General

The primary function of the Company is to monitor and oversee its investment in Guaranty Bank (the "Bank"), a wholly-owned subsidiary of the Company. The Company engages in few other activities, and the Company has no significant assets other than its investment in the Bank. As a result, the results of operations of the Company are derived primarily from operations of the Bank. The Bank's results of operations are primarily dependent on net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Bank's income is also affected by the level of its noninterest expenses, such as employee salaries and benefits, occupancy expenses and other expenses. The following discussion reviews the Company's financial condition as of September 30, 2008, and the results of operations for the three and nine months ended September 30, 2008 and 2007.

The discussion set forth below, as well as other portions of this Form 10-Q, may contain forward-looking comments. Such comments are based upon the information currently available to management of the Company and management's perception thereof as of the date of this Form 10-Q. When used in this Form 10-Q, words such as "anticipates," "estimates," "believes," "expects," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Such statements are subject to risks and uncertainties. Actual results of the Company's operations could materially differ from those forward-looking comments. The differences could be caused by a number of factors or combination of factors including, but not limited to: changes in demand for banking services; changes in portfolio composition; changes in management strategy; increased competition from both bank and non-bank companies; changes in the general level of interest rates, in general or local economic conditions, in the real estate market, and in federal and state regulations and legislation governing the operations of the Company or the Bank; and other factors set forth in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time, including the risk factors described under Item 1A. of the Company's Form 10-K for the fiscal year ended December 31, 2007.

Financial Condition

The Company's total assets increased $117,068,857 (21%) from $565,777,980 as of December 31, 2007, to $682,846,837 as of September 30, 2008.

Cash and cash equivalents increased $1,111,952 (9%) from $12,046,202 as of December 31, 2007, to $13,158,154 as of September 30, 2008.

Securities available-for-sale increased $49,369,058 (335%) from $14,729,938 as of December 31, 2007, to $64,098,996 as of September 30, 2008. The increase is primarily due to purchases of $55,383,487 offset by maturities and principal repayments of $3,613,996. Approximately $35 million of the purchases were due to a structured leveraged transaction completed during the period. The Bank currently holds 26,600 shares of Federal Home Loan Mortgage Corporation ("FHLMC") stock with an amortized cost of $26,057 in the available-for-sale category. As of September 30, 2008, the gross unrealized gain on the FHLMC stock was $19,429, a decrease from $880,205 as of December 31, 2007.

Securities held-to-maturity decreased primarily due to principal repayments by $61,963 (9%) from $654,775 as of December 31, 2007, to $592,812 as of September 30, 2008.

Stock in Federal Home Loan Bank of Des Moines ("FHLB") increased by $3,669,100 (91%), due to purchases of such stock to continue to maintain a level to meet FHLB advance requirements.

Net loans receivable increased by $51,990,057 (10%) from $514,100,035 as of December 31, 2007, to $566,090,092 as of September 30, 2008. Commercial real estate loans increased by $28,144,104 (16%) from $175,995,074 as of December 31, 2007, to $204,139,178 as of September 30, 2008. Commercial loans increased $17,263,279 (17%) from $104,025,575 as of December 31, 2007, to $121,288,854 as of September 30, 2008. Permanent multi-family loans decreased by $9,531,940 (23%) from $41,947,555 as of December 31, 2007, to $32,415,615 as of September 30, 2008. Construction loans decreased by $75,395 (0%) to $89,648,825 as of September 30, 2008 compared to $89,724,220 as of December 31, 2007.

