##### 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 1934for the Quarterly Period Ended
March 31, 2008
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the Transition Period
From  to
  Guaranty Financial Group Inc.
  Delaware
    
    74-2421034(State or other jurisdiction ofincorporation or organization)
    
    (I.R.S. EmployerIdentification 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 March 31, 2008Common Stock (par value $1.00 per share)
    
    
    37,302,096




---



##### 



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
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    33Item 4T. Controls and Procedures
    
    34PART II. OTHER INFORMATION
    
    
    34Item 1. Legal Proceedings
    
    34Item 1A. Risk Factors
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    35Item 3. Defaults Upon Senior Securities
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    35Item 5. Other Information
    
    35Item 6. Exhibits
    
    36SIGNATURES
    
    37Supplemental Change in Control AgreementCertification of Kenneth R. Dubuque Pursuant to Rule 13a-14(a) and Rule 15d-14(a)Certification of Ronald D. Murff Pursuant to Rule 13a-14(a) and Rule 15d-14(a)Certification of Kenneth R. Dubuque Pursuant to Section 906Certification of Ronald D. Murff Pursuant to Section 906




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 
 UnauditedMarch 31,
    
    
    December 31,2008
    
    
    2007(In millions)ASSETSCash and cash equivalents
    
    $
    181
    
    
    $
    277Restricted cash
    
    
    105
    
    
    
    107Loans held for sale
    
    
    12
    
    
    
    16Loans, net of allowance for loan losses of $172
at March 31, 2008 and $118 at December 31, 2007
    
    
    10,099
    
    
    
    9,928Securities available-for-sale
    
    
    1,487
    
    
    
    1,882Securities held-to-maturity
    
    
    3,440
    
    
    
    3,642Investment in Federal Home Loan Bank stock
    
    
    251
    
    
    
    256Property and equipment, net
    
    
    234
    
    
    
    233Accounts, notes, and accrued interest receivable
    
    
    90
    
    
    
    97Goodwill
    
    
    144
    
    
    
    144Other intangible assets
    
    
    25
    
    
    
    26Deferred income taxes
    
    
    222
    
    
    
    72Other assets
    
    
    133
    
    
    
    116TOTAL ASSETS
    
    $
    16,423
    
    
    $
    16,796LIABILITIES AND EQUITYDeposits
    
    $
    9,248
    
    
    $
    9,375Federal Home Loan Bank borrowings
    
    
    5,732
    
    
    
    5,743Other liabilities
    
    
    136
    
    
    
    125Subordinated notes payable to trust
    
    
    314
    
    
    
    314Subordinated debentures and other borrowings
    
    
    101
    
    
    
    101TOTAL LIABILITIES
    
    
    15,531
    
    
    
    15,658STOCKHOLDERS EQUITYPreferred stock, par value $0.01 per share, 25
million shares authorized, none issued
    
    
    
    
    
    
    Common stock, par value $1 per share, 200
million shares authorized, 37.3 and 35.4
million shares issued and outstanding
    
    
    37
    
    
    
    35Additional paid-in-capital
    
    
    901
    
    
    
    902Retained earnings
    
    
    226
    
    
    
    236Accumulated other comprehensive loss, net
    
    
    (272
    )
    
    
    (35
    )TOTAL STOCKHOLDERS EQUITY
    
    
    892
    
    
    
    1,138TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    16,423
    
    
    $
    16,796
  1




---



##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007(In millions, except per share)INTEREST INCOMELoans and loans held for sale
    
    $
    151
    
    
    $
    171Securities available-for-sale
    
    
    27
    
    
    
    8Securities held-to-maturity
    
    
    47
    
    
    
    60Federal Home Loan Bank stock dividends
    
    
    3
    
    
    
    4Total interest income
    
    
    228
    
    
    
    243INTEREST EXPENSEDeposits
    
    
    (76
    )
    
    
    (83
    )Borrowed funds
    
    
    (54
    )
    
    
    (65
    )Total interest expense
    
    
    (130
    )
    
    
    (148
    )NET INTEREST INCOME
    
    
    98
    
    
    
    95(Provision) credit for credit losses
    
    
    (58
    )
    
    
    2NET INTEREST INCOME AFTER (PROVISION)
CREDIT FOR CREDIT LOSSES
    
    
    40
    
    
    
    97NONINTEREST INCOMEInsurance commissions and fees
    
    
    19
    
    
    
    16Service charges on deposits
    
    
    13
    
    
    
    12Operating lease income
    
    
    2
    
    
    
    2Other
    
    
    8
    
    
    
    9Total noninterest income
    
    
    42
    
    
    
    39NONINTEREST EXPENSECompensation and benefits
    
    
    (51
    )
    
    
    (48
    )Occupancy
    
    
    (8
    )
    
    
    (6
    )Information systems and technology
    
    
    (5
    )
    
    
    (3
    )Other
    
    
    (35
    )
    
    
    (36
    )Total noninterest expense
    
    
    (99
    )
    
    
    (93
    )(LOSS) INCOME BEFORE TAXES
    
    
    (17
    )
    
    
    43Income tax benefit (expense)
    
    
    7
    
    
    
    (16
    )NET (LOSS) INCOME
    
    $
    (10
    )
    
    $
    27(LOSS) EARNINGS PER SHAREBasic and diluted
    
    $
    (0.28
    )
    
    
    n/aAVERAGE NUMBER OF SHARES OUTSTANDINGBasic and diluted
    
    
    35.5
    
    
    
    n/a
  2




---



##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007(In millions)CASH PROVIDED BY OPERATIONSNet (loss) income
    
    $
    (10
    )
    
    $
    27Adjustments:Depreciation and amortization
    
    
    6
    
    
    
    5Depreciation of assets leased to others
    
    
    2
    
    
    
    1Amortization of core deposit and other intangible assets
    
    
    1
    
    
    
    1Amortization and accretion of financial instrument discounts
and premiums and deferred loan fees and origination costs,
net
    
    
    
    
    
    
    5Provision (credit) for credit losses
    
    
    58
    
    
    
    (2
    )Deferred income taxes
    
    
    (22
    )
    
    
    (2
    )Changes in:Loans held for sale
    
    
    4
    
    
    
    Other
    
    
    7
    
    
    
    2046
    
    
    
    55CASH PROVIDED BY (USED FOR) INVESTINGPrincipal payments on available-for-sale securities
    
    
    30
    
    
    
    26Securities held-to-maturity:Purchases
    
    
    
    
    
    
    (142
    )Principal payments
    
    
    199
    
    
    
    380Redemption of Federal Home Loan Bank stock
    
    
    7
    
    
    
    58Loans originated or acquired, net of collections
    
    
    (235
    )
    
    
    43Capital expenditures
    
    
    (8
    )
    
    
    (13
    )Other
    
    
    4
    
    
    
    (5
    )(3
    )
    
    
    347CASH USED FOR FINANCINGDeposits, net
    
    
    (127
    )
    
    
    8Repurchase agreements and short-term borrowings, net
    
    
    6
    
    
    
    (462
    )Payments of long-term Federal Home Loan Bank and other borrowings
    
    
    (17
    )
    
    
    (250
    )Issuance of subordinated notes payable to trust
    
    
    
    
    
    
    172Dividends paid to Temple-Inland Inc.
    
