Guaranty Bancorp 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

o 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: 000-51556

GUARANTY BANCORP

(Exact name of registrant as specified in its charter)

DELAWARE	41-2150446
(State or other jurisdiction	(I.R.S. Employer Identification Number)
of incorporation or organization)
1331 Seventeenth St., Suite 300
Denver, CO	80202
(Address of principal executive offices)	(Zip Code)

303-293-5563

(Registrant’s telephone number, including area code)

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, as amended 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12B-2 of the Exchange Act.

Large Accelerated Filer  o	Accelerated Filer x
Non-accelerated Filer  o(Do not check if smaller reporting company)	Smaller reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No x

As of April 30, 2009 there were 52,464,335 shares of the registrant’s common stock outstanding, including 1,169,075 shares of unvested stock grants and excluding 41,454 shares to be issued under its deferred compensation plan.

TABLE OF CONTENTS

		Page
	Forward-Looking Statements and Factors that Could Affect Future Results	3
PART I—FINANCIAL INFORMATION		5
ITEM 1.	Unaudited Condensed Consolidated Financial Statements	5
	Unaudited Consolidated Balance Sheets	5
	Unaudited Consolidated Statements of Income	6
	Unaudited Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income	7
	Unaudited Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	40
ITEM 4.	Controls and Procedures	42
PART II—OTHER INFORMATION		43
ITEM 1.	Legal Proceedings	43
ITEM 1A.	Risk Factors	43
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
ITEM 3.	Defaults Upon Senior Securities	43
ITEM 4.	Submission of Matters to a Vote of Security Holders	43
ITEM 5.	Other Information	43
ITEM 6.	Exhibits	44

2

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in our future filings with the SEC, in press releases, and in oral and written statements made by or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or board of directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes”, “anticipates”, “expects”, “intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

·Local, regional, national and international economic conditions and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, but not limited to the allowance for loan losses.

·Changes in the level of nonperforming assets and charge-offs.

·The effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board and the impact of the Federal Deposit Insurance Corporation’s Temporary Liquidity Guaranty Program.

·Changes imposed by regulatory agencies to increase our capital to a level greater than the level required for well-capitalized financial institutions.

·The failure to maintain capital above the level required to be well-capitalized under the regulatory capital adequacy guidelines, including the failure to raise capital as needed, including through the U.S. Treasury’s Capital Purchase Program or Capital Assistance Program.

·Changes in sources and uses of funds, including loans, deposits and borrowings, including the ability for the Bank to retain and grow core deposits, to purchase brokered deposits and maintain unsecured federal funds lines with correspondent banks and secured lines of credits.

·Inflation and interest rate, securities market and monetary fluctuations.

·Political instability, acts of war or terrorism and natural disasters.

·The timely development and acceptance of new products and services and perceived overall value of these products and services by customers.

·Revenues are lower than expected.

·Changes in consumer spending, borrowings and savings habits.

·Changes in the financial performance and/or condition of our borrowers.

·Credit quality deterioration, which could cause an increase in the provision for loan losses.

·Technological changes.

·Acquisitions of acquired businesses and greater than expected costs or difficulties related to the integration of acquired businesses.

·The ability to increase market share and control expenses.

·Changes in the competitive environment among financial or bank holding companies and other financial service providers.

·The effect of changes in laws and regulations with which we and our subsidiaries must comply.

·Changes in the securities markets.

3

·The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

·Changes in our organization, compensation and benefit plans.

·The costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews, and the necessity of regulatory approval for dividend payments from the subsidiary bank to the holding company.

·Our success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. We do not intend to update 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.

4

PART I - FINANCIAL INFORMATION

ITEM 1. Unaudited Consolidated Financial Statements

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Balance Sheets

	March 31, 2009			December 31, 2008
	(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	34,982		$	32,189
Federal funds sold	1,000			13,522
Cash and cash equivalents	35,982			45,711
Securities available for sale, at fair value	99,107			102,874
Securities held to maturity (fair value of $12,460 and $13,505 at March 31, 2009 and December 31, 2008)	11,946			13,114
Bank stocks, at cost	28,334			28,276
Total investments	139,387			144,264
Loans, net of unearned discount	1,757,103			1,826,333
Less allowance for loan losses	(37,598		)	(44,988		)
Net loans	1,719,505			1,781,345
Loans held for sale	5,175			5,760
Premises and equipment, net	62,386			63,018
Other real estate owned and foreclosed assets	14,524			484
Other intangible assets, net	23,918			25,500
Other assets	35,518			36,659
Total assets	$	2,036,395		$	2,102,741
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand	$	422,509		$	433,761
Interest-bearing demand	425,274			460,856
Savings	72,157			68,064
Time	719,857			735,970
Total deposits	1,639,797			1,698,651
Securities sold under agreements to repurchase and federal funds purchased	16,291			21,781
Borrowings	164,499			166,404
Subordinated debentures	41,239			41,239
Interest payable and other liabilities	10,996			13,086
Total liabilities	1,872,822			1,941,161
Stockholders’ equity:
Common stock—$.001 par value; 100,000,000 shares authorized,64,542,950 shares issued, 52,570,986 shares outstanding at March31, 2009 (includes 1,237,978 shares of unvested restricted stock and 41,454 shares to be issued); 64,542,950 shares issued, 52,654,131shares outstanding at December 31, 2008 (includes 1,420,345 shares of unvested restricted stock and 109,214 of shares to be issued).	65			65
Additional paid-in capital	617,249			617,188
Shares to be issued for deferred compensation obligations	81			710
Accumulated deficit	(351,567		)	(352,003		)
Accumulated other comprehensive income (loss)	166			(1,302		)
Treasury Stock, at cost, 10,943,319 and 10,996,513, respectively	(102,421		)	(103,078		)
Total stockholders’ equity	163,573			161,580
Total liabilities and stockholders’ equity	$	2,036,395		$	2,102,741

See “Notes to Unaudited Consolidated Financial Statements.”

5

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Statements of Income

	Three Months Ended March 31,
	2009		2008
	(In thousands, except share and per share data)
Interest income:
Loans, including fees	$	23,076	$	31,040
Investment securities:
Taxable	726		615
Tax-exempt	767		893
Dividends	288		470
Federal funds sold and other	3		385
Total interest income	24,860		33,403
Interest expense:
Deposits	7,125		9,795
Securities sold under agreement to repurchase and federal funds purchased	38		137
Borrowings	1,321		1,029
Subordinated debentures	658		792
Total interest expense	9,142		11,753
Net interest income	15,718		21,650
Provision for loan losses	2,505		875
Net interest income, after provision for loan losses	13,213		20,775
Noninterest income:
Customer service and other fees	2,679		2,276
Gain on sale of securities	—		138
Other	236		101
Total noninterest income	2,915		2,515
Noninterest expense:
Salaries and employee benefits	6,739		9,720
Occupancy expense	1,921		2,001
Furniture and equipment	1,131		1,314
Amortization of intangible assets	1,582		1,877
Other general and administrative	4,108		3,798
Total noninterest expense	15,481		18,710
Income before income taxes	647		4,580
Income tax expense	211		1,335
Net income	$	436	$	3,245
Earnings per share–basic:	$	0.01	$	0.06
Earnings per share–diluted:	0.01		0.06
Weighted average shares outstanding-basic	51,277,748		50,988,229
Weighted average shares outstanding-diluted	51,277,930		51,049,525

See “Notes to Unaudited Consolidated Financial Statements.”

6

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income

	Common Stock shares Outstanding and to be issued		Common Stock and Additional Paid-in Capital		Shares to be Issued			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Totals
	(In thousands, except share data)
Balance, December 31, 2007	52,616,991		$	617,675	$	573		$	(102,926	)	$	(95,196	)	$	(1,472	)	$	418,654
Adjustment to apply EITF 06-04											(71		)				(71		)
Comprehensive income:
Net income	—		—		—			—			3,245			—			3,245
Other comprehensive loss	—		—		—			—			—			(1,100		)	(1,100		)
Total comprehensive income	—		—		—			—			—			—			2,145
Stock compensation awards, net of forfeitures	115,600		—		—			—			—			—			—
Earned stock award compensation, net			772		—			—			—			—			772
Repurchase of common stock	(9,087	)	—		—			(51		)	—			—			(51		)
Deferred compensation	2,616		—		12			—			—			—			12
Balance, March 31, 2008	52,726,120		$	618,447	$	585		$	(102,977	)	$	(92,022	)	$	(2,572	)	$	421,461
Balance, December 31, 2008	52,654,131		$	617,253	$	710		$	(103,078	)	$	(352,003	)	$	(1,302	)	$	161,580
Comprehensive income:
Net income	—		—		—			—			436			—			436
Other comprehensive income	—		—		—			—			—			1,468			1,468
Total comprehensive income	—		—		—			—			—			—			1,904
Stock compensation awards, net of forfeitures	(106,334	)	—		—			—			—			—			—
Earned stock award compensation, net			61		—			—			—			—			61
Repurchase of common stock	(13,486	)	—		—			(24		)	—			—			(24		)
Deferred compensation	36,675		—		52			—			—			—			52
Common shares issued	—		—		(681		)	681			—			—			—
Balance, March 31, 2009	52,570,986		$	617,314	$	81		$	(102,421	)	$	(351,567	)	$	166		$	163,573

See “Notes to Unaudited Consolidated Financial Statements.”

7

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Cash flows from operating activities:
Net income	$	436		$	3,245
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,465			2,904
Provision for loan losses	2,505			875
Stock compensation, net	61			772
Gain on sale of securities	—			(138		)
Loss (gain) on sale or disposal of real estate owned and assets	(32		)	5
Real estate valuation adjustments	—			633
Other	(500		)	(173		)
Net change in:
Other assets	307			5,515
Interest payable and other liabilities	(2,090		)	(4,973		)
Net cash provided by operating activities	3,152			8,665
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales, maturities, prepayments, and calls	7,463			25,826
Purchases	(56		)	(25,204		)
Activity in held-to-maturity securities and bank stocks:
Maturities, prepayments and calls	—			784
Loan originations and principal collections, net	45,471			21,808
Collections on and proceeds from sale of loans held for sale	585			492
Proceeds from sales of other real estate owned and foreclosed assets	251			582
Additions to premises and equipment	(322		)	(568		)
Net cash provided by investing activities	53,392			23,720
Cash flows from financing activities:
Net decrease in deposits	(58,854		)	(89,425		)
Net change in short-term borrowings	—			(16,359		)
Proceeds from issuance of long-term debt	—			70,000
Repayment of long-term debt	(1,905		)	(131		)
Net change in federal funds purchased and repurchase agreements	(5,490		)	12,783
Repurchase of common stock	(24		)	(51		)
Net cash used by financing activities	(66,273		)	(23,183		)
Net change in cash and cash equivalents	(9,729		)	9,202
Cash and cash equivalents, beginning of period	45,711			52,356
Cash and cash equivalents, end of period	$	35,982		$	61,558

See “Notes to Unaudited Consolidated Financial Statements.”

8

(1)Organization, Operations and Basis of Presentation

Guaranty Bancorp (formerly Centennial Bank Holdings, Inc.) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended.  On May 6, 2008, the stockholders of the Company approved the proposal to change the name of the holding company from Centennial Bank Holdings, Inc. to Guaranty Bancorp.   This name change was effective on May 12, 2008.

Our principal business is to serve as a holding company for our subsidiaries. As of March 31, 2009, Guaranty Bancorp has a single bank subsidiary, Guaranty Bank and Trust Company, referred to as Guaranty Bank or the Bank.

Reference to “Bank” means Guaranty Bank, and “we” or “Company” means Guaranty Bancorp on a consolidated basis with the Bank, if applicable.  References to “Guaranty Bancorp” or to the holding company refer to the parent company on a stand-alone basis.

