Guaranty Bancorp 10-Q 2012 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

OR

oTRANSITION 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 of incorporation or organization)	(I.R.S. Employer Identification Number)
1331 Seventeenth St., Suite 345 Denver, CO	80202
(Address of principal executive offices)	(Zip Code)

303-675-1194

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

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 24, 2012, there were 101,043,255 shares of the registrant’s voting common stock outstanding, including 2,240,353 shares of unvested stock awards, and excluding 5,095,000 shares of the registrant’s non-voting common stock outstanding.

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 Comprehensive Income (Loss)	6
		Unaudited Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income (Loss)	7
		Unaudited Consolidated Statements of Cash Flows	8
		Notes to Unaudited Condensed Consolidated Financial Statements	9
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	56
	ITEM 4.	Controls and Procedures	58
PART II—OTHER INFORMATION			59
	ITEM 1.	Legal Proceedings	59
	ITEM 1A.	Risk Factors	59
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
	ITEM 3.	Defaults Upon Senior Securities	59
	ITEM 4	Mine Safety Disclosure	59
	ITEM 5.	Other Information	59
	ITEM 6.	Exhibits	60

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”, “projected”, “continue”, “remain”, “will”, “should”, “could”, “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.

·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.

·The effects of the regulatory Written Agreement that the Company and its subsidiary bank, Guaranty Bank and Trust Company (the “Bank”), have entered into with their regulators.

·The ability to receive regulatory approval for the Bank to declare and pay dividends to the Company.

·Changes imposed by regulatory agencies to increase our capital to a level greater than the level required for well-capitalized financial institutions, or the effect of other potential future regulatory actions against the Company or the Bank, whether through informal understandings or formal agreements entered into with regulatory agencies.

·The failure to maintain capital above the level required to be well-capitalized under the regulatory capital adequacy guidelines, the availability of capital from private or government sources, or the failure to raise additional capital as needed.

·Changes in the level of nonperforming assets and charge-offs and other credit quality measures, and their impact on the adequacy of the Bank’s allowance for loan losses and the Bank’s provision for loan losses.

·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 and secured lines of credit with correspondent banks.

·The effects of inflation, as well as, interest rate, securities market and monetary supply 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.

·Competition for loans and deposits and failure to attract or retain loans and deposits.

·Changes in the financial performance and/or condition of the Bank’s borrowers and the ability of the Bank’s borrowers to perform under the terms of their loans and terms of other credit agreements.

·Technological changes.

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

·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.

·Changes in business strategy or development plans.

·Changes in the securities markets.

·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 the deferred tax asset valuation allowance in future quarters.

·Changes in our organization, compensation and benefit plans.

·Our ability to hire and retain qualified executive officers.

·The costs and effects of changes in laws and regulations and of other legal and regulatory developments, including, but not limited to, increases in FDIC insurance premiums, the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews.

·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 Condensed Consolidated Financial Statements

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Balance Sheets

	March 31, 2012			December 31, 2011
	(Dollars in thousands)
Assets
Cash and due from banks	$	105,273		$	109,225
Securities available for sale, at fair value	363,931			353,152
Securities held to maturity (fair value of $23,526 and $19,250 at March 31, 2012 and December 31, 2011)	22,794			18,424
Bank stocks, at cost	14,632			14,565
Total investments	401,357			386,141
Loans, net of unearned discount	1,109,897			1,098,140
Less allowance for loan losses	(30,075		)	(34,661		)
Net loans	1,079,822			1,063,479
Premises and equipment, net	53,216			53,851
Other real estate owned and foreclosed assets, net	28,072			29,027
Other intangible assets	9,201			9,963
Other assets	39,503			37,982
Total assets	$	1,716,444		$	1,689,668
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand	$	468,133		$	450,451
Interest-bearing demand	584,253			567,984
Savings	97,033			91,260
Time	189,509			204,091
Total deposits	1,338,928			1,313,786
Securities sold under agreements to repurchase and federal funds purchased	18,990			16,617
Borrowings	110,174			110,177
Subordinated debentures	41,239			41,239
Securities purchased, not yet settled	18,285			20,800
Interest payable and other liabilities	14,555			16,038
Total liabilities	1,542,171			1,518,657
Stockholders’ equity:
Common stock (1)	120			119
Additional paid-in capital - common stock	704,733			704,579
Accumulated deficit	(430,099		)	(433,016		)
Accumulated other comprehensive income	1,879			1,683
Treasury stock, at cost, 10,949,280 and 10,945,517 shares, respectively	(102,360		)	(102,354		)
Total stockholders’ equity	174,273			171,011
Total liabilities and stockholders’ equity	$	1,716,444		$	1,689,668

(1)Common stock—$0.001 par value; 150,000,000 shares authorized; 119,706,784 shares issued and 106,138,255 shares outstanding at March 31, 2012 (includes 2,240,353 shares of unvested restricted stock); 118,999,056 shares issued and 105,436,623 shares outstanding at December 31, 2011(includes 1,546,292 shares of unvested restricted stock).

See “Notes to Unaudited Consolidated Financial Statements.”

5

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Statements of Comprehensive Income

	Three Months Ended March 31,
	2012			2011
	(In thousands, except share and per share data)
Interest income:
Loans, including fees	$	14,482		$	15,534
Investment securities:
Taxable	2,393			3,065
Tax-exempt	617			489
Dividends	158			166
Federal funds sold and other	42			89
Total interest income	17,692			19,343
Interest expense:
Deposits	777			2,629
Securities sold under agreement to repurchase and federal funds purchased	12			24
Borrowings	827			1,289
Subordinated debentures	776			691
Total interest expense	2,392			4,633
Net interest income	15,300			14,710
Provision for loan losses	1,000			2,000
Net interest income, after provision for loan losses	14,300			12,710
Noninterest income:
Customer service and other fees	2,271			2,314
Net gains on sale of securities	622			714
Other	206			252
Total noninterest income	3,099			3,280
Noninterest expense:
Salaries and employee benefits	6,857			6,615
Occupancy expense	2,019			1,883
Furniture and equipment	821			894
Amortization of intangible assets	762			1,028
Other real estate owned, net	352			763
Insurance and assessments	808			1,225
Professional fees	628			908
Other general and administrative	2,235			2,160
Total noninterest expense	14,482			15,476
Income before income taxes	2,917			514
Income tax expense	—			—
Net income	$	2,917		$	514
Other comprehensive income (loss) net of tax:
Unrealized gains (losses) on securities:
Change in net unrealized gains (losses), net	$	582		$	(612	)
Less: Reclassification adjustments for net gains included in net income	(386		)	(443		)
Other comprehensive income (loss)	196			(1,055		)
Total comprehensive income (loss)	$	3,113		$	(541	)
Net income (loss) attributable to common stockholders	$	2,917		$	(972	)
Earnings per common share—basic:	$	0.03		$	(0.02	)
Earnings per common share—diluted:	0.03			(0.02		)
Weighted average common shares outstanding-basic	103,892,827			51,775,475
Weighted average common shares outstanding-diluted	104,097,706			51,775,475

See “Notes to Consolidated Financial Statements.”

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GUARANTY BANCORP AND SUBSIDIARIES

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

	Preferred Shares Outstanding	Preferred Stock		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, 2010	66,025	$	64,818	53,529,950		$	619,509	$	237	$	(102,499	)	$	(419,562	)	$	(2,220	)	$	160,283
Comprehensive loss:
Net income	—	—		—		—		—		—			514			—			514
Other comprehensive loss	—	—		—		—		—		—			—			(1,055		)	(1,055		)
Total comprehensive loss																			(541		)
Stock compensation awards, net of forfeitures	—	—		670,649		—		—		—			—			—			—
Earned stock award compensation, net	—	—		—		197		—		—			—			—			197
Repurchase of common stock	—	—		(9,937	)	—		—		(12		)	—			—			(12		)
Preferred share dividends	1,479	1,479		—		—		—		—			(1,486		)	—			(7		)
Balance, March 31, 2011	67,504	$	66,297	54,190,662		$	619,706	$	237	$	(102,511	)	$	(420,534	)	$	(3,275	)	$	159,920
Balance, December 31, 2011	—	$	—	105,436,623		$	704,698	$	—	$	(102,354	)	$	(433,016	)	$	1,683		$	171,011
Comprehensive income:
Net income	—	—		—		—		—		—			2,917			—			2,917
Other comprehensive income	—	—		—		—		—		—			—			196			196
Total comprehensive income																			3,113
Stock compensation awards, net of forfeitures	—	—		705,395		—		—		—			—			—			—
Earned stock award compensation, net	—	—		—		155		—		—			—			—			155
Repurchase of common stock	—	—		(3,763	)	—		—		(6		)	—			—			(6		)
Balance, March 31, 2012	—	$	—	106,138,255		$	704,853	$	—	$	(102,360	)	$	(430,099	)	$	1,879		$	174,273

See “Notes to Unaudited Consolidated Financial Statements.”

7

GUARANTY BANCORP AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Cash flows from operating activities:
Net income	$	2,917		$	514
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,581			1,779
Provision for loan losses	1,000			2,000
Stock compensation, net	155			197
Gain on sale of securities	(622		)	(714		)
Loss, net and valuation adjustments on real estate owned	177			546
Other	(142		)	(357		)
Net change in:
Other assets	(1,642		)	679
Interest payable and other liabilities	(22,262		)	(22		)
Net cash from operating activities	(18,838		)	4,622
Cash flows from investing activities:
Activity in available for sale securities:
Sales, maturities, prepayments, and calls	42,506			49,183
Purchases	(33,948		)	(41,927		)
Activity in held to maturity securities and bank stocks:
Maturities, prepayments and calls	648			1,374
Purchases	(5,107		)	—
Loan (originations) and principal collections, net	(17,614		)	65,002
Proceeds from sale of other real estate owned and foreclosed assets	1,079			982
Additions to premises and equipment	(184		)	(40		)
Net cash from investing activities	(12,620		)	74,574
Cash flows from financing activities:
Net change in deposits	25,142			(24,031		)
Repayment of borrowings	(3		)	(24		)
Net change in repurchase agreements and federal funds purchased	2,373			(11,810		)
Repurchase of common stock	(6		)	(12		)
Cash dividends on preferred stock	—			(7		)
Net cash from financing activities	27,506			(35,884		)
Net change in cash and cash equivalents	(3,952		)	43,312
Cash and cash equivalents, beginning of period	109,225			141,465
Cash and cash equivalents, end of period	$	105,273		$	184,777

See “Notes to Unaudited Consolidated Financial Statements.”

8

(1)Organization, Operations and Basis of Presentation

Guaranty Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and headquartered in Colorado.

Our principal business is to serve as a holding company for our subsidiaries. As of March 31, 2012, Guaranty Bancorp had a single bank subsidiary, Guaranty Bank and Trust Company, referred to as Guaranty Bank or the Bank. Please refer to the Company’s annual report on Form 10-K for the year ended December 31, 2011 for information on other subsidiaries of the Company.

Reference to “Bank” means Guaranty Bank, and references to “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 private banking and 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, including land or improved land. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. Our customers’ ability to repay their loans is generally dependent on the real estate market and general economic conditions prevailing in Colorado, 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 and prevailing practices within the financial services industry. All significant intercompany balances and transactions have been eliminated in consolidation. 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.  All such adjustments are of a normal and recurring nature. We have evaluated all subsequent events through the date the financial statements were issued.

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 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, 2011.

(b)Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheet 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 impairment of certain investment securities, the allowance for loan losses, deferred tax assets and liabilities, impairment of other intangible assets, stock compensation expense and other real estate owned. Assumptions and factors used in the estimates 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)Loans, Loan Commitments and Related Financial Instruments

The Company extends real estate, commercial, agricultural and consumer loans to customers.  A substantial portion of the loan portfolio consists of real estate and commercial loans throughout the Front

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Range of Colorado. The ability of the Company’s borrowers to honor their contracts is dependent upon the real estate and general economic conditions prevailing in Colorado, among other factors.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances, adjusted for charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans. Accounting for our loans is performed consistently across all portfolio segments and classes.

A portfolio segment is defined in accounting guidance as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. A class is defined in accounting guidance as a group of loans having similar initial measurement attributes, risk characteristics and methods for monitoring and assessing risk.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of direct origination costs, are deferred and recognized as an adjustment to the related loan yield using the effective interest method without anticipating prepayments.

The accrual of interest on loans is discontinued (and the loan is put on nonaccrual status) at the time the loan is 90 days delinquent unless the credit is well secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

The interest on nonaccrual loans is accounted for on the cash-basis method, until qualifying for a return to the accrual basis of accounting, payments received on nonaccrual loans are applied first to the principal balance of the loan. Loans are returned to accrual status after the borrower’s financial condition has improved, when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

The Company recognizes a liability in relation to these commitments intended to represent estimated future losses on these commitments. In calculating this estimate, we consider the volume of off-balance sheet commitments, estimated utilization factors as well as risk factors determined based on the nature of the loan. Our liability for unfunded commitments is calculated quarterly with the balance presented in Other Liabilities in our Consolidated Balance Sheet.

(d)Allowance for Loan Losses

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

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and 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.  Our methodology for estimating our allowance has not changed during the current or prior annual reporting period and is consistent across all portfolio segments and classes of loans.

Loans deemed to be uncollectible are charged off and deducted from the allowance. Our loan portfolio primarily consists of non-homogeneous commercial and real estate loans where charge-offs are considered on a loan by loan basis based on the facts and circumstances, including management’s evaluation of collateral

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values in comparison to book values on real estate-dependent loans. Charge-offs on smaller balance homogenous type loans such as overdrafts and ready reserves are recognized by the time the loan in question is 90 days past due. 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. All loans are subject to individual impairment evaluation should the facts and circumstances pertinent to a particular loan suggest that such evaluation is necessary. 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. 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. 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. If a loan is impaired, a portion, if any, of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from collateral. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers all other loans not identified as impaired and is based on historical losses adjusted for current factors. The historical loss component of the allowance is determined by losses recognized by portfolio segment over the preceding two years. In calculating the historical component of our allowance, we aggregate our loans into one of three portfolio segments: Real Estate, Commercial & Industrial and Consumer & Other. Risk factors impacting loans in each of the portfolio segments include broad deterioration of property values, reduced consumer and business spending as a result of continued high unemployment and reduced credit availability and lack of confidence in a sustainable recovery. The actual loss experience is adjusted for management’s estimate of the impact of other factors based on the risks present for each portfolio segment. These other factors include consideration of the following: the overall level of concentrations and trends of substandard and watch loans, loan concentrations within a portfolio segment or division of a portfolio segment, identification of certain loan types with higher risk than other loans, existing internal risk factors and management’s evaluation of the impact of local and national economic conditions on each of our loan types.