    
    
    
    
    
    (35
    )Other
    
    
    (1
    )
    
    
    1(139
    )
    
    
    (566
    )Net decrease in cash and cash equivalents
    
    
    (96
    )
    
    
    (164
    )Cash and cash equivalents at beginning of period
    
    
    277
    
    
    
    372Cash and cash equivalents at end of period
    
    $
    181
    
    
    $
    208Interest paid
    
    $
    130
    
    
    $
    145
  3




---



##### Table of Contents



AccumulatedOtherCommon
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Comprehensive
    
    
    TotalShares
    
    
    
    
    
    
    Paid-in
    
    
    Retained
    
    
    Income (Loss),
    
    
    Stockholders'Outstanding
    
    
    Common Stock
    
    
    Capital
    
    
    Earnings
    
    
    net
    
    
    Equity(In millions)Balance at December 31, 2007
    
    
    35
    
    
    $
    35
    
    
    $
    902
    
    
    $
    236
    
    
    $
    (35
    )
    
    $
    1,138Comprehensive loss, net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Net unrealized losses on
available-for-sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (237
    )
    
    
    (237
    )Comprehensive loss for first
quarter 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (247
    )Share-based compensation,
share-settled awards
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Issuance of shares upon
vesting of restricted stock
units
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Restricted stock grants
    
    
    2
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2008
    
    
    37
    
    
    $
    37
    
    
    $
    901
    
    
    $
    226
    
    
    $
    (272
    )
    
    $
    892
  4




---



##### 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
 Pending Accounting Pronouncements
 Business Combinations
 Disclosures about Derivative Instruments and Hedging Activitiesan
Amendment of FASB Statement No. 133
 5




---



##### Table of Contents



Note 2  Loans
  March 31,
    
    
    December 31,2008
    
    
    2007(In millions)Single-family mortgage
    
    $
    1,572
    
    
    $
    1,672Single-family mortgage warehouse
    
    
    869
    
    
    
    695Single-family construction (homebuilders)
    
    
    1,341
    
    
    
    1,510Multifamily and senior housing
    
    
    1,752
    
    
    
    1,541Commercial real estate
    
    
    1,800
    
    
    
    1,674Commercial and business
    
    
    1,349
    
    
    
    1,340Energy
    
    
    1,434
    
    
    
    1,470Consumer and other
    
    
    154
    
    
    
    144Total loans
    
    
    10,271
    
    
    
    10,046Less allowance for loan losses
    
    
    (172
    )
    
    
    (118
    )Loans, net
    
    $
    10,099
    
    
    $
    9,928
    6




---



##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007(In millions)Allowance for loan losses:Balance at beginning of period
    
    $
    118
    
    
    $
    65Provision (credit) for loan losses
    
    
    56
    
    
    
    (2
    )Charge-offs
    
    
    (3
    )
    
    
    (1
    )Recoveries
    
    
    1
    
    
    
    9Balance at end of period
    
    
    172
    
    
    
    71Unfunded credit commitments:Balance at beginning of period
    
    
    7
    
    
    
    7Provision for commitment-related credit losses
    
    
    2
    
    
    
    Balance at end of period
    
    
    9
    
    
    
    7Combined allowances for credit losses at end of period
    
    $
    181
    
    
    $
    78Provision (credit) for:Loan losses
    
    $
    56
    
    
    $
    (2
    )Commitment-related credit losses
    
    
    2
    
    
    
    Combined provision (credit) for credit losses
    
    $
    58
    
    
    $
    (2
    )
  March 31, 2008
    
    
    December 31,2007(In millions)Accruing loans past due 90 days or more
    
    $
    2
    
    
    $
    6Recorded investment in nonaccrual loans
    
    
    261
    
    
    
    166Restructured loans included in nonaccrual loans
    
    
    1
    
    
    
    1Impaired loans included in nonaccrual loans
    
    
    170
    
    
    
    118Allowance for loan losses on impaired loans
    
    
    57
    
    
    
    20
   7




---



##### Table of Contents



Note 3  Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair Value(In millions)At March 31 2008:Available-for-saleMortgage-backed securities:U.S. Government
    
    $
    13
    
    
    $
    
    
    
    $
    
    
    
    $
    13U.S. Government Sponsored Enterprises (FNMA, FHLMC)
    
    
    532
    
    
    
    4
    
    
    
    (4
    )
    
    
    532Non-agency
    
    
    1,357
    
    
    
    
    
    
    
    (419
    )
    
    
    9381,902
    
    
    
    4
    
    
    
    (423
    )
    
    
    1,483Equity securities
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4$
    1,906
    
    
    $
    4
    
    
    $
    (423
    )
    
    $
    1,487Held-to-maturityMortgage-backed securities:U.S. Government
    
    $
    54
    
    
    $
    1
    
    
    $
    
    
    
    $
    55U.S. Government Sponsored Enterprises (FNMA, FHLMC)
    
    
    1,040
    
    
    
    4
    
    
    
    (5
    )
    
    
    1,039Non-agency
    
    
    2,346
    
    
    
    1
    
    
    
    (652
    )
    
    
    1,695$
    3,440
    
    
    $
    6
    
    
    $
    (657
    )
    
    $
    2,789At 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
    
    
    The securities cannot be settled at maturity or through prepayment in
a way that would preclude recovery of substantially all of our
recorded investment. We do not have significant purchase premiums on
the securities.
    
    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. The
FNMA and FHLMC mortgage-backed securities carry payment guarantees by
those entities.
 8




---



##### Table of Contents



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 those subordinate tranches will exceed the total
credit losses we estimate on the underlying loans and, therefore, our
securities will not incur credit losses.
 Note 13
 Note 4  Deposits
  March 31,
    
    
    December 31,2008
    
    
    2007(In millions)Noninterest-bearing demand
    
    $
    780
    
    
    $
    779Interest-bearing demand
    
    
    3,738
    
    
    
    3,648Savings deposits
    
    
    177
    
    
    
    172Certificates of deposit
    
    
    4,553
    
    
    
    4,776$
    9,248
    
    
    $
    9,375
 Note 5  Borrowings
  March 31, 2008
    
    December 31, 2007Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageInterest

    
    
    
    
    
    InterestBalance
    
    
    Rate
    
    Balance
    
    
    Rate(Dollars in millions)Short-term FHLB borrowings
    
    $
    4,955
    
    
    
    2.1
    %
    
    $
    4,949
    
    
    
    4.3
    %Long-term FHLB borrowings
    
    
    777
    
    
    
    4.2
    %
    
    
    794
    
    
    
    4.2
    %Subordinated notes payable to trust
    
    
    314
    
    
    
    6.8
    %
    
    
    314
    
    
    
    7.2
    %Subordinated debentures and other borrowings
    
    
    101
    
    
    
    7.7
    %
    
    
    101
    
    
    
    8.5
    %
  Three Months Ended March 31,2008
    
    
    2007(In millions)Short-term FHLB borrowings
    
    $
    39
    
    
    $
    45Long-term FHLB borrowings
    
    
    8
    
    
    
    10Subordinated notes payable to trust
    
    
    5
    
    
    
    3Subordinated debentures and other borrowings
    
    
    2
    
    
    
    2Preferred stock issued by subsidiaries
    
    
    
    
    
    
    5$
    54
    
    
    $
    65
   9




---



##### Table of Contents



Note 6  (Loss) Earnings Per Share
  Three Months Ended March 31,2008
    
    
    2007(In millions, except per share)Net (loss) income
    
    $
    (10
    )
    
    $
    27Weighted average shares outstanding  basic
    
    
    35.5
    
    
    
    n/aWeighted average shares outstanding  diluted
    
    
    35.5
    
    
    
    n/a(Loss) earnings per common share  basic
    
    $
    (0.28
    )
    
    
    n/a(Loss) earnings per common share  diluted
    
    $
    (0.28
    )
    
    
    n/a
 . (proforma, unaudited)
  Weighted
    
    
    AggregateWeighted
    
    
    Average
    
    
    Intrinsic ValueAverage
    
    
    Remaining
    
    
    (Current ValueExercise Price
    
    
    Contractual
    
    
    Less ExerciseShares
    
    
    Per Share
    
    
    Term
    
    
    Price)(In thousands)
    
    
    
    
    
    
    (In years)
    
    
    (In millions)Outstanding
    
    
    1,636
    
    
    $
    12
    
    
    
    6
    
    
    $
    2Exercisable
    
    
    1,291
    
    
    
    11
    
    
    
    5
    
    
    
    2
 Note 7 Income Taxes
   Note 8  Litigation
  10




---



##### Table of Contents



Note 9  Segment Information
  
    
    Commercial banking,
    
    Retail banking,
    
    Insurance agency, and
    
    Treasury, corporate and other.
  11




---



##### Table of Contents



Treasury,Commercial
    
    
    Retail
    
    
    Insurance
    
    
    Mortgage
    
    
    Corporate,Banking
    
    
    Banking
    
    
    Agency
    
    
    Banking
    
    
    and Other
    
    
    Total(In millions)For the Three Months Ended March
31, 2008:Net interest income
    
    $
    69
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    8
    
    
    $
    98(Provision) for credit losses
    
    
    (52
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (58
    )Noninterest income
    