The Bank is a full-service community bank offering an array of banking products and services to the communities it serves along the Front Range of Colorado, including accepting time and demand deposits and originating commercial loans (including energy loans), real estate loans, Small Business Administration guaranteed loans and consumer loans.  The Bank also provides trust services, including personal trust administration, estate settlement, investment management accounts and self-directed IRAs.  Substantially all loans are secured by specific items of collateral including business assets, consumer assets and commercial and residential real estate.  Commercial loans are expected to be repaid from cash flow from operations of business.  There are no significant concentrations of loans to any one industry or customer.  However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions of the area, among other factors.

(a)Basis of Presentation

The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America. All significant intercompany balances and transactions have been eliminated. Our financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The interim operating results are not necessarily indicative of operating results for the full year.  For further information, refer to the consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

(b)Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheets and income and expense for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes include the assessment for other than temporary impairment of certain investment securities, the allowance for loan losses, valuation of other real estate owned, deferred tax assets and liabilities, carrying value of intangible assets, stock compensation expense and accounting for derivative instruments.  Assumptions and factors are evaluated on an annual basis or whenever events or changes in circumstance indicate that the previous assumptions and factors have changed.  The result of the analysis could result in adjustments to the estimates.

(c)Allowance for Loan Losses

The allowance for loan losses is reported as a reduction of outstanding loan balances.  The allowance for loan losses is a valuation allowance for probable incurred loan losses.

The allowance for loan losses is evaluated on a regular basis by management and based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and

9

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

volume of the loan portfolio, adverse situations that may affect borrowers’ ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  An allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan portfolio and other extensions of credit.

Loans that are deemed to be uncollectible are charged off and deducted from the allowance. The provision for loan losses and recoveries on loans previously charged off are added to the allowance.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers all other loans and is based on historical loss experience adjusted for current factors. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The allocated allowance for impaired loans is measured on a loan-by-loan basis for commercial, real estate and agricultural loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Groups of smaller balance homogenous loans are collectively evaluated for impairment.

In addition to the allowance for loan losses, the Company records a reserve for unfunded commitments.  Similar to the allowance for loan losses, the reserve for unfunded commitments is evaluated on a regular basis by management.  This reserve is recorded in other liabilities and the provision for unfunded commitments is included in other noninterest expense.

(d)Other Intangible Assets

Core deposit intangible assets, referred to as CDI, and are recognized apart from goodwill at the time of acquisition based on valuations prepared by independent third parties or other estimates of fair value. In preparing such valuations, variables such as deposit servicing costs, attrition rates, and market discount rates are considered. CDI assets are amortized to expense over their useful lives, which we have estimated to range from 7 years to 15 years.

(e)Stock Incentive Plan

The Company’s Amended and Restated 2005 Stock Incentive Plan (“Plan”) provides for up to 2,500,000 grants of stock options, stock awards, stock units awards, performance stock awards, stock appreciation rights, and other equity based awards to key employees, nonemployee directors, consultants and prospective employees. As of March 31, 2009, the Company has only granted stock awards. The Company accounts for the equity based compensation using the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share Based Payment. The Company recognizes stock compensation cost for services received in a share based payment transaction over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The compensation cost of employee and director services received in exchange for stock awards is based on the grant-date fair value of the award (as determined by quoted market prices). Stock compensation expense recognized reflects estimated forfeitures, adjusted as necessary for actual forfeitures. The Company has issued stock awards that vest based on service periods from one to four years, and stock awards that vest based on performance conditions. The maximum contractual term for the performance based share awards is December 31, 2012. As of March 31, 2009, none

10

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

of the performance based restricted stock awards were expected to vest prior to the end of the contractual term. Should this expectation change, additional expense could be recorded in future periods.

(f)Deferred Compensation Plans

The Company has Deferred Compensation Plans (the “Plans”) that allow directors and certain key employees to voluntarily defer compensation. Compensation expense is recorded for the deferred compensation and a related liability is recognized. Participants may elect designated investment options for the notional investment of their deferred compensation. The recorded obligations are adjusted for deemed income or loss related to the investments selected. Participants in the 2005 Deferred Compensation Plan (2005 Plan) are given the opportunity to elect to have all or a portion of their deferred compensation earn a rate of return equal to the total return on the Company’s common stock. The 2005 Plan does not provide for diversification of a participant’s assets allocated to Company common stock and assets allocated to Company common stock can only be settled with a fixed number of shares of stock. In accordance with Emerging Issues Task Force Issue 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested, the deferred compensation obligation associated with Company common stock is classified as a component of stockholders’ equity and the related shares are treated as shares to be issued and are included in total shares outstanding for accounting purposes. At March 31, 2009 and December 31, 2008, there were 41,454 and 109,214 shares, respectively, to be issued.  Subsequent changes in the fair value of the common stock are not reflected in operations or stockholders’ equity of the Company. Actual Company common stock held by the Company for the satisfaction of obligations of the 2005 Plan is classified as treasury stock.

(g)Income taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

At March 31, 2009 and December 31, 2008, the Company did not have any tax benefit disallowed under FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company and its subsidiary are subject to U.S federal income tax and State of Colorado tax.  The Company is no longer subject to examination by Federal or State taxing authorities for years before 2005. At March 31, 2009 and December 31, 2008, the company did not have any unrecognized tax benefits. The Company does not expect the amount of any unrecognized tax benefits to significantly increase in the next twelve months.  The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matter as other noninterest expense. At March 31, 2009 and December 31, 2008, the Company does not have any amounts accrued for interest and penalties.

(h)Derivative Financial Instruments

Management utilizes derivative financial instruments to accommodate the needs of its customers primarily through the use of interest rate swaps.  Derivative financial instruments are not used to manage interest rate risk in the Company’s assets or liabilities.  The Company offsets each interest rate swap to minimize its net risk exposure resulting from such transactions and accordingly has not elected to qualify for hedge accounting methods addressed under current provisions of GAAP.   All derivative financial instruments are stated at fair value in the Consolidated Statements of Condition with changes in fair value reported in current period earnings.  See Note 10 for further information.

11

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(i)Earnings per Common Share

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if potential dilutive common shares had been issued. In accordance with SFAS No. 128 (As Amended), Earnings per Share, the Company’s obligation to issue shares of stock to participants in its deferred compensation plan has been treated as outstanding shares of stock in the basic earnings per share calculation.  The Company’s unvested restricted stock awards do not contain nonforfeitable rights to dividends, and therefore, are not included under the two-class method of computing basic earnings per share.  Dilutive common shares that may be issued by the Company relate to unvested common share grants subject to a service condition for the three months ended March 31, 2009 and 2008. For the three months ended March 31, 2009 and 2008 the anti-dilutive restricted shares excluded from earnings per share computation were 1,237,796 and 1,670,715 respectively. Earnings per common share have been computed based on the following:

	Three Months Ended March 31,
	2009	2008
Average common shares outstanding	51,277,748	50,988,229
Effective of dilutive unvested stock grants	182	61,296
Average shares outstanding for calculating diluted earnings per common share	51,277,930	51,049,525

(j)Recently Issued Accounting Standards

Adoption of New Accounting Standards:  In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption on January 1, 2009, was not material.

In December 2007, the FASB issued Statement No. 141R, (revised 2007) Business Combinations (“SFAS 141R”). SFAS 141R replaces the current standard on business combinations and has significantly changed the accounting for and reporting of business combinations in consolidated financial statements. This statement requires an entity to measure the business acquired at fair value and to recognize goodwill attributable to any noncontrolling interests (previously referred to as minority interests) rather than just the portion attributable to the acquirer. The statement will also result in fewer exceptions to the principle of measuring assets acquired and liabilities assumed in a business combination at fair value. In addition, the statement requires payments to third parties for consulting, legal, audit, and similar services associated with an acquisition to be recognized as expenses when incurred rather than capitalized as part of the business combination. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133”. SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. SFAS No. 161 requires qualitative disclosure about objectives and strategies for using derivative and hedging instruments, quantitative disclosures about fair value amounts of the instruments and gains and losses on such instruments, as well as disclosures about credit-risk features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  The Company adopted this standard on January 1, 2009 and the standard requires more disclosure about the Company’s derivative activities. Please see note 10 for more information.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1—Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.  (FSP EITF 03-6-1). This FASB Staff Position (FSP) addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method of FASB Statement No. 128, Earnings Per Share.  FSP EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights

12

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method.  This FSP was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented were to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this FSP.  Since the Company’s unvested restricted stock awards do not contain nonforfeitable rights to dividends, they are not included under the scope of this pronouncement, and therefore, the impact of adoption was not material.

Newly Issued But Not Yet Effective Accounting Standards:  In April 2009, the FASB issued FSP 115-2 & 124-2 Recognition and Presentation of Other-Than Temporary Impairments.  The FSP eliminates the requirement for the issuer to evaluate whether it has the intent and ability to hold an impaired investment until maturity.  Conversely, the new FSP requires the issuer to recognize an OTTI in the event that the issuer intends to sell the impaired security or in the event that it is more likely than not that the issuer will sell the security prior to recovery.  In the event that the sale of the security in question prior to its maturity is not probable but the entity does not expect to recover its amortized cost basis in that security,  then the entity will be required to recognize an OTTI.  In the event that the recovery of the security’s cost basis prior to maturity is not probable and an OTTI is recognized, the FSP provides that any component of the OTTI relating to a decline in the creditworthiness of the debtor should be reflected in earnings, with the remainder being recognized in Other Comprehensive Income.  Conversely, in the event that the issuer intends to sell the security before the recovery of its cost basis or if it is more likely than not that the Company will have to sell the security before recovery of its cost basis, then the entire OTTI will be recognized in earnings. The FSP is effective for interim and annual reporting periods ending after June 15, 2009.  The Company does not expect the adoption to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP 157-4 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.  The FSP provides additional guidance for determining fair value based on observable transactions.  The FSP provides that if evidence suggests that an observable transaction was not executed in an orderly way that little, if any, weight should be assigned to this indication of an Asset or Liability’s fair value.  Conversely, if evidence suggests that the observable transaction was executed in an orderly way, the transaction price of the observable transaction may be appropriate to use in determining the fair value of the Asset/Liability in question, with appropriate weighting given to this indication based on facts and circumstances. Finally, if there is no way for the entity to determine whether the observable transaction was executed in an orderly way, relatively less weight should be ascribed to this indicator of fair value. The FSP is effective for interim and annual reporting periods ending after June 15, 2009.  The Company does not expect the adoption to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP 107-1 & APB 28-1 Interim Disclosures about Fair Value of Financial Instruments.  The FSP provides that publicly traded companies shall provide information concerning the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods.  In periods after initial adoption this FSP requires comparative disclosures only for periods ending after initial adoption. The FSP is effective for interim reporting periods ending after June 15, 2009.

(k)Reclassifications

Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash and cash equivalents.

13

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(2)Securities

The fair value of available for sale debt securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows at the dates presented:

	Fair Value		Gross unrealized gains		Gross unrealized losses
	(In thousands)
March 31, 2009:
U.S. government agencies and government-sponsored entities	$	2,509	$	16	$	—
State and municipal	63,963		835		(1,413		)
Mortgage-backed	30,615		831		—
Marketable equity	1,476		—		—
Other securities	544		—		—
Total	$	99,107	$	1,682	$	(1,413	)
December 31, 2008:
U.S. Treasury securities	$	3,495	$	1	$	—
U.S. government agencies and government-sponsored entities	2,510		17		—
State and municipal	63,015		456		(2,836		)
Mortgage-backed	31,965		299		(40		)
Marketable equity	1,345		—		—
Other securities	544		—		—
Total	$	102,874	$	773	$	(2,876	)

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows at the dates presented:

	Amortized Cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(In thousands)
March 31, 2009:
Mortgage-backed	$	11,946	$	514	$	—	$	12,460
December 31, 2008:
Mortgage-backed	$	13,114	$	391	$	—	$	13,505

At March 31, 2009, the company owned three securities in unrealized loss positions.  Generally, the fair value of our available for sale securities fluctuates as a result of changes in market interest rates.  Of the three securities in unrealized loss positions at March 31, 2009, one single security accounts for over 99% of the total unrealized loss.  The Company owns securities issued by U.S. government agencies and government-sponsored entities that have an AAA credit rating as determined by various rating agencies or state and municipal bonds that have either been rated as investment grade or higher by various rating agencies or have been subject to an annual internal review process by management.   This annual review process considers a review of the issuers’ current financial statements, including the related cash flows and interest payments. This annual review process was updated in the first quarter 2009 for the largest non-rated municipal security in our portfolio.  The unrealized loss on this security comprises over 99% of the overall unrealized loss on state and municipal bonds.  We updated our annual credit analysis of this particular bond in the first quarter 2009 and concluded that the continuous unrealized loss position on this security was a result of the level of market interest rates and not a result of the underlying issuer’s ability to repay.   Similarly, management concluded that the continuous unrealized loss position on all other securities was also a result of the level of market interest rates and not a result of the underlying issuers’ ability to repay.  In addition, we have the ability and intent to hold these securities until their fair value recovers to their cost, which may be maturity.  Accordingly, we have not recognized any other-than-temporary impairment in our consolidated statements of income.