Allowance for loan losses increased $5,543,666 (93%) from $5,962,923 as of December 31, 2007 to $11,506,589 as of September 30, 2008. The allowance increased due to the provision for loan losses of $8,179,079 exceeding net loan charge-offs of $2,635,413 recorded during the period. During the nine month period, management charged-off $1.9 million relating to two specific loans that had been identified and classified as impaired at December 31, 2007. Due to loan growth, the charge-offs and increasing concerns about declining real estate values and the difficult market conditions created by the softening economy, management decided to record a provision for loan losses for this period in order to maintain the allowance at a level in accordance with management's internal review and methodology. A significant portion of additional reserves were made on a few problem loans already identified by management in previous quarters. Due to the concerns discussed above, and as a result of continuing analysis, including new information obtained during the quarter, the reserves are warranted. See discussion under "Results of Operations - Comparison of Three and Nine Month Periods Ended September 30, 2008 and 2007 - Provision for Loan Losses." The allowance for loan losses, as a percentage of net loans outstanding, as of September 30, 2008 and December 31, 2007 was 2.03% and 1.16%, respectively. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of September 30, 2008 and December 31, 2007 was 106.0% and 82.2%, respectively. Management believes the allowance for loan losses is at a level to be sufficient in providing for potential loan losses in the Bank's existing loan portfolio at September 30, 2008.

Deposits increased $17,915,204 (4%) from $418,191,284 as of December 31, 2007, to $436,106,488 as of September 30, 2008. For the nine months ended September 30, 2008, checking and savings accounts increased by $4,214,518 and certificates of deposit increased by $13,700,686. The increase in checking and savings was due to the Bank's continued emphasis on developing commercial checking business. The increase in certificates of deposit was primarily due to the Company's emphasis on increasing retail customers. See also the discussion under "Quantitative and Qualitative Disclosure about Market Risk - Asset/Liability Management."

FHLB advances increased by $72,350,000 from $76,086,000 as of December 31, 2007, to $148,436,000 as of September 30, 2008 primarily to fund asset growth during the period.

Securities sold under agreements to repurchase increased $29,900,705 (304%) from $9,849,295 as of December 31, 2007, to $39,750,000 as of September 30, 2008, due to the structured leveraged transaction completed during the period.

Stockholders' equity (including unrealized depreciation on securities available-for-sale, net of tax) decreased $3,898,215 from $42,686,660 as of December 31, 2007, to $38,788,445 as of September 30, 2008. The Company's net loss during this period was $1,579,963. The Company also declared two quarterly dividends totaling $931,013 during the period. Unrealized depreciation on securities available-for-sale and changes in fair value of interest rate swaps, net of tax, increased $1,057,197 during the period due primarily to increased volatility in the investment portfolio. In addition, stockholders' equity further declined as the Company repurchased 60,401 shares of treasury stock at an aggregate cost of $1,465,150 (an average cost of $24.25 per share). On a per share basis, stockholders' equity decreased from $16.37 as of December 31, 2007 to $14.87 as of September 30, 2008.

Average Balances, Interest and Average Yields

The Company's profitability is primarily dependent upon net interest income, which represents the difference between interest and fees earned on loans and debt and equity securities, and the cost of deposits and borrowings. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Non-interest income, non-interest expense, and income taxes also impact net income.

The following tables set forth certain information relating to the Company's average consolidated statements of financial condition and reflect the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense annualized by the average balance of assets or liabilities, respectively, for the periods shown. Average balances were derived from average daily balances. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yields and costs include fees which are considered adjustments to yields. All dollar amounts are in thousands.

                                 Three months ended 9/30/2008                        Three months ended 9/30/2007
                          Average                                             Average
                          Balance          Interest       Yield / Cost        Balance          Interest       Yield / Cost
ASSETS
Interest-earning:
Loans                   $   571,616       $    8,338               5.83 %   $   475,697       $    9,535               8.02 %
Investment securities        63,729              864               5.42 %         9,223              120               5.20 %
Other assets                  8,105               66               3.26 %         7,542               79               4.19 %
Total
interest-earning            643,450            9,268               5.76 %       492,462            9,734               7.91 %
Noninterest-earning          26,666                                              24,187
                        $   670,116                                         $   516,649
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts        $    13,288               31               0.93 %   $    12,760               73               2.29 %
Transaction accounts        111,178              480               1.73 %       103,252              776               3.01 %
Certificates of
deposit                     280,324            2,829               4.04 %       254,800            3,330               5.23 %
FHLB advances               139,220              876               2.52 %        54,753              738               5.39 %
Securities sold under
agreements to
repurchase                   39,750              260               2.62 %             -                -               0.00 %
Subordinated
debentures                   15,465              256               6.62 %        15,465              261               6.75 %
Other borrowed funds          1,435               15               4.18 %         2,003               24               0.00 %
Total
interest-bearing            600,660            4,747               3.16 %       443,033            5,202               4.70 %
Noninterest-bearing          31,091                                              28,437
Total liabilities           631,751                                             471,470
Stockholders' equity         38,365                                              45,179
                        $   670,116                                         $   516,649
Net earning balance     $    42,790                                         $    49,429
Earning yield less
costing rate                                                       2.60 %                                              3.21 %
Net interest income,
and net yield spread
on interest earning
assets                                    $    4,521               2.81 %                     $    4,532               3.68 %
Ratio of
interest-earning
assets to
interest-bearing
liabilities                                      107 %                                               111 %

