##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Quarterly Period Ended September 30, 2008
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Transition Period From  to
  Guaranty Financial Group Inc.
  Delaware
    
    74-2421034(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 1300 MoPac Expressway South, Austin, Texas 78746
 (512) 434-1000
 Not Applicable
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Number of common shares outstandingClass
    
    as of November 3, 2008Common Stock (par value $1.00 per share)
    
    108,914,265




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##### 



PagePART I. FINANCIAL INFORMATION
    
    1Item 1. Financial Statements
    
    1Guaranty Financial Group Inc. and Subsidiaries
    
    1Consolidated Balance Sheets
    
    1Consolidated Statements of Income
    
    2Consolidated Statements of Cash Flow
    
    3Consolidated Statements of Stockholders Equity
    
    4Notes to the Consolidated Financial Statements
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    39Item 4T. Controls and Procedures
    
    40PART II. OTHER INFORMATION
    
    41Item 1. Legal Proceedings
    
    41Item 1A. Risk Factors
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    43Item 3. Defaults Upon Senior Securities
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    43Item 5. Other Information
    
    43Item 6. Exhibits
    
    43SIGNATURES
    
    45EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
  
  UnauditedSeptember 30,
    
    
    December 31,2008
    
    
    2007(In millions)ASSETSCash and cash equivalents
    
    $
    229
    
    
    $
    277Restricted cash
    
    
    32
    
    
    
    107Loans held for sale
    
    
    1
    
    
    
    16Loans, net of allowance for losses of $231 at
September 30, 2008 and $118 at December
31, 2007
    
    
    10,081
    
    
    
    9,928Securities available-for-sale
    
    
    1,151
    
    
    
    1,882Securities held-to-maturity
    
    
    2,884
    
    
    
    3,642Investment in Federal Home Loan Bank stock
    
    
    224
    
    
    
    256Property and equipment, net
    
    
    234
    
    
    
    233Accounts, notes, and accrued interest receivable
    
    
    70
    
    
    
    97Goodwill
    
    
    135
    
    
    
    144Other intangible assets
    
    
    20
    
    
    
    26Deferred income taxes
    
    
    138
    
    
    
    72Other assets
    
    
    192
    
    
    
    116TOTAL ASSETS
    
    $
    15,391
    
    
    $
    16,796LIABILITIES AND EQUITYDeposits
    
    $
    9,210
    
    
    $
    9,375Federal Home Loan Bank borrowings
    
    
    4,464
    
    
    
    5,743Other liabilities
    
    
    134
    
    
    
    125Subordinated notes payable to trust
    
    
    314
    
    
    
    314Subordinated debt of subsidiary
    
    
    237
    
    
    
    Subordinated debentures and other borrowings
    
    
    31
    
    
    
    101TOTAL LIABILITIES
    
    
    14,390
    
    
    
    15,658STOCKHOLDERS EQUITYPreferred stock, par value $0.01 per share, 25
million shares authorized, 6.2 million shares
issued and outstanding at September 30, 2008
    
    
    
    
    
    
    Common stock, par value $1 per share, 200
million shares authorized, 44.7 million shares
issued and outstanding at September 30, 2008
and 35.4 million shares issued and outstanding
at December 31, 2007
    
    
    45
    
    
    
    35Additional paid-in-capital
    
    
    1,256
    
    
    
    902(Accumulated deficit) retained earnings
    
    
    (31
    )
    
    
    236Accumulated other comprehensive loss, net
    
    
    (269
    )
    
    
    (35
    )TOTAL STOCKHOLDERS EQUITY
    
    
    1,001
    
    
    
    1,138TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    15,391
    
    
    $
    16,796
  1




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions, except per share)INTEREST INCOMELoans and loans held for sale
    
    $
    123
    
    
    $
    179
    
    
    $
    405
    
    
    $
    525Securities available-for-sale
    
    
    23
    
    
    
    16
    
    
    
    78
    
    
    
    34Securities held-to-maturity
    
    
    35
    
    
    
    53
    
    
    
    123
    
    
    
    170Federal Home Loan Bank stock dividends
    
    
    1
    
    
    
    2
    
    
    
    6
    
    
    
    9Other earning assets
    
    
    2
    
    
    
    1
    
    
    
    2
    
    
    
    3Total interest income
    
    
    184
    
    
    
    251
    
    
    
    614
    
    
    
    741INTEREST EXPENSEDeposits
    
    
    (57
    )
    
    
    (88
    )
    
    
    (193
    )
    
    
    (257
    )Borrowed funds
    
    
    (44
    )
    
    
    (64
    )
    
    
    (140
    )
    
    
    (195
    )Total interest expense
    
    
    (101
    )
    
    
    (152
    )
    
    
    (333
    )
    
    
    (452
    )NET INTEREST INCOME
    
    
    83
    
    
    
    99
    
    
    
    281
    
    
    
    289Provision for credit losses
    
    
    (78
    )
    
    
    (19
    )
    
    
    (235
    )
    
    
    (17
    )NET
INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
    
    
    5
    
    
    
    80
    
    
    
    46
    
    
    
    272NONINTEREST INCOMEInsurance commissions and fees
    
    
    10
    
    
    
    13
    
    
    
    33
    
    
    
    38Service charges on deposits
    
    
    14
    
    
    
    14
    
    
    
    42
    
    
    
    39Non-deposit investment sales commissions
    
    
    6
    
    
    
    7
    
    
    
    22
    
    
    
    17Other-than-temporary-impairment on
mortgage-backed security
    
    
    (53
    )
    
    
    
    
    
    
    (53
    )
    
    
    Other
    
    
    4
    
    
    
    8
    
    
    
    20
    
    
    
    25Total noninterest income
    
    
    (19
    )
    
    
    42
    
    
    
    64
    
    
    
    119NONINTEREST EXPENSECompensation and benefits
    
    
    (46
    )
    
    
    (45
    )
    
    
    (145
    )
    
    
    (136
    )Occupancy
    
    
    (9
    )
    
    
    (7
    )
    
    
    (26
    )
    
    
    (20
    )Information systems and technology
    
    
    (5
    )
    
    
    (4
    )
    
    
    (14
    )
    
    
    (11
    )Charges related to asset impairments and severance
    
    
    (14
    )
    
    
    
    
    
    
    (17
    )
    
    
    Other
    
    
    (31
    )
    
    
    (34
    )
    
    
    (101
    )
    
    
    (110
    )Total noninterest expense
    
    
    (105
    )
    
    
    (90
    )
    
    
    (303
    )
    
    
    (277
    )(LOSS) INCOME BEFORE TAXES
    
    
    (119
    )
    
    
    32
    
    
    
    (193
    )
    
    
    114Income tax expense
    
    
    (43
    )
    
    
    (11
    )
    
    
    (64
    )
    
    
    (42
    )NET (LOSS) INCOME
    
    $
    (162
    )
    
    $
    21
    
    
    $
    (257
    )
    
    $
    72NET (LOSS) INCOME APPLICABLE TO COMMON EQUITY
    
    $
    (218
    )
    
    $
    21
    
    
    $
    (313
    )
    
    $
    72(LOSS) EARNINGS PER COMMON SHAREBasic and diluted
    
    $
    (4.89
    )
    
    
    n/a
    
    
    $
    (7.94
    )
    
    
    n/aAVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBasic and diluted
    
    
    44.5
    
    
    
    n/a
    
    
    
    39.4
    
    
    
    n/a
  2




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##### Table of Contents



Nine Months Ended September 30,2008
    
    
    2007(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet (loss) income
    
    $
    (257
    )
    
    $
    72Adjustments:Depreciation and amortization
    
    
    17
    
    
    
    13Depreciation of assets leased to others
    
    
    4
    
    
    
    5Amortization of core deposit and other intangible assets
    
    
    3
    
    
    
    4Amortization and accretion of financial instrument
discounts and premiums and deferred loan fees and
origination costs, net
    
    
    (3
    )
    
    
    12Provision for credit losses
    
    
    235
    
    
    
    17Deferred income taxes
    
    
    58
    
    
    
    (8
    )Other-than-temporary-impairment on mortgage-backed security
    
    
    53
    
    
    
    Goodwill and intangible asset impairment
    
    
    14
    
    
    
    Changes in loans held for sale
    
    
    15
    
    
    
    4Other
    
    
    6
    
    
    
    5145
    
    
    
    124CASH PROVIDED BY (USED FOR) INVESTINGSecurities available-for-sale:Purchases
    
    
    
    
    
    
    (1,128
    )Principal payments and maturities
    
    
    102
    
    
    
    100Sales
    
    
    265
    
    
    
    Securities held-to-maturity:Purchases
    
    
    
    
    
    
    (142
    )Principal payments and maturities
    
    
    555
    
    
    
    1,126Sales deemed to be at maturity
    
    
    143
    
    
    
    Federal Home Loan Bank stock:Purchases
    
    
    (11
    )
    
    
    (21
    )Redemption
    
    
    49
    
    
    
    69Loans originated or acquired, net of collections
    
    
    (439
    )
    
    
    13Sales of loans
    
    
    14
    
    
    
    22Sales of foreclosed real estate
    
    
    12
    
    
    
    5Acquisitions, net of cash acquired
    
    
    
    
    
    
    (7
    )Capital expenditures
    
    
    (18
    )
    
    
    (29
    )Other
    
    
    1
    
    
    
    (4
    )673
    
    
    
    4CASH PROVIDED BY (USED FOR) FINANCINGDeposits, net
    
    
    (165
    )
    
    
    (134
    )Repurchase agreements and short-term borrowings, net
    
    
    (1,039
    )
    
    
    351Long-term Federal Home Loan Bank and other borrowings:Additions
    
    
    
    
    
    
    445Payments
    
    
    (240
    )
    
    
    (797
    )Issuance of subordinated debt of subsidiary
    
    
    237
    
    
    
    Issuance of subordinated notes payable to trust
    
    
    
    
    
    
    172Redemption of preferred stock issued by subsidiaries
    
    
    
    
    
    
    (305
    )Sale of common stock
    
    
    38
    
    
    
    Sale of preferred stock
    
    
    312
    
    
    
    Dividends paid to Temple-Inland Inc.
    
