Guaranty Bancorp 10-Q 2005 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2005

OR

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

For the transition period from                    to                    

Commission File Number: 333-124855

CENTENNIAL BANK HOLDINGS, INC.

(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 300 Denver, CO	80202
(Address of principal executive offices)	(Zip Code)

303-296-9600

(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. Yesx No¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes¨ Nox

As of October 31, 2005 there were 62,411,268 shares of the registrant’s common stock outstanding, including 1,286,131 shares of unvested restricted stock.

1

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION		3
ITEM 1.	Unaudited Consolidated Financial Statements	3
	Unaudited Consolidated Balance Sheets	3
	Unaudited Consolidated Statements of Operations	5
	Unaudited Consolidated Statements of Comprehensive Income (loss)	7
	Unaudited Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	28
ITEM 4.	Controls and Procedures	29
PART II—OTHER INFORMATION		30
ITEM 1.	Legal Proceedings	30
ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	30
ITEM 3.	Defaults Upon Senior Securities	30
ITEM 4.	Submission of Matters to a Vote of Security Holders	30
ITEM 5.	Other Information	30
ITEM 6.	Exhibits	31
SIGNATURES		32

2

PART I—FINANCIAL INFORMATION

ITEM 1. Unaudited Consolidated Financial Statements

CENTENNIAL BANK HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except for share data)

	September 30, 2005			December 31, 2004
	(Unaudited)
Assets
Cash and due from banks	$	94,033		67,927
Federal funds sold		—		23,000
Cash and cash equivalents		94,033		90,927
Time deposits with banks		5,000		5,000
Securities available for sale, at fair value		122,097		125,687
Securities held to maturity (fair value of $386 and $645 at September 30, 2005 and December 31, 2004)		386		640
Bank stocks, at cost		24,834		12,770
Other investments		—		1,405
Total investments		152,316		145,502
Loans held for sale		6,015		7,301
Loans, net of unearned discount		1,763,533		1,641,821
Less allowance for loan losses		(25,019	)	(25,022	)
Net loans		1,744,529		1,624,100
Premises and equipment, net		48,472		44,921
Foreclosed assets		2,532		5,707
Accrued interest receivable		11,375		9,062
Goodwill		331,626		328,185
Other intangible assets, net		44,087		53,360
Other assets		12,402		7,795
Assets held for sale		98,797		89,642
Total assets	$	2,540,169		2,399,201

3

CENTENNIAL BANK HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except for share data)

	September 30, 2005			December 31, 2004
	(Unaudited)
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand	$	531,970		477,999
Interest-bearing demand		594,634		581,580
Savings		73,575		81,725
Time		521,430		537,195
Total deposits		1,721,609		1,678,499
Securities sold under agreements to repurchase and federal fund purchases		31,304		27,492
Accrued interest payable		3,292		2,313
Borrowings		118,335		39,770
Subordinated debentures		41,476		42,079
Deferred tax liability, net		12,278		12,076
Other liabilities		8,987		10,350
Liabilities associated with assets held for sale		80,854		71,208
Total liabilities		2,018,135		1,883,787
Commitments and contingencies
Stockholders’ equity:
Common stock—$.001 par value; 100,000,000 shares authorized, 53,509,650 and 52,333,334 shares issued at September 30, 2005 and December 31, 2004; 53,079,250 and 52,333,334 outstanding at September 30, 2005 and December 31, 2004		52		52
Additional paid-in capital		512,142		511,588
Retained earnings		13,614		3,796
Accumulated other comprehensive income (loss)		885		(22	)
		526,693		515,414
Less cost of shares in treasury, 430,400 shares at September 30, 2005		(4,659	)	—
Total stockholders’ equity		522,034		515,414
Total liabilities and stockholders’ equity	$	2,540,169		2,399,201

See “Notes to Unaudited Consolidated Financial Statements.”

4

CENTENNIAL BANK HOLDINGS, INC.

AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except for share and per share data)

