled $3.9 million during the same periods.  This restructuring was undertaken
in order to improve the liquidity of the portfolio.

Real Estate Owned

Real estate owned decreased to $837,000 at September 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 and one  substantially  completed  residential  property.  No
material losses are anticipated on the ultimate sale of these properties.

Office Properties and Equipment

The Company's  investment in office  properties and equipment  decreased to $8.3
million at  September  30, 2001,  from $9.7  million at December 31, 2000.  This
decrease was primarily due to the sale of the  Company's  Henrico  County retail
banking branch.

Deposits

Deposits were $210.8  million at September 30, 2001, a decrease of $6.0 million,
or 2.8%,  from total  deposits of $216.7  million at December 31, 2000.  Without
giving effect to the branch sale  transaction  in which the Company  transferred
$7.3 million in deposits to the buyer,  deposits have  increased by $1.3 million
during the first nine months of 2001.  The  transferred  deposits  included $6.7
million in certificates of deposit and $600,000 in transaction accounts.  During
2001,  the  Company  has  placed a greater  emphasis  on  attracting  lower cost
transaction  accounts which has resulted in an increase in transaction  accounts
by $9.4 million, excluding the transferred accounts.

FHLB Borrowings

Due to the Company's reduction in total assets and increased  liquidity,  it has
been able to eliminate all  borrowings  from the Federal Home Loan Bank ("FHLB")
at September  30, 2001.  At December 31, 2000,  the Company had $14.0 million in
borrowings  outstanding  with the FHLB.  At September  30, 2001,  the  Company's
available but unused borrowings with the FHLB were approximately $25.6 million.

Stockholders' Equity

The Company's  stockholders'  equity at September 30, 2001, increased by 5.6% to
$15.9 million from $15.0 million at December 31, 2000.  The primary  factors for
the  increase  were a  reduction  in the mark to market loss  adjustment  of the
Company's available for sale investments of approximately  $600,000 and the nine
month net income of $214,000.



                                       11
<PAGE>

Results of Operations

Net Income

The Company reported net income of $39,000 ($.02 per share) for the three months
ended  September  30,  2001,  compared  with a net income of $432,000  ($.22 per
share) for the three months ended  September 30, 2000. The primary factor in the
net income decline is the  compression of the Company's net interest  margin due
to the yield on earning assets falling faster than the cost of interest  bearing
liabilities.  Interest  rates on loans  tied to the prime  rate and  short  term
investments  generally  decrease  immediately  while the cost of certificates of
deposit can only be adjusted  when they  mature.  Net income for the nine months
ended September 30, 2001 was $214,000 ($.11 per share) as compared with $594,000
($.30 per share) for the same period in the prior year.

Net Interest Income

Net  interest  income  decreased  to $1.9  million  for the three  months  ended
September  30, 2001,  from the $2.5 million  reported  during the same period in
2000.  For the nine  months  ended  September  30,  2001,  net  interest  income
decreased to $5.9  million  from $7.4  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 eight prime rate decreases during
the first nine months 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  $31.5  million with an average cost of 6.25% mature  during the fourth
quarter of 2001.  During  the first  quarter  of 2002,  certificates  of deposit
totaling $33.3 million with an average cost of 5.32% mature. Current rates being
offered  on  similar  certificates  of  deposit  with a one  year  maturity  are
approximately  2.50%.  The net  interest  margin  was 3.39% for the most  recent
quarter  compared with 4.19% for the same period a year ago. The following table
summarizes the factors determining net interest income (dollars in thousands).
<TABLE>
<CAPTION>
                                       Three Months     Three Months      Nine Months      Nine Months
                                          Ended             Ended            Ended            Ended
                                       September 30,    September 30,    September 30,    September 30,
                                       --------------   --------------   --------------   --------------
                                            2001             2000               2001           2000
                                            ----             ----               ----           ----
<S>                                     <C>              <C>              <C>              <C>
   Average Interest Earning Assets      $    219,909     $    240,500     $    228,552     $    248,945

            Average Yield                    7.58%            9.41%            8.24%            9.03%


Average Interest Bearing Liabilities    $    201,203     $    228,086     $    212,298     $    236,377

            Average Cost                     4.59%            5.51%            5.04%            5.35%


           Interest Spread                   3.00%            3.90%            3.20%            3.68%

           Interest Margin                   3.39%            4.19%            3.55%            3.95%

</TABLE>






                                       12
<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 $150,000 for
the three months ended September 30, 2001 and 2000,  respectively.  The decrease
in the  provision for the current year is correlated to the decrease in the size
of the loan portfolio and an increased level of the allowance for loan losses.