(e)Other Real Estate Owned and Foreclosed Assets

Assets acquired through or in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating revenues and expenses of such assets and reductions in the fair value of the assets are included in noninterest expense. Gains and losses on their disposition are also included in noninterest expense.

(f)Other Intangible Assets

Intangible assets acquired in a business combination are amortized over their estimated useful lives to their estimated residual values and evaluated for impairment whenever changes in circumstances indicate that such an evaluation is necessary.

Core deposit intangible assets, referred to as CDI, are recognized 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.

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(g)Stock Incentive Plan

The Company’s Amended and Restated 2005 Stock Incentive Plan provides for up to 8,500,000 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, 2012, the Company has only granted stock awards. 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 three 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, 2014. At the end of March 31, 2012, certain performance-based restricted stock awards were expected to vest prior to the end of the contractual term, while approximately 402,000 shares were not expected to vest prior to the end of the contractual term, based on current projections in comparison to performance conditions. Should these expectations change, additional expense could be recorded or reversed in future periods.

(h)Deferred Compensation Plan

The Company had a Deferred Compensation Plan (the “Plan”) that allowed directors and certain key employees to voluntarily defer compensation.  In December 2010, the Company determined to terminate the Plan and on December 15, 2011, all assets held by the participants in the Plan were distributed to each participant. After the distribution, there were no remaining participant assets in the Plan. Prior to the final distribution of assets, compensation expense was recorded for the deferred compensation and a related liability was recognized.

(i)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 carry forwards. 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 of the enactment date.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, taking into account applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. At March 31, 2012 and December 31, 2011, the Company had a net deferred tax asset of $11,925,000 and $12,050,000, respectively, which includes the unrealized gain or loss on securities. At the end of the first quarter 2012, after analyzing the composition of and changes in the deferred tax assets and liabilities, consideration of the Company’s intent to hold the securities available for sale that are in a loss position until maturity and various tax planning strategies, we determined that a valuation allowance for deferred tax assets totaling $5,747,000 was appropriate.  This compares to a valuation allowance for deferred tax assets of $6,603,000 at December 31, 2011.

At March 31, 2012 and December 31, 2011, the Company did not have any uncertain tax positions for which a tax benefit is disallowed under current accounting guidance. 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 to be realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

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The Company and the Bank 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 2008 except to the extent of the amount of the 2009 carryback claim for refund filed in 2010 with respect to 2004 through 2006. At March 31, 2012 and December 31, 2011, 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 matters as other noninterest expense. At March 31, 2012 and December 31, 2011, the Company did not have any amounts accrued for interest and/or penalties.

(j)Earnings (Loss) per Common Share

Basic earnings per common share represents the earnings allocable to common stockholders divided by the weighted average number of common shares outstanding during the period. When there is a loss, generally there is no difference between basic and diluted loss per common shares as any potential additional common shares are typically anti-dilutive as they decrease the loss per common share.  Dilutive common shares that may be issued by the Company relate to unvested common share grants subject to a service or performance condition for the three months ended March 31, 2012 and 2011 and convertible preferred stock for the three months ended March 31, 2011.  The earnings / loss per common share has been computed based on the following:

	Three Months Ended March 31,
	2012	2011
Average common shares outstanding	103,892,827	51,775,475
Effect of dilutive preferred stock(1)	—	—
Effect of dilutive unvested stock grants(2)	204,879	—
Average shares outstanding for calculated diluted earnings per common share	104,097,706	51,775,475

(1)  The Company had no shares of convertible preferred stock outstanding at March 31, 2012 and 67,504 shares of convertible preferred stock outstanding at March 31, 2011. The impact of the conversion of these shares was anti-dilutive for the three months ending March 31, 2011 due to the net loss attributable to common stockholders for this period. See Note 14, Preferred Stock, for details on the conversion.

(2) The impact of unvested stock grants of 2,240,353 at March 31, 2012 had a dilutive impact of 204,879 shares in the diluted earnings per share calculation for the three months ended March 31, 2012.  The impact of unvested stock grants of 2,395,836 at March 31, 2011 were anti-dilutive due to the net loss applicable to common stockholders for the period.

(k)Recently Issued Accounting Standards

Adoption of New Accounting Standards:

In May 2011, the FASB issued an accounting standards update to improve the comparability between U.S. GAAP fair value accounting and reporting requirements and International Financial Reporting Standards (IFRS) fair value accounting and reporting requirements. Additional disclosures required by the update include: (i) disclosure of quantitative information regarding the unobservable inputs used in any fair value measurement classified as Level 3 in the fair value hierarchy in addition to an explanation of the valuation techniques used in valuing Level 3 items and information regarding the sensitivity in the valuation of Level 3 items to changes in the values assigned to unobservable inputs;  (ii) categorization by level within the fair value hierarchy of items not recognized on the Statement of Financial Position at fair value but for which fair values are required to be disclosed; and (iii) instances where the fair values disclosed for non-financial assets were based on a highest and best use assumption when in fact the assets are not being utilized in that capacity.  The amendments in the update are effective for interim and annual periods beginning on or after December 15, 2011. The provisions of this update did not have a material impact on the Company’s financial position, results or operations or cash flows.

In June 2011, the FASB issued an accounting standards update to increase the prominence of items included in Other Comprehensive Income and facilitate the convergence of U.S. GAAP with IFRS. The update prohibits continued exclusive presentation of Other Comprehensive Income in the statement of stockholders’

13

equity. The update requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but continuous statements. The amendments in the update are effective for interim and annual periods beginning on or after December 15, 2011. The provisions of this update only changed the manner in which our Other Comprehensive Income was disclosed.

Newly Issued But Not Yet Effective Accounting Standards:

In December 2011, the FASB issued an accounting standards update to increase the disclosure requirements surrounding derivative instruments that are offset within the balance sheet pursuant to the provisions of current GAAP. The objective of the update is to provide greater comparability between issuers reporting under U.S. GAAP versus IFRS and provide users the ability to evaluate the effect of netting arrangements on a company’s financial statements.  The provisions of the update are effective for annual and interim periods beginning on or after January 1, 2013 and are not expected to add to the Company’s current level of disclosures.

(l)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.

(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			Amortized cost
	(In thousands)
	March 31, 2012
Securities available for sale:
State and municipal	$	53,255	$	336	$	(505	)	$	53,424
Mortgage-backed - agency / residential	271,255		4,830		(185		)	266,610
Mortgage-backed - private / residential	753		—		(25		)	778
Marketable equity	1,519		—		—			1,519
Other securities	37,149		129		(1,548		)	38,568
Total securities available for sale	$	363,931	$	5,295	$	(2,263	)	$	360,899
	December 31, 2011
Securities available for sale:
State and municipal	$	52,890	$	369	$	(953	)	$	53,474
Mortgage-backed - agency / residential	265,030		5,337		(168		)	259,861
Mortgage-backed - private / residential	752		—		(34		)	786
Marketable equity	1,519		—		—			1,519
Other securities	32,961		25		(1,861		)	34,797
Total securities available for sale	$	353,152	$	5,731	$	(3,016	)	$	350,437

At March 31, 2012 and December 31, 2011, other securities consists mostly of several trust preferred securities.

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

	Amortized Cost		Gross unrecognized gains		Gross unrecognized losses			Fair value
	(In thousands)
March 31, 2012:
Mortgage-backed securities — agency/residential	$	22,794	$	799	$	(67	)	$	23,526
December 31, 2011:
Mortgage-backed securities — agency/residential	$	18,424	$	826	$	—		$	19,250

The proceeds from sales and calls of securities and the associated gains are listed below (in thousands):

	Three Months Ended March 31,
	2012			2011
Proceeds	$	21,778		$	37,566
Gross Gains	689			721
Gross Losses	(67		)	(7		)

The amortized cost and estimated fair value of available for sale debt securities by contractual maturity at March 31, 2012 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	Available for sale (AFS)
	Amortized cost		Fair value
	(In thousands)
Securities available for sale:
Due in one year or less	$	1,839	$	1,858
Due after one year through five years	12,777		12,954
Due after five years through ten years	2,263		2,403
Due after ten years	75,113		73,189
Total AFS, excluding MBS and marketable equity securities	91,992		90,404
Mortgage-backed securities and marketable equity securities	268,907		273,527
Total securities available for sale	$	360,899	$	363,931

	Held to maturity
	Amortized cost		Fair value
	(In thousands)
Securities held to maturity:
Mortgage-backed securities — agency/residential	$	22,794	$	23,526

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The following tables present the fair value and the unrealized loss on securities that were temporarily impaired as of March 31, 2012 and December 31, 2011, aggregated by major security type and length of time in a continuous unrealized loss position:

	Less than 12 months					12 months or more					Total
March 31, 2012	Fair  value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
	(In thousands)
Description of securities:
Available for sale:
State and municipal	$	—	$	—		$	36,040	$	(505	)	$	36,040	$	(505	)
Mortgage-backed securities — agency/residential	66,547		(185		)	—		—			66,547		(185		)
Mortgage-backed securities — private/residential	753		(25		)	—		—			753		(25		)
Other	14,200		(794		)	4,155		(754		)	18,355		(1,548		)
Held to Maturity:
Mortgage-backed securities — agency/residential	4,961		(67		)	—		—			4,961		(67		)
Total temporarily impaired	$	86,461	$	(1,071	)	$	40,195	$	(1,259	)	$	126,656	$	(2,330	)

	Less than 12 months					12 months or more					Total
December 31, 2011	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
	(In thousands)
Description of securities:
Available for sale:
State and municipal	$	—	$	—		$	35,592	$	(953	)	$	35,592	$	(953	)
Mortgage-backed securities — agency/residential	28,602		(168		)	—		—			28,602		(168		)
Mortgage-backed securities — private/residential	752		(34		)	—		—			752		(34		)
Other	18,986		(994		)	3,950		(867		)	22,936		(1,861		)
Total temporarily impaired	$	48,340	$	(1,196	)	$	39,542	$	(1,820	)	$	87,882	$	(3,016	)

In determining whether or not there is an other-than-temporary-impairment (OTTI) for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intention to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

In the fourth quarter 2010, the Company recognized a pre-tax impairment charge for the other-than-temporary decline in the fair value of a single municipal bond with an amortized cost of $4,514,000 in the amount of $3,500,000. No changes to the OTTI were taken since initial impairment based on management’s updated assessment of this bond as of March 31, 2012.

The following table presents a rollforward of OTTI included in earnings (in thousands):

Accumulated credit losses as of December 31, 2011	$	3,500
Changes to credit losses recognized on securities identified as other-then-temporarily-impaired	—
Ending accumulated credit losses as of March 31, 2012	$	3,500

At March 31, 2012 there were 19 individual securities in an unrealized loss position. Of the 19 securities in an unrealized loss position at March 31, 2012, two securities have been in a continuous unrealized loss position for 12 months or longer. Management has evaluated these securities in addition to the remaining 17 securities in an unrealized loss position and has determined that the decline in value since their purchase dates is primarily attributable to changes in market interest rates. At March 31, 2012, the Company did not intend to sell any of the 19 securities in an unrealized loss position and did not consider it likely that it would be required to sell any of the

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securities in question prior to recovery in their fair value. The 19 securities in an unrealized loss position do not include the single security for which the $3.5 million OTTI was taken, as that particular security had previously been marked down to its estimated fair value and that estimate of fair value has not changed since initial impairment.

All of the Bank’s agency and mortgage-backed securities are backed by either a U.S. Government agency or government-sponsored agency, except for one private-label mortgage-backed security with a total fair value of $753,000. This private-label security is a senior tranche that is rated AAA by Standard and Poor’s at March 31, 2012.

The Bank’s municipal bond securities have all been rated investment grade or higher by various rating agencies or have been subject to an annual internal review process by management. This annual review process for non-rated securities considers a review of the issuers’ current financial statements, including the related cash flows and interest payments.

At March 31, 2012, there was a security of a single issuer with a book value of $36,545,000, or approximately 21.0% of our stockholders’ equity. This security is a hospital revenue bond, funded by revenues from a hospital within the Company’s footprint. This amortizing tax-exempt bond carries an interest rate of 4.75% and a maturity of December 1, 2031. This bond has been in an unrealized loss position for more than twelve months and at March 31, 2012, the bond had an unrealized loss of approximately $505,000, or 1.4% of book value. In addition to its annual review of nonrated municipal bonds completed in the fourth quarter 2011, the Company reviews the financial statements of the hospital quarterly.  To date, the bond has paid principal and interest in accordance with its contractual terms.

We concluded that the unrealized loss positions on securities are a result of the level of market interest rates and not a result of the underlying issuers’ ability to repay. Accordingly, we have not recognized any additional OTTI on the securities in our investment portfolio in 2012.

(3)Loans

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

	March 31, 2012			December 31, 2011
	(In thousands)
Loans on real estate:
Residential and commercial	$	756,409		$	731,107
Construction	47,468			44,087
Equity lines of credit	44,745			44,601
Commercial loans	208,995			223,479
Agricultural loans	10,417			11,527
Lease financing	2,269			2,269
Installment loans to individuals	20,461			22,937
Overdrafts	179			254
SBA and other	20,751			19,706
	$	1,111,694		$	1,099,967
Less:
Allowance for loan losses	(30,075		)	(34,661		)
Unearned discount	(1,797		)	(1,827		)
Net Loans	$	1,079,822		$	1,063,479

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Activity in the allowance for loan losses for the period indicated is as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Balance, beginning of period	$	34,661		$	47,069
Provision for loan losses	1,000			2,000
Loans charged-off	(6,371		)	(2,851		)
Recoveries on loans previously charged-off	785			661
Balance, end of period	$	30,075		$	46,879

Our additional disclosures relating to loans and the allowance for loan losses are broken out into two subsets, portfolio segment and class. The portfolio segment level is defined as the level where financing receivables are aggregated in developing the Company’s systematic method for calculating its allowance for credit losses. The class level is the second level at which credit information will be presented and represents the categorization of financing related receivables at a slightly less aggregated level than the portfolio segment level.

The following tables provide detail for the ending balances in the Company’s allowance for loan losses and loans held for investment, broken down by portfolio segment as of the dates indicated. In addition, the tables also provide a rollforward by portfolio segment of our allowance for loan losses for the first quarter of 2012 and first quarter 2011. The detail provided for the amount of our allowance for loan losses and loans individually versus collectively evaluated for impairment (i.e., the general component versus the specific component of the allowance for loan losses) corresponds to the Company’s systematic methodology for estimating its allowance for loan losses.