    
    
    
    
    
    (35
    )Other
    
    
    (9
    )
    
    
    (866
    )
    
    
    (303
    )Net decrease in cash and cash equivalents
    
    
    (48
    )
    
    
    (175
    )Cash and cash equivalents at beginning of period
    
    
    277
    
    
    
    372Cash and cash equivalents at end of period
    
    $
    229
    
    
    $
    197Interest paid
    
    $
    322
    
    
    $
    453
  3




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##### Table of Contents



Accumulated(Accumulated
    
    
    OtherPreferred
    
    
    Common
    
    
    
    
    
    
    Additional
    
    
    deficit)
    
    
    Comprehensive
    
    
    TotalShares
    
    
    Shares
    
    
    
    
    
    

Paid-in-
    
    
    Retained
    
    
    (Loss) Income,
    
    
    StockholdersOutstanding
    
    
    Outstanding
    
    
    Common Stock
    
    
    Capital
    
    
    Earnings
    
    
    net
    
    
    Equity(In millions)Balance at December 31, 2007
    
    
    
    
    
    
    35
    
    
    $
    35
    
    
    $
    902
    
    
    $
    236
    
    
    $
    (35
    )
    
    $
    1,138Net loss  first six months 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95
    )
    
    
    
    
    
    
    (95
    )Other comprehensive loss:Change in unrealized
losses on
available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (459
    )
    
    
    (459
    )Associated deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160
    
    
    
    160Comprehensive loss for six months ended June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (394
    )Sale of common stock
    
    
    
    
    
    
    8
    
    
    
    8
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    38Share-based compensation, share-settled awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Issuance of shares upon vesting of restricted
stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Restricted stock grants
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2008
    
    
    
    
    
    
    45
    
    
    $
    45
    
    
    $
    934
    
    
    $
    141
    
    
    $
    (334
    )
    
    $
    786Net loss  third quarter 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    (162
    )Other comprehensive loss:Change in unrealized
losses on
available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    99Associated deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )Comprehensive loss for three months ended September 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97
    )Sale of preferred stock
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    312Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    (10
    )
    
    
    
    
    
    
    Balance at September 30, 2008
    
    
    6
    
    
    
    45
    
    
    $
    45
    
    
    $
    1,256
    
    
    $
    (31
    )
    
    $
    (269
    )
    
    $
    1,001Comprehensive loss for nine months ended September 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (491
    )
  4




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##### Table of Contents



Note 1  Summary of Significant Accounting Policies
 Background
   Basis of Presentation
  New Accounting Pronouncements
 Fair Value Measures The Fair Value Option for Financial Assets and Financial
Liabilities Note 13
 Determining the Fair Value of a Financial
Asset When the Market for that Asset is Not Active
 5




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##### Table of Contents



Pending Accounting Pronouncements
 Business Combinations
 Disclosures about Derivative Instruments and Hedging Activitiesan Amendment of
FASB Statement No. 133
 Note 2  Loans
  September 30,
    
    
    December 31,2008
    
    
    2007(In millions)Single-family mortgage
    
    $
    1,397
    
    
    $
    1,672Single-family mortgage warehouse
    
    
    924
    
    
    
    695Single-family construction (homebuilders)
    
    
    1,060
    
    
    
    1,510Multifamily and senior housing
    
    
    2,044
    
    
    
    1,541Commercial real estate
    
    
    1,837
    
    
    
    1,674Commercial and business
    
    
    1,432
    
    
    
    1,340Energy
    
    
    1,399
    
    
    
    1,470Consumer and other
    
    
    219
    
    
    
    144Total loans
    
    
    10,312
    
    
    
    10,046Less allowance for loan losses
    
    
    (231
    )
    
    
    (118
    )Loans, net
    
    $
    10,081
    
    
    $
    9,928
   6




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Allowance for loan losses:Balance at beginning of period
    
    $
    250
    
    
    $
    72
    
    
    $
    118
    
    
    $
    65Provision for loan losses
    
    
    81
    
    
    
    19
    
    
    
    234
    
    
    
    17Charge-offs
    
    
    (100
    )
    
    
    (1
    )
    
    
    (123
    )
    
    
    (4
    )Recoveries
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    13Balance at end of period
    
    
    231
    
    
    
    91
    
    
    
    231
    
    
    
    91Unfunded credit commitments:Balance at beginning of period
    
    
    11
    
    
    
    7
    
    
    
    7
    
    
    
    7Provision (credit) for commitment-related
credit losses
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    Balance at end of period
    
    
    8
    
    
    
    7
    
    
    
    8
    
    
    
    7Combined allowances for credit losses at end of period
    
    $
    239
    
    
    $
    98
    
    
    $
    239
    
    
    $
    98Provision (credit) for:Loan losses
    
    $
    81
    
    
    $
    19
    
    
    $
    234
    
    
    $
    17Commitment-related credit losses
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    Combined provision for credit losses
    
    $
    78
    
    
    $
    19
    
    
    $
    235
    
    
    $
    17
  September 30,
    
    
    December 31,2008
    
    
    2007(In millions)Accruing loans past due 90 days or more
    
    $
    27
    
    
    $
    6Recorded investment in nonaccrual loans
    
    
    470
    
    
    
    166Restructured troubled loans included in nonaccrual loans
    
    
    
    
    
    
    1Recorded investment in impaired loans (included in nonaccrual loans)
    
    
    234
    
    
    
    118Allowance for loan losses on impaired loans
    
    
    42
    
    
    
    20Direct reduction of recorded investment in impaired loans
(principal charged off)
    
    
    84
    
    
    
    4Performing restructured troubled loans
    
    
    8
    
    
    
    Performing loans restructured at market rates (deemed troubled)
    
    
    90
    
    
    
    29
   7




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##### Table of Contents



Note 3  Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair Value(In millions)At September 30, 2008:Available-for-saleMortgage-backed securities:U.S. Government
    
    $
    12
    
    
    $
    
    
    
    $
    
    
    
    $
    12U.S. Government Sponsored Enterprises (FNMA,
FHLMC)
    
    
    216
    
    
    
    2
    
    
    
    (2
    )
    
    
    216Non-agency
    
    
    1,333
    
    
    
    
    
    
    
    (414
    )
    
    
    9191,561
    
    
    
    2
    
    
    
    (416
    )
    
    
    1,147Equity securities
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4$
    1,565
    
    
    $
    2
    
    
    $
    (416
    )
    
    $
    1,151Held-to-maturityMortgage-backed securities:U.S. Government
    
    $
    48
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    47U.S. Government Sponsored Enterprises (FNMA, FHLMC)
    
    
    671
    
    
    
    3
    
    
    
    (2
    )
    
    
    672Non-agency
    
    
    2,165
    
    
    
    
    
    
    
    (785
    )
    
    
    1,380$
    2,884
    
    
    $
    3
    
    
    $
    (788
    )
    
    $
    2,099At December 31, 2007:Available-for-saleMortgage-backed securities:U.S. Government
    
    $
    14
    
    
    $
    
    
    
    $
    
    
    
    $
    14U.S. Government Sponsored Enterprises (FNMA,
FHLMC)
    
    
    552
    
    
    
    4
    
    
    
    (4
    )
    
    
    552Non-agency
    
    
    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
    )
    
    
    1,173Non-agency
    
    
    2,413
    
    
    
    1
    
    
    
    (213
    )
    
    
    2,201$
    3,642
    
    
    $
    5
    
    
    $
    (216
    )
    
    $
    3,431
 8




---



##### Table of Contents



Amortized Cost
    
    
    Fair Value(In millions)Highest investment grade
    
    $
    1,335
    
    
    $
    972Second-highest investment grade
    
    
    148
    
    
    
    98Third-highest investment grade
    
    
    248
    
    
    
    154Lowest investment grade
    
    
    820
    
    
    
    534One grade below investment grade
    
    
    745
    
    
    
    392Below
    
    
    202
    
    
    
    149$
    3,498
    
    
    $
    2,299
 Note 13 of these Notes to the Consolidated Financial Statements
     
    
    The securities cannot be settled at maturity or through prepayment in a way precluding
recovery of substantially all of our recorded investment. We do not have significant
purchase premiums on the securities.
    
    We have no specific plans to sell these securities and we have the ability and intent
to hold them until repayment.
    
    We believe, based on our current estimates of cash flows on the securities, we will
receive all stated interest and principal. Each of the non-agency securities is
credit-enhanced by subordinate tranches not owned by us, which will absorb credit losses of
the underlying loans until those tranches are depleted. We currently estimate the credit
losses on the underlying loans will not exceed those subordinate tranches and other forms
of credit enhancement and, therefore, our securities will not incur credit losses.
 9




---



##### Table of Contents



Note 4  Deposits
  September 30,
    
    
    December 31,2008
    
    
    2007(In millions)Noninterest-bearing demand
    
    $
    315
    
    
    $
    779Interest-bearing demand
    
    
    3,850
    
    
    
    3,648Savings deposits
    
    
    182
    
    
    
    172Certificates of deposit
    
    
    4,818
    
    
    
    4,776Brokered certificates of deposit
    
    
    45
    
    
    
    $
    9,210
    
    
    $
    9,375
  Note 5  Borrowings
   September 30, 2008
    
    
    December 31, 2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageEnding
    
    
    
    
    
    
    EndingEffective
    
    
    
    
    
    
    EffectiveInterest
    
    
    
    
    
    
    InterestBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate(Dollars in millions)Short-term FHLB borrowings
    
    $
    3,910
    
    
    
    2.5
    %
    
    $
    4,949
    
    
    
    4.3
    %Long-term FHLB borrowings
    
    
    554
    
    
    
    4.3
    %
    
    
    794
    
    
    
    4.2
    %Subordinated notes payable to trust
    
    
    314
    
    
    
    4.5
    %
    
    
    314
    
    
    
    7.2
    %Subordinated debt of subsidiary
    
    
    237
    
    
    
    15.0
    %
    
    
    
    
    
    
    Subordinated debentures and other borrowings
    
    
    31
    
    
    
    7.1
    %
    
    
    101
    
    
    
    8.5
    %
  10




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Short-term FHLB borrowings
    
    $
    26
    
    
    $
    49
    
    
    $
    93
    
    
    $
    142Long-term FHLB borrowings
    
    
    7
    
    
    
    7
    
    
    
    23
    
    
    
    25Subordinated notes payable to trust
    
    
    3
    
    
    
    6
    
    
    
    12
    
    
    
    14Subordinated debt of subsidiary
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    Subordinated debentures and other borrowings
    
    
    1
    
    
    
    2
    
    
    
    5
    
    
    
    7Preferred stock issued by subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7$
    44
    
    
    $
    64
    
    
    $
    140
    
    
    $
    195
  Note 6  (Loss) Earnings Per Common Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions, except per share)Net (loss) income
    
    $
    (162
    )
    
    $
    21
    
    
    $
    (257
    )
    
    $
    72Preferred dividends
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )
    
    
    Beneficial conversion feature
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )
    
    
    Net (loss) income applicable to common equity
    
    $
    (218
    )
    
    $
    21
    
    
    $
    (313
    )
    
    $
    72Weighted average common shares outstanding  basic
and diluted
    
    
    44.5
    
    
    
    n/a
    
    
    
    39.4
    
    
    
    n/a(Loss) earnings per common share  basic and diluted
    
    $
    (4.89
    )
    
    
    n/a
    
    
    $
    (7.94
    )
    
    
    n/a
 (proforma)
   11




---



##### Table of Contents



Weighted
    
    
    AggregateWeighted
    
    
    Average
    
    
    Intrinsic ValueAverage
    
    
    Remaining
    
    
    (CurrentExercise Price
    
    
    Contractual
    
    
    Value LessShares
    
    
    Per Share
    
    
    Term
    
    
    Exercise Price)(In thousands)
    
    
    
    
    
    
    (In years)
    
    
    (In millions)Outstanding
    
    
    1,605
    
    
    $
    12
    
    
    
    5
    
    
    $
    Exercisable
    
    
    1,276
    
    
    
    11
    
    
    
    5
    
    
    
    
 Note 7 Income Taxes
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Federal statutory rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %State taxes, net of federal benefit
    
    
    (1
    )%
    
    
    1
    %
    
    
    (1
    )%
    
    
    2
    %Valuation allowance on deferred tax assets
    
    
    (66
    )%
    
    
    
    
    