14

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(3)Loans

A summary of net loans held for investment by loan type at the dates indicated is as follows:

	March 31, 2009			December 31, 2008
	(In thousands)
Loans on real estate:
Residential and commercial	$	658,982		$	680,030
Construction	250,665			268,306
Equity lines of credit	52,679			50,270
Commercial loans	714,218			746,241
Agricultural loans	22,686			22,738
Lease financing	3,547			3,549
Installment loans to individuals	38,220			38,352
Overdrafts	987			855
SBA and other	18,294			19,592
	1,760,278			1,829,933
Less:
Allowance for loan losses	(37,598		)	(44,988		)
Unearned discount	(3,175		)	(3,600		)
Net Loans	$	1,719,505		$	1,781,345

A summary of transactions in the allowance for loan losses for the period indicated is as follows:

	Quarter Ended March 31,
	2009			2008
	(In thousands)
Balance, beginning of period	$	44,988		$	25,711
Provision for loan losses	2,505			875
Loans charged-off	(10,262		)	(743		)
Recoveries on loans previously charged-off	367			205
Balance, end of period	$	37,598		$	26,048

The following table details key information regarding the Company’s impaired loans at the dates indicated:

	March 31, 2009		December 31, 2008
	(In thousands)
Impaired loans with a valuation allowance	$	27,884	$	42,191
Impaired loans without a valuation allowance	30,326		12,631
Total impaired loans	$	58,210	$	54,822
Valuation allowance related to impaired loans	$	6,342	$	11,064

	Three Months Ended March 31,
	2009		2008
	(In thousands)
Average of individually impaired loans during period	$	56,516	$	22,114
Interest income recognized during impairment	$	11	$	17
Cash-basis interest income recognized	$	11	$	17

The gross interest income that would have been recorded in the year-to-date periods ended March 31, 2009 and March 31, 2008, if the loans had been current in accordance with their original terms and had been outstanding throughout the period (or since origination, if held for part of the period) was $1,518,000 and $633,000, respectively.  At March 31, 2009 and December 31, 2008, nonaccrual loans were $57,299,000 and $54,594,000, respectively.

15

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(4)Other Intangible Assets

Other intangible assets with definite lives are amortized over their respective estimated useful lives to their estimated residual values.  The amortization expense represents the estimated decline in the value of the underlying deposits from customers acquired.  As of March 31, 2009 and December 31, 2008, the Company’s only intangible assets was our Core Deposit Intangible.

The following table presents the gross amounts of core deposit intangible assets and the related accumulated amortization at the dates indicated:

	Useful life	March 31, 2009			December 31, 2008
		(In thousands)
Core deposit intangible assets	7 - 15 years	$	62,975		$	62,975
Accumulated amortization		(39,057		)	(37,475		)
Other intangible assets, net		$	23,918		$	25,500

Following is the aggregate amortization expense recognized in each period:

	Three Months Ended March 31,
	2009		2008
	(In thousands)
Amortization expense	$	1,582	$	1,877

(5)Borrowings

At March 31, 2009, our outstanding borrowings were $164,499,000 as compared to $166,404,000 at December 31, 2008. These borrowings at March 31, 2009 consisted of term notes at the Federal Home Loan Bank (“FHLB”).  There was also a line of credit at the FHLB at March 31, 2009, but there was no balance outstanding on this line of credit on such date.  At December 31, 2008, borrowings consisted of term notes at the Federal Home Loan Bank of $166,404,000.

The total commitment, including balances outstanding, for borrowings at the FHLB for the term notes and line of credit at March 31, 2009 and December 31, 2008 was $412.3 million and $428.3 million, respectively.  The interest rate on the line of credit varies with the federal funds rate, and was 0.48% at March 31, 2009.  The term notes have fixed interest rates that range from 2.52% to 6.22%. A blanket pledge and security agreement with the FHLB, which encompasses certain loans and securities, serves as collateral for these borrowings.

As of December 31, 2008, the Company had a revolving credit agreement, as amended, with U.S. Bank National Association, which contained financial covenants, including maintaining a minimum adjusted return (excluding goodwill impairment and intangible asset amortization) on average assets, a maximum nonperforming assets to total loans ratio, regulatory capital ratios that qualify the Company as well-capitalized and a minimum total risk-based capital amount.   At December 31, 2008, the Company was in compliance with all covenants except the minimum total risk-based capital amount.  The minimum total risk-based capital amount was set by U.S. Bank and was based on the Company receiving additional capital from Treasury’s Capital Purchase Program prior to December 31, 2008.  As the Company’s application to receive capital under Treasury’s Capital Purchase Program was still pending as of December 31, 2008, the Company did not meet this financial covenant and voluntarily decided to terminate its line of credit on February 9, 2009 with U.S. Bank. The revolving credit agreement would have otherwise expired on March 31, 2009.

(6)Subordinated Debentures and Trust Preferred Securities

The Company had $41,239,000 in aggregate principal balances of subordinated debentures outstanding with a weighted average cost of 6.38% and 8.68% at March 31, 2009 and December 31, 2008, respectively. The subordinated debentures were issued in four separate series. Each issuance has a maturity of thirty years from its date of issue. The subordinated debentures were issued to trusts established by the Company, which in turn issued $40 million of trust preferred securities. Generally and with certain limitations, the Company is permitted to call the debentures subsequent to the first five or ten years, as applicable, after issue if certain conditions are met, or at any time upon the occurrence and continuation of certain changes in either the tax treatment or the capital treatment of

16

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

the trusts, the debentures or the preferred securities.   As of March 31, 2009, the Company was in compliance with all covenants of these subordinated debentures.

These securities are currently included in Tier I capital for purposes of determining the Company’s Tier I and total risk-based capital ratios. The Board of Governors of the Federal Reserve System, which is the holding company’s banking regulator, has promulgated a modification of the capital regulations affecting trust preferred securities. Under this modification, beginning March 31, 2011, the Company is required to use a more restrictive formula to determine the amount of trust preferred securities that can be included in regulatory Tier I capital. The Company will be allowed to include in Tier I capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as stockholders’ equity less certain intangibles, including core deposit intangibles, net of any related deferred income tax liability. The current regulations limit the amount of trust preferred securities that can be included in Tier I capital to 25% of the sum of core capital elements without a deduction for permitted intangibles.

The Guaranty Capital Trust III trust preferred issuance on June 30, 2003, became callable at each quarterly interest payment date starting on July 7, 2008.  The Company did not call this security on any of its quarterly interest payment dates.   The CenBank Trust III trust preferred issuance became callable at each quarterly interest payment date starting on April 15, 2009.   The Company did not call this security as of April 15, 2009.

The following table summarizes the terms of each subordinated debenture issuance at March 31, 2009 (dollars in thousands):

	Date Issued	Amount		Maturity Date	Call Date*	Fixed or Variable	Rate Adjuster	Current Rate		Next Rate Reset Date
CenBank Trust I	9/7/2000	$	10,310	9/7/2030	9/7/2010	Fixed	N/A	10.60	%	N/A
CenBank Trust II	2/22/2001	5,155		2/22/2031	2/22/2011	Fixed	N/A	10.20	%	N/A
CenBank Trust III	4/8/2004	15,464		4/15/2034	4/15/2009	Variable	LIBOR + 2.65%	3.74	%	4/15/2009
Guaranty Capital Trust III	6/30/2003	10,310		7/7/2033	4/7/2009	Variable	LIBOR + 3.10%	4.19	%	4/07/2009

* Call date represents the earliest date the Company can call the debentures.

(7)Commitments

The Company is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, stand-by letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At the dates indicated, the following commitments were outstanding:

	March 31, 2009		December 31, 2008
	(In thousands)
Commitments to extend credit	$	385,280	$	390,277
Standby letters of credit	22,373		24,792
Commercial letters of credit	11,000		11,000
Totals	$	418,653	$	426,069

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Several of the commitments may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Commitments to extend credit under overdraft protection agreements are commitments for possible future extensions of credit to existing deposit customers. These lines of credit are uncollateralized and usually do not

17

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

contain a specified maturity date and might not be drawn upon to the total extent to which the Company is committed.

Stand-by letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Substantially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments if deemed necessary.

The Company enters into commercial letters of credit on behalf of its customers, which authorize a third party to draw drafts on the Company up to a stipulated amount and with specific terms and conditions. A commercial letter of credit is a conditional commitment on the part of the Company to provide payment on drafts drawn in accordance with the terms of the commercial letter of credit.

(8)Fair Value Measurements and Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted FASB Statement No. 157, Fair Value Measurements (“SFAS No. 157”).  SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under SFAS No. 157, fair value measurements are not adjusted for transaction costs. SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under SFAS No. 157 are described below:

Basis of Fair Value Measurement:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.

Level 2 - -  Significant other observable inputs other than Level 1 prices such as quoted prices in markets that are not active, quoted prices for similar assets, or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable (i.e., supported by little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The fair values of securities available for sale are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair values of derivatives are generally derived from market-observable data such as interest rates, volatilities, and information derived from or corroborated by that market-observable data, which generally fall into Level 2 inputs. However, a significant input into the fair value of the derivatives is a credit valuation adjustment which uses credit spreads which are typically derived by management or obtained from a third party data provider that provides an implied credit spread for public entities.  As a result, the credit spreads are generally unobservable to the market, rendering them a Level 3 input.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, and/or where valuations are adjusted to reflect illiquidity and/or non-transferability. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on the Level 3 investment. Internal cash flow models using a present value formula along with indicative exit pricing obtained from broker/dealers were used to determine

18

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

fair value for certain Level 3 investments. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

Financial Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant  Other Observable Inputs  (Level 2)		Significant Unobservable Inputs  (Level 3)		Balance
	(In thousands)
Assets/Liabilities at March 31, 2009
Investment securities, available for sale	$	—	$	61,810	$	37,297	$	99,107
Derivative Assets	$	—	$	—	$	331	$	331
Derivative Liabilities	$	—	$	—	$	242	$	242
Assets at December 31, 2008
Investment securities, available for sale	$	—	$	66,977	$	35,897	$	102,874

See Note 10, Derivatives and Hedging Activity, for further discussion of the valuation of the derivatives as of March 31, 2009.

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for three months ending March 31, 2009.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Net Derivative Assets and Liabilities		Available for Sale Securities
	(In thousands)
Balance December 31, 2008	$	—	$	35,897
Total unrealized gains (losses) included in:
Net Income	89		—
Other Comprehensive Income	—		1,400
Purchases, sales, issuances, and settlements, net	—		—
Transfers in and (out) of level three	—		—
Balance March 31, 2009	$	89	$	37,297

19

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Financial Assets and Liabilities Measured on a Nonrecurring Basis

The following represents assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2009.  The valuation methodology used to measure the fair value of these loans is described earlier in the Note.