	Successor				Predecessor
	Three Months Ended September 30, 2005			Period from July 17, 2004 to September 30, 2004	Period from July 1, 2004 to July 16, 2004
	(Unaudited)			(Unaudited)	(Unaudited)
Interest income:
Loans, including fees	$	32,909		8,347	1,732
Investment securities:
Taxable		49		102	42
Tax-exempt		714		4	—
Dividends		300		55	11
Federal funds sold and other		542		121	5
Total interest income		34,514		8,629	1,790
Interest expense:
Deposits		6,648		1,251	393
Federal funds purchased and repurchase agreements		293		37	4
Subordinated debentures		669		313	93
Borrowings		1,031		94	35
Total interest expense		8,641		1,695	525
Net interest income		25,873		6,934	1,265
Provision for loan losses		—		—	3,700
Net interest income (loss), after provision for loan losses		25,873		6,934	(2,435	)
Noninterest income:
Customer service and other fees		2,035		752	186
Gain on sale of loans		433		—	—
Gain on sale of assets		260		18	189
Other		4		29	35
Total noninterest income		2,732		799	410
Noninterest expense:
Salaries and employee benefits		9,828		2,334	971
Occupancy expense		1,651		435	102
Furniture and equipment		924		248	49
Amortization of intangible assets		2,968		296	—
Merger, acquisition and transition expenses		752		—	—
Other general and administrative		4,604		1,243	2,304
Total noninterest expense		20,727		4,556	3,426
Income (loss) before income taxes		7,878		3,177	(5,451	)
Income tax expense		2,748		1,379	(1,288	)
Income (loss) from continuing operations		5,130		1,798	(4,163	)
Loss on disposition of discontinued operations, net of tax		(340	)	—	—
Income from discontinued operations, net of tax		340		—	—
Net income (loss)	$	5,130		1,798	(4,163	)
Earnings (loss) per share—basic:
Income (loss) from continuing operations	$	0.10		0.09	(2.67	)
Income from discontinued operations, net of tax		—		—	—
Net income (loss)		0.10		0.09	(2.67	)
Earnings (loss) per share—diluted:
Income (loss) from continuing operations	$	0.10		0.09	(2.67	)
Income from discontinued operations, net of tax		—		—	—
Net income (loss)		0.10		0.09	(2.67	)
Weighted average shares outstanding		51,902,934		19,000,000	1,557,568
Effect of unvested share awards		99,085		—	—
Fully diluted average shares outstanding		52,002,019		19,000,000	1,557,568

See “Notes to Unaudited Consolidated Financial Statements.”

5

CENTENNIAL BANK HOLDINGS, INC.

AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except for share and per share data)

	Successor				Predecessor
	Nine Months Ended September 30, 2005			Period from July 17, 2004 to September 30, 2004	Period from January 1, 2004 to July 16, 2004
	(Unaudited)			(Unaudited)
Interest income:
Loans, including fees	$	91,989		8,347	22,260
Investment securities:
Taxable		697		102	485
Tax-exempt		1,797		4	10
Dividends		669		55	130
Federal funds sold and other		1,773		121	27
Total interest income		96,925		8,629	22,912
Interest expense:
Deposits		15,041		1,251	5,340
Federal funds purchased and repurchase agreements		737		37	50
Subordinated debentures		1,839		313	1,054
Borrowings		2,237		94	353
Total interest expense		19,854		1,695	6,797
Net interest income		77,071		6,934	16,115
Provision for loan losses		1,700		—	4,700
Net interest income, after provision for loan losses		75,371		6,934	11,415
Noninterest income:
Customer service and other fees		5,957		752	2,222
Gain (loss) on sale of securities		11		—	(66	)
Gain on sale of loans		1,060		—	—
Gain on sale of assets		601		18	215
Other		20		29	55
Total noninterest income		7,649		799	2,426
Noninterest expense:
Salaries and employee benefits		30,224		2,334	6,604
Occupancy expense		4,939		435	1,200
Furniture and equipment		2,590		248	662
Amortization of intangible assets		9,157		296	—
Merger, acquisition and transition expenses		8,436		—	—
Other general and administrative		11,581		1,243	6,048
Total noninterest expense		66,927		4,556	14,514
Income (loss) before income taxes		16,093		3,177	(673	)
Income tax expense		5,482		1,379	411
Income (loss) from continuing operations		10,611		1,798	(1,084	)
Loss on disposition of discontinued operations, net of tax (Note 10)		(1,584	)	—	—
Income from discontinued operations, net of tax (Note 10)		790		—	—
Net income (loss)	$	9,817		1,798	(1,084	)
Earnings (loss) per share—basic:
Income (loss) from continuing operations	$	0.20		0.09	(0.70	)
Loss from discontinued operations, net of tax		(0.01	)	—	—
Net income (loss)		0.19		0.09	(0.70	)
Earnings (loss) per share—diluted:
Income (loss) from continuing operations	$	0.20		0.09	(0.70	)
Loss from discontinued operations, net of tax		(0.01	)	—	—
Net income (loss)		0.19		0.09	(0.70	)
Weighted average shares outstanding		52,137,132		19,000,000	1,554,873
Effect of unvested share awards		33,391		—	—
Fully diluted average shares outstanding		52,170,523		19,000,000	1,554,873

See “Notes to Unaudited Consolidated Financial Statements.”

