##### Table of Contents





No. 001-33661
    UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  FORM 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2007oro

TRANSITION REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934For the Transition Period
    From          to   Commission File Number
    001-33661
  Guaranty Financial Group
    Inc.
 (Exact Name of Registrant as
    Specified in its Charter)
  Delaware

74-2421034(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)   1300 MoPac Expressway South
 Austin, Texas 78746
 (Address of principal executive
    offices, including Zip code)
  Registrants telephone number, including area code:
    (512) 434-1000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange On Which RegisteredCommon Stock, $1.00 Par Value per Share, non-cumulative

New York Stock Exchange         Indicate by check mark if the registrant is a well-known
    seasoned issuer, as defined in Rule 405 of the Securities
    the
    Act. Yes o  No þ
  Indicate by check mark if the registrant is not required to
    file reports pursuant to Section 13 or Section 15(d)
    of the
    Act. Yes o  No þ
  Indicate by check mark whether the registrant (1) has
    filed all reports required to be filed by Section 13 or
    15(d) of the Securities Exchange Act of 1934 during the
    preceding 12 months (or for such shorter period that the
    registrant was required to file such reports), and (2) has
    been subject to such filing requirements for the past
    90 days. Yes o  No þ
  Indicate by check mark if disclosure of delinquent filers
    pursuant to Item 405 of
    Regulation S-K
    is not contained herein, and will not be contained, to the best
    of registrants knowledge, in definitive proxy or
    information statements incorporated by reference in
    Part III of this
    Form 10-K
    or any amendment to this
    Form 10-K.þ
  Indicate by check mark whether the registrant is a large
    accelerated filer, an accelerated filer, a non-accelerated
    filer, or a smaller reporting company. See the definitions of
    large accelerated filer, accelerated filer,
    and smaller reporting company in
    Rule 12b-2
    of the Exchange Act. (Check one):
  o o þ o
   Indicate by check mark whether the registrant is a shell
    company (as defined in
    Rule 12b-2
    of the
    Act). Yes o  No þ
    DOCUMENTS
    INCORPORATED BY REFERENCE
    As filed with the Securities and
    Exchange Commission on February 29, 2008




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##### 





TABLE OF
    CONTENTS
  
  PagePART I.Item 1.

Business


1Item 1A.

Risk Factors


10Item 1B.

Unresolved Staff Comments


17Item 2.

Properties


18Item 3.

Legal Proceedings


18Item 4.

Submission of Matters to a Vote of Security
    Holders


18PART II.Item 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


18Item 6.

Selected Financial Data


20Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


21Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


52Item 8.

Financial Statements


53Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


92Item 9A.

Controls and Procedures


92Item 9B.

Other Information


92PART III.Item 10.

Directors, Executive Officers and Corporate
    Governance


93Item 11.

Executive Compensation


93Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


94Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


94Item 14.

Principal Accounting Fees and Services


94PART IV.Item 15.

Exhibits and Financial Statement Schedules


94SIGNATURES


97Savings and Retirement PlanSupplemental Executive Retirement Plan2007 Stock Incentive PlanDirector's Fee Deferral PlanChange in Control Agreement - Executive OfficersForm of Restricted Stock Agreement (Time and Performance Vesting)Form of Restricted Stock Agreement (Performance Vesting)List of SubsidiariesConsent of Ernst & Young LLPCertification of Kenneth R. Dubuque Pursuant to Section 302Certification of Ronald D. Murff Pursuant to Section 302Certification of Kenneth R. Dubuque Pursuant to Section 906Certification of Ronald D. Murff Pursuant to Section 906   i




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##### Table of Contents



PART I  Item 1.
    Business   DESCRIPTION
    OF OUR BUSINESS
  Overview
    
    Commercial banking,
    Retail banking,
    Insurance agency, and
    Treasury, corporate and other.       Form 10-K, Form 10-Q, Form 8-K,
 1




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Our
    Strategy
    
    create outstanding long-term value for our stockholders,
    improve the financial success of the people and businesses in
    the markets we serve,
    make a significantly positive impact in the communities where
    our customers reside and work, and
    attract, develop, and retain superior employees.     
    We conduct our business with the highest degree of integrity,
    honesty, and efficiency,
    We manage our customers assets with care,
    We show mutual respect to our clients, our neighbors, and our
    fellow employees,
    We are passionate about our business, we play to win, and we
    have fun,
    We are empowered to make decisions that provide creative
    solutions for our customers, and
    We are entrepreneurial in our actions. 2




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
    Grow our commercial lending franchise.  Our
    commercial lending group has emphasized targeting certain
    industries and product types in which we have expertise. We will
    continue to serve niche industries in select markets across the
    country with experienced personnel who can add value to our
    customer relationships.
    Grow our retail franchise in Texas and
    California.  We will continue to invest in
    relocating existing bank branches and in opening new branches in
    the high growth areas of our existing markets. We will also
    build upon our consumer and small business lending capabilities.
    We believe these activities along with strategic mergers and
    acquisitions will enable us to grow our business in each of the
    markets we will serve.
    Increase fee income.  We will continue to
    emphasize our deposit services, annuities and mutual funds,
    insurance products, and other products and services that can be
    provided to our clients to deepen the relationship.
    Provide distinctive customer service.  We must
    retain and attract individuals who understand the financial
    needs of our customers and are experienced and trained to
    provide customized solutions.
    Improve operating efficiency.  We must
    continually review our business practices to assure we are
    operating as efficiently as possible.
    Maintain strong credit and risk standards.  We
    will maintain the strong and effective approach to risk
    management that has been a foundation of our operating culture.   3




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Business
    Segments
    Commercial
    banking
    
   4




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5




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##### Table of Contents



Retail
    banking
      State

Total Deposits(In billions)Texas

$
6.4California


2.4$
8.8  
         6




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Insurance
    agency
    (TEXAS OFFICES GRAPHIC)
    (CALIFORNIA OFFICES GRAPHIC)  Treasury,
    corporate and other
    Customers
    and Relationships
     7




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Markets
    and Trends
            Competition
    Supervision
    and Regulation
       8




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9




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Employees
    Item 1A.
    Risk
    Factors  You should carefully consider each of the following risk
    factors and all of the other information set forth in this
    annual report. We have separated the risk factors into two
    groups: (1) risks relating to our business, and
    (2) risks relating to ownership of our common stock. Based
    on the information currently known to us, we believe the
    following information identifies the most significant risk
    factors relating to our company. In addition, past financial
    performance may not be a reliable indicator of future
    performance and historical trends should not be used to
    anticipate results or trends in future periods.
  If any of the following risks and uncertainties develop into
    actual events, these events could have a material adverse effect
    on our business, financial condition or results of operations.
    In such case, the trading price of our common stock would likely
    decline.
  Risks
    Relating to Our Business
  Changes
    in interest rates affect our business and
    profitability.
   10




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Declining
    real estate values, particularly in California, may cause
    borrowers to default on loans and leave us unable to fully
    recover our loans.
        If our
    allowance for loan losses is not sufficient to cover actual loan
    losses, our profitability could decrease.
    Our
    loan portfolio lacks diversity, which exposes us to a greater
    risk of loss from isolated events and individual market
    adjustments.
   11




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We
    have not acquired a significant amount of mortgage loans from
    our correspondent mortgage warehouse borrowers since we
    commenced this activity in 2007, and have experienced decreases
    in our mortgage-backed securities investments; if this
    continues, our earning assets and interest income could
    decrease.
    Current
    market conditions may limit our ability to raise regulatory
    capital.
    Recent
    volatility in the credit markets could limit our ability to grow
    our earning assets and could increase our credit
    losses.
    As a
    savings bank pursuant to the Home Owners Loan Act, or
    HOLA, Guaranty Bank is required to maintain a certain percentage
    of its total assets in HOLA-qualifying loans and investments,
    which limits our asset mix and could limit our ability to
    increase the yield on our earning assets.
     12




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Our
    business strategy of shifting our asset mix to reduce the
    residential mortgage loan portfolio and increase commercial and
    consumer loans exposes us to greater credit risk.
    The
    business segments in which we operate are highly competitive and
    competitive conditions may negatively affect our ability to
    maintain or increase our market share and
    profitability.
    We
    operate in a highly regulated environment and may be adversely
    affected by changes in federal and local laws and
    regulations.
    We may
    not be able to pay dividends if we are not able to receive
    dividends from Guaranty Bank.
    Our
    information systems may experience an interruption or breach in
    security that could expose us to liability or
    loss.
   13




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We may
    be unable to achieve some or all of the benefits that we expect
    to achieve from being a stand-alone public
    company.
    We
    have very little operating history as an independent,
    publicly-traded company upon which you can evaluate our
    performance and, accordingly, our prospects must be considered
    in light of the risks that any newly independent company
    encounters.
    Our
    agreements with Temple-Inland and Forestar may not reflect terms
    that would have resulted from arms-length negotiations
    among unaffiliated third parties.
    Our
    historical financial information is not necessarily indicative
    of our results as a separate company and, therefore, may not be
    reliable as an indicator of our future financial
    results.
      If the
    spin-off is determined to be taxable for U.S. federal income tax
    purposes, we and our stockholders could incur significant U.S.
    federal income tax liabilities.
   14




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We
    must abide by certain restrictions to preserve the tax-free
    treatment of the spin-off and may not be able to engage in
    desirable acquisitions and other strategic transactions
    following the spin-off.
    
    issuing equity securities for cash,
    acquiring businesses or assets with equity securities, or
    engaging in mergers or asset transfers that could jeopardize the
    tax-free status of the distribution.    The
    ownership by our chairman, our executive officers and some of
    our other directors of common stock, options or other equity
    awards of Temple-Inland or Forestar may create, or may create
    the appearance of, conflicts of interest.
   15




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Risks
    Relating to Our Common Stock
  Our
    common stock has limited trading history. The market price of
    our shares may fluctuate widely as a result of our short history
    as a stand-alone company.
    
    a shift in our investor base because previous investors in
    Temple-Inland may not desire to continue their investments in a
    financial services related company;
    actual or anticipated fluctuations in our operating results,
    particularly in light of recent market conditions for real
    estate and mortgage-backed securities;
    announcements by us or our competitors of significant
    acquisitions or dispositions;
    the failure of securities analysts to cover our common stock
    after the distribution;
    the operating and stock price performance of other comparable
    companies;
    overall market fluctuations; and
    general economic conditions.    Substantial
    sales of our common stock may occur for several months following
    the spin-off, which could cause our stock price to
    decline.
    Your
    percentage ownership in our common stock may be diluted in the
    future because of existing equity awards on our common stock,
    and future capital raising activities.
   16




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The
    terms of our spin-off from Temple-Inland, anti-takeover
    provisions of our charter and bylaws, as well as Delaware law
    and our stockholder rights agreement, may reduce the likelihood
    of any potential change of control or unsolicited acquisition
    proposal that you might consider favorable.
          Additional
    Risks
  Additional
    risks and uncertainties not presently known to us or that we
    currently believe to be immaterial may also adversely affect our
    business, financial condition or results of operations, the
    spin-off, or the trading price of our common
    stock.
    Item 1B.
    Unresolved
    Staff Comments   17




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Item 2.
    Properties        Item 3.
    Legal
    Proceedings        Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
   18




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2007Price RangeHigh

LowDecember 31, 2007

$
16.58



14.38For the Year

$
16.58



14.38   Shareholders
    Dividend
    Policy
    Other
  See Item 12. Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters
 19




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Item 6.
    Selected
    Financial Data  2007


2006(a)(b)


2005(b)


2004(b)


2003(Dollars in millions, except per share data)For the year:Interest income

$
996


$
997


$
800


$
718


$
728Interest expense


(605
)