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
	(In thousands)
Assets at March 31, 2009
Impaired loans	$	—	$	—	$	21,542	$	21,542
Assets at December 31, 2008
Impaired loans	$	—	$	—	$	31,127	$	31,127

Impaired loans with a valuation allowance based upon fair value of the underlying collateral had a carrying amount of $27,884,000 at March 31, 2009 as compared to $42,191,000 at December 31, 2008 and $14,757,000 at March 31, 2008.  The valuation allowance on impaired loans was $6,342,000 at March 31, 2009 as compared to $11,064,000 at December 31, 2008 and $5,368,000 at March 31, 2008.  During the three-month periods ended March 31, 2009 and 2008, an additional provision for loan losses of approximately $2.5 million and $1.1 million was made for impaired loans, respectively.

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans and is classified at a level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and is determined based on appraisals performed by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Nonfinancial Assets and Liabilities Measured on a Nonrecurring Basis

Nonfinancial assets and liabilities measured at fair value on a nonrecurring basis are summarized below:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant  Other Observable Inputs  (Level 2)		Significant Unobservable Inputs  (Level 3)		Balance
	(In thousands)
Assets at March 31, 2009
Other real estate owned	$	—	$	—	$	14,524	$	14,524

Other real estate owned is valued at the time the loan is foreclosed upon and the asset is transferred to other real estate owned.  The value is based primarily on third party appraisals, less costs to sell.   The appraisals are generally discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Other real estate owned is reviewed and evaluated on at least an annual basis for additional impairment and adjusted accordingly, based on the same factors identified above.

20

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(9)           Stock-Based Compensation

Under the Company’s Amended and Restated 2005 Stock Incentive Plan (the “Incentive Plan”), the Company’s Board of Directors may grant stock based compensation awards to nonemployee directors, key employees, consultants and prospective employees under the terms described in the Incentive Plan. The allowable stock based compensation awards include the grant of Options, Restricted Stock Awards, Restricted Stock Unit Awards, Performance Stock Awards, Stock Appreciation Rights and other Equity Based Awards. The Incentive Plan provides that eligible participants may be granted shares of Company common stock that are subject to forfeiture until the grantee vests in the stock award based on the established conditions, which may include service conditions, established performance measures or both.

Prior to vesting of the stock awards with either service or performance vesting conditions, each grantee shall have the rights of a stockholder with respect to voting of the granted stock. The recipient is not entitled to dividend rights with respect to the shares of granted stock until vesting occurs, at which time, the dividend rights will exist on vested and unvested shares of granted stock, subject to termination of such rights under the terms of the Incentive Plan.

Other than the stock awards with service and performance based vesting conditions, no grants have been made under the Incentive Plan.

The Incentive Plan authorized grants of stock based compensation awards of up to 2,500,000 shares of authorized Company common stock, subject to adjustments provided by the Incentive Plan. As of March 31, 2009 and December 31, 2008, there were 1,237,978 and 1,420,345 shares of unvested stock granted (net of forfeitures), with 836,746 and 730,412 shares available for grant under the Incentive Plan, respectively.  Of the 1,237,978 shares unearned at March 31, 2009, approximately 517,000 shares are expected to vest.  The Company does not expect any of the 680,000 performance awards to vest.

A summary of the status of unearned stock awards and the change during the period is presented in the table below:

	Shares		Weighted Average Fair Value on Award Date
Unearned at December 31, 2008	1,420,345		$	9.65
Awarded	—		—
Forfeited	(106,334	)	10.29
Vested	(76,033	)	8.91
Unearned at March 31, 2009	1,237,978		$	9.64

The Company recognized $61,000 and $772,000 in stock-based compensation expense for services rendered for the three months ended March 31, 2009 and 2008, respectively.  The total income tax effect recognized in the consolidated income statement for share-based compensation arrangements was a $186,000 expense for the three months ended March 31, 2009 compared to a $208,000 benefit for the same period in 2008, including $209,000 in expense related to the write-off of the deferred tax asset for the difference between the grant date value of the award as compared to fair value of the award upon vesting.  At March 31, 2009, compensation cost of $2,760,000 related to nonvested awards not yet recognized is expected to be recognized over a weighted-average period of 1.9 years.   The fair value of awards that vested in the first quarter 2009 was approximately $127,000.

(10)     Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities.  The Company’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a

21

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Fair Values of Derivative Instruments on the Consolidated Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of March 31, 2009.

	Asset Derivatives		Liability Derivatives
	(In thousands)
As of March 31, 2009:
Derivatives not designated as hedging instruments under SFAS 133
Interest Rate Products	$	331	$	242
Total derivatives not designated as hedging instruments under SFAS 133	$	331	$	242

The asset derivatives are classified in other assets on the balance sheet and the liability derivatives are classified in interest payable and other liabilities on the consolidated balance sheet.

Non-designated Hedges

None of the Company’s derivatives are designated in qualifying hedging relationships under SFAS 133.  Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers, which the Company implemented during the first quarter of 2009.  The Company executes interest rate swaps with commercial banking customers to facilitate the customer’s respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.  As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements of SFAS 133, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.  As of March 31, 2009, the Company had two interest rate swaps with customers with a total notional amount of $24,419,000, and two offsetting interest rate swaps with a total notional amount of $24,419,000; for an aggregate notional amount of $48,838,000 related to this program.  During the three months ended March 31, 2009, the Company recognized net gains of $89,000 related to changes in fair value of these swaps.

Effect of Derivative Instruments on the Consolidated Income Statement

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Income Statement for the three months ended March 31, 2009:

		Amount of Gain Recognized in Income on
Derivatives Not		Derivative
Designated as Hedging Instruments Under SFAS 133	Location of Gain or (Loss) Recognized in Income on Derivative	Three Months Ended March 31, 2009
		(In thousands)
Interest Rate Products	Other non-interest income	$	89
Total		$	89

22

GUARANTY BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(11)Capital Ratios

The Company’s capital ratios exceed the highest regulatory capital requirement of “well-capitalized” at March 31, 2009 and December 31, 2008 as follows:

	Ratio at March 31, 2009		Ratio at December 31, 2008		Minimum Capital Requirement		Minimum Requirement for “Well Capitalized” Institution
Total Risk-Based Capital Ratio
Consolidated	10.82	%	10.61	%	8.00	%	N/A
Guaranty Bank & Trust Company	10.77	%	10.52	%	8.00	%	10.00	%
Tier 1 Risk-Based Capital Ratio
Consolidated	9.56	%	9.35	%	4.00	%	N/A
Guaranty Bank & Trust Company	9.51	%	9.26	%	4.00	%	6.00	%
Leverage Ratio
Consolidated	9.20	%	8.98	%	4.00	%	N/A
Guaranty Bank & Trust Company	9.16	%	8.90	%	4.00	%	5.00	%

(12)  Total Comprehensive Income

The following table presents the components of other comprehensive loss and total comprehensive income (loss) for the periods presented:

	Three Months Ended March 31,
	2009			2008
	(In thousands)
Net income	$	436		$	3,245
Other comprehensive income (loss):
Change in net unrealized gains (losses), net	2,372			(1,912		)
Less: Reclassification adjustments for gains included in income	—			(138		)
Net unrealized holding gains (losses)	2,372			(1,774		)
Income tax benefit (expense)	(904		)	674
Other comprehensive income (loss)	1,468			(1,100		)
Total comprehensive income	$	1,904		$	2,145

(13) Contingencies

In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these other legal actions to which we are currently a party, cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

23

ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

This MD&A should be read together with our unaudited Condensed Consolidated Financial Statements and unaudited Statistical Information included elsewhere in this Report, Part II, Item 1A of this Report, and Items 1, 1A, 6, 7, 7A and 8 of our 2008 Annual Report on Form 10-K.  Also, please see the disclosure in the “Forward-Looking Statements and Factors that Could Affect Future Results” section in this report for certain other factors that could cause actual results or future events to differ materially from those anticipated in the forward-looking statements included in this Report or from historical performance.

Overview

Guaranty Bancorp is a bank holding company with its principal business to serve as a holding company to its bank subsidiary.  Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refers to Guaranty Bancorp on a consolidated basis.

On May 6, 2008, the stockholders of the Company approved the proposal to change the name of the holding company from Centennial Bank Holdings, Inc. to Guaranty Bancorp.   This name change was effective on May 12, 2008.

Through our banking subsidiary, we provide banking and other financial services throughout our targeted Colorado markets to consumers and to small and medium-sized businesses, including the owners and employees of those businesses.  These banking products and services include accepting time and demand deposits, originating commercial loans including energy loans, real estate loans, including construction loans, Small Business Administration guaranteed loans and consumer loans. We derive our income primarily from interest received on real estate-related loans, commercial loans and leases and consumer loans and, to a lesser extent, from fees on the referral of loans, interest on investment securities and fees received in connection with servicing loan and deposit accounts. Our major operating expenses are the interest we pay on deposits and borrowings and general operating expenses. We rely primarily on locally generated deposits to provide us with funds for making loans.

We are subject to competition from other financial institutions and our operating results, like those of other financial institutions operating exclusively or primarily in Colorado, are significantly influenced by economic conditions in Colorado, including the strength of the real estate market. In addition, both the fiscal and regulatory policies of the federal government and regulatory authorities that govern financial institutions and market interest rates also impact our financial condition, results of operations and cash flows.

24

Earnings Summary

Table 1 summarizes certain key financial results for the periods indicated:

Table 1

	Three Months Ended March 31,
					Change -
	2009		2008		Favorable (Unfavorable)
	(In thousands, except share data and ratios)
Results of Operations:
Interest income	$	24,860	$	33,403	$	(8,543	)
Interest expense	9,142		11,753		2,611
Net interest income	15,718		21,650		(5,932		)
Provision for loan losses	2,505		875		(1,630		)
Net interest income after provision for loan losses	13,213		20,775		(7,562		)
Noninterest income	2,915		2,515		400
Noninterest expense	15,481		18,710		3,229
Income before income taxes	647		4,580		(3,933		)
Income tax expense	211		1,335		1,124
Net income	$	436	$	3,245	$	(2,809	)
Share Data:
Basic earnings per share	$	0.01	$	0.06	$	(0.05	)
Diluted earnings per share	$	0.01	$	0.06	$	(0.05	)
Average shares outstanding	51,277,748		50,988,229		289,519
Diluted average shares outstanding	51,277,930		51,049,525		228,405

					Change -
	March 31, 2009		December 31, 2008		Favorable (Unfavorable)
Selected Balance Sheet Ratios:
Total risk based capital	10.82	%	10.61	%	0.21	%
Nonperforming loans to loans, net of unearned discount	3.31	%	3.00	%	0.31	%
Allowance for loan losses to loans, net of unearned discount	2.14	%	2.46	%	(0.32	)%

The $0.4 million first quarter 2009 net income is $2.8 million lower than the first quarter 2008 net income of $3.2 million, primarily due to a $5.9 million reduction in net interest income, as well as a $1.6 million increase in the provision for loan losses.  These items were partially offset by a $3.2 million reduction in noninterest expense and a $0.4 million increase in noninterest income.

Net interest income decreased by $5.9 million for the first quarter 2009 as compared to the same period in 2008 mostly due to lower rates attributable to a greater than 400 basis point decrease in the targeted federal funds rate by the Federal Open Markets Committee (FOMC) of the Federal Reserve Board since the beginning of the first quarter 2008. The targeted federal funds rate was 4.25% at January 1, 2008 and fell to between 0% and 0.25% on December 16, 2008, where it remains today.

The provision for loan losses is the amount required to maintain the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable incurred loan losses in the loan portfolio.  The increase in the provision for loan losses in the first quarter 2009 as compared to the same period in 2008 is primarily a result of the increase in net charge-offs, which in turned increased the amount required to maintain the allowance for loan losses at an appropriate level.

Noninterest expense declined from the first quarter 2008 primarily as a result of a major effort announced in mid-2008 to better align our expenses with the current size of our business.  This effort resulted in a decline in the number of full-time equivalent employees from 465 at March 31, 2008 to 373 at March 31, 2009.