    
    (64
    )%
    
    
    Impairment of non-deductible goodwill
    
    
    (4
    )%
    
    
    
    
    
    
    (3
    )%
    
    
    (36
    )%
    
    
    36
    %
    
    
    (33
    )%
    
    
    37
    %
   12




---



##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007(In millions)Deferred tax assets:Allowance for loan losses
    
    $
    81
    
    
    $
    41Unrealized losses on available-for-sale and impaired securities
    
    
    163
    
    
    
    19Other
    
    
    54
    
    
    
    39298
    
    
    
    99Deferred tax liabilities:Investment in FHLB stock
    
    
    (20
    )
    
    
    (18
    )Other
    
    
    (9
    )
    
    
    (9
    )(29
    )
    
    
    (27
    )Net deferred tax asset before valuation allowance
    
    
    269
    
    
    
    72Valuation allowance
    
    
    (131
    )
    
    
    Net deferred tax asset
    
    $
    138
    
    
    $
    72
 Note 8  Litigation
    Note 9  Segment Information
  
    
    Commercial banking,
    
    Retail banking,
    
    Insurance agency, and
    
    Treasury, corporate and other.
  13




---



##### Table of Contents



Treasury,Commercial
    
    
    Retail
    
    
    Insurance
    
    
    Mortgage
    
    
    CorporateBanking
    
    
    Banking
    
    
    Agency
    
    
    Banking
    
    
    and Other
    
    
    Total(In millions)For the Three Months Ended
September 30, 2008:Net interest income
    
    $
    65
    
    
    $
    20
    
    
    $
    
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    83(Provision) credit for credit losses
    
    
    (71
    )
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    (78
    )Noninterest income
    
    
    7
    
    
    
    19
    
    
    
    10
    
    
    
    
    
    
    
    (55
    )
    
    
    (19
    )Noninterest expense
    
    
    (18
    )
    
    
    (55
    )
    
    
    (11
    )
    
    
    (1
    )
    
    
    (20
    )(a)
    
    
    (105
    )Segment operating income/(loss)
before taxes
    
    $
    (17
    )
    
    $
    (17
    )
    
    $
    (1
    )
    
    $
    (2
    )
    
    $
    (82
    )
    
    $
    (119
    )Average assets
    
    $
    10,023
    
    
    $
    691
    
    
    $
    79
    
    
    $
    30
    
    
    $
    4,960
    
    
    $
    15,783Goodwill
    
    
    
    
    
    
    107
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    135Depreciation and amortization
    
    
    1
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    8Capital expenditures
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    5For the Three Months Ended
September 30, 2007:Net interest income
    
    $
    69
    
    
    $
    32
    
    
    $
    
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    99(Provision) credit for credit losses
    
    
    (17
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (19
    )Noninterest income
    
    
    7
    
    
    
    21
    
    
    
    13
    
    
    
    1
    
    
    
    
    
    
    
    42Noninterest expense
    
    
    (15
    )
    
    
    (55
    )
    
    
    (12
    )
    
    
    (2
    )
    
    
    (6
    )(a)
    
    
    (90
    )Segment operating income/(loss)
before taxes
    
    $
    44
    
    
    $
    (3
    )
    
    $
    1
    
    
    $
    (1
    )
    
    $
    (9
    )
    
    $
    32Average assets
    
    $
    9,654
    
    
    $
    605
    
    
    $
    95
    
    
    $
    43
    
    
    $
    5,508
    
    
    $
    15,905Goodwill
    
    
    
    
    
    
    107
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    144Depreciation and amortization
    
    
    1
    
    
    
    5
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    7Capital expenditures
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    6For the Nine Months Ended
September 30, 2008:Net interest income
    
    $
    202
    
    
    $
    61
    
    
    $
    
    
    
    $
    
    
    
    $
    18
    
    
    $
    281(Provision) credit for credit losses
    
    
    (209
    )
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )
    
    
    (22
    )
    
    
    (235
    )Noninterest income
    
    
    21
    
    
    
    62
    
    
    
    33
    
    
    
    
    
    
    
    (52
    )
    
    
    64Noninterest expense
    
    
    (55
    )
    
    
    (171
    )
    
    
    (35
    )
    
    
    (3
    )
    
    
    (39
    )(a)
    
    
    (303
    )Segment operating income/(loss)
before taxes
    
    $
    (41
    )
    
    $
    (51
    )
    
    $
    (2
    )
    
    $
    (4
    )
    
    $
    (95
    )
    
    $
    (193
    )Average assets
    
    $
    10,100
    
    
    $
    653
    
    
    $
    85
    
    
    $
    32
    
    
    $
    5,336
    
    
    $
    16,206Goodwill
    
    
    
    
    
    
    107
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    135Depreciation and amortization
    
    
    5
    
    
    
    13
    
    
    
    2
    
    
    
    
    
    
    
    4
    
    
    
    24Capital expenditures
    
    
    2
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    18For the Nine Months Ended
September 30, 2007:Net interest income
    
    $
    207
    
    
    $
    92
    
    
    $
    
    
    
    $
    
    
    
    $
    (10
    )
    
    $
    289(Provision) credit for credit losses
    
    
    (15
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )Noninterest income
    
    
    24
    
    
    
    56
    
    
    
    38
    
    
    
    1
    
    
    
    
    
    
    
    119Noninterest expense
    
    
    (51
    )
    
    
    (163
    )
    
    
    (34
    )
    
    
    (10
    )
    
    
    (19
    )(a)
    
    
    (277
    )Segment operating income/(loss)
before taxes
    
    $
    165
    
    
    $
    (17
    )
    
    $
    4
    
    
    $
    (9
    )
    
    $
    (29
    )
    
    $
    114Average assets
    
    $
    9,623
    
    
    $
    606
    
    
    $
    93
    
    
    $
    47
    
    
    $
    5,417
    
    
    $
    15,786Goodwill
    
    
    
    
    
    
    107
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    144Depreciation and amortization
    
    
    5
    
    
    
    12
    
    
    
    2
    
    
    
    
    
    
    
    3
    
    
    
    22Capital expenditures
    
    
    4
    
    
    
    19
    
    
    
    1
    
    
    
    
    
    
    
    5
    
    
    
    29
 
 (a)
    
    Includes unallocated expenses of: Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Share-based compensation
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    (5
    )
    
    $
    (5
    )Charges related to asset impairments and severance
    
    
    (14
    )
    
    
    
    
    
    
    (17
    )
    
    
    Expenses allocated to us by Temple-Inland Inc.
but not directly attributable to us
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (7
    )Other
    
    
    (5
    )
    
    
    (3
    )
    
    
    (17
    )
    
    
    (7
    )$
    (20
    )
    
    $
    (6
    )
    
    $
    (39
    )
    
    $
    (19
    )
 14




---



##### Table of Contents



Note 10  Noninterest Expense
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Advertising and promotional
    
    $
    5
    
    
    $
    4
    
    
    $
    16
    
    
    $
    11Furniture, fixtures, and equipment
    
    
    5
    
    
    
    5
    
    
    
    16
    
    
    
    13Professional services
    
    
    5
    
    
    
    3
    
    
    
    13
    
    
    
    7Travel and other employee costs
    
    
    2
    
    
    
    2
    
    
    
    8
    
    
    
    7Postage, printing, and supplies
    
    
    2
    
    
    
    2
    
    
    
    6
    
    
    
    6Litigation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Depreciation of assets leased to others
    
    
    1
    
    
    
    2
    
    
    
    4
    
    
    
    5Other
    
    
    11
    
    
    
    9
    
    
    
    38
    
    
    
    34Shared services allocation from Temple-Inland Inc.
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    22$
    31
    
    
    $
    34
    
    
    $
    101
    
    
    $
    110
 Note 11  Share-Based Compensation
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Restricted stock
    
    $
    (1
    )
    
    $
    1
    
    
    $
    3
    
    
    $
    1Cash-settled awards
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Stock options
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2$
    1
    
    
    $
    1
    
    
    $
    5
    
    
    $
    5
  Cash-settled awards
  15




---



##### Table of Contents



Equivalent SharesThree Months Ended
    
    
    Nine Months Ended
    
    
    AggregateSeptember 30, 2008
    
    
    September 30, 2008
    
    
    Current Value(In thousands)
    
    
    (In millions)Awards indexed to Guaranty stock at beginning of period
    
    
    81
    
    
    
    88Granted
    
    
    105
    
    
    
    105Settled
    
    
    (25
    )
    
    
    (32
    )Awards indexed to Guaranty stock at September 30, 2008
    
    
    161
    
    
    
    161
    
    
    $
    1Awards indexed to Temple-Inland Inc. stock at
September 30, 2008
    
    
    244
    
    
    
    244
    
    
    
    4Awards indexed to Forestar Real Estate Group Inc.
stock at September 30, 2008
    
    
    81
    
    
    
    81
    
    
    
    1$
    6
 Restricted stock and stock-settled units
   SharesThree Months Ended
    
    
    Nine Months Ended
    
    
    AggregateSeptember 30, 2008
    
    
    September 30, 2008
    
    
    Current Value(In thousands)
    
    
    (In millions)Outstanding beginning of period
    
    
    1,671
    
    
    
    26Granted
    
    
    
    
    
    
    1,703Settled
    
    
    (35
    )
    
    
    (57
    )Cancelled
    
    
    (8
    )
    
    
    (44
    )Awards indexed to Guaranty stock at September 30, 2008
    
    
    1,628
    
    
    
    1,628
    
    
    $
    6
 16




---



##### Table of Contents



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
    
    
    306
    
    
    $
    14
    
    
    
    6
    
    
    $
    Outstanding on Temple-Inland Inc. stock
    
    
    921
    
    
    
    17
    
    
    
    6
    
    
    
    2Outstanding on Forestar Real Estate
Group Inc. stock
    
    
    307
    
    
    
    22
    
    
    
    6
    
    
    
    $
    2Exercisable on Guaranty stock
    
    
    194
    
    
    $
    12
    
    
    
    5
    
    
    $
    Exercisable on Temple-Inland Inc. stock
    
    
    584
    
    
    
    14
    
    
    
    5
    
    
    
    2Exercisable on Forestar Real Estate
Group Inc. stock
    
    
    195
    
    
    
    18
    
    
    
    5
    
    
    
    $
    2
 Note 12  Benefit Plans
  Note 13  Fair Value of Financial Instruments
  September 30, 2008
    
    
    December 31, 2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In millions)Financial assetsLoans, net
    
    $
    10,081
    
    
    $
    9,655
    
    
    $
    9,928
    
    
    $
    9,940Mortgage-backed securities held-to-maturity:U.S. Government and U.S. Government
Sponsored Enterprises
    
    
    719
    
    
    
    719
    
    
    
    1,229
    
    
    
    1,230Non-agency:Internally valued
    
    
    2,015
    
    
    
    1,234
    
    
    
    2,214
    
    
    
    2,002Market quotes
    
    
    150
    
    
    
    146
    
    
    
    199
    
    
    
    1992,884
    
    
    
    2,099
    
    
    
    3,642
    
    
    
    3,431Financial liabilitiesDeposits
    
    $
    9,210
    
    
    $
    9,193
    
    
    $
    9,375
    
    
    $
    9,381Federal Home Loan Bank borrowings
    
    
    4,464
    
    
    
    4,472
    
    
    
    5,743
    
    
    
    5,747Subordinated notes payable to trust
    
    
    314
    
    
    
    278
    
    
    
    314
    
    
    
    277Subordinated debt of subsidiary
    
    
    237
    
    
    
    227
    
    
    
    
    
    
    
    Subordinated debentures and other borrowings
    
    
    31
    
    
    
    31
    
    
    
    101
    
    
    
    101Other off-balance sheet instrumentsCommitments to extend credit
    
    $
    (8
    )
    
    $
    (8
    )
    
    $
    (7
    )
    
    $
    (7
    )
 17




---



##### Table of Contents




    
    Level 1 is observable prices in active markets.
 
