e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 2008 |
OR
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Transition Period From to |
Commission File Number: 001-33661
Guaranty Financial Group Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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74-2421034
(I.R.S. Employer
Identification Number) |
1300 MoPac Expressway South, Austin, Texas 78746
(Address of Principal Executive Offices, including Zip code)
(512) 434-1000
(Registrants telephone number, including area code)
Not Applicable
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer þ |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date:
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Number of common shares outstanding |
Class |
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as of June 30, 2008 |
Common Stock (par value $1.00 per share)
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44,630,751 |
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Page |
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18 |
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37 |
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38 |
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39 |
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39 |
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39 |
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40 |
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40 |
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40 |
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41 |
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41 |
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43 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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Unaudited |
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June 30, |
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December 31, |
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2008 |
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2007 |
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(In millions) |
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ASSETS |
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Cash and cash equivalents |
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$ |
184 |
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$ |
277 |
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Restricted cash |
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79 |
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107 |
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Loans held for sale |
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1 |
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16 |
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Loans, net of allowance for losses of $250 at
June 30, 2008 and $118 at December 31, 2007 |
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9,995 |
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9,928 |
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Securities available-for-sale |
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1,357 |
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1,882 |
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Securities held-to-maturity |
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3,241 |
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3,642 |
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Investment in Federal Home Loan Bank stock |
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264 |
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256 |
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Property and equipment, net |
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235 |
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233 |
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Accounts, notes, and accrued interest receivable |
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81 |
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97 |
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Goodwill |
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144 |
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144 |
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Other intangible assets |
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24 |
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26 |
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Deferred income taxes |
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235 |
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72 |
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Other assets |
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191 |
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116 |
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TOTAL ASSETS |
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$ |
16,031 |
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$ |
16,796 |
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LIABILITIES AND EQUITY |
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Deposits |
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$ |
9,160 |
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$ |
9,375 |
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Federal Home Loan Bank borrowings |
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5,553 |
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5,743 |
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Other liabilities |
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142 |
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125 |
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Subordinated notes payable to trust |
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314 |
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314 |
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Subordinated debentures and other borrowings |
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76 |
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101 |
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TOTAL LIABILITIES |
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15,245 |
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15,658 |
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STOCKHOLDERS EQUITY |
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Preferred stock, par value $0.01 per share, 25
million shares authorized, none issued |
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Common stock, par value $1 per share, 200
million shares authorized, 44.6 million shares
at June 30, 2008 and 35.4 million shares at
December 31, 2007 issued and outstanding |
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45 |
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35 |
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Additional paid-in-capital |
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934 |
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902 |
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Retained earnings |
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141 |
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236 |
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Accumulated other comprehensive loss, net |
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(334 |
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(35 |
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TOTAL
STOCKHOLDERS EQUITY |
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786 |
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1,138 |
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TOTAL
LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
16,031 |
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$ |
16,796 |
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Please read the notes to the consolidated financial statements.
1
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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(In millions, except per share) |
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INTEREST INCOME |
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Loans and loans held for sale |
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$ |
131 |
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$ |
175 |
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$ |
282 |
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$ |
346 |
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Securities available-for-sale |
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28 |
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10 |
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55 |
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18 |
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Securities held-to-maturity |
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41 |
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57 |
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88 |
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117 |
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Federal Home Loan Bank stock dividends |
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2 |
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3 |
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5 |
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7 |
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Other earning assets |
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2 |
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2 |
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Total interest income |
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202 |
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247 |
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430 |
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490 |
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INTEREST EXPENSE |
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Deposits |
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(60 |
) |
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(86 |
) |
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(136 |
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(169 |
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Borrowed funds |
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(42 |
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(66 |
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(96 |
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(131 |
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Total interest expense |
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(102 |
) |
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(152 |
) |
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(232 |
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(300 |
) |
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NET INTEREST INCOME |
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100 |
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95 |
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198 |
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190 |
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(Provision) credit for credit losses |
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(99 |
) |
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(157 |
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2 |
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NET INTEREST INCOME AFTER (PROVISION) CREDIT FOR
CREDIT LOSSES |
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1 |
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95 |
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41 |
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192 |
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NONINTEREST INCOME |
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Insurance commissions and fees |
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17 |
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16 |
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36 |
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32 |
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Service charges on deposits |
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15 |
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13 |
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28 |
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25 |
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Operating lease income |
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1 |
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2 |
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3 |
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4 |
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Other |
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8 |
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7 |
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16 |
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16 |
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Total noninterest income |
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41 |
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38 |
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83 |
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77 |
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NONINTEREST EXPENSE |
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Compensation and benefits |
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(48 |
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(43 |
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(99 |
) |
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(91 |
) |
Occupancy |
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(9 |
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(7 |
) |
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(17 |
) |
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(13 |
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Information systems and technology |
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(4 |
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(4 |
) |
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(9 |
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(7 |
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Charges related to asset impairments and severance |
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(3 |
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(3 |
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Other |
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(35 |
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(40 |
) |
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(70 |
) |
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(76 |
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Total noninterest expense |
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(99 |
) |
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(94 |
) |
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(198 |
) |
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(187 |
) |
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(LOSS) INCOME BEFORE TAXES |
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(57 |
) |
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39 |
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(74 |
) |
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82 |
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Income tax expense |
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(28 |
) |
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(15 |
) |
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(21 |
) |
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(31 |
) |
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NET (LOSS) INCOME |
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$ |
(85 |
) |
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$ |
24 |
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$ |
(95 |
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$ |
51 |
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(LOSS) EARNINGS PER SHARE |
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Basic and diluted |
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$ |
(2.24 |
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n/a |
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$ |
(2.59 |
) |
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n/a |
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AVERAGE NUMBER OF SHARES OUTSTANDING |
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Basic and diluted |
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38.0 |
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n/a |
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36.8 |
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n/a |
|
Please read the notes to the consolidated financial statements.
2
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Unaudited
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Six Months Ended June 30, |
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2008 |
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2007 |
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(In millions) |
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CASH PROVIDED BY (USED FOR) OPERATIONS |
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Net (loss) income |
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$ |
(95 |
) |
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$ |
51 |
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Adjustments: |
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Depreciation and amortization |
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11 |
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9 |
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Depreciation of assets leased to others |
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3 |
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3 |
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Amortization of core deposit and other intangible assets |
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2 |
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3 |
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Amortization and accretion of financial instrument discounts
and premiums and deferred loan fees and origination costs, net |
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(2 |
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10 |
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Provision (credit) for credit losses |
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157 |
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(2 |
) |
Deferred income taxes |
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(2 |
) |
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(6 |
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Changes in: |
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Loans held for sale |
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15 |
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3 |
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Other |
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(20 |
) |
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(7 |
) |
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|
69 |
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64 |
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CASH PROVIDED BY (USED FOR) INVESTING |
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Securities available-for-sale: |
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Purchases |
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(425 |
) |
Principal payments and maturities |
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|
66 |
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64 |
|
Securities held-to-maturity: |
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Purchases |
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(142 |
) |
Principal payments and maturities |
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396 |
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|
790 |
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Federal Home Loan Bank stock: |
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Purchases |
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(11 |
) |
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Redemption |
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8 |
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58 |
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Loans originated or acquired, net of collections |
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(262 |
) |
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|
125 |
|
Sale of loans |
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|
14 |
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|
22 |
|
Capital expenditures |
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(13 |
) |
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(23 |
) |
Other |
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|
8 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
206 |
|
|
|
466 |
|
|
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|
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CASH PROVIDED BY (USED FOR) FINANCING |
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|
|
|
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Deposits, net |
|
|
(215 |
) |
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|
46 |
|
Repurchase agreements and short-term borrowings, net |
|
|
(112 |
) |
|
|
(60 |
) |
Payments of long-term Federal Home Loan Bank and other borrowings |
|
|
(78 |
) |
|
|
(434 |
) |
Issuance of subordinated notes payable to trust |
|
|
|
|
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|
172 |
|
Redemption of preferred stock issued by subsidiaries |
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(305 |
) |
Proceeds from sale of common stock |
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|
38 |
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|
|
|
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Dividends paid to Temple-Inland Inc. |
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|
|
|
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|
(35 |
) |
Other |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368 |
) |
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net decrease in cash and cash equivalents |
|
|
(93 |
) |
|
|
(86 |
) |
Cash and cash equivalents at beginning of period |
|
|
277 |
|
|
|
372 |
|
|
|
|
|
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|
|
Cash and cash equivalents at end of period |
|
$ |
184 |
|
|
$ |
286 |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
228 |
|
|
$ |
303 |
|
|
|
|
|
|
|
|
Please read the notes to the consolidated financial statements.
3
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Unaudited
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Accumulated |
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Other |
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Common |
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Additional |
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Comprehensive |
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Total |
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Shares |
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Paid-in |
|
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Retained |
|
|
(Loss) Income, |
|
|
Stockholders |
|
|
|
Outstanding |
|
|
Common Stock |
|
|
Capital |
|
|
Earnings |
|
|
net |
|
|
Equity |
|
|
|
(In millions) |
|
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|
|
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|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
35 |
|
|
$ |
35 |
|
|
$ |
902 |
|
|
$ |
236 |
|
|
$ |
(35 |
) |
|
$ |
1,138 |
|
Net loss first quarter 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on
available-for-sale
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365 |
) |
|
|
(365 |
) |
Associated deferred taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for three
months ended March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(247 |
) |
Share-based compensation,
share-settled awards |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Issuance 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 |
|
Net loss second quarter 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85 |
) |
|
|
|
|
|
|
(85 |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on
available-for-sale
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94 |
) |
|
|
(94 |
) |
Associated deferred taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for three
months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(147 |
) |
Sale of common stock |
|
|
8 |
|
|
|
8 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Share-based compensation,
share-settled awards |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
45 |
|
|
$ |
45 |
|
|
$ |
934 |
|
|
$ |
141 |
|
|
$ |
(334 |
) |
|
$ |
786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for six months
ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to the consolidated financial statements.
4
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 Summary of Significant Accounting Policies
Background
Guaranty Financial Group Inc. (Guaranty, we, or our in these financial statements) is a
grandfathered unitary savings and loan holding company that owns several subsidiaries, the most
significant of which is Guaranty Bank, a federally-chartered savings bank. Guaranty Bank offers a
broad range of retail banking services in two primary markets, Texas and California, and lends to
business and commercial customers in target markets throughout the United States. Guaranty Bank
also conducts insurance agency operations through its subsidiary, Guaranty Insurance Services, Inc.
Basis of Presentation
We prepare our unaudited interim financial statements in accordance with generally accepted
accounting principles (GAAP) and Securities and Exchange Commission requirements for interim
financial statements. As a result, we do not include all the information and disclosures required
by GAAP for complete financial statements. However, in our opinion, we have included all
adjustments considered necessary for a fair presentation. Our interim operating results are not
necessarily indicative of the results that may be expected for the entire year. Actual results can,
and probably will, differ from those we currently estimate. Examples of significant estimates
include our allowance for credit losses, valuation of mortgage-backed securities and assessment of
whether any impairment is other-than-temporary, ability to realize deferred tax assets, and our
assessments of goodwill and other intangible assets for impairment. For further information, please
read the financial statements and related notes included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
New Accounting Pronouncements
Effective January 1, 2008, we adopted Statement of Financial Accounting Standard (SFAS) No.
157, Fair Value Measures and SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP,
and expands disclosures about fair value measurements. SFAS No. 159 permits an entity to elect fair
value as the initial and subsequent measurement method for financial assets and liabilities. We
have not elected the fair value option for any financial instruments. The adoption of SFAS No. 157
and SFAS No. 159 did not have a material impact on our financial statements. For more information
about the fair value of our financial instruments, see Note 13.
Pending Accounting Pronouncements
SFAS No. 141 (revised 2007), Business Combinations This new standard retains the
acquisition (purchase) method of accounting of SFAS No. 141, establishes the acquisition date as
the date the acquirer achieves control, and requires assets acquired and liabilities assumed be
measured at their fair values at that date. One implication of SFAS No. 141 to financial
institutions is historical allowance for loan losses of the acquired entity will not be recorded by
the acquiror; rather, the acquiror will record the loans at fair value, which will be reduced by
the fair value of the credit risk inherent in those loans. SFAS No. 141 will be effective for us
beginning January 1, 2009.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan Amendment of
FASB Statement No. 133 This new standard expands disclosures about derivative instruments in
financial statements. SFAS No. 161 will be effective for us beginning January 1, 2009. We are
currently assessing the effect SFAS No. 161 will have on our financial statements, but anticipate it will only result in
additional disclosures regarding derivative instruments, which are presently insignificant to us.
5
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Note 2 Loans
Loans consist of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Single-family mortgage |
|
$ |
1,485 |
|
|
$ |
1,672 |
|
Single-family mortgage warehouse |
|
|
971 |
|
|
|
695 |
|
Single-family construction (homebuilders) |
|
|
1,223 |
|
|
|
1,510 |
|
Multifamily and senior housing |
|
|
1,877 |
|
|
|
1,541 |
|
Commercial real estate |
|
|
1,774 |
|
|
|
1,674 |
|
Commercial and business |
|
|
1,384 |
|
|
|
1,340 |
|
Energy |
|
|
1,334 |
|
|
|
1,470 |
|
Consumer and other |
|
|
197 |
|
|
|
144 |
|
|
|
|
|
|
|
|
Total loans |
|
|
10,245 |
|
|
|
10,046 |
|
Less allowance for loan losses |
|
|
(250 |
) |
|
|
(118 |
) |
|
|
|
|
|
|
|
Loans, net |
|
$ |
9,995 |
|
|
$ |
9,928 |
|
|
|
|
|
|
|
|
Our single-family mortgage loans include $407 million at June 30, 2008, and $502 million at
December 31, 2007, of adjustable-rate mortgages that have various monthly payment options (Option
ARMs). We collected a net of $1 million of previously deferred interest on Option ARMs in second
quarter 2008 and $3 million in first six months 2008. We recognized and added to the principal
balance of Option ARMs $1 million in interest income in second quarter 2007 and $3 million in first
six months 2007. Cumulative deferred unpaid interest on Option ARMs was $19 million at June 30,
2008 and $22 million at December 31, 2007.
At June 30, 2008, we had $3.8 billion of unfunded commitments related to outstanding loans and
$280 million in commitments to originate loans. At June 30, 2008, we had outstanding standby
letters of credit totaling $338 million, which represent our obligation to guarantee payment of
other entities specified financial obligations or to make payments based on any failure by them to
perform under an obligating agreement. The amount, if any, we will ultimately have to fund is
uncertain, but we have not historically been required to fund a significant amount of letters of
credit. At June 30, 2008, we did not have a significant amount of deferred fees related to letters
of credit.