Net Interest Income and Net Interest Margin

Net interest income, which is our primary source of income, represents the difference between interest earned on assets and interest paid on liabilities.  The interest rate spread is the difference between the yield on our interest-

25

bearing assets and liabilities.  Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

The following table summarizes the Company’s net interest income and related spread and margin for the current quarter and prior four quarters:

Table 2

	Quarter Ended
	March 31, 2009			December 31, 2008			September 30, 2008			June 30, 2008			March 31, 2008
	(Dollars in thousands)
Net interest income	$	15,718		$	17,679		$	19,842		$	20,391		$	21,650
Interest rate spread	2.62		%	2.92		%	3.37		%	3.50		%	3.58		%
Net interest margin	3.26		%	3.55		%	4.02		%	4.20		%	4.42		%
Net interest margin, fully tax equivalent	3.34		%	3.64		%	4.11		%	4.28		%	4.53		%

First quarter 2009 net interest income of $15.7 million declined by $5.9 million from the first quarter 2008.  This decrease is a result of a $5.8 million unfavorable rate variance and a $0.1 million unfavorable volume variance (see Table 4).

The $5.8 million unfavorable rate variance from the prior year first quarter is primarily attributable to lower yields on earnings assets, and in particular loans.   The yield on earning assets declined by 166 basis points from 6.82% for the first quarter 2008 to 5.16% for the first quarter 2009.  The Federal Open Markets Committee (FOMC) of the Federal Reserve Board decreased the target federal funds rate seven times by a total of greater than 400 basis points during 2008.  Similarly, the prime rate decreased by 400 basis points from January 2008 to the end of 2008.

Interest income decreased by $8.5 million from $33.4 million in the first quarter 2008 to $24.9 million in the first quarter 2009.  Approximately 63% of the Company’s outstanding loan balances are variable rate loans and are tied to indices such as prime or LIBOR.  As a result of the decline in rates discussed above, the average yield on loans for the Company decreased by 189 basis points from 7.06% for the quarter ended March 31, 2008 to 5.17% for the same period in 2009.  The Company remains asset sensitive at the end of the first quarter 2009 and expects that as interest rates rise, net interest income will also increase.

Rates paid on interest-bearing liabilities also declined during this same period by 70 basis points, for a net decrease in the net interest spread of 96 basis points over this same period.   Overall net interest margin declined by 116 basis points.  The cause for the larger impact on net interest margin as compared to the interest rate spread is that the benefit from noninterest bearing deposits had a smaller impact in 2009 compared to 2008 due to the extremely low interest rate environment.

The $0.1 million unfavorable volume variance is mostly attributable to a $14.2 million decrease in average total earning assets for the first quarter 2009 as compared to the same period in 2008.  The average balance of loans increased from the same period in the prior year by $41.1 million, however, other earning assets declined primarily due to the decrease in the average balance of federal funds sold.

Although net interest margin decreased to 3.26% for the first quarter 2009 from 3.55% in the fourth quarter 2008, net interest margin began to recover during the later part of the first quarter 2009.   In the fourth quarter of 2008, the prime rate dropped by 175 basis points, including a 75 basis point drop in December 2008.  The detrimental impact of these rate changes on loan yields continued into early 2009 due to the repricing of loans with monthly, quarterly and annual loan repricing dates.  January and February 2009 net interest margins were 3.19% and 3.13%, respectively.   Management had begun addressing the falling interest rates in 2008 and into 2009 through the utilization of loan floors and higher pricing on renewed and new loans.   Net interest margin improved to 3.46% in March 2009, primarily as a result of these efforts.

26

The following table presents, for the periods indicated, average assets, liabilities and stockholders’ equity, as well as the net interest income from average interest-earning assets and the resultant annualized yields expressed in percentages.  Nonaccrual loans are included in the calculation of average loans while accrued interest thereon is excluded from the computation of yields earned.

Table 3

	Quarter Ended March 31,
	2009						2008
	Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets:
Gross loans, net of unearned fees (1)(2)	$	1,808,727	$	23,076	5.17	%	$	1,767,582	$	31,040	7.06	%
Investment securities (1)
Taxable	48,944		726		6.02	%	50,810		615		4.87	%
Tax-exempt	63,813		767		4.88	%	76,501		893		4.69	%
Bank Stocks (3)	28,274		288		4.13	%	32,466		470		5.82	%
Other earning assets	5,175		3		0.27	%	41,796		385		3.71	%
Total interest-earning assets	1,954,933		24,860		5.16	%	1,969,155		33,403		6.82	%
Non-earning assets:
Cash and due from banks	29,947						40,858
Other assets	80,800						366,526
Total assets	$	2,065,680					$	2,376,539
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	140,136	$	88	0.25	%	$	155,900	$	282	0.73	%
Money market	297,386		630		0.86	%	581,538		3,781		2.62	%
Savings	70,120		55		0.32	%	71,178		114		0.65	%
Time certificates of deposit	719,600		6,352		3.58	%	468,990		5,618		4.82	%
Total interest-bearing deposits	1,227,242		7,125		2.35	%	1,277,606		9,795		3.08	%
Borrowings:
Repurchase agreements	17,007		37		0.89	%	16,813		120		2.87	%
Federal funds purchased	285		1		0.87	%	2,098		17		3.20	%
Subordinated debentures	41,239		658		6.47	%	41,239		792		7.72	%
Borrowings	171,848		1,321		3.12	%	120,483		1,029		3.43	%
Total interest-bearing liabilities	1,457,621		9,142		2.54	%	1,458,239		11,753		3.24	%
Noninterest bearing liabilities:
Demand deposits	432,080						472,802
Other liabilities	12,122						22,958
Total liabilities	1,901,823						1,953,999
Stockholders’ Equity	163,857						422,540
Total liabilities and stockholders’ equity	$	2,065,680					$	2,376,539
Net interest income			$	15,718					$	21,650
Net interest margin					3.26	%					4.42	%

(1) Yields on loans and securities have not been adjusted to a tax-equivalent basis.  Net interest margin on a fully tax-equivalent basis would have been 3.34% and 4.53% for the three months ended March 31, 2009 and March 31, 2008, respectively.

(2) Net loan fees of $0.8 million and $0.7 million for the three months ended March 31, 2009 and 2008 are included in the yield computation.

(3) Includes Bankers’ Bank of the West stock, Federal Agricultural Mortgage Corporation (Farmer Mac) stock, Federal Reserve Bank stock and Federal Home Loan Bank stock.

27

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

Table 4

	Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
	Net Change			Rate			Volume
	(In thousands)
Interest income:
Gross Loans, net of unearned fees	$	(7,964	)	$	(8,705	)	$	741
Investment Securities
Taxable	111			133			(22		)
Tax-exempt	(126		)	27			(153		)
Bank Stocks	(182		)	(127		)	(55		)
Other earning assets	(382		)	(197		)	(185		)
Total interest income	(8,543		)	(8,869		)	326
Interest expense:
Deposits:
Interest-bearing demand	(194		)	(168		)	(26		)
Money market	(3,151		)	(1,827		)	(1,324		)
Savings	(59		)	(57		)	(2		)
Time certificates of deposit	734			(712		)	1,446
Repurchase agreements	(83		)	(84		)	1
Federal funds purchased	(16		)	(7		)	(9		)
Subordinated debentures	(134		)	(134		)	0
Borrowings	292			(90		)	382
Total interest expense	(2,611		)	(3,079		)	468
Net interest income	$	(5,932	)	$	(5,790	)	$	(142	)

Provision for Loan Losses

The provision for loan losses represents a charge against earnings. The provision is the amount required to maintain the allowance for loan losses at a level that, in our judgment, is adequate to absorb probable incurred loan losses in the loan portfolio. The provision for loan losses is based on our reserve methodology and reflects our judgments about the adequacy of the allowance for loan losses.  In determining the amount of the provision, we consider certain quantitative and qualitative factors including our historical loan loss experience, the volume and type of lending we conduct, the results of our credit review process, the amounts and severity of classified, criticized and nonperforming assets, regulatory policies, general economic conditions, underlying collateral values and other factors regarding collectibility and impairment.  The amount of expected loss on our loan portfolio is influenced by the collateral value associated with our loans. Loans with greater collateral value lessen our exposure to loan loss provision.

In the first quarter 2009, the Company recorded a provision for loan losses of $2.5 million, compared to $0.9 million in the first quarter 2008.  The Company determined that the provision for loan losses made during first quarter was sufficient to maintain our allowance for loan losses at a level necessary for the probable incurred losses inherent in the loan portfolio as of March 31, 2009.  Net charge offs in the first quarter 2009 were $9.9 million, as compared to $0.5 million for the same quarter in 2008.  We believe that continued economic weakness will likely result in a continuation of the elevated provision for loan losses in future periods.

For a discussion of impaired loans and associated collateral values, see “Balance Sheet Analysis—Nonperforming Assets” below.

28

For further discussion of the methodology and factors impacting management’s estimate of the allowance for loan losses, see “Balance Sheet Analysis— Allowance for Loan Losses” below.

Noninterest Income

The following table presents the major categories of noninterest income for the current quarter and prior four quarters:

Table 5

	Quarter Ended
	March 31, 2009		December 31, 2008			September 30, 2008		June 30, 2008		March 31, 2008
	(In thousands)
Noninterest income:
Customer service and other fees	$	2,679	$	2,357		$	2,521	$	2,528	$	2,276
Gain on sale of securities	—		—			—		—		138
Other	236		(91		)	186		604		101
Total noninterest income	$	2,915	$	2,266		$	2,707	$	3,132	$	2,515

Noninterest income for the first quarter 2009 increased by $0.6 million from the fourth quarter 2008 and increased by $0.4 million from the first quarter 2008.  The increase in other noninterest income in the first quarter 2009 as compared to the first quarter 2008 was primarily the result of increases in customer fee income, partially as a result of a reduction in the earnings credit rate on commercial deposit accounts.  Additionally, the Company recognized approximately $0.2 million in fees associated with entering into two separate interest rate swap transactions with customers during the first quarter 2009.

Fluctuations in other noninterest income are primarily the result of the volatility of the fair value of assets held by the Company for purposes of funding its nonqualified deferred compensation plan.   The loss in other noninterest income during the fourth quarter 2008 was primarily a result of a $0.3 million fair value write-down (contra-income) related to the average balance of $1.1 million of assets held for purposes of funding the Company’s deferred compensation plan.   These assets are required to be marked-to-market through the income statement.  These write-downs of the assets held for the deferred compensation plan are almost entirely offset by a reduction to our deferred compensation liability account, which reduces our overall compensation cost.  Therefore, this volatility on the market value of our deferred compensation plan asset and liability accounts had only a nominal overall impact on net income.

Noninterest Expense

The following table presents, for the quarters indicated, the major categories of noninterest expense:

Table 6

	Quarter Ended
	March 31, 2009		December 31, 2008		September 30, 2008		June 30, 2008		March 31, 2008
	(In thousands)
Noninterest expense:
Salaries and employee benefits	$	6,739	$	6,255	$	5,927	$	9,184	$	9,720
Occupancy expense	1,921		1,725		1,958		2,131		2,001
Furniture and equipment	1,131		1,203		1,390		1,383		1,314
Impairment of goodwill	—		—		250,748		—		—
Amortization of intangible assets	1,582		1,803		1,877		1,877		1,877
Other general and administrative	4,108		4,381		3,982		5,122		3,798
Total noninterest expense	$	15,481	$	15,367	$	265,882	$	19,697	$	18,710

Noninterest expense for the first quarter 2009 remained relatively flat as compared to the fourth quarter 2008, and decreased by $3.2 million from the first quarter 2008.