Net  charge-offs  for the three months ended  September  30, 2001,  were $87,000
compared to $22,000 for the same  period a year ago.  For the nine months  ended
September 30, 2001, net  charge-offs  were $131,000,  compared with $401,000 for
the same  period of the prior  year.  At  September  30,  2001,  the Company had
$127,000 of loans that were 90 days or more past due. Of this total,  $84,000 of
loans were  considered to be  non-accrual.  At September 30, 2001, the allowance
for loan losses was $2.6  million or 1.46% of total loans.  Management  believes
that the allowance for loan losses is adequate to cover loan losses  inherent in
the loan portfolio at September 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 $583,000 for the three months ended September 30, 2001,
compared with $400,000 for the same period a year ago. Fees on deposit  accounts
decreased  by 1.3% to  $184,000  for the most  recent  quarter  as  compared  to
$186,400 for the same period a year ago. Net gains on the sale of mortgage loans
and  securities  were  $293,000 for the three months ended  September  30, 2001,
compared to $46,000 in the prior year.  Both the current  quarterly  results and
the year to date  results  were  negatively  impacted  by  expenses  related  to
mortgage loan  servicing  which  occurred prior to the sale of the mortgage loan
servicing   portfolio.   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 12.0% to
$65,900  for the most recent  quarter  compared to $58,900 for the same period a
year ago.  However,  the  amortization  of loan  servicing  rights  increased to
$162,000  in the most  recent  quarter  from  $47,700 for the same period of the
prior year. During the third quarter of 2001, the Company sold its mortgage loan
servicing  portfolio for  approximately  $876,000,  which  approximated the book
value of the portfolio.  This sale eliminates the volatility in future earnings,
which was related to the potential  impairment  of the mortgage  loan  servicing
rights intangible asset.







                                       13
<PAGE>

Non-Interest Expense

Operating expenses were $2.3 million for the quarter ended September 30, 2001, a
$191,000  increase over the amount  reported for the same period last year.  The
increase is primarily  attributable to the additional  operating expenses of the
Forest Lakes branch in Albemarle  County and  severance  expenses.  For the nine
months  ended  September  30,  2001,  other  expenses  increased to $6.9 million
compared to $6.2 million for the same period a year ago.  This increase was also
attributable  to the additional  operating  expenses of the Forest Lakes branch,
severance  expenses related to management changes and a $51,000 loss on the sale
of a foreclosed commercial property.

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.  An immaterial gain on the sale was 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 $20,000 for the three months ended
September  30,  2001,  compared to income tax  expense of $222,000  for the same
period in 2000.  The Company  recognized  income tax expense of $110,000 for the
nine months ended  September 30, 2001,  compared to $306,000 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 September
30, 2001, total approved loan commitments  outstanding were  approximately  $8.6
million.  At the same  date,  commitments  under  unused  lines of  credit  were
approximately $50.0 million.  Certificates of deposit scheduled to mature in one
year or less at September 30, 2001,  were $117.0  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.











                                       14
<PAGE>


The reduction in total assets has positively  impacted the Company's  regulatory
capital  ratios.  At  September  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 (dollars in thousands):
<TABLE>
<CAPTION>
                               Actual         Actual        Amount        Percent        Excess
                               Amount       Percentage     Required       Required       Amount
                             ----------     ----------    ----------     ----------    ----------
<S>                          <C>                <C>       <C>                 <C>      <C>
Leverage Ratio               $   21,960          9.19%    $    9,557          4.00%    $   12,403

Tier 1 Risk Based Capital        21,960         11.96%         7,400          4.00%        14,560

Total Risk Based Capital         24,778         13.50%        14,800          8.00%         9,978

</TABLE>

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  December 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.







                                       15
<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
                      Not Applicable

Item 5       Other Information
                      Not Applicable

Item 6       Exhibits and Reports on Form 8-K

             (a)  Exhibits - None

             (b)  Reports on Form 8-K - None


















                                       16
<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:  November 14, 2001               By:      /s/ William E. Doyle, Jr.
                                           -------------------------------------
                                           William E. Doyle, Jr.
                                           President and Chief Executive Officer



Date:  November 14, 2001               By:        /s/ Thomas F. Crump
                                           -------------------------------------
                                           Thomas F. Crump
                                           Senior Vice President and
                                             Chief Financial Officer















                                       17