UNITED STATES
                       SECURITIES AND EXCHANGE COMMISION
                             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. 33-76064
March 31, 1998




                         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 Office)


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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 May 18, 1998,  1,501,383 shares of the Registrant's common stock,
par value $1.25 per share, were outstanding.


<PAGE>



                         GUARANTY FINANCIAL CORPORATION

                        QUARTERLY REPORT ON FORM 10-QSB

                                     INDEX
<TABLE>
<CAPTION>
<S>                                                                                           <C>
Part I.   Financial Information                                                               Page No.

Item 1    Financial Statements

          Consolidated Balance Sheets as of
          March 31, 1998 and December 31, 1997 (unaudited)                                       3

          Consolidated Statements of Operations for the
          Three Months Ended March 31, 1998 and 1997 (unaudited)                                 4

          Consolidated Statements of Cash Flows for the
          Three Months Ended March 31, 1998 and 1997 (unaudited)                                 5

          Notes to Consolidated Financial Statements  (unaudited)                                7

Item 2    Management's Discussion and Analysis of Financial
          Condition and Results of Operations                                                    8

Part II.  Other Information

Item 1    Legal Proceedings                                                                     12

Item 2    Changes in Securities                                                                 12

Item 3    Defaults upon Senior Securities                                                       12

Item 4    Submission of Matters to a Vote of Security Holders                                   12

Item 5    Other Information                                                                     12

Item 6    Exhibits and Reports on Form 8-K                                                      12

          Signatures                                                                            13

</TABLE>



                                       2
<PAGE>


                         GUARANTY FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                         March 31,      December, 31
                                                                           1998             1997
                                                                       ------------     ------------
                                                                       (Unaudited)
<S>                                                                    <C>                <C>   
ASSETS                                                                 
Cash and cash equivalents                                                  $15,583            $5,917
Investment securities
   Held-to-maturity                                                          2,750             2,846
   Available for sale                                                       13,177            11,531
   Trading                                                                       -             1,032
Investment in FHLB stock, at cost                                              860               860
Investment in FRB stock, at cost                                                72                72
Loans receivable, net                                                       99,129            99,675
Accrued interest receivable                                                    880               844
Real estate owned                                                               68                65
Office properties and equipment, net                                         6,369             6,000
Other assets                                                                 2,129             1,866
                                                                       -----------       -----------
          Total assets                                                    $141,017          $130,708
                                                                       ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
   NOW/MMDA accounts                                                       $19,145           $16,037
   Savings accounts                                                          8,067             6,433
   Certificates of deposit                                                  96,367            90,477
                                                                       -----------       -----------
                                                                           123,579           112,947
Bonds payable                                                                2,331             2,360
Securities sold under agreement to repurchase                                    -             2,989
Accrued interest payable                                                        55                58
Payments by borrowers for taxes and insurance                                  241                81
Other liabilities                                                            2,915               412
                                                                       -----------       -----------
          Total liabilities                                                129,121           118,847
                                                                       -----------       -----------

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, 1,501,383
   issued and outstanding                                                    1,877             1,877
Additional paid-in capital                                                   5,725             5,725
Net unrealized gain (loss) on securities
    available for sale                                                       (117)                51
Retained earnings                                                            4,411             4,208
                                                                       -----------       -----------
          Total stockholders' equity                                        11,896            11,861
                                                                       -----------       -----------
Total liabilities and stockholders' equity                                $141,017          $130,708
                                                                       ===========       ===========
</TABLE>



                                       3
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In Thousands)

                                                            Three Months Ended
                                                                 March 31,
                                                         -----------------------
                                                            1998         1997   
                                                         ----------   ----------
                                                               (unaudited)
Interest income
   Loans                                                   $ 2,154      $ 1,714
   Mortgage-backed securities                                   57          347
   Other securities                                            297          107
   Trading account assets                                        -           18
                                                         ---------    ---------
Total interest income                                        2,508        2,186
                                                         ---------    ---------

Interest expense
   Deposits                                                  1,430        1,047
   Borrowings                                                   74          361
                                                         ---------    ---------
Total interest expense                                       1,504        1,408
                                                         ---------    ---------

Net interest income                                          1,004          778
                                                                               
Provision for loan losses                                       42            -
                                                         ---------    ---------
                                                                               
Net interest income after provision                                            
      for loan losses                                          962          778
                                                                               
Other income                                                                   
   Loan fees and servicing income                               96          159
   Gain on sale of loans and securities                        395            5
   Service fees on checking                                     65           26
   Other                                                        57           32
                                                         ---------    ---------
Total other income                                             613          222
                                                         ---------    ---------
                                                                               
Other expenses                                                                 
   Personnel                                                   481          327
   Occupancy                                                   249           91
   Data processing                                             113           95
   Deposit insurance premiums                                   11           28
   Other                                                       319          249
                                                         ---------    ---------
Total other expenses                                         1,173          790
                                                         ---------    ---------
                                                                               