At June 30, 2008, we had $1.1 billion of real estate construction loans and $421 million of
unfunded loan commitments to single-asset commercial real estate construction entities we believe
meet the definition of a variable interest entity. Our involvement is as a lender in the customary
form and we do not bear or benefit from the majority of the variability in cash flow or fair value
of each entitys assets.
6
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Activity in the allowance for credit losses was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
172 |
|
|
$ |
71 |
|
|
$ |
118 |
|
|
$ |
65 |
|
Provision (credit) for loan losses |
|
|
97 |
|
|
|
|
|
|
|
153 |
|
|
|
(2 |
) |
Charge-offs |
|
|
(20 |
) |
|
|
(2 |
) |
|
|
(23 |
) |
|
|
(3 |
) |
Recoveries |
|
|
1 |
|
|
|
3 |
|
|
|
2 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
250 |
|
|
|
72 |
|
|
|
250 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded credit commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
|
9 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
Provision for commitment-related credit losses |
|
|
2 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
11 |
|
|
|
7 |
|
|
|
11 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined allowances for credit losses at end of period |
|
$ |
261 |
|
|
$ |
79 |
|
|
$ |
261 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (credit) for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan losses |
|
$ |
97 |
|
|
$ |
|
|
|
$ |
153 |
|
|
$ |
(2 |
) |
Commitment-related credit losses |
|
|
2 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined provision (credit) for credit losses |
|
$ |
99 |
|
|
$ |
|
|
|
$ |
157 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about the unpaid principal balance of past due, nonaccrual, restructured, and
impaired loans follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In millions)
|
|
Accruing loans past due 90 days or more |
|
$ |
5 |
|
|
$ |
6 |
|
Recorded investment in nonaccrual loans |
|
|
364 |
|
|
|
166 |
|
Restructured troubled loans included in nonaccrual loans |
|
|
1 |
|
|
|
1 |
|
Impaired loans included in nonaccrual loans |
|
|
245 |
|
|
|
118 |
|
Allowance for loan losses on impaired loans |
|
|
104 |
|
|
|
20 |
|
Performing restructured troubled loans |
|
|
3 |
|
|
|
|
|
Our
nonaccrual loans at June 30, 2008 include $233 million of single-family construction (homebuilder) loans
and $97 million of single-family mortgage loans. We did not recognize a significant amount of
interest income on impaired loans in the first six months 2008 or 2007. Interest income we would
have recognized on nonaccrual loans, had they been performing in accordance with contractual terms,
was $6 million in second quarter 2008, $11 million in first six months 2008 and was not significant
in second quarter 2007 or first six months 2007.
Foreclosed assets were $42 million at June 30, 2008 and $13 million at December 31, 2007. We
expect foreclosed assets to increase significantly in third quarter 2008.
7
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Note 3 Securities
Securities consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Fair Value |
|
|
|
(In millions) |
|
At June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
12 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12 |
|
U.S. Government Sponsored Enterprises (FNMA,
FHLMC) |
|
|
507 |
|
|
|
4 |
|
|
|
(3 |
) |
|
|
508 |
|
Non-agency |
|
|
1,347 |
|
|
|
|
|
|
|
(514 |
) |
|
|
833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,866 |
|
|
|
4 |
|
|
|
(517 |
) |
|
|
1,353 |
|
Equity securities |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,870 |
|
|
$ |
4 |
|
|
$ |
(517 |
) |
|
$ |
1,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
50 |
|
|
$ |
|
|
|
$ |
(1 |
) |
|
$ |
49 |
|
U.S. Government Sponsored Enterprises (FNMA, FHLMC) |
|
|
908 |
|
|
|
6 |
|
|
|
(1 |
) |
|
|
913 |
|
Non-agency |
|
|
2,283 |
|
|
|
|
|
|
|
(902 |
) |
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,241 |
|
|
$ |
6 |
|
|
$ |
(904 |
) |
|
$ |
2,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
14 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14 |
|
U.S. Government Sponsored Enterprises (FNMA,
FHLMC) |
|
|
552 |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
552 |
|
Non-agency |
|
|
1,366 |
|
|
|
|
|
|
|
(54 |
) |
|
|
1,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,932 |
|
|
|
4 |
|
|
|
(58 |
) |
|
|
1,878 |
|
Equity securities |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,936 |
|
|
$ |
4 |
|
|
$ |
(58 |
) |
|
$ |
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government |
|
$ |
57 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
57 |
|
U.S. Government Sponsored Enterprises (FNMA, FHLMC) |
|
|
1,172 |
|
|
|
4 |
|
|
|
(3 |
) |
|
|
1,173 |
|
Non-agency |
|
|
2,413 |
|
|
|
1 |
|
|
|
(213 |
) |
|
|
2,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,642 |
|
|
$ |
5 |
|
|
$ |
(216 |
) |
|
$ |
3,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
A significant amount of the mortgage-backed securities we own have Option ARMs as the
underlying assets. None of the securities include sub-prime loans as underlying assets. The
amortized cost at June 30, 2008 of securities in our portfolio with Option ARMs as the underlying
assets was $4.0 billion. Of these, $540 million were issued by U.S. Government Sponsored
Enterprises (FNMA, FHLMC) and the remaining $3.5 billion are senior or senior-support tranches
issued by non-agency institutions.
As of June 30, 2008, all of the non-agency securities we own carried AAA ratings by two
different nationally recognized securities rating organizations. Subsequent to second quarter end,
one rating organization downgraded one of the non-agency securities, which had an amortized cost of
$56 million at June 30, 2008, to single-A. Additionally, nine other non-agency securities we own,
with a cumulative amortized cost of $1.0 billion, have been placed on negative watch status by
one or both of those rating organizations.
We consider all of the unrealized losses on the securities we own to be temporary because:
|
|
|
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, therefore,
our securities will not incur credit losses. |
See Note 13 for disclosures about our fair value estimates.
Note 4 Deposits
Deposits consist of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand |
|
$ |
566 |
|
|
$ |
779 |
|
Interest-bearing demand |
|
|
4,058 |
|
|
|
3,648 |
|
Savings deposits |
|
|
179 |
|
|
|
172 |
|
Certificates of deposit |
|
|
4,357 |
|
|
|
4,776 |
|
|
|
|
|
|
|
|
|
|
$ |
9,160 |
|
|
$ |
9,375 |
|
|
|
|
|
|
|
|
Approximately $1.9 billion (21%) of our deposits at June 30, 2008 were above the federal
deposit insurance limits, of which $1.6 billion were transaction
accounts and $300 million were
certificates of deposit.
9
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Note 5 Borrowings
Information about our short-term (original maturities of 12 months or less) and long-term
(original maturities greater than 12 months) Federal Home Loan Bank (FHLB) borrowings and other
borrowings follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
|
|
Balance |
|
|
Rate |
|
|
Balance |
|
|
Rate |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term FHLB borrowings |
|
$ |
4,837 |
|
|
|
2.2 |
% |
|
$ |
4,949 |
|
|
|
4.3 |
% |
Long-term FHLB borrowings |
|
|
716 |
|
|
|
4.3 |
% |
|
|
794 |
|
|
|
4.2 |
% |
Subordinated notes payable to trust |
|
|
314 |
|
|
|
4.5 |
% |
|
|
314 |
|
|
|
7.2 |
% |
Subordinated debentures and other borrowings |
|
|
76 |
|
|
|
5.9 |
% |
|
|
101 |
|
|
|
8.5 |
% |
In second quarter 2008, we redeemed $25 million of our subordinated debentures using
restricted cash we had placed on deposit with the trustee for the debentures in 2007.
Interest expense on borrowings consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term FHLB borrowings |
|
$ |
28 |
|
|
$ |
48 |
|
|
$ |
67 |
|
|
$ |
93 |
|
Long-term FHLB borrowings |
|
|
8 |
|
|
|
8 |
|
|
|
16 |
|
|
|
18 |
|
Subordinated notes payable to trust |
|
|
4 |
|
|
|
5 |
|
|
|
9 |
|
|
|
8 |
|
Subordinated debentures and other borrowings |
|
|
2 |
|
|
|
3 |
|
|
|
4 |
|
|
|
5 |
|
Preferred stock issued by subsidiaries |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42 |
|
|
$ |
66 |
|
|
$ |
96 |
|
|
$ |
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, $11 billion in principal balance of our loans and securities were pledged as
collateral for FHLB borrowings.
Subsequent to June 30, 2008, we terminated our revolving credit facility. We had not drawn any
amounts under the revolving credit facility.
Note 6 (Loss) Earnings Per Share
We compute (loss) earnings per share by dividing net (loss) income by the weighted average
shares outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions, except per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(85 |
) |
|
$ |
24 |
|
|
$ |
(95 |
) |
|
$ |
51 |
|
Weighted average shares outstanding basic and
diluted |
|
|
38.0 |
|
|
|
n/a |
|
|
|
36.8 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share basic and diluted |
|
$ |
(2.24 |
) |
|
|
n/a |
|
|
$ |
(2.59 |
) |
|
|
n/a |
|
We have not included outstanding option awards or unvested restricted stock in our diluted
weighted average shares outstanding calculations for 2008 because those items would have been
anti-dilutive as a result of our net loss. Because our stock was not distributed by Temple-Inland
Inc. until December 28, 2007, we do not present earnings per share under GAAP for 2007. Had our
stock been outstanding in second quarter 2007 and first six months 2007 in the amount distributed
by Temple-Inland Inc., basic earnings per share would have been $0.68 and $1.44 (proforma).
10
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
At June 30, 2008, Temple-Inland Inc. and Forestar Real Estate Group Inc. directors and
employees held 82 thousand stock-settled units on our stock. The following information summarizes
outstanding stock option awards on our stock held by Temple-Inland Inc. and Forestar Real Estate
Group Inc. directors and employees at June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Intrinsic Value |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
(Current |
|
|
|
|
|
|
|
Exercise Price |
|
|
Contractual |
|
|
Value Less |
|
|
|
Shares |
|
|
Per Share |
|
|
Term |
|
|
Exercise Price) |
|
|
|
(In thousands) |
|
|
|
|
|
|
(In years) |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
1,609 |
|
|
$ |
12 |
|
|
|
5 |
|
|
$ |
|
|
Exercisable |
|
|
1,278 |
|
|
|
11 |
|
|
|
5 |
|
|
|
|
|
Note 7 Income Taxes
A reconciliation of the federal statutory rate to our effective income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Federal statutory rate |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
State taxes, net of federal benefit |
|
|
(2 |
)% |
|
|
3 |
% |
|
|
|
|
|
|
3 |
% |
Valuation allowance on deferred tax assets |
|
|
(80 |
)% |
|
|
|
|
|
|
(62 |
)% |
|
|
|
|
Other |
|
|
(2 |
)% |
|
|
|
|
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49 |
)% |
|
|
38 |
% |
|
|
(28 |
)% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
We file income tax returns in the U.S. federal jurisdiction and various states. With few
exceptions, we are no longer subject to U.S. federal, state, and local income tax examinations by
authorities for years before 2004. Because of timing differences
between when expenses are recognized under GAAP and when items become
deductible on our tax returns, we may pay taxes in a period in which
we report a net loss under GAAP.
Significant components of our deferred taxes are:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
85 |
|
|
$ |
41 |
|
Unrealized losses on available-for-sale securities |
|
|
179 |
|
|
|
19 |
|
Other |
|
|
47 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
311 |
|
|
|
99 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Investment in FHLB stock |
|
|
(19 |
) |
|
|
(18 |
) |
Other |
|
|
(11 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance |
|
|
281 |
|
|
|
72 |
|
Valuation allowance |
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
235 |
|
|
$ |
72 |
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, we consider whether it is more likely
than not we will be able to realize the deferred tax assets. The terms of our separation agreements
with Temple-Inland Inc. prohibit us from carrying back any net operating tax losses to periods
prior to 2008. Therefore, our ability to realize deferred tax assets depends upon our tax planning
strategies, including holding available-for-sale securities to maturity, and our generation of
taxable income in periods after 2007. We consider deferred tax assets related to the unrealized
losses on available-for-sale mortgage-backed securities more likely than not to be realized because
we expect the temporary differences to reverse without resulting in tax losses. We currently
believe it is more likely than not we will realize $86 million of the other deferred tax assets. As
a result, we recorded a $46 million valuation allowance in second quarter 2008.
Note 8 Litigation
We are involved in various legal proceedings that arise from time to time in the ordinary
course of doing business and believe we have established adequate reserves for any probable losses.
We do not believe the outcome
11
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
of any of these proceedings will have a significant adverse effect on our financial position,
long-term results of operations, or cash flow. It is possible, however, charges related to
these matters could be significant to our results or cash flow in any one period.
A class action in California, related to our former mortgage banking operations, was dismissed
but remains under appeal by the plaintiff. We have established reserves we believe are adequate for
this matter, and do not anticipate the outcome will have a significant adverse effect on our
financial position or results of operations or cash flow.
As a result of our participation in the Visa USA (Visa) network, principally related to ATM
and debit cards, we own 33 thousand Class B common shares of Visa for which we have no carrying
value. As a former member of Visa, we participate in an indemnification provision in Visas bylaws.
We are not a named defendant in any of Visas litigation matters, and have no access to any
non-public information about the matters.
Note 9 Segment Information
We currently operate in four business segments:
|
|
|
Commercial banking, |
|
|
|
|
Retail banking, |
|
|
|
|
Insurance agency, and |
|
|
|
|
Treasury, corporate and other. |
We evaluate performance based on income before taxes and unallocated expenses. Unallocated
expenses represent expenses managed on a company-wide basis and include share-based compensation,
charges related to asset impairments and severance, and prior to 2008, other expenses allocated to
us by Temple-Inland Inc. but not directly attributable to us. Our internal management reporting for
operating segments has not changed significantly from December 31, 2007.