Salary and employee benefits expense decreased by $3.0 million in the first quarter 2009 as compared to the same quarter in 2008.  The decline in salaries and employee benefits expense from the first quarter 2008 is mostly attributable to a $1.5 million decrease in base salary and benefits expense as a result of a reduction in full-time equivalent employees from the first quarter 2008.  In the second quarter 2008, the Company announced a major effort to better align our expenses with the current size of our business.  This effort resulted in a reduction of full-

29

time equivalent employees from 465 at March 31, 2008 to 373 at March 31, 2009.   Additionally, there was a $0.7 million reduction in equity-based compensation expense, which is mostly attributable to a reduction in the costs of performance based restricted stock expense as well as an increase in the rate of forfeitures during 2008 and 2009.   The remaining decrease to salaries and employee benefits expense is due to lower bonus and incentive expense in 2009 as compared to 2008.

Amortization of intangible asset expense is $1.6 million in the first quarter 2009 as compared to $1.9 million in the first quarter 2008, a decrease of 15.8%.   This decrease is attributable to the use of accelerated methods to amortize the core deposit intangible asset.

Other general and administrative expense increased by $0.3 million in the first quarter 2009 as compared to the first quarter 2008.  The increase in other general and administrative expense in the first quarter 2009 as compared to the same period in 2008 is mostly due to an increase in Federal Deposit Insurance Corporation (FDIC) insurance premiums.   In January 2009, the FDIC finalized new rules that increased the FDIC insurance premiums by 7 basis points, which effectively doubled the amount of FDIC insurance premiums paid by the Company.   Additionally, the FDIC’s Temporary Liquidity Program implemented an additional insurance assessment of 10 basis points on noninterest bearing transaction accounts in excess of the insured amounts.  The FDIC has proposed a one-time assessment of up to 20 basis points for deposits as of June 30, 2009, to be paid in September 2009.  If enacted at the full 20 basis point proposal, this assessment could cost the Company over $3.0 million of additional FDIC insurance in the second quarter 2009.

Income Tax Expense

The effective tax rate was 32.6% for the three months ending March 31, 2009 as compared to an effective tax rate of 29.1% for the same period in 2008.  The primary difference between the expected rate and the effective tax rate for both years is tax-exempt income.

BALANCE SHEET ANALYSIS

The following sets forth certain key consolidated balance sheet data:

Table 7

	March 31, 2009		December 31, 2008		September 30, 2008		June 30, 2008		March 31, 2008
	(In thousands)
Total assets	$	2,036,395	$	2,102,741	$	2,052,944	$	2,358,559	$	2,345,079
Earning assets	1,902,670		1,989,884		1,927,128		1,959,434		1,932,526
Deposits	1,639,797		1,698,651		1,635,101		1,707,031		1,710,082

At March 31, 2009, the Company had total assets of $2.0 billion, or $66.3 million less than total assets at December 31, 2008, and $308.7 million less than total assets at March 31, 2008.  The decline in assets from December 31, 2008, is primarily a result of a $69 million decrease in total loans outstanding, of which $36 million was a decrease in real estate loans and most of the remaining decrease was a result of a reduction in lower yielding syndicated and participated loans.

The $308.7 million decrease in assets at March 31, 2009 as compared to March 31, 2008, is primarily due to the $250.7 million in goodwill impairment recorded in the third quarter 2008.  Most of the remaining decrease is attributable to declines in investments as well as cash and due from banks.

30

The following table sets forth the amount of our loans outstanding at the dates indicated:

Table 8

	March 31, 2009			December 31, 2008			September 30, 2008			June 30, 2008			March 31, 2008
	(In thousands)
Real estate - Residential and Commercial	$	658,982		$	680,030		$	693,800		$	717,533		$	723,246
Real estate - Construction	250,665			268,306			248,883			232,522			238,926
Equity lines of credit	52,679			50,270			49,205			46,778			47,659
Commercial	714,218			746,241			706,678			705,309			657,423
Agricultural	22,686			22,738			23,989			29,442			35,003
Consumer	38,220			38,352			38,777			39,611			38,151
Leases receivable and other	22,828			23,996			22,099			21,628			22,205
Total gross loans	1,760,278			1,829,933			1,783,431			1,792,823			1,762,613
Less: allowance for loan losses	(37,598		)	(44,988		)	(44,765		)	(26,506		)	(26,048		)
Unearned discount	(3,175		)	(3,600		)	(3,758		)	(3,668		)	(3,316		)
Loans, net of unearned discount	$	1,719,505		$	1,781,345		$	1,734,908		$	1,762,649		$	1,733,249
Loans held for sale at lower of cost or market	$	5,175		$	5,760		$	—		$	—		$	—

There were $962.3 million of real estate loans at March 31, 2009, compared to $998.6 million at December 31, 2008 and $1.0 billion at March 31, 2008.  Management continues its efforts to decrease its exposure to residential real-estate and residential land and land development loans.

Nonperforming Assets

Credit risk related to nonperforming assets arises as a result of lending activities. To manage this risk, we employ frequent monitoring procedures and take prompt corrective action when necessary. We employ a risk rating system that identifies the potential risk associated with loans in our loan portfolio. This monitoring and rating system is designed to help management determine current and potential problems so that corrective actions can be taken promptly.

Generally, loans are placed on nonaccrual status when they become 90 days or more past due or at such earlier time as management determines timely recognition of interest to be in doubt.  Accrual of interest is discontinued on a loan when we believe, after considering economic and business conditions and analysis of the borrower’s financial condition, that the collection of interest is doubtful.

31

The following table summarizes the loans for which the accrual of interest has been discontinued, loans with payments more than 90 days past due and still accruing interest and other real estate owned. For reporting purposes, other real estate owned consists of all real estate, other than bank premises, actually owned or controlled by us, including real estate acquired through foreclosure.

Table 9

	Quarter Ended
	March 31, 2009			December 31, 2008			September 30, 2008			June 30, 2008			March 31, 2008
	(Dollars in thousands)
Nonaccrual loans and leases, not restructured	$	57,299		$	54,594		$	54,654		$	29,742		$	20,798
Accruing loans past due 90 days or more	911			228			324			98			1
Total nonperforming loans	$	58,210		$	54,822		$	54,978		$	29,840		$	20,799
Other real estate owned and foreclosed assets	14,524			484			1,199			1,910			1,715
Total nonperforming assets	$	72,734		$	55,306		$	56,177		$	31,750		$	22,514
Impaired loans	$	58,210		$	54,822		$	54,978		$	29,840		$	20,799
Allocated allowance for loan losses	(6,342		)	(11,064		)	(12,825		)	(6,295		)	(5,368		)
Net investment in impaired loans	$	51,868		$	43,758		$	42,153		$	23,545		$	15,431
Loans past due 30-89 days	$	31,957		$	35,169		$	20,660		$	20,169		$	42,682
Loans charged-off	$	10,262		$	2,032		$	12,779		$	673		$	743
Recoveries	(367		)	(1,005		)	(288		)	(231		)	(205		)
Net charge-offs	$	9,895		$	1,027		$	12,491		$	442		$	538
Provision for loan losses	$	2,505		$	1,250		$	30,750		$	900		$	875
Allowance for loan losses	$	37,598		$	44,988		$	44,765		$	26,506		$	26,048
Allowance for loan losses to loans, net of unearned discount	2.14		%	2.46		%	2.52		%	1.48		%	1.48		%
Allowance for loan losses to nonaccrual loans	65.62		%	82.41		%	81.91		%	89.12		%	125.24		%
Allowance for loan losses to nonperforming assets	51.69		%	81.34		%	79.69		%	83.48		%	115.70		%
Allowance for loan losses to nonperforming loans	64.59		%	82.06		%	81.42		%	88.83		%	125.24		%
Nonperforming assets to loans, net of unearned discount, and other real estate owned	4.11		%	3.03		%	3.15		%	1.77		%	1.28		%
Annualized net charge-offs to average loans	2.22		%	0.22		%	2.75		%	0.10		%	0.12		%
Nonaccrual loans to loans, net of unearned discount	3.26		%	2.99		%	3.07		%	1.66		%	1.18		%
Loans 30-89 days past due to loans, net of unearned discount	1.82		%	1.93		%	1.16		%	1.13		%	2.43		%

Nonperforming assets at March 31, 2009 increased by $17.4 million from December 31, 2008.  This increase is attributable to a $3.4 million increase in nonperforming loans, and a $14.0 million increase in other real estate owned.   At March 31, 2009, approximately $31.2 million, or 54%, of all nonperforming loans outstanding were residential construction, land and land development.   At December 31, 2008, approximately $36.8 million, or 67.1%, of all nonperforming loans were residential construction, land and land development loans.

Net charge-offs in the first quarter 2009 were $9.9 million, as compared to $1.0 million in the fourth quarter 2008, and $0.5 million in the first quarter 2008.   Of the $9.9 million in net chargeoffs in the first quarter 2009, approximately $6.1 million were provided for as the result of specific allowance allocation on impaired loans as of December 31, 2008.   Most of the remainder of the first quarter chargeoffs relate to a single relationship that went on nonaccrual status during the first quarter 2009 and was moved to other real estate owned at the end of the quarter.  This was a result of reaching a settlement agreement with the borrower in March 2009 that included the bank receiving deeds in lieu of foreclosure.   After the chargeoffs on loans with a specific allowance allocation at December 31, 2008, and transfers to other real estate owned, the Company added approximately $17.3 million in new impaired loans during the quarter.  The majority of this increase was from three loans that were adequately

32

collateralized, therefore, there was not an overall increase in the specific allowance allocation related to impaired loans during the quarter.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level that, in our judgment, is adequate to absorb probable incurred losses in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectibility of the loan portfolio, historical loss experience, and other significant factors affecting loan portfolio collectibility, including the volume and severity of delinquent and classified loans, trends in volume and terms of loans, levels and trends in credit concentrations, effects of changes in underwriting standards, policies, procedures and practices, national and local economic trends and conditions, changes in capabilities and experience of lending management and staff, and other external factors including industry conditions, competition and regulatory requirements.

The ratio of allowance for loan losses to total loans was 2.14% at March 31, 2009, as compared to 2.46% at December 31, 2008 and 1.48% at March 31, 2008.

Our methodology for evaluating the adequacy of the allowance for loan losses has two basic elements: first, the identification of impaired loans and the measurement of an estimated loss for each individual loan identified; second, estimating an allowance for probable incurred losses on other loans. The specific allowance for impaired loans and the remaining allowance are combined to determine the required allowance for loan losses.

For the specific portion of the allowance computation, there is a lower specific allowance allocation as of March 31, 2009 as compared to December 31, 2008, even though total impaired loans increased over the same period.  This decrease is primarily a result of $6.1 million in chargeoffs during the first quarter 2009 for amounts that had a specific allowance allocation as of December 31, 2008.   The increase in impaired loans during the quarter was mostly on loans that were adequately collateralized, therefore, no increase to the specific allowance allocation was required during the first quarter 2009.

In estimating the allowance for probable incurred losses on other loans, we group the balance of the loan portfolio into segments that have common characteristics, such as loan type or risk weighting.  For each nonspecific allowance portfolio segment, we apply loss factors to calculate the required allowance based upon actual historical loss rates adjusted for qualitative factors affecting loan portfolio collectibility as described above.  During the first quarter 2009, the historical loss factor increased due to the charge-offs incurred during the first quarter.  Management also looks at risk weightings of loans and computes a factor for the volume and severity of classified loans using assigned risk ratings under regulatory definitions of “watch”, “substandard”‘, “doubtful” and “loss”.  Loans graded as either doubtful or loss are treated as impaired and are included as part of the specific reserve computed above.  Loans segregated by risk weighting categories watch or substandard are evaluated for trends in volume and severity.

The provision for loan losses recorded in 2009 was required in order for the Company to maintain the allowance for loan losses (2.14% of total loans as of March 31, 2009) at a level necessary for the probable incurred losses inherent in the loan portfolio as of March 31, 2009.  For further discussion of the provision for loan losses, see “Provision for Loan Losses” above.

The specific allowance for impaired loans and the allowance calculated for probable incurred losses on other loans are combined to determine the required allowance for loan losses.  The amount calculated is compared to the actual allowance for loan losses balance at each quarter end and any shortfall is charged to income as an additional provision for loan losses.  For further discussion of the provision for loan losses, see “Provision for Loan Losses” above.