Income (loss) before income taxes                              402          210
                                                         ---------    ---------
                                                                               
Provision (loss) for income taxes                              153           77
                                                         ---------    ---------
                                                                               
Net income (loss)                                            $ 249        $ 133
                                                         =========    =========
                                                                            
Basic and diluted  earnings per common share                $ 0.17      $  0.14
                                                         =========    =========




                                       4
<PAGE>


                         GUARANTY FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION> 
                                                                                           Three Months Ended
                                                                                                March 31,
                                                                                       ----------------------------
                                                                                           1998            1997
                                                                                       ------------    ------------
                                                                                                (unaudited)  
<S>                                                                                    <C>             <C>         
Operating Activities
      Net Income                                                                             $ 249           $ 133
      Adjustments to reconcile net income to net cash provided
           (absorbed) by operating activities:
           Provision for loan losses                                                            42               -
           Depreciation and amortization                                                       110              75
           Amortization of deferred loan fees                                                   27              15
           Net amortization of premiums and accretion of discounts                              96               3
           Loss (gain) on sale of loans                                                      (233)            (32)
           Originations of loans held for sale                                            (13,420)         (1,509)
           Proceeds from sale of loans                                                      13,653           1,519
           Loss (gain) on sale of securities available for sale                              (188)               -
           (Gain) loss on trading securities                                                  (23)              26
           Purchase of trading securities                                                   29,460        (11,317)
           Sales of trading securities                                                    (28,405)          11,342
           (Gain) loss on sale of real estate owned                                              -               1
           Other, net                                                                            -               3
           Changes in:
                Accrued interest receivable                                                   (36)            (64)
                Other assets                                                                 (263)            (51)
                Accrued interest payable                                                       (3)             (5)
                Prepayments by borrowers for taxes and insurance                               160             193
                Other liabilities                                                            2,503           (401)
                                                                                       -----------     -----------

Net cash provided (absorbed) by operating activities                                         3,729            (69)
                                                                                       -----------     -----------

Investing activities
      Net (increase) decrease in loans                                                         501         (3,342)
      Mortgage-backed securities principal repayments                                           91             403
      Proceeds from sale of securities available for sale                                   17,507           6,071
      Purchase of securities available for sale                                           (19,133)        (11,593)
      Redemption of FHLB stock                                                                   -             485
      Purchases of office property, plant and equipment                                      (479)           (230)
                                                                                       -----------     -----------

Net cash absorbed by investing activities                                                  (1,513)         (8,206)
                                                                                       -----------     -----------




                                       5
<PAGE>

                         GUARANTY FINANCIAL CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

                                                                                            Three Months Ended
                                                                                                March 31,
                                                                                       ----------------------------
                                                                                          1997            1996
                                                                                       ------------    ------------
                                                                                               (unaudited)
Financing activities
      Net increase (decrease) in deposits                                                   10,632           9,642
      Repayment of FHLB advances                                                                 -         (2,500)
      Decrease in securities sold under agreement to repurchase                            (2,989)         (3,541)
      Proceeds from the issuance of common stock, net                                            -           4,472
      Dividends paid                                                                          (46)               -
      Principal payments on bonds payable, including unapplied payments                      (147)           (508)
                                                                                       ------------    ------------

Net cash provided by financing activities                                                    7,450           7,565
                                                                                       ------------    ------------

Increase (decrease) in cash and cash equivalents                                             9,666            (710)
                                                                                       ------------    ------------

Cash and cash equivalents, beginning of period                                               5,917           6,076
                                                                                       ------------    ------------

Cash and cash equivalents, end of period                                                  $ 15,583         $ 5,366
                                                                                       ============    ============

Supplemental Disclosure of Non-cash Investing Activities:

On January 1, 1997,  securities  with a carrying  value of  approximately  $15.8
million were  transferred  from the trading  account to the  available  for sale
account.



</TABLE>


                                       6
<PAGE>



                         GUARANTY FINANCIAL CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
               For the Three Months ended March 31, 1998 and 1997



Note 1  Principles of Consolidation

The  accompanying  consolidated  financial  statements  include the  accounts of
Guaranty  Financial   Corporation  ("the   Corporation")  and  its  wholly-owned
subsidiaries,  Guaranty Bank ("the Bank"),  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 traditional products.
All material  intercompany  accounts and  transactions  have been  eliminated in
consolidation.

Note 2  Basis of Presentation

In the opinion of management,  the accompanying  unaudited interim  consolidated
financial  statements  contain  all  adjustments   (consisting  only  of  normal
recurring  accruals)  necessary to present  fairly the financial  position as of
March 31, 1998 and Decmber 31, 1997 and the results of operations and cash flows
for the interim periods ending March 31, 1998 and 1997. All 1998 interim amounts
are subject to year-end  audit,  and the results of  operations  for the interim
periods  is not  necessarily  indicative  of the  results  of  operations  to be
expected for the year.