(585
)


(404
)


(312
)


(346
)Net interest income


391



412



396



406



382(Provision) credit for credit losses


(50
)


(1
)


(10
)


12



(43
)Noninterest income


157



168



180



267



370Noninterest expense


(372
)


(388
)


(384
)


(534
)


(539
)Income tax expense


(48
)


(70
)


(66
)


(56
)


(61
)Net income

$
78


$
121


$
116


$
95


$
109Dividends paid to Temple-Inland

$
35


$
135


$
25


$
100


$
166Return on average assets


0.49
%


0.72
%


0.71
%


0.56
%


0.61
%Return on average stockholders equity


7.52
%


11.67
%


11.97
%


10.00
%


11.37
%Earnings per common
    share(c):Income from continuing operations:Basic and diluted

$
2.20



n/a



n/a



n/a



n/aDiluted with share awards (proforma, unaudited)


2.16



n/a



n/a



n/a



n/aAverage shares outstanding:Basic and diluted


35.4



n/a



n/a



n/a



n/aDiluted with share awards (proforma, unaudited)


36.1



n/a



n/a



n/a



n/aAt year-end:Loans, net

$
9,928


$
9,617


$
9,845


$
9,618


$
9,025Assets


16,796



16,252



17,692



16,120



17,300Deposits


9,375



9,486



9,201



8,964



8,698Preferred stock issued by subsidiaries






305



305



305



305Subordinated notes payable to trust


314



142











Long-term Federal Home Loan Bank borrowings (original maturities
    greater than one year at the time of borrowing)


794



1,304



1,924



2,662



3,169Other long-term debt


11



101



101



105



106Stockholders equity


1,138



1,015



1,017



927



938Tangible equity


968



848



827



755



702Tangible equity per common share


27.36



n/a



n/a



n/a



n/aTangible equity/tangible assets


5.82
%


5.27
%


4.73
%


4.73
%


4.11
%Non-performing
    assets(d)


179



31



37



91



131Capital (Guaranty Bank):Tier 1 leverage ratio


7.74
%


7.62
%


6.94
%


6.89
%


6.31
%Total risk-based capital ratio


10.54
%


10.52
%


10.54
%


10.83
%


11.13
%Credit
    reserves(e):Allowance for loan losses to non-performing loans


71
%


253
%


213
%


170
%


172
%Allowance for loan losses to total loans


1.17
%


0.68
%


0.75
%


0.88
%


1.22
%     (a)
    
    In 2006, we adopted the modified prospective application method
    of SFAS No. 123 (revised December 2004),
    Share-Based Payment.(b)
    
    In 2006, we sold our asset-based lending operations. In 2005, we
    eliminated our wholesale origination network. In 2004, we
    repositioned our mortgage origination activities and sold our
    third-party mortgage servicing rights. Charges related to these
    actions included in noninterest expense consist of:  20




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##### Table of Contents



For the Year2006


2005


2004(In millions)Severance

$
5


$
2


$
9Loss on closure of origination facilities










11Loss on sale of mortgage servicing rights










11Goodwill impairment


6







Other






3



3$
11


$
5


$
34   The decrease in noninterest income and expense in 2005 is
    principally due to the 2004 repositioning of our mortgage
    origination activities and the sale of our third-party mortgage
    servicing rights.(c)
    
    In December 2007, Temple-Inland distributed our common stock to
    its stockholders in a ratio of one share of our common stock for
    every three shares of Temple-Inland common stock. Earnings per
    common share is computed as if the distribution had occurred at
    the beginning of 2007.(d)
    
    Includes nonaccrual loans, restructured loans not performing in
    accordance with their modified terms, and assets acquired
    through foreclosure. Excludes loans past due 90 days or
    more and still accruing.(e)
    
    Excludes residential mortgage loans held for sale.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Cautionary
    Statement Regarding Forward-Looking Statements
    
    general economic, market, or business conditions;
    demand for new housing;
    competitive actions by other companies;
    changes in laws or regulations and actions or restrictions of
    regulatory agencies;
    deposit attrition, customer loss, or revenue loss in the
    ordinary course of business;
    costs or difficulties related to transitioning as a stand-alone
    public company;
    inability to realize elements of our strategic plans;
    changes in the interest rate environment that expand or reduce
    margins or adversely affect critical estimates and projected
    returns on investments;
    unfavorable changes in economic conditions affecting housing
    markets, credit markets, real estate values, or oil and gas
    prices, either nationally or regionally; 21




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
    natural disasters in primary market areas that may result in
    prolonged business disruption or materially impair the value of
    collateral securing loans;
    assumptions and estimates underlying critical accounting
    policies, particularly allowance for credit losses, that may
    prove to be materially incorrect or may not be borne out by
    subsequent events;
    current or future litigation, regulatory investigations,
    proceedings or inquiries;
    strategies to manage interest rate risk, that may yield results
    other than those anticipated;
    a significant change in the rate of inflation or deflation;
    changes in the securities markets;
    the ability to complete any merger, acquisition or divestiture
    plans; regulatory or other limitations imposed as a result of
    any merger, acquisition or divestiture; and the success of our
    business following any merger, acquisition or divestiture;
    the final resolutions or outcomes with respect to our contingent
    and other corporate liabilities related to our business and any
    related actions for indemnification made pursuant to the various
    agreements with Temple-Inland and Forestar;
    the ability to raise capital; and
    changes in the value of real estate securing our loans.  Item 1A
    Matters
    Affecting Comparability of Historical Financial
    Information
      Summary
  Overview
   22




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Current
    Market Conditions
    Analysis
    of Years 2007, 2006, and 2005
  Performance
    Ratios
  For the Year2007


2006


2005Return on assets (net income divided by average total assets)


0.49
%


0.72
%


0.71
%Return on equity (net income divided by average
    stockholders equity)


7.52
%


11.67
%


11.97
%Dividend payout ratio (dividends declared divided by net income)


45
%


112
%


22
%Equity to assets ratio (average stockholders equity
    divided by average assets)


6.50
%


6.16
%


5.95
%Net interest margin (net interest income divided by average
    earning assets)


2.59
%


2.58
%


2.58
%     2007
  
    Net income decreased 36% to $78 million, principally
    because of a significant increase in provision for credit
    losses. Our loan portfolio credit quality, particularly
    single-family construction loans to homebuilders, declined as a
    result of deteriorating housing markets and, as a result, we
    recorded provisions for credit losses of $50 million.
    Net interest income decreased 5% to $391 million as a
    result of a 6% decrease in average earning assets, principally
    because of repayments on our mortgage-backed security
    investments and single-family mortgage loans.
    Noninterest income decreased principally as a result of our exit
    from asset-based lending operations in 2006.  2006
  
    Net income increased 4% over 2005, as a result of minimal credit
    losses and a 4% increase in net interest income driven by an
    increase in average mortgage-backed security investments.
    Noninterest income increased 5% in 2006 (excluding wholesale
    mortgage origination activities, from which we completed our
    exit in early 2006), because of increases in our retail deposit
    fees and insurance agency revenues. 23




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
    We recognized $11 million in asset impairments and
    severance as a result of our exit from asset-based lending
    operations and completing our exit from wholesale mortgage
    origination activities.  2005
  
    While the overall credit quality of our loan portfolio remained
    strong, we incurred losses on asset-based loans and leases
    resulting in provisions for credit losses of $10 million.
    We recognized $5 million in severance and other charges
    relating to our exit from the wholesale mortgage origination
    business.  Results
    of Operations
  Net
    Interest Income
  Risk Management
      Item 7A. Quantitative and Qualitative
    Disclosure About Market Risk
   24




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Year-End 2007

Year-End 2006graph

graph    25




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For the Year2007


2006


2005Average





Yield/


Average





Yield/


Average





Yield/Balance


Interest


Rate


Balance


Interest


Rate


Balance


Interest


Rate(Dollars in millions)ASSETSCash equivalents

$
79


$
4



4.99
%

$
128


$
6



4.83
%

$
133


$
1



0.66
%Loans held for sale


18



1



6.87
%


61



4



6.95
%


350



16



4.49
%Loans(a)(b)


9,600



697



7.26
%


9,782



691



7.06
%


9,924



574



5.79
%Securities


5,163



282



5.47
%


5,727



281



4.91
%


4,649



199



4.28
%Investment in Federal Home Loan Bank stock


219



12



5.39
%


288



15



5.02
%


283



10



3.58
%Total earning assets


15,079


$
996



6.61
%


15,986


$
997



6.24
%


15,339


$
800



5.22
%Other assets


881











848











941Total assets

$
15,960










$
16,834










$
16,280LIABILITIES AND EQUITYInterest-bearing deposits:Interest-bearing demand

$
3,649


$
103



2.82
%

$
3,376


$
74



2.19
%

$
3,697


$
51



1.38
%Savings deposits


185



1



0.72
%


207



1



0.73
%


235



2



0.70
%Certificates of deposit


4,869



237



4.86
%


4,921



208



4.22
%


4,407



136



3.10
%Total interest-bearing deposits


8,703



341



3.92
%


8,504



283



3.33
%


8,339



189



2.27
%Short-term Federal Home Loan Bank borrowings


3,866



195



5.04
%


4,212



209



4.96
%


3,084



103



3.36
%Long-term Federal Home Loan Bank borrowings


917



34



3.69
%


1,649



61



3.69
%


2,291



84



3.66
%Securities sold under repurchase agreements


























144



4



2.63
%Other borrowings


106



9



8.42
%


107



9



8.14
%


106



7



6.68
%Subordinated notes payable to trust


277



19



7.08
%


26



2



7.37
%










Preferred stock issued by subsidiaries


95



7



7.36
%


308



21



6.96
%


307



17



5.44
%Total borrowings


5,261



264



5.02
%


6,302



302



4.79
%


5,932



215



3.63
%Total interest-bearing liabilities


13,964


$
605



4.33
%


14,806


$
585



3.95
%


14,271


$
404



2.83
%Interest rate spread










2.28
%










2.29
%










2.39
%Noninterest-bearing demand deposits


686











757











699Other liabilities


273











234











341Stockholders equity


1,037











1,037











969Total liabilities and stockholders equity

$
15,960










$
16,834










$
16,280Impact of noninterest-bearing funds










0.31
%










0.29
%










0.19
%Net interest income/margin





$
391



2.59
%





$
412



2.58
%





$
396



2.58
%     (a)
    
    Includes nonaccrual loans.(b)
    
    Interest includes recognized loan fees of $27 million in
    2007, $28 million in 2006, and $27 million in 2005.   26




---



##### Table of Contents



2007 Compared with 2006


2006 Compared with 2005Increase (Decrease) Due to


Increase (Decrease) Due toVolume


Rate


Total


Volume


Rate


Total(In millions)Interest income:Cash equivalents

$
(2
)

$



$
(2
)

$



$
5


$
5Loans held for sale


(3
)






(3
)


(17
)


5



(12
)Loans


(13
)


19



6



(8
)


125



117Securities


(29
)


30



1



50



32



82Investment in Federal Home Loan Bank stock


(4
)


1



(3
)






5



5Total interest income


(51
)


50



(1
)


25



172



197Interest expense:Deposits:Interest-bearing demand


6



23



29



(5
)


28



23Savings deposits














(1
)






(1
)Certificates of deposit


(2
)


31



29



18



54



72Total interest on deposits


4



54



58



12



82



94Short-term Federal Home Loan Bank borrowings


(17
)


3



(14
)


46



60



106Long-term Federal Home Loan Bank borrowings


(27
)






(27
)


(24
)