12
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury, |
|
|
|
|
|
|
Commercial |
|
|
Retail |
|
|
Insurance |
|
|
Mortgage |
|
|
Corporate |
|
|
|
|
|
|
Banking |
|
|
Banking |
|
|
Agency |
|
|
Banking |
|
|
and Other |
|
|
Total |
|
|
|
(In millions) |
|
For the Three Months Ended June 30,
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
68 |
|
|
$ |
20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12 |
|
|
$ |
100 |
|
(Provision) credit for credit losses |
|
|
(86 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
(99 |
) |
Noninterest income |
|
|
7 |
|
|
|
15 |
|
|
|
17 |
|
|
|
|
|
|
|
2 |
|
|
|
41 |
|
Revenues from other segments |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
Noninterest expense |
|
|
(19 |
) |
|
|
(55 |
) |
|
|
(16 |
) |
|
|
(1 |
) |
|
|
(8 |
)(a) |
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income/(loss)
before taxes |
|
$ |
(30 |
) |
|
$ |
(17 |
) |
|
$ |
1 |
|
|
$ |
(1 |
) |
|
$ |
(10 |
) |
|
$ |
(57 |
) |
Average assets |
|
$ |
10,287 |
|
|
$ |
647 |
|
|
$ |
89 |
|
|
$ |
31 |
|
|
$ |
5,309 |
|
|
$ |
16,363 |
|
Goodwill |
|
|
|
|
|
|
106 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
144 |
|
Depreciation and amortization |
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
7 |
|
Capital expenditures |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
5 |
|
For the Three Months Ended June 30,
2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
69 |
|
|
$ |
30 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(4 |
) |
|
$ |
95 |
|
(Provision) credit for credit losses |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
Noninterest income |
|
|
8 |
|
|
|
14 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Revenues from other segments |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
Noninterest expense |
|
|
(18 |
) |
|
|
(53 |
) |
|
|
(14 |
) |
|
|
(7 |
) |
|
|
(2 |
)(a) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income/(loss)
before taxes |
|
$ |
58 |
|
|
$ |
(8 |
) |
|
$ |
2 |
|
|
$ |
(7 |
) |
|
$ |
(6 |
) |
|
$ |
39 |
|
Average assets |
|
$ |
9,656 |
|
|
$ |
609 |
|
|
$ |
94 |
|
|
$ |
47 |
|
|
$ |
5,387 |
|
|
$ |
15,793 |
|
Goodwill |
|
|
|
|
|
|
107 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
141 |
|
Depreciation and amortization |
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
8 |
|
Capital expenditures |
|
|
3 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
137 |
|
|
$ |
41 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20 |
|
|
$ |
198 |
|
(Provision) credit for credit losses |
|
|
(138 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
(157 |
) |
Noninterest income |
|
|
14 |
|
|
|
30 |
|
|
|
36 |
|
|
|
|
|
|
|
3 |
|
|
|
83 |
|
Revenues from other segments |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
Noninterest expense |
|
|
(37 |
) |
|
|
(114 |
) |
|
|
(34 |
) |
|
|
(2 |
) |
|
|
(11 |
)(a) |
|
|
(198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income/(loss)
before taxes |
|
$ |
(24 |
) |
|
$ |
(37 |
) |
|
$ |
2 |
|
|
$ |
(2 |
) |
|
$ |
(13 |
) |
|
$ |
(74 |
) |
Average assets |
|
$ |
10,139 |
|
|
$ |
634 |
|
|
$ |
89 |
|
|
$ |
32 |
|
|
$ |
5,529 |
|
|
$ |
16,423 |
|
Goodwill |
|
|
|
|
|
|
106 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
144 |
|
Depreciation and amortization |
|
|
4 |
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
|
16 |
|
Capital expenditures |
|
|
1 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
13 |
|
For the Six Months Ended
June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
138 |
|
|
$ |
60 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(8 |
) |
|
$ |
190 |
|
(Provision) credit for credit losses |
|
|
2 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
Noninterest income |
|
|
17 |
|
|
|
28 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
77 |
|
Revenues from other segments |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
Noninterest expense |
|
|
(36 |
) |
|
|
(106 |
) |
|
|
(28 |
) |
|
|
(8 |
) |
|
|
(9 |
)(a) |
|
|
(187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income/(loss)
before taxes |
|
$ |
121 |
|
|
$ |
(15 |
) |
|
$ |
4 |
|
|
$ |
(8 |
) |
|
$ |
(20 |
) |
|
$ |
82 |
|
Average assets |
|
$ |
9,607 |
|
|
$ |
606 |
|
|
$ |
93 |
|
|
$ |
48 |
|
|
$ |
5,372 |
|
|
$ |
15,726 |
|
Goodwill |
|
|
|
|
|
|
107 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
141 |
|
Depreciation and amortization |
|
|
4 |
|
|
|
7 |
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
|
15 |
|
Capital expenditures |
|
|
3 |
|
|
|
15 |
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
|
|
23 |
|
|
|
|
(a) |
|
Includes unallocated expenses of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
$ |
(3 |
) |
|
$ |
(1 |
) |
|
$ |
(4 |
) |
|
$ |
(4 |
) |
Charges related to asset impairments and severance |
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
Expenses allocated to us by Temple-Inland Inc.
but not directly attributable to us |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(5 |
) |
Other |
|
|
(2 |
) |
|
|
1 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(8 |
) |
|
$ |
(2 |
) |
|
$ |
(11 |
) |
|
$ |
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
13
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Note 10 Noninterest Expense
We expensed $3 million, and paid $2 million, in severance in second quarter 2008 related to a
reduction-in-force.
Other noninterest expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and promotional |
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
11 |
|
|
$ |
7 |
|
Furniture, fixtures, and equipment |
|
|
5 |
|
|
|
4 |
|
|
|
11 |
|
|
|
8 |
|
Professional services |
|
|
5 |
|
|
|
2 |
|
|
|
8 |
|
|
|
4 |
|
Travel and other employee costs |
|
|
4 |
|
|
|
3 |
|
|
|
6 |
|
|
|
5 |
|
Postage, printing, and supplies |
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
4 |
|
Litigation charge |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
Depreciation of assets leased to others |
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
Other |
|
|
13 |
|
|
|
13 |
|
|
|
27 |
|
|
|
25 |
|
Shared services allocation from Temple-Inland Inc. |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35 |
|
|
$ |
40 |
|
|
$ |
70 |
|
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 Share-Based Compensation
We have stockholder approved share-based compensation plans permitting awards to key employees
and non-employee directors of stock-based awards, including restricted stock and options to
purchase shares of our common stock. We generally grant awards annually in February.
Share-based compensation expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
$ |
3 |
|
|
$ |
(1 |
) |
|
$ |
4 |
|
|
$ |
|
|
Cash-settled awards |
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
2 |
|
Stock options |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash-settled award compensation expense is dependent on the price of the underlying shares and
can vary significantly. The fair value, and related compensation expense, of restricted stock and
stock options are determined at the date of grant and do not typically change for subsequent
changes in share price.
14
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Cash-settled awards
A summary of cash-settled awards outstanding to our employees at June 30, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
Equivalent |
|
|
Aggregate |
|
|
|
Shares |
|
|
Current Value |
|
|
|
(In thousands) |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Awards indexed to Guaranty stock |
|
|
81 |
|
|
$ |
|
|
Awards indexed to Temple-Inland Inc. stock |
|
|
244 |
|
|
|
3 |
|
Awards indexed to Forestar Real Estate Group Inc. stock |
|
|
81 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
Restricted stock and stock-settled units
During first quarter 2008, we granted 1.6 million shares of restricted stock to our directors
and employees, valued at $23 million at the date of grant. We recognize the value of shares granted
to employees in expense over vesting periods ranging from three to four years. Shares granted to
directors are immediately vested and we include them in expense at the grant date. Certain of the
awards contain performance conditions, which we currently estimate will be achieved for purposes of
determining compensation expense. During second quarter 2008, we granted 56 thousand shares of
restricted stock units, valued at less than $1 million, to our directors as compensation for
meeting attendance, in lieu of cash compensation for those meetings.
The following information summarizes outstanding restricted stock awards on our stock held by
our directors and employees at June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
Shares |
|
|
Current Value |
|
|
|
(In thousands) |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
26 |
|
|
|
|
|
Granted |
|
|
1,647 |
|
|
|
|
|
Cancelled |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
1,651 |
|
|
|
|
|
Granted |
|
|
56 |
|
|
|
|
|
Cancelled |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
1,671 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
Stock Options
The following information summarizes outstanding stock option awards held by our directors and
employees at June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
Intrinsic Value |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
(Current Value |
|
|
|
|
|
|
|
Exercise Price |
|
|
Contractual |
|
|
Less Exercise |
|
|
|
Shares |
|
|
Per Share |
|
|
Term |
|
|
Price) |
|
|
|
(In thousands) |
|
|
|
|
|
|
(In years) |
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding on Guaranty stock |
|
|
313 |
|
|
$ |
14 |
|
|
|
6 |
|
|
$ |
|
|
Outstanding on Temple-Inland Inc. stock |
|
|
947 |
|
|
|
17 |
|
|
|
6 |
|
|
|
1 |
|
Outstanding on Forestar Real Estate
Group Inc. stock |
|
|
310 |
|
|
|
22 |
|
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable on Guaranty stock |
|
|
201 |
|
|
$ |
12 |
|
|
|
6 |
|
|
$ |
|
|
Exercisable on Temple-Inland Inc. stock |
|
|
610 |
|
|
|
14 |
|
|
|
5 |
|
|
|
1 |
|
Exercisable on Forestar Real Estate
Group Inc. stock |
|
|
198 |
|
|
|
18 |
|
|
|
6 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Note 12 Benefit Plans
We recorded $2 million in expense in second quarter 2008 and $4 million in expense in first
six months 2008 for contributions to our 401(k) plan.
Note 13 Fair Value of Financial Instruments
The carrying value and estimated fair value of financial instruments not carried at fair value
in our balance sheet were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
|
(In millions) |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
9,995 |
|
|
$ |
9,722 |
|
|
$ |
9,928 |
|
|
$ |
9,940 |
|
Mortgage-backed securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and U.S. Government
Sponsored Enterprises |
|
|
958 |
|
|
|
962 |
|
|
|
1,229 |
|
|
|
1,230 |
|
Non-agency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally valued |
|
|
2,116 |
|
|
|
1,217 |
|
|
|
2,214 |
|
|
|
2,002 |
|
Market quotes |
|
|
167 |
|
|
|
164 |
|
|
|
199 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,241 |
|
|
|
2,343 |
|
|
|
3,642 |
|
|
|
3,431 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
9,160 |
|
|
$ |
9,168 |
|
|
$ |
9,375 |
|
|
$ |
9,381 |
|
Federal Home Loan Bank borrowings |
|
|
5,553 |
|
|
|
5,562 |
|
|
|
5,743 |
|
|
|
5,747 |
|
Subordinated notes payable to trust |
|
|
314 |
|
|
|
277 |
|
|
|
314 |
|
|
|
277 |
|
Subordinated debentures and other borrowings |
|
|
76 |
|
|
|
76 |
|
|
|
101 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other off-balance sheet instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
(11 |
) |
|
$ |
(11 |
) |
|
$ |
(7 |
) |
|
$ |
(7 |
) |
SFAS No. 157 establishes a hierarchy of fair value determination methods reflecting the
observability of the information underlying the determination:
|
|
|
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. |
Very little actual trading is occurring in non-agency securities and we have little visibility
of actual trading prices. We estimate the fair value of the non-agency securities we own using
internal valuation techniques, and incorporate sample market value estimates from securities
dealers and other third-party information in applying those techniques. Securities dealer market
value estimates for these types of securities are generally accompanied by statements that the
estimates do not necessarily reflect actual market transactions, and
other disclaimers. As a result, we consider our fair
value estimates for non-agency securities to be Level 3. The estimated market values of the
non-agency securities we own would result in yields to maturity from 15% to 38% based on our
estimates of expected future cash flows on those securities.
16
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
The fair value of financial instruments measured at fair value on a recurring basis,
categorized in terms of SFAS No. 157 valuation criteria, at June 30, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In millions) |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and U.S. Government
Sponsored Enterprises
mortgage-backed securities |
|
$ |
520 |
|
|
$ |
|
|
|
$ |
520 |
|
Non-agency mortgage-backed securities |
|
|
|
|
|
|
833 |
|
|
|
833 |
|
Equity securities |
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
520 |
|
|
$ |
837 |
|
|
$ |
1,357 |
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of financial instruments measured at fair value on a recurring basis
using Level 3 information are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2008 |
|
|
June 30, 2008 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Recorded amount at beginning of the period |
|
$ |
942 |
|
|
$ |
1,316 |
|
Change in unrealized losses for the period included in other comprehensive loss |
|
|
(94 |
) |
|
|
(459 |
) |
Principal payments |
|
|
(11 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
Recorded amount at end of period |
|
$ |
837 |
|
|
$ |
837 |
|
|
|
|
|
|
|
|
We measure certain assets at fair value on a nonrecurring basis. Fair value measurement for
those assets usually results from asset impairment or lower-of-cost-or-market accounting. The fair
value of assets measured at fair value on a nonrecurring basis, categorized in terms of SFAS No.
157 valuation criteria, at June 30, 2008 follows:
|
|
|
|
|
|
|
Level 2 |
|
|
|
(In millions) |
|
|
|
|
|
|
Impaired loans |
|
$ |
141 |
|
Foreclosed assets |
|
|
42 |
|
|
|
|
|
|
|
$ |
183 |
|
|
|
|
|
Note 14 Transactions with Temple-Inland Inc.
A summary of transactions with Temple-Inland Inc. during 2007 when it was a
related party (we do not consider Temple-Inland Inc. to be a related party following our spin-off),
all of which were allocated expenses, follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2007 |
|
|
June 30, 2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Information technology support |
|
$ |
4 |
|
|
$ |
8 |
|
Legal, human resources, and other administrative costs |
|
|
1 |
|
|
|
3 |
|
Accounting, finance, and other |
|
|
2 |
|
|
|
4 |
|
Share-based compensation (included in compensation expense) |
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
$ |
8 |
|
|
$ |
19 |
|
|
|
|
|
|
|
|
We charge Temple-Inland Inc. for rent, taxes, insurance, and utilities in accordance with the
terms of an operating lease agreement, and for insurance management services. During second quarter
2007, we billed Temple-Inland Inc. $2 million for these services and $4 million in first six months
2007.
17
GUARANTY FINANCIAL GROUP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Note 15 Subsequent Events
Capital Raising Activities
In
second quarter 2008, we entered into agreements to sell 6.2 million
shares of our authorized convertible preferred stock and $275 million par value of subordinated
debt of Guaranty Bank for aggregate
proceeds of $562 million, before deduction of $23 million in offering
costs. Issuance of the convertible preferred stock and subordinated debt was subject to regulatory
approvals, which we obtained subsequent to June 30, 2008. In July 2008, we issued the convertible
preferred stock and subordinated debt to the investors. We used the proceeds to repay FHLB
borrowings. Substantially all of the net proceeds will qualify as regulatory capital for Guaranty
Bank. Including the proceeds from these transactions, our proforma regulatory capital ratios at
June 30, 2008 would have been approximately 9.49% Tier 1 (Core) Leverage Ratio and 14.62% Total
Risk-Based Ratio.
The convertible preferred stock is convertible to our common stock at an initial conversion
price of one common share for each $5.17 of stated value (10 shares of common stock for each share
of convertible preferred stock), and conversion is mandatory upon approval by our stockholders.
Until converted, the convertible preferred stock accrues dividends at a rate of 14% per year,
which, if unpaid at time of conversion, are mandatorily converted to common stock at the same
conversion price as the convertible preferred stock. The conversion price decreases by $.50
(resulting in additional common shares for each share of convertible
preferred stock) subject to a
minimum conversion price of $3.00 per share, and the dividend rate increases 2% (subject to a maximum rate of
18% per year) every 6 months
after November 2008 if our stockholders do not approve the conversion. We expect to seek stockholder approval prior to November 2008. If the convertible
preferred stock had been outstanding during the entire second quarter 2008 and been dilutive to our
per share results, it would have increased our weighted average diluted shares by 62 million.