                                       7
<PAGE>




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


Expansion of the Existing Branch Network

The opening of a full service  branch at Lake  Monticello in Fluvanna  County is
expected to occur in late summer 1998.  Due to customer  demand,  management  is
arranging the installation of a  temporary-mobile-bank  branch at the site while
construction is in process.  All bank regulatory approvals relating to this site
have been obtained.

During  the first  quarter  of 1998,  a letter of intent  was  issued to lease a
full-service  branch  at 1022  West Main  Street  in  Charlottesville.  This was
formerly  a branch of Central  Fidelity  Bank that was closed as a result of the
recent  Wachovia  merger and,  subject to  regulatory  approval,  will open this
summer increasing our retail network to seven branches.



Changes in Financial Condition

Total assets  increased $10.3 million,  or 7.9%, from $130.7 million at December
31, 1997 to $141.0  million at March 31, 1998 primarily as a result of cash, net
of payment of $3.0 million in securities  sold under  agreements to  repurchase,
being invested in interest  bearing cash.  Cash and cash  equivalents  increased
$9.7 million, or 163.4%, to $15.6 million at March 31, 1998 from $5.9 million at
December 31, 1997.

Investment  securities,  at March 31, 1998, increased $518 thousand, or 3.4%, to
$15.9 million from $15.4 million at December 31, 1997. This change resulted from
of a net increase of $1.6 million in investment grade corporate bonds classified
as held for sale  offset by  principal  payments  received  of $91  thousand  on
mortgage-backed securities classified as held to maturity, and a net decrease of
$1.0 million in the trading account.

Gross loans were $100.2 million at March 31, 1998 compared to $101.0 at December
31,  1997.  Net loans were $99.1  million at March 31,  1998, a decrease of $600
thousand from net loans of $99.7 million at December 31, 1997.  During the first
quarter of 1998, the corporation continued to underwrite substantially all fixed
rate residential  mortgage loans for immediate sale in the secondary market. The
primary  focus of portfolio  lending  continues to be  prime-based  construction
loans (including  builder lines of credit),  commercial real estate and business
loans and  consumer  loans which are  typically  priced 175 to 250 basis  points
above fixed-rate residential loans. The continued sale of fixed rate residential
loans  combined  with the  negative  impact the  abnormally  wet  weather had on
residential  construction  during the first  quarter of 1998,  resulted in loans
receivable remaining relatively flat. However, these strategies have resulted in
a change in the overall mix of the loan portfolio as documented in the following
table:



                                                    Percent of Gross Loans
                                               ---------------------------------
                     Loan Type                     3/31/98          12/31/97
         -----------------------------------   ---------------    --------------

         Residential real estate                    56.70%            65.40%
         Construction and land loans                18.50%            11.50%
         Commercial                                 18.30%            16.50%
         Consumer                                    6.50%             6.60%


                                                   100.00%           100.00%


At March 31, 1998, loans held for sale were  approximately  $4.0 million.  These
loans were sold in April 1998 for a gain of approximately $50 thousand.

Other real estate  owned of $68  thousand and $65 thousand at March 31, 1998 and
December 31, 1997,  respectively,  relate to the same single family  residential
property.  As of the  date of  this



                                       8
<PAGE>

filing, a contract for the sale of this property had been accepted. Net proceeds
are anticipated to approximate the carrying value at March 31, 1998. No material
losses are anticipated.

Deposits  increased by $10.6  million,  or 9.4%,  between  December 31, 1997 and
March 31, 1998. This growth was comprised of a $3.1 million increase in NOW/MMDA
accounts,  a $1.6  million  increase  in  savings  accounts  and a $5.9  million
increase in certificates of deposit. This deposit growth, all in local funds, is
a  combination  of the impact of recent  bank  mergers  on the local  market and
targeted marketing programs designed to attract lower cost transaction accounts.
In February 1998, a senior officer was recruited from an acquired statewide bank
to manage  and  reorganize  the branch  network.  The  primary  focus will be to
improve  installment  lending programs and reduce the  Corporation's  historical
reliance on higher cost time deposits  through the  attraction  and retention of
lower  cost  demand  accounts.  However,  no  assurances  can be made that these
programs will be  successful,  or if successful,  will reduce the  Corporation's
historical reliance on Time Deposits as a primary funding source.

Office properties and equipment increased $369 thousand, or 6.1%, since December
31, 1997 due to capital improvements to existing facilities.

A portion of the net funds  received  due to  deposit  growth and loan sales was
used to payoff all short term borrowings during the first quarter of 1998.