	Real Estate			Consumer and Installment			Commercial & Industrial and Other			Total
	(In thousands)
Allowance for Loan Losses
Balance as of December 31, 2011	$	29,080		$	136		$	5,445		$	34,661
Charge-offs	(2,055		)	(24		)	(4,292		)	(6,371		)
Recoveries	764			10			11			785
Provision	(3,117		)	(40		)	4,157			1,000
Balance as of March 31, 2012	$	24,672		$	82		$	5,321		$	30,075
Balance as of December 31, 2010	$	39,474		$	252		$	7,343		$	47,069
Charge-offs	(2,757		)	(40		)	(54		)	(2,851		)
Recoveries	616			16			29			661
Provision	1,533			(21		)	488			2,000
Balance as of March 31, 2011	$	38,866		$	207		$	7,806		$	46,879
Balances at March 31, 2012:
Allowance for Loan Losses
Individually evaluated	$	1,480		$	—		$	1,092		$	2,572
Collectively evaluated	23,192			82			4,229			27,503
Total	$	24,672		$	82		$	5,321		$	30,075
Loans
Individually evaluated	$	19,381		$	7		$	11,561		$	30,949
Collectively evaluated	896,239			4,897			177,812			1,078,948
Total	$	915,620		$	4,904		$	189,373		$	1,109,897

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	Real Estate		Consumer and Installment		Commercial & Industrial and Other		Total
	(In thousands)
Balances at December 31, 2011:
Allowance for Loan Losses
Individually evaluated	$	2,377	$	—	$	1,113	$	3,490
Collectively evaluated	26,703		136		4,332		31,171
Total	$	29,080	$	136	$	5,445	$	34,661
Loans
Individually evaluated	$	20,726	$	52	$	6,029	$	26,807
Collectively evaluated	874,008		5,044		192,281		1,071,333
Total	$	894,734	$	5,096	$	198,310	$	1,098,140
Balances at March 31, 2011:
Allowance for Loan Losses
Individually evaluated	$	10,449	$	—	$	1,687	$	12,136
Collectively evaluated	28,417		207		6,119		34,743
Total	$	38,866	$	207	$	7,806	$	46,879
Loans
Individually evaluated	$	54,357	$	33	$	9,766	$	64,156
Collectively evaluated	835,666		5,547		220,714		1,061,927
Total	$	890,023	$	5,580	$	230,480	$	1,126,083

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The following table provides additional detail of impaired loans broken out according to class as of the dates indicated. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As nearly all of our impaired loans at March 31, 2012 and December 31, 2011 are on nonaccrual status, recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs. Interest income recognized year-to-date may exclude an insignificant amount of interest income on matured loans that are 90 days or more past due, but that are still accruing as they are in the process of being renewed.

March 31, 2012	Recorded Investment		Unpaid Balance		Related Allowance		Average Recorded Investment YTD		Interest Income Recognized YTD
	(In thousands)
Impaired loans with no related allowance:
Commercial and residential real estate	$	9,370	$	11,419	$	—	$	9,726	$	—
Construction loans	114		114		—		204		—
Commercial loans	8,770		12,722		—		6,270		—
Consumer loans	1,321		1,333		—		1,472		—
Other	415		682		—		429		—
Total	$	19,990	$	26,270	$	—	$	18,101	$	—
Impaired loans with a related allowance:
Commercial and residential real estate	$	6,280	$	7,049	$	897	$	6,676	$	—
Construction loans	—		—		—		—		—
Commercial loans	2,583		2,776		1,107		2,902		—
Consumer loans	832		836		362		505		—
Other	1,264		1,358		206		697		—
Total	$	10,959	$	12,019	$	2,572	$	10,780	$	—
Total Impaired Loans
Commercial and residential real estate	$	15,650	$	18,468	$	897	$	16,402	$	—
Construction loans	114		114		—		204		—
Commercial loans	11,353		15,498		1,107		9,172		—
Consumer loans	2,153		2,169		362		1,977		—
Other	1,679		2,040		206		1,126		—
Total impaired loans	$	30,949	$	38,289	$	2,572	$	28,881	$	—

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December 31, 2011	Recorded Investment		Unpaid Balance		Related Allowance		Average Recorded Investment YTD		Interest Income Recognized YTD
	(In thousands)
Impaired loans with no related allowance:
Commercial and residential real estate	$	10,081	$	12,898	$	—	$	30,452	$	—
Construction loans	294		2,378		—		310		—
Commercial loans	3,770		3,899		—		6,184		—
Consumer loans	1,622		1,976		—		1,867		—
Other	442		684		—		923		—
Total	$	16,209	$	21,835	$	—	$	39,736	$	—
Impaired loans with a related allowance:
Commercial and residential real estate	$	7,071	$	7,805	$	1,686	$	16,114	$	—
Construction loans	—		—		—		—		—
Commercial loans	3,220		3,422		1,551		3,598		—
Consumer loans	177		179		153		231		—
Other	130		214		100		596		—
Total	$	10,598	$	11,620	$	3,490	$	20,539	$	—
Total Impaired Loans
Commercial and residential real estate	$	17,152	$	20,703	$	1,686	$	46,566	$	—
Construction loans	294		2,378		—		310		—
Commercial loans	6,990		7,321		1,551		9,782		—
Consumer loans	1,799		2,155		153		2,098		—
Other	572		898		100		1,519		—
Total impaired loans	$	26,807	$	33,455	$	3,490	$	60,275	$	—

The gross year-to-date interest income that would have been recorded in the current period had the nonaccrual loans been current in accordance with their original terms was $382,000 for the three months ending March 31, 2012 and $1,475,000 for the three months ending March 31, 2011.

The following table is a summary of interest recognized and cash-basis interest earned on impaired loans:

	Three Months Ended March 31,
	2012		2011
	(In thousands)
Average of individually impaired loans during period	$	28,881	$	85,089
Interest income recognized during impairment	$	—	$	—
Cash-basis interest income recognized	$	—	$	—

The following table summarizes by class our loans classified as past due in excess of 30 days or more in addition to those loans classified as non-accrual:

March 31, 2012	30-89 Days Past Due		90 Days + Past Due and Still Accruing		Nonaccrual Loans		Total Past Due		Total Loans
	(In thousands)
Commercial and residential real estate	$	8,699	$	862	$	14,790	$	24,351	$	755,187
Construction loans	—		—		114		114		47,391
Commercial loans	1,831		—		11,353		13,184		208,657
Consumer loans	268		439		1,713		2,420		65,279
Other	—		—		1,678		1,678		33,383
Total	$	10,798	$	1,301	$	29,648	$	41,747	$	1,109,897

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December 31, 2011	30-89 Days Past Due		90 Days + Past Due and Still Accruing		Nonaccrual Loans		Total Past Due		Total Loans
	(In thousands)
Commercial and residential real estate	$	4,551	$	—	$	17,152	$	21,703	$	729,893
Construction loans	—		—		294		294		44,014
Commercial loans	3,233		—		6,990		10,223		223,108
Consumer loans	1,611		6		1,793		3,410		67,679
Other	1,410		—		572		1,982		33,446
Total	$	10,805	$	6	$	26,801	$	37,612	$	1,098,140

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be non-classified loans.

The following table provides detail for the risk category of loans by class of loans based on the most recent credit analysis performed as of the dates indicated:

March 31, 2012	Commercial & Residential Real Estate			Construction			Commercial Loans			Consumer			Other			Total
	(In thousands)
Non-classified	$	724,810		$	47,354		$	194,050		$	62,395		$	31,125		$	1,059,734
Substandard	31,599			114			14,945			2,882			2,312			51,852
Doubtful	—			—			—			108			—			108
Subtotal	756,409			47,468			208,995			65,385			33,437			1,111,694
Less: Unearned discount	(1,222		)	(77		)	(338		)	(106		)	(54		)	(1,797		)
Loans, net of unearned discount	$	755,187		$	47,391		$	208,657		$	65,279		$	33,383		$	1,109,897

December 31, 2011	Commercial & Residential Real Estate			Construction			Commercial Loans			Consumer			Other			Total
	(In thousands)
Non-classified	$	696,078		$	43,793		$	212,125		$	64,274		$	31,012		$	1,047,282
Substandard	35,029			294			11,354			3,409			2,490			52,576
Doubtful	—			—			—			109			—			109
Subtotal	731,107			44,087			223,479			67,792			33,502			1,099,967
Less: Unearned discount	(1,214		)	(73		)	(371		)	(113		)	(56		)	(1,827		)
Loans, net of unearned discount	$	729,893		$	44,014		$	223,108		$	67,679		$	33,446		$	1,098,140

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The book balance of troubled debt restructurings at March 31, 2012 and December 31, 2011 was $14,794,000 and $11,692,000, respectively. Approximately, $630,000 and $1,466,000 in specific reserves have been established with respect to these loans as of March 31, 2012 and December 31, 2011, respectively. As of March 31, 2012 and December 31, 2011, the Company had no unfunded commitments on any loan classified as a troubled debt restructuring.

During the period ending March 31, 2012, the terms of five loans were modified in troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; the renewal of a loan with a stated interest rate below market; an extension of maturity and change in payment terms; or a permanent reduction of the recorded investment in the loan.

During the first quarter 2012, two modifications were made involving modified changes to payment schedules, and one of these modifications also included a change to the stated interest rate of the loan. One loan was renewed with a stated interest rate below current market rates. The remaining two modifications in the first quarter 2012 were permanent reductions of the recorded investment of the loan.

The following table present loans by class modified as troubled debt restructurings that occurred during the three months ended March 31, 2012 (in thousands):

		Pre-Modification		Post-Modification
		Outstanding Recorded		Outstanding Recorded
Three Months ended March 31, 2012	Number of Loans	Investment		Investment
Troubled Debt Restructurings
Commercial and residential loans	5	$	5,401	$	4,300
Construction loans	—	—		—
Commercial loans	—	—		—
Consumer loans	—	—		—
Other	—	—		—
Total	5	$	5,401	$	4,300

The troubled debt restructurings described above increased the allowance for loan losses by $630,000 through the allocation of a specific reserve, and resulted in charge offs of $1,082,000 during the period ending March 31, 2012.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.  There were no defaults on troubled debt restructured loans during the quarter ended March 31, 2012.

(4)      Other Real Estate Owned

Changes in the carrying amount of the Company’s other real estate owned for March 31, 2012 and March 31, 2011 were as follows (in thousands):

Balance as of December 31, 2010	$	22,898
Additions to OREO	12,241
Dispositions of OREO	(982		)
Write-downs, net	(546		)
Balance as of March 31, 2011	$	33,611
Balance as of December 31, 2011	$	29,027
Additions to OREO	301
Dispositions of OREO	(1,079		)
Write-downs, net	(177		)
Balance as of March 31, 2012	$	28,072

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Expenses related to foreclosed assets include:

	Three Months Ended March 31,
	2012		2011
	(In thousands)
Write-downs, net	$	177	$	546
Operating expenses, net of rental income	175		217
Total expenses related to foreclosed assets	$	352	$	763

(5)      Other Intangible Assets

Other intangible assets with definite lives are amortized over their respective estimated useful lives to their estimated residual values. As of March 31, 2012 and December 31, 2011, the Company’s only intangible asset was its core deposit intangible. The amortization expense represents the estimated decline in the value of the underlying customer deposits acquired through past acquisitions.

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

		March 31,			December 31,
	Useful life	2012			2011
	(In thousands)
Core deposit intangible assets	7 - 15 years	$	62,975		$	62,975
Accumulated amortization		(53,774		)	(53,012		)
Other intangible assets, net		$	9,201		$	9,963

Following is the aggregate amortization expense recognized in each period:

	Three Months Ended March 31,
	2012		2011
	(In thousands)
Amortization expense	$	762	$	1,028

(6)Borrowings

At March 31, 2012, our outstanding borrowings were $110,174,000 as compared to $110,177,000 at December 31, 2011. These borrowings at March 31, 2012 consisted of term notes at the Federal Home Loan Bank (“FHLB”). We also maintain a line of credit at the FHLB. However, as of March 31, 2012 and December 31, 2011, there was no balance outstanding on this line of credit.

The Bank has a specific pledging and security agreement with the FHLB in the amount of $194,107,000 at March 31, 2012 and $217,437,000 at December 31, 2011, which encompasses certain loans and securities as collateral for these borrowings. The maximum credit allowance for future borrowings, including term notes and the line of credit, was $83,933,000 at March 31, 2012 and $107,260,000 at December 31, 2011. In January 2012, we were notified by the FHLB that due to improvement in our key operating metrics, our Bank will be returning to a blanket pledging and security agreement. We expect our borrowing capacity to increase as result of this change due to the ease of pledging additional loan collateral.

The interest rate on the line of credit varies with the federal funds rate, and was 0.29% at March 31, 2012.  The term notes have fixed interest rates that range from 2.52% to 4.43%, with a weighted average rate of 2.97%, and remaining maturities ranging from 19 to 70 months.

(7)Subordinated Debentures and Trust Preferred Securities

The Company had a $41,239,000 aggregate balance of subordinated debentures outstanding with a weighted average cost of 6.05% at March 31, 2012 and 5.95% at December 31, 2011. 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 $40,000,000 of trust preferred securities. Generally and with certain limitations, the Company is permitted to call the debentures subsequent to the first five or

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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. As of March 31, 2012, the Company was in compliance with all financial covenants of these subordinated debentures.

Under the terms of each subordinated debentures agreement, the Company has the ability to defer interest on the debentures for a period of up to sixty months as long as it is in compliance with all covenants of the agreement. On July 31, 2009, the Company notified the trustees of the four trusts that it would defer interest on all four of its subordinated debentures. Such a deferral is not an event of default under each subordinated debentures agreement and interest on the debentures continues to accrue during the deferral period. At March 31, 2012 and December 31, 2011, the Company had accrued, unpaid interest of approximately $8,081,000 and $7,305,000, respectively, on its subordinated debentures, which is included in interest payable and other liabilities, on the consolidated balance sheets. Prior to resuming the payment of interest on the subordinated debentures or calling the subordinated debentures, the Company must obtain prior written approval from the Federal Reserve Bank of Kansas City under the terms of its Written Agreement (see Note 12, Written Agreement for additional information).  At March 31, 2012, the Company was in compliance with all covenants of the agreements.

The Company is not considered the primary beneficiary of these trusts (variable interest entities), therefore the trusts are not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. The Company’s investment in the common stock of each trust is included in other assets in the Company’s consolidated balance sheets.

Although the securities issued by each of the trusts are not included as a component of stockholders’ equity in the consolidated balance sheets, the securities are treated as capital for regulatory purposes. Specifically, under applicable regulatory guidelines, the $40,000,000 of securities issued by the trusts qualify as Tier 1 capital, up to a maximum of 25% of capital on an aggregate basis. Any amount that exceeds 25% qualifies as Tier 2 capital. At March 31, 2012, the full $40,000,000 of the trusts’ securities qualified as Tier 1 capital.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, certain trust preferred securities will no longer be eligible to be included as Tier 1 capital for regulatory purposes. However, an exception to this statutory prohibition applies to securities issued prior to May 19, 2010 by bank holding companies with less than $15 billion of total assets. As we have less than $15 billion in total assets and had issued all of our trust preferred securities prior to May 19, 2010, our trust preferred securities will continue to be eligible to be treated as Tier 1 capital, subject to other rules and limitations.