6

CENTENNIAL BANK HOLDINGS, INC.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	Successor			Predecessor
	Three Months Ended September 30, 2005		Period from July 17, 2004 to September 30, 2004	Period from July 1, 2004 to July 16, 2004
	(Unaudited)		(Unaudited)	(Unaudited)
Net income (loss)	$	5,130	1,798	(4,163	)
Other comprehensive income, net of tax
Change in net unrealized gain on securities available for sale		82	189	159
Comprehensive income (loss)	$	5,212	1,987	(4,004	)

See “Notes to Unaudited Consolidated Financial Statements.”

7

CENTENNIAL BANK HOLDINGS, INC.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	Successor			Predecessor
	Nine Months Ended September 30, 2005		Period from July 17, 2004 to September 30, 2004	Period from January 1, 2004 to July 16, 2004
	(Unaudited)		(Unaudited)
Net income (loss)	$	9,817	1,798	(1,084	)
Other comprehensive income (loss), net of tax
Change in net unrealized gain (loss) on securities available for sale		907	189	(66	)
Comprehensive income (loss)	$	10,724	1,987	(1,150	)

See “Notes to Unaudited Consolidated Financial Statements.”

8

CENTENNIAL BANK HOLDINGS, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

	(Successor)						Predecessor
	Nine months Ended September 30, 2005 (Successor)			Period from July 17, 2004 to September 30, 2004			Period from January 1, 2004 to July 16, 2004
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	9,817			1,798			(1,084	)
Adjustments to reconcile net income to net cash provided by operating activities:								—
Depreciation and amortization of premises and equipment		2,888			211			600
Equity based compensation		275			—			—
Loss on disposition of discontinued operations		1,584						—
Gain on sale of foreclosed assets		(503	)		2			18
Loss on disposal of premises and equipment		(98	)		(18	)		(51	)
Gain on sale of securities and mortgages		(1,071	)		(36	)		66
Stock dividends received		(211	)		(25	)		(40	)
Net accretion and amortization on securities		636			12			(38	)
Provision for loan losses		1,700			—			4,700
Deferred income tax benefit		(3,323	)		1,379			(1,616	)
Amortization of intangibles and purchase accounting adjustments		9,157			182			—
Proceeds from sales of loans held for sale		78,056			—			—
Originations of loans held for sale		(75,708	)		—			—
Other		559			—			—
Net change in:
Accrued interest receivable and other assets		(15,553	)		(1,153	)		(991	)
Accrued interest payable and other liabilities		12,669			262			1,675
Net cash provided by operating activities		20,874			2,614			3,239
Cash flows from investing activities (net of assets and liabilities acquired in acquisitions):
Cash paid for acquisitions, net of cash acquired of $19,884		—			(135,116	)		—
Activity in available-for-sale securities:
Sales, maturities, prepayments, and calls		135,374			15,044			151,089
Purchases		(143,164	)		(37,370	)		(153,116	)
Activity in held-to-maturity securities:
Maturities, prepayments, and calls		250			250			174
Loan originations and principal collections, net		(125,525	)		3,243			12,676
Proceeds from sales of foreclosed assets		5,204			301			4,260
Proceeds from sale of other investments		1,516			—			—
Proceeds from sale of premises and equipment		373			—			172
Payments on discontinued operations		(74	)		—			—
Additions to premises and equipment		(11,910	)		(140	)		(187	)
Net cash provided (used) by investing activities		(137,956	)		(153,788	)		15,068
Cash flows from financing activities (net of assets and liabilities acquired in acquisitions):
Net change in deposits		42,466			(38,631	)		(16,986	)
Net change in short-term borrowings		58,405			10,558			(21,570	)
Net proceeds from (payments on) long-term debt		20,163			(85	)		19,423
Net change in federal funds purchased and repurchase agreements		3,813			19,366			(2,976	)
Net proceeds from sale of common stock		—			179,450			2,186
Repurchase of common stock		(4,659	)		—			(2,716	)
Net cash provided (used) by financing activities		120,188			170,658			(22,639	)
Net change in cash and cash equivalents		3,106			19,484			(4,332	)
Cash and cash equivalents, beginning of period		90,927			—			23,731
Cash and cash equivalents, end of period	$	94,033			19,484			19,399
Supplemental disclosure of cash flow activity:
Interest paid on deposits and borrowed funds	$	20,236		$	1,340		$	7,034
Income taxes paid	$	5,798		$	1,436		$	664
Supplemental disclosure of noncash activities:
Loans transferred to other real estate owned	$	1,791		$	852		$	1,859

See “Notes to Unaudited Consolidated Financial Statements.”

9

CENTENNIAL BANK HOLDINGS, INC.

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1) Organization, Operations and Basis of Presentation

Centennial Bank Holdings, Inc. and Subsidiaries (the Company), is primarily engaged in the business of banking, providing services to individual and corporate customers principally in Colorado.