Results of Operations

Net Income

Guaranty  reported net income of $249  thousand and $133  thousand for the three
month periods ended March 31, 1998 and 1997, respectively. This increase was due
primarily  to increased  net interest  income and gains on the sale of loans and
securities  which were  partially  offset by  additional  costs  relating to the
overall growth of the Corporation,  the majority of which relates to the opening
of the fifth retail branch in Harrisonburg,  Virginia. This branch opened to the
public in May 1997.

Net Interest Income

Net interest  income  increased by $226 thousand,  or 29.1%, to $1.0 million for
the three months ended March 31,  1998,  compared to $778  thousand for the same
period in 1997. Average earning assets increased to $124.0 million for the three
months  ended March 31, 1998,  compared to an average  balance of $108.4 for the
same period in 1997.  The average  rate earned also  increased  to 8.20% for the
three  months  ended  March  31,  1998 from  8.07% for the same  period of 1997.
Interest rate spread and net interest  margin for the three month periods ending
March 31, 1998 and 1997 were 3.05% and 3.28%, and 2.46% and 2.75%, respectively.

Provision for Loan Losses

Management  analyzes the potential  risk of loss on Guaranty's  loan  portfolio,
given  the  loan  balances  and the  value  of the  underlying  collateral.  The
allowance  for  loan  losses  is  reviewed  monthly  and is  based  on the  loan
classification system, which classifies problem loans as substandard,  doubtful,
or loss.  Additional  provisions are added when deemed  necessary by management.
Based on this evaluation,  Guaranty recorded a provision of $42 thousand for the
three months ended March 31, 1998 compared with no  additional  provision  being
recorded during the first quarter of 1997.




                                       9
<PAGE>

Non-Interest Income

Non-interest  income  increased  $391  thousand to $613  thousand  for the three
months ended March 31, 1998 from $222 thousand for the same period in 1997.  The
increase was  primarily due to an increase of $390 in gains on the sale of loans
and securities. Increases in service fees and other income for the first quarter
of 1998  compared  to the same  period in 1997  were  offset  by a  decrease  in
servicing  income.  Based on  management's  analysis that the costs exceeded the
benefits derived from the servicing  revenue,  all purchased  servicing on loans
secured by property outside of the Corporation's  current market was sold during
the second half of 1997.

Non-Interest Expense

Non-interest expense increased $383 thousand,  or 48.5%, to $1.2 million for the
three months ended March 31, 1998  compared to $790 thousand for the same period
in 1997.  This increase was primarily due to the overall growth of the bank, the
opening of the  Harrisonburg  branch in May 1997 and the hiring of three  senior
officers in July 1997  (Senior  Vice  President  and CFO),  December  1997 (Vice
President -  Residential  Construction  Lending) and February  1998 (Senior Vice
President - Retail Services and Commercial Lending).

Income Tax Expense

Guaranty  recognized  income tax expense of $153  thousand  for the three months
ended March 31, 1998, compared to $77 thousand for the same period in 1997. This
change in tax expense  between  periods is  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.  Guaranty'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.

In January 1997, the  Corporation  completed a secondary  offering of its common
stock. Net proceeds to the Corporation from the offering were approximately $4.4
million.

On May 5, 1998, the  Corporation  closed a $6.9 million  offering of Convertible
Preferred  Securities.  Net proceeds of $6.4  million were  invested in Guaranty
Bank as a contribution of capital.

Guaranty  uses its sources of funds  primarily  to meet its  on-going  operating
expenses, to pay deposit withdrawals and to fund loan commitments.  At March 31,
1998, the total approved loan commitments outstanding amounted to $12.1 million.
At the same date,  commitments  under unused  lines of credit  amounted to $16.1
million.  Certificates  of  deposit  scheduled  to mature in one year or less at
March 31, 1998 totaled  $82.1  million.  Management  believes that a significant
portion of maturing deposits will remain with Guaranty.



                                       10
<PAGE>

The  Corporation  and the Bank  are  subject  to  Federal  Reserve  regulations,
including  the Bank  Holding  Company Act. At March 31,  1998,  the  Corporation
exceeded  all  applicable  regulatory  capital  requirements  as  shown  in  the
following table.


        Tier 1 Risk-based                                           13.72%
        Total Risk-based                                            14.69%
        Tier 1 Capital to average adjusted total assets              9.64%





                                       11
<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 8-K

                (a)  Exhibits - None

                (b)  Reports on Form 8-K - None




                                       12
<PAGE>


                                   SIGNATURES



Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.



                                             GUARANTY FINANCIAL CORPORATION







Date:   May 20, 1998                         By: /s/ Vincent B. McNelley
                                                --------------------------------
                                                Vincent B. McNelley
                                                Senior Vice President and 
                                                Chief Financial Officer
                                                (as principal financial officer
                                                and on behalf of the registrant)




                                       13