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 CenBank Trust III trust preferred issuance became callable at each quarterly interest payment date starting on April 15, 2009. The CenBank Trust I trust preferred issuance became callable semi-annually starting on September 7, 2010. The CenBank Trust II trust preferred issuance became callable semi-annually starting on February 22, 2011. The Company has not called any of its trust preferred issuances on their respective call dates. Under the terms of the Written Agreement, regulatory approval is required prior to the call of any trust preferred issuance.

The following table summarizes the terms of each subordinated debenture issuance at March 31, 2012 (dollars in thousands):

	Date Issued	Amount		Maturity Date	Next Call Date	Fixed or Variable	Rate Adjuster	Current Rate		Next Rate Reset Date
CenBank Trust I	9/7/2000	$	10,310	9/7/2030	9/7/2012	Fixed	N/A	10.60	%	N/A
CenBank Trust II	2/22/2001	5,155		2/22/2031	8/22/2012	Fixed	N/A	10.20	%	N/A
CenBank Trust III	4/8/2004	15,464		4/15/2034	7/15/2012	Variable	LIBOR + 2.65%	3.22	%	7/15/2012
Guaranty Capital Trust III	6/30/2003	10,310		7/7/2033	7/7/2012	Variable	LIBOR + 3.10%	3.67	%	7/7/2012

(8)Commitments

The Bank 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

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

At the dates indicated, the following financial instruments were outstanding whose contract amounts represented credit risk:

	March 31, 2012		December 31, 2011
	(In thousands)
Commitments to extend credit:
Variable	$	236,215	$	222,298
Fixed	51,762		40,605
Total commitments to extend credit	$	287,977	$	262,903
Standby letters of credit	$	11,223	$	10,836

At March 31, 2012, the rates on the fixed rate commitments to extend credit ranged from 2.40 to 8.00%.

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. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral, if necessary, at exercise of the commitment.

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 contain a specified maturity date and may 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 Bank 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. Essentially 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 Bank generally holds collateral supporting those commitments if deemed necessary.

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

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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 — Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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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. Transfers of financial instruments between levels within the fair value hierarchy are recognized on the date management determines that the underlying circumstances or assumptions have changed.

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).

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 uses a combination of reviews of the underlying financial statements, appraisals and management’s judgment regarding credit quality and intent to sell in order to determine the value of the bond.

At March 31, 2012, the Company had 13 investments classified as Level 3 investments, which are the hospital municipal bond, a local revenue bond on which the $3,500,000 OTTI was taken during 2010, a bond issued by a local, not-for-profit to fund the development of a retirement community and ten unrated municipal bonds with an aggregate value of $1,642,000. As it relates to the hospital municipal bond and the retirement community bond, management estimates the future cash flows, discounted at a higher risk-adjusted discount rate, based on the nature and size of the bond. As of March 31, 2012, we utilized discount rates of 5.13% and 4.33% to present value the cash flows for the hospital municipal bond and the retirement community bond, respectively.  In management’s opinion these discount rates approximate the market rate for these instruments as of March 31, 2012.  Due to the duration of the hospital municipal bond’s cash flows (maturity in December 2031) we consider its value to be highly sensitive to changes in interest rates.  The retirement community bond is structured with interest only payments until its maturity in October 2016, as a result of the timing and duration of these cash flows we assess this bond’s valuation as being moderately sensitive to changes in interest rates.  As it relates to the local revenue bond, management estimates the fair value based on the current financial position of the underlying project and appraisals of the underlying collateral, discounted based on management’s historical knowledge and expertise.  Because of the high degree of judgment required in estimating the fair value of this instrument and because of the limited comparability with other assets in our real-estate markets we consider the fair value of this instrument to be highly sensitive to changes in market conditions.  As it relates to the ten unrated municipal bonds, the fair value of these securities was determined by matrix pricing. Due to the lack of ratings available on these securities, management determined that a relationship to other benchmark quoted securities was unobservable and as a result these securities should be classified as Level 3.  The maturities of these bonds range from August 2012 to December 2019. As a result, we assess these bonds as being moderately sensitive to changes in interest rates.

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.

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.  Because of the high degree of judgment required in estimating the fair value of collateral underlying impaired loans and because of the relationship between fair value and general economic conditions we consider the fair value of impaired loans to be highly sensitive to changes in market conditions.

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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 that 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.

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, 2012
State and municipal	$	—	$	2,535	$	50,720		$	53,255
Mortgage-backed securities — agency/residential	—		271,255		—			271,255
Mortgage-backed securities — private/residential	—		753		—			753
Marketable equity	—		1,519		—			1,519
Other securities	—		37,149		—			37,149
Derivative assets	—		—		186			186
Derivative liabilities	—		—		(199		)	(199		)
Assets/Liabilities at December 31, 2011
State and municipal	$	—	$	2,554	$	50,336		$	52,890
Mortgage-backed securities — agency/residential	—		265,030		—			265,030
Mortgage-backed securities — private/residential	—		752		—			752
Marketable equity	—		1,519		—			1,519
Other securities	—		32,961		—			32,961
Derivative assets	—		—		192			192
Derivative liabilities	—		—		(207		)	(207		)

There were no transfers of financial assets and liabilities among Level 1, Level 2 and Level 3 during 2012.

As of March 31, 2012, our derivative assets and liabilities consist of two offsetting interest rate swaps related to a single underlying loan. The credit valuation adjustment for these two instruments is a $13,000 net loss as of March 31, 2012.  As of March 31, 2012, the amount of the loan underlying the interest rate swaps was approximately $3,800,000.  Based on historical trends in the valuation of these instruments we do not consider the value of the inputs to be highly sensitive to changes in the inputs.

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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 the three months ended March 31, 2012:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Three months ended March 31, 2012
	Net Derivative Assets and Liabilities			State and Municipal Securities
	(In thousands)
Beginning Balance	$	(15	)	$	50,336
Total unrealized gains (losses) included in:
Net loss	2			—
Other comprehensive income	—			439
Purchases, sales, issuances, and settlements, net	—			(55		)
Transfers in and (out) of Level 3	—			—
Balance March 31, 2012	$	(13	)	$	50,720

For the three months ended March 31, 2012, the entire amount of other comprehensive income for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) consisted of changes in unrealized gains and losses.

Financial Assets and Liabilities Measured on a Nonrecurring Basis

The following represent impaired loans measured at fair value on a non-recurring basis as of March 31, 2012 and December 31, 2011. 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, 2012
Impaired loans:
Commercial and residential real estate	$	—	$	—	$	5,385	$	5,385
Commercial	—		—		6,340		6,340
Consumer	—		—		470		470
Other	—		—		1,326		1,326
Total impaired loans	$	—	$	—	$	13,521	$	13,521
Assets at December 31, 2011
Impaired loans:
Commercial and residential real estate	$	—	$	—	$	6,673	$	6,673
Commercial	—		—		1,668		1,668
Consumer	—		—		691		691
Other	—		—		323		323
Total impaired loans	$	—	$	—	$	9,355	$	9,355

Impaired loans, which are generally measured for impairment using the fair value of collateral, had a carrying amount of $30,949,000 at March 31, 2012 after partial charge-offs of $5,783,000. In addition, these loans have a specific valuation allowance of $2,572,000 at March 31, 2012. These specific reserves generally represent the deficiency between the net realizable value of the underlying collateral and the amount of our recorded investment. In determining the net realizable value of the underlying collateral we primarily rely on third party appraisals, which we have discounted from 10% to 35% in consideration of charges we expect would be incurred in event of foreclosure. In addition to the discounts taken, our calculation of net realizable value considers any other liens in place on the underlying collateral. Of the $30,949,000 impaired loan portfolio at March 31, 2012, $16,093,000 were carried at fair value as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $14,856,000 of impaired loans were carried at cost at March 31, 2012, as the fair value of the collateral on these loans exceeded the book value for each individual credit. Charge-offs and changes in specific valuation allowances during the first quarter 2012 on impaired loans carried at fair value resulted in an additional specific provision for loan losses of $4,668,000.

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Impaired loans, which are usually measured for impairment using the fair value of collateral, had a carrying amount of $26,807,000 at December 31, 2011, after a partial charge-off of $6,648,000. In addition, these loans have a specific valuation allowance of $3,490,000 at December 31, 2011. Of the $26,807,000 impaired loan portfolio at December 31, 2011, $12,845,000 were carried at fair value as a result of the aforementioned charge-offs and specific valuation allowances. The remaining $13,962,000 were carried at cost at December 31, 2011, as the fair value of the collateral on these loans exceeded the book value for each individual credit.

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, 2012
Other real estate owned and foreclosed assets
Residential real estate	$	—	$	—	$	70	$	70
Commercial real estate	—		—		22,001		22,001
Land	—		—		5,962		5,962
Other	—		—		39		39
Total real estate owned and foreclosed assets	$	—	$	—	$	28,072	$	28,072
Assets at December 31, 2011
Other real estate owned and foreclosed assets
Residential real estate	$	—	$	—	$	225	$	225
Commercial real estate	—		—		22,687		22,687
Land	—		—		6,115		6,115
Total real estate owned and foreclosed assets	$	—	$	—	$	29,027	$	29,027

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 sometimes further 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, ranging from 10% to 25% at March 31, 2012 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.

Other real estate owned had a carrying amount of $28,072,000 at March 31, 2012, which is made up of an outstanding balance of $41,279,000, with a valuation allowance of $13,207,000. OREO write-downs and sales in 2012 resulted in the valuation allowance increasing by $157,000 in the first quarter 2012.

Other real estate owned had a carrying amount of $29,027,000 at December 31, 2011, which was made up of an outstanding balance of $42,077,000, with a valuation allowance of $13,050,000.

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Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:

	Carrying			Fair Value Measurements at March 31, 2012:
	amount			Level 1		Level 2		Level 3			Total
Financial assets:
Cash and cash equivalents	$	105,273		$	105,273	$	—	$	—		$	105,273
Securities available for sale	363,931			—		313,211		50,720			363,931
Securities held to maturity	22,794			—		23,526		—			23,526
Bank stocks	14,632			—		—		n/a			n/a
Loans, net	1,079,822					—		1,111,994			1,111,994
Accrued interest receivable	6,135			—		6,135		—			6,135
Interest rate swaps, net	(13		)	—		—		(13		)	(13		)
Financial liabilities:
Deposits	$	1,338,928		$	—	$	1,149,419	$	189,323		$	1,338,742
Federal funds purchased and sold under agreements to repurchase	18,990			—		18,990		—			18,990
Subordinated debentures	41,239			—		—		34,479			34,479
Long-term borrowings	110,174			—		120,119		—			120,119
Accrued interest payable	8,526			—		8,526		—			8,526

	Carrying			Fair Value Measurements at December 31, 2011:
	amount			Level 1		Level 2		Level 3			Total
Financial assets:
Cash and cash equivalents	$	109,225		$	109,225	$	—	$	—		$	109,225
Securities available for sale	353,152			—		302,816		50,336			353,152
Securities held to maturity	18,424			—		19,250		—			19,250
Bank stocks	14,565			—		—		n/a			n/a
Loans, net	1,063,479			—		—		1,097,119			1,097,119
Accrued interest receivable	4,997			—		4,997		—			4,997
Interest rate swaps, net	(15		)	—		—		(15		)	(15		)
Financial liabilities:
Deposits	$	1,313,786		$	—	$	1,109,695	$	204,031		$	1,313,726
Federal funds purchased and sold under agreements to repurchase	16,617			—		16,617		—			16,617
Subordinated debentures	41,239			—		—		34,034			34,034
Long-term borrowings	110,177			—		120,736		—			120,736
Accrued interest payable	7,772			—		7,772		—			7,772

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of

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future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Therefore, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

(a) Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values (Level 1).

(b) Securities and Bank Stocks

Fair values for securities available for sale and held to maturity 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). For positions that are not traded in active markets or are subject to transfer restrictions (i.e., bonds valued with Level 3 inputs), management uses a combination of reviews of the underlying financial statements, appraisals and management’s judgment regarding credit quality and intent to sell in order to determine the value of the bond.

It is not practical to determine the fair value of bank stocks due to restrictions placed on the transferability of FHLB stock, Federal Reserve Bank stock and Bankers’ Bank of the West stock.  These three stocks comprise the balance of bank stocks.

(c) Loans

Loans excludes loans held for sale as these fair values are disclosed on a separate line on the table.  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values (Level 3). Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality (Level 3).  Impaired loans are valued at the lower of cost or fair value as described above in this note. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(d) Interest Rate Swaps, net

The fair value for interest rate swaps are determined by netting the discounted future fixed cash receipts, or payments, and the discounted expected variable cash payments, or receipts. The variable cash payments, or receipts, are based on an expectation of future interest rates derived from forward interest rate curves (Level 3).

(e) Deposits

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) (Level 2). The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date (Level 2). Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits (Level 3).

(f) Short-term Borrowings

The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values (Level 2).

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(g) Long-term Borrowings

The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2).

(h) Subordinated Debentures

The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 3).

(i) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value (Level 2).

(j) Off-balance Sheet Instruments

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

(10)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 a service vesting condition, 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. Prior to vesting of the stock awards with performance vesting conditions, each grantee shall have the rights of a stockholder with respect to voting of the granted stock. The recipient is generally not entitled to dividend rights with respect to unvested shares with the exception of performance-based shares granted prior to 2010 (which are not entitled to dividend rights until initial vesting occurs, at which time, the dividend rights will exist on all vested and unvested shares of such performance-based shares, 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 8,500,000 shares of authorized Company voting common stock, subject to adjustments provided by the Incentive Plan. As of March 31, 2012 and December 31, 2011, there were 2,240,353 and 1,546,292 shares of unvested stock granted (net of forfeitures), with 5,165,523 and 5,870,918 shares available for grant under the Incentive Plan, respectively.