    
    Level 2 is observable prices in less than active markets or for different, but similar
products, or valuation methodologies using observable data.
    
    Level 3 is valuation methodologies using data not observable in the markets.
   Level 1
    
    
    Level 3
    
    
    Total(In millions)Available-for-sale securities:U.S. Government and U.S. Government
Sponsored Enterprises mortgage-backed
securities
    
    $
    228
    
    
    $
    
    
    
    $
    228Non-agency mortgage-backed securities
    
    
    
    
    
    
    919
    
    
    
    919Equity securities
    
    
    
    
    
    
    4
    
    
    
    4$
    228
    
    
    $
    923
    
    
    $
    1,151
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2008
    
    
    September 30, 2008(In millions)Recorded amount at beginning of the period
    
    $
    837
    
    
    $
    1,316Change in unrealized losses for the
period included in other
comprehensive loss
    
    
    99
    
    
    
    (360
    )Principal payments
    
    
    (13
    )
    
    
    (33
    )Recorded amount at end of period
    
    $
    923
    
    
    $
    923
 18




---



##### Table of Contents



Level 2
    
    
    Level 3
    
    
    Total(In millions)Impaired loans
    
    $
    192
    
    
    $
    
    
    
    $
    192Impaired mortgage-backed security
    
    
    
    
    
    
    79
    
    
    
    79Foreclosed assets
    
    
    50
    
    
    
    
    
    
    
    50$
    242
    
    
    $
    79
    
    
    $
    321
 Note 14  Transactions with Temple-Inland Inc. and Other Related Parties
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2007
    
    
    September 30, 2007(In millions)Information technology support
    
    $
    3
    
    
    $
    11Legal, human resources, and other administrative costs
    
    
    2
    
    
    
    5Accounting, finance, and other
    
    
    2
    
    
    
    6Share-based compensation (included in compensation expense)
    
    
    1
    
    
    
    5$
    8
    
    
    $
    27
   19




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 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;
    
    our ability to borrow funds, maintain or increase deposits or
raise capital could be limited which could adversely affect our
liquidity and earnings;
    
    costs or difficulties related to transitioning as a stand-alone public company
following our spin-off from Temple-Inland Inc. in December 2007;
    
    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;
    
    natural disasters in primary market areas that may result in prolonged business
disruption or impair the value of collateral securing loans;
    
    assumptions and estimates underlying critical accounting policies, particularly
allowance for credit losses, mortgage-backed securities valuation and impairment
assessments, ability to realize deferred tax assets, and goodwill and other intangible
impairment assessments, 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 Inc. and Forestar Real Estate Group
Inc.;
    
    the ability to maintain capital ratios acceptable to the Office of Thrift Supervision;
and
    
    changes in the value of real estate securing our loans.
   20




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##### Table of Contents



Selected Ratios and Other Data
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in millions, except per share)For the period:Net interest income
    
    $
    83
    
    
    $
    100
    
    
    $
    98
    
    
    $
    102
    
    
    $
    99
    
    
    $
    281
    
    
    $
    289Provision for credit losses
    
    
    (78
    )
    
    
    (99
    )
    
    
    (58
    )
    
    
    (33
    )
    
    
    (19
    )
    
    
    (235
    )
    
    
    (17
    )Net (loss) income
    
    
    (162
    )
    
    
    (85
    )
    
    
    (10
    )
    
    
    6
    
    
    
    21
    
    
    
    (257
    )
    
    
    72Net (charge-offs) recoveries
    
    
    (100
    )
    
    
    (19
    )
    
    
    (2
    )
    
    
    (6
    )
    
    
    
    
    
    
    (121
    )
    
    
    9Return on average assets
    
    
    (4.11
    )%
    
    
    (2.08
    )%
    
    
    (0.24
    )%
    
    
    0.15
    %
    
    
    0.53
    %
    
    
    (2.11
    )%
    
    
    0.61
    %Return on average stockholders equity
    
    
    (61.13
    )%
    
    
    (37.12
    )%
    
    
    (3.65
    )%
    
    
    2.28
    %
    
    
    8.06
    %
    
    
    (33.01
    )%
    
    
    9.31
    %Net interest margin
    
    
    2.14
    %
    
    
    2.54
    %
    
    
    2.49
    %
    
    
    2.59
    %
    
    
    2.65
    %
    
    
    2.39
    %
    
    
    2.59
    %Period-end:Loans, net
    
    $
    10,081
    
    
    $
    9,995
    
    
    $
    10,099
    
    
    $
    9,928
    
    
    $
    9,561Non-performing assets
    
    
    520
    
    
    
    406
    
    
    
    284
    
    
    
    179
    
    
    
    130Non-performing assets ratio
    
    
    5.02
    %
    
    
    3.95
    %
    
    
    2.76
    %
    
    
    1.78
    %
    
    
    1.35
    %Capital/Equity(actual):Guaranty Bank tier 1 leverage ratio
    
    
    8.99
    %
    
    
    7.63
    %
    
    
    7.58
    %
    
    
    7.74
    %
    
    
    7.79
    %Guaranty Bank tier 1 risk-based ratio
    
    
    9.75
    %
    
    
    9.36
    %
    
    
    9.38
    %
    
    
    9.63
    %
    
    
    9.94
    %Guaranty Bank total risk-based
capital ratio
    
    
    12.65
    %
    
    
    10.60
    %
    
    
    10.61
    %
    
    
    10.54
    %
    
    
    10.68
    %Tangible equity/tangible assets
    
    
    5.55
    %
    
    
    3.90
    %
    
    
    4.45
    %
    
    
    5.82
    %
    
    
    5.36
    %Tangible equity/per common share
    
    $
    18.92
    
    
    $
    13.85
    
    
    $
    19.38
    
    
    $
    27.36
    
    
    
    n/aCapital/Equity(proforma)(1):Tangible equity/per common share
    
    $
    7.82
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aCredit reserves:Allowance for loan losses
    
    $
    231
    
    
    $
    250
    
    
    $
    172
    
    
    $
    118
    
    
    $
    91Allowance for loan losses to total
loans
    
    
    2.24
    %
    
    
    2.44
    %
    
    
    1.67
    %
    
    
    1.17
    %
    
    
    0.94
    %Allowance for loan losses to
non-performing loans
    
    
    49
    %
    
    
    69
    %
    
    
    66
    %
    
    
    71
    %
    
    
    75
    %Direct reduction of recorded
investment in impaired loans
(principal charged off)
    
    $
    84
    
    
    $
    4
    
    
    $
    4
    
    
    $
    4
    
    
    $
    Allowance and direct reductions to
recorded investment as a percentage
of non-performing loans before direct
reductions to recorded investment
    
    
    57
    %
    
    
    69
    %
    
    
    66
    %
    
    
    72
    %
    
    
    75
    %Total deposits
    
    $
    9,210
    
    
    $
    9,160
    
    
    $
    9,248
    
    
    $
    9,375
    
    
    $
    9,376Average interest-bearing deposits
    
    
    8,551
    
    
    
    8,405
    
    
    
    8,588
    
    
    
    8,609
    
    
    
    8,794
    
    
    $
    8,515
    
    
    $
    8,735Total branches
    
    
    162
    
    
    
    162
    
    
    
    158
    
    
    
    158
    
    
    
    159
 
 (1)
    
    Proforma tangible equity/per common share at September 30, 2008 reflects the effect
of the conversion of our convertible preferred stock and accrued dividends to common stock as if it
had been converted prior to September 30, 2008. Current Market Conditions
  21




---



##### Table of Contents



Analysis of Third Quarter 2008 and 2007
 Performance Ratios
 Three Months Ended September 30,

    
    Nine Months Ended September 30,2008

    
    2007

    
    2008

    
    2007Return on assets
(net (loss) income
divided by average
total assets)
    
    
    (4.11)
    %
    
    
    0.53
    %
    
    
    (2.11)
    %
    
    
    0.61
    %Return on equity
(net (loss) income
divided by average
stockholders
equity)
    
    
    (61.13)
    %
    
    
    8.06
    %
    
    
    (33.01)
    %
    
    
    9.31
    %Dividend payout
ratio (dividends
declared divided by
net income)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49
    %Equity to asset
ratio (average
stockholders
equity divided by
average assets)
    
    
    6.72
    %
    
    
    6.55
    %
    
    
    6.41
    %
    
    
    6.53
    %Net interest margin
(net interest
income divided by
average earning
assets)
    
    
    2.14
    %
    
    
    2.65
    %
    
    
    2.39
    %
    
    
    2.59
    %
  
    
    Net loss was $162 million, a decline of $183 million from third quarter 2007, primarily
a result of credit loss provisions, an other-than-temporary-impairment charge on one of our
non-agency mortgage-backed securities, impairment of goodwill and intangible assets of our
insurance agency, and a deferred income tax asset valuation allowance.
    
    Net interest income decreased 16% compared to third quarter 2007. Our average earning
assets did not change significantly, but our net interest margin decreased because we
issued subordinated debt of Guaranty Bank in the Private Placements that has an effective
yield of approximately 15%. Net interest margin was also negatively impacted by a
significant increase in nonaccrual homebuilder loans.
    
    We recorded $78 million in credit loss provisions in third quarter 2008, compared to
$19 million in third quarter 2007. Approximately half of the third quarter 2008 provision
for credit loss related to homebuilder loans, with the majority of the remainder related to
single-family mortgage loans.
    
    We recorded a $53 million other-than-temporary-impairment charge related to a
non-agency mortgage-backed security.
    
    We increased our valuation allowance against deferred tax assets by $85 million,
because of uncertainty regarding our ability to realize those assets.
    