The subordinated debt accrues interest at 12% per year and has a 10 year maturity. We are
entitled to call the subordinated debt after five years.
In second quarter 2008, we entered into an Investment Agreement with TRT Financial Holdings,
LLC under which TRT Financial Holdings, LLC purchased approximately 7.4 million shares of our
common stock for $38 million. Under the terms of the Investment
Agreement, 120 days following the closing of the
Investment Agreement, TRT Financial Holdings, LLC will purchase a number of shares of a series
of convertible preferred stock, with similar terms and attributes as
the preferred stock above, such that TRT
Financial Holdings, LLC will beneficially own 19.9% of our total outstanding common stock, assuming
full conversion of the preferred stock.
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are identified by their use of terms and phrases such as believe, anticipate,
could, estimate, likely, intend, may, plan, project, expect, and similar
expressions, including references to assumptions or our plans and goals. These statements reflect
our current views with respect to future events and are subject to risk and uncertainties. A
variety of factors and uncertainties could cause our actual results to differ significantly from
the results discussed in the forward-looking statements. Factors and uncertainties that might cause
such differences include, but are not limited to:
|
|
|
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
following our spin-off from Temple-Inland Inc. in December 2007; |
18
|
|
|
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. |
Other factors, including the Risk Factors described in Part II, may also cause actual results
to differ materially from those projected by our forward-looking statements. New factors emerge
from time to time and it is not possible for us to predict all such factors, nor can we assess the
impact of any such factor on our business or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in any forward-looking
statement.
Any forward-looking statement speaks only as of the date on which such statement is made, and,
except as required by law, we expressly disclaim any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of unanticipated events.
19
Selected Ratios and Other Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in millions, except per share) |
|
For the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
100 |
|
|
$ |
98 |
|
|
$ |
102 |
|
|
$ |
99 |
|
|
$ |
95 |
|
|
$ |
198 |
|
|
$ |
190 |
|
(Provision) credit for credit losses |
|
|
(99 |
) |
|
|
(58 |
) |
|
|
(33 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
(157 |
) |
|
|
2 |
|
Net (loss) income |
|
|
(85 |
) |
|
|
(10 |
) |
|
|
6 |
|
|
|
21 |
|
|
|
24 |
|
|
|
(95 |
) |
|
|
51 |
|
Net (charge-offs) recoveries |
|
|
(19 |
) |
|
|
(2 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
1 |
|
|
|
(21 |
) |
|
|
9 |
|
Return on average assets |
|
|
(2.08 |
)% |
|
|
(0.24 |
)% |
|
|
0.15 |
% |
|
|
0.53 |
% |
|
|
0.61 |
% |
|
|
(1.16 |
)% |
|
|
0.65 |
% |
Return on average stockholders equity |
|
|
(37.12 |
)% |
|
|
(3.65 |
)% |
|
|
2.28 |
% |
|
|
8.06 |
% |
|
|
9.38 |
% |
|
|
(18.43 |
)% |
|
|
9.94 |
% |
Net interest margin |
|
|
2.54 |
% |
|
|
2.49 |
% |
|
|
2.59 |
% |
|
|
2.65 |
% |
|
|
2.55 |
% |
|
|
2.51 |
% |
|
|
2.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
9,995 |
|
|
$ |
10,099 |
|
|
$ |
9,928 |
|
|
$ |
9,561 |
|
|
$ |
9,470 |
|
|
|
|
|
|
|
|
|
Non-performing assets |
|
|
406 |
|
|
|
284 |
|
|
|
179 |
|
|
|
130 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
Non-performing assets ratio |
|
|
3.95 |
% |
|
|
2.76 |
% |
|
|
1.78 |
% |
|
|
1.35 |
% |
|
|
0.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital/Equity (actual): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty Bank tier 1 leverage ratio |
|
|
7.63 |
% |
|
|
7.58 |
% |
|
|
7.74 |
% |
|
|
7.79 |
% |
|
|
8.07 |
% |
|
|
|
|
|
|
|
|
Guaranty Bank tier 1 risk-based ratio |
|
|
9.36 |
% |
|
|
9.38 |
% |
|
|
9.63 |
% |
|
|
9.94 |
% |
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
Guaranty Bank total risk-based
capital ratio |
|
|
10.60 |
% |
|
|
10.61 |
% |
|
|
10.54 |
% |
|
|
10.68 |
% |
|
|
10.61 |
% |
|
|
|
|
|
|
|
|
Tangible equity/tangible assets |
|
|
3.90 |
% |
|
|
4.45 |
% |
|
|
5.82 |
% |
|
|
5.36 |
% |
|
|
5.60 |
% |
|
|
|
|
|
|
|
|
Tangible equity/per common share |
|
$ |
13.85 |
|
|
$ |
19.38 |
|
|
$ |
27.36 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital/Equity (proforma)(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranty Bank tier 1 leverage ratio |
|
|
9.49 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
Guaranty Bank tier 1 risk-based ratio |
|
|
11.64 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
Guaranty Bank total risk-based
capital ratio |
|
|
14.62 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
Tangible equity/tangible assets |
|
|
5.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity/per common share |
|
$ |
8.74 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
250 |
|
|
$ |
172 |
|
|
$ |
118 |
|
|
$ |
91 |
|
|
$ |
72 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total
loans |
|
|
2.44 |
% |
|
|
1.67 |
% |
|
|
1.17 |
% |
|
|
0.94 |
% |
|
|
0.75 |
% |
|
|
|
|
|
|
|
|
Allowance for loan losses to
non-performing loans |
|
|
69 |
% |
|
|
66 |
% |
|
|
71 |
% |
|
|
75 |
% |
|
|
248 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
9,160 |
|
|
$ |
9,248 |
|
|
$ |
9,375 |
|
|
$ |
9,376 |
|
|
$ |
9,532 |
|
|
|
|
|
|
|
|
|
Average interest-bearing deposits |
|
|
8,405 |
|
|
|
8,588 |
|
|
|
8,609 |
|
|
|
8,794 |
|
|
|
8,777 |
|
|
$ |
8,496 |
|
|
$ |
8,704 |
|
Total branches |
|
|
162 |
|
|
|
158 |
|
|
|
158 |
|
|
|
159 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Proforma capital/equity ratios at June 30, 2008 reflect the effect we anticipate of the proceeds from our issuance of mandatorily convertible preferred stock and subordinated debt in July 2008, and
present those amounts as if the preferred stock had been converted to common stock. |
Current Market Conditions
Current conditions in the credit markets are difficult and volatile. Liquidity for non-agency
investment securities is virtually non-existent, and there is a lack of price transparency for many
securitized assets. As a result, credit availability for many potential borrowers has been
dramatically reduced. In addition, and partly as a result, current conditions in residential
housing markets are poor and worsening. In many markets there is an oversupply of housing,
including significant increases in foreclosed properties being marketed, and decreasing demand.
Homebuilders have found it difficult to sell new homes and many local and regional homebuilders are
facing severe liquidity challenges resulting in their inability to complete land development
projects and homes under construction. Declining economic conditions are increasing the number of
homeowners unable to make required payments on loans, and declining values in many markets have
made it difficult for borrowers to refinance when variable rate loan payments exceed their ability
to service the loans.
20
These conditions have negatively affected our investment securities and loan portfolios,
particularly non-agency mortgage-backed securities, loans to homebuilders, and single-family
mortgage loans. At June 30, 2008, the estimated fair value of the non-agency securities we own was
below amortized cost by approximately $1.4 billion, or 39%. At June 30, 2008, we categorized 19% of
our loans to homebuilders and 7% of our single-family mortgage loans as non-performing. As a
result, we recorded $99 million in provision for credit losses in second quarter 2008 and $157
million for first six months 2008.
We expect these market conditions will continue throughout 2008.
Analysis of Second Quarter 2008 and 2007
Performance Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
Return on
assets (net (loss)
income divided by
average total
assets) |
|
|
(2.08 |
)% |
|
|
0.61 |
% |
|
|
(1.16 |
)% |
|
|
0.65 |
% |
Return on equity
(net (loss) income
divided by average
stockholders
equity) |
|
|
(37.12 |
)% |
|
|
9.38 |
% |
|
|
(18.43 |
)% |
|
|
9.94 |
% |
Dividend payout
ratio (dividends
declared divided by
net income) |
|
|
|
|
|
|
146 |
% |
|
|
|
|
|
|
69 |
% |
Equity to asset
ratio (average
stockholders
equity divided by
average assets) |
|
|
5.60 |
% |
|
|
6.48 |
% |
|
|
6.28 |
% |
|
|
6.52 |
% |
Net interest margin
(net interest
income divided by
average earning
assets) |
|
|
2.54 |
% |
|
|
2.55 |
% |
|
|
2.51 |
% |
|
|
2.55 |
% |
Significant aspects of our results of operations for second quarter 2008 follow:
|
|
|
Net loss was $85 million, a decline of $109 million from second quarter 2007, primarily
a result of credit loss provisions and a deferred income tax asset valuation allowance. |
|
|
|
|
Net interest income increased 5% compared to second quarter 2007. Net interest margin
was approximately the same as second quarter 2007, with decreases in lower-margin
single-family mortgage loans and mortgage-backed securities offsetting an increase in
nonaccrual loans. |
|
|
|
|
We recorded $99 million in credit loss provisions compared to an insignificant net
provision expense in second quarter 2007. Approximately half of the second quarter 2008
provision for credit loss related to homebuilder loans, with the majority of the remainder
related to single-family mortgage loans and an energy loan. |
|
|
|
|
We recorded a $46 million valuation allowance against deferred tax assets, principally
associated with allowances for credit losses, because of uncertainty regarding our ability
to realize those assets. |
|
|
|
|
We recorded $3 million in severance costs related to a 135 person reduction-in-force. |
21
Results of Operations
Net Interest Income
Our net interest income increased because of an increase in earning assets, principally loans.
Our commercial and business and commercial real estate portfolios continued to increase, while our
single-family mortgage and homebuilder portfolios declined in balance. Additionally, in second
quarter 2008, we recovered $1 million in interest income on a mortgage-backed security which the
trustee had previously misallocated to other security holders.
Our net interest margin of 2.54% in second quarter 2008 was essentially unchanged from 2.55%
in second quarter 2007. Non-performing loans increased from $29 million at June 30, 2007 to $364
million at June 30, 2008. Interest income we would have recognized on nonaccrual loans, had they
been performing in accordance with contractual terms, was $6 million in second quarter 2008 and was
not significant in second quarter 2007. However, the negative net interest margin effect of the
increased non-performing loans was offset by improved margins on deposits as a result of declining
market rates.
As we are currently positioned, if interest rates remain relatively stable, it is likely our
net interest margin will remain near its current level. However, if interest rates decrease, our
net interest margin is likely to decline. Please read Item 3. Quantitative and Qualitative
Disclosure about Market Risk for further quantitative information about the sensitivity of our
earnings to potential changes in interest rates.