Of the 2,240,353 unvested shares at March 31, 2012, approximately 1,583,000 shares are expected to vest. Approximately 275,000 shares of performance-based shares granted to executives in 2005 have a performance criterion based on an earnings-per-share goal that must be met by December 31, 2012. Based on an analysis performed in 2008, it was determined that these 275,000 shares would not vest. Should this expectation change, additional compensation expense could be recorded in future periods. At March 31, 2012, there were an additional 969,887 shares of restricted stock outstanding with a performance condition. We expect that 681,231 of these 969,887 shares will vest and that the remaining shares will expire unvested. The performance shares that are expected to vest relate to a portion of the shares granted to Paul Taylor, our Chief Executive Officer, Christopher Treece, our Chief Financial Officer, and Cathy Goss, our Chief Credit Officer, and to shares granted to several other members of

33

management. The grant dates of these shares range from August 2010 through February 2012. A portion of the shares expected to vest have a time vesting schedule contingent upon the termination of our Written Agreement dated January 22, 2010. The remaining performance shares are contingent upon the meeting of certain return on asset, and in some cases, net income performance measures, and, in some cases, the termination of our Written Agreement. The specific number of performance-based shares expected to vest (those that are subject to return on asset and, in some cases, net income performance measures) is determined by where the metric’s actual performance falls within an established range of the performance target. Management expects that the targeted performance goals will be met with respect to these performance-based shares, which is consistent with the level of expense currently being recognized over the vesting period.  Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed.

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, 2011	1,546,292		$	4.68
Awarded	707,728		1.63
Forfeited	(2,333	)	1.24
Vested	(11,334	)	5.93
Unearned at March 31, 2012	2,240,353		$	1.95

The Company recognized $155,000 and $197,000 in stock-based compensation expense for services rendered for the three months ended March 31, 2012 and March 31, 2011, respectively. The total income tax effect recognized on the consolidated balance sheets for share-based compensation arrangements was a $59,000 deferred tax asset created as a result of the expense recognized netted against a $18,000 deferred tax asset write-off resulting from the difference between the grant date value and fair value of vested awards. There was no direct income statement effect for the quarter ended March 31, 2012 for taxes related to share-based compensation due to the deferred tax valuation allowance. The total income tax effect recognized on the consolidated balance sheet for share-based compensation arrangements was a $41,000 expense for the quarter ended March 31, 2012.  At March 31, 2012, compensation cost of $1,760,000 related to nonvested awards not yet recognized is expected to be recognized over a weighted-average period of 2.4 years. The fair value of awards that vested in the three months ended March 31, 2012 was approximately $19,000.

(11)Capital Ratios

The Company’s and Bank’s capital ratios are above the regulatory capital threshold of “well-capitalized” at March 31, 2012 and December 31, 2011 as follows:

	Ratio at March 31, 2012		Ratio at December 31, 2011		Minimum Capital Requirement		Minimum Requirement for “Well Capitalized” Institution
Total Risk-Based Capital Ratio
Consolidated	16.18	%	16.33	%	8.00	%	N/A
Guaranty Bank and Trust Company	15.53	%	15.59	%	8.00	%	10.00	%
Tier 1 Risk-Based Capital Ratio
Consolidated	14.92	%	15.06	%	4.00	%	N/A
Guaranty Bank and Trust Company	14.26	%	14.32	%	4.00	%	6.00	%
Leverage Ratio
Consolidated	12.43	%	12.12	%	4.00	%	N/A
Guaranty Bank and Trust Company	11.89	%	11.53	%	4.00	%	5.00	%

(12)Written Agreement

On January 22, 2010, the holding company and the Bank entered into a Written Agreement with the Federal Reserve Bank of Kansas City (“Federal Reserve”) and the Colorado Division of Banking (“CDB”). The Written Agreement required the Bank to submit written plans within certain timeframes to the Federal Reserve and the CDB that addressed the following items: board oversight, credit risk management practices, commercial real estate concentrations, problem assets, reserves for loan and lease losses, capital, liquidity, brokered deposits, earnings and

34

overall condition. The Agreement also required the holding company to submit to the Federal Reserve a written plan that addresses capital and a written statement of the holding company’s annual cash flow projections. All plans were timely submitted to the appropriate regulatory agencies and all plans requiring approval by such regulatory agencies were approved.

In addition, the Written Agreement permits contractual rollovers and renewals of brokered deposits, but places restrictions on the Bank in accepting any new brokered deposits. The Written Agreement also provides that written approval must be obtained from the federal regulators prior to appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer and making indemnification and severance payments. Further, the Written Agreement provides that prior written approval must be obtained from the Federal Reserve, and in the case of the Bank, the CDB, prior to paying dividends. Prior written approval must also be obtained from the Federal Reserve before the holding company can incur, increase or guarantee any debt, take any other form of payment representing a reduction in capital from the Bank, or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities.

(13)Total Comprehensive Income (Loss)

The following tables present the components of other comprehensive income and total comprehensive income (loss) for the periods presented (in thousands):

	Three Months Ended March 31,
	2012			2011
Net income	$	2,917		$	514
Other comprehensive income (loss):
Change in net unrealized gains (losses), net	939			(988		)
Less: Reclassification adjustments for net gains included in net income	(622		)	(714		)
Net unrealized holding gains (losses)	317			(1,702		)
Income tax benefit (expense)	(121		)	647
Other comprehensive income (loss)	196			(1,055		)
Total comprehensive income (loss)	$	3,113		$	(541	)

	Three Months Ended March 31, 2012									Three Months Ended March 31, 2011
	Pre-Tax Amount			Tax Effect			Net-of-Tax Amount			Pre-Tax Amount			Tax Effect			Net-of-Tax Amount
Unrealized gains on securities:
Change in net unrealized gains (losses), net	$	939		$	357		$	582		$	(988	)	$	(376	)	$	(612	)
Less: Reclassification adjustments for net gains included in net income	(622		)	(236		)	(386		)	(714		)	(271		)	(443		)
Other comprehensive income (loss)	$	317		$	121		$	196		$	(1,702	)	$	(647	)	$	(1,055	)

(14)Preferred Stock

On August 11, 2009, the Company issued 59,053 shares of 9% non-cumulative Series A Convertible Preferred Stock, with a liquidation preference of $1,000 per share, which resulted in additional capital of $57,846,000, net of expenses. The Company paid quarterly dividends in the form of additional shares of Series A convertible Preferred Stock since November 2009. Due to the conversion price adjustment resulting from nonpayment of dividends, for purposes of the risk-based and leverage capital guidelines of the Board of Governors of the Federal Reserve System, and for purposes of regulatory reporting, the Series A Convertible Preferred Stock was treated as cumulative preferred stock (i.e. a restricted core capital element for Tier 1 capital purposes).

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On July 27, 2011, the Company and the principal holders of the Company’s Series A Convertible Preferred Stock entered into a Transaction Agreement, which was amended and restated on August 9, 2011, whereby the parties agreed, subject to stockholder and regulatory approval, to effectuate an accelerated mandatory conversion of the outstanding Series A Convertible Preferred Stock at a conversion price of $1.50 per share.  As part of the agreement and transaction, the Company agreed to issue a special paid-in-kind (PIK) dividend in the aggregate amount of approximately 7,300 shares of Series A Convertible Preferred Stock to all holders of the Series A Convertible Preferred Stock, with any fractional shares to be paid in cash.  On September 29, 2011, the transaction, among other items, was approved by the Company’s stockholders at a special meeting. On September 30, 2011, the Company completed the accelerated conversion, including the payment of the special PIK dividend, whereby all the outstanding shares of Series A Convertible Preferred Stock, with a liquidation value of $77.9 million (carrying value of $76.6 million), were converted into approximately 51.9 million shares of the Company’s common stock, including approximately 12.7 million shares resulting from the combination of the special PIK dividend and adjustment to the conversion ratio pursuant to the Transaction Agreement. As a result of the special PIK dividend and the adjustment to the conversion ratio, the Company incurred a one-time, non-cash adjustment of approximately $15.2 million.

(15) Legal 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 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, and discussions with our legal counsel, 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.

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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,  7, 7A and 8 of our 2011 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 Colorado-based bank subsidiary. Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refer to Guaranty Bancorp on a consolidated basis. References to the “Bank” refer to Guaranty Bank and Trust Company, our bank subsidiary.

Through the Bank, we provide banking and other financial services throughout our targeted Colorado markets to consumers and mostly 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, private banking loans and consumer loans. Through its Private Banking Group, the Bank provides investment management services, personal trust administration, estate settlement and self-directed IRAs. We derive our income primarily from interest, including loan origination fees, received on loans and, to a lesser extent, interest on investment securities and other fees received in connection with servicing loan and deposit accounts and personal trust services. Our major operating expenses include 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.

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Earnings Summary

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

Table 1

	Three Months Ended March 31,
							Change - Favorable
	2012			2011			(Unfavorable)
	(In thousands, except share data and ratios)
Results of Operations:
Interest income	$	17,692		$	19,343		$	(1,651	)
Interest expense	2,392			4,633			2,241
Net interest income	15,300			14,710			590
Provision for loan losses	1,000			2,000			1,000
Net interest income after provision for loan losses	14,300			12,710			1,590
Noninterest income	3,099			3,280			(181		)
Noninterest expense	14,482			15,476			994
Income before income taxes	2,917			514			2,403
Income tax expense	—			—			—
Net income	$	2,917		$	514		$	2,403
Net income (loss) applicable to common stockholders	$	2,917		$	(972	)	$	3,889
Common Share Data:
Basic loss per common share	$	0.03		$	(0.02	)	$	0.05
Diluted loss per common share	$	0.03		$	(0.02	)	$	0.05
Average common shares outstanding	103,892,827			51,775,475			52,322,231
Diluted average common shares outstanding	104,097,706			51,775,475			52,322,231
Average equity to average assets	10.37		%	8.61		%	20.44		%
Return on average equity	6.78		%	1.29		%	N/M
Return on average assets	0.70		%	0.11		%	N/M

N/M = Not meaningful

	March 31,		March 31,		Percent
	2012		2011		Change
Selected Balance Sheet Ratios:
Total risk-based capital to risk-weighted assets	16.18	%	15.82	%	2.28	%
Leverage ratio	12.43	%	6.29	%	97.62	%
Loans, net of unearned discount to deposits	82.89	%	78.29	%	5.88	%
Allowance for loan losses to loans, net of unearned discount	2.71	%	4.16	%	(34.86	)%
Allowance for loan losses to nonperforming loans	50.96	%	47.95	%	6.28	%
Classified assets to allowance and Tier 1 capital(1)	35.64	%	68.55	%	(48.01	)%
Noninterest bearing deposits to total deposits	34.96	%	34.29	%	1.95	%
Time deposits to total deposits	14.15	%	15.53	%	(8.89	)%

(1)Based on Bank only Tier 1 capital

The $2.9 million first quarter 2012 net income is a $2.4 million improvement from the first quarter 2011 net income of $0.5 million. The improvement in net income was due to a $1.0 million reduction in provision for loan losses, $0.4 million in lower FDIC assessment costs, $0.4 million in lower costs related to other real estate owned, and $0.6 million improvement in net interest income. These improvements were partially offset by a $0.2 million decrease in net gains on sales of securities.

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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-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

	Three Months Ended
	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
	(Dollars in thousands)
Net interest income	$	15,300		$	15,325		$	15,112		$	14,747		$	14,710
Interest rate spread	3.62		%	3.54		%	3.26		%	3.18		%	3.05		%
Net interest margin	3.93		%	3.86		%	3.62		%	3.56		%	3.42		%
Net interest margin, fully tax equivalent	4.03		%	3.95		%	3.69		%	3.62		%	3.49		%

First quarter 2012 net interest income of $15.3 million remained consistent with the fourth quarter 2011 and increased by $0.6 million compared to the first quarter 2011. The Company’s net interest margin of 3.93% for the first quarter 2012 reflected an increase of seven basis points from the fourth quarter 2011 and an increase of 51 basis points from the first quarter 2011, representing improvement over the last four consecutive quarters.

Net interest income increased by $0.6 million in the first quarter 2012, as compared to the same quarter in 2011, due to declines in interest income and interest expense of $1.6 million and $2.2 million, respectively. The decline in interest income was primarily due to an unfavorable volume variance of $1.4 million and, to a lesser degree, an unfavorable rate variance of $0.2 million. The volume variance was primarily attributable to a $177.4 million decrease in average earning assets, consisting of a $92.9 million decrease in securities and overnight funds and an $84.5 million decrease in average loans. The unfavorable rate variance is primarily due to lower yields on securities due to reinvestments of maturities. The decline in interest expense was due to favorable volume and rate variances of $1.2 million and $1.0 million, respectively. The favorable volume variance was primarily related to a decline in average higher-cost time deposits of $250.3 million and a decline in average borrowings of $53.0 million, related to the prepayment of Federal Home Loan Bank term advanced in September 2011. The Company believes that it remains asset sensitive at the end of the first quarter 2012, whereby an increase in rates will have a favorable impact on overall net interest income, especially with greater increases in overall rates (see Table 15).

Net interest income remained consistent during the first quarter 2012 compared to the fourth quarter 2011, as interest income and interest expense decline by $0.1 million each.  The decrease in interest income is primarily due to a slight decline in loan fee income of $0.1 million. Despite the decline in loan fee income, new loans originated during the first quarter 2012 of $77.0 million had a weighted average rate of 4.92%. Partially offsetting the decline in interest income, interest expense decreased by due to a $17.2 million reduction in average time deposits, mostly higher-cost, brokered time deposits.  The Company has $0.1 million remaining in brokered deposits at March 31, 2012.

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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 and costs expressed in percentages.

Table 3

	Three Months Ended March 31,
	2012						2011
	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)(3)	$	1,104,681	$	14,482	5.27	%	$	1,189,220	$	15,534	5.30	%
Investment securities (1)
Taxable	309,644		2,393		3.11	%	358,915		3,065		3.46	%
Tax-exempt	52,888		617		4.69	%	41,232		489		4.81	%
Bank Stocks (4)	14,590		158		4.36	%	16,844		166		4.01	%
Other earning assets	83,110		42		0.20	%	136,063		89		0.27	%
Total interest-earning assets	1,564,913		17,692		4.55	%	1,742,274		19,343		4.50	%
Non-earning assets:
Cash and due from banks	8,407						31,375
Other assets	95,214						96,247
Total assets	$	1,668,534					$	1,869,896
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and NOW	$	281,936	$	133	0.19	%	$	181,495	$	72	0.16	%
Money market	290,350		277		0.38	%	356,397		522		0.59	%
Savings	94,608		35		0.15	%	81,518		40		0.20	%
Time certificates of deposit	197,400		332		0.68	%	447,746		1,995		1.81	%
Total interest-bearing deposits	864,294		777		0.36	%	1,067,156		2,629		1.00	%
Borrowings:
Repurchase agreements	14,868		12		0.33	%	22,091		24		0.43	%
Federal funds purchased (5)	2		—		0.78	%	48		—		1.13	%
Subordinated debentures (6)	48,906		776		6.39	%	45,978		691		6.10	%
Borrowings	110,175		827		3.02	%	163,224		1,289		3.20	%
Total interest-bearing liabilities	1,038,245		2,392		0.93	%	1,298,497		4,633		1.45	%
Noninterest bearing liabilities:
Demand deposits	448,934						400,979
Other liabilities	8,279						9,384
Total liabilities	1,495,458						1,708,860
Stockholders’ Equity	173,076						161,036
Total liabilities and stockholders’ equity	$	1,668,534					$	1,869,896
Net interest income			$	15,300					$	14,710
Net interest margin					3.93	%					3.42	%

(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 4.03% and 3.49% for the three months ended March 31, 2012 and 2011, respectively. The tax-equivalent basis was computed by calculating the deemed interest on municipal bonds and tax-exempt loans that would have been earned on a fully taxable basis to yield the same after-tax income, net of the interest expense disallowance under Internal Revenue Code Sections 265 and 291, using a combined federal and state marginal tax rate of 38%.