1



(23
)Securities sold under repurchase agreements














(8
)


4



(4
)Other borrowings


















2



2Subordinated notes payable to trust


17







17



2







2Preferred stock issued by subsidiaries


(15
)


1



(14
)






4



4Total interest expense


(38
)


58



20



28



153



181Net interest income

$
(13
)

$
(8
)

$
(21
)

$
(3
)

$
19


$
16   Provision
    For Credit Losses
    Risk Management  Credit Risk
    Management
 27




---



##### Table of Contents



Noninterest
    Income
    Increase (Decrease)2007


2006For the Year


Compared


Compared2007


2006


2005


to 2006


to 2005(Dollars in millions)Insurance commissions and fees

$
68


$
69


$
65


$
(1
)

$
4Service charges on deposits


53



50



44



3



6Commercial loan facility fees


16



26



25



(10
)


1Operating lease income


7



7



6







1Mutual fund and variable annuity sales commissions


7



6



4



1



2Other


6



8



14



(2
)


(6
)157



166



158



(9
)


8Loan origination and sale of loans






2



22



(2
)


(20
)$
157


$
168


$
180


$
(11
)

$
(12
)Percent decrease for the year














(7
)%


(7
)%           For the Year2007


2006


2005(In millions)Loans originated and retained

$
55


$
182


$
855Loans sold to third parties


12



215



1,815  28




---



##### Table of Contents



Noninterest
    Expense
    Increase (Decrease)2007


2006For the Year


Compared


Compared2007


2006


2005


to 2006


to 2005(Dollars in millions)Compensation and benefits

$
181


$
184


$
182


$
(3
)

$
2Occupancy


28



28



27







1Information systems and technology


14



14



16







(2
)Shared services allocation from Temple-Inland


29



31



25



(2
)


6Furniture, fixtures, and equipment


18



16



20



2



(4
)Advertising and promotional


16



15



20



1



(5
)Professional services


10



12



16



(2
)


(4
)Travel and other employee costs


10



11



12



(1
)


(1
)Postage, printing, and supplies


8



8



9







(1
)Depreciation of assets leased to others


6



6



6







Litigation charge


5











5



Other


47



52



46



(5
)


6372



377



379



(5
)


(2
)Charges related to asset impairments and severance






11



5



(11
)


6$
372


$
388


$
384


$
(16
)

$
4Percent decrease for the year, excluding charges related to
    asset impairments and severance














(1
)%


(1
)%       Income
    Tax Expense
    Segment
    Performance Summary
    
    Commercial banking,
    Retail banking,
    Insurance agency, and
    Treasury, corporate and other. 29




---



##### Table of Contents



For the Year2007


2006


2005(In millions)Commercial banking

$
198


$
257


$
244Retail banking


(29
)


(5
)


(17
)Insurance agency


7



10



10Mortgage banking


(12
)


(17
)


(28
)Treasury, corporate and other


(38
)


(54
)


(27
)$
126


$
191


$
182   Commercial
    Banking
      Retail
    Banking
   30




---



##### Table of Contents



Insurance
    Agency
    Treasury,
    corporate and other
    Financial
    Condition
  Loans
    
 31




---



##### Table of Contents



At Year-End2007


2006


2005


2004


2003% of





% of





% of





% of





% ofAmount


Total


Amount


Total


Amount


Total


Amount


Total


Amount


Total(Dollar in millions)Single-family mortgage

$
1,672



17
%

$
2,323



24
%

$
3,112



31
%

$
3,560



37
%

$
3,255



36
%Single-family mortgage warehouse


695



7
%


795



8
%


757



8
%


580



6
%


387



4
%Single-family construction


1,510



15
%


1,782



18
%


1,665



17
%


1,303



13
%


888



10
%Multifamily and senior housing


1,541



15
%


1,270



13
%


1,469



15
%


1,454



15
%


1,769



19
%Total residential housing


5,418



54
%


6,170



63
%


7,003



71
%


6,897



71
%


6,299



69
%Commercial real estate


1,674



17
%


1,227



13
%


758



8
%


709



7
%


1,015



11
%Commercial and business


1,340



13
%


1,012



10
%


843



8
%


746



8
%


585



7
%Energy


1,470



15
%


1,117



12
%


756



7
%


717



7
%


562



6
%Asset-based lending and leasing
    (sold in 2006)


















395



4
%


428



5
%


499



5
%Consumer and other


144



1
%


156



2
%


164



2
%


206



2
%


176



2
%Total loans


10,046



100
%


9,682



100
%


9,919



100
%


9,703



100
%


9,136



100
%Less allowance for loan losses


(118
)






(65
)






(74
)






(85
)






(111
)Loans, net

$
9,928






$
9,617






$
9,845






$
9,618






$
9,025       (In millions)


% of Total2007

$
40



2
%2006


39



2
%2005


354



21
%2004


462



28
%2003 and prior


777



47
%$
1,672



100
%      32




---



##### Table of Contents



(In millions)


% of Total2008:First quarter

$
43



9
%Second quarter


50



10
%Third quarter


76



15
%Fourth quarter


51



10
%Thereafter


282



56
%$
502



100
%       2007


2006Total Delinquency


Unpaid


Total Delinquency


Unpaid> 30 days


Principal Balance


> 30 days


Principal Balance(In millions)





(In millions)Option ARMs


10.80
%

$
502



3.17
%

$
678Intermediate ARM


3.27
%


709



1.24
%


1,192Other first liens


8.00
%


279



5.82
%


225Repurchased loans


41.64
%


35



46.62
%


35Second liens


1.54
%


147



1.79
%


1936.97
%

$
1,672



2.97
%

$
2,323   Risk Management  Credit Risk
    Management
 33




---



##### Table of Contents



Commercial andSingle-Family

Multifamily and

Commercial

Business andConstruction

Senior Housing

Real Estate

EnergyVariable



Fixed

Variable



Fixed

Variable



Fixed

Variable



FixedRate



Rate

Rate



Rate

Rate



Rate

Rate



Rate

Total(In millions)Due within one year

$
1,223






$
5


$
990






$



$
1,565






$
1


$
2,128






$
15


$
5,927After one but within five years


282











323







38



91







15



578







4



1,331After five years














186







4



2











85











277$
1,505






$
5


$
1,499






$
42


$
1,658






$
16


$
2,791






$
19$
1,510










$
1,541










$
1,674










$
2,810






$
7,535     Investment Securities
    34




---



##### Table of Contents



By Issuer

By Typegraph

graph        35




---



##### Table of Contents



Unrealized





UnrealizedGain(Loss) on





Gain(Loss) onAmortized


Available-for-Sale


Carrying


Held-to-Maturity


FairCost


Securities


Value


Securities


Value(In millions)U.S. Government and U.S. Government Sponsored Enterprises

$
1,795


$



$
1,795


$
1


$
1,796Private Issuer:Internally valued


3,575



(54
)


3,521



(212
)


3,309Market quotes


204







204







204$
5,574


$
(54
)

$
5,520


$
(211
)

$
5,309     UnpaidIssuer and Underlying







Delinquency%


Subordi-



Principal


CarryingAsset Type

Tranche


Cusip


Total


>60 day


nation%

Loan Originator

Balance


Value


Fair Value(In millions)12MTA Option ARMStructured Asset Mortgage Investment II
    Trust 2007-AR6


Class A2



86364RAB5



7
%


2
%

11%

American Home Mortgage Corp.

$
419


$
396


$
396
*RALI
    2007-QO5
    Trust


Class A



74924AAA3



7
%


3
%

11%

Homecomings Financial


209



196



196
*Alternative Loan
    Trust 2005-81


Class A-4



12668BBR3



16
%


11
%

14%

Countrywide Home Loans


147



149



130Structured Asset Mortgage Investment II
    Trust 2005-AR8


Class A-5



86359LSB6



19
%


13
%

12%

Countrywide Home Loans


140



142



125Alternative Loan
    Trust 2006-OA2


Class A-7



126694V88



22
%


16
%

16%

Countrywide Home Loans


135



139



122Alternative Loan
    Trust 2005-76


Class 1-A-2



12668BDD2



20
%


14
%

17%

Countrywide Home Loans


128



130



114Alternative Loan
    Trust 2005-58


Class A-3



12668AWK7



20
%


14
%

15%

Countrywide Home Loans


128



130



113Alternative Loan
    Trust 2005-51


Class 3-A-1



12668ACW3



18
%


12
%

17%

Countrywide Home Loans


128



130



113Alternative Loan
    Trust 2005-62


Class 1-A-2



12668ATP0



22
%


15
%

18%

Countrywide Home Loans


120



122



106RALI
    Series 2005-QO5
    Trust


Class A-3



761118QP6



16
%


11
%

15%

Homecomings Financial Network,
    SCME, MortgageIT, Other


103



105



91RALI
    Series 2005-Q01
    Trust


Class A-4



761118ER5



12
%


7
%

17%

Homecomings Financial Network,
    Other


93



94



83Alternative Loan
    Trust 2005-38


Class A-2



12667GZ22



20
%


14
%

19%

Countrywide Home Loans


77



78



76Alternative Loan
    Trust 2005-41


Class 2-A-1



12667GR96



19
%


13
%

20%

Countrywide Home Loans


73



74



71Structured Asset Mortgage Investments II
    Trust 2006-AR3


Class 12A4



86360KAH1



21
%


15
%

14%

Countrywide Home Loans,
    Bank of America, and other


71



73



64Harborview Mortgage Loan
    Trust 2005-8


Class 2A3



41161PRT2



13
%


10
%

10%

Countrywide Home Loans


67



68



65Greenpoint Mortgage Funding
    Trust 2005-AR5


Class I-A-2



39538WEC8



20
%


13
%

22%

Greenpoint Mortgage Funding


59



61



59Structured Asset Mortgage Investments II
    Trust 2005-AR4


Class A2



86359LMA4



21
%


17
%

22%

Countrywide Home Loans


59



60



58WaMu Mortgage Pass-Through Certificates,
    Series 2005-AR9


Class A2A



92922FU97



4
%


2
%

19%

One or more approved institutions


56



57



55Structured Asset Mortgage Investments II
    Trust 2005-AR7


Class 5A2



86359LQT9



14
%


9
%

18%

Southstar Funding LLC/Opteum
    Financial Services LLC,
    First Horizon, BOA, other


41



42



37Greenpoint Mortgage Funding
    Trust 2006-AR3


Class 4A3



39538WHH4



12
%


8
%

14%

Greenpoint Mortgage Funding


39



41



36Harborview Mortgage Loan
    Trust 2005-16


Class 4A1B



41161PZD8



15
%


11
%

20%

Countrywide Home Loans


32



33



29IndyMac INDX Mortgage Loan
    Trust 2005-16IP


Class A3



45660LUF4



9
%


6
%

19%

IndyMac Bank, F.S.B.