Average balances, interest income and expense, and rates by major balance sheet categories
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2008 |
|
2007 |
|
|
Average |
|
|
|
|
|
Yield/ |
|
Average |
|
|
|
|
|
Yield/ |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
(Dollars in millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
82 |
|
|
$ |
|
|
|
|
2.27 |
% |
|
$ |
79 |
|
|
$ |
2 |
|
|
|
5.08 |
% |
Loans held for sale |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
7.31 |
% |
Loans |
|
|
10,332 |
|
|
|
131 |
|
|
|
5.09 |
% |
|
|
9,573 |
|
|
|
175 |
|
|
|
7.32 |
% |
Securities |
|
|
5,187 |
|
|
|
69 |
|
|
|
5.26 |
% |
|
|
5,024 |
|
|
|
67 |
|
|
|
5.31 |
% |
Investments in Federal Home Loan Bank stock |
|
|
259 |
|
|
|
2 |
|
|
|
3.07 |
% |
|
|
208 |
|
|
|
3 |
|
|
|
5.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
15,861 |
|
|
$ |
202 |
|
|
|
5.10 |
% |
|
|
14,903 |
|
|
$ |
247 |
|
|
|
6.61 |
% |
Unrealized (losses) gains on
available-for-sale securities |
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
907 |
|
|
|
|
|
|
|
|
|
|
|
889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
16,363 |
|
|
|
|
|
|
|
|
|
|
$ |
15,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
$ |
3,817 |
|
|
$ |
18 |
|
|
|
1.88 |
% |
|
$ |
3,699 |
|
|
$ |
26 |
|
|
|
2.81 |
% |
Savings deposits |
|
|
178 |
|
|
|
1 |
|
|
|
0.78 |
% |
|
|
190 |
|
|
|
1 |
|
|
|
0.72 |
% |
Certificates of deposit |
|
|
4,410 |
|
|
|
41 |
|
|
|
3.75 |
% |
|
|
4,888 |
|
|
|
59 |
|
|
|
4.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
8,405 |
|
|
|
60 |
|
|
|
2.84 |
% |
|
|
8,777 |
|
|
|
86 |
|
|
|
3.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Federal Home Loan Bank borrowings |
|
|
5,112 |
|
|
|
28 |
|
|
|
2.22 |
% |
|
|
3,645 |
|
|
|
48 |
|
|
|
5.27 |
% |
Long-term Federal Home Loan Bank borrowings |
|
|
735 |
|
|
|
8 |
|
|
|
4.27 |
% |
|
|
934 |
|
|
|
8 |
|
|
|
3.51 |
% |
Subordinated notes payable to trust |
|
|
314 |
|
|
|
4 |
|
|
|
4.54 |
% |
|
|
315 |
|
|
|
5 |
|
|
|
7.04 |
% |
Subordinated debentures and other borrowings |
|
|
100 |
|
|
|
2 |
|
|
|
8.15 |
% |
|
|
105 |
|
|
|
3 |
|
|
|
8.34 |
% |
Preferred stock issued by subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
2 |
|
|
|
8.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
6,261 |
|
|
|
42 |
|
|
|
2.67 |
% |
|
|
5,073 |
|
|
|
66 |
|
|
|
5.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
14,666 |
|
|
$ |
102 |
|
|
|
2.77 |
% |
|
|
13,850 |
|
|
$ |
152 |
|
|
|
4.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
2.33 |
% |
|
|
|
|
|
|
|
|
|
|
2.24 |
% |
Noninterest-bearing demand deposits |
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
703 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
217 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
1,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
16,363 |
|
|
|
|
|
|
|
|
|
|
$ |
15,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of noninterest-bearing funds |
|
|
|
|
|
|
|
|
|
|
0.21 |
% |
|
|
|
|
|
|
|
|
|
|
0.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/margin |
|
|
|
|
|
$ |
100 |
|
|
|
2.54 |
% |
|
|
|
|
|
$ |
95 |
|
|
|
2.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
(Dollars in millions) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
73 |
|
|
$ |
|
|
|
|
2.74 |
% |
|
$ |
86 |
|
|
$ |
2 |
|
|
|
5.06 |
% |
Loans held for sale |
|
|
5 |
|
|
|
|
|
|
|
3.49 |
% |
|
|
20 |
|
|
|
|
|
|
|
7.47 |
% |
Loans |
|
|
10,147 |
|
|
|
282 |
|
|
|
5.56 |
% |
|
|
9,514 |
|
|
|
346 |
|
|
|
7.27 |
% |
Securities |
|
|
5,306 |
|
|
|
143 |
|
|
|
5.38 |
% |
|
|
5,062 |
|
|
|
135 |
|
|
|
5.32 |
% |
Investments in Federal Home Loan Bank stock |
|
|
255 |
|
|
|
5 |
|
|
|
3.66 |
% |
|
|
217 |
|
|
|
7 |
|
|
|
5.94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
15,786 |
|
|
$ |
430 |
|
|
|
5.45 |
% |
|
|
14,899 |
|
|
$ |
490 |
|
|
|
6.57 |
% |
Unrealized (losses) gains on
available-for-sale securities |
|
|
(231 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
868 |
|
|
|
|
|
|
|
|
|
|
|
826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
16,423 |
|
|
|
|
|
|
|
|
|
|
$ |
15,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
$ |
3,745 |
|
|
$ |
40 |
|
|
|
2.15 |
% |
|
$ |
3,585 |
|
|
$ |
49 |
|
|
|
2.75 |
% |
Savings deposits |
|
|
176 |
|
|
|
1 |
|
|
|
0.75 |
% |
|
|
191 |
|
|
|
1 |
|
|
|
0.71 |
% |
Certificates of deposit |
|
|
4,575 |
|
|
|
95 |
|
|
|
4.16 |
% |
|
|
4,928 |
|
|
|
119 |
|
|
|
4.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
8,496 |
|
|
|
136 |
|
|
|
3.20 |
% |
|
|
8,704 |
|
|
|
169 |
|
|
|
3.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Federal Home Loan Bank borrowings |
|
|
4,922 |
|
|
|
67 |
|
|
|
2.72 |
% |
|
|
3,543 |
|
|
|
93 |
|
|
|
5.24 |
% |
Long-term Federal Home Loan Bank borrowings |
|
|
757 |
|
|
|
16 |
|
|
|
4.23 |
% |
|
|
1,015 |
|
|
|
18 |
|
|
|
3.56 |
% |
Subordinated notes payable to trust |
|
|
314 |
|
|
|
9 |
|
|
|
5.44 |
% |
|
|
238 |
|
|
|
8 |
|
|
|
6.85 |
% |
Subordinated debentures and other borrowings |
|
|
104 |
|
|
|
4 |
|
|
|
8.32 |
% |
|
|
106 |
|
|
|
5 |
|
|
|
8.23 |
% |
Preferred stock issued by subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
7 |
|
|
|
7.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
6,097 |
|
|
|
96 |
|
|
|
3.14 |
% |
|
|
5,093 |
|
|
|
131 |
|
|
|
5.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
14,593 |
|
|
$ |
232 |
|
|
|
3.18 |
% |
|
|
13,797 |
|
|
$ |
300 |
|
|
|
4.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
2.27 |
% |
|
|
|
|
|
|
|
|
|
|
2.23 |
% |
Noninterest-bearing demand deposits |
|
|
657 |
|
|
|
|
|
|
|
|
|
|
|
712 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
1,031 |
|
|
|
|
|
|
|
|
|
|
|
1,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
16,423 |
|
|
|
|
|
|
|
|
|
|
$ |
15,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of noninterest-bearing funds |
|
|
|
|
|
|
|
|
|
|
0.24 |
% |
|
|
|
|
|
|
|
|
|
|
0.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/margin |
|
|
|
|
|
$ |
198 |
|
|
|
2.51 |
% |
|
|
|
|
|
$ |
190 |
|
|
|
2.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of our earning assets are variable rate. Decreases in the rates earned on
our assets in second quarter 2008 compared to second quarter 2007 are principally a result of
decreases in short-term market interest rates. These market rate decreases also decreased the rates
we paid on our deposit liabilities and borrowings.
Provision for Credit Losses
We recorded $99 million in provision for credit losses in second quarter 2008 compared to an
insignificant net provision expense in second quarter 2007. We recorded $157 million in provision for credit losses in first
six months 2008 compared to $2 million credit provision in first six months 2007.
Significant declines in the financial condition and liquidity of our homebuilder portfolio
customers, as a result of current residential housing conditions, were the primary cause of our
second quarter 2008 provision for credit losses. We recorded net charge-offs of $19 million in
second quarter 2008, principally related to foreclosed homebuilder loans. We anticipate it will
become necessary for us to acquire the underlying collateral for a number of our loans to
homebuilders during the remainder of 2008. It is likely we will record significant charge-offs and
foreclosed real estate when we acquire collateral on those loans.
Please read Credit Risk for a discussion of our allowances for credit losses.
23
Noninterest Income
Noninterest income consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance commissions and fees |
|
$ |
17 |
|
|
$ |
16 |
|
|
$ |
1 |
|
|
$ |
36 |
|
|
$ |
32 |
|
|
$ |
4 |
|
Service charges on deposits |
|
|
15 |
|
|
|
13 |
|
|
|
2 |
|
|
|
28 |
|
|
|
25 |
|
|
|
3 |
|
Commercial loan facility fees |
|
|
3 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
7 |
|
|
|
10 |
|
|
|
(3 |
) |
Operating lease income |
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
3 |
|
|
|
4 |
|
|
|
(1 |
) |
Mutual fund and variable annuity
sales commissions |
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
Other |
|
|
3 |
|
|
|
2 |
|
|
|
1 |
|
|
|
6 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
41 |
|
|
$ |
38 |
|
|
$ |
3 |
|
|
$ |
83 |
|
|
$ |
77 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent increase for the period |
|
|
|
|
|
|
|
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
8 |
% |
Insurance commissions and fees increased because of higher non-deposit investment product
sales as a result of declining deposit rates.
Commercial loan facility fees consist of fees based on unfunded committed amounts, facility
usage fees, letter of credit fees, and syndication agent fees. The decrease in commercial loan
facility fees was principally a result of decreases in fees from homebuilders as a result of
decreases in activity levels by those customers.
Noninterest Expense
Noninterest expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
$ |
48 |
|
|
$ |
43 |
|
|
$ |
5 |
|
|
$ |
99 |
|
|
$ |
91 |
|
|
$ |
8 |
|
Occupancy |
|
|
9 |
|
|
|
7 |
|
|
|
2 |
|
|
|
17 |
|
|
|
13 |
|
|
|
4 |
|
Information systems and technology |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
9 |
|
|
|
7 |
|
|
|
2 |
|
Advertising and promotional |
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
|
11 |
|
|
|
7 |
|
|
|
4 |
|
Furniture, fixtures, and equipment |
|
|
5 |
|
|
|
4 |
|
|
|
1 |
|
|
|
11 |
|
|
|
8 |
|
|
|
3 |
|
Professional services |
|
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
8 |
|
|
|
4 |
|
|
|
4 |
|
Travel and other employee costs |
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
|
6 |
|
|
|
5 |
|
|
|
1 |
|
Postage, printing, and supplies |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
Litigation charge |
|
|
|
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
5 |
|
|
|
(5 |
) |
Depreciation of assets leased to
others |
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
Other |
|
|
13 |
|
|
|
13 |
|
|
|
|
|
|
|
27 |
|
|
|
25 |
|
|
|
2 |
|
Shared services allocation from
Temple-Inland Inc. |
|
|
|
|
|
|
7 |
|
|
|
(7 |
) |
|
|
|
|
|
|
15 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96 |
|
|
|
94 |
|
|
|
2 |
|
|
|
195 |
|
|
|
187 |
|
|
|
8 |
|
Charges related to asset
impairments and severance |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
99 |
|
|
$ |
94 |
|
|
$ |
5 |
|
|
$ |
198 |
|
|
$ |
187 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent increase for the period,
excluding charges related to
asset impairments and severance |
|
|
|
|
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
4 |
% |
Increases in many of our direct costs and expense categories in 2008 compared to 2007,
particularly compensation and benefits, were because we began to perform many activities ourselves
following our separation
24
from Temple-Inland Inc. Additionally, our marketing costs increased in second quarter 2008 as
we implemented initiatives related to increasing consumer lending through our branch network and a
new checking product.
We expensed $3 million, and paid $2 million, in severance in second quarter 2008 related to
the reduction-in-force we announced during second quarter. We expect the reduction-in-force will
save approximately $10 million annually in compensation costs.
Income Tax Expense
Our effective tax rate was negative 49% in second quarter 2008 and 38% in second quarter 2007.
In second quarter 2008, we established a valuation allowance against deferred tax assets of $46
million. Excluding the valuation allowance, our effective tax rate in
second quarter 2008 was 31%.
The decrease in effective rate, excluding valuation allowance, in 2008 is a result of the impact of
state margin taxes, particularly Texas, for which we do not receive a tax benefit from our net
loss.
Segment Performance Summary
Segment operating income (loss), which we measure exclusive of taxes, consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial banking |
|
$ |
(30 |
) |
|
$ |
58 |
|
|
$ |
(24 |
) |
|
$ |
121 |
|
Retail banking |
|
|
(17 |
) |
|
|
(8 |
) |
|
|
(37 |
) |
|
|
(15 |
) |
Insurance agency |
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
Mortgage banking |
|
|
(1 |
) |
|
|
(7 |
) |
|
|
(2 |
) |
|
|
(8 |
) |
Treasury, corporate and other |
|
|
(10 |
) |
|
|
(6 |
) |
|
|
(13 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(57 |
) |
|
$ |
39 |
|
|
$ |
(74 |
) |
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking
Second quarter 2008 segment operating results decreased $88 million compared to second quarter
2007. The principal cause of the decrease was $86 million in provision for credit losses on
commercial loans in second quarter 2008. The provision for credit losses was predominantly related
to increases in non-performing homebuilder loans, which increased from $182 million at March 31,
2008 to $233 million at June 30, 2008. Additionally, in second quarter 2008, we recorded a credit
loss provision related to our portion of a syndicated loan to a diversified energy company that
declared bankruptcy subsequent to the end of the quarter.
Retail Banking
Second quarter 2008 segment operating results decreased $9 million compared to second quarter
2007. Segment net interest income decreased because earnings credits on deposits decreased as
wholesale interest rates declined, but deposit pricing did not decrease proportionately with
wholesale price declines. Retail banking noninterest expense increased $2 million in second quarter
2008 compared to second quarter 2007 because of the increase in marketing costs, and because of
operating expenses from branches opened since second quarter 2007.
Insurance Agency
In second quarter 2008, insurance agency commissions and fees increased $1 million compared to
second quarter 2007 because of increased non-deposit investment sales. However, segment noninterest
expense increased $2 million compared to second quarter 2007 because of costs associated with the
non-deposit investment product sales and costs of the agency we acquired in 2007.
Treasury, corporate and other
Segment operating results in second quarter 2008 decreased $4 million compared to second quarter
2007, principally because of provisions for credit losses not allocated to our other segments,
severance costs related to a 135-person reduction-in-force, and share-based compensation related to
director and employee awards granted in 2008. The residual impact of funds transfer
pricing, during a period of varying interest rates, partially offset these reductions in segment
operating results.
25
Financial Condition
Loans
The composition of our loans at June 30, 2008 follows:
26
The loan portfolio consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
December 31, 2007 |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
Percent of |
|
|
Balance |
|
|
Total Loans |
|
Balance |
|
|
Total Loans |
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family mortgage |
|
$ |
1,485 |
|
|
|
14 |
% |
|
$ |
1,672 |
|
|
|
17 |
% |
Single-family mortgage warehouse |
|
|
971 |
|
|
|
9 |
% |
|
|
695 |
|
|
|
7 |
% |
Singe-family construction (homebuilders) |
|
|
1,223 |
|
|
|
12 |
% |
|
|
1,510 |
|
|
|
15 |
% |
Multifamily and senior housing |
|
|
1,877 |
|
|
|
18 |
% |
|
|
1,541 |
|
|
|
15 |
% |
Commercial real estate |
|
|
1,774 |
|
|
|
17 |
% |
|
|
1,674 |
|
|
|
17 |
% |
Commercial and business |
|
|
1,384 |
|
|
|
14 |
% |
|
|
1,340 |
|
|
|
13 |
% |
Energy |
|
|
1,334 |
|
|
|
13 |
% |
|
|
1,470 |
|
|
|
15 |
% |
Consumer and other |
|
|
197 |
|
|
|
3 |
% |
|
|
144 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
10,245 |
|
|
|
100 |
% |
|
|
10,046 |
|
|
|
100 |
% |
Less allowance for loan losses |
|
|
(250 |
) |
|
|
|
|
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
9,995 |
|
|
|
|
|
|
$ |
9,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The single-family construction portfolio consists of loans to finance homebuilding activities,
including construction and acquisition of developed lots and undeveloped land. Single-family
construction loans decreased in 2008 because we have exited a number of credit relationships to
reduce our risk. It is likely this trend will continue and also likely we will experience
charge-offs and provide for credit losses throughout 2008 related to single-family construction
loans. Please read Credit Risk for further information regarding credit risk characteristics of our
single-family construction loan portfolio.
We did not acquire a significant volume of mortgage loans through our correspondent mortgage
operations and have decided not to pursue this business. As a result, we expect our single-family
mortgage loan portfolio will continue to decrease.
Commercial real estate and multifamily loans continue to increase as a result of further
development and funding on loan commitments in those portfolios. We anticipate our commercial real
estate loans outstanding will continue to increase for the remainder of 2008 as we fund draws on
committed construction loans, partially offsetting decreases in single-family mortgage loans.
Information about our single-family mortgage loans, by category follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
December 31, 2007 |
|
|
Unpaid |
|
|
Total |
|
Unpaid |
|
|
Total |
|
|
Principal |
|
|
Delinquency |
|
Principal |
|
|
Delinquency |
|
|
Balance |
|
|
> 30 days |
|
Balance |
|
|
> 30 days |
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARMs |
|
$ |
407 |
|
|
|
21.04 |
% |
|
$ |
502 |
|
|
|
10.80 |
% |
Intermediate ARMs |
|
|
589 |
|
|
|
5.53 |
% |
|
|
709 |
|
|
|
3.27 |
% |
Other first liens |
|
|
342 |
|
|
|
8.86 |
% |
|
|
279 |
|
|
|
8.00 |
% |
Repurchased loans |
|
|
33 |
|
|
|
42.00 |
% |
|
|
35 |
|
|
|
41.64 |
% |
Second liens |
|
|
114 |
|
|
|
1.86 |
% |
|
|
147 |
|
|
|
1.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,485 |
|
|
|
11.09 |
% |
|
$ |
1,672 |
|
|
|
6.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the decrease in Option ARM loans in first six months 2008, $56 million were customers who
elected to convert to Intermediate ARMs at current market rates.