    
    7
    
    
    
    15
    
    
    
    19
    
    
    
    
    
    
    
    1
    
    
    
    42Revenues from other segments
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    Noninterest expense
    
    
    (18
    )
    
    
    (59
    )
    
    
    (18
    )
    
    
    (1
    )
    
    
    (3
    )(a)
    
    
    (99
    )Segment operating income/(loss)
before taxes
    
    $
    6
    
    
    $
    (20
    )
    
    $
    1
    
    
    $
    (1
    )
    
    $
    (3
    )
    
    $
    (17
    )Average assets
    
    $
    9,988
    
    
    $
    622
    
    
    $
    89
    
    
    $
    32
    
    
    $
    5,752
    
    
    $
    16,483Goodwill
    
    
    
    
    
    
    106
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    144Depreciation and amortization
    
    
    2
    
    
    
    5
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    9Capital expenditures
    
    
    1
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    8For the Three Months Ended March 31
2007:Net interest income
    
    $
    69
    
    
    $
    30
    
    
    $
    
    
    
    $
    
    
    
    $
    (4
    )
    
    $
    95(Provision) credit for credit losses
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    2Noninterest income
    
    
    9
    
    
    
    14
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    39Revenues from other segments
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    Noninterest expense
    
    
    (18
    )
    
    
    (53
    )
    
    
    (14
    )
    
    
    (1
    )
    
    
    (7
    )(a)
    
    
    (93
    )Segment operating income/income
before taxes
    
    $
    63
    
    
    $
    (7
    )
    
    $
    2
    
    
    $
    (1
    )
    
    $
    (14
    )
    
    $
    43Average assets
    
    $
    9,559
    
    
    $
    604
    
    
    $
    92
    
    
    $
    50
    
    
    $
    5,353
    
    
    $
    15,658Goodwill
    
    
    
    
    
    
    107
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    141Depreciation and amortization
    
    
    2
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    7Capital expenditures
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
 
 (a)
    
    Includes unallocated expenses of: Three Months Ended March 31,2008
    
    
    2007(In millions)Share-based compensation
    
    $
    (1
    )
    
    $
    (3
    )Expenses allocated to us by Temple-Inland Inc. but not directly attributable to us
    
    
    
    
    
    
    (3
    )Other
    
    
    (2
    )
    
    
    (1
    )$
    (3
    )
    
    $
    (7
    )
 Note 10  Noninterest Expense
  Three Months Ended March 31,2008
    
    
    2007(In millions)Advertising and promotional
    
    $
    7
    
    
    $
    4Furniture, fixtures, and equipment
    
    
    6
    
    
    
    4Professional services
    
    
    3
    
    
    
    2Travel and other employee costs
    
    
    2
    
    
    
    2Postage, printing, and supplies
    
    
    2
    
    
    
    2Depreciation of assets leased to others
    
    
    1
    
    
    
    2Other
    
    
    14
    
    
    
    12Shared services allocation from Temple-Inland Inc.
    
    
    
    
    
    
    8$
    35
    
    
    $
    36
 12




---



##### Table of Contents



Note 11  Share-Based Compensation
   Three Months Ended March 31,2008
    
    
    2007(In millions)Restricted stock
    
    $
    1
    
    
    $
    1Cash-settled awards
    
    
    
    
    
    
    1Stock options
    
    
    
    
    
    
    1$
    1
    
    
    $
    3
  Cash-settled awards
  Equivalent
    
    
    AggregateShares
    
    
    Current Value(In thousands)
    
    
    (In millions)Awards indexed to Guaranty stock
    
    
    88
    
    
    $
    1Awards indexed to Temple-Inland Inc. stock
    
    
    265
    
    
    
    3Awards indexed to Forestar Real Estate Group Inc. stock
    
    
    88
    
    
    
    2
 Restricted stock and stock-settled units
   AggregateShares
    
    
    Current Value(In thousands)
    
    
    (In millions)Outstanding at beginning of period
    
    
    26Granted
    
    
    1,647Settled
    
    
    (22
    )Outstanding at end of period
    
    
    1,651
    
    
    $
    18
 13




---



##### Table of Contents



Stock Options
  Weighted
    
    
    Weighted
    
    
    AggregateAverage
    
    
    Average
    
    
    Intrinsic ValueExercise
    
    
    Remaining
    
    
    (Current ValuePrice Per
    
    
    Contractual
    
    
    Less ExerciseShares
    
    
    Share
    
    
    Term
    
    
    Price)(In thousands)
    
    
    
    
    
    
    (In years)
    
    
    (In millions)Outstanding on Guaranty stock
    
    
    317
    
    
    $
    14
    
    
    
    7
    
    
    $
    Outstanding on Temple-Inland Inc. stock
    
    
    962
    
    
    
    17
    
    
    
    7
    
    
    
    1Outstanding on Forestar Real Estate Group Inc. stock
    
    
    311
    
    
    
    22
    
    
    
    7
    
    
    
    2Exercisable on Guaranty stock
    
    
    200
    
    
    
    12
    
    
    
    6
    
    
    
    Exercisable on Temple-Inland Inc. stock
    
    
    611
    
    
    
    14
    
    
    
    6
    
    
    
    1Exercisable on Forestar Real Estate Group Inc. stock
    
    
    195
    
    
    
    18
    
    
    
    6
    
    
    
    2
 Note 12  Benefit Plans
  Note 13  Fair Value of Financial Instruments
  March 31, 2008
    
    
    December 31, 2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In millions)Financial assetsLoans receivable
    
    $
    10,099
    
    
    $
    9,877
    
    
    $
    9,928
    
    
    $
    9,940Mortgage-backed securities held-to-maturity:U.S. Government and U.S. Government Sponsored Enterprises
    
    
    1,094
    
    
    
    1,094
    
    
    
    1,229
    
    
    
    1,230Non-agency:Internally valued
    
    
    2,162
    
    
    
    1,514
    
    
    
    2,214
    
    
    
    2,002Market quotes
    
    
    184
    
    
    
    181
    
    
    
    199
    
    
    
    1993,440
    
    
    
    2,789
    
    
    
    3,642
    
    
    
    3,431Financial liabilitiesDeposits
    
    $
    9,248
    
    
    $
    9,254
    
    
    $
    9,375
    
    
    $
    9,381Federal Home Loan Bank borrowings
    
    
    5,732
    
    
    
    5,736
    
    
    
    5,743
    
    
    
    5,747Subordinated notes payable to trust
    
    
    314
    
    
    
    292
    
    
    
    314
    
    
    
    277Subordinated debentures and other borrowings
    
    
    101
    
    
    
    101
    
    
    
    101
    
    
    
    101Other off-balance sheet instrumentsCommitments to extend credit
    
    $
    (9
    )
    
    $
    (9
    )
    
    $
    (7
    )
    
    $
    (7
    )
  
    
    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.
 14




---



##### Table of Contents



Level 1
    
    
    Level 3
    
    
    Total(In millions)Available-for-sale securities:U.S. Governmental and U.S. Government
Sponsored Enterprises mortgage-backed
securities
    
    $
    545
    
    
    $
    
    
    
    $
    545Non-agency mortgage-backed securities
    
    
    
    
    
    
    938
    
    
    
    938Equity securities
    
    
    
    
    
    
    4
    
    
    
    4$
    545
    
    
    $
    942
    
    
    $
    1,487
  (In millions)Recorded amount at beginning of the period
    
    $
    1,316Change in unrealized losses for the period included in other comprehensive loss
    
    
    (365
    )Principal payments
    
    
    (9
    )Recorded amount at end of period
    
    $
    942
  Level 1
    
    
    Level 2(In millions)Loans held-for-sale
    
    $
    6
    
    
    $
    Impaired loans
    
    
    
    
    
    
    113Foreclosed assets
    
    
    
    
    