                                    Nine months ended 9/30/2008                             Nine months ended 9/30/2007
                        Average Balance        Interest       Yield / Cost      Average Balance        Interest       Yield / Cost
ASSETS
Interest-earning:
Loans                   $        548,355      $   24,985               6.08 %   $        473,148      $   27,870               7.85 %
Investment securities             56,959           2,268               5.31 %              8,543             309               4.82 %
Other assets                       7,388             171               3.09 %              8,079             258               4.26 %
Total
interest-earning                 612,702          27,424               5.97 %            489,770          28,437               7.74 %
Noninterest-earning               22,872                                                  23,942
                        $        635,574                                        $        513,712
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing:
Savings accounts        $         13,093             113               1.15 %   $         13,836             250               2.41 %
Transaction accounts             104,420           1,434               1.83 %            101,124           2,235               2.95 %
Certificates of
deposit                          280,416           9,300               4.42 %            240,164           9,151               5.08 %
FHLB advances                    113,114           2,371               2.79 %             67,571           2,727               5.38 %
Securities sold under
agreements to
repurchase                        36,465             735               2.69 %                  -               -               0.00 %
Subordinated
debentures                        15,465             768               6.62 %             15,465             776               6.69 %
Other borrowed funds               1,273              39               4.08 %              1,338              38               3.79 %
Total
interest-bearing                 564,246          14,760               3.49 %            439,498          15,177               4.60 %
Noninterest-bearing               29,867                                                  28,277
Total liabilities                594,113                                                 467,775
Stockholders' equity              41,461                                                  45,937
                        $        635,574                                        $        513,712
Net earning balance     $         48,456                                        $         50,272
Earning yield less
costing rate                                                           2.48 %                                                  3.14 %
Net interest income,
and net yield spread
on interest earning
assets                                        $   12,664               2.76 %                         $   13,260               3.61 %
Ratio of
interest-earning
assets to
interest-bearing
liabilities                                          109 %                                                   111 %

Results of Operations - Comparison of Three and Nine Month Periods Ended September 30, 2008 and 2007

Net income (loss) for the three months and nine months ended September 30, 2008 was $299,459 and ($1,579,963) as compared to net income of $1,612,691 and $4,782,455 for the three months and nine months ended September 30, 2007, which represents a decrease in earnings of $1,313,232 (81%) for the three month period, and a decrease in earnings of $6,362,418 (133%) for the nine month period.

Interest Income

Total interest income for the three months and nine months ended September 30, 2008, decreased $466,154 (5%) and $1,012,664 (4%), respectively, as compared to the three months and nine months ended September 30, 2007. For the three month and nine month periods ended September 30, 2008 compared to the same periods in 2007, the average yield on interest earning assets decreased 215 basis points to 5.76% and decreased 177 basis points to 5.97%, respectively, while the average balance of interest earning assets increased approximately $150,988,000 and $122,932,000, respectively. The Company's decline in the average yield on interest earning assets was due to the Federal Reserve's significant interest rate cuts of 3.25% from September 2007 through April 2008. This affected the Company's yield on loans which are tied to the prime rate.