30



31



312,354



2,351



2,170    *
    
    Security designated as available-for-sale 36




---



##### Table of Contents



UnpaidIssuer and Underlying







Delinquency%


Subordi-



Principal


CarryingAsset Type

Tranche


Cusip


Total


>60 day


nation%

Loan Originator

Balance


Value


Fair Value(In millions)Hybrid Option ARM (5Y Fixed/12MTA)RALI
    2007-QH8
    Trust


Class A



74924EAA5



6
%


3
%

12%

Homecomings Financial


486



481



481
*COFI Option ARMWaMu Mortgage Pass-Through Certificates 2007-OA4


Class 2A



93364CAC2



6
%


3
%

12%

Washington Mutual Bank


138



130



130
*Washington Mutual Mortgage Pass-Through Certificates WMALT
    2007-OA3 Trust


Class 5A



939355AE3



10
%


5
%

13%

Washington Mutual Bank or  others, MortgageIT


126



126



120WaMu Mortgage Pass-Through Certificates 2007-OA5


Class 2A



93364BAC4



7
%


4
%

13%

Washington Mutual Bank


110



104



104
*WaMu Mortgage Pass Through Certificates
    2006-AR9


Class 2A-1B



93363DAC1



4
%


2
%

10%

Washington Mutual Bank


90



90



84WaMu Mortgage Pass Through Certificates
    2006-AR9


Class 2A



93363DAB3



4
%


2
%

36%

Washington Mutual Bank


57



57



53WaMu Mortgage Pass Through Certificates
    2006-AR11


Class 2A-1B



93363TAC6



5
%


3
%

10%

Washington Mutual Bank


46



46



42WaMu Mortgage Pass Through Certificates
    2006-AR13


Class 2A-1B



93363RAC0



5
%


2
%

10%

Washington Mutual Bank


40



40



37WaMu Mortgage Pass Through Certificates
    2006-AR15


Class 2A-1B



93363QAD0



6
%


3
%

9%

Washington Mutual Bank


33



33



30WaMu Mortgage Pass Through Certificates
    2006-AR17


Class 2A-1B



92925DAE0



4
%


2
%

9%

Washington Mutual Bank


26



26



24WaMu Mortgage Pass Through Certificates
    2006-AR19


Class 2A



933638ADO



5
%


3
%

39%

Washington Mutual Bank


22



22



20WaMu Mortgage Pass Through Certificates
    2006-AR19


Class 2A-1B



933638AE8



5
%


3
%

9%

Washington Mutual Bank


14



14



13Home Savings of America


1988-7A



436904AG1










134%

Not Available


1



1



1
*Home Savings of America


1988-8A



436904AJ5










93%

Not Available


2



2



2
*Home Savings of America


1988-10A



436904AK2










111%

Not Available


1



1



1
*Home Savings of America


1988-11A



436904AL0










102%

Not Available


1



1



1
*707



693



6625/1 LIBORBanc of America Mortgage Securities, Inc. Mortgage Pass-Through
    Certificates,
    Series 2004-H


Class 2A1



05949ARD4



3
%


1
%

7%

Bank of America, N.A.


45



45



45GSR Mortgage Loan
    Trust 2004-11


Class 2A1



36242DFS7



2
%


2
%

9%

Various Lenders


45



45



45Banc of America Mortgage Securities, Inc. Mortgage Pass-Through
    Certificates,
    Series 2003-K


Class 2A2



05948XZH7



1
%


1
%

7%

Bank of America, N.A.


36



36



36Banc of America Mortgage Securities, Inc. Mortgage Pass-Through
    Certificates,
    Series 2003-H


Class 2A2



05948XTH4



1
%


1
%

6%

Bank of America, N.A.


32



32



32GSR Mortgage Loan
    Trust 2003-9


Class A2



36228FWS1



2
%


1
%

8%

Various Lenders


25



25



25Banc of America Mortgage Securities, Inc. Mortgage Pass-Through
    Certificates,
    Series 2003-D


Class 2A3



05948XBU4



1
%


1
%

8%

Bank of America, N.A.


12



12



12Banc of America Mortgage Securities, Inc. Mortgage Pass-Through
    Certificates,
    Series 2003-A


Class 2A1



05948LAE7



2
%


2
%

9%

Bank of America, N.A.


5



5



5200



200



20011
%


7
%





$
3,747


$
3,725


$
3,513     *
    
    Security designated as available-for-sale 37




---



##### Table of Contents



California


55
%Florida


9
%Arizona


2
%Other


8
%Not Available


26
%100
%     12-month 1-year
 38




---



##### Table of Contents



Deposits
    Year-End 2007

Year-End 2006graph

graph    39




---



##### Table of Contents



At Year-End2007


2006(In millions)Retail deposits:California

$
2,447


$
2,592Texas


6,402



6,287Commercial deposits


526



607$
9,375


$
9,486       $100,000


Less Thanor More


$100,000


Total(In millions)2008

$
1,401


$
2,889


$
4,2902009


106



246



352Thereafter


29



105



134$
1,536


$
3,240


$
4,776     Borrowings
       40




---



##### Table of Contents



Risk
    Management
    Credit Risk Management
      Loan Approval and Underwriting
      
    80% for commercial real estate,
    80% for residential construction,
    65% for developed land,
    50% for undeveloped land, and
    90% for first-lien single-family loans (with amounts in excess
    of 80% guaranteed by third-party mortgage insurers).     41




---



##### Table of Contents



Concentration
    Percentage of Unpaid Principal Balance by CategoryCommercialSingle-Family


Single-Family


Senior


Multifamily


Real EstateMortgage


Construction


Housing


Construction


Construction


TotalCalifornia


54
%


35
%


17
%


27
%


29
%


35
%Texas


12
%


11
%


10
%


34
%


24
%


17
%Florida


6
%


9
%


6
%


3
%


11
%


8
%Arizona


1
%


6
%


13
%


10
%


8
%


7
%Georgia


3
%


3
%


2
%


6
%


9
%


5
%Other


24
%


36
%


52
%


20
%


19
%


28
%100
%


100
%


100
%


100
%


100
%


100
%     Lots and LandSingle-Family


Acquisition andHouses


Development


Other


Total(In millions)California

$
188


$
312


$
33


$
533Texas


109



29



24



162Florida


52



36



47



135Arizona


30



36



20



86Colorado


51



34







85Other


163



140



206
(a)


509$
593


$
587


$
330


$
1,510     (a)
    
    Principally unsecured loans to national homebuilders    % of


% ofCommercial


Total LoanReal Estate


PortfolioOffice


42
%


7
%Retail


23
%


4
%Industrial


17
%


3
%Land


10
%


2
%Other


8
%


1
%100
%


17
%    42




---



##### Table of Contents



Distribution ofLargest 19CreditCommitment


Outstanding


Relationships(In millions)Commercial real estate, multifamily and senior housing
    construction

$
1,319


$
805



12Energy


489



420



4Single-family construction


340



71



3$
2,148


$
1,296



19   Asset Quality and Allowance for Credit Losses
      
    economic market conditions affecting borrower liquidity and
    collateral values;
    risk characteristics for groups of loans that are not considered
    individually impaired but we believe have probable losses;
    risk characteristics for homogeneous pools of loans;
    volumes and trends of delinquencies, nonaccrual loans,
    repossessions, and bankruptcies;
    trends in criticized and classified loans; and
    other risk factors that we believe are not apparent in
    historical information.    At Year-End2007


2006


2005(Dollars in millions)Non-performing loans

$
166


$
26


$
35Foreclosed real estate


13



5



2Non-performing assets

$
179


$
31


$
37Non-performing loans as a percentage of total loans


1.65
%


0.27
%


0.35
%Non-performing assets divided by total loans and foreclosed real
    estate


1.78
%


0.32
%


0.37
%Allowance for loan losses as a percentage of non-performing loans


71
%


253
%


213
%Allowance for loan losses as a percentage of total loans


1.17
%


0.68
%


0.75
%Single-family mortgage loan delinquencies as a percentage of
    single-family mortgage loans


6.97
%


2.97
%


2.00
%  43




---



##### Table of Contents



For the Year2007


2006


2005


2004


2003(Dollars in millions)Balance at beginning of year

$
65


$
74


$
85


$
111


$
132Charge-offs:Single-family mortgage


(3
)


(2
)


(2
)






(1
)Single-family construction


(4
)














Multifamily and senior housing










(1
)


(3
)


Total residential housing


(7
)


(2
)


(3
)


(3
)


(1
)Commercial real estate














(6
)


(11
)Commercial and business


(3
)


(2
)


(11
)


(2
)


(2
)Asset-based lending and leasing






(14
)


(9
)


(1
)


(57
)Consumer and other


(1
)










(3
)


(2
)Total charge-offs


(11
)


(18
)


(23
)


(15
)


(73
)Recoveries:Single-family mortgage


1



1











Single-family mortgage warehouse














1



4Multifamily and senior housing






2



2







Total residential housing


1



3



2



1



4Commercial real estate










1



1



Commercial and business


13







1







Asset-based lending and leasing






5



1



5



5Consumer and other














1



Total recoveries


14



8



5



8



9Net (charge-offs) recoveries


3



(10
)


(18
)


(7
)


(64
)Provision (credit) for loan losses


50



1



7



(12
)


43Transfer to reserve for unfunded credit commitments














(7
)


Balance at year-end

$
118


$
65


$
74


$
85


$
111Nonaccrual loans

$
166


$
26


$
35


$
50


$
65Accruing loans past-due 90 days or more

$
6


$
5


$
8


$
1


$
3Net charge-offs (recoveries) as a percentage of average loans
    outstanding


(0.03
)%


0.10
%


0.21
%


0.07
%


0.66
%      44




---



##### Table of Contents



45




---



##### Table of Contents



2007


2006


2005


2004


2003Allowance





Allowance





Allowance





Allowance





Allowanceas a





as a





as a





as a





as a% of





% of





% of





% of





% ofLoan





Loan





Loan





Loan





LoanAllowance


Category


Allowance


Category


Allowance


Category


Allowance


Category


Allowance


Category(Dollars in millions)Single-family mortgage

$
9



0.54
%

$
7



0.30
%

$
9



0.29
%

$
8



0.22
%

$
7



0.22
%Single-family mortgage warehouse


6



0.86
%


2



0.25
%


1



0.13
%


1



0.17
%


1



0.26
%Single-family construction


48



3.18
%


12



0.67
%


9



0.54
%


10



0.77
%


6



0.68
%Multifamily and senior housing


6



0.39
%


4



0.31
%


11



0.75
%


15



1.03
%


28



1.58
%Total residential housing


69



1.27
%


25



0.41
%


30



0.43
%


34



0.49
%


42



0.67
%Commercial real estate


6



0.36
%


5



0.41
%


5



0.66
%


8



1.13
%


18



1.77
%Commercial and business


15



1.12
%


8



0.79
%


7



0.83
%


7



0.94
%


8



1.37
%Energy


6



0.41
%


4



0.36
%


3



0.40
%


3



0.42
%


2



0.36
%Asset-based lending and leasing


















8



2.03
%


9



2.10
%


9



1.80
%Consumer and other


























1



0.49
%


1



0.57
%Not allocated


22







23







21







23







31



$
118



1.17
%

$
65



0.67
%

$
74



0.75
%

$
85



0.88
%

$
111



1.21
%   Asset/Liability
    Management
           46




---



##### Table of Contents



Please read Item 7A. Quantitative and
    Qualitative Disclosure About Market Risk
  Operational
    Risk Management
   47




---



##### Table of Contents



Liquidity,
    Capital Expenditures, and Contractual Obligations
  Sources
    and Uses of Cash
  For the Year2007


2006


2005(In millions)We received cash from:Operations

$
144


$
172


$
177Changes in loans held for sale and other


(14
)


245



98From operations


130



417



275Net repayments on loans and securities






736



Sale of asset-based operations






302



Net redemption of Federal Home Loan Bank stock


18



52



Increase in deposits and borrowings


728







1,626Capital contribution from Temple-Inland


101







Sale of real estate projects to affiliate


14







Collection of mortgage servicing rights sale receivables










46Total sources


991



1,507



1,947We used cash to:Pay dividends to Temple-Inland


(35
)


(135
)


(25
)Fund decreases in deposits and borrowings






(1,389
)


Fund loans and securities, net of purchases and sales


(591
)






(1,756
)Increase investment in Federal Home Loan Bank stock










(12
)Redeem preferred stock issued by subsidiaries


(305
)