(2) The loan average balances and rates include nonaccrual loans.

(3) Net loan fees of $0.4 million and $0.4 million for the three months ended March 31, 2012 and 2011, respectively, are included in the yield computation.

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

(5) The interest expense related to federal funds purchased for the first quarter 2012 and 2011 rounded to zero.

(6) Includes accrued interest, resulting from deferred payments on Trust Preferred Securities.

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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, 2012 Compared to Three Months Ended March 31, 2011
	Net Change			Rate			Volume
	(In thousands)
Interest income:
Gross Loans, net of unearned fees	$	(1,052	)	$	56		$	(1,108	)
Investment Securities
Taxable	(672		)	(275		)	(397		)
Tax-exempt	128			(8		)	136
Bank Stocks	(8		)	23			(31		)
Other earning assets	(47		)	(17		)	(30		)
Total interest income	(1,651		)	(221		)	(1,430		)
Interest expense:
Deposits:
Interest-bearing demand and NOW	61			16			45
Money market	(245		)	(160		)	(85		)
Savings	(5		)	(14		)	9
Time certificates of deposit	(1,663		)	(876		)	(787		)
Repurchase agreements	(12		)	(5		)	(7		)
Federal funds purchased	—			—			—
Subordinated debentures	85			40			45
Borrowings	(462		)	(61		)	(401		)
Total interest expense	(2,241		)	(1,060		)	(1,181		)
Net interest income	$	590		$	839		$	(249	)

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 allowance 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 collectability 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 values lessen our exposure to loan loss provision.

In the first quarter 2012, the Company recorded a provision for loan losses of $1.0 million, compared to $2.0 million in the first quarter 2011. The provision for loan losses in the first quarter 2012 consisted of an approximately $0.9 million decrease related to the change in the specific component of the allowance for loan losses and a $3.7 million decrease to the general component of the allowance for loan losses, net of charge-offs. The general component of the provision for loan losses is significantly affected by historical charge-offs, the level of classified loans, the overall level of loans and management’s judgment with respect to current economic conditions.

The Company determined that the provision for loan losses made during the first quarter 2012 was sufficient to maintain our allowance for loan losses at a level which reflects the probable incurred losses inherent in the loan portfolio as of March 31, 2012.

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Net charge-offs in the first quarter 2012 were $5.6 million, as compared to $2.2 million for the same quarter in 2011. The majority of the net charge-offs balance in the first quarter 2012 consists of a $3.9 million partial charge-off of a single energy loan.

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

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

	Three Months Ended
	March 31, 2012		December 31, 2011		September 30, 2011		June 30, 2011			March 31, 2011
	(In thousands)
Noninterest income:
Customer service and other fees	$	2,271	$	2,320	$	2,393	$	2,386		$	2,314
Gain (loss) on sale of securities	622		283		3,018		(312		)	714
Other	206		197		118		262			252
Total noninterest income	$	3,099	$	2,800	$	5,529	$	2,336		$	3,280

Noninterest income of $3.1 million in the first quarter 2012 reflects an increase of $0.3 million as compared to the fourth quarter 2011 due mostly to the $0.3 million increase in net gains on sale of securities. The decision to sell certain securities in the first quarter 2012 was primarily based on management belief that these securities have significant risk of increasing prepayment speeds and therefore have diminished future earning capacity. As compared to the first quarter 2011, noninterest income declined $0.2 million in the first quarter 2012 due to a net decrease in the gain on sales of securities. The gain on sale of securities in the first quarter 2011 was due to the sale of certain securities to reduce duration risk within the investment portfolio.

Noninterest Expense

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

Table 6

	Three Months Ended
	March 31, 2012		December 31, 2011		September 30, 2011		June 30, 2011		March 31, 2011
	(In thousands)
Noninterest expense:
Salaries and employee benefits	$	6,857	$	6,716	$	6,408	$	6,320	$	6,615
Occupancy expense	2,019		1,967		1,871		1,792		1,883
Furniture and equipment	821		846		855		913		894
Amortization of intangible assets	762		1,017		1,018		1,028		1,028
Other real estate owned	352		240		90		466		763
Insurance and assessment	808		845		1,017		966		1,225
Professional fees	628		690		1,016		914		908
FHLB prepayment penalty	—		—		2,672		—		—
Other general and administrative	2,235		2,528		2,541		2,275		2,160
Total noninterest expense	$	14,482	$	14,849	$	17,488	$	14,674	$	15,476

The $1.0 million decrease in noninterest expense in the first quarter 2012 as compared to the same period in 2011 is primarily the result of: a $0.4 million reduction in expenses related to other real estate owned, a decrease in insurance and assessments of $0.4 million, a decrease in intangible amortization expense of $0.3 million, and a decrease in professional fees of $0.3 million. These reductions in expense were partially offset by a $0.2 million increase in salary and benefits expense and a $0.1 million net increase in all other categories.

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The $0.4 million decrease in other real estate owned expense in the first quarter 2012 as compared to the same period in 2011 is mostly due to a decrease in write-downs on other real estate owned properties resulting from valuation adjustments and sales.  The decrease in insurance and assessments of $0.4 in the first quarter 2012 compared to first quarter 2011 is primarily related to changes in the FDIC assessment rules. Effective April 1, 2011, the FDIC insurance assessment rules changed as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These new rules changed the assessment base from total deposits to average total assets less tangible capital, but also significantly lowered the assessment rates, causing a net favorable impact on our FDIC insurance premiums. Amortization of intangible assets declined $0.3 million in the current quarter as compared to the same period last year due to accelerated amortization of intangible assets associated with previous acquisitions. Professional services decreased in the first quarter 2012 compared to first quarter 2011 by $0.3 million due to expenses associated with an executive management search in 2011. Partially offsetting these expense reductions was an increase in salary and benefit expenses of $0.2 million due mostly to an increase in bonus and incentive expenses.

The $0.4 million decrease in noninterest expense in the first quarter 2012 as compared to the fourth quarter 2011 is primarily due to decreases in intangible amortization expenses and loan-related legal expenses of $0.3 million and $0.2 million, respectively. These decreases are partially offset by increases in salaries and benefits and net other real estate owned expense of $0.1 million each. The decrease in intangible amortization expense is due to the accelerated method of amortization employed. Loan-related legal expenses declined due to reduced levels of loans in the workout phase. Salary and benefit expense increased due to annual payroll tax cycle increases. Net other real estate owned expense increased due to adjustments in annual property tax accruals.

During the first quarter 2012, the Company made the decision to close four of the Bank’s 34 branch locations. The targeted closure dates for these four locations are in June and July 2012. The decision to close these branches was based on low levels of customer transaction activity and estimated potential savings upon closure. Occupancy-related savings will be recognized over the next four quarters as the related leases expire.

Income Taxes

The Company did not record any tax benefit or expense for the first quarter of 2012 or for the same period in 2011 due to our deferred tax valuation allowance.

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. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, taking into account applicable tax planning strategies, and assessments of current and future economic and business conditions.  This analysis is updated quarterly and adjusted as necessary. In 2010, based on the significant negative evidence represented by cumulative losses and offset by various tax planning strategies, the Company recorded a partial valuation allowance for deferred tax assets in the amount of $8.5 million, which was reduced to $6.6 million as of December 31, 2011. Based upon the updated quarterly analysis, this partial valuation allowance was reduced from $6.6 million to $5.7 million as of March 31, 2012.

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BALANCE SHEET ANALYSIS

The following sets forth certain key consolidated balance sheet data:

Table 7

	March 31, 2012		December 31, 2011		September 30, 2011		June 30, 2011		March 31, 2011
	(In thousands)
Cash and cash equivalents	$	105,273	$	109,225	$	93,226	$	134,896	$	184,777
Total investments	401,357		386,141		314,420		408,806		409,126
Total loans	1,109,897		1,098,140		1,088,358		1,091,132		1,126,083
Total assets	1,716,444		1,689,668		1,692,368		1,747,060		1,834,457
Earning assets	1,608,029		1,584,746		1,502,068		1,639,995		1,725,208
Deposits	1,338,928		1,313,786		1,330,661		1,346,183		1,438,320

At March 31, 2012, the Company had total assets of $1.7 billion, which represented a $26.8 million increase as compared to December 31, 2011 and a $118.0 million decline as compared to March 31, 2011. The increase in assets from December 31, 2011 is mostly due to an $11.8 million increase in loans, net of unearned discount, and a $15.2 million increase in investments. The $11.8 million increase in total loans, net of unearned discount in the first quarter 2012 as compared to December 31, 2011 was primarily related to increases in residential and commercial real estate loans of $25.3 million, partially offset by a decline in commercial loans of $14.5 million. The increase in investments of $15.2 million from December 31, 2011 to March 31, 2012 is due to management’s strategy to reduce low yielding overnight funding and invest in higher yielding securities.

As compared to March 31, 2011, the decline in total assets is primarily due to declines in cash and due from banks of $79.5 million, primarily overnight funding, a decline in loans, net of unearned discount, of $16.2 million, and a decline in investments of $7.8 million.

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

Table 8

	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
	(In thousands)
Real estate - Residential and Commercial	$	756,409		$	731,107		$	695,027		$	675,283		$	659,018
Real estate - Construction	47,468			44,087			50,614			45,421			50,539
Equity lines of credit	44,745			44,601			47,040			48,129			49,399
Commercial	208,995			223,479			237,454			258,990			305,627
Agricultural	10,417			11,527			11,810			14,193			12,582
Consumer	20,461			22,937			24,523			25,912			26,942
Leases receivable and other	23,199			22,229			23,607			24,748			23,521
Total gross loans	1,111,694			1,099,967			1,090,075			1,092,676			1,127,628
Less: allowance for loan losses	(30,075		)	(34,661		)	(35,852		)	(38,855		)	(46,879		)
Unearned discount	(1,797		)	(1,827		)	(1,717		)	(1,544		)	(1,545		)
Loans, net of unearned discount	$	1,079,822		$	1,063,479		$	1,052,506		$	1,052,277		$	1,079,204
Loans held for sale at lower of cost or market	$	—		$	—		$	14,200		$	14,200		$	14,200

There were $848.6 million of real estate loans at March 31, 2012 compared to $819.8 million at December 31, 2011 and $759.0 million at March 31, 2011. The growth in real estate loans during the first quarter 2012 consists primarily of multi-tenant retail and commercial office buildings that are substantially fully leased. Commercial loans declined during the first quarter 2012 from the prior linked quarter primarily due to paydowns on the energy loan portfolio and a partial charge-off on an energy loan.

Under joint guidance from the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency on sound risk management practices for financial institutions with concentrations in commercial real estate lending, a financial institution may have elevated concentration risk if it has, among other factors, (i) total reported loans for construction, land development, and other land representing 100% or more of capital, or (ii) total reported loans

44

secured by multifamily and non-farm residential properties, loans for construction, land development and other land and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, representing 300% or more of total capital. For our Bank, the total reported loans for construction, land development and land represented 53% of capital at March 31, 2012, as compared to 52% at December 31, 2011 and 77% at March 31, 2011. For our Bank, the total reported commercial real estate loans (excluding loans held for sale) represented 265% of capital at March 31, 2012, as compared to 254% at December 31, 2011, and 261% at March 31, 2011. Management employs heightened risk management practices with respect to commercial real estate lending, including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. Loans secured by commercial real estate are recorded on the balance sheet as either a commercial real estate loan or commercial loan depending on the purpose of the loan, not the underlying collateral. Although this ratio has increased slightly since December 31, 2011, management continues to monitor the Bank’s real estate concentration ratios to ensure we remain in compliance with the regulatory guidance.

With respect to group concentrations, most of the Company’s business activity is with customers in the state of Colorado. At March 31, 2012 the Company did not have any significant concentrations in any particular industry.

Nonperforming Assets and Other Impaired Loans

Credit risk related to nonperforming assets arises as a result of lending activities. To manage this risk, we utilize 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 and the underlying collateral value, that the collection of interest is doubtful.

45

The following table summarizes the loans for which the accrual of interest has been discontinued ( including loans held for sale, except where noted) 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

	Three Months Ended
	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
	(Dollars in thousands)
Nonaccrual loans and leases	$	29,648		$	26,801		$	45,790		$	56,342		$	76,850
Other impaired loans	1,301			6			583			1,675			1,506
Total nonperforming loans	$	30,949		$	26,807		$	46,373		$	58,017		$	78,356
Other real estate owned and foreclosed assets	28,072			29,027			22,008			28,362			33,611
Total nonperforming assets	$	59,021		$	55,834		$	68,381		$	86,379		$	111,967
Nonperforming loans	$	30,949		$	26,807		$	46,373		$	58,017		$	78,356
Allocated allowance for loan losses	(2,572		)	(3,490		)	(4,483		)	(4,177		)	(12,136		)
Net investment in impaired loans	$	28,377		$	23,317		$	41,890		$	53,840		$	66,220
Accruing loans past due 90 days or more	$	1,301		$	6		$	583		$	1,675		$	1,506
Loans past due 30-89 days	$	10,798		$	10,805		$	9,358		$	4,750		$	14,593
Loans charged-off	$	6,371		$	2,603		$	4,135		$	9,997		$	2,850
Recoveries	(785		)	(412		)	(132		)	(973		)	(660		)
Net charge-offs	$	5,586		$	2,191		$	4,003		$	9,024		$	2,190
Provision for loan losses	$	1,000		$	1,000		$	1,000		$	1,000		$	2,000
Allowance for loan losses	$	30,075		$	34,661		$	35,852		$	38,855		$	46,879
Allowance for loan losses to loans, held for investment	2.71		%	3.16		%	3.29		%	3.56		%	4.16		%
Allowance for loan losses to nonaccrual loans, excluding loans held for sale	101.44		%	129.33		%	113.49		%	92.20		%	74.83		%
Allowance for loan losses to nonperforming assets, excluding loans held for sale	50.96		%	62.08		%	66.17		%	53.83		%	47.95		%
Allowance for loan losses to nonperforming loans, held for investment	97.17		%	129.30		%	111.43		%	88.67		%	73.07		%
Annualized net charge-offs to average loans	2.03		%	0.80		%	1.44		%	3.24		%	0.75		%
Nonperforming assets to total assets	3.44		%	3.31		%	4.05		%	4.95		%	6.11		%
Nonperforming loans to loans, net of unearned discount	2.79		%	2.45		%	4.21		%	5.25		%	6.87		%
Loans 30-89 days past due to loans, net of unearned discount	0.97		%	0.98		%	0.85		%	0.43		%	1.28		%

During the first quarter 2012, nonaccrual loans increased $2.8 million from December 31, 2011 primarily due to the addition of a single energy loan of $8.7 million, prior to partial charge-off of $3.9 million. Management expects this loan to be substantially paid off by the end of the second quarter 2012.