Interest Expense

Total interest expense for the three months and nine months ended September 30, 2008, decreased $454,542 (9%) and decreased $416,649 (3%), respectively, when compared to the three months and nine months ended September 30, 2007. For the three month and nine month periods ended September 30, 2008 compared to the same periods in 2007, the average cost of interest bearing liabilities decreased 154 basis points to 3.16% and 111 basis points to 3.49%, respectively, while the average balance of interest bearing liabilities increased approximately $157,627,000 and $124,748,000, respectively, when compared to the same periods in 2007.

Net Interest Income

Net interest income for the three months and nine months ended September 30, 2008, decreased $11,612 (0%) and $596,015 (4%), respectively when compared to the same periods in 2007. This decrease was primarily due to the significant rate cuts by the Federal Reserve as described above.

Provision for Loan Losses

Based on its internal analysis and methodology, management recorded a provision for loan losses of $1,675,000 and $8,179,079 for the three months and nine months ended September 30, 2008, respectively, compared to $210,000 and $630,000 for the same periods in 2007. Due to loan growth, the charge-offs noted and increasing concerns about declining real estate values and the difficult market conditions created by the softening economy, management decided to record a provision for loan losses for the period in order to maintain the allowance at a level in accordance with management's internal review and methodology. A significant portion of additional reserves were made on a few problem loans already identified by management in previous quarters. Due to the concerns discussed above, and as a result of continuing analysis, including new information obtained during the quarter, the reserves are warranted. The Bank will continue to closely monitor asset quality, its allowance for loan losses and make future additions based on economic and regulatory conditions. Management of the Company anticipates the need to continue increasing the allowance for loan losses through charges to the provision for loan losses as anticipated growth in the Bank's loan portfolio increases or other circumstances warrant. Although the Bank maintains its allowance for loan losses at a level which it considers to be sufficient to provide for potential loan losses in its existing loan portfolio, there can be no assurance that future loan losses will not exceed internal estimates. In addition, the amount of the allowance for loan losses is subject to review by regulatory agencies which can order the establishment of additional loan loss provisions.

Noninterest Income

Noninterest income decreased $319,933 (27%) and $1,140,222 (31%) for the three months and nine months ended September 30, 2008, respectively, when compared to the three months and nine months ended September 30, 2007.

Gains on sales of investment securities decreased $181,632 (100%) and $665,391 (117%) for the three months and nine months ended September 30, 2008 when compared to the same periods in 2007. These declines were due to the Bank's suspension of selling shares of its Freddie Mac (FRE) equity investment, due to the significant financial downturn in FRE and a sharp decline in its stock price. Also, the Company recognized specific losses during the nine month period totaling $97,788 on equity securities associated with companies operating in the financial services sector. Service charges on transaction accounts decreased by $5,109 (1%) and $160,207 (10%) for the three months and nine months ended September 30, 2008 when compared to the same period in 2007, primarily due to declines in overdraft charges. Gain on sale of loans decreased $74,487 (26%) and $209,850 (23%) for the three months and nine months ended September 30, 2008 when compared to the same period in 2007.

Noninterest Expense

Noninterest expense increased $180,714 (6%) and $624,886 (7%) for the three months and nine months ended September 30, 2008 when compared to the same periods in 2007.

Salaries and employee benefits increased $51,336 (3%) and $307,801 (6%) for the three months and nine months ended September 30, 2008 when compared to the same period in 2007. This increase was primarily due to additions in several staff positions in the areas of commercial lending, corporate services, human resources, marketing and internal audit throughout fiscal year 2007.

Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums increased $71,545 (653%) and $176,296 (565%) for the three months and nine months ended September 30, 2008 when compared to the same periods in 2007. This was due to an increase in FDIC insurance premium assessments in 2007. Because of credits available to the Company for 2007, these increased costs were not owed by the Company until the first quarter of 2008.