    
    23$
    6
    
    
    $
    136
 Note 14  Transactions with Temple-Inland Inc.
  Three Months EndedMarch 31, 2007(In millions)Information technology support
    
    $
    4Legal, human resources, and other administrative costs
    
    
    2Accounting and finance
    
    
    2Share-based compensation (included in compensation expense)
    
    
    3$
    11
  15




---



##### 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;
    
    costs or difficulties related to transitioning as a stand-alone public company;
    
    inability to realize elements of our strategic plans;
    
    changes in the interest rate environment that expand or reduce margins or adversely affect
critical estimates and projected returns on investments;
    
    unfavorable changes in economic conditions affecting housing markets, credit markets, real
estate values, or oil and gas prices, either nationally or regionally;
    
    natural disasters in primary market areas that may result in prolonged business disruption
or materially impair the value of collateral securing loans;
    
    assumptions and estimates underlying critical accounting policies, particularly allowance
for credit losses, that may prove to be materially incorrect or may not be borne out by
subsequent events;
    
    current or future litigation, regulatory investigations, proceedings or inquiries;
    
    strategies to manage interest rate risk, that may yield results other than those anticipated;
    
    a significant change in the rate of inflation or deflation;
    
    changes in the securities markets;
    
    the ability to complete any merger, acquisition or divestiture plans; regulatory or other
limitations imposed as a result of any merger, acquisition or divestiture; and the success
of our business following any merger, acquisition or divestiture;
    
    the final resolutions or outcomes with respect to our contingent and other corporate
liabilities related to our business and any related actions for indemnification made
pursuant to the various agreements with Temple-Inland Inc. and Forestar Real Estate Group
Inc.;
    
    the ability to raise capital; and
    
    changes in the value of real estate securing our loans.
 16




---



##### Table of Contents



Selected Ratios and Other Data
 Three Months EndedMarch 31,
    
    
    December 31,
    
    
    September 30,
    
    
    June 30,
    
    
    March 31,2008
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(Dollars in millions, except per share)For the quarter:Net interest income
    
    $
    98
    
    
    $
    102
    
    
    $
    99
    
    
    $
    95
    
    
    $
    95(Provision) credit for credit losses
    
    
    (58
    )
    
    
    (33
    )
    
    
    (19
    )
    
    
    
    
    
    
    2Net (loss) income
    
    
    (10
    )
    
    
    6
    
    
    
    21
    
    
    
    24
    
    
    
    27Net (charge-offs) recoveries
    
    
    (2
    )
    
    
    (6
    )
    
    
    
    
    
    
    1
    
    
    
    8Return on average assets
    
    
    (0.24
    )%
    
    
    0.15
    %
    
    
    0.53
    %
    
    
    0.61
    %
    
    
    0.69
    %Return on average stockholders equity
    
    
    (3.65
    )%
    
    
    2.28
    %
    
    
    8.06
    %
    
    
    9.38
    %
    
    
    10.51
    %Net interest margin
    
    
    2.49
    %
    
    
    2.59
    %
    
    
    2.65
    %
    
    
    2.55
    %
    
    
    2.56
    %Quarter-end:Loans, net
    
    $
    10,099
    
    
    $
    9,928
    
    
    $
    9,561
    
    
    $
    9,470
    
    
    $
    9,575Non-performing assets
    
    
    284
    
    
    
    179
    
    
    
    130
    
    
    
    36
    
    
    
    36Non-performing assets ratio
    
    
    2.76
    %
    
    
    1.78
    %
    
    
    1.35
    %
    
    
    0.38
    %
    
    
    0.37
    %Capital/Equity:Guaranty Bank tier 1 leverage ratio
    
    
    7.58
    %
    
    
    7.74
    %
    
    
    7.79
    %
    
    
    8.07
    %
    
    
    7.86
    %Guaranty Bank tier 1 risk-based ratio
    
    
    9.38
    %
    
    
    9.63
    %
    
    
    9.94
    %
    
    
    10.00
    %
    
    
    9.97
    %Guaranty Bank total risk-based
capital ratio
    
    
    10.61
    %
    
    
    10.54
    %
    
    
    10.68
    %
    
    
    10.61
    %
    
    
    10.58
    %Tangible equity/tangible assets
    
    
    4.45
    %
    
    
    5.82
    %
    
    
    5.36
    %
    
    
    5.60
    %
    
    
    5.41
    %Tangible equity per common share
    
    $
    19.38
    
    
    $
    27.36
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aCredit reserves:Allowance for loan losses
    
    $
    172
    
    
    $
    118
    
    
    $
    91
    
    
    $
    72
    
    
    $
    71Allowance for loan losses to total
loans
    
    
    1.67
    %
    
    
    1.17
    %
    
    
    0.94
    %
    
    
    0.75
    %
    
    
    0.74
    %Allowance for loan losses to
non-performing loans
    
    
    66
    %
    
    
    71
    %
    
    
    75
    %
    
    
    248
    %
    
    
    257
    %Total deposits
    
    $
    9,248
    
    
    $
    9,375
    
    
    $
    9,376
    
    
    $
    9,532
    
    
    $
    9,494Average interest-bearing deposits
    
    
    8,588
    
    
    
    8,609
    
    
    
    8,794
    
    
    
    8,777
    
    
    
    8,631Total branches
    
    
    158
    
    
    
    158
    
    
    
    159
    
    
    
    156
    
    
    
    153
 Current Market Conditions
  17




---



##### Table of Contents



Analysis of First Quarter 2008 and 2007
 Performance Ratios
 Three Months Ended March 31,2008
    
    2007Return on assets (net (loss) income divided by average total assets)
    
    
    (0.24
    )%
    
    
    0.69
    %Return on equity (net (loss) income divided by average stockholders equity)
    
    
    (3.65
    )%
    
    
    10.51
    %Dividend payout ratio (dividends declared divided by net income)
    
    
    
    %
    
    
    129.63
    %Equity to asset ratio (average stockholders equity divided by average assets)
    
    
    6.64
    %
    
    
    6.57
    %Net interest margin (net interest income divided by average earnings assets)
    
    
    2.49
    %
    
    
    2.56
    %
  First Quarter 2008
 
    
    Our net interest income increased as a result of an increase in outstanding loans.
    
    Provision for credit losses increased to $58 million as a result of non-performing loans, principally
homebuilder loans, increasing to $261 million.
    
    Unrealized losses on available-for-sale mortgage-backed securities increased $237 million, net of tax.
    
    Deferred income taxes increased $150 million principally as a result of the provision for credit
losses and unrealized securities losses.
 First Quarter 2007
 
    
    We completed our exit from wholesale mortgage banking activities.
    
    We began our activities related to separation from Temple-Inland Inc.
    
    We received $8 million in net credit loss recoveries and recorded a net credit to provision for credit losses.
 Results of Operations
 Net Interest Income
    18




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure about Market Risk
  Three Months Ended March 31,2008
    
    2007Average
    
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in millions)ASSETSCash equivalents
    
    $
    64
    
    
    $
    
    
    
    
    3.36
    %
    
    $
    93
    
    
    $
    
    
    
    
    5.03
    %Loans held for sale
    
    
    9
    
    
    
    
    
    
    
    6.58
    %
    
    
    21
    
    
    
    
    
    
    
    7.61
    %Loans
    
    
    9,962
    
    
    
    151
    
    
    
    6.04
    %
    
    
    9,454
    
    
    
    171
    
    
    
    7.22
    %Securities
    
    
    5,426
    
    
    
    74
    
    
    
    5.49
    %
    
    
    5,100
    
    
    
    68
    
    
    
    5.32
    %Investments in Federal Home Loan Bank stock
    
    
    251
    
    
    
    3
    
    
    
    4.26
    %
    
    
    225
    
    
    
    4
    
    
    
    6.24
    %Total earning assets
    
    
    15,712
    
    
    $
    228
    
    
    
    5.81
    %
    
    
    14,893
    
    
    $
    243
    
    
    
    6.54
    %Unrealized gain (loss) on available-for-sale
securities
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    2Other assets
    
    
    828
    
    
    
    
    
    
    
    
    
    
    