    We determined the goodwill and other intangible assets related to our insurance agency
were impaired and recorded a $14 million impairment charge to reduce the carrying amounts
of those assets to their estimated fair value.
 22




---



##### Table of Contents



Results of Operations
 Net Interest Income
  Item 3. Quantitative and Qualitative Disclosure about Market Risk
  Three Months Ended September 30,2008

    
    2007Average
    
    
    
    
    
    
    Yield/

    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate

    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in millions)ASSETSCash equivalents
    
    $
    83
    
    
    $
    2
    
    
    
    1.78
    %
    
    $
    73
    
    
    $
    1
    
    
    
    5.14
    %Loans held for sale
    
    
    1
    
    
    
    
    
    
    
    4.93
    %
    
    
    15
    
    
    
    1
    
    
    
    6.71
    %Loans
    
    
    10,172
    
    
    
    123
    
    
    
    4.85
    %
    
    
    9,582
    
    
    
    178
    
    
    
    7.45
    %Securities
    
    
    4,952
    
    
    
    58
    
    
    
    4.74
    %
    
    
    5,047
    
    
    
    69
    
    
    
    5.46
    %Investments in Federal Home Loan Bank stock
    
    
    233
    
    
    
    1
    
    
    
    2.32
    %
    
    
    209
    
    
    
    2
    
    
    
    5.22
    %Total earning assets
    
    
    15,441
    
    
    $
    184
    
    
    
    4.76
    %
    
    
    14,926
    
    
    $
    251
    
    
    
    6.73
    %Net unrealized losses on
available-for-sale securities
    
    
    (430
    )
    
    
    
    
    
    
    
    
    
    
    (27
    )Other assets
    
    
    772
    
    
    
    
    
    
    
    
    
    
    
    1,006Total assets
    
    $
    15,783
    
    
    
    
    
    
    
    
    
    
    $
    15,905LIABILITIES AND EQUITYInterest-bearing deposits:Interest-bearing demand
    
    $
    3,913
    
    
    $
    18
    
    
    
    1.80
    %
    
    $
    3,748
    
    
    $
    28
    
    
    
    2.94
    %Savings deposits
    
    
    181
    
    
    
    
    
    
    
    0.76
    %
    
    
    180
    
    
    
    
    
    
    
    0.72
    %Certificates of deposit
    
    
    4,457
    
    
    
    39
    
    
    
    3.51
    %
    
    
    4,866
    
    
    
    60
    
    
    
    4.92
    %Total interest-bearing deposits
    
    
    8,551
    
    
    
    57
    
    
    
    2.67
    %
    
    
    8,794
    
    
    
    88
    
    
    
    3.99
    %Short-term Federal Home Loan Bank borrowings
    
    
    4,369
    
    
    
    26
    
    
    
    2.36
    %
    
    
    3,813
    
    
    
    49
    
    
    
    5.19
    %Long-term Federal Home Loan Bank borrowings
    
    
    656
    
    
    
    7
    
    
    
    4.31
    %
    
    
    795
    
    
    
    7
    
    
    
    3.56
    %Subordinated notes payable to trust
    
    
    314
    
    
    
    3
    
    
    
    4.58
    %
    
    
    314
    
    
    
    6
    
    
    
    7.18
    %Subordinated debt of subsidiary
    
    
    185
    
    
    
    7
    
    
    
    14.34
    %
    
    
    
    
    
    
    
    
    
    
    Subordinated debentures and other borrowings
    
    
    61
    
    
    
    1
    
    
    
    7.29
    %
    
    
    103
    
    
    
    2
    
    
    
    8.82
    %Total borrowings
    
    
    5,585
    
    
    
    44
    
    
    
    3.16
    %
    
    
    5,025
    
    
    
    64
    
    
    
    5.13
    %Total interest-bearing liabilities
    
    
    14,136
    
    
    $
    101
    
    
    
    2.86
    %
    
    
    13,819
    
    
    $
    152
    
    
    
    4.41
    %Interest rate spread
    
    
    
    
    
    
    
    
    
    
    1.90
    %
    
    
    
    
    
    
    
    
    
    
    2.32
    %Noninterest-bearing demand deposits
    
    
    468
    
    
    
    
    
    
    
    
    
    
    
    646Other liabilities
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    398Stockholders equity
    
    
    1,060
    
    
    
    
    
    
    
    
    
    
    
    1,042Total liabilities and stockholders equity
    
    $
    15,783
    
    
    
    
    
    
    
    
    
    
    $
    15,905Impact of noninterest-bearing funds
    
    
    
    
    
    
    
    
    
    
    0.24
    %
    
    
    
    
    
    
    
    
    
    
    0.33
    %Net interest income/margin
    
    
    
    
    
    $
    83
    
    
    
    2.14
    %
    
    
    
    
    
    $
    99
    
    
    
    2.65
    %
 23




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##### Table of Contents



Nine Months Ended September 30,2008

    
    2007Average
    
    
    
    
    
    
    Yield/

    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate

    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in millions)ASSETSCash equivalents
    
    $
    76
    
    
    $
    2
    
    
    
    2.39
    %
    
    $
    82
    
    
    $
    3
    
    
    
    5.08
    %Loans held for sale
    
    
    4
    
    
    
    
    
    
    
    3.61
    %
    
    
    19
    
    
    
    1
    
    
    
    7.27
    %Loans
    
    
    10,156
    
    
    
    405
    
    
    
    5.32
    %
    
    
    9,536
    
    
    
    524
    
    
    
    7.33
    %Securities
    
    
    5,187
    
    
    
    201
    
    
    
    5.18
    %
    
    
    5,057
    
    
    
    204
    
    
    
    5.37
    %Investments in Federal Home Loan Bank stock
    
    
    247
    
    
    
    6
    
    
    
    3.24
    %
    
    
    214
    
    
    
    9
    
    
    
    5.71
    %Total earning assets
    
    
    15,670
    
    
    $
    614
    
    
    
    5.23
    %
    
    
    14,908
    
    
    $
    741
    
    
    
    6.63
    %Net unrealized losses on
available-for-sale securities
    
    
    (298
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )Other assets
    
    
    834
    
    
    
    
    
    
    
    
    
    
    
    886Total assets
    
    $
    16,206
    
    
    
    
    
    
    
    
    
    
    $
    15,786LIABILITIES AND EQUITYInterest-bearing deposits:Interest-bearing demand
    
    $
    3,802
    
    
    $
    58
    
    
    
    2.03
    %
    
    $
    3,640
    
    
    $
    77
    
    
    
    2.82
    %Savings deposits
    
    
    177
    
    
    
    1
    
    
    
    0.75
    %
    
    
    188
    
    
    
    1
    
    
    
    0.71
    %Certificates of deposit
    
    
    4,536
    
    
    
    134
    
    
    
    3.95
    %
    
    
    4,907
    
    
    
    179
    
    
    
    4.86
    %Total interest-bearing deposits
    
    
    8,515
    
    
    
    193
    
    
    
    3.02
    %
    
    
    8,735
    
    
    
    257
    
    
    
    3.92
    %Short-term Federal Home Loan Bank borrowings
    
    
    4,736
    
    
    
    93
    
    
    
    2.61
    %
    
    
    3,634
    
    
    
    142
    
    
    
    5.22
    %Long-term Federal Home Loan Bank borrowings
    
    
    723
    
    
    
    23
    
    
    
    4.26
    %
    
    
    941
    
    
    
    25
    
    
    
    3.56
    %Subordinated notes payable to trust
    
    
    314
    
    
    
    12
    
    
    
    5.15
    %
    
    
    264
    
    
    
    14
    
    
    
    6.97
    %Subordinated debt of subsidiary
    
    
    62
    
    
    
    7
    
    
    
    14.23
    %
    
    
    
    
    
    
    
    
    
    
    Subordinated debentures and other borrowings
    
    
    90
    
    
    
    5
    
    
    
    8.09
    %
    
    
    104
    
    
    
    7
    
    
    
    8.43
    %Preferred stock issued by subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    7
    
    
    
    7.34
    %Total borrowings
    
    
    5,925
    
    
    
    140
    
    
    
    3.15
    %
    
    
    5,069
    
    
    
    195
    
    
    
    5.13
    %Total interest-bearing liabilities
    
    
    14,440
    
    
    $
    333
    
    
    
    3.08
    %
    
    
    13,804
    
    
    $
    452
    
    
    
    4.36
    %Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.15
    %
    
    
    
    
    
    
    
    
    
    
    2.27
    %Noninterest-bearing demand deposits
    
    
    595
    
    
    
    
    
    
    
    
    
    
    
    690Other liabilities
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    261Stockholders equity
    
    
    1,038
    
    
    
    
    
    
    
    
    
    
    
    1,031Total liabilities and stockholders equity
    
    $
    16,206
    
    
    
    
    
    
    
    
    
    
    $
    15,786Impact of noninterest-bearing funds
    
    
    
    
    
    
    
    
    
    
    0.24
    %
    
    
    
    
    
    
    
    
    
    
    0.32
    %Net interest income/margin
    
    
    
    
    
    $
    281
    
    
    
    2.39
    %
    
    
    
    
    
    $
    289
    
    
    
    2.59
    %
 Provision for Credit Losses
  Credit Risk
 24




---



##### Table of Contents



Noninterest Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Increase
    
    
    
    
    
    
    
    
    
    
    Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    2008
    
    
    2007
    
    
    (Decrease)(Dollars in millions)Insurance commissions and fees
    
    $
    10
    
    
    $
    13
    
    
    $
    (3
    )
    
    $
    33
    
    
    $
    38
    
    
    $
    (5
    )Service charges on deposits
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    42
    
    
    
    39
    
    
    
    3Non-deposit investment sales
commissions
    
    
    6
    
    
    
    7
    
    
    
    (1
    )
    
    
    22
    
    
    
    17
    
    
    
    5Commercial loan facility fees
    
    
    4
    
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    13
    
    
    
    (2
    )Operating lease income
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    5
    
    
    
    5
    
    
    
    Other-than-temporary-impairment
on mortgage-backed security
    
    
    (53
    )
    
    
    
    
    
    
    (53
    )
    
    
    (53
    )
    
    
    
    
    
    
    (53
    )Loss on sale of mortgage-backed
securities
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Other
    
    
    2
    
    
    
    4
    
    
    
    (2
    )
    
    
    8
    
    
    
    7
    
    
    
    1$
    (19
    )
    
    $
    42
    
    
    $
    (61
    )
    
    $
    64
    
    
    $
    119
    
    
    $
    (55
    )Percent decrease for the period
    
    
    
    
    
    
    
    
    
    
    (145
    )%
    
    
    
    
    
    
    
    
    
    
    (46
    )%
   25




---



##### Table of Contents



Noninterest Expense
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Increase
    
    
    
    
    
    
    
    
    
    
    Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    2008
    
    
    2007
    
    
    (Decrease)(Dollars in millions)Compensation and benefits
    
    $
    46
    
    
    $
    45
    
    
    $
    1
    
    
    $
    145
    
    
    $
    136
    
    
    $
    9Occupancy
    
    
    9
    
    
    
    7
    
    
    
    2
    
    
    
    26
    
    
    
    20
    
    
    
    6Information systems and technology
    
    
    5
    
    
    
    4
    
    
    
    1
    
    
    
    14
    
    
    
    11
    
    
    
    3Advertising and promotional
    
    
    5
    
    
    
    4
    
    
    
    1
    
    
    
    16
    
    
    
    11
    
    
    
    5Furniture, fixtures, and equipment
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    16
    
    
    
    13
    
    
    
    3Professional services
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    13
    
    
    
    7
    
    
    
    6Travel and other employee costs
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    8
    
    
    
    7
    
    
    
    1Postage, printing, and supplies
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    6
    
    
    
    6
    
    
    
    Litigation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    (5
    )Depreciation of assets leased to
others
    
    
    1
    
    
    
    2
    
    
    
    (1
    )
    
    
    4
    
    
    
    5
    
    
    
    (1
    )Other
    
    
    11
    
    
    
    9
    
    
    
    2
    
    
    
    38
    
    
    
    34
    
    
    
    4Shared services allocation from
Temple-Inland Inc.
    