Provision for Income Taxes

The Company recorded a provision (credit) for income taxes of $227,759 and ($865,684) for the three and nine months ended September 30, 2008, respectively, due to the pre-tax income (loss) recognized for those periods. This compares to a provision for income taxes of $891,786 and $2,682,100 for the three and nine months ended September 30, 2007, respectively.

Nonperforming Assets

The allowance for loan losses is calculated based upon an evaluation of pertinent factors underlying the various types and quality of the Bank's existing loan portfolio. When making such evaluation, management considers such factors as the repayment status of its loans, the estimated net realizable value of the underlying collateral, borrowers' intent (to the extent known by the Bank) and ability to repay the loan, local economic conditions and the Bank's historical loss ratios. The allowance for loan losses, as a percentage of nonperforming loans outstanding, as of September 30, 2008 and December 31, 2007 was 106.0% and 82.2%, respectively. Total loans classified as substandard, doubtful or loss as of September 30, 2008, were $42.5 million or 6.22% of total assets as compared to $17.8 million, or 3.41% of total assets at December 31, 2007. Management considered impaired and total classified loans in evaluating the adequacy of the Bank's allowance for loan losses.

The ratio of nonperforming assets to total assets is another useful tool in evaluating exposure to credit risk. Nonperforming assets of the Bank include impaired loans and assets which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. All dollar amounts are in thousands.

                                                      9/30/2008       12/31/2007       12/31/2006
Nonperforming loans                                  $    10,852     $      7,254     $      2,748
Real estate acquired in settlement of loans                6,545              727              173
Total nonperforming assets                           $    17,397     $      7,981     $      2,921

Total nonperforming assets as a percentage of
total assets                                                2.55 %           1.41 %           0.56 %
Allowance for loan losses                            $    11,507     $      5,963     $      5,783
Allowance for loan losses as a percentage of net
loans                                                       2.03 %           1.16 %           1.20 %
Allowance for loan losses as a percentage of
nonperforming loans                                       106.04 %          82.20 %         210.44 %

Liquidity and Capital Resources

The Bank's primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, proceeds from maturing investment securities and extensions of credit from the FHLB and the Federal Reserve Bank. While scheduled loan and security repayments and the maturity of short-term investments are somewhat predictable sources of funding, deposit flows are influenced by many factors, which make their cash flows difficult to anticipate.

The Bank uses its liquidity resources principally to satisfy its ongoing commitments which include funding loan commitments, funding maturing certificates of deposit as well as deposit withdrawals, maintaining liquidity, purchasing investments, and meeting operating expenses. Management believes that anticipated cash flows and deposit growth will be adequate to meet the Bank's liquidity needs.

In order to address the weakened economy, and specifically the banking sector, and also to help consumers maintain confidence in the banking system, the Emergency Economic Stabilization Act of 2008 ("EESA") was signed into law on October 3, 2008.

First, the first initiative under EESA was to temporarily raise the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The legislation provides that the basic deposit insurance limit will return to $100,000 after December 31, 2009.

Secondly, the Troubled Asset Relief Program ("TARP") was enacted as part of the EESA. Under this program, the U.S. Treasury announced on October 24, 2008 its plans to direct $250 billion into preferred stock investments of financial institutions. The primary terms of the preferred stock are as follows:
· Pay 5% dividends on the Treasury's preferred stock for the first five years and 9% dividends thereafter;

· Cannot increase common stock dividends for three years without the consent of the Treasury;

· Cannot redeem the preferred stock for three years unless from an approved equity offering;

· Must receive Treasury's consent to repurchase Company shares of common stock;

· Treasury receives warrants allowing Treasury to buy common stock equal to 15% of the Treasury's total investment in the financial institution; and

· Restricts executive compensation and tax deductibility.

The minimum and maximum investment in the program for each financial institution is an amount equal to 1% of risk-weighted assets and the lesser of $25 billion or 3% of its risk-weighted assets, respectively. As of September 30, 2008, the maximum investment by the Treasury would be approximately $17 million. An application to participate in the TARP capital purchase plan must be received by an institution's primary federal regulator by November 14, 2008. The Company has . . .