33

The following table provides a summary of the activity within the allowance for loan losses account for the periods presented:

Table 10

	Three Months Ended March 31,
	2009		2008
	(In thousands)
Balance, beginning of period	$	44,988	$	25,711
Loan charge-offs:
Real estate - Residential and Commercial	606		370
Real estate - Construction	9,252		87
Commercial	258		179
Agricultural	—		9
Consumer	98		98
Lease receivable and other	48		—
Total loan charge-offs	10,262		743
Recoveries:
Real estate - Residential and Commercial	176		135
Real estate - Construction	47		3
Commercial	117		34
Agricultural	2		6
Consumer	25		27
Total loan recoveries	367		205
Net loan charge-offs	9,895		538
Provision for loan losses	2,505		875
Balance, end of period	$	37,598	$	26,048

Management continues to monitor the allowance for loan losses closely and will adjust the allowance when necessary, based on its analysis, which includes an ongoing evaluation of substandard loans and their collateral positions.

Securities

We manage our investment portfolio principally to provide liquidity, balance our overall interest rate risk and to provide collateral for public deposits and customer repurchase agreements.

The carrying value of our portfolio of investment securities at March 31, 2009 and December 31, 2008 was as follows:

Table 11

	March 31,		December 31,		Increase			%
	2009		2008		(Decrease)			Change
	(In thousands)
Securities available-for-sale:
U.S. Treasury securities	$	—	$	3,495	$	(3,495	)	(100.0	)%
U.S. Government agencies and government-sponsored entities	2,509		2,510		(1		)	(0.0	)%
State and municipal	63,963		63,015		948			1.5	%
Mortgage backed	30,615		31,965		(1,350		)	(4.2	)%
Marketable equity	1,476		1,345		131			9.7	%
Other securities	544		544		0			0.0	%
Total securities available-for-sale	$	99,107	$	102,874	$	(3,767	)	(3.7	)%
Securities held-to-maturity:
Mortgage-backed	$	11,946	$	13,114	$	(1,168	)	(8.9	)%

The Company does not own any preferred stock of either the Federal Home Loan Mortgage Corporation (FHLMC) or Federal National Mortgage Association (FNMA).  Further, all mortgage-backed securities are sponsored by either U.S. government agencies or government-sponsored entities, and none are private issuances.

34

The carrying value of our available-for-sale investment securities at March 31, 2009 was $99.1 million, compared to the December 31, 2008 carrying value of $102.9 million. The decrease in the level of our investments from December 31, 2008, is primarily due to a decision not to replace maturities of U.S. Treasury, U.S. government agencies and government-sponsored entities, as well as municipal bonds because these bonds were in excess of our requirements for collateral on public deposits and customer repurchase agreements.

Included in the obligations of state and political subdivisions is an individual non-rated municipal bond with a fair value of $37.3 million and an unrealized loss of $1.4 million.  This unrealized loss comprises 3.7% of the original cost of this security and comprises nearly 100% of the gross unrealized loss of all investment securities at March 31, 2009.  Management performs an annual review process for all non-rated municipal securities in our portfolio, but updated its analysis for this particular security during the first quarter due to the relative size of the unrealized loss on this security. Based on the first quarter 2009 credit analysis of this particular bond, including a review of the issuer’s current financial statements, the related cash flows and interest payments, management concluded that the continuous unrealized loss position on this security was a result of the level of market interest rates and lack of marketability and not a result of the underlying issuer’s ability to repay.   Similarly, management concluded that the continuous unrealized loss position on all other securities was also a result of the level of market interest rates and not a result of the underlying issuers’ ability to repay.   In addition, we have the ability and intent to hold these securities until their fair value recovers to their cost, which may be maturity.  Accordingly, we have not recognized any other-than-temporary impairment in our consolidated statements of income.

Deposits

The following table sets forth the amounts of our deposits outstanding at the dates indicated:

Table 12

	At March 31, 2009				At December 31, 2008
	Balance		% of Total		Balance		% of Total
	(Dollars in thousands)
Noninterest bearing deposits	$	422,509	25.77	%	$	433,761	25.52	%
Interest bearing demand	140,110		8.54	%	145,492		8.57	%
Money market	285,164		17.39	%	315,364		18.57	%
Savings	72,157		4.40	%	68,064		4.01	%
Time	719,857		43.90	%	735,970		43.33	%
Total deposits	$	1,639,797	100.00	%	$	1,698,651	100.00	%

At the end of the first quarter 2009, deposits were $1.6 billion as compared to $1.7 billion at December 31, 2008, reflecting a decrease of $58.9 million.  Approximately $11.2 million of this decline is attributable to noninterest bearing deposits.  A decrease of $30.2 million relates to a decline in money market accounts and $16.1 million of the decline relates to time deposits.  The decline in these deposit balances reflects both a decline in our customers’ available balances and increased competition for such deposits.   Noninterest bearing deposits still comprised approximately 26% of total deposits at March 31, 2009, which helps mitigate overall deposit funding costs.  The $58.9 million decrease in overall deposits from December 31, 2008 correlates to our $69.2 million decrease in overall loans during the same period.

Borrowings and Subordinated Debentures

At March 31, 2009, our outstanding borrowings were $164,499,000 as compared to $166,404,000 at December 31, 2008.

The borrowings at March 31, 2009 consisted of 16 separate fixed-rate term notes at the FHLB with maturities ranging from 20 to 106 months.  Approximately $140 million of the FHLB term advances at March 31, 2009 have Bermudan conversion options to a variable rate.  The initial fixed rate periods range from one to five years and can be prepaid without penalty at or after conversion.  There was also a line of credit at the FHLB at March 31, 2009, but there was no balance outstanding on this line of credit as of that date.

The total commitment, including balances outstanding, for borrowings at the Federal Home Loan Bank for the term notes and line of credit at March 31, 2009 and December 31, 2008 was $412.3 million and $428.3 million, respectively. The interest rate on the line of credit varies with the federal funds rate, and was 0.48% and 0.65% at March 31, 2009 and December 31, 2008, respectively.  The term notes have fixed interest rates that range from 2.52% to 6.22%. A blanket pledge and security agreement with the Federal Home Loan Bank, which encompasses

35

certain loans and securities, serves as collateral for these borrowings.  However, as of March 31, 2009 and December 31, 2008, there were no investment securities pledged as collateral under the blanket pledge and security agreement.

As of December 31, 2008, the Company had a revolving credit agreement, as amended, with U.S. Bank National Association, which contained financial covenants, including maintaining a minimum adjusted return (excluding goodwill impairment and intangible asset amortization) on average assets, a maximum nonperforming assets to total loans ratio, regulatory capital ratios that qualify the Company as well-capitalized and a minimum total risk-based capital amount.   At December 31, 2008, the Company was in compliance with all covenants except the minimum total risk-based capital amount.  The minimum total risk-based capital amount was set by U.S. Bank and was based on the Company receiving additional capital from Treasury’s Capital Purchase Program prior to December 31, 2008.  As the Company’s application to receive capital under Treasury’s Capital Purchase Program was still pending as of December 31, 2008, the Company did not meet this financial covenant and voluntarily decided to terminate its line of credit on February 9, 2009 with U.S. Bank. The revolving credit agreement would have otherwise expired on March 31, 2009.

At March 31, 2009, we had a $41,239,000 aggregate principal balance of subordinated debentures outstanding with a weighted average cost of 6.38%.  The subordinated debentures were issued in four separate series. Each issuance has a maturity of thirty years from its date of issue. The subordinated debentures were issued to trusts established by us, which in turn issued $40 million of trust preferred securities. Generally and with certain limitations, the Company is permitted to call the debentures subsequent to the first five or ten years, as applicable, after issue if certain conditions are met, or at any time upon the occurrence and continuation of certain changes in either the tax treatment or the capital treatment of the trusts, the debentures or the preferred securities.  The Guaranty Capital Trust III issuance of $10.0 million has a variable rate of LIBOR plus 3.10% and was callable without penalty on July 7, 2008, and every quarter thereafter.  The CenBank Trust III issuance of $15.0 million has a variable rate of LIBOR plus 2.65% and was callable without penalty on April 15, 2009, and every quarter thereafter.   Management did not call either of these securities on the latest call date, but will continue to evaluate whether to call these debentures each quarter.

These securities are currently included in Tier I capital for purposes of determining the Company’s Tier I and total risk-based capital ratios. The Board of Governors of the Federal Reserve System, which is the holding company’s banking regulator, has promulgated a modification of the capital regulations affecting trust preferred securities. Under this modification, beginning March 31, 2011, the Company is required to use a more restrictive formula to determine the amount of trust preferred securities that can be included in regulatory Tier I capital. The Company will be allowed to include in Tier I capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as stockholders’ equity less certain intangibles, including core deposit intangibles, net of any related deferred income tax liability.  The existing regulations in effect limit the amount of trust preferred securities that can be included in Tier I capital to 25% of the sum of core capital elements without a deduction for permitted intangibles.   The adoption of this modification is not expected to have a material impact on the inclusion of trust preferred securities for purposes of Tier 1 capital.

Capital Resources

Current risk-based regulatory capital standards generally require banks and bank holding companies to maintain a ratio of “core” or “Tier 1” capital (consisting principally of common equity) to risk-weighted assets of at least 4%, a ratio of Tier 1 capital to average total assets (leverage ratio) of at least 4% and a ratio of total capital (which includes Tier 1 capital plus certain forms of subordinated debt, a portion of the allowance for loan losses, and preferred stock) to risk-weighted assets of at least 8%. Risk-weighted assets are calculated by multiplying the balance in each category of assets by a risk factor, which ranges from zero for cash assets and certain government obligations to 100% for high-risk loans, and adding the products together.

For regulatory purposes, the Company maintains capital above the minimum core standards.  The Company actively monitors its regulatory capital ratios to ensure that the Company and its bank subsidiary are more than well capitalized under the applicable regulatory framework.  Under the regulations adopted by the federal regulatory authorities, a bank is well-capitalized if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure.  Our subsidiary bank is required to maintain similar capital levels under capital adequacy guidelines.  At March 31, 2009, our subsidiary bank was “well-capitalized”.

36

The following table provides the current capital ratios of the Company as of the dates presented, along with the regulatory capital requirements:

Table 13

	Ratio at March 31, 2009		Ratio at December 31, 2008		Minimum Capital Requirement		Minimum Requirement for “Well Capitalized” Institution
Total Risk-Based Capital Ratio
Consolidated	10.82	%	10.61	%	8.00	%	N/A
Guaranty Bank & Trust Company	10.77	%	10.52	%	8.00	%	10.00	%
Tier 1 Risk-Based Capital Ratio
Consolidated	9.56	%	9.35	%	4.00	%	N/A
Guaranty Bank & Trust Company	9.51	%	9.26	%	4.00	%	6.00	%
Leverage Ratio
Consolidated	9.20	%	8.98	%	4.00	%	N/A
Guaranty Bank & Trust Company	9.16	%	8.90	%	4.00	%	5.00	%

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (EESA), which provided the U. S. Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets.  One of the provisions resulting from the Act is the Treasury Capital Purchase Program (CPP), which provides direct equity investment of perpetual preferred stock by the Treasury in qualified financial institutions.  The program is voluntary and requires an institution to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and declaration of dividends.  Applications were required to be submitted by November 14, 2008 and are subject to approval by the Treasury.  The CPP provides for a minimum investment of 1 percent of Risk-Weighted Assets, with a maximum investment equal to the lesser of 3 percent of Total Risk-Weighted Assets or $25 billion.  The perpetual preferred stock investment will have a dividend rate of 5% per year until the fifth anniversary of the Treasury investment, and a dividend of 9% thereafter.  The CPP also requires the Treasury to receive warrants for common stock equal to 15% of the capital invested by the Treasury.  The Company filed an application to participate in this program, and as of the filing date of this report has not received a response from Treasury regarding its application.