    763Total assets
    
    $
    16,483
    
    
    
    
    
    
    
    
    
    
    $
    15,658LIABILITIES AND EQUITYInterest-bearing deposits:Interest-bearing demand
    
    $
    3,674
    
    
    $
    22
    
    
    
    2.43
    %
    
    $
    3,470
    
    
    $
    23
    
    
    
    2.69
    %Savings deposits
    
    
    173
    
    
    
    
    
    
    
    0.72
    %
    
    
    192
    
    
    
    
    
    
    
    0.70
    %Certificates of deposit
    
    
    4,741
    
    
    
    54
    
    
    
    4.54
    %
    
    
    4,969
    
    
    
    60
    
    
    
    4.79
    %Total interest-bearing deposits
    
    
    8,588
    
    
    
    76
    
    
    
    3.56
    %
    
    
    8,631
    
    
    
    83
    
    
    
    3.85
    %Short-term Federal Home Loan Bank borrowings
    
    
    4,732
    
    
    
    39
    
    
    
    3.26
    %
    
    
    3,440
    
    
    
    45
    
    
    
    5.22
    %Long-term Federal Home Loan Bank borrowings
    
    
    780
    
    
    
    8
    
    
    
    4.20
    %
    
    
    1,098
    
    
    
    10
    
    
    
    3.59
    %Subordinated notes payable to trust
    
    
    314
    
    
    
    5
    
    
    
    6.34
    %
    
    
    161
    
    
    
    3
    
    
    
    6.50
    %Subordinated debentures and other borrowings
    
    
    106
    
    
    
    2
    
    
    
    8.48
    %
    
    
    106
    
    
    
    2
    
    
    
    8.13
    %Preferred stock issued by subsidiaries
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    308
    
    
    
    5
    
    
    
    7.10
    %Total borrowings
    
    
    5,932
    
    
    
    54
    
    
    
    3.64
    %
    
    
    5,113
    
    
    
    65
    
    
    
    5.08
    %Total interest-bearing liabilities
    
    
    14,520
    
    
    $
    130
    
    
    
    3.59
    %
    
    
    13,744
    
    
    $
    148
    
    
    
    4.31
    %Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.22
    %
    
    
    
    
    
    
    
    
    
    
    2.23
    %Noninterest-bearing demand deposits
    
    
    674
    
    
    
    
    
    
    
    
    
    
    
    720Other liabilities
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    166Stockholders equity
    
    
    1,095
    
    
    
    
    
    
    
    
    
    
    
    1,028Total liabilities and stockholders equity
    
    $
    16,483
    
    
    
    
    
    
    
    
    
    
    $
    15,658Impact of noninterest-bearing funds
    
    
    
    
    
    
    
    
    
    
    0.27
    %
    
    
    
    
    
    
    
    
    
    
    0.33
    %Net interest income/margin
    
    
    
    
    
    $
    98
    
    
    
    2.49
    %
    
    
    
    
    
    $
    95
    
    
    
    2.56
    %
  19




---



##### Table of Contents



Provision for Credit Losses
  Credit Risk
 Noninterest Income
  Three Months Ended March 31,
    
    
    Increase2008
    
    
    2007
    
    
    (Decrease)(Dollars in millions)Insurance commissions and fees
    
    $
    19
    
    
    $
    16
    
    
    $
    3Service charges on deposits
    
    
    13
    
    
    
    12
    
    
    
    1Commercial loan facility fees
    
    
    4
    
    
    
    6
    
    
    
    (2
    )Operating lease income
    
    
    2
    
    
    
    2
    
    
    
    Mutual fund and variable annuity sales commissions
    
    
    1
    
    
    
    2
    
    
    
    (1
    )Other
    
    
    3
    
    
    
    1
    
    
    
    2$
    42
    
    
    $
    39
    
    
    $
    3Percent increase for the period
    
    
    
    
    
    
    
    
    
    
    8
    %
   20




---



##### Table of Contents



Noninterest Expense
  Three Months Ended March 31,
    
    
    Increase2008
    
    
    2007
    
    
    (Decrease)(Dollars in millions)Compensation and benefits
    
    $
    51
    
    
    $
    48
    
    
    $
    3Occupancy
    
    
    8
    
    
    
    6
    
    
    
    2Information systems and technology
    
    
    5
    
    
    
    3
    
    
    
    2Advertising and promotional
    
    
    7
    
    
    
    4
    
    
    
    3Furniture, fixtures, and equipment
    
    
    6
    
    
    
    4
    
    
    
    2Professional services
    
    
    3
    
    
    
    2
    
    
    
    1Travel and other employee costs
    
    
    2
    
    
    
    2
    
    
    
    Postage, printing, and supplies
    
    
    2
    
    
    
    2
    
    
    
    Depreciation of assets leased to others
    
    
    1
    
    
    
    2
    
    
    
    (1
    )Other
    
    
    14
    
    
    
    12
    
    
    
    2Shared services allocation from Temple-Inland Inc.
    
    
    
    
    
    
    8
    
    
    
    (8
    )$
    99
    
    
    $
    93
    
    
    $
    6Percent increase for the period
    
    
    
    
    
    
    
    
    
    
    6
    %
  Income Tax Expense
  Segment Performance Summary
  Three Months Ended March 31,2008
    
    
    2007(In millions)Commercial banking
    
    $
    6
    
    
    $
    63Retail banking
    
    
    (20
    )
    
    
    (7
    )Insurance agency
    
    
    1
    
    
    
    2Mortgage banking
    
    
    (1
    )
    
    
    (1
    )Treasury, corporate and other
    
    
    (3
    )
    
    
    (14
    )$
    (17
    )
    
    $
    43
 Commercial Banking
  21




---



##### Table of Contents



Retail Banking
  Insurance Agency
  Treasury, corporate and other
  Financial Condition
 Loans
  
 22




---



##### Table of Contents



March 31, 2008
    
    December 31, 2007Percent of
    
    
    
    
    
    Percent ofBalance
    
    
    Total Loans
    
    Balance
    
    
    Total Loans(Dollars in millions)Single-family mortgage
    
    $
    1,572
    
    
    
    15
    %
    
    $
    1,672
    
    
    
    17
    %Single-family mortgage warehouse
    
    
    869
    
    
    
    8
    %
    
    
    695
    
    
    
    7
    %Single-family construction (homebuilders)
    
    
    1,341
    
    
    
    13
    %
    
    
    1,510
    
    
    
    15
    %Multifamily and senior housing
    
    
    1,752
    
    
    
    17
    %
    
    
    1,541
    
    
    
    15
    %Commercial real estate
    
    
    1,800
    
    
    
    18
    %
    
    
    1,674
    
    
    
    17
    %Commercial and business
    
    
    1,349
    
    
    
    13
    %
    
    
    1,340
    
    
    
    13
    %Energy
    
    
    1,434
    
    
    
    14
    %
    
    
    1,470
    
    
    
    15
    %Consumer and other
    
    
    154
    
    
    
    2
    %
    
    
    144
    
    
    
    1
    %Total loans
    
    
    10,271
    
    
    
    100
    %
    
    
    10,046
    
    
    
    100
    %Less allowance for loan losses
    
    
    (172
    )
    
    
    
    
    
    
    (118
    )Loans, net
    
    $
    10,099
    
    
    
    
    
    
    $
    9,928
    March 31, 2008
    
    December 31, 2007Unpaid
    
    
    Total
    
    Unpaid
    
    
    TotalPrincipal
    
    
    Delinquency
    
    Principal
    
    
    DelinquencyBalance
    
    
    > 30 days
    
    Balance
    
    
    > 30 days(Dollars in millions)Option ARMs
    
    $
    455
    
    
    
    15.49
    %
    
    $
    502
    
    
    
    10.80
    %Intermediate ARMs
    
    
    638
    
    
    
    4.99
    %
    
    
    709
    
    
    
    3.27
    %Other first liens
    
    
    304
    
    
    
    8.86
    %
    
    
    279
    
    
    
    8.00
    %Repurchased loans
    
    
    36
    
    
    
    37.25
    %
    
    
    35
    
    
    