    
    
    
    
    
    7
    
    
    
    (7
    )
    
    
    
    
    
    
    22
    
    
    
    (22
    )91
    
    
    
    90
    
    
    
    1
    
    
    
    286
    
    
    
    277
    
    
    
    9Charges related to asset
impairments and severance
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    17
    
    
    
    
    
    
    
    17$
    105
    
    
    $
    90
    
    
    $
    15
    
    
    $
    303
    
    
    $
    277
    
    
    $
    26Percent increase for the period,
excluding charges related to
asset impairments and severance
    
    
    
    
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    3
    %
    Income Tax Expense
  26




---



##### Table of Contents



Segment Performance Summary
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Commercial banking
    
    $
    (17
    )
    
    $
    44
    
    
    $
    (41
    )
    
    $
    165Retail banking
    
    
    (17
    )
    
    
    (3
    )
    
    
    (51
    )
    
    
    (17
    )Insurance agency
    
    
    (1
    )
    
    
    1
    
    
    
    (2
    )
    
    
    4Mortgage banking
    
    
    (2
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    (9
    )Treasury, corporate and other
    
    
    (82
    )
    
    
    (9
    )
    
    
    (95
    )
    
    
    (29
    )$
    (119
    )
    
    $
    32
    
    
    $
    (193
    )
    
    $
    114
 Commercial Banking
  Retail Banking
  Insurance Agency
  Treasury, corporate and other
  27




---



##### Table of Contents



Financial Condition
 Loans
  
  September 30, 2008
    
    
    December 31, 2007Percent of
    
    
    
    
    
    
    Percent ofBalance
    
    
    Total Loans
    
    
    Balance
    
    
    Total Loans(Dollars in millions)Single-family mortgage
    
    $
    1,397
    
    
    
    14
    %
    
    $
    1,672
    
    
    
    17
    %Single-family mortgage warehouse
    
    
    924
    
    
    
    9
    %
    
    
    695
    
    
    
    7
    %Single-family construction (homebuilders)
    
    
    1,060
    
    
    
    10
    %
    
    
    1,510
    
    
    
    15
    %Multifamily and senior housing
    
    
    2,044
    
    
    
    20
    %
    
    
    1,541
    
    
    
    15
    %Commercial real estate
    
    
    1,837
    
    
    
    18
    %
    
    
    1,674
    
    
    
    17
    %Commercial and business
    
    
    1,432
    
    
    
    14
    %
    
    
    1,340
    
    
    
    13
    %Energy
    
    
    1,399
    
    
    
    14
    %
    
    
    1,470
    
    
    
    15
    %Consumer and other
    
    
    219
    
    
    
    1
    %
    
    
    144
    
    
    
    1
    %Total loans
    
    
    10,312
    
    
    
    100
    %
    
    
    10,046
    
    
    
    100
    %Less allowance for loan losses
    
    
    (231
    )
    
    
    
    
    
    
    (118
    )Loans, net
    
    $
    10,081
    
    
    
    
    
    
    $
    9,928
 Credit Risk
 28




---



##### Table of Contents



September 30, 2008
    
    
    December 31, 2007Unpaid
    
    
    Total
    
    
    Unpaid
    
    
    TotalPrincipal
    
    
    Delinquency
    
    
    Principal
    
    
    DelinquencyBalance
    
    
    > 30 days
    
    
    Balance
    
    
    > 30 days(Dollars in millions)Option ARMs
    
    $
    377
    
    
    
    25.80
    %
    
    $
    502
    
    
    
    10.80
    %Intermediate ARMs
    
    
    476
    
    
    
    7.27
    %
    
    
    709
    
    
    
    3.27
    %Other first liens
    
    
    406
    
    
    
    9.12
    %
    
    
    279
    
    
    
    8.00
    %Repurchased loans
    
    
    32
    
    
    
    42.12
    %
    
    
    35
    
    
    
    41.64
    %Second liens
    
    
    106
    
    
    
    1.88
    %
    
    
    147
    
    
    
    1.54
    %$
    1,397
    
    
    
    13.21
    %
    
    $
    1,672
    
    
    
    6.97
    %
   29




---



##### Table of Contents



Investment Securities
  By Issuer
    
    By Type(PIE CHART)
    
    (PIE CHART)
   Note 13
   30




---



##### Table of Contents



NetNet
    
    
    
    
    
    
    UnrealizedUnrealized
    
    
    
    
    
    
    Losses onLosses on
    
    
    
    
    
    
    Held-to-Amortized
    
    
    Available-for-
    
    
    Carrying
    
    
    MaturityCost
    
    
    Sale Securities
    
    
    Value
    
    
    Securities
    
    
    Fair Value(In millions)U.S. Government
and U.S.
Government
Sponsored
Enterprises
    
    $
    947
    
    
    $
    
    
    
    $
    947
    
    
    $
    
    
    
    $
    947Non-agency:Internally valued
    
    
    3,344
    
    
    
    (414
    )
    
    
    2,930
    
    
    
    (781
    )
    
    
    2,149Market quotes
    
    
    154
    
    
    
    
    
    
    
    154
    
    
    
    (4
    )
    
    
    150$
    4,445
    
    
    $
    (414
    )
    
    $
    4,031
    
    
    $
    (785
    )
    
    $
    3,246
 31




---



##### Table of Contents



Subord-
    
    
    
    UnpaidDelinquency%
    
    ination
    
    
    
    Principal
    
    
    AmortizedIssuer and Underlying Asset Type
    
    Tranche
    
    Cusip
    
    Total
    
    >60 day
    
    %
    
    Loan Originator
    
    Balance
    
    
    Cost
    
    
    Fair Value(Dollars in millions)12MTA Option ARMsStructured Asset Mortgage
Investment II Trust 2007-AR6
    
    Class A2
    
    86364RAB5
    
    
    22
    %
    
    
    16
    %
    
    
    12
    %
    
    American Home Mortgage Corp.
    
    $
    407
    
    
    $
    407
    
    
    $
    267
    *RALI 2007-QO5 Trust
    
    Class A
    
    74924AAA3
    
    
    25
    %
    
    
    18
    %
    
    
    11
    %
    
    Homecomings Financial
    
    
    204
    
    
    
    204
    
    
    
    137
    *Alternative Loan Trust 2005-81
    
    Class A-4
    
    12668BBR3
    
    
    30
    %
    
    
    24
    %
    
    
    13
    %
    
    Countrywide Home Loans
    
    
    142
    
    
    
    143
    
    
    
    88Structured Asset Mortgage
Investment II Trust 2005-AR8
    
    Class A-5
    
    86359LSB6
    
    
    34
    %
    
    
    28
    %
    
    
    13
    %
    
    Countrywide Home Loans
    
    
    133
    
    
    
    135
    
    
    
    60Alternative Loan Trust 2006-OA2
    
    Class A-7
    
    126694V88
    
    
    39
    %
    
    
    32
    %
    
    
    15
    %
    
    Countrywide Home Loans
    
    
    128
    
    
    
    79
    
    
    
    79Alternative Loan Trust 2005-76
    
    Class 1-A-2
    
    12668BDD2
    
    
    35
    %
    
    
    29
    %
    
    
    18
    %
    
    Countrywide Home Loans
    
    
    125
    
    
    
    127
    
    
    
    76Alternative Loan Trust 2005-58
    
    Class A-3
    
    12668AWK7
    
    
    34
    %
    
    
    28
    %
    
    
    14
    %
    
    Countrywide Home Loans
    
    
    122
    
    
    
    123
    
    
    
    70Alternative Loan Trust 2005-51
    
    Class 3-A-1
    
    12668ACW3
    
    
    30
    %
    
    
    24
    %
    
    
    17
    %
    
    Countrywide Home Loans
    
    
    123
    
    
    
    124
    
    
    
    78Alternative Loan Trust 2005-62
    
    Class 1-A-2
    
    12668ATP0
    
    
    35
    %
    
    
    29
    %
    
    
    17
    %
    
    Countrywide Home Loans
    
    
    116
    
    
    
    117
    
    
    
    57RALI Series 2005-QO5 Trust
    
    Class A-3
    
    761118QP6
    
    
    34
    %
    
    
    26
    %
    
    
    14
    %
    
    Homecomings Financial Network, SCME, Mortgage IT, Other
    
    
    97
    
    
    
    99
    
    
    
    33RALI Series 2005-Q01 Trust
    
    Class A-4
    
    761118ER5
    
    
    28
    %
    
    
    21
    %
    
    
    17
    %
    
    Homecomings Financial Network, Other
    
    
    87
    
    
    
    89
    
    
    
    49Alternative Loan Trust 2005-38
    
    Class A-2
    
    12667GZ22
    
    
    30
    %
    
    
    25
    %
    
    
    19
    %
    
    Countrywide Home Loans
    
    
    69
    
    
    
    70
    
    
    
    41Alternative Loan Trust 2005-41
    
    Class 2-A-1
    
    12667GR96
    
    
    33
    %
    
    
    26
    %
    
    
    21
    %
    
    Countrywide Home Loans
    
    
    65
    
    
    
    66
    
    
    
    44Structured Asset Mortgage
Investments II Trust 2006-AR3
    
    Class 12A4
    
    86360KAH1
    
    
    37
    %
    
    
    30
    %
    
    
    15
    %
    
    Countrywide Home Loans, Bank of America, and other
    
    
    68
    
    
    
    70
    
    
    
    25Harborview Mortgage Loan Trust
2005-8
    
    Class 2A3
    
    41161PRT2
    
    
    25
    %
    
    
    22
    %
    
    
    20
    %
    
    Countrywide Home Loans
    
    
    60
    
    
    
    62
    
    
    
    41Greenpoint Mortgage Funding
Trust 2005-AR5
    
    Class I-A-2
    
    39538WEC8
    
    
    40
    %
    
    
    34
    %
    
    
    21
    %
    
    Greenpoint Mortgage Funding
    
    
    52
    
    
    
    53
    
    
    
    36Structured Asset Mortgage
Investments II Trust 2005-AR4
    
    Class A2
    
    86359LMA4
    
    
    35
    %
    
    
    28
    %
    
    
    23
    %
    
    Countrywide Home Loans
    
    
    53
    
    
    
    54
    
    
    
    34WaMu Mortgage Pass-Through
Certificates, Series 2005-AR9
    
    Class A2A
    
    92922FU97
    
    
    10
    %
    
    
    7
    %
    
    
    19
    %
    
    One or more approved institutions
    
    
    49
    
    
    
    50
    
    
    
    36Structured Asset Mortgage
Investments II Trust 2005-AR7
    
    Class 5A2
    
    86359LQT9
    
    
    25
    %
    
    
    21
    %
    
    
    17
    %
    
    Southstar Funding LLC/Opteum Financial Services LLC, First Horizon, BOA, other
    
    
    40
    
    
    
    40
    
    
    
    25Greenpoint Mortgage Funding
Trust 2006-AR3
    
    Class 4A3
    
    39538WHH4
    
    
    32
    %
    
    
    28
    %
    
    
    15
    %
    
    Greenpoint Mortgage Funding
    
    
    37
    
    
    
    38
    
    
    
    19Harborview Mortgage Loan Trust
2005-16
    
    Class 4A1B
    
    41161PZD8
    
    
    28
    %
    
    
    24
    %
    
    
    19
    %
    
    Countrywide Home Loans
    
    
    32
    
    
    
    32
    
    
    
    23IndyMac INDX Mortgage Loan
Trust 2005-16IP
    
    Class A3
    
    45660LUF4
    
    
    26
    %
    
    
    21
    %
    
    
    20
    %
    
    IndyMac Bank, F.S.B.
    