27
Investment Securities
The following charts summarize the fair value distribution of our mortgage-backed securities
portfolio at June 30, 2008.
|
|
|
By Issuer
|
|
By Type
|
|
|
|
|
|
All of the mortgage-backed securities we own have single-family residential mortgage loans as
the underlying assets. None of the securities include sub-prime loans. All of the non-agency
securities are credit-enhanced by subordinate tranches not owned by us, that will absorb credit
losses of the underlying loans until those tranches are depleted. At June 30, 2008, subordinated
tranches averaged 16% of the outstanding balances of the loan pools underlying the securities, and
on average 20% of the loans in the loan pools were delinquent on their payments.
The current environment in the housing and credit markets has resulted in significant
devaluation of many securities backed by mortgage assets. At June 30, 2008, all of the non-agency
securities we own carried AAA ratings from two different nationally recognized securities rating
organizations. Subsequent to second quarter end, one rating organization downgraded one of the
non-agency securities, which had an amortized cost of $56 million at June 30, 2008, to single-A.
Additionally, nine other non-agency securities, with a cumulative amortized cost of $1.0 billion,
have been designated as negative watch by one or both of those rating organizations. Though
determination of fair value is currently difficult because of limited trading activity of these
types of securities, information we gathered about market activity resulted in us concluding the
fair value, as defined in SFAS No. 157, of the non-agency mortgage-backed securities was $1.4
billion less than our amortized cost at June 30, 2008. We have recorded $513 million of this
unrealized loss in the carrying value of securities we classify as available-for-sale; the
remainder relates to securities we classify as held-to-maturity and therefore we have not recorded
those declines in the carrying value of the related securities. In
second quarter 2008, we received $234 million in principal paydowns on
mortgage-backed securities.
Information about our valuation techniques, significant inputs to valuation models, and
calibration of those models is included in Note 18 to our financial statements included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Based on our most recent analyses of delinquencies and subordinated tranches, we continue to
believe we will receive all stated interest and principal on the non-agency securities. We do not
have any plans to sell any of the securities and have the intent and ability to hold them until
repayment; therefore we have not recorded any of the unrealized declines in value in our earnings.
However, our consideration of whether the unrealized losses are other-than-temporary includes many
factors including the length of time a security has had an unrealized loss, the severity of the
unrealized loss and the ratings assigned by rating organizations. If the unrealized losses persist
or further increase, the securities ratings were to be substantially downgraded, or our estimates
of cash flows decrease, we might conclude some or all of the
unrealized losses as a result of these conditions were
other-than-temporary, which would result in a charge to earnings and a corresponding decrease in
regulatory capital.
28
Information about our mortgage-backed securities portfolio at June 30, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Net Unrealized |
|
|
|
|
|
|
|
|
|
|
Losses on |
|
|
|
|
|
|
Losses on Held- |
|
|
|
|
|
|
Amortized |
|
|
Available-for- |
|
|
Carrying |
|
|
to-Maturity |
|
|
|
|
|
|
Cost |
|
|
Sale Securities |
|
|
Value |
|
|
Securities |
|
|
Fair Value |
|
|
|
(In millions) |
|
U.S. Government
and U.S.
Government
Sponsored
Enterprises |
|
$ |
1,477 |
|
|
$ |
1 |
|
|
$ |
1,478 |
|
|
$ |
4 |
|
|
$ |
1,482 |
|
Non-agency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally valued |
|
|
3,459 |
|
|
|
(514 |
) |
|
|
2,945 |
|
|
|
(899 |
) |
|
|
2,046 |
|
Market quotes |
|
|
171 |
|
|
|
|
|
|
|
171 |
|
|
|
(3 |
) |
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,107 |
|
|
$ |
(513 |
) |
|
$ |
4,594 |
|
|
$ |
(898 |
) |
|
$ |
3,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Information about our non-agency securities at June 30, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subord- |
|
|
|
Unpaid |
|
|
|
|
|
|
|
|
|
|
Delinquency% |
|
ination |
|
|
|
Principal |
|
Carrying |
|
|
Issuer and Underlying Asset Type |
|
Tranche |
|
Cusip |
|
Total |
|
>60 day |
|
% |
|
Loan Originator |
|
Balance |
|
Value |
|
Fair Value |
(Dollars in millions) |
12MTA Option ARMs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Asset Mortgage
Investment II Trust 2007-AR6 |
|
Class A2
|
|
86364RAB5
|
|
|
16 |
% |
|
|
12 |
% |
|
|
11 |
% |
|
American Home Mortgage Corp |
|
$ |
412 |
|
|
$ |
206 |
|
|
$ |
206 |
* |
RALI 2007-QO5 Trust |
|
Class A
|
|
74924AAA3
|
|
|
18 |
% |
|
|
11 |
% |
|
|
11 |
% |
|
Homecomings Financial |
|
|
206 |
|
|
|
140 |
|
|
|
140 |
* |
Alternative Loan Trust 2005-81 |
|
Class A-4
|
|
12668BBR3
|
|
|
26 |
% |
|
|
21 |
% |
|
|
13 |
% |
|
Countrywide Home Loans |
|
|
143 |
|
|
|
145 |
|
|
|
79 |
|
Structured Asset Mortgage
Investment II Trust 2005-AR8 |
|
Class A-5
|
|
86359LSB6
|
|
|
29 |
% |
|
|
23 |
% |
|
|
13 |
% |
|
Countrywide Home Loans |
|
|
136 |
|
|
|
137 |
|
|
|
68 |
|
Alternative Loan Trust 2006-OA2 |
|
Class A-7
|
|
126694V88
|
|
|
35 |
% |
|
|
29 |
% |
|
|
16 |
% |
|
Countrywide Home Loans |
|
|
131 |
|
|
|
134 |
|
|
|
65 |
|
Alternative Loan Trust 2005-76 |
|
Class 1-A-2
|
|
12668BDD2
|
|
|
32 |
% |
|
|
27 |
% |
|
|
17 |
% |
|
Countrywide Home Loans |
|
|
127 |
|
|
|
129 |
|
|
|
64 |
|
Alternative Loan Trust 2005-58 |
|
Class A-3
|
|
12668AWK7
|
|
|
29 |
% |
|
|
23 |
% |
|
|
15 |
% |
|
Countrywide Home Loans |
|
|
123 |
|
|
|
125 |
|
|
|
72 |
|
Alternative Loan Trust 2005-51 |
|
Class 3-A-1
|
|
12668ACW3
|
|
|
27 |
% |
|
|
22 |
% |
|
|
17 |
% |
|
Countrywide Home Loans |
|
|
126 |
|
|
|
127 |
|
|
|
60 |
|
Alternative Loan Trust 2005-62 |
|
Class 1-A-2
|
|
12668ATP0
|
|
|
33 |
% |
|
|
28 |
% |
|
|
18 |
% |
|
Countrywide Home Loans |
|
|
118 |
|
|
|
119 |
|
|
|
79 |
|
RALI Series 2005-QO5 Trust |
|
Class A-3
|
|
761118QP6
|
|
|
29 |
% |
|
|
23 |
% |
|
|
15 |
% |
|
Homecomings Financial Network, SCME, Mortgage IT, Other |
|
|
99 |
|
|
|
100 |
|
|
|
46 |
|
RALI Series 2005-Q01 Trust |
|
Class A-4
|
|
761118ER5
|
|
|
21 |
% |
|
|
15 |
% |
|
|
17 |
% |
|
Homecomings Financial Network, Other |
|
|
90 |
|
|
|
92 |
|
|
|
53 |
|
Alternative Loan Trust 2005-38 |
|
Class A-2
|
|
12667GZ22
|
|
|
27 |
% |
|
|
23 |
% |
|
|
19 |
% |
|
Countrywide Home Loans |
|
|
71 |
|
|
|
73 |
|
|
|
50 |
|
Alternative Loan Trust 2005-41 |
|
Class 2-A-1
|
|
12667GR96
|
|
|
27 |
% |
|
|
21 |
% |
|
|
21 |
% |
|
Countrywide Home Loans |
|
|
68 |
|
|
|
69 |
|
|
|
38 |
|
Structured Asset Mortgage
Investments II Trust 2006-AR3 |
|
Class 12A4
|
|
86360KAH1
|
|
|
33 |
% |
|
|
27 |
% |
|
|
14 |
% |
|
Countrywide Home Loans, Bank of America, and other |
|
|
70 |
|
|
|
71 |
|
|
|
44 |
|
Harborview Mortgage Loan Trust 2005-8 |
|
Class 2A3
|
|
41161PRT2
|
|
|
22 |
% |
|
|
19 |
% |
|
|
20 |
% |
|
Countrywide Home Loans |
|
|
61 |
|
|
|
63 |
|
|
|
39 |
|
Greenpoint Mortgage Funding
Trust 2005-AR5 |
|
Class I-A-2
|
|
39538WEC8
|
|
|
37 |
% |
|
|
30 |
% |
|
|
22 |
% |
|
Greenpoint Mortgage Funding |
|
|
54 |
|
|
|
56 |
|
|
|
35 |
|
Structured Asset Mortgage
Investments II Trust 2005-AR4 |
|
Class A2
|
|
86359LMA4
|
|
|
31 |
% |
|
|
26 |
% |
|
|
23 |
% |
|
Countrywide Home Loans |
|
|
55 |
|
|
|
57 |
|
|
|
33 |
|
WaMu Mortgage Pass-Through
Certificates, Series 2005-AR9 |
|
Class A2A
|
|
92922FU97
|
|
|
8 |
% |
|
|
6 |
% |
|
|
19 |
% |
|
One or more approved institutions |
|
|
51 |
|
|
|
52 |
|
|
|
30 |
|
Structured Asset Mortgage
Investments II Trust 2005-AR7 |
|
Class 5A2
|
|
86359LQT9
|
|
|
22 |
% |
|
|
18 |
% |
|
|
18 |
% |
|
Southstar
Funding LLC/Opteum Financial Services LLC, First
Horizon, BOA, other |
|
|
41 |
|
|
|
41 |
|
|
|
19 |
|
Greenpoint Mortgage Funding
Trust 2006-AR3 |
|
Class 4A3
|
|
39538WHH4
|
|
|
28 |
% |
|
|
23 |
% |
|
|
15 |
% |
|
Greenpoint Mortgage Funding |
|
|
38 |
|
|
|
39 |
|
|
|
26 |
|
Harborview Mortgage Loan Trust
2005-16 |
|
Class 4A1B
|
|
41161PZD8
|
|
|
25 |
% |
|
|
22 |
% |
|
|
20 |
% |
|
Countrywide Home Loans |
|
|
32 |
|
|
|
32 |
|
|
|
19 |
|
IndyMac INDX Mortgage Loan
Trust 2005-16IP |
|
Class A3
|
|
45660LUF4
|
|
|
20 |
% |
|
|
16 |
% |
|
|
20 |
% |
|
IndyMac Bank, F.S.B. |
|
|
27 |
|
|
|
28 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,279 |
|
|
|
2,035 |
|
|
|
1,283 |
|
|
|
|
* |
|
Security designated as available-for-sale |
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subord- |
|
|
|
Unpaid |
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency % |
|
ination |
|
|
|
Principal |
|
|
Carrying |
|
|
|
|
Issuer and Underlying Asset Type |
|
Tranche |
|
Cusip |
|
Total |
|
>60 day |
|
% |
|
Loan
Originator |
|
Balance |
|
|
Value |
|
|
Fair Value |
|
(Dollars in millions) |
|
Hybrid Option ARMs (5Y Fixed/12MTA) |
|
RALI 2007-QH8 Trust |
|
Class A |
|
74924EAA5 |
|
|
15 |
% |
|
|
10 |
% |
|
|
12 |
% |
|
Homecomings Financial |
|
|
482 |
|
|
|
313 |
|
|
|
313 |
* |
|
COFI Option ARMs |
|
WaMu Mortgage Pass-Through Certificates 2007-OA4 |
|
Class 2A |
|
93364CAC2 |
|
|
14 |
% |
|
|
10 |
% |
|
|
30 |
% |
|
Washington Mutual Bank |
|
|
135 |
|
|
|
94 |
|
|
|
94 |
* |
Washington Mutual Mortgage Pass- Through Certificates WMALT 2007- OA3 Trust |
|
Class 5A |
|
939355AE3 |
|
|
19 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
Washington Mutual Bank or others, Mortgage IT |
|
|
120 |
|
|
|
120 |
|
|
|
87 |
|
WaMu Mortgage Pass-Through Certificates 2007-OA5 |
|
Class 2A |
|
93364BAC4 |
|
|
14 |
% |
|
|
11 |
% |
|
|
30 |
% |
|
Washington Mutual Bank |
|
|
107 |
|
|
|
75 |
|
|
|
75 |
* |
WaMu Mortgage Pass- Through Certificates 2006-AR9 |
|
Class 2A-1B |
|
93363DAC1 |
|
|
8 |
% |
|
|
6 |
% |
|
|
10 |
% |
|
Washington Mutual Bank |
|
|
85 |
|
|
|
84 |
|
|
|
51 |
|
WaMu Mortgage Pass -Through Certificates 2006-AR9 |
|
Class 2A |
|
93363DAB3 |
|
|
8 |
% |
|
|
6 |
% |
|
|
36 |
% |
|
Washington Mutual Bank |
|
|
53 |
|
|
|
53 |
|
|
|
37 |
|
WaMu Mortgage Pass- Through Certificates 2006-AR11 |
|
Class 2A-1B |
|
93363TAC6 |
|
|
11 |
% |
|
|
8 |
% |
|
|
10 |
% |
|
Washington Mutual Bank |
|
|
42 |
|
|
|
43 |
|
|
|
26 |
|
WaMu Mortgage Pass Through Certificates 2006-AR13 |
|
Class 2A-1B |
|
93363RAC0 |
|
|
11 |
% |
|
|
7 |
% |
|
|
10 |
% |
|
Washington Mutual Bank |
|
|
37 |
|
|
|
37 |
|
|
|
25 |
|
WaMu Mortgage Pass- Through Certificates 2006-AR15 |
|
Class 2A-1B |
|
93363QAD0 |
|
|
10 |
% |
|
|
8 |
% |
|
|
10 |
% |
|
Washington Mutual Bank |
|
|
31 |
|
|
|
31 |
|
|
|
19 |
|
WaMu Mortgage Pass- Through Certificates 2006-AR17 |
|
Class 2A-1B |
|
92925DAE0 |
|
|
10 |
% |
|
|
7 |
% |
|
|
10 |
% |
|
Washington Mutual Bank |
|
|
24 |
|
|
|
24 |
|
|
|
15 |
|
WaMu Mortgage Pass- Through Certificates 2006-AR19 |
|
Class 2A |
|
933638AD0 |
|
|
10 |
% |
|
|
9 |
% |
|
|
39 |
% |
|
Washington Mutual Bank |
|
|
20 |
|
|
|
20 |
|
|
|
14 |
|
WaMu Mortgage Pass- Through Certificates 2006-AR19 |
|
Class 2A-1B |
|
933638AE8 |
|
|
10 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
Washington Mutual Bank |
|
|
13 |
|
|
|
13 |
|
|
|
8 |
|
Home Savings of America |
|
1988-7A |
|
436904AG1 |
|
|
|
|
|
|
|
|
|
|
103 |
% |
|
Not Available |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
* |
Home Savings of America |
|
1988-8A |
|
436904AJ5 |
|
|
|
|
|
|
|
|
|
|
99 |
% |
|
Not Available |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
* |
Home Savings of America |
|
1988-10A |
|
436904AK2 |
|
|
|
|
|
|
|
|
|
|
102 |
% |
|
Not Available |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
* |
Home Savings of America |
|
1988-11A |
|
436904AL0 |
|
|
|
|
|
|
|
|
|
|
102 |
% |
|
Not Available |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
* |
|
|
|
|
|
|
|
|
672 |
|
599 |
|
456 |
|
|
5/1 LIBOR |
|
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2004-H |
|
Class 2A1 |
|
05949ARD4 |
|
|
3 |
% |
|
|
2 |
% |
|
|
7 |
% |
|
Bank of America, N.A. |
|
|
40 |
|
|
|
40 |
|
|
|
38 |
|
GSR Mortgage Loan Trust 2004-11 |
|
Class 2A1 |
|
36242DFS7 |
|
|
4 |
% |
|
|
3 |
% |
|
|
9 |
% |
|
Various Lenders |
|
|
42 |
|
|
|
43 |
|
|
|
41 |
|
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-K |
|
Class 2A2 |
|
05948XZH7 |
|
|
1 |
% |
|
|
1 |
% |
|
|
6 |
% |
|
Bank of America, N.A. |
|
|
33 |
|
|
|
33 |
|
|
|
32 |
|
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-H |
|
Class 2A2 |
|
05948XTH4 |
|
|
1 |
% |
|
|
1 |
% |
|
|
6 |
% |
|
Bank of America, N.A. |
|
|
25 |
|
|
|
26 |
|
|
|
24 |
|
GSR Mortgage Loan Trust 2003-9 |
|
Class A2 |
|
36228FWS1 |
|
|
2 |
% |
|
|
2 |
% |
|
|
8 |
% |
|
Various Lenders |
|
|
18 |
|
|
|
18 |
|
|
|
18 |
|
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-D |
|
Class 2A3 |
|
05948XBU4 |
|
|
3 |
% |
|
|
2 |
% |
|
|
7 |
% |
|
Bank of America, N.A. |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
Banc of America Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 2003-A |
|
Class 2A1 |
|
05948LAE7 |
|
|
5 |
% |
|
|
2 |
% |
|
|
8 |
% |
|
Bank of America, N.A. |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
167 |
|
169 |
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
% |
|
16 |
% |
|
16 |
% |
|
$ |
3,600 |
|
$ |
3,116 |
|
$ |
2,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Security designated as available-for-sale |
Information at June 30, 2008 about the geographic distribution of the mortgage loans
underlying the non-agency securities we own follows:
|
|
|
|
|
California |
|
|
60 |
% |
Florida |
|
|
12 |
% |
Arizona |
|
|
3 |
% |
Other |
|
|
8 |
% |
Not available |
|
|
17 |
% |
|
|
|
|
|
|
|
100 |
% |
|
|
|
|
31
Deposits
Deposits consist of:
|
|
|
June 30, 2008
|
|
December 31, 2007 |
|
|
|
|
|
|
Included in transaction accounts are interest-bearing checking accounts totaling $1.1
billion at June 30, 2008 and $1.2 billion at June 30, 2007. We recorded interest expense on
interest-bearing checking accounts at an average rate of 0.4% for second quarter 2008 and 0.5% for
second quarter 2007. Total deposits decreased by 2% at June 30, 2008 compared to December 31, 2007.