    41.64
    %Second liens
    
    
    139
    
    
    
    1.30
    %
    
    
    147
    
    
    
    1.54
    %$
    1,572
    
    
    
    9.19
    %
    
    $
    1,672
    
    
    
    6.97
    %
 Credit Risk
 23




---



##### Table of Contents



Investment Securities
  
     24




---



##### Table of Contents



Net Unrealized
    
    
    
    
    
    
    Net UnrealizedLosses on
    
    
    
    
    
    
    Losses on Held-Amortized
    
    
    Available-for-
    
    
    Carrying
    
    
    to-MaturityCost
    
    
    Sale Securities
    
    
    Value
    
    
    Securities
    
    
    Fair Value(In millions)U.S. Government and
U.S. Government
Sponsored
Enterprises
    
    $
    1,639
    
    
    $
    
    
    
    $
    1,639
    
    
    $
    
    
    
    $
    1,639Non-agency:Internally valued
    
    
    3,514
    
    
    
    (419
    )
    
    
    3,095
    
    
    
    (648
    )
    
    
    2,447Market quotes
    
    
    189
    
    
    
    
    
    
    
    189
    
    
    
    (3
    )
    
    
    186$
    5,342
    
    
    $
    (419
    )
    
    $
    4,923
    
    
    $
    (651
    )
    
    $
    4,272
 25




---



##### Table of Contents



Subord-
    
    
    
    UnpaidDelinquency%
    
    ination
    
    
    
    Principal
    
    
    CarryingIssuer and Underlying Asset Type
    
    Tranche
    
    Cusip
    
    Total
    
    >60 day
    
    %
    
    Loan Originator
    
    Balance
    
    
    Value
    
    
    Fair Value(Dollars in millions)12MTA Option ARMsStructured Asset Mortgage Investment II Trust 2007-AR6
    
    Class A2
    
    86364RAB5
    
    
    11
    %
    
    
    6
    %
    
    
    11
    %
    
    American Home Mortgage Corp.
    
    $
    414
    
    
    $
    233
    
    
    $
    233
    *RALI 2007-QO5 Trust
    
    Class A
    
    74924AAA3
    
    
    11
    %
    
    
    7
    %
    
    
    11
    %
    
    Homecomings Financial
    
    
    208
    
    
    
    157
    
    
    
    157
    *Alternative Loan Trust 2005-81
    
    Class A-4
    
    12668BBR3
    
    
    21
    %
    
    
    16
    %
    
    
    14
    %
    
    Countrywide Home Loans
    
    
    144
    
    
    
    147
    
    
    
    105Structured Asset Mortgage Investment II Trust 2005-AR8
    
    Class A-5
    
    86359LSB6
    
    
    24
    %
    
    
    19
    %
    
    
    12
    %
    
    Countrywide Home Loans
    
    
    138
    
    
    
    140
    
    
    
    93Alternative Loan Trust 2006-OA2
    
    Class A-7
    
    126694V88
    
    
    29
    %
    
    
    23
    %
    
    
    16
    %
    
    Countrywide Home Loans
    
    
    132
    
    
    
    136
    
    
    
    102Alternative Loan Trust 2005-76
    
    Class 1-A-2
    
    12668BDD2
    
    
    27
    %
    
    
    21
    %
    
    
    17
    %
    
    Countrywide Home Loans
    
    
    128
    
    
    
    130
    
    
    
    77Alternative Loan Trust 2005-58
    
    Class A-3
    
    12668AWK7
    
    
    26
    %
    
    
    20
    %
    
    
    15
    %
    
    Countrywide Home Loans
    
    
    126
    
    
    
    128
    
    
    
    88Alternative Loan Trust 2005-51
    
    Class 3-A-1
    
    12668ACW3
    
    
    22
    %
    
    
    17
    %
    
    
    17
    %
    
    Countrywide Home Loans
    
    
    127
    
    
    
    128
    
    
    
    91Alternative Loan Trust 2005-62
    
    Class 1-A-2
    
    12668ATP0
    
    
    29
    %
    
    
    21
    %
    
    
    19
    %
    
    Countrywide Home Loans
    
    
    119
    
    
    
    121
    
    
    
    92RALI Series 2005-QO5 Trust
    
    Class A-3
    
    761118QP6
    
    
    22
    %
    
    
    16
    %
    
    
    15
    %
    
    Homecomings Financial Network, SCME, Mortgage IT, Other
    
    
    100
    
    
    
    102
    
    
    
    57RALI Series 2005-Q01 Trust
    
    Class A-4
    
    761118ER5
    
    
    15
    %
    
    
    12
    %
    
    
    17
    %
    
    Homecomings Financial Network, Other
    
    
    92
    
    
    
    93
    
    
    
    75Alternative Loan Trust 2005-38
    
    Class A-2
    
    12667GZ22
    
    
    24
    %
    
    
    18
    %
    
    
    19
    %
    
    Countrywide Home Loans
    
    
    74
    
    
    
    75
    
    
    
    61Alternative Loan Trust 2005-41
    
    Class 2-A-1
    
    12667GR96
    
    
    23
    %
    
    
    17
    %
    
    
    21
    %
    
    Countrywide Home Loans
    
    
    70
    
    
    
    71
    
    
    
    49Structured Asset Mortgage Investments II Trust 2006-AR3
    
    Class 12A4
    
    86360KAH1
    
    
    27
    %
    
    
    22
    %
    
    
    14
    %
    
    Countrywide Home Loans, Bank of America, and other
    
    
    71
    
    
    
    72
    
    
    
    54Harborview Mortgage Loan Trust 2005-8
    
    Class 2A3
    
    41161PRT2
    
    
    19
    %
    
    
    16
    %
    
    
    10
    %
    
    Countrywide Home Loans
    
    
    64
    
    
    
    65
    
    
    
    41Greenpoint Mortgage Funding Trust 2005-AR5
    
    Class I-A-2
    
    39538WEC8
    
    
    29
    %
    
    
    22
    %
    
    
    22
    %
    
    Greenpoint Mortgage Funding
    
    
    57
    
    
    
    58
    
    
    
    45Structured Asset Mortgage Investments II Trust 2005-AR4
    
    Class A2
    
    86359LMA4
    
    
    26
    %
    
    
    21
    %
    
    
    22
    %
    
    Countrywide Home Loans
    
    
    57
    
    
    
    59
    
    
    
    38WaMu Mortgage Pass-Through Certificates, Series 2005-AR9
    
    Class A2A
    
    92922FU97
    
    
    6
    %
    
    
    4
    %
    
    
    19
    %
    
    One or more approved institutions
    
    
    53
    
    
    
    54
    
    
    
    37Structured Asset Mortgage Investments II Trust 2005-AR7
    
    Class 5A2
    
    86359LQT9
    
    
    18
    %
    
    
    14
    %
    
    
    18
    %
    
    Southstar Funding LLC/Opteum Financial Services LLC, First Horizon, BOA, other
    
    
    41
    
    
    
    42
    
    
    
    27Greenpoint Mortgage Funding Trust 2006-AR3
    
    Class 4A3
    
    39538WHH4
    
    
    19
    %
    
    
    14
    %
    
    
    14
    %
    
    Greenpoint Mortgage Funding
    
    
    39
    
    
    
    40
    
    
    
    29Harborview Mortgage Loan Trust 2005-16
    
    Class 4A1B
    
    41161PZD8
    
    
    21
    %
    
    
    17
    %
    
    
    20
    %
    
    Countrywide Home Loans
    
    
    32
    
    
    
    33
    
    
    
    22IndyMac INDX Mortgage Loan Trust 2005-16IP
    
    Class A3
    
    45660LUF4
    
    
    16
    %
    
    
    10
    %
    
    
    19
    %
    
    IndyMac Bank, F.S.B.
    