    
    26
    
    
    
    26
    
    
    
    142,235
    
    
    
    2,208
    
    
    
    1,332
 
 *
    
    Security designated as available-for-sale, thus carrying value for available-for-sale securities
is equal to fair value. 32




---



##### Table of Contents



Subord-
    
    
    
    UnpaidDelinquency %
    
    ination
    
    
    
    Principal
    
    
    AmortizedIssuer and Underlying Asset Type
    
    Tranche
    
    Cusip
    
    Total
    
    >60 day
    
    %
    
    Loan Originator
    
    Balance
    
    
    Cost
    
    
    Fair Value(Dollars in millions)Hybrid Option ARMs (5Y
Fixed/12MTA)RALI 2007-QH8 Trust
    
    Class A
    
    74924EAA5
    
    
    23
    %
    
    
    16
    %
    
    
    13
    %
    
    Homecomings Financial
    
    
    476
    
    
    
    476
    
    
    
    331
    *COFI Option ARMsWaMu Mortgage
Pass-Through Certificates 2007-OA4
    
    Class 2A
    
    93364CAC2
    
    
    20
    %
    
    
    14
    %
    
    
    30
    %
    
    Washington Mutual Bank
    
    
    134
    
    
    
    134
    
    
    
    99
    *Washington Mutual Mortgage
Pass-Through Certificates WMALT
2007-OA3 Trust
    
    Class 5A
    
    939355AE3
    
    
    25
    %
    
    
    18
    %
    
    
    14
    %
    
    Washington Mutual Bank or others, Mortgage IT
    
    
    118
    
    
    
    118
    
    
    
    88WaMu Mortgage Pass-Through
Certificates 2007-OA5
    
    Class 2A
    
    93364BAC4
    
    
    20
    %
    
    
    16
    %
    
    
    30
    %
    
    Washington Mutual Bank
    
    
    107
    
    
    
    107
    
    
    
    80
    *WaMu Mortgage Pass- Through
Certificates 2006-AR9
    
    Class 2A-1B
    
    93363DAC1
    
    
    13
    %
    
    
    8
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    83
    
    
    
    83
    
    
    
    62WaMu Mortgage Pass -Through
Certificates 2006-AR9
    
    Class 2A
    
    93363DAB3
    
    
    13
    %
    
    
    8
    %
    
    
    36
    %
    
    Washington Mutual Bank
    
    
    52
    
    
    
    52
    
    
    
    42WaMu Mortgage Pass- Through
Certificates 2006-AR11
    
    Class 2A-1B
    
    93363TAC6
    
    
    15
    %
    
    
    11
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    41
    
    
    
    42
    
    
    
    28WaMu Mortgage Pass Through
Certificates 2006-AR13
    
    Class 2A-1B
    
    93363RAC0
    
    
    15
    %
    
    
    10
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    36
    
    
    
    36
    
    
    
    24WaMu Mortgage Pass- Through
Certificates 2006-AR15
    
    Class 2A-1B
    
    93363QAD0
    
    
    12
    %
    
    
    9
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    31
    
    
    
    31
    
    
    
    23WaMu Mortgage Pass- Through
Certificates 2006-AR17
    
    Class 2A-1B
    
    92925DAE0
    
    
    16
    %
    
    
    11
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    23
    
    
    
    23
    
    
    
    16WaMu Mortgage Pass- Through
Certificates 2006-AR19
    
    Class 2A
    
    933638AD0
    
    
    13
    %
    
    
    10
    %
    
    
    39
    %
    
    Washington Mutual Bank
    
    
    20
    
    
    
    20
    
    
    
    15WaMu Mortgage Pass- Through
Certificates 2006-AR19
    
    Class 2A-1B
    
    933638AE8
    
    
    13
    %
    
    
    10
    %
    
    
    9
    %
    
    Washington Mutual Bank
    
    
    13
    
    
    
    13
    
    
    
    9Home Savings of America
    
    1988-7A
    
    436904AG1
    
    
    
    
    
    
    
    
    
    
    102
    %
    
    Not Available
    
    
    1
    
    
    
    1
    
    
    
    1
    *Home Savings of America
    
    1988-8A
    
    436904AJ5
    
    
    
    
    
    
    
    
    
    
    102
    %
    
    Not Available
    
    
    2
    
    
    
    2
    
    
    
    2
    *Home Savings of America
    
    1988-10A
    
    436904AK2
    
    
    
    
    
    
    
    
    
    
    103
    %
    
    Not Available
    
    
    1
    
    
    
    1
    
    
    
    1
    *Home Savings of America
    
    1988-11A
    
    436904AL0
    
    
    
    
    
    
    
    
    
    
    103
    %
    
    Not Available
    
    
    1
    
    
    
    1
    
    
    
    1
    *663
    
    
    
    664
    
    
    
    4915/1 LIBORBanc of America Mortgage
Securities, Inc. Mortgage
Pass-Through Certificates, Series
2004-H
    
    Class 2A1
    
    05949ARD4
    
    
    4
    %
    
    
    2
    %
    
    
    7
    %
    
    Bank of America, N.A.
    
    
    38
    
    
    
    38
    
    
    
    37GSR Mortgage Loan Trust 2004-11
    
    Class 2A1
    
    36242DFS7
    
    
    5
    %
    
    
    5
    %
    
    
    9
    %
    
    Various Lenders
    
    
    39
    
    
    
    40
    
    
    
    36Banc of America Mortgage
Securities, Inc. Mortgage
Pass-Through Certificates, Series
2003-K
    
    Class 2A2
    
    05948XZH7
    
    
    1
    %
    
    
    
    
    
    
    6
    %
    
    Bank of America, N.A.
    
    
    27
    
    
    
    27
    
    
    
    27Banc of America Mortgage
Securities, Inc. Mortgage
Pass-Through Certificates, Series
2003-H
    
    Class 2A2
    
    05948XTH4
    
    
    1
    %
    
    
    
    
    
    
    6
    %
    
    Bank of America, N.A.
    
    
    21
    
    
    
    21
    
    
    
    21GSR Mortgage Loan Trust 2003-9
    
    Class A2
    
    36228FWS1
    
    
    3
    %
    
    
    1
    %
    
    
    8
    %
    
    Various Lenders
    
    
    16
    
    
    
    16
    
    
    
    16Banc of America Mortgage
Securities, Inc. Mortgage
Pass-Through Certificates, Series
2003-D
    
    Class 2A3
    
    05948XBU4
    
    
    2
    %
    
    
    1
    %
    
    
    7
    %
    
    Bank of America, N.A.
    
    
    6
    
    
    
    6
    
    
    
    6Banc of America Mortgage
Securities, Inc. Mortgage
Pass-Through Certificates, Series
2003-A
    
    Class 2A1
    
    05948LAE7
    
    
    5
    %
    
    
    1
    %
    
    
    9
    %
    
    Bank of America, N.A.
    
    
    2
    
    
    
    2
    
    
    
    2149
    
    
    
    150
    
    
    
    14525
    %
    
    
    20
    %
    
    
    16
    %
    
    
    
    $
    3,523
    
    
    $
    3,498
    
    
    $
    2,299
 
 *
    
    Security designated as available-for-sale, thus carrying value for available-for-sale securities
is equal to fair value.  California
    
    
    60
    %Florida
    
    
    12
    %Arizona
    
    
    3
    %Other
    
    
    8
    %Not available
    
    
    17
    %100
    %
 33




---



##### Table of Contents



Deposits
  September 30, 2008
    
    December 31, 2007(PIE CHART)
    
    (PIE CHART)
    Borrowings
 Liquidity, Capital
Resources, Off-Balance Sheet Arrangements, and Contractual Obligations
  34




---



##### Table of Contents



Credit Risk
 Asset Quality and Allowance for Credit Losses
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in millions)Accruing loans past-due 90 days or more
    
    $
    27
    
    
    $
    6Non-performing loans
    
    $
    470
    
    
    $
    166Foreclosed real estate
    
    
    50
    
    
    
    13Non-performing assets
    
    $
    520
    
    
    $
    179Non-performing loans as a percentage of total loans
    
    
    4.56
    %
    
    
    1.65
    %Non-performing assets divided by total loans and foreclosed real estate
    
    
    5.02
    %
    
    
    1.78
    %Allowance for loan losses as a percentage of non-performing loans
    
    
    49
    %
    
    
    71
    %Allowance and direct reductions to recorded investment as a percentage
of non-performing loans before direct reductions to recorded
investment
    
    
    57
    %
    
    
    72
    %Allowance for loan losses as a percentage of total loans
    
    
    2.24
    %
    
    
    1.17
    %Single-family mortgage loan delinquencies as a percentage of
single-family mortgage loans
    
    
    13.21
    %
    
    
    6.97
    %
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in millions)Balance at beginning of period
    
    $
    261
    
    
    $
    79
    
    
    $
    125
    
    
    $
    72Provision for credit losses
    
    
    78
    
    
    
    19
    
    
    
    235
    
    
    
    17Net (charge-offs) recoveries
    
    
    (100
    )
    
    
    
    
    
    
    (121
    )
    
    
    9Balance at end of period
    
    $
    239
    
    
    $
    98
    
    
    $
    239
    
    
    $
    98Allowance for loan losses
    
    $
    231
    
    
    $
    91
    
    
    $
    231
    
    
    $
    91Commitment-related reserves
    
    
    8
    
    
    
    7
    
    
    
    8
    
    
    
    7$
    239
    
    
    $
    98
    
    
    $
    239
    
    
    $
    98Provision (credit) for:Loan losses
    
    $
    81
    
    
    $
    19
    
    
    $
    234
    
    
    $
    17Commitment-related credit losses
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    Combined provision for credit losses
    
    $
    78
    
    
    $
    19
    
    
    $
    235
    
    
    $
    17Net charge-offs (recoveries) as a
percentage of average loans
outstanding
    
    
    3.93
    %
    
    
    
    
    
    
    1.59
    %
    
    
    (0.11
    )%
  35




---



##### Table of Contents



September 30, 2008
    
    
    December 31, 2007Allowance
    
    
    
    
    
    
    Allowanceas a % of
    
    
    
    
    
    
    as a % ofLoan
    
    
    
    
    
    
    LoanAllowance
    
    
    Category
    
    
    Allowance
    
    
    Category(Dollars in millions)Single-family mortgage
    
    $
    42
    
    
    
    3.01
    %
    
    $
    9
    
    
    
    0.54
    %Single-family mortgage warehouse
    
    
    4
    
    
    
    0.43
    %
    
    
    6
    
    
    
    0.86
    %Single-family construction (homebuilders)
    
    
    98
    
    
    
    9.25
    %
    
    
    48
    
    
    
    3.18
    %Multifamily and senior housing
    
    
    17
    
    
    
    0.83
    %
    
    
    6
    
    
    
    0.39
    %Commercial real estate
    
    
    10
    
    
    
    0.54
    %
    
    
    6
    
    
    
    0.36
    %Commercial and business
    
    
    21
    
    
    
    1.47
    %
    
    
    15
    
    
    
    1.12
    %Energy
    
    
    9
    
    
    