Fund defeasance of other borrowings and future interest on those
    borrowings


(107
)






Reinvest in the business through capital expenditures,
    acquisitions, and other


(48
)


(42
)


(73
)Total uses


(1,086
)


(1,566
)


(1,866
)Change in cash and cash equivalents

$
(95
)

$
(59
)

$
81          48




---



##### Table of Contents




    Operating cash flows;
    New deposits;
    Ability to borrow from FHLB; and
    A portfolio of liquid assets including marketable
    mortgage-backed securities.    Contractual
    Obligations
    Payments Due or Expiring by PeriodLess than


1-3


3-5


More thanTotal


1 year


years


years


5 years


Indeterminable(In millions)Items on our balance sheet:Transaction and savings deposit accounts

$
4,599


$



$



$



$



$
4,599Certificates of deposit


4,776



4,290



396



88



2



Federal Home Loan Bank borrowings


5,743



5,309



309



125







Subordinated notes payable to trust


314















314



Items not on our balance sheet:Contractual interest payments


784



121



95



65



503



Operating leases


47



9



16



13



9



Processing contracts


18



11



7











$
16,281


$
9,740


$
823


$
291


$
828


$
4,599      49




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Expiring by YearTotal


2008


2009-10


2011-12


Thereafter(In millions)Single-family mortgage loans

$
87


$
87


$



$



$
Unused lines of credit


1,959



226



835



814



84Unfunded portion of credit commitments  pledgeable


3,866



1,510



1,942



389



25Unfunded portion of credit commitments  non-pledgeable


621



449



154



6



12Commitments to originate loans  pledgeable


337



19



238



47



33Commitments to originate loans  non-pledgeable


417



277



73



50



17Letters of credit


359



119



107



133



$
7,646


$
2,687


$
3,349


$
1,439


$
171   Capital
    Management
       50




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
  Note 1 to the Consolidated Financial
    Statements.
  Allowance
    for Credit Losses
        Valuation
    of Mortgage-Backed Securities
      Assessment
    of Goodwill and Other Intangibles for Impairment
   51




---



##### Table of Contents



Recent
    Accounting Standards
  Note 1 to the Consolidated Financial
    Statements
  Effects
    Of Inflation
    Litigation
    Matters
        Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
   52




---



##### Table of Contents



Decrease inIncome BeforeTaxesChange in

At Year-EndInterest Rates

2007


2006(In millions)+1%

$
(6
)

$
(17
)−1%


(12
)


(18
)         Foreign
    Currency Risk
    Commodity
    Price Risk
    Item 8.
    Financial
    Statements  PageManagements Annual Report on Internal
    Control over Financial Reporting


54Report of Independent Registered Public
    Accounting Firm


55Report of Independent Registered Public
    Accounting Firm


56Consolidated Balance Sheets


57Consolidated Statements of Income


58Consolidated Statements of Cash Flow


59Consolidated Statements of Stockholders
    Equity


60Notes to Consolidated Financial Statements


61  53




---



##### Table of Contents



MANAGEMENTS
    ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
    REPORTING    Rule 13a-15 Internal Control  Integrated
    Framework
    Form 10-K,
 54




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board
    of Directors and Shareholders of Guaranty Financial Group
    Inc.
  Internal Control 
    Integrated Framework
            ERNST &
    YOUNG LLP
  Austin, Texas
 February 29, 2008
 55




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board
    of Directors and Shareholders of Guaranty Financial Group
    Inc.
          Internal Control 
    Integrated Framework
  ERNST &
    YOUNG LLP
  Austin, Texas
 February 29, 2008
 56




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  CONSOLIDATED
    BALANCE SHEETS
  At Year-End2007


2006(In millions)ASSETSCash and cash equivalents

$
277


$
372Restricted cash


107



Loans held for sale


16



23Loans, net of allowance for losses of $118 in 2007 and $65 in
    2006


9,928



9,617Securities available-for-sale


1,882



529Securities held-to-maturity


3,642



4,853Investment in Federal Home Loan Bank stock


256



262Property and equipment, net


233



214Accounts, notes, and accrued interest receivable


97



104Goodwill


144



141Other intangible assets


26



26Deferred income taxes


72



27Other assets


116



84TOTAL ASSETS

$
16,796


$
16,252LIABILITIES AND EQUITYDeposits

$
9,375


$
9,486Federal Home Loan Bank borrowings


5,743



5,076Other liabilities


125



127Subordinated debentures and other borrowings


101



101Subordinated notes payable to trust


314



142Preferred stock issued by subsidiaries






305TOTAL LIABILITIES


15,658



15,237STOCKHOLDERS EQUITYPreferred stock, par value $0.01 per share,
    25 million shares authorized, none issued






Common stock, par value $1 per share,
    200 million shares authorized,
    35.4 million shares issued and outstanding


35



35Additional paid-in capital


902



786Retained earnings


236



193Accumulated other comprehensive income (loss), net


(35
)


1TOTAL STOCKHOLDERS EQUITY


1,138



1,015TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
16,796


$
16,252    57




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  For the Year2007


2006


2005(In millions, except per share)INTEREST INCOMELoans and loans held for sale

$
698


$
695


$
589Securities available-for-sale


62



32



41Securities held-to-maturity


220



249



155Other earning assets


16



21



15Total interest income


996



997



800INTEREST EXPENSEDeposits


(341
)


(283
)


(189
)Borrowed funds


(264
)


(302
)


(215
)Total interest expense


(605
)


(585
)


(404
)NET INTEREST INCOME


391



412



396Provision for credit losses


(50
)


(1
)


(10
)NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES


341



411



386NONINTEREST INCOMEInsurance commissions and fees


68



69



65Service charges on deposits


53



50



44Operating lease income


7



7



6Loan origination and sale of loans






2



22Other


29



40



43Total noninterest income


157



168



180NONINTEREST EXPENSECompensation and benefits


(181
)


(184
)


(182
)Occupancy


(28
)


(28
)


(27
)Information systems and technology


(14
)


(14
)


(16
)Charges related to asset impairments and severance






(11
)


(5
)Other


(149
)


(151
)


(154
)Total noninterest expense


(372
)


(388
)


(384
)INCOME BEFORE TAXES


126



191



182Income tax expense


(48
)


(70
)


(66
)NET INCOME

$
78


$
121


$
116EARNINGS PER SHAREBasic and diluted

$
2.20



n/a



n/aDiluted with share awards (proforma, unaudited)

$
2.16



n/a



n/aAVERAGE NUMBER OF SHARES OUTSTANDINGBasic and diluted


35.4



n/a



n/aDiluted with share awards (proforma, unaudited)


36.1



n/a



n/a    58




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOW
  For the Year2007


2006


2005(In millions)CASH PROVIDED BY OPERATIONSNet income

$
78


$
121


$
116Adjustments:Depreciation and amortization


18



16



20Depreciation of assets leased to others


6



6



6Amortization of core deposit and other intangible assets


5



6



5Amortization and accretion of financial instrument discounts and
    premiums and deferred loan fees and origination costs, net


14



24



13Provision for credit losses


50



1



10Deferred income taxes


(27
)


(2
)


7Changes in:Loans held for sale:Originations


(76
)


(157
)


(2,379
)Sales and collections


83



414



2,595Collections on loans serviced for others, net










(122
)Other


(21
)


(12
)


4130



417



275CASH PROVIDED BY (USED FOR) INVESTINGSecurities available-for-sale:Purchases


(1,548
)


(2
)


(3
)Principal payments and maturities


135



126



183Securities held-to-maturity:Purchases


(142
)


(833
)


(2,966
)Principal payments and maturities


1,331



1,510



1,339Federal Home Loan Bank stock:Purchases


(51
)






(12
)Redemptions


69



52



Loans originated or acquired, net of collections


(401
)


(65
)


(310
)Collection of mortgage servicing rights sale receivables










46Sales of loans


34



302



1Sale of real estate projects to former affiliate


14







Acquisitions, net of cash acquired


(7
)






(21
)Capital expenditures


(44
)


(43
)


(41
)Other


3



(3
)


10(607
)


1,044



(1,774
)CASH PROVIDED BY (USED FOR) FINANCINGDeposits, net


(111
)


285



238Repurchase agreements and short-term borrowings, net


1,177



(1,196
)


2,126Long-term Federal Home Loan Bank and other borrowings:Additions


445







2Payments


(955
)


(620
)


(740
)Issuance of subordinated notes payable to trust


172



142



Dividends paid to Temple-Inland


(35
)


(135
)


(25
)Capital contribution from Temple-Inland


101







Redemption of preferred stock issued by subsidiaries


(305
)






Restricted cash deposited for future defeasance of other
    borrowings and related future interest


(107
)






Other






4



(21
)382



(1,520
)


1,580Net (decrease) increase in cash and cash equivalents


(95
)


(59
)


81Cash and cash equivalents at beginning of year


372



431



350Cash and cash equivalents at year-end

$
277


$
372


$
431Interest paid

$
610


$
584


$
389    59




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  AccumulatedAdditional





Other


TotalCommon


Paid-in


Retained


Comprehensive


StockholdersStock


Capital


Earnings


Income/(Loss), net


Equity(In millions)Balance at year-end 2004

$
35


$
771


$
116


$
5


$
927Comprehensive income, net of tax:Net income










116







116Net unrealized gains (losses) on available-for-sale securities














(3
)


(3
)Comprehensive income for the year 2005


















113Distribution of non-cash assets to Temple-Inland






(6
)










(6
)Contribution of allocated expenses from Temple-Inland






8











8Dividends paid to Temple-Inland










(25
)






(25
)Balance at year-end 2005

$
35


$
773


$
207


$
2


$
1,017Comprehensive income, net of tax:Net income










121







121Net unrealized gains (losses) on available-for-sale securities














(1
)


(1
)Comprehensive income for the year 2006


















120Contribution of non-cash assets from Temple-Inland






6











6Contribution of allocated expenses from Temple-Inland






7











7Dividends paid to Temple-Inland










(135
)






(135
)Balance at year-end 2006

$
35


$
786


$
193


$
1


$
1,015Comprehensive income, net of tax:Net income










78







78Net unrealized gains (losses) on available-for-sale securities














(36
)


(36
)Comprehensive income for the year 2007


















42Cash contribution from Temple-Inland






101











101Contribution of non-cash assets from Temple-Inland






10











10Contribution of allocated expenses from Temple-Inland






5











5Dividends paid to Temple-Inland










(35
)






(35
)Balance at year-end 2007

$
35


$
902


$
236


$
(35
)

$
1,138    60




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Note 1 
    Summary
    of Significant Accounting Policies  Background
      Basis
    of Presentation
           61




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash
    and Cash Equivalents
    Note 8
  Capitalized
    Software
    Derivatives
    Pending Accounting Pronouncements
  Fair
    Value of Financial Instruments
    Foreclosed
    Assets
   62




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Goodwill
    and Other Intangible Assets
      Income
    Taxes
    Loans
    Allowance
    for Loan Losses
     63




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Loans
    Held for Sale
    Other
    Revenue Recognition
    Property
    and Equipment
   64




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Securities
      Securities
    Sold Under Repurchase Agreements
    Share-Based
    Compensation
    