The Company has an internal risk rating system of classifying loans as pass, watch, special mention, substandard, doubtful and loss. These internal guidelines are based on the definitions in the Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks and Thrifts issued by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve System. In particular, loans internally classified as substandard, doubtful or loss are considered adversely

46

classified loans. During the first quarter 2012, the amount of accruing loans that the Company has internally considered to be adversely classified declined to $22.3 million at March 31, 2012, as compared to $25.9 million at December 31, 2011 and $44.6 million at March 31, 2011.

In addition to adversely classified loans, the Company has loans that are considered to be Special Mention or Watch loans.  The amount of loans that the Company has internally considered to be Special Mention or Watch decreased by approximately 25.0% from March 31, 2011 to March 31, 2012. Each internal risk classification is judgmental, but based on both objective and subjective factors/criteria. The internal risk ratings focus on an evaluation of the borrowers’ ability to meet future debt service and performance to plan and consider potential adverse market or economic conditions. As described below under “Allowance for Loan Losses”, the Company adjusts the general component of its allowance for loan losses for the trends in the volume and severity of adversely classified and watch list loans.

Net charge-offs in the first quarter 2012 were $5.6 million as compared to $2.2 million in the fourth quarter 2011 and $2.2 million in the first quarter 2011. The increase in net charge-offs is primarily the result of a single charge-off of $3.9 million related to one energy loan mentioned above.

Other real estate owned is $28.1 million at March 31, 2012 compared to $29.0 million at December 31, 2011 and $33.6 million at March 31, 2011. The balance of other real estate owned at March 31, 2012 was comprised of approximately 36 separate properties, of which $6.0 million was land; $22.0 million was commercial real estate, including multi-family units; and $0.1 million was residential real estate. The balance at December 31, 2011 was comprised of approximately 35 separate properties, of which $6.1 million was land; $22.7 million was commercial real estate; and $0.2 million was residential real estate.

As of March 31, 2012 and December 31, 2011, no additional funds were committed to be advanced in connection with non-performing loans.

As of March 31, 2012, we had $14.8 million of loans with terms that were modified in troubled debt restructurings, with a total allocated allowance for loan loss of $0.6 million. As of December 31, 2011, we had $11.7 million of loans with terms that were modified in troubled debt restructurings, with a total allocated allowance for loan loss of $1.5 million. The troubled debt restructurings are included in impaired loans above. The Company has not committed additional funds to borrowers whose loans are classified as troubled debt restructurings.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level that, in our judgment, is adequate to absorb probable incurred loan losses in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, historical loss experience, and other significant factors affecting loan portfolio collectability, including the level and trends in delinquent, nonaccrual and adversely 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 2.71% at March 31, 2012, as compared to 3.16% at December 31, 2011 and 4.16% at March 31, 2011.

Our methodology for evaluating the adequacy of the allowance for loan losses has two basic elements: first, the specific identification of impaired loans and the measurement of an estimated loss for each individual loan identified; and second, estimating a nonspecific allowance for probable losses on all other loans.

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 against income as an additional provision for loan losses. For further discussion of the provision for loan losses, see “Provision for Loan Losses” above.

47

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 rating. 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 collectability as described above. Management also looks at risk ratings of loans and computes a factor for the volume and severity of classified loans using assigned risk ratings under regulatory definitions of “watch”, “special mention”, “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 rating categories watch, special mention or substandard are evaluated for trends in volume and severity.

The provision for loan losses recorded in 2012 was required in order for the Company to maintain the allowance for loan losses at a level necessary for the probable incurred losses inherent in the loan portfolio as of March 31, 2012. For further discussion of the provision for loan losses, see “Provision for Loan Losses” above.

Approximately $2.6 million, or 8.6%, of the $30.1 million allowance for loan losses at March 31, 2012, relates to loans with specific allowance allocations. This compares to a specific reserve of $3.5 million, or 10.1%, of the total allowance for loan losses at December 31, 2011.

The general component of the allowance for loan losses as a percent of loans that are not impaired, net of unearned discount, was 2.55% at March 31, 2012, as compared to 2.91% at December 31, 2011. The decrease in the general component of the allowance is generally due to the improvement in our economics concern factor related to real estate loans.

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,
	2012		2011
	(In thousands)
Balance, beginning of period	$	34,661	$	47,069
Loan charge-offs:
Real estate - Residential and Commercial	2,053		2,583
Real estate - Construction	2		174
Commercial	3,955		25
Consumer	24		40
Other	337		29
Total loan charge-offs	6,371		2,851
Recoveries:
Real estate - Residential and Commercial	113		232
Real estate - Construction	651		383
Commercial	10		23
Consumer	10		16
Other	1		7
Total loan recoveries	785		661
Net loan charge-offs	5,586		2,190
Provision for loan losses	1,000		2,000
Balance, end of period	$	30,075	$	46,879

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.

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The carrying value of our portfolio of investment securities at March 31, 2012 and December 31, 2011 was as follows:

Table 11

	March 31,		December 31,		Increase		%
	2012		2011		(Decrease)		Change
	(In thousands)
Securities available for sale:
State and municipal	$	53,255	$	52,890	$	365	0.7	%
Mortgage-backed securities — agency/residential	271,255		265,030		6,225		2.3	%
Mortgage-backed securities — private/residential	753		752		1		0.1	%
Marketable equity	1,519		1,519		—		—
Other securities	37,149		32,961		4,188		12.7	%
Total securities available for sale	$	363,931	$	353,152	$	10,779	3.1	%
Securities held to maturity:
Mortgage-backed securities — agency/residential	$	22,794	$	18,424	$	4,370	23.7	%

The Company does not own any collateralized debt obligations (CDOs) or securities backed by sub-prime mortgage loans.

At March 31, 2012, there was one private-label mortgage-backed security with a carrying value of approximately $0.8 million. The private-label mortgage-backed security is a senior tranche and was AAA rated by Standard and Poor’s as of March 31, 2012. All other mortgage-backed securities are sponsored by either U.S. government agencies or government-sponsored entities.

The carrying value of our available for sale investment securities at March 31, 2012 was $363.9 million, compared to the December 31, 2011 carrying value of $353.2 million. Year-to-date purchase activity in our investment portfolio has been concentrated on the purchase of U.S. Government Sponsored Agency Mortgage-Backed Securities, CMOs and Trust Preferred Securities. In addition, we have sold certain securities in order to reduce expected increase in prepayment speeds and the resulting diminished future earning capacity.

Fair values for municipal securities 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. Characteristics utilized by matrix pricing include insurer, credit support, state of issuance, and bond rating. These factors are used to incorporate additional spreads and municipal curves. A separate curve structure is used for bank-qualified municipal bonds versus general market municipals. For the bank-qualified municipal bonds, active quotes are obtained when available.

Fair values for U.S. Treasury securities, U.S. government agencies and government-sponsored entities and mortgage-backed securities are determined using a combination of daily closing prices, evaluations, income data, security master (descriptive) data, and terms and conditions data. Additional data used to compute the fair value of U.S. mortgage-backed pass-through issues (FHLMC, FNMA, GNMA, and SBA pools) includes daily composite seasoned, pool-specific, and generic coupon evaluations, and factors and descriptive data for individual pass-through pools. Additional data used to compute the fair value of U.S. collateralized mortgage obligations include daily evaluations and descriptive data. Additional data used to compute the fair value of mortgage-backed securities — private/residential include independent bond ratings.

Three municipal bonds were priced using significant unobservable inputs as of March 31, 2012. The first revenue bond has a par value of $36.5 million and repayment is based on cash flows from a local hospital. Management reviewed the financials of the hospital, had discussions with hospital management and reviewed the underlying collateral of the municipal bond to determine an appropriate benchmark risk-adjusted interest rate based on transactions with similar risks. At March 31, 2012, this hospital bond had an unrealized loss of approximately $0.5 million, all of which was determined to be related to temporary changes in interest rates. The second revenue bond had a par value of approximately $12.0 million and repayment is based on operating income from a senior living facility. Management purchased this bond in November 2011, after performing a thorough credit review. The bond is valued based on a discounted cash flow valuation utilizing an estimated market interest rate for comparable

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instruments. The third municipal bond of approximately $4.5 million, prior to an other-than-temporary-impairment of $3.5 million recorded in 2010. The repayment of this bond is primarily based on cash flows from the construction and sale of low-income housing units, grants and the guarantee of the project’s sponsor. During 2010, the bond defaulted for non-payment of monthly interest payments. Based on management’s review of the project, an independent appraisal of the underlying collateral and discussions with the bond’s sponsor who abandoned the project, it was determined that the $3.5 million other-than-temporary-impairment recorded in 2010 has not changed as of March 31, 2012.

At March 31, 2012 there were 19 individual securities in an unrealized loss position (excluding the bond with the previously recorded other-than-temporary-impairment). Of the 19 securities in an unrealized loss position at March 31, 2012, two individual securities have been in a continuous unrealized loss position for 12 months or longer. Management has evaluated these securities in addition to the remaining 17 securities in an unrealized loss position and has determined that the decline in value since their purchase dates is primarily attributable to changes in market interest rates. At March 31, 2012, the Company did not intend to sell any of the 19 securities in an unrealized loss position and did not consider it likely that it would be required to sell any of the securities in question prior to recovery in their fair value.

At March 31, 2012 and December 31, 2011, we held $14.6 million and $14.6 million, respectively, of other equity securities consisting of bank stocks with no maturity date, which are not reflected in the above table (Table 11). Bank stocks are comprised of stock of the Federal Reserve Bank of Kansas City, the Federal Home Loan Bank of Topeka and Bankers’ Bank of the West. These stocks have restrictions placed on their transferability as only members of the entities can own the stock. Management reviews the equity securities quarterly for potential impairment. No impairment has been recognized on these equity securities.

Deposits

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

Table 12

	March 31, 2012				At December 31, 2011
	Balance		% of Total		Balance		% of Total
	(Dollars in thousands)
Noninterest bearing deposits	$	468,133	34.96	%	$	450,451	34.29	%
Interest-bearing demand and NOW	285,749		21.34	%	289,987		22.07	%
Money market	298,504		22.30	%	277,997		21.16	%
Savings	97,033		7.25	%	91,260		6.95	%
Time	189,509		14.15	%	204,091		15.53	%
Total deposits	$	1,338,928	100.00	%	$	1,313,786	100.00	%

Deposits, other than time deposits, increased by $39.7 million at March 31, 2012, as compared to December 31, 2011 and increased by $103.4 million as compared to March 31, 2011. The increases in non-maturity deposits were primarily attributable to the continued success of our business and retail strategic deposit gathering campaign.

Noninterest bearing deposits as a percent of total deposits increased to approximately 35.0% at March 31, 2012, as compared to 34.3% at December 31, 2011. Noninterest bearing deposits help reduce overall deposit funding costs, but due to the extremely low rate environment, the impact of noninterest bearing deposits on the overall cost of funds is currently less significant than in a higher rate environment.

Time deposits continue to decrease primarily as a result of management’s efforts to reduce the overall level of higher cost time deposits, including brokered and internet deposits. Total brokered deposits at March 31, 2012 were $0.1 million as compared to $10.2 million at December 31, 2011 and $133.3 million at March 31, 2011. Brokered deposits represent 0.1% of total deposits at March 31, 2012 as compared to 0.8% at December 31, 2011 and 9.2% at March 31, 2011.  In addition to this $133.2 million decline in brokered deposits over the past twelve months, we also experienced a $19.5 million decline in internet time deposits over the same time period. The remaining decline in time deposits is primarily related to the non-renewal of other higher cost certificates of deposits. Management monitors time deposit maturities and renewals on a daily basis and will raise rates on local time deposits if necessary to grow such deposits.

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Borrowings and Subordinated Debentures

At March 31, 2012, our outstanding borrowings were $110.2 million as compared to $110.2 million at December 31, 2011. These balances are solely related to term note borrowings at FHLB. The total commitment, including balances outstanding, for borrowings at the FHLB for the term notes and line of credit at March 31, 2012 and December 31, 2011 was $194.1 million and $217.4 million, respectively.

The borrowings at March 31, 2012 consisted of five separate fixed-rate term notes with the FHLB at our Bank level, with remaining maturities ranging from 19 to 70 months. The term notes have fixed interest rates that range from 2.52% to 4.43%. The weighted-average rate on the FHLB term notes was 2.97% at March 31, 2012. Of the remaining $110.2 million FHLB term advances at March 31, 2012, $110.0 million have Bermudan conversion options to a variable rate. If the notes are not converted by the FHLB, the notes become convertible quarterly thereafter, with the option to convert to floating rate continuing to be at the discretion of the FHLB. If the notes are converted by the FHLB, the Bank has the option to prepay the advance without penalty. Three notes totaling $90 million have potential conversions in 2012; a $40 million note with a rate of 3.17%, a $30 million note with a rate of 2.95%, a $20 million note with a rate of 2.52%. The remaining convertible note of $20 million becomes convertible January 23, 2013 and bears an interest rate of 3.04%. The notes can only be prepaid without penalty at or after conversion. The Bank had a line of credit with the FHLB at March 31, 2012, but there was no balance outstanding on this line of credit as of that date. The interest rate on the line of credit varies with the federal funds rate, and was 0.29% at March 31, 2012. Under a specific pledging and security agreement with the FHLB and has additional borrowing capacity of approximately $83.9 million at March 31, 2012. There was no balance outstanding on the line of credit as of December 31, 2011.

At March 31, 2012, we had a $41,239,000 aggregate principal balance of junior subordinated debentures outstanding with a weighted average cost of 6.05%. 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 $10.3 million has a variable rate of LIBOR plus 3.10% and has been callable without penalty each quarter since July 7, 2008, and continues to be callable quarterly. The CenBank Trust III issuance of $15.5 million has a variable rate of LIBOR plus 2.65% and has been callable without penalty since April 15, 2009, and continues to be callable quarterly. The CenBank Trust I issuance of $10.3 million has a fixed rate of 10.6% and has been callable since September 7, 2010, and continues to be callable, with a non-prohibitive penalty, semi-annually. The CenBank Trust II issuance of $5.2 million has a fixed rate of 10.2% and became callable semi-annually starting on February 22, 2011, and continues to be callable, with a non-prohibitive penalty, semi-annually. Management did not call any of these securities on the latest call date, but will continue to evaluate whether to call these debentures each quarter. Under the terms of the Written Agreement, regulatory approval would be required prior to calling any trust preferred issuance.