Borrowings
Our FHLB borrowings consist of both short-term and long-term borrowings. Short-term borrowings
are generally 7 to 30 days in maturity, and we use them to meet daily liquidity needs. We utilize
longer-term FHLB borrowings at times to match the interest rate characteristics of some of our
assets, such as those repricing after three to five years. Please read Liquidity, Capital
Resources, Off-Balance Sheet Arrangements, and Contractual Obligations for information about
collateral we have pledged for FHLB borrowings.
32
Credit Risk
Asset Quality and Allowance for Credit Losses
Various asset quality measures we monitor are:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans |
|
$ |
364 |
|
|
$ |
166 |
|
Foreclosed real estate |
|
|
42 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Non-performing assets |
|
$ |
406 |
|
|
$ |
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percentage of total loans |
|
|
3.55 |
% |
|
|
1.65 |
% |
Non-performing assets divided by total loans and foreclosed real estate |
|
|
3.95 |
% |
|
|
1.78 |
% |
Allowance for loan losses as a percentage of non-performing loans |
|
|
69 |
% |
|
|
71 |
% |
Allowance for loan losses as a percentage of total loans |
|
|
2.44 |
% |
|
|
1.17 |
% |
Single-family mortgage loan delinquencies as a percentage of
single-family mortgage loans |
|
|
11.09 |
% |
|
|
6.97 |
% |
Information about our allowances for credit losses and nonaccrual and other loans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
181 |
|
|
$ |
78 |
|
|
$ |
125 |
|
|
$ |
72 |
|
Provision (credit) for credit losses |
|
|
99 |
|
|
|
|
|
|
|
157 |
|
|
|
(2 |
) |
Net (charge-offs) recoveries |
|
|
(19 |
) |
|
|
1 |
|
|
|
(21 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
261 |
|
|
$ |
79 |
|
|
$ |
261 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
250 |
|
|
$ |
72 |
|
|
$ |
250 |
|
|
$ |
72 |
|
Commitment-related reserves |
|
|
11 |
|
|
|
7 |
|
|
|
11 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
261 |
|
|
$ |
79 |
|
|
$ |
261 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (credit) for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan losses |
|
$ |
97 |
|
|
$ |
|
|
|
$ |
153 |
|
|
$ |
(2 |
) |
Commitment-related credit losses |
|
|
2 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined provision (credit) for credit losses |
|
$ |
99 |
|
|
$ |
|
|
|
$ |
157 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
364 |
|
|
$ |
29 |
|
|
$ |
364 |
|
|
$ |
29 |
|
Accruing loans past-due 90 days or more |
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
5 |
|
|
$ |
6 |
|
Net charge-offs (recoveries) as a percentage
of average loans outstanding |
|
|
0.74 |
% |
|
|
(0.03 |
)% |
|
|
0.41 |
% |
|
|
(0.18 |
)% |
Conditions in the residential housing and credit markets continue to deteriorate. Our
non-performing loans to homebuilders increased $51 million in second quarter 2008. Our
non-performing single-family mortgage loans also increased in second quarter 2008 by $28 million.
As a result, our asset quality measures have deteriorated substantially, including an increase in
non-performing assets and much higher provisions for credit losses than over the previous several
years. Until conditions in the housing and credit markets improve, it is likely we will continue to
report significant non-performing assets, charge-offs, and provisions for credit losses.
33
The allowance for loan losses by loan category was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Allowance |
|
|
|
|
|
|
Allowance |
|
|
|
|
|
|
|
as a % |
|
|
|
|
|
|
as a % |
|
|
|
|
|
|
|
of Loan |
|
|
|
|
|
|
of Loan |
|
|
|
Allowance |
|
|
Category |
|
|
Allowance |
|
|
Category |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family mortgage |
|
$ |
24 |
|
|
|
1.62 |
% |
|
$ |
9 |
|
|
|
0.54 |
% |
Single-family mortgage warehouse |
|
|
5 |
|
|
|
0.51 |
% |
|
|
6 |
|
|
|
0.86 |
% |
Single-family construction (homebuilders) |
|
|
136 |
|
|
|
11.12 |
% |
|
|
48 |
|
|
|
3.18 |
% |
Multifamily and senior housing |
|
|
9 |
|
|
|
0.48 |
% |
|
|
6 |
|
|
|
0.39 |
% |
Commercial real estate |
|
|
6 |
|
|
|
0.34 |
% |
|
|
6 |
|
|
|
0.36 |
% |
Commercial and business |
|
|
22 |
|
|
|
1.59 |
% |
|
|
15 |
|
|
|
1.12 |
% |
Energy |
|
|
19 |
|
|
|
1.42 |
% |
|
|
6 |
|
|
|
0.41 |
% |
Consumer and other |
|
|
1 |
|
|
|
0.51 |
% |
|
|
|
|
|
|
|
|
Incurred but
not yet identified losses |
|
|
28 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250 |
|
|
|
2.44 |
% |
|
$ |
118 |
|
|
|
1.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration
Information about the underlying collateral and geographic location of our single-family
construction loans, including local, regional, and national homebuilders at June 30, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots and Land |
|
|
|
|
|
|
|
|
|
Single-Family |
|
|
Acquisition and |
|
|
|
|
|
|
|
|
|
Houses |
|
|
Development |
|
|
Other |
|
|
Total |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California |
|
$ |
120 |
|
|
$ |
250 |
|
|
$ |
48 |
|
|
$ |
418 |
|
Texas |
|
|
91 |
|
|
|
24 |
|
|
|
|
|
|
|
115 |
|
Florida |
|
|
46 |
|
|
|
41 |
|
|
|
1 |
|
|
|
88 |
|
Arizona |
|
|
17 |
|
|
|
28 |
|
|
|
38 |
|
|
|
83 |
|
Colorado |
|
|
47 |
|
|
|
28 |
|
|
|
|
|
|
|
75 |
|
Other |
|
|
121 |
|
|
|
164 |
|
|
|
159 |
(a) |
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
442 |
|
|
$ |
535 |
|
|
$ |
246 |
|
|
$ |
1,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Principally unsecured loans to national homebuilders |
Our commercial real estate construction loans are diversified geographically, and across a
number of different property types. Information about those loans at June 30, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
% of |
|
|
|
Commercial |
|
|
Total Loan |
|
|
|
Real Estate |
|
|
Portfolio |
|
Office |
|
|
47 |
% |
|
|
8 |
% |
Retail |
|
|
27 |
% |
|
|
5 |
% |
Industrial |
|
|
14 |
% |
|
|
2 |
% |
Land |
|
|
12 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
34
We originate and maintain large credit relationships with a number of customers in the
ordinary course of business as a result of the types of lending in which we engage. At June 30,
2008, we had 8 customers for which we had loan commitments exceeding $100 million. Information
about these relationships follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of |
|
|
|
|
|
|
|
|
|
|
|
Credit |
|
|
|
|
|
|
|
|
|
|
|
Relationships |
|
|
|
|
|
|
|
|
|
|
|
Exceeding |
|
|
|
Commitment |
|
|
Outstanding |
|
|
$100 Million |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate construction |
|
$ |
641 |
|
|
$ |
400 |
|
|
|
6 |
|
Energy |
|
|
259 |
|
|
|
215 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
900 |
|
|
$ |
615 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
Liquidity, Capital Resources, Off-Balance Sheet Arrangements, and Contractual Obligations
Our principal operating cash requirements are for interest, compensation, and taxes. Changes
in loans held for sale are subject to the timing of the origination and subsequent sale of the
loans and the level of refinancing activity.
The change in our borrowings generally moves in tandem with the amounts invested in loans and
securities less changes in deposits because we use borrowings to fund our investments in excess of
deposits. The amount of borrowing will decrease as opportunity to invest decreases and will
increase as opportunity to invest increases. In
first six months 2008, we used cash flow from operations and principal payments on securities
to fund increases in loans and decreases in deposits and borrowings.
Our liquidity needs are associated with cash flow requirements of our deposit and loan
customers, our other commitments (including borrowing costs and
maturities), and our operating
activities. We have a variety of liquidity sources including:
|
|
|
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. |
Our borrowings from the FHLB are secured by a blanket floating lien on certain of our loans,
and by securities we maintain on deposit at the FHLB. At June 30, 2008, $11 billion in principal
balance of our loans and securities were pledged as collateral for FHLB borrowings. Based upon this
collateral, we have the ability to borrow an additional $1.6 billion from the FHLB. Additionally,
we have other assets not pledged as collateral on FHLB borrowings, which we could pledge as
collateral with the FHLB or other lenders, including the Federal Reserve, and unsecured borrowing
capacity, which provide an additional $2.6 billion in available liquidity.
We continue to have sufficient liquidity resources, principally borrowing capacity at the
Federal Home Loan Bank of Dallas (FHLB Dallas), to meet our anticipated loan funding and
operating requirements. FHLB Dallas currently limits our ability to pledge non-agency
mortgage-backed securities as collateral against our borrowings from them to securities rated BBB
or higher. If a security becomes rated below AA, FHLB Dallas will reduce the available borrowing
capacity by 5% for each grade lower than AA. If FHLB were to reduce our borrowing capacity because
of further market value changes or any downgrades of our collateral, and we were not able to
replace the financing on similar terms or replace the downgraded securities with other eligible
collateral, our liquidity could be materially adversely affected. It would likely be difficult to
secure replacement financing in the current credit markets.
35
Approximately $1.9 billion (21%) of our deposits at June 30, 2008 were above the federal
deposit insurance limits, of which $1.6 billion were transaction accounts and
$300 million were
certificates of deposit. Though we have not experienced any significant decreases, some
institutions have recently experienced customers withdrawing uninsured deposits as a result of
publicity surrounding recent insured depository institution failures. If we were to experience
significant deposit withdrawals, we would need to replace the funding through further utilization
of our FHLB borrowing capacity or other borrowing resources.