    Beginning January 2006, Temple-Inland adopted the modified
    prospective application method contained in Statement of
    Financial Accounting Standards (SFAS) No. 123
    (revised December 2004), Share-Based Payment(SFAS 123(R)),to account for
    share-based payments. As a result, Temple-Inland applied this
    pronouncement to new awards or modifications of existing awards
    in 2006. Prior to adopting SFAS 123(R), Temple-Inland had
    been expensing, over the service period, the fair value of
    share-based compensation awards granted, modified, or settled in
    2003 through 2005 using the prospective transition method of
    accounting contained in SFAS No. 148, Accounting
    for Stock-Based Compensation-Transition and Disclosure, an
    amendment of FASB Statement No. 123.
    Prior to 2003, Temple-Inland used the intrinsic value method in
    accounting for stock options. As a result, Temple-Inland did not
    allocate to us share-based compensation expense related to stock
    options granted prior to 2003. 65




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     For the Year2005(In millions)Net income, as reported

$
116Add: Share-based compensation expense, net of related tax
    effects, included in the determination of reported net income


2Deduct: Total share-based compensation expense, net of related
    tax effects, determined under the fair value based method for
    all awards


(3
)Pro forma net income

$
115   Note 15
  Transfers
    of Financial Assets
    New
    Accounting Pronouncement
  Accounting
    for Uncertainty in Income Taxes
  Pending
    Accounting Pronouncements
  Fair Value Measures
  The Fair Value Option for Financial
    Assets and Financial Liabilities
  Business Combinations
 66




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 2 
    Acquisitions
    and Intangible Assets        Note 3 
    Cash and
    Cash Equivalents    At Year-End2007


2006(In millions)Cash and due from banks

$
157


$
188Interest-bearing deposits with banks


35



14Federal funds sold


85



170$
277


$
372  67




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4 
    Loans    At Year-End2007


2006(In millions)Single-family mortgage

$
1,672


$
2,323Single-family mortgage warehouse


695



795Single-family construction


1,510



1,782Multifamily and senior housing


1,541



1,270Total residential housing


5,418



6,170Commercial real estate


1,674



1,227Commercial and business


1,340



1,012Energy


1,470



1,117Consumer and other


144



156Total loans


10,046



9,682Less allowance for loan losses


(118
)


(65
)Loans, net

$
9,928


$
9,617       At Year-End2007


2006(In millions)California

$
903


$
1,262Texas


193



239Florida


104



138All other states


472



684$
1,672


$
2,323      68




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          For the Year2007


2006


2005(In millions)Loans:Balance at beginning of year

$
65


$
74


$
85Provision for loan losses


50



1



7Charge-offs


(11
)


(18
)


(23
)Recoveries


14



8



5Balance at year-end


118



65



74Unfunded credit commitments:Balance at beginning of year


7



7



7Provision for commitment-related credit losses










3Charge-offs










(3
)Balance at year-end


7



7



7Combined allowances for credit losses at year-end

$
125


$
72


$
81Provision for:Loan losses

$
50


$
1


$
7Commitment-related credit losses










3Combined provision for credit losses

$
50


$
1


$
10  69




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    At Year-End2007


2006(In millions)Accruing loans past due 90 days or more

$
6


$
5Recorded investment in nonaccrual loans


166



26Restructured loans included in nonaccrual loans


1



1Impaired loans included in nonaccrual loans


118



1Allowance for loan losses on impaired loans


20



Average recorded investment in impaired loans


32



2        70




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 5 
    Securities    Gross


GrossAmortized


Unrealized


Unrealized


FairCost


Gains


(Losses)


Value(In millions)At year-end 2007:Available-for-saleMortgage-backed securities:U.S. Government

$
14


$



$



$
14U.S. Government Sponsored Enterprises (FNMA, FHLMC)


552



4



(4
)


552Private issuer


1,366







(54
)


1,3121,932



4



(58
)


1,878Equity securities


4











4$
1,936


$
4


$
(58
)

$
1,882Held-to-maturityMortgage-backed securities:U.S. Government

$
57


$



$



$
57U.S. Government Sponsored Enterprises (FNMA, FHLMC)


1,172



4



(3
)


1,173Private issuer


2,413



1



(213
)


2,201$
3,642


$
5


$
(216
)

$
3,431At year-end 2006:Available-for-saleMortgage-backed securities:U.S. Government

$
17


$



$



$
17U.S. Government Sponsored Enterprises (FNMA, FHLMC)


496



6



(4
)


498Private issuer


6











6519



6



(4
)


521U.S. Government debt securities


4











4Equity securities


4











4$
527


$
6


$
(4
)

$
529Held-to-maturityMortgage-backed securities:U.S. Government

$
79


$



$
(1
)

$
78U.S. Government Sponsored Enterprises (FNMA, FHLMC)


1,725



3



(21
)


1,707Private issuer


3,049



21



(3
)


3,067$
4,853


$
24


$
(25
)

$
4,852      71




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Less Than 12 Months


12 Months or MoreGross





GrossFair


Unrealized


Fair


UnrealizedValue


(Losses)


Value


(Losses)(In millions)Available-for-saleMortgage-backed securities:U.S. Government Sponsored Enterprises

$
129


$
(1
)

$
138


$
(3
)Private issuer


1,307



(54
)


3



$
1,436


$
(55
)

$
141


$
(3
)Held-to-maturityMortgage-backed securities:U.S. Government Sponsored Enterprises

$
4


$



$
611


$
(3
)Private issuer


1,805



(197
)


282



(16
)$
1,809


$
(197
)

$
893


$
(19
)$
3,245


$
(252
)

$
1,034


$
(22
)     
    We believe, based on current estimates of cash flows on the
    securities, we will receive all contractual amounts due.
    The securities cannot be settled at maturity or through
    prepayment in a way that would preclude recovery of
    substantially all of our recorded investment. We do not have
    significant purchase premiums on the securities. Additionally,
    we have no specific plans to sell these securities and we have
    the ability and intent to hold them until repayment. 72




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6 
    Property
    and Equipment    Estimated


At Year-EndUseful Lives


2007


2006(In millions)Land


N/A


$
55


$
50Buildings


10-40 years



170



157Leasehold improvements


5-20 years



24



19Furniture, fixtures, and equipment


3-10 years



73



73322



299Less accumulated depreciation and amortization






(89
)


(85
)$
233


$
214     (In millions)2008

$
92009


82010


82011


72012


6Thereafter


9$
47   Note 7 
    Deposits    At Year-End2007


2006(In millions)Noninterest-bearing demand

$
779


$
845Interest-bearing demand


3,648



3,442Savings deposits


172



192Certificates of deposit


4,776



5,007$
9,375


$
9,486  73




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    $100,000


Less thanor More


$100,000


Total(In millions)3 months or less

$
747


$
1,447


$
2,1944-6 months


463



981



1,4447-12 months


191



461



6522009


106



246



3522010


8



36



442011


16



45



612012


4



23



27Thereafter


1



1



2$
1,536


$
3,240


$
4,776   Note 8 
    Borrowings    2007


2006


2005(Dollars in millions)Short-term FHLB borrowings:At year-end:Balance

$
4,949


$
3,772


$
4,968Weighted average interest rate


4.3
%


5.2
%


4.0
%For the year:Average daily balance

$
3,866


$
4,212


$
3,084Maximum month-end balance

$
4,949


$
4,877


$
4,968Weighted average interest rate


5.0
%


5.0
%


3.4
%Long-term FHLB borrowings:At year-end:Balance

$
794


$
1,304


$
1,924Weighted average interest rate


4.2
%


3.7
%


3.7
%Repurchase agreements:For the year:Average daily balance

$



$



$
144Maximum month-end balance

$



$



$
711Weighted average interest rate










2.5
%Subordinated notes payable to trust (see Note 9):At year-end:Balance

$
314


$
142


$
Weighted average interest rate


7.2
%


7.2
%


Subordinated debentures and other borrowings:At year-end:Balance

$
101


$
101


$
101Weighted average interest rate


8.5
%


8.3
%


6.5
%    74




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Payment Due or Expiring by YearTotal


2008


2009


2010


2011


2012


Thereafter(In millions)FHLB borrowings

$
5,743


$
5,309


$
224


$
85


$
75


$
50


$
Subordinated notes payable to trust


314























314Subordinated debentures and other borrowings


101



90



10



1











$
6,158


$
5,399


$
234


$
86


$
75


$
50


$
314         For the Year2007


2006


2005(In millions)Short-term FHLB borrowings

$
195


$
209


$
103Long-term FHLB borrowings


34



61



84Repurchase agreements










4Subordinated notes payable to trust (Note 9)


19



2



Subordinated debentures and other borrowings


9



9



7Preferred stock issued by subsidiaries (Note 9)


7



21



17$
264


$
302


$
215   Note 9 
    Preferred Stock Issued by Subsidiaries and Subordinated Notes
    Payable to Trust  Preferred
    Stock Issued by Subsidiaries
   75




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Subordinated
    Notes Payable to Trust
    Note 10 
    Earnings
    Per Share    (In millions, except per share)Net income

$
78Weighted average shares outstanding  basic and diluted


35.4Earnings per common share  basic and diluted

$
2.20   Note 15 Note 15 (proforma, unaudited).
    Weighted


AggregateWeighted


Average


Intrinsic ValueAverage


Remaining


(Current ValueExercise Price


Contractual


Less ExerciseShares


Per Share


Term


Price)(In thousands)





(In years)


(In millions)Outstanding


1,659


$
12



6


$
8Exercisable


1,074



10



4



7  76




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 11 
    Income
    Taxes    For the Year2007


2006


2005(In millions)Current tax provision:U.S. Federal

$
(66
)

$
(68
)

$
(56
)State and other


(9
)


(4
)


(3
)(75
)


(72
)


(59
)Deferred tax provision:U.S. Federal


21



2



(7
)State and other


6







27



2



(7
)Income tax expense

$
(48
)

$
(70
)

$
(66
)Income taxes paid to Temple-Inland, net

$
80


$
76


$
76     For the Year2007


2006


2005Federal statutory rate


35
%


35
%


35
%State taxes, net of federal benefit


2
%


2
%


1
%Other


1
%






Effective income tax rate


38
%


37
%


36
%       At Year-End2007


2006(In millions)Deferred tax assets:Allowance for loan losses

$
41


$
24Property, equipment, and intangible assets


7



9Accruals not deductible until paid


9



8Employee benefits


7



8Unrealized losses on available-for-sale securities


19



Other


16



1399



62Deferred tax liabilities:Investment in FHLB stock


(18
)


(22
)Property leased to others


(9
)


(12
)Unrealized gains on available-for-sale securities






(1
)(27
)


(35
)Net deferred tax asset

$
72


$
27  77




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 12 
    Litigation        Note 13 
    Segment
    Information    
    Commercial banking, which offers loan and other credit products
    to residential construction, commercial real estate
    construction, mortgage warehouse, energy, corporate, and middle
    market customers; manages our single-family mortgage loan
    portfolio; and provides commercial deposit and cash management
    products and services.
    Retail banking, which offers a broad range of financial products
    and services to consumers and small businesses, including
    traditional deposit services, lending products and non-deposit
    investment products, such as mutual funds and variable annuity
    products. 78




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    Insurance agency, which offers a comprehensive array of
    insurance products to consumer and commercial customers
    including property and casualty, workers compensation,
    health, and construction bonds, for which we receive agency
    commissions. We do not retain any underwriting risk. The agency
    also sells fixed annuity products.
    Treasury, corporate and other, which includes our
    mortgage-backed security portfolio, borrowings from third
    parties, the residual impact of funds transfer-pricing and
    expenses not allocated to other segments.        79




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Treasury,Commercial


Retail


Insurance


Mortgage


CorporateBanking


Banking


Agency


Banking


and Other


Total(In millions)For the year 2007:Net interest income

$
278


$
122


$



$



$
(9
)

$
391(Provision) credit for credit losses


(41
)


(3
)






(1
)


(5
)


(50
)Noninterest income


29



59



68







1



157Revenues from other segments






10











(10
)