    0.64
    %
    
    
    6
    
    
    
    0.41
    %Consumer and other
    
    
    1
    
    
    
    0.46
    %
    
    
    
    
    
    
    Incurred but not yet identified losses
    
    
    29
    
    
    
    
    
    
    
    22
    
    
    
    $
    231
    
    
    
    2.24
    %
    
    $
    118
    
    
    
    1.17
    %
 Concentration
  Lots andLandAcquisitionSingle-Family
    
    
    andHouses
    
    
    Development
    
    
    Other
    
    
    Total(In millions)California
    
    $
    106
    
    
    $
    200
    
    
    $
    53
    
    
    $
    359Texas
    
    
    77
    
    
    
    21
    
    
    
    
    
    
    
    98Florida
    
    
    15
    
    
    
    20
    
    
    
    44
    
    
    
    79Arizona
    
    
    21
    
    
    
    46
    
    
    
    14
    
    
    
    81Colorado
    
    
    39
    
    
    
    27
    
    
    
    
    
    
    
    66Other
    
    
    60
    
    
    
    97
    
    
    
    220
    (a)
    
    
    377$
    318
    
    
    $
    411
    
    
    $
    331
    
    
    $
    1,060
 
 (a)
    
    Principally unsecured loans to national homebuilders  % of
    
    
    % of TotalCommercial
    
    
    LoanReal Estate
    
    
    PortfolioOffice
    
    
    48
    %
    
    
    9
    %Retail
    
    
    27
    %
    
    
    5
    %Industrial
    
    
    14
    %
    
    
    2
    %Land
    
    
    11
    %
    
    
    2
    %100
    %
    
    
    18
    %
 36




---



##### Table of Contents



Commitment
    
    
    Outstanding(In millions)Commercial real estate and senior housing construction
    
    $
    1,629
    
    
    $
    1,185Energy and commercial and business
    
    
    652
    
    
    
    441Single-family construction
    
    
    175
    
    
    
    20$
    2,456
    
    
    $
    1,646
 Liquidity, Capital Resources, Off-Balance Sheet Arrangements, and Contractual Obligations
    
    
    Cash on hand and deposits at the Federal Reserve;
    
    Operating cash flows;
    
    New deposits;
    
    Ability to borrow from the FHLB; and
    
    A portfolio of assets, including marketable mortgage-backed securities, which we can
pledge as borrowings or sell or securitize if necessary.
   37




---



##### Table of Contents



Contractual Obligations
  Payments Due or Expiring by PeriodTotal
    
    
    2008
    
    
    2009-10
    
    
    2011-12
    
    
    Thereafter
    
    
    Indeterminable(In millions)Items on our balance sheet:Transaction and savings
deposit accounts
    
    $
    4,347
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,347Certificates of deposit
    
    
    4,818
    
    
    
    1,505
    
    
    
    3,179
    
    
    
    114
    
    
    
    20
    
    
    
    Brokered certificates of
deposit
    
    
    45
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank
borrowings
    
    
    4,464
    
    
    
    4,030
    
    
    
    309
    
    
    
    125
    
    
    
    
    
    
    
    Subordinated notes payable
to trust
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314
    
    
    
    Subordinated debt of
subsidiary
    
    
    275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    Items not on our balance sheet:Contractual interest payments
    
    
    981
    
    
    
    27
    
    
    
    202
    
    
    
    126
    
    
    
    626
    
    
    
    Operating leases
    
    
    42
    
    
    
    2
    
    
    
    16
    
    
    
    14
    
    
    
    10
    
    
    
    Processing contracts
    
    
    16
    
    
    
    4
    
    
    
    10
    
    
    
    2
    
    
    
    
    
    
    
    $
    15,302
    
    
    $
    5,568
    
    
    $
    3,761
    
    
    $
    381
    
    
    $
    1,245
    
    
    $
    4,347
 Off-Balance Sheet Arrangements
  September 30,
    
    
    December 31,2008
    
    
    2007(In millions)Single-family mortgage loans
    
    $
    94
    
    
    $
    87Unused lines of credit
    
    
    1,718
    
    
    
    1,959Unfunded portion of credit commitments  pledgeable
    
    
    2,881
    
    
    
    3,866Unfunded portion of credit commitments  non-pledgeable
    
    
    612
    
    
    
    621Commitments to originate loans  pledgeable
    
    
    184
    
    
    
    337Commitments to originate loans  non-pledgeable
    
    
    181
    
    
    
    417Letters of credit
    
    
    292
    
    
    
    359$
    5,962
    
    
    $
    7,646
 38




---



##### Table of Contents



Capital Management
  For Categorization as
    
    RegulatoryActual
    
    Well Capitalized
    
    MinimumAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in millions)Total Risk-Based
Ratio (Risk-based
Capital/Total
Risk-weighted
Assets)
    
    $
    1,804
    
    
    
    12.65
    %
    
    $
    1,426
    
    
    
    310.00
    %
    
    $
    1,141
    
    
    
    3  8.00
    %Tier 1 (Core)
Risk-based Ratio
(Core Capital/Total
Risk-weighted
Assets)
    
    $
    1,390
    
    
    
    9.75
    %
    
    $
    856
    
    
    
    3  6.00
    %
    
    $
    570
    
    
    
    3  4.00
    %Tier 1 (Core)
Leverage Ratio
(Core
Capital/Adjusted
Tangible Assets)
    
    $
    1,390
    
    
    
    8.99
    %
    
    $
    773
    
    
    
    3  5.00
    %
    
    $
    619
    
    
    
    3  4.00
    %Tangible Ratio
(Tangible Capital/
Tangible Assets)
    
    $
    1,390
    
    
    
    8.99
    %
    
    
    n/a
    
    
    
    n/a
    
    
    $
    309
    
    
    
    3  2.00
    %
  Recent Accounting Standards
 Note 1 to our unaudited financial statements in Item 1
 Effects of Inflation
  Litigation Matters
    
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
  Increase (Decrease) inIncome Before TaxesChange in
    
    September 30,
    
    
    December 31,Interest Rate
    
    2008
    
    
    2007(In millions)+1%
    
    $
    24
    
    
    $
    (6
    )1%
    
    
    (28
    )
    
    
    (12
    )
 39




---



##### Table of Contents




    
    the average time to maturity of our certificates of deposit lengthened during the
first half of the year, delaying the responsiveness of the costs of those deposits to
market rate changes; and,
    
    we expect the interest rates on our money market and checking account deposit
liabilities will be less responsive to changes in interest rates because of the current
low level of interest rates.
   Foreign Currency Risk
  Commodity Price Risk
  
 Item 4T. Controls and Procedures
     40




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1 . Legal Proceedings
   
 Item 1A. Risk Factors
  Volatility in the credit and residential housing markets could result in further losses on our
mortgage-backed securities and loans.
   Declining real estate values may cause borrowers to default on loans underlying
mortgage-backed securities we own, reducing the likelihood of recoverability of our investments.
  41




---



##### Table of Contents



If a significant portion of our non-agency mortgage-backed securities portfolio were to be
downgraded below investment grade by both of the securities rating organizations which rate the
securities, or the market value of those securities further declined, it would negatively affect
our liquidity.
   Regulatory ownership limits and market conditions may prevent us from raising needed equity
capital in the future.
    42




---



##### Table of Contents



Item 2 . Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3 . Defaults Upon Senior Securities
  
 Item 4 . Submission of Matters to a Vote of Security Holders
  1.
    
    Approval of conversion of Series B Mandatory Convertible Perpetual Cumulative Preferred Stock
into common stock
 For
    
    
    Against
    
    
    Abstain29,918,335
    
    
    
    282,526
    
    
    
    70,983
 
 Item 5 . Other Information
  
 Item 6 . Exhibits
 ExhibitNumber
    
    Exhibit Description3.1
    
    
    Certificate of Designations, Preferences and Rights of
Series B Mandatory Convertible Perpetual Cumulative
Preferred Stock (incorporated herein by reference to
Exhibit 3.1 to the Companys Form 8-K as filed with the
Commission on July 11, 2008)3.2
    
    
    Certificate of Elimination of Series A Junior Participating
Preferred Stock (incorporated herein by reference to
Exhibit 3.1 to the Companys Form 8-K as filed with the
Commission on October 28, 2008)4.1
    
    
    Form of Subordinated Note (incorporated herein by reference
to Exhibit 4.1 to the Companys Form 8-K as filed with the
Commission on September 9, 2008)4.2
    
    
    First Amendment to Rights Agreement (incorporated herein by
reference to Exhibit 4.1 to the Companys Form 8-K as filed
with the Commission on October 28, 2008)10.1
    
    
    Investment Agreement, dated May 26, 2008, between the
Company and TRT Financial Holdings, LLC (incorporated
herein by reference to Exhibit 10.1 to the Companys Form
8-K as filed with the Commission on May 27, 2008)10.2
    
    
    First Amendment to Investment Agreement, dated May 29,
2008, between the Company, the Investor and the Investor
Affiliates (incorporated by reference to Exhibit 10.18 to
Amendment No. 4 to the Companys Registration Statement on
Form S-1 as filed with the Commission on May 30, 2008)
 43




---



##### Table of Contents



ExhibitNumber
    
    Exhibit Description10.3
    
    
    Investment Agreement dated June 7, 2008 by and between the
Company and TRT Financial Holdings, LLC (incorporated
herein by reference to Exhibit 10.1 to the Companys Form
8-K as filed with the Commission on June 9, 2008)10.4
    
    
    Investment Agreement dated June 7, 2008 by and between the
Company and Icahn Partners, LP (incorporated by reference
to Exhibit 10.2 to the Companys Form 8-K as filed with the
Commission on June 9, 2008)10.5
    
    
    Form of Investment Agreement entered into by the Company
and investors other than Icahn Partners and TRT
(incorporated herein by reference to Exhibit 10.3 to the
Companys Form 8-K as filed with the Commission on June 9,
2008)10.6
    
    
    Purchase Agreement dated June 7, 2008 by and among the
Company and the purchasers named therein (incorporated
herein by reference to Exhibit 10.4 to the Companys Form
8-K as filed with the Commission on June 9, 2008)10.7
    
    
    Letter Agreement dated June 7, 2008 by and between the
Company and Icahn Partners, LP (incorporated herein by
reference to Exhibit 10.5 to the Companys Form 8-K as
filed with the Commission on June 9, 2008)10.8
    
    
    Letter Agreement dated June 7, 2008 by and between the
Company and TRT Financial Holdings, LLC (incorporated
herein by reference to Exhibit 10.6 to the Companys Form
8-K as filed with the Commission on June 9, 2008)10.9
    
    
    Agency Agreement between the Company, Guaranty Bank and
Keefe, Bruyette & Woods, Inc. (incorporated herein by
reference to Exhibit 10.7 to the Companys Form 8-K as
filed with the Commission on June 9, 2008)31.1
    *
    
    Certification of Kenneth R. Dubuque pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended31.2
    *
    
    Certification of Ronald D. Murff pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as
amended32.1
    *
    
    Certification of Kenneth R. Dubuque pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    *
    
    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 44




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##### Table of Contents



SIGNATURES
  Guaranty Financial Group Inc.
(Registrant)By:
    /s/     Ronald D. MurffSenior Executive Vice President andChief Financial Officer
(Principal Accounting Officer)  45