    
    29
    
    
    
    29
    
    
    
    202,315
    
    
    
    2,113
    
    
    
    1,593
 *
    
    Security designated as available-for-sale
 26




---



##### Table of Contents



Subord-
    
    
    
    UnpaidDelinquency %
    
    ination
    
    
    
    Principal
    
    
    CarryingIssuer and Underlying Asset Type
    
    Tranche
    
    Cusip
    
    Total
    
    >60 day
    
    %
    
    Loan Origination
    
    Balance
    
    
    Value
    
    
    Fair Value(Dollars in millions)Hybrid Option ARMs (5Y Fixed/12MTA)RALI 2007-QH8 Trust
    
    Class A
    
    74924EAA5
    
    
    9
    %
    
    
    6
    %
    
    
    12
    %
    
    Homecomings Financial
    
    
    484
    
    
    
    361
    
    
    
    361
    *COFI Option ARMsWaMu Mortgage Pass-Through Certificates 2007-OA4
    
    Class 2A
    
    93364CAC2
    
    
    10
    %
    
    
    6
    %
    
    
    30
    %
    
    Washington Mutual Bank
    
    
    136
    
    
    
    104
    
    
    
    104
    *Washington Mutual Mortgage Pass-Through Certificates WMALT 2007-OA3 Trust
    
    Class 5A
    
    939355AE3
    
    
    14
    %
    
    
    9
    %
    
    
    14
    %
    

Washington Mutual Bank or others, Mortgage IT
    
    
    123
    
    
    
    123
    
    
    
    96WaMu Mortgage Pass-Through Certificates 2007-OA5
    
    Class 2A
    
    93364BAC4
    
    
    11
    %
    
    
    7
    %
    
    
    30
    %
    
    Washington Mutual Bank
    
    
    110
    
    
    
    78
    
    
    
    78
    *WaMu Mortgage Pass- Through Certificates 2006-AR9
    
    Class 2A-1B
    
    93363DAC1
    
    
    6
    %
    
    
    4
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    87
    
    
    
    87
    
    
    
    53WaMu Mortgage Pass -Through Certificates 2006-AR9
    
    Class 2A
    
    93363DAB3
    
    
    6
    %
    
    
    4
    %
    
    
    36
    %
    
    Washington Mutual Bank
    
    
    55
    
    
    
    55
    
    
    
    43WaMu Mortgage Pass- Through Certificates 2006-AR11
    
    Class 2A-1B
    
    93363TAC6
    
    
    8
    %
    
    
    5
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    44
    
    
    
    44
    
    
    
    30WaMu Mortgage Pass Through Certificates 2006-AR13
    
    Class 2A-1B
    
    93363RAC0
    
    
    7
    %
    
    
    4
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    39
    
    
    
    39
    
    
    
    26WaMu Mortgage Pass- Through Certificates 2006-AR15
    
    Class 2A-1B
    
    93363QAD0
    
    
    8
    %
    
    
    5
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    31
    
    
    
    31
    
    
    
    22WaMu Mortgage Pass- Through Certificates 2006-AR17
    
    Class 2A-1B
    
    92925DAE0
    
    
    7
    %
    
    
    4
    %
    
    
    10
    %
    
    Washington Mutual Bank
    
    
    24
    
    
    
    24
    
    
    
    16WaMu Mortgage Pass- Through Certificates 2006-AR19
    
    Class 2A
    
    933638AD0
    
    
    9
    %
    
    
    6
    %
    
    
    39
    %
    
    Washington Mutual Bank
    
    
    21
    
    
    
    21
    
    
    
    16WaMu Mortgage Pass- Through Certificates 2006-AR19
    
    Class 2A-1B
    
    933638AE8
    
    
    9
    %
    
    
    6
    %
    
    
    9
    %
    
    Washington Mutual Bank
    
    
    14
    
    
    
    14
    
    
    
    8Home Savings of America
    
    1988-7A
    
    436904AG1
    
    
    
    
    
    
    
    
    
    
    134
    %
    
    Not Available
    
    
    1
    
    
    
    1
    
    
    
    1
    *Home Savings of America
    
    1988-8A
    
    436904AJ5
    
    
    
    
    
    
    
    
    
    
    93
    %
    
    Not Available
    
    
    2
    
    
    
    2
    
    
    
    2
    *Home Savings of America
    
    1988-10A
    
    436904AK2
    
    
    
    
    
    
    
    
    
    
    111
    %
    
    Not Available
    
    
    1
    
    
    
    1
    
    
    
    1
    *Home Savings of America
    
    1988-11A
    
    436904AL0
    
    
    
    
    
    
    
    
    
    
    102
    %
    
    Not Available
    
    
    1
    
    
    
    1
    
    
    
    1
    *689
    
    
    
    625
    
    
    
    4975/1 LIBORBanc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2004-H
    
    Class 2A1
    
    05949ARD4
    
    
    3
    %
    
    
    2
    %
    
    
    7
    %
    
    Bank of America, N.A.
    
    
    43
    
    
    
    43
    
    
    
    43GSR Mortgage Loan Trust 2004-11
    
    Class 2A1
    
    36242DFS7
    
    
    3
    %
    
    
    3
    %
    
    
    9
    %
    
    Various Lenders
    
    
    43
    
    
    
    43
    
    
    
    44Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-K
    
    Class 2A2
    
    05948XZH7
    
    
    2
    %
    
    
    1
    %
    
    
    6
    %
    
    Bank of America, N.A.
    
    
    35
    
    
    
    35
    
    
    
    33Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-H
    
    Class 2A2
    
    05948XTH4
    
    
    1
    %
    
    
    1
    %
    
    
    6
    %
    
    Bank of America, N.A.
    
    
    29
    
    
    
    30
    
    
    
    28GSR Mortgage Loan Trust 2003-9
    
    Class A2
    
    36228FWS1
    
    
    2
    %
    
    
    2
    %
    
    
    8
    %
    
    Various Lenders
    
    
    21
    
    
    
    21
    
    
    
    22Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-D
    
    Class 2A3
    
    05948XBU4
    
    
    2
    %
    
    
    1
    %
    
    
    8
    %
    
    Bank of America, N.A.
    
    
    10
    
    
    
    10
    
    
    
    9Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-A
    
    Class 2A1
    
    05948LAE7
    
    
    6
    %
    
    
    3
    %
    
    
    9
    %
    
    Bank of America, N.A.
    
    
    3
    
    
    
    3
    
    
    
    3184
    
    
    
    185
    
    
    
    18216
    %
    
    
    11
    %
    
    
    15
    %
    
    
    
    $
    3,672
    
    
    $
    3,284
    
    
    $
    2,633
 *
    
    Security designated as available-for-sale
 27




---



##### Table of Contents



California
    
    
    59
    %Florida
    
    
    12
    %Arizona
    
    
    3
    %Other
    
    
    8
    %Not Available
    
    
    18
    %100
    %
 Deposits
  
  Borrowings
 Liquidity, Capital
Resources, Off-Balance Sheet Arrangements, and Contractual Obligations
  28




---



##### Table of Contents



Credit Risk
 Asset Quality and Allowance for Credit Losses
  March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in millions)Non-performing loans
    
    $
    261
    
    
    $
    166Foreclosed real estate
    
    
    23
    
    
    
    13Non-performing assets
    
    $
    284
    
    
    $
    179Non-performing loans as a percentage of total loans
    
    
    2.54
    %
    
    
    1.65
    %Non-performing assets divided by total loans and foreclosed real estate
    
    
    2.76
    %
    
    
    1.78
    %Allowance for loan losses as a percentage of non-performing loans
    
    
    66
    %
    
    
    71
    %Allowance for loan losses as a percentage of total loans
    
    
    1.67
    %
    
    
    1.17
    %Single-family mortgage loan delinquencies as a percentage of
single-family mortgage loans
    
    
    9.19
    %
    
    
    6.97
    %
  Three
Months Ended March 31,2008
    
    
    2007(Dollars in millions)Balance at beginning of period
    
    $
    125
    
    
    $
    72Provision (credit) for credit losses
    
    
    58
    
    
    
    (2
    )Net (charge-offs) recoveries
    
    
    (2
    )
    
    
    8Balance at end of period
    
    $
    181
    
    
    $
    78Allowance for loan losses
    
    $
    172
    
    
    $
    71Commitment-related reserves
    
    
    9
    
    
    