Noninterest expense


(68
)


(217
)


(61
)


(11
)


(15
)(a)


(372
)Segment operating income/income before taxes

$
198


$
(29
)

$
7


$
(12
)

$
(38
)

$
126Average assets

$
9,676


$
605


$
89


$
47


$
5,543


$
15,960Goodwill






107



37











144Depreciation and amortization


7



16



3







3



29Capital expenditures


7



31



1







5



44For the year 2006:Net interest income

$
292


$
134


$



$
1


$
(15
)

$
412(Provision) credit for credit losses


5



(2
)






(1
)


(3
)


(1
)Noninterest income


40



54



69



2



3



168Revenues from other segments






11











(11
)


Noninterest expense


(80
)


(202
)


(59
)


(19
)


(28
)(a)


(388
)Segment operating income/income before taxes

$
257


$
(5
)

$
10


$
(17
)

$
(54
)

$
191Average assets

$
10,003


$
532


$
91


$
98


$
6,110


$
16,834Goodwill






107



34











141Depreciation and amortization


7



16



2







3



28Capital expenditures


2



33



1







7



43For the year 2005:Net interest income

$
288


$
106


$



$
5


$
(3
)

$
396(Provision) credit for credit losses


(6
)


(1
)






(1
)


(2
)


(10
)Noninterest income


39



49



65



21



6



180Revenues from other segments






10











(10
)


Noninterest expense


(77
)


(181
)


(55
)


(53
)


(18
)(a)


(384
)Segment operating income/income before taxes

$
244


$
(17
)

$
10


$
(28
)

$
(27
)

$
182Average assets

$
10,220


$
517


$
80


$
407


$
5,056


$
16,280Goodwill


19



107



33











159Depreciation and amortization


8



16



2



2



3



31Capital expenditures


1



38



1







1



41     (a)
    
    Includes unallocated expenses of:  For the Year2007


2006


2005(In millions)Share-based compensation

$
(6
)

$
(7
)

$
(4
)Charges related to asset impairments and severance






(11
)


(5
)Expenses allocated to us by Temple-Inland but not directly
    attributable to us


(9
)


(11
)


(8
)Other






1



(1
)$
(15
)

$
(28
)

$
(18
)  80




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 14 
    Noninterest
    Expense      For the Year2007


2006


2005(In millions)Severance

$



$
5


$
2Goodwill impairment






6



Other










3$



$
11


$
5     Beginning





Cash


Year-of Year


Additions


Payments


End(In millions)For the year 2007:Contract termination penalties

$
1


$



$
(1
)

$
Other


3











3$
4


$



$
(1
)

$
3For the year 2006:Involuntary employee terminations

$
2


$
5


$
(7
)

$
Contract termination penalties


1











1Other


3











3$
6


$
5


$
(7
)

$
4For the year 2005:Involuntary employee terminations

$
3


$
2


$
(3
)

$
2Contract termination penalties


2







(1
)


1Other


6







(3
)


3$
11


$
2


$
(7
)

$
6  81




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the Year2007


2006


2005(In millions)Shared services allocation from Temple-Inland

$
29


$
31


$
25Furniture, fixtures, and equipment


18



16



20Advertising and promotional


16



15



20Professional services


10



12



16Travel and other employee costs


10



11



12Postage, printing, and supplies


8



8



9Depreciation of assets leased to others


6



6



6Litigation charge


5







Other


47



52



46$
149


$
151


$
154   Note 15 
    Share-Based
    Compensation       82




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash-settled
    awards
    AggregateEquivalent


CurrentShares


Value(In thousands)


(In millions)Awards on Guaranty stock


88


$
1Awards on Temple-Inland stock


265



6Awards on Forestar stock


88



2$
9     Restricted
    stock and stock-settled units
    Stock
    options
    Weighted


AggregateWeighted


Average


Intrinsic ValueAverage


Remaining


(Current ValueExercise Price


Contractual


Less ExerciseShares


Per Share


Term


Price)(In thousands)





(In years)


(In millions)Outstanding on Guaranty stock


327


$
14



7


$
1Outstanding on Temple-Inland stock


971



17



7



5Outstanding on Forestar stock


327



22



7



1$
7Exercisable on Guaranty stock


142


$
10



5


$
1Exercisable on Temple-Inland stock


419



12



5



4Exercisable on Forestar stock


142



15



5



1$
6  83




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      For the Year2007


2006


2005Expected dividend yield


2.3
%


2.4
%


2.3
%Expected stock price volatility


22.8
%


25.1
%


28.2
%Risk-free interest rate


4.9
%


4.4
%


4.2
%Expected life of options in years


6



6



8     Share-based
    compensation expense
    For the Year2007


2006


2005(In millions)Cash-settled awards

$
3


$
2


$
Restricted stock and stock-settled units






3



2Stock options


3



2



2$
6


$
7


$
4     Note 16 
    Benefit
    Plans   84




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 17 
    Summary
    of Quarterly Results of Operations (Unaudited)    First


Second


Third


Fourth2007

Quarter


Quarter


Quarter


Quarter(In millions)Interest income

$
243


$
247


$
251


$
255Interest expense


(148
)


(152
)


(152
)


(153
)Net interest income


95



95



99



102(Provision) credit for credit losses


2







(19
)


(33
)Net interest income after (provision) credit for credit losses


97



95



80



69Noninterest income


39



38



42



38Noninterest expense


(93
)


(94
)


(90
)


(95
)Income before taxes


43



39



32



12Income tax expense


(16
)


(15
)


(11
)


(6
)Net income

$
27


$
24


$
21


$
6   First


Second


Third


Fourth2006

Quarter


Quarter


Quarter


Quarter(In millions)Interest income

$
241


$
253


$
249


$
254Interest expense


(137
)


(146
)


(149
)


(153
)Net interest income


104



107



100



101(Provision) credit for credit losses


(2
)


2



(1
)


Net interest income after (provision) credit for credit losses


102



109



99



101Noninterest income


42



44



43



39Noninterest expense


(102
)


(104
)


(91
)


(91
)Income before
    taxes(a)


42



49



51



49Income tax expense


(16
)


(19
)


(19
)


(16
)Net income

$
26


$
30


$
32


$
33     (a)
    
    Income before taxes includes the following charges related to
    asset impairments and severance associated with sale of
    asset-based operations and repositioning of our mortgage
    origination activities:  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In millions)Severance

$
3


$
1


$
2


$
(1
)Goodwill impairment






6







$
3


$
7


$
2


$
(1
)  85




---



##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 18 
    Fair
    Value of Financial Instruments    At Year-End2007


2006Carrying


Fair


Carrying


FairValue


Value


Value


Value(In millions)Financial assetsLoans receivable

$
9,928


$
9,940


$
9,617


$
9,635Mortgage-backed securities available-for-sale:U.S. Government and U.S. Government Sponsored Enterprises:Market quotes


566



566



515



515Private Issuer:Internally valued


1,307



1,307







Market quotes


5



5



6



61,878



1,878



521



521Mortgage-backed securities held-to-maturity:U.S. Government and U.S. Government Sponsored Enterprises:Market quotes


1,229



1,230



1,804



1,785Private Issuer:Internally valued


2,214



2,002



2,806



2,826Market quotes


199



199



243



2413,642



3,431



4,853



4,852Financial liabilitiesDeposits

$
9,375


$
9,381


$
9,486


$
9,472Federal Home Loan Bank borrowings


5,743



5,747



5,076



5,054Subordinated notes payable to trust


314



277



142



142Other borrowings


101



101



101



101Other off-balance sheet instrumentsCommitments to extend credit

$
(7
)

$
(7
)

$
(7
)

$
(7
)       Input
    
    SourceYield spread
    
    This represents the spread earned by an investor in a security
    relative to the swap curve. This spread is derived using bids
    obtained from dealers on specific securities in our portfolio
    (as explained further below). 86




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##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Prepayment assumptions on underlying mortgages
    
    Obtained from current dealer research and tailored to each
    securitys combination of index, and underlying loan
    prepayment penalty and age characteristicsCash flow projections
    
    We use a third-party cash flow model to generate
    security-specific cash flow projections. The model incorporates
    our prepayment assumptions and the manner in which the
    underlying principal and interest flows are distributed among
    the various tranches in the overall structure.    
    We obtain market quotes from investment dealers for several
    private issuer securities within our portfolio. Each of these
    securities is utilized in the process as a pricing benchmark for
    a segment of the portfolio, having characteristics similar to
    other owned securities. The similar characteristics can include,
    but are not limited to, product type, credit rating, coupon,
    margin, age, and presence of prepayment penalties.
    We obtain current prepayment assumptions from investment
    research for mortgage loans similar to those underlying each of
    the benchmark securities. We input the prepayment assumptions
    into a third-party cash flow generation model. Using the model,
    we generate cash flow projections for each security, taking into
    consideration the specific manner in which cash flows are
    distributed among that pools tranches.
    We derive a yield spread, solving for the spread to the swap
    curve implied by the market quote.
    We utilize the resultant yield spread to value the non-benchmark
    securities by calculating the present value of each of the
    projected cash flows using the swap curve plus the appropriate
    benchmark yield spread. The sum of the discounted cash flows
    represents the estimated current fair value.   87




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##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 19 
    Parent
    Company Condensed Financial Information    Condensed
    Balance Sheets
  At Year-End2007


2006(In millions)AssetsCash and cash equivalents

$
5


$
Investment in Guaranty Bank


1,111



1,091Investment in preferred stock of subsidiary of Guaranty Bank


305



Investment in other subsidiaries


21



(3
)Receivable from subsidiaries other than Guaranty Bank






137Other assets


15



5Total Assets

$
1,457


$
1,230LiabilitiesSubordinated notes payable to trust

$
314


$
142Payable to subsidiaries other than Guaranty Bank






72Other liabilities


5



1Total Liabilities


319



215Stockholders Equity


1,138



1,015Total Liabilities and Stockholders Equity

$
1,457


$
1,230   Condensed
    Statements of Income
  For the Year2007


2006


2005(In millions)IncomeDividends from Guaranty Bank

$
35


$
150


$
25Preferred dividends from subsidiary of Guaranty Bank


10







Interest income from other subsidiaries


2







Total income


47



150



25ExpensesInterest on subordinated notes payable to trust


(19
)


(2
)


Interest on borrowings from other subsidiaries


(6
)


(5
)


(5
)Total expenses


(25
)


(7
)


(5
)Income before taxes and equity in undistributed earnings of
    subsidiaries


22



143



20Income tax benefit


8



2



Income before equity in undistributed earnings of subsidiaries


30



145



20Equity in undistributed earnings of subsidiaries (distributions
    in excess of earnings of subsidiaries)


48



(24
)


96Net Income

$
78


$
121


$
116  88




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##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Condensed
    Statements of Cash Flow
  For the Year2007


2006


2005(In millions)CASH PROVIDED BY OPERATIONSNet income

$
78


$
121


$
116Adjustments:(Equity in undistributed earnings of subsidiaries) distributions
    in excess of earnings of subsidiaries


(48
)


24



(96
)Other


(5
)


(5
)


525



140



25CASH USED FOR INVESTINGAdditional investment in Guaranty Bank






(10
)


Investment in preferred stock of subsidiary of Guaranty Bank


(305
)






Additional investment in nonbank subsidiaries


(17
)






Other


(5
)


(4
)


(327
)


(14
)


CASH PROVIDED BY (USED FOR) FINANCINGIssuance of subordinated notes payable to trust


172



142



Decrease (increase) in receivable from subsidiaries other than
    Guaranty Bank


137



(137
)