Contractual Obligations
At June 30, 2008 our contractual obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Expiring by Period |
|
|
|
|
|
|
Total |
|
|
2008 |
|
|
2009-10 |
|
|
2011-12 |
|
|
Thereafter |
|
|
Indeterminable |
|
|
|
(In millions) |
|
Items on our balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and savings
deposit accounts |
|
$ |
4,803 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,803 |
|
Certificates of deposit |
|
|
4,357 |
|
|
|
2,681 |
|
|
|
1,557 |
|
|
|
105 |
|
|
|
14 |
|
|
|
|
|
Federal Home Loan Bank
borrowings |
|
|
5,553 |
|
|
|
5,119 |
|
|
|
309 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
Subordinated notes payable
to trust |
|
|
314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items not on our balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual interest payments |
|
|
548 |
|
|
|
49 |
|
|
|
103 |
|
|
|
51 |
|
|
|
345 |
|
|
|
|
|
Operating leases |
|
|
44 |
|
|
|
4 |
|
|
|
16 |
|
|
|
14 |
|
|
|
10 |
|
|
|
|
|
Processing contracts |
|
|
17 |
|
|
|
6 |
|
|
|
9 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,636 |
|
|
$ |
7,859 |
|
|
$ |
1,994 |
|
|
$ |
297 |
|
|
$ |
683 |
|
|
$ |
4,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
In the normal course of business, we enter into off-balance sheet arrangements, such as
commitments to extend credit for loans, leases, and letters of credit. Since many commercial and
business loan commitments expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Additionally, we generally require collateral upon
funding of loan commitments, and once funded, they generally increase our borrowing capacity
(referred to as pledgeable below). Our off-balance sheet unfunded credit arrangements consist
of:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
Single-family mortgage loans |
|
$ |
107 |
|
|
$ |
87 |
|
Unused lines of credit |
|
|
1,854 |
|
|
|
1,959 |
|
Unfunded portion of credit commitments pledgeable |
|
|
2,876 |
|
|
|
3,866 |
|
Unfunded portion of credit commitments non-pledgeable |
|
|
941 |
|
|
|
621 |
|
Commitments to originate loans pledgeable |
|
|
95 |
|
|
|
337 |
|
Commitments to originate loans non-pledgeable |
|
|
185 |
|
|
|
417 |
|
Letters of credit |
|
|
338 |
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
$ |
6,396 |
|
|
$ |
7,646 |
|
|
|
|
|
|
|
|
Capital Management
In May 2008, we completed a
private placement transaction, raising $38 million. In July 2008, we completed a series of private placement transactions,
raising $562 million before offering costs. Substantially all of the proceeds will
qualify as regulatory capital for Guaranty Bank. Including the
proceeds from these transactions, our
proforma regulatory capital ratios at June 30, 2008 would have been approximately 9.49% Tier 1
(Core) Leverage ratio and 14.62% Total Risk-Based ratio.
At June 30, 2008, Guaranty Bank was well-capitalized under the federal capital adequacy
regulations. The following table sets forth actual capital amounts
and ratios for Guaranty Bank, along
with the minimum capital amounts
36
and ratios required of all federally insured financial institutions in order to meet capital
adequacy requirements and to be categorized as
well-capitalized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Categorization as |
|
Regulatory |
|
|
Actual |
|
Well Capitalized |
|
Minimum |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
(Dollars in millions) |
Total Risk-Based Ratio (Risk-based
Capital/Total Risk-weighted Assets)
|
|
|
$1,391 |
|
|
|
10.60 |
% |
|
$ |
1,311 |
|
|
³10.00%
|
|
$ |
1,049 |
|
|
³ 8.00% |
Tier 1 (Core) Risk-based Ratio (Core
Capital/Total Risk-weighted Assets)
|
|
|
$1,228 |
|
|
|
9.36 |
% |
|
$ |
787 |
|
|
³ 6.00%
|
|
$ |
525 |
|
|
³ 4.00% |
Tier 1 (Core) Leverage Ratio (Core
Capital/Adjusted Tangible Assets)
|
|
|
$1,228 |
|
|
|
7.63 |
% |
|
$ |
805 |
|
|
³ 5.00%
|
|
$ |
644 |
|
|
³ 4.00% |
Tangible Ratio (Tangible Capital/Tangible Assets)
|
|
|
$1,228 |
|
|
|
7.63 |
% |
|
|
n/a |
|
|
n/a |
|
$ |
322 |
|
|
³ 2.00% |
We did not pay or declare a dividend on our common stock in second quarter 2008. Our
ability to pay dividends, which is limited by regulatory capital requirements at Guaranty Bank, has
historically depended to a great extent on our after-tax earnings and our asset growth.
Recent Accounting Standards
Please see Note 1 to our unaudited financial statements in Item 1 for information about new
and pending accounting pronouncements.
Effects of Inflation
Inflation has had minimal effect on our operating results the past three years because
substantially all of our assets and liabilities are monetary in nature. As a result, interest rates
have a more significant impact on our results than general levels of inflation.
Litigation Matters
We are involved in various legal proceedings that arise from time to time in the ordinary
course of doing business and believe we have established adequate reserves for any probable losses.
We do not believe the outcome of any of these proceedings should have a significant adverse effect
on our financial position, long-term results of operations, or cash
flow. It is possible, however,
charges related to these matters could be significant to our results or cash flow in any one
period.
A class action in California, related to our former mortgage banking operations, was dismissed
but remains under appeal by the plaintiff. We have established reserves we believe are adequate for
this matter, and do not anticipate the outcome will have a significant adverse effect on our
financial position or results of operations or cash flow.
As a result of our participation in the Visa USA (Visa) network, principally related to ATM
and debit cards, we own 33 thousand Class B common shares of Visa for which we have no carrying
value. As a former member of Visa, we participate in an indemnification provision in Visas bylaws.
We are not a named defendant in any of Visas litigation matters, and have no access to any
non-public information about the matters.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The following table illustrates the estimated effect on our pre-tax income of hypothetical
immediate, parallel, and sustained shifts in interest rates for the next 12 months at June 30,
2008, compared to information at December 31, 2007. This estimate considers the effect of changing
prepayment speeds, repricing characteristics, and expected average balances over the next 12
months.
37
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in |
|
|
|
Income Before Taxes |
|
Change in |
|
June 30, |
|
|
December 31, |
|
Interest Rate |
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
+1% |
|
$ |
14 |
|
|
$ |
(6 |
) |
-1% |
|
|
(17 |
) |
|
|
(12 |
) |
The change in our interest rate sensitivity from December 31, 2007 is principally because of
the decrease in single-family mortgage loans and mortgage-backed securities. These assets have
interest rates which are less responsive to changes in interest rates than our commercial loans. As
the mortgage portfolios decrease, our overall asset yields become more responsive to changes in
interest rates.
Additionally, our funding costs are less sensitive to changes in interest rates at June 30,
2008 because of two factors:
|
|
|
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.
|
Reporting the effect of immediate and parallel rate changes is common industry practice;
however, such changes are unlikely to occur. More typically, rates increase gradually, change in
different amounts across the term structure, and change differently across products.
While the analysis strives to model accurately the hypothetical relationships being tested,
there are numerous assumptions and estimates associated with these simulations which may not
reflect the manner in which actual yields and costs respond to changes in market interest rates.
Assumptions about interest rate changes, balance sheet growth, depositor behavior, or prepayment
rates are by nature highly subjective, involve uncertainty and, therefore, are only estimates.
Foreign Currency Risk
We have no exposure to foreign currency fluctuations.
Commodity Price Risk
We have no direct exposure to commodity price fluctuations.
Item 4T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective in recording, processing, summarizing,
and reporting, on a timely basis, information required to be disclosed by us in the reports that we
file or submit under the Exchange Act and are effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting
There have not been any changes in our internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to
which this report relates that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Since we filed our Annual Report on Form 10-K for the year ended December 31, 2007, there have
been no material developments in pending legal proceedings.
We do not expect the eventual outcome of any or all of our pending legal matters would have a
significant adverse effect on our financial position, long-term results of operations, or cash
flow. It is possible that charges related to these matters could be significant to the results of
operations or cash flows in any one accounting period.
Item 1A. Risk Factors
There are no material changes from the risk factors as previously disclosed in our Annual
Report on Form 10-K for 2007, except as set forth below:
Volatility in the credit and residential housing markets could result in further losses on our
mortgage-backed securities and loans.
Credit markets in many sectors have experienced dramatic reductions in liquidity and increases
in required returns by investors in credit-sensitive assets. These conditions began in 2007 in the
sub-prime mortgage market but have expanded in 2008 to include virtually all non-agency
mortgage-backed securities and many other asset-backed markets. Mortgage-backed securities comprise
a higher percentage of our assets than they do for many other financial institutions. At June 30,
2008, approximately 29% of our assets were mortgage-backed securities and approximately two-thirds
of those securities were non-agency securities. Recent transactions by distressed sellers, and
expectations of further distressed sales, have exacerbated market discounts for mortgage-backed
securities and generally removed the majority of typical participants from transactions in
non-agency securities. As a result, it is difficult to determine fair values for those securities
and would likely be difficult to sell securities in the current market at all. We estimate the fair
value of the non-agency securities we own was below amortized cost by approximately $1.4 billion,
or 39%, at June 30, 2008. Though we currently have the intent and ability to hold the securities
until repayment, if it became necessary for us to sell non-agency securities, any sales would
almost certainly be at a significant discount to par value which would have a negative effect on
our operating results and capital position.
Current market conditions include a severe over-supply of land, lots, and finished homes in
many markets including those where we do business. At June 30, 2008, approximately 8% of our assets
were loans to homebuilders and 9% of our assets were single-family mortgage loans. Many of our
homebuilder borrowers are experiencing decreased sales and pricing and some are facing significant
financial difficulty. We had approximately $233 million in non-performing homebuilder loans and
approximately $97 million of non-performing single-family mortgage loans at June 30, 2008. The
percentage of our single-family mortgage loans delinquent in their payments has increased from 7%
to 11% since year-end 2007. If housing markets, particularly in California, continue to
deteriorate, we will experience a further increase in non-performing loans, provisions for loan
losses, and charge-offs. While it is difficult to predict how long these conditions will exist and
which markets, products or other segments of our loan and securities portfolio might ultimately be
affected, these factors could adversely affect our ability to grow earning assets, return to
profitability, or meet our financial obligations.
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.
Deterioration in the value of single-family homes may cause borrowers to default on the
mortgages underlying the mortgage-backed securities we own. In the cash flow distribution from the
underlying assets, our securities are generally senior to subordinated tranches intended to incur
credit losses from the underlying loans before losses are allocated to our securities. However, if
credit losses on the underlying loans were to exceed the subordinated tranches, we would not
receive the full stated interest due on the securities or our full principal balance, or both. If
we were to conclude unrealized losses on the mortgage-backed securities were other than temporary
which we
39
evaluate by considering estimates of recoverability, as well as the duration and severity of
the unrealized loss we would be required under generally accepted accounting principles to
reduce the cost basis of the security to fair value and record a corresponding charge to earnings,
which would also reduce our regulatory capital.
Many of the loans underlying the non-agency mortgage-backed securities we own have one or more
characteristics increasing the risk of default by the borrowers. These characteristics include
various monthly payment options, referred to as Option ARMs, and limited underwriting
documentation. At June 30, 2008, over 95% of the loans underlying the non-agency mortgage-backed
securities we own are Option ARMs. Additionally, approximately 60% of the loans underlying the
non-agency mortgage-backed securities we own are secured by real estate in California.
If a significant portion of our non-agency mortgage-backed securities portfolio were to be
downgraded below investment grade, or the market value of those securities further declined, it
would negatively affect our liquidity.
At June 30, 2008, we had outstanding indebtedness to FHLB Dallas in the amount of $5.6
billion. FHLB Dallas currently limits our ability to pledge non-agency mortgage-backed securities
as collateral against our borrowings from them to securities rated BBB or higher. If a security
becomes rated below AA, FHLB Dallas will reduce the available borrowing capacity by 5% for each
grade lower than AA.
If FHLB were to reduce our borrowing capacity because of further market value changes or any
downgrades of our collateral, and we were not able to replace the financing on similar terms or
replace the downgraded securities with other eligible collateral, our liquidity could be materially
and adversely affected. It may be difficult to secure replacement financing in the current credit
markets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Guarantys
Annual Meeting of Stockholders was held on May 27, 2008 at 1300 South MoPac Expressway,
Austin, Texas. A total of 33,211,390 of the Companys shares were present or represented by proxy
at the meeting. This represented 89.18 percent of the Companys shares entitled to vote.
The matters approved by the stockholders
at the meeting and the number of votes cast for, against,
or withheld (as well as the number of abstentions and broker non-votes) as to each matter are set
forth below:
Proposal No. 1: Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Election of directors to three year terms, expiring 2011 |
|
For |
|
|
Against |
|
|
Withheld |
|
David W. Biegler |
|
|
28,701,406 |
|
|
|
1,723,769 |
|
|
|
2,786,215 |
|
Leigh M. McAlister |
|
|
26,869,720 |
|
|
|
3,558,083 |
|
|
|
2,783,587 |
|
Edward R. McPherson |
|
|
30,050,444 |
|
|
|
375,798 |
|
|
|
2,785,148 |
|
Raul R. Romero |
|
|
26,957,444 |
|
|
|
3,469,458 |
|
|
|
2,784,488 |
|
Bill D. Walker |
|
|
26,982,086 |
|
|
|
3,446,050 |
|
|
|
2,783,254 |
|
|
|
|
|
|
|
|
|
|
|
In addition, the following directors terms of office continued after the Annual Meeting of
Stockholders:
|
|
Kenneth R. Dubuque, |
|
|
|
Kenneth M. Jastrow, II, |
|
|
|
Larry R. Faulkner, |
|
|
|
Robert V. Kavanaugh, |
|
|
|
Robert D. McTeer, |
|
|
|
John T. Stuart, and |
|
|
|
Larry E. Temple. |
Robert B. Rowling was appointed as director after the Annual Meeting of Stockholders during the
second quarter of 2008.
40
Proposal No. 2: Ratification of Ernst & Young LLP as Independent Registered Public Accounting Firm
for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
|
Abstain |
|
|
Non-Votes |
|
|
|
|
|
30,316,692 |
|
|
120,090 |
|
|
|
2,774,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 5. Other Information
None.
Item 6. Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
3.1 |
|
|
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 Companys Form 8-K as filed with the
Commission on July 11, 2008) |
|
|
|
|
|
|
4.1 |
|
|
Form of Subordinated Note (incorporated herein by reference
to Exhibit 4.1 to the Companys Form 8-K as filed with the
Commission on June 9, 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 Companys 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 Companys Registration Statement on
Form S-1 as filed with the Commission on May 30, 2008) |
|
|
|
|
|
|
10.3 |
|
|
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 Companys 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 Companys 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
Companys 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 Companys 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 Companys Form 8-K as
filed with the Commission on June 9, 2008) |
41
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
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 Companys 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 Companys 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 amended |
|
|
|
|
|
|
31.2 |
|
|
Certification of Ronald D. Murff pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as
amended |
|
|
|
|
|
|
32.1 |
|
|
Certification of Kenneth R. Dubuque pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.2 |
|
|
Certification of Ronald D. Murff pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
Guaranty Financial Group Inc.
(Registrant)
|
|
|
By: |
/s/ Craig E. Gifford |
|
|
|
Executive Vice President and |
|
Date: August 11, 2008 |
|
Principal Accounting Officer |
|
|
43