    7$
    181
    
    
    $
    78Provision (credit) for:Loan losses
    
    $
    56
    
    
    $
    (2
    )Commitment-related credit losses
    
    
    2
    
    
    
    Combined provision (credit) for credit losses
    
    $
    58
    
    
    $
    (2
    )Nonaccrual loans
    
    $
    261
    
    
    $
    28Accruing loans past-due 90 days or more
    
    $
    2
    
    
    $
    5Net charge-offs (recoveries) as a percentage of average loans outstanding
    
    
    0.08
    %
    
    
    (0.33
    )%
  29




---



##### Table of Contents



March 31, 2008
    
    December 31, 2007Allowance

    
    
    
    
    
    Allowanceas a %

    
    
    
    
    
    as a %of Loan

    
    
    
    
    of LoanAllowance
    
    
    Category

    
    Allowance
    
    
    Category(Dollars in millions)Single-family mortgage
    
    $
    12
    
    
    
    0.76
    %
    
    $
    9
    
    
    
    0.54
    %Single-family mortgage warehouse
    
    
    4
    
    
    
    0.46
    %
    
    
    6
    
    
    
    0.86
    %Single-family construction (homebuilders)
    
    
    89
    
    
    
    6.64
    %
    
    
    48
    
    
    
    3.18
    %Multifamily and senior housing
    
    
    9
    
    
    
    0.51
    %
    
    
    6
    
    
    
    0.39
    %Commercial real estate
    
    
    6
    
    
    
    0.33
    %
    
    
    6
    
    
    
    0.36
    %Commercial and business
    
    
    18
    
    
    
    1.33
    %
    
    
    15
    
    
    
    1.12
    %Energy
    
    
    6
    
    
    
    0.42
    %
    
    
    6
    
    
    
    0.41
    %Consumer and other
    
    
    1
    
    
    
    0.65
    %
    
    
    
    
    
    
    Not allocated
    
    
    27
    
    
    
    
    
    
    
    22
    
    
    
    $
    172
    
    
    
    1.67
    %
    
    $
    118
    
    
    
    1.17
    %
 Concentration
  Lots and LandSingle-Family
    
    
    Acquisition andHouses
    
    
    Development
    
    
    Other
    
    
    Total(In millions)California
    
    $
    176
    
    
    $
    265
    
    
    $
    45
    
    
    $
    486Texas
    
    
    98
    
    
    
    27
    
    
    
    
    
    
    
    125Florida
    
    
    58
    
    
    
    46
    
    
    
    17
    
    
    
    121Arizona
    
    
    21
    
    
    
    27
    
    
    
    37
    
    
    
    85Colorado
    
    
    48
    
    
    
    34
    
    
    
    
    
    
    
    82Other
    
    
    118
    
    
    
    147
    
    
    
    177
    (a)
    
    
    442$
    519
    
    
    $
    546
    
    
    $
    276
    
    
    $
    1,341
 
 (a)
    
    Principally unsecured loans to national homebuilders  % of

    
    % ofCommercial

    
    Total LoanReal Estate

    
    PortfolioOffice
    
    
    42
    %
    
    
    7
    %Retail
    
    
    23
    %
    
    
    4
    %Industrial
    
    
    14
    %
    
    
    3
    %Land
    
    
    13
    %
    
    
    2
    %Other
    
    
    8
    %
    
    
    2
    %100
    %
    
    
    18
    %
 30




---



##### Table of Contents



Distribution ofCreditRelationshipsExceedingCommitment
    
    
    Outstanding
    
    
    $100 Million(Dollars in millions)Commercial real estate, multifamily and senior housing construction
    
    $
    862
    
    
    $
    525
    
    
    
    8Energy
    
    
    386
    
    
    
    322
    
    
    
    3Single-family
construction and related entities
    
    
    211
    
    
    
    39
    
    
    
    2$
    1,459
    
    
    $
    886
    
    
    
    13
 Liquidity, Capital Resources, Off-Balance Sheet Arrangements, and Contractual Obligations
     
    
    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.
   31




---



##### Table of Contents



Contractual Obligations
  Payments Due or Expiring by PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years
    
    
    Indeterminable(In millions)Items on our balance sheet:Transaction and savings deposit accounts
    
    $
    4,695
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,695Certificates of deposit
    
    
    4,553
    
    
    
    3,564
    
    
    
    877
    
    
    
    102
    
    
    
    10
    
    
    
    Federal Home Loan Bank borrowings
    
    
    5,732
    
    
    
    5,298
    
    
    
    309
    
    
    
    125
    
    
    
    
    
    
    
    Subordinated notes payable to trust
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314
    
    
    
    Items not on our balance sheet:Contractual interest payments
    
    
    575
    
    
    
    78
    
    
    
    96
    
    
    
    53
    
    
    
    348
    
    
    
    Operating leases
    
    
    45
    
    
    
    6
    
    
    
    16
    
    
    
    14
    
    
    
    9
    
    
    
    Processing contracts
    
    
    23
    
    
    
    12
    
    
    
    9
    
    
    
    2
    
    
    
    
    
    
    
    $
    15,937
    
    
    $
    8,958
    
    
    $
    1,307
    
    
    $
    296
    
    
    $
    681
    
    
    $
    4,695
 Off-Balance Sheet Arrangements
  March 31,
    
    
    December 31,2008
    
    
    2007(In millions)Single-family mortgage loans
    
    $
    106
    
    
    $
    87Unused lines of credit
    
    
    1,812
    
    
    
    1,959Unfunded portion of credit commitments  pledgeable
    
    
    3,756
    
    
    
    3,866Unfunded portion of credit commitments  non-pledgeable
    
    
    650
    
    
    
    621Commitments to originate loans  pledgeable
    
    
    582
    
    
    
    337Commitments to originate loans  non-pledgeable
    
    
    521
    
    
    
    417Letters of credit
    
    
    346
    
    
    
    359$
    7,773
    
    
    $
    7,646
 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)
    
    $
    1,405
    
    
    
    10.61
    %
    
    $
    1,324
    
    
    
    3 10.00
    %
    
    $
    1,059
    
    
    
    3 8.00
    %Tier 1 (Core)
Risk-Based Ratio
(Core capital/Total
Risk-weighted
Assets)
    
    $
    1,241
    
    
    
    9.38
    %
    
    $
    794
    
    
    
    3 6.00
    %
    
    $
    529
    
    
    
    3 4.00
    %Tier 1 (Core)
Leverage Ratio
(Core
Capital/Adjusted
Tangible Assets)
    
    $
    1,241
    
    
    
    7.58
    %
    
    $
    819
    
    
    
    3 5.00
    %
    
    $
    655
    
    
    
    3 4.00
    %Tangible Ratio
(Tangible
Capital/Tangible
Assets)
    
    $
    1,241
    
    
    
    7.58
    %
    
    $
    n/a
    
    
    
    n/a
    
    
    $
    327
    
    
    
    3 2.00
    %
 32




---



##### Table of Contents



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
    
    March 31,
    
    
    December 31,Interest Rates
    
    2008
    
    
    2007(In millions)+1%
    
    $
    4
    
    
    $
    (6
    )-1%
    
    
    (22
    )
    
    
    (12
    )
  33




---



##### Table of Contents



Foreign Currency Risk
  Commodity Price Risk
  
 Item 4T. Controls and Procedures
     
 PART II. OTHER INFORMATION
 
 Item 1 . Legal Proceedings
   
 Item 1A. Risk Factors
  34




---



##### Table of Contents



Volatility in the credit and residential housing markets could result in further losses on our
mortgage-backed securities and loans.
     If a significant portion of our non-agency mortgage-backed securities portfolio were to be
downgraded, it could negatively affect our liquidity.
   
 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
  
 Item 5 . Other Information
 35




---



##### Table of Contents



Item 6 . Exhibits
 ExhibitNumber
    
    Exhibit Description10.15
    
    

Supplemental
Change in Control Agreement between the Registrant and each of its
named executive officers.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
 36




---



##### Table of Contents



SIGNATURES
  Guaranty Financial Group Inc.(Registrant)By:
    
    /s/    Craig E. GiffordExecutive Vice President and
Principal Accounting Officer
  37