Repayment of intercompany borrowings with other subsidiary


(68
)






Dividends paid to Temple-Inland


(35
)


(135
)


(25
)Capital contribution from Temple-Inland


101







Other






4



307



(126
)


(25
)Net increase in cash and cash equivalents


5







Cash and cash equivalents at beginning of year










Cash and cash equivalents at year-end

$
5


$



$
   Note 20 
    Transactions
    with Temple-Inland    For the Year2007


2006


2005(In millions)Dividends

$
35


$
135


$
25Income taxes


48



70



66Allocated expenses:From Temple-Inland


35



38



29To Temple-Inland


17



12



11Net capital contributions


116



13



2   At Year-End2007


2006(In millions)Amounts due (to) from Temple-Inland

$
(8
)

$
8Deposits


3



7  89




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##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 1
    For the Year2007


2006


2005(In millions)Information technology support

$
15


$
14


$
13Legal, human resources, and other administrative costs


7



7



6Variable compensation


2



4



2Accounting and finance


3



3



2Internal audit, governance, and other


2



3



229



31



25Share-based compensation


6



7



4$
35


$
38


$
29     Note 21 
    Capital
    Adequacy and Other Regulatory Matters     90




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##### Table of Contents



GUARANTY
    FINANCIAL GROUP INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For Capital Adequacy


For Categorization AsActual


Requirements


Well-CapitalizedAmount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in millions)At year-end 2007:Total Risk-Based Ratio (Risk-based Capital/Total Risk-weighted
    Assets)

$
1,403



10.54
%


3$1,065



38.00
%


3$1,331



310.00
%Tier 1 (Core) Risk-Based Ratio (Core Capital/Total
    Risk-weighted Assets)

$
1,282



9.63
%


3  $532



34.00
%


3  $799



36.00
%Tier 1 (Core) Leverage Ratio (Core Capital/Adjusted
    Tangible Assets)

$
1,282



7.74
%


3  $662



34.00
%


3  $828



35.00
%Tangible Ratio (Tangible Capital/Tangible Assets)

$
1,282



7.74
%


3  $331



32.00
%


n/a



n/aAt year-end 2006:Total Risk-Based Ratio (Risk-based Capital/Total Risk-weighted
    Assets)

$
1,297



10.52
%


3  $987



38.00
%


3$1,234



310.00
%Tier 1 (Core) Risk-Based Ratio (Core Capital/Total
    Risk-weighted Assets)

$
1,225



9.93
%


3  $493



34.00
%


3  $740



36.00
%Tier 1 (Core) Leverage Ratio (Core Capital/Adjusted
    Tangible Assets)

$
1,225



7.62
%


3  $643



34.00
%


3  $804



35.00
%Tangible Ratio (Tangible Capital/Tangible Assets)

$
1,225



7.62
%


3  $321



32.00
%


n/a



n/a         At Year-End2007


2006(In millions)Guaranty Bank stockholders equity

$
1,111


$
1,091Preferred stock issued by subsidiaries






303Preferred stock issued by subsidiary related to subordinated
    notes payable to trust


305



Intangible assets


(169
)


(168
)Unrealized losses (gains) on available-for-sale securities, net
    of tax


35



(1
)Tangible equity (core capital)


1,282



1,225Includable allowances for credit losses


124



71Preferred stock issued by subsidiaries






2Other


(3
)


(1
)Risk-based capital

$
1,403


$
1,297  91




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures    Rules 13a-15(e) 15d-15(e)
    Item 8. Financial
    Statements.
  Rules 13a-15(f) 15d-15(f)
  Item 9B.
    Other
    Information   92




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Year FirstElected toName

Age

the Board

Principal OccupationKenneth M. Jastrow, II


60



2007


Retired Chairman and Chief Executive Officer of Temple-Inland
    Inc.Kenneth R. Dubuque


59



2007


President and Chief Executive Officer of Guaranty Financial
    Group Inc.David W. Biegler


61



2008


Chairman of Estrella Energy, L.P.Larry R. Faulkner


63



2007


President of Houston Endowment Inc.Robert V. Kavanaugh


71



2007


Retired President and Chief Executive Officer of Stockton Saving
    BankLeigh M. McAlister


58



2007


Professor University of Texas at Austin McCombs Graduate School
    of BusinessRobert D. McTeer


65



2007


Distinguished Fellow at the National Center for Policy AnalysisEdward R. (Ted) McPherson


62



2008


Chief Executive Officer of InterSolve Group, Inc.Raul R. Romero


54



2007


President and Chief Executive Officer Alliance Consulting GroupJohn T. Stuart III


71



2007


Retired Senior Executive Vice President, Chief Lending Officer
    of Guaranty BankLarry E. Temple


72



2007


Attorney at LawBilly D. Walker


64



2007


Retired executive with Motorola Inc.   Form 10-K
  Item 11.
    Executive
    Compensation   93




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Number ofSecuritiesNumber of





Remaining AvailableSecurities to be





for Future IssuanceIssued Upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation PlansOutstanding


Outstanding


(Excluding SecuritiesOptions, Warrants,


Options, Warrants,


Reflected inand Rights *


and Rights


Column(a))Plan Category

(a)


(b)


(c)Equity compensation plans approved by security holders


2,367,205


$
12.40



1,831,554Equity compensation plans not approved by security holders


None



None



NoneTotal


2,367,205


$
12.40



1,831,554     *
    
    Amount includes 210,247 Restricted Stock Units (payable in
    stock) and 174,928 Restricted Stock Awards.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Financial Statements
  Form 10-K.
  Financial Statement Schedules
    Exhibits
 94




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Exhibit Description2
.1

Separation and Distribution Agreement among the Registrant,
    Forestar Real Estate Group Inc. and Temple-Inland Inc.
    (Incorporated herein by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    dated as of December 11, 2007.)3
.1

Amended and Restated Certificate of Incorporation of the
    Registrant. (Incorporated herein by reference to
    Exhibit 3.1 to the Registrants Current Report on
    Form 8-K
    dated as of December 11, 2007.)3
.2

Amended and Restated Bylaws of the Registrant. (Incorporated
    herein by reference to Exhibit 3.2 to the Registrants
    Current Report on
    Form 8-K
    dated as of December 11, 2007.)4
.1

Specimen Certificate for shares of common stock, par value $1.00
    per share, of the Registrant. (Incorporated herein by reference
    to Exhibit 4.1 to Amendment No. 5 to the
    Registrants Form 10 dated as of December 4,
    2007.)4
.2

Rights Agreement between the Registrant and Computershare
    Trust Company, N.A., as Rights Agent. (Incorporated herein
    by reference to Exhibit 4.1 to the Registrants
    Current Report on
    Form 8-K
    dated as of December 11, 2007.)4
.3

Certificate of Designation, Preferences and Rights of
    Series A Junior Participating Preferred Stock.
    (Incorporated by reference to Exhibit 3.3 to the Current
    Report on
    Form 8-K,
    filed by the Company on December 11, 2007.)10
.1

Tax Matters Agreement among the Registrant, Forestar Real Estate
    Group Inc. and Temple-Inland Inc. (Incorporated herein by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K
    dated as of December 11, 2007.)10
.2

Employee Matters Agreement among the Registrant, Forestar Real
    Estate Group Inc. and Temple-Inland Inc. (Incorporated herein by
    reference to Exhibit 10.3 to the Registrants Current
    Report on
    Form 8-K
    dated as of December 11, 2007.)10
.3

Master Transition Services Agreement among the Registrant,
    Forestar Real Estate Group Inc. and Temple-Inland Inc.
    (Incorporated herein by reference to Exhibit 10.2 to the
    Registrants Current Report on
    Form 8-K
    dated as of December 11, 2007.)10
.4

Guaranty Financial Group Inc. Savings and Retirement Plan.*10
.5

Guaranty Financial Group Inc. Supplemental Executive Retirement
    Plan.*10
.6

Guaranty Financial Group Inc. 2007 Stock Incentive Plan.*10
.7

Guaranty Financial Group Inc. Directors Fee Deferral Plan.*10
.8

Master Transactions Agreement between the Registrant and the
    Federal Home Loan Bank of Dallas dated August 1, 2005.
    (Incorporated herein by reference to Exhibit 10.8 to the
    Registrants Form 10 dated as of August 10, 2007.)10
.9

Advances and Security Agreement between the Registrant and the
    Federal Home Loan Bank of Dallas dated August 1, 2005.
    (Incorporated herein by reference to Exhibit 10.9 to the
    Registrants Form 10 dated as of August 10, 2007.)10
.10

Form of Indemnification Agreement to be entered into between the
    Registrant and each of its directors.(Incorporated herein by
    reference to Exhibit 10.10 to Amendment No. 5 to the
    Registrants Form 10 dated as of December 4,
    2007.)10
.11

Change in Control Agreement between the Registrant and each of
    its named executive officers.*10
.12

Employment Agreement between the Registrant and Kenneth R.
    Dubuque dated August 9, 2007. (Incorporated herein by
    reference to Exhibit 10.12 to the Registrants
    Form 10 dated as of August 10, 2007.)10
.13

Form of Restricted Stock Agreement (time and performance
    vesting).*10
.14

Form of Restricted Stock Agreement (performance vesting).*21
.1

List of Subsidiaries of the Registrant.*23
.1

Consent of Ernst & Young LLP.*31
.1

Certification of Kenneth R. Dubuque pursuant to
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934 implementing
    Section 302 of the Sarbanes-Oxley Act of 2002.* 95




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##### Table of Contents



ExhibitNumber

Exhibit Description31
.2

Certification of Ronald D. Murff pursuant to
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934 implementing
    Section 302 of the Sarbanes-Oxley Act of 2002.*32
.1

Certification of Kenneth R. Dubuque pursuant to 18 U.S.C.
    §1350 as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.*32
.2

Certification of Ronald D. Murff pursuant to 18 U.S.C.
    §1350 as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.*     *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement 96




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##### Table of Contents



SIGNATURES      Kenneth R. Dubuque
   President and
 Chief Executive Officer
      Signature

Capacity

Date/s/  Kenneth
    R. DubuqueKenneth
    R. Dubuque

Director, President and Chief Executive Officer (Principal
    Executive Officer)

February 29, 2008/s/  Ronald
    D. MurffRonald
    D. Murff

Senior Executive Vice President, Chief Financial Officer
    (Principal Financial Officer)

February 29, 2008/s/  Craig
    E. GiffordCraig
    E. Gifford

Executive Vice President, (Principal Accounting Officer)

February 29, 2008/s/  Kenneth
    M. Jastrow, IIKenneth
    M. Jastrow, II

Director, Chairman of the Board

February 29, 2008/s/  David
    W. BieglerDavid
    W. Biegler

Director

February 29, 2008/s/  Larry
    R. FaulknerLarry
    R. Faulkner

Director

February 29, 2008/s/  Robert
    V. KavanaughRobert
    V. Kavanaugh

Director

February 29, 2008/s/  Leigh
    M. McAlisterLeigh
    M. McAlister

Director

February 29, 2008/s/  Edward
    R. (Ted) McPhersonEdward
    R. (Ted) McPherson

Director

February 29, 2008/s/  Robert
    D. McTeerRobert
    D. McTeer

Director

February 29, 2008 97




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##### Table of Contents



Signature

Capacity

Date/s/  Raul
    R. RomeroRaul
    R. Romero

Director

February 29, 2008/s/  John
    T. Stuart IIIJohn
    Stuart III

Director

February 29, 2008/s/  Larry
    E. TempleLarry
    E. Temple

Director

February 29, 2008/s/  Billy
    D. WalkerBilly
    D. Walker

Director

February 29, 2008  98