Contractual Obligations and Off-Balance Sheet Arrangements

The Company is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, stand-by letters of credit, and commercial letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At the dates indicated, the following commitments were outstanding

Table 14

	March 31, 2009		December 31, 2008
	(In thousands)
Commitments to extend credit	$	385,280	$	390,277
Standby letters of credit	22,373		24,792
Commercial letters of credit	11,000		11,000
Totals	$	418,653	$	426,069

37

Liquidity

The Bank relies on deposits as its principal source of funds and, therefore, must be in a position to service depositors’ needs as they arise. Fluctuations in the balances of a few large depositors may cause temporary increases and decreases in liquidity from time to time. We deal with such fluctuations by using existing liquidity sources.

Concerns over deposit fluctuations with respect to the overall banking industry were addressed by the FDIC in September and October 2008. The FDIC temporarily increased the individual account deposit insurance from $100,000 per account to $250,000 per account through December 31, 2009. The FDIC also implemented a Temporary Liquidity Guarantee Program, which provides for full FDIC coverage for transaction accounts, regardless of dollar amounts. The Bank elected to opt-in to this program, thus, our customers receive full coverage for transaction accounts under the program.

Additionally, the Company has become a member of the Certificate of Deposit Account Registry Service (CDARS®) program. Through CDARS®, the Bank’s customers can increase their FDIC insurance by up to $50 million through reciprocal certificate of deposit accounts. This is accomplished by the Bank entering into reciprocal depository relationships with other member banks. The individual customer’s large deposit is broken into amounts below the $100,000 amount (or $250,000 if the time deposit matures prior to December 31, 2009) and placed with other banks that are members of the network. The reciprocal member bank issues certificate of deposits in amounts that ensure that the entire deposit is eligible for FDIC insurance.

When the level of liquid assets (our primary liquidity) does not meet our liquidity needs, other available sources of liquid assets (our secondary liquidity), including the purchase of federal funds, sales of securities under agreements to repurchase, purchase of brokered certificates of deposit, sales of loans, discount window borrowings from the Federal Reserve Bank, and our lines of credit with the Federal Home Loan Bank of Topeka (FHLB) are employed to meet current and presently anticipated funding needs. At March 31, 2009, the Company had approximately $247.8 million of availability on its FHLB line, $64 million of availability on its federal funds lines with correspondent banks, and $1.3 million of availability with the Federal Reserve discount window. The Company can also increase its amount of brokered deposits. However, if we would become less than well-capitalized under the capital adequacy guidelines, regulatory approval would have to be obtained in order to continue purchasing brokered deposits. Additionally, as described above, the Company joined the CDARS® program and can purchase certificates of deposit through this program. At March 31, 2009 the Company is eligible to purchase certificates of deposit of up to five percent of its total assets through CDARS®. These sources provide significant secondary liquidity to the Company to service its depositors’ needs.

The FDIC also implemented a Debt Guarantee Program where it guarantees all newly-issued senior unsecured debt up to prescribed limits by a participating bank on or after October 14, 2008 through and including June 30, 2009. The Company and its subsidiary bank elected to opt-in to this program, which could provide up to $38 million of additional unsecured senior debt to the Company and its subsidiary bank in the form of greater than 30 day term notes. As of March 31, 2009, no guaranteed senior unsecured debt had been issued by the Company and the Company does not intend to issue unsecured senior debt prior to June 30, 2009.

The holding company relies on dividends from its Bank as a primary source of liquidity. We plan to continue to utilize the available dividends from the Bank for holding company operations, subject to regulatory and other restrictions. The ability of the Bank to pay dividends or make other capital distributions to the holding company is subject to the regulatory authority of the Federal Reserve Board and the Colorado Division of Banking. Because of the accumulated deficit at December 31, 2008 as a result of goodwill impairment charges in 2008 and 2007, the Bank is required to obtain permission from the Federal Reserve Board and the Colorado Division of Banking prior to making any dividend to the holding company.  The holding company requires liquidity for the payment of interest on the subordinated debentures, for operating expenses, principally salaries and benefits, for repurchases of our common stock, and, if declared by our board of directors, for the payment of dividends to our stockholders.   Failure to obtain permission to pay a dividend from the Bank to the Holding from either the Federal Reserve Board or the Colorado Division of Banking could result in the Holding Company electing to defer interest on its trust preferred securities.

38

Application of Critical Accounting Policies and Accounting Estimates

Management’s Discussion and Analysis of financial condition and results of operations discusses the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customers and suppliers, allowance for loan losses, bad debts, investments, financing operations, long-lived assets, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the recorded estimates under different assumptions or conditions.  A summary of critical accounting policies and estimates are listed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s 2008 Annual Report Form 10-K for the fiscal year ended December 31, 2008.  There have been no changes to the critical accounting policies listed in the Company’s 2008 Annual Report Form 10-K during 2009.  During the first quarter 2009, the Company began offering customers interest rate swaps, and adopted the following accounting policy:

Accounting Policy for Derivative Instruments and Hedging Activities

Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161), amends and expands the disclosure requirements of FASB Statement No. 133  (SFAS 133) with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Currently, none of the Company’s derivatives are designated in qualifying SFAS 133 hedging relationships, as the derivatives are not used to manage risks within the Company’s assets or liabilities. As such, all changes in fair value of the Company’s derivatives are recognized directly in earnings.

39

ITEM 3.Quantitative and Qualitative Disclosure about Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. To that end, management actively monitors and manages our interest rate risk exposure. We do not have any market risk sensitive instruments entered into for trading purposes. We manage our interest rate sensitivity by matching the re-pricing opportunities on our earning assets to those on our funding liabilities. We use various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities, which are designed to ensure that exposure to interest rate fluctuations is limited to our guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits and managing the deployment of our securities, are used to reduce mismatches in interest rate repricing opportunities of portfolio assets and their funding sources.

Credit Risk-related Contingent Features

During the first quarter 2009, the Company entered into interest rate swap contracts with certain commercial banking customers to facilitate the customer’s respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.  Thus, these existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

The Company evaluates its credit risk associated with its interest rate swaps by evaluating the maximum potential credit exposure prior to the execution of the interest rate swap.  This maximum potential credit exposure is evaluated by executive management in relation to the Company’s Derivatives and Hedging Policy.  On a quarterly basis, the actual credit risk for all swaps is reported to the Company’s asset-liability committee and compared to the maximum exposure approved in the Company’s Derivatives and Hedging Policy.

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of March 31, 2009, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $313,000. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, but has not been required to post collateral against its obligations under these agreements. If the Company had breached any of these provisions at March 31, 2009, it would have been required to settle its obligations under the agreements at the termination value.

Net Interest Income Modeling

Our Asset Liability Management Committee, or ALCO, addresses interest rate risk. The committee is comprised of members of our senior management. The ALCO monitors interest rate risk by analyzing the potential impact on net interest income and the net portfolio of equity value from potential changes in interest rates, and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages our balance sheet in part to maintain the potential impact on net portfolio value and net interest income within acceptable ranges despite changes in interest rates.

Our exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO and our board of directors. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net portfolio value and net interest income in the event of hypothetical changes in interest rates. If potential changes to net portfolio value and net interest income resulting from hypothetical interest rate changes are not within board-approved limits, the board may direct management to adjust the asset and liability mix to bring interest rate risk within board-approved limits.

40

We monitor and evaluate our interest rate risk position on a quarterly basis using net interest income simulation analysis under 100 and 200 basis point change scenarios (see below). Each of these analyses measures different interest rate risk factors inherent in the financial statements.

The Company’s primary interest rate risk tool, the Net Interest Income Simulation Analysis, measures interest rate risk and the effect of interest rate changes on net interest income.  This analysis incorporates all of the Company’s assets and liabilities together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment.  Through these simulations, management estimates the impact on net interest income of a 100 and 200 basis point upward or downward change of market interest rates over a one year period.  Assumptions are made to project rates for new loans and deposits based on historical analysis, management outlook and repricing strategies.  Asset prepayments and other market risks are developed from industry estimates of prepayment speeds and other market changes.  Since the results of these simulations can be significantly influenced by assumptions utilized, management evaluates the sensitivity of the simulation results to changes in assumptions.

The following table shows the net interest income increase or decrease over the next twelve months as of March 31, 2009 and 2008:

Table 15

MARKET RISK:

	Annualized Net Interest Income
	March 31, 2009 Amount of Change		March 31, 2008 Amount of Change
	(In thousands)
Rates in Basis Points
200	$	7,951	$	6,905
100	3,723		3,543
Static	—		—
(100)	2,144		(3,488		)
(200)	3,642		(6,350		)

Overall, the Company believes it is asset-sensitive, which is consistent with the decline in net interest income during 2008 as a result of lower rates.   At March 31, 2009, the company is positioned to have a short-term favorable interest income impact in a rising rate environment as well as a falling rate environment. This is because of the extremely low rate environment at March 31, 2009. The prime rate has historically been set at a rate of 300 basis points over the target federal funds rate. The target federal funds rate is currently set by the FOMC at a rate between 0 and 25 basis points. The Company’s interest rate risk modeling has an assumption that prime would continue to be set at a rate of 300 basis points over the target federal funds rate, therefore, a 200 basis point decline in overall rates would only have between a 0 and 25 basis point decline in both federal funds and the prime rate.  Further, other rates that are currently below 1% or 2% (e.g. U.S. Treasuries, LIBOR, etc.) are modeled to not fall below 0% with an overall 100 or 200 basis point decrease in rates. Many of our variable rate loans are set to an index tied to prime, federal funds or LIBOR, therefore, a further decrease in rates would not have a substantial impact on loan yields. Additionally, current deposit rates, especially time deposit rates, would continue to decrease in a falling rate environment. As a falling rate environment would potentially impact the cost of liabilities to a greater degree than earning assets for the above reasons, a falling rate environment is expected to have a favorable impact on net interest margin. However, if the actual prime rate falls below a 300 basis point spread to target federal funds rate, the Company could experience a continued decrease in net interest income as a result of falling yields on earning assets tied to prime.

41

ITEM 4.Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934). The Company’s disclosure controls were designed to provide a reasonable assurance that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls’ stated goals. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer, have concluded that the Company’s disclosure controls and procedures are effective at March 31, 2009 to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 was (i) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

42

PART II—OTHER INFORMATION

ITEM 1.Legal Proceedings

In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these other legal actions to which we are currently a party cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

ITEM 1A.    Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition and/or operating results.  The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

ITEM 2.       Unregistered Sales of Equity Securities and Use of Proceeds

(a)None.

(b)None.

(c)   The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the first quarter 2009.  These purchases relate to the net settlement of vested, restricted stock awards.  The Company does not have any existing publicly announced repurchase plans or programs.

	Total Shares Purchased	Average Price Paid per Share
January 1 to January 31	8,700	$	2.04
February 1 to February 28	2,922	1.49
March 1 to March 31	1,864	1.54
	13,486	$	1.89

ITEM 3.Defaults Upon Senior Securities

None.

ITEM 4.Submission of Matters to a Vote of Security Holders

None.

ITEM 5.Other Information

None.

43

ITEM 6.       Exhibits

Exhibit Number	Description
3.1	Amended and Restated Certification of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Form S-1 Registration Statement (No. 333-124855)).
3.2	Certificate of Amendment to Registrant’s Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed on May 7, 2008.)
3.3	Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registrant’s Form 8-K filed on May 7, 2008).
10.1	Severance Agreement and Release, dated as of February 12, 2009, between Registrant and Sherri L. Heronema (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on February 17, 2009).
31.1	Section 302 Certification of Chief Executive Officer.
31.2	Section 302 Certification of Chief Financial Officer.
32.1	Section 906 Certification of Chief Executive Officer.
32.2	Section 906 Certification of Chief Financial Officer.

44

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.

Date: April 30, 2009	GUARANTY BANCORP
	/s/    PAUL W. TAYLOR
	Paul W. Taylor
	Executive Vice President, Chief Financial and Operating Officer and Secretary

45