Under the terms of each subordinated debentures agreement, the Company has the ability to defer interest on the debentures for a period of up to sixty months as long as it is in compliance with all covenants of the agreement.  On July 31, 2009, the Company deferred regularly scheduled interest payments on each series of its junior subordinated debentures and continued to defer interest during the first three months of 2012. Such a deferral is not an event of default and the interest continues to accrue. Prior to paying any interest on the subordinated debentures, the Company must obtain prior written approval from the Federal Reserve under the terms of the Written Agreement. The Company is prohibited from paying any dividends on its other classes of stock for so long as interest is deferred, with the exception of stock dividends. The Company intends to seek approval from the Federal Reserve to bring current the deferred interest on the subordinated debentures. At March 31, 2012, the amount of interest that has been deferred on all subordinated debentures is $8.1 million.

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 restricted core capital elements, including trust preferred securities and cumulative preferred stock. Under this modification, beginning March 31, 2011, the Company was required to use a more restrictive formula to determine the amount of restricted core capital elements that could be included in regulatory Tier 1 capital. The Company was allowed to include in Tier 1 capital an amount of restricted core capital elements equal to no more than 25% of the sum of all qualifying core capital elements,

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including qualifying restricted core capital elements. For purposes of both Tier 1 capital and the 25% limitation, certain intangibles, including core deposit intangibles, net of any related deferred income tax liability are deducted. The adoption of this modification did not have a material impact on the inclusion of our restricted core capital elements for purposes of Tier 1 capital.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, certain trust preferred securities will no longer be eligible to be included as Tier 1 capital for regulatory purposes. However, an exception to this statutory prohibition applies to securities issued prior to May 19, 2010 by bank holding companies with less than $15 billion of total assets. As we have less than $15 billion in total assets and had issued all of our trust preferred securities prior to May 19, 2010, our trust preferred securities will continue to be eligible to be treated as Tier 1 capital, subject to other rules and limitations.

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 and lease 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 most 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 the Bank 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. The Bank is required to maintain similar capital levels under capital adequacy guidelines. At March 31, 2012, the Bank’s capital ratios are above the regulatory capital threshold of “well-capitalized”.

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

Table 13

	Ratio at March 31, 2012		Ratio at December 31, 2011		Ratio at March 31, 2011		Minimum Capital Requirement		Minimum Requirement for “Well Capitalized” Institution
Total Risk-Based Capital Ratio
Consolidated	16.18	%	16.33	%	15.82	%	8.00	%	N/A
Guaranty Bank and Trust Company	15.53	%	15.59	%	14.96	%	8.00	%	10.00	%
Tier 1 Risk-Based Capital Ratio
Consolidated	14.92	%	15.06	%	8.79	%	4.00	%	N/A
Guaranty Bank and Trust Company	14.26	%	14.32	%	13.68	%	4.00	%	6.00	%
Leverage Ratio
Consolidated	12.43	%	12.12	%	6.29	%	4.00	%	N/A
Guaranty Bank and Trust Company	11.89	%	11.53	%	9.80	%	4.00	%	5.00	%

On July 27, 2011, the Company and the principal holders of the Company’s Series A Convertible Preferred Stock entered into a Transaction Agreement, which was amended and restated on August 9, 2011, whereby the parties agreed, subject to stockholder and regulatory approval, to effectuate an accelerated mandatory conversion of the outstanding Series A Convertible Preferred Stock at a conversion price of $1.50 per share. As part of the agreement and transaction, the Company agreed to issue a special paid-in-kind (PIK) dividend in the aggregate amount of approximately 7,300 shares of Series A Convertible Preferred Stock to all holders of the Series A Convertible Preferred Stock, with any fractional shares to be paid in cash. On September 29, 2011, the Transaction, among other items, was approved by the Company’s stockholders at a special meeting. On September 30, 2011, the

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Company completed the accelerated conversion, including the payment of the special PIK dividend, whereby all the outstanding shares of Series A Convertible Preferred Stock, with a liquidation value of $77.9 million (carrying value of $76.6 million), were converted into approximately 51.9 million shares of the Company’s common stock, including approximately 12.7 million shares resulting from the combination of the special PIK dividend and adjustment to the conversion ratio pursuant to the Transaction Agreement. As a result of the special PIK dividend and the adjustment to the conversion ratio, the Company incurred a one-time, non-cash adjustment of approximately $15.2 million. As a result of this accelerated conversion of all shares of the Company’s preferred stock, the 9% dividend on such shares was eliminated and the Company’s consolidated capital ratios improved significantly.

In December 2009, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC) to register up to $100 million in securities. The SEC declared the registration statement effective on February 11, 2010. The Company does not have any current plans to raise additional capital; however, the shelf registration provides us with the ability to raise capital, subject to SEC rules and limitations, if the Board of Directors decides to do so.

Dividend Restrictions

Holders of voting common stock are entitled to dividends out of funds legally available for such dividends, when, and if, declared by the Board of Directors. The Company has not paid dividends since its inception.

Various banking laws applicable to the Bank limit the payment of dividends, management fees and other distributions by the Bank to the Company, and may therefore limit our ability to pay dividends on our common stock.  In addition, the Written Agreement discussed in Note 12 prohibits both the Company and the Bank from paying dividends without the prior written approval of the Federal Reserve, and, in the case of the Bank, the Colorado Division of Banking (CDB). Accordingly, our ability to pay dividends will be restricted until the Written Agreement is terminated.

Under the terms of each of our four trust preferred financings, including our related subordinated debentures, which occurred on September 7, 2000, February 22, 2001, June 30, 2003 and April 8, 2004, respectively, we cannot declare or pay any dividends or distributions (other than stock dividends) on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of our capital stock if (1) an event of default under any of the subordinated debenture agreements has occurred and is continuing, or (2) we defer payment of interest on the trust preferred securities (for a period of up to sixty consecutive months as long as we are in compliance with all covenants of the agreement).  On July 31, 2009, we elected to defer regularly scheduled interest payments on each of our subordinated debentures until further notice. At March 31, 2012, the amount of interest that has been deferred on all subordinated debentures is $8.1 million. In addition, we are currently restricted from making payments of principal or interest on our subordinated debentures or trust preferred securities under the terms of our Written Agreement without the prior approval of the Federal Reserve.

Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including general business conditions, our financial results, our future prospects, capital requirements, contractual, legal, and regulatory restrictions on the payment of dividends by us to our stockholders or by our bank subsidiary to our holding company, and such other factors as our Board of Directors may deem relevant.

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.

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At the dates indicated, the following commitments were outstanding:

Table 14

	March 31, 2012		December31, 2011
	(In thousands)
Commitments to extend credit:
Variable	$	236,215	$	222,298
Fixed	51,762		40,605
Total commitments to extend credit	$	287,977	$	262,903
Standby letters of credit	$	11,223	$	10,836

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.

The Bank’s primary sources of liquidity are its liquid assets. At March 31, 2012, the Company had $105.3 million of cash and cash equivalents, including $96.8 million of interest-bearing deposits at banks (most of which was held at the Federal Reserve Bank of Kansas City) that could be used for the Bank’s immediate liquidity needs. Further, the Company had $16.0 million of excess pledging related to customer accounts that require collateral at March 31, 2012 and $192.2 million of securities that are available for pledging.

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 loans, discount window borrowings from the Federal Reserve, and our lines of credit with FHLB and other correspondent banks are employed to meet current and presently anticipated funding needs. At March 31, 2012, the Bank had approximately $83.9 million of availability on its FHLB line, $35.0 million of availability on its secured federal funds lines with correspondent banks, and $4.9 million of availability with the Federal Reserve discount window.

Under the terms of the Written Agreement, the Bank can continue to rollover or renew existing brokered deposits, but cannot obtain any new brokered deposits. Since December 31, 2009, the Bank has elected not to renew nearly all of its $291.0 million of maturing brokered deposits due primarily to the excess overnight funding balances as well as continued growth of non-time deposit accounts. At March 31, 2012, the Bank has $0.1 million of brokered deposits remaining that will mature in February 2013. The Bank will continue to monitor funding risk, including potential deposit loss risk and will make changes as necessary to retain an appropriate level of liquidity.

The holding company relies primarily on cash flow from the Bank as a primary source of liquidity. The holding company requires liquidity for the payment of interest on the subordinated debentures (if approved by our regulators), 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.  The Bank pays a management fee for its share of expenses paid by the holding company, as well as for services provided by the holding company. However, the Written Agreement prohibits the Bank from paying dividends or making other distributions to the holding company without the prior written approval of the Federal Reserve and CDB. Accordingly, the Bank’s ability to pay dividends or make other distributions to the holding company will be restricted until the Written Agreement is terminated. The Written Agreement also prohibits the Company from paying dividends or making other distributions without the prior written approval of the Federal Reserve. Accordingly, our ability to pay dividends to our stockholders will be restricted until the Written Agreement is terminated. Under the terms of our trust preferred financings, we may defer payment of interest on the subordinated debentures and related trust preferred securities for a period of up to sixty consecutive months as long as we are in compliance with all covenants of the agreement. On July 31, 2009, we gave notice that we would defer regularly scheduled interest payments on each of our subordinated debentures until further notice. During the deferral period, the Company may not pay cash dividends to stockholders of any class of stock.  In addition, we are currently restricted from making payments of principal or interest on our subordinated debentures or trust preferred securities under the terms of our Written Agreement without the prior approval of the Federal Reserve. The Company intends to seek approval from the Federal Reserve to bring current the deferred interest on the subordinated debentures within the next several

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quarters if the Written Agreement and its related restrictions are still in place.  At March 31, 2012, the total amount of deferred interest on the trust preferred securities was $7.7 million.

As of March 31, 2012, the holding company had approximately $17.0 million of cash on hand. Based on current cash flow projections for the holding company, we estimate that cash balances maintained by the holding company are sufficient to meet the operating needs of the holding company for over three years, assuming that the holding company continues to defer interest on its trust preferred securities.

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, derivatives, 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 2011 Annual Report Form 10-K for the fiscal year ended December 31, 2011. There have been no changes to the critical accounting policies listed in the Company’s 2011 Annual Report Form 10-K during 2012.

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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 have not entered into any market risk sensitive instruments 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 designed to ensure that exposure to interest rate fluctuations is limited to our guidelines of acceptable levels of risk-taking. Balance sheet 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 re-pricing opportunities of portfolio assets and their funding sources.

Net Interest Income Modeling

Our Asset Liability Management Committee, or ALCO, addresses interest rate risk. The committee is composed of members of our senior management. The ALCO monitors interest rate risk by analyzing the potential impact on the net portfolio of equity value and net interest income 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.

We monitor and evaluate our interest rate risk position on at least a quarterly basis using net interest income simulation analysis under 100, 200 and 300 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, 200 and 300 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, 2012 and 2011:

Table 15

MARKET RISK:	Annualized Net Interest Income
	March 31, 2012			March 31, 2011
	Amount of Change			Amount of Change
	(In thousands)
Rates in Basis Points
300	$	8,419		$	4,671
200	5,410			2,206
100	2,754			730
Static	—			—
(100)	(3,777		)	60
(200)	(4,273		)	(2,669		)
(300)	(3,956		)	(3,009		)

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Overall, the Company believes it is asset sensitive. At March 31, 2012, the Company is positioned to have a short-term favorable interest income impact in a 300 basis point, 200 basis point or 100 basis point rising rate environment. This is due to the amount of overnight funding and variable rate loans on the books. Although overnight funding is extremely asset sensitive, the variable rate loans are less asset sensitive because many of these variable rate loans have a floor, or minimum rate. As rates rise, the loan rate may continue to be at the minimum rate. At March 31, 2012, variable rate loans with loan rates more than 100 basis points below the floor are $201.7 million and represent 47.3% of all variable rate loans. Management also anticipates that deposit rates, other than time deposit rates, would increase immediately in a rising rate environment, but to a lesser degree than overnight fund rates.

In a falling rate environment, the Company is projected to have a decrease in net interest income in a 100, 200 basis point or 300 basis point falling rate environment. This is consistent with the expected asset sensitivity of the Company. Because it is not possible for many of the Company’s deposit rates to fall 100 to 300 basis points due to most deposit rates already being below 100 basis points at March 31, 2012, the loss of gross interest income in a falling rate environment is expected to exceed the reduction in interest expense in a falling rate environment. Management believes that this scenario is very unlikely. The target federal funds rate is currently set by the FOMC at a rate between 0 and 25 basis points. The prime rate has historically been set at a rate of 300 basis points over the target federal funds rate. 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.

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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 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 were effective at March 31, 2012 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.

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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 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, 2011, 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 voting common stock during the first quarter 2012. These purchases relate to the net settlement by employees related to 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	—	$	—
February 1 to February 29	—	—
March 1 to March 31	3,763	1.67
	3,763	$	1.67

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosure

Not applicable.

ITEM 5. Other Information

During the first quarter 2012, the Company made the decision to close four of the Bank’s 34 branch locations. The targeted closure dates for these four locations are in June and July 2012. The decision to close these branches was based on low levels of customer transaction activity and estimated potential savings upon closure. Occupancy-related savings will be recognized over the next four quarters as the related leases expire.

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ITEM 6. Exhibits

ExhibitNumber	Description
3.1	Second Amended and Restated Certification of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on August 12, 2009).
3.2	Certificate of Amendment to the Registrant’s Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on October 3, 2011).
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†	Form of Executive Cash Incentive Plan (incorporated by reference to Exhibit 10.12 of Registrant’s Form 10-K filed on February 10, 2012).
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.
101.INS	XBRL Interactive Data File*
101.SCH	XBRL Interactive Data File*
101.CAL	XBRL Interactive Data File*
101.LAB	XBRL Interactive Data File*
101.PRE	XBRL Interactive Data File*
101.DEF	XBRL Interactive Data File*

† Indicates a management contract or compensatory plan or arrangement.

* As provided in Rule 406T in Regulation S-T, this information is furnished and not filed for purposes of sections 11 and 12 of the Securities and Exchange Act of 1933 and section 18 of the Securities and Exchange Act of 1934.

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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 26, 2012	GUARANTY BANCORP
	/s/ CHRISTOPHER G. TREECE
	Christopher G. Treece
	Executive Vice President, Chief Financial Officer and Secretary

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