On July 16, 2004, Centennial Bank Holdings, Inc. and its wholly owned subsidiary, Centennial Bank of the West (Predecessor) was acquired by Centennial C Corp (CCC) in a cash purchase funded by the proceeds of CCC’s sale of 18,500,000 shares of its common stock. Centennial Bank Holdings, Inc. was then merged with and into CCC, which changed its name to Centennial Bank Holdings, Inc. (Successor). For presentation purposes, consolidated statements of operations and comprehensive income (loss) are presented for the three and nine months ended September 30, 2005 and the period from July 17, 2004 to September 30, 2004 (Successor) and the periods from July 1, 2004 to July 16, 2004 and January 1, 2004 to July 16, 2004 (Predecessor). Consolidated cash flows are presented for the nine months ended September 30, 2005 (Successor) and the periods from July 17, 2004 to September 30, 2004 and January 1, 2004 to July 16, 2004 (Predecessor). On December 31, 2004, Centennial Bank Holdings, Inc. purchased all of the outstanding stock of Guaranty Corporation. Guaranty Corporation’s subsidiaries included Guaranty Bank and Trust Company, First National Bank of Strasburg, and Collegiate Peaks Bank. Accordingly, the consolidated balance sheets as of September 30, 2005 and December 31, 2004 (Successor) include the accounts of Guaranty Corporation and subsidiaries. These acquisitions were accounted for under the purchase method of accounting through which the purchase price was allocated to the tangible and intangible assets and liabilities acquired. The accompanying Predecessor financial statements do not reflect the effects of purchase accounting. As such, the consolidated financial statements of the Company are not comparable to the Predecessor financial statements for the periods prior to the acquisitions.

(a) Basis of Presentation

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles. All significant intercompany balances and transactions have been eliminated. Our financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The interim operating results are not necessarily indicative of operating results for the full year.

(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. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes include the allowance for loan losses, the valuation of foreclosed real estate, deferred tax assets and liabilities, goodwill and other intangible assets.

(c) Impairment of Long-Lived Assets

In accordance with SFAS No. 144, long-lived assets, such as property, fixtures and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstance indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying value of the asset exceeds the fair value of the asset, less costs to sell. Assets to be disposed are separately presented in the consolidated balance sheet and reported at the lower of the carrying value or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the consolidated balance sheet.

(d) Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of identifiable net assets associated with acquisition transactions. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,Business Combinations, (SFAS No. 141), and SFAS No. 142,Goodwill and Other Intangible Assets, (SFAS No. 142). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions in SFAS No. 142. SFAS No. 142 requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144,Accounting for the Impairment of Disposal of Long-Lived Assets(SFAS No. 144).

(e) Segments of an Enterprise and Related Information

The operating information used by the Company’s chief executive officer for purposes of assessing performance and making operating decisions about the Company is the consolidated financial statements presented in this report. The Company has three active operating subsidiaries, namely, the bank subsidiaries, otherwise known as Centennial

10

Bank of the West, Guaranty Bank and Trust Company, and Collegiate Peaks Bank. The Company applies the provisions of SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, in determining its reportable segments and related disclosures. None of the Company’s other subsidiaries meets the 10% threshold for disclosure under SFAS No. 131.

(f) Stock Incentive Plan

On April 5, 2005, the Company’s board of directors adopted the 2005 Stock Incentive Plan, or the Plan, subject to stockholder approval. The Plan provides for grants of stock options, restricted stock awards, restricted stock unit awards, stock awards with performance, service and market vesting conditions, stock appreciation rights, and other equity-based awards to key employees, nonemployee directors, consultants and prospective employees. At the Company’s annual meeting on June 2, 2005, the Company’s stockholders approved the Plan. In accordance with SFAS 123(R),Share-Based Payment, the Company records cost of services based on the fair value of the equity instruments issued as estimated at the grant date. The costs are recorded over the estimated requisite service period.

On August 11, 2005, pursuant to the Plan, the Company granted 1,178,816 shares of stock with performance or service vesting conditions. As of September 30, 2005, the Company had a total of 1,176,316 unvested shares of stock issued, which consisted of 996,500 of unvested shares with unfulfilled performance conditions and 182,316 unvested shares with unfulfilled service conditions. In accordance with SFAS 128 (As Amended),Earnings Per Share, diluted earnings per share does not include the potentially dilutive shares that may result from the stock awards with performance-based vesting conditions that may eventually vest.

The shares granted with performance vesting conditions vest based on the Company achieving certain performance measures. The Company expects 50% of the performance-based awards to vest based on financial results to be achieved for the year ending December 31, 2007, and the remaining 50% of the performance-based awards to vest during the years ending December 31, 2008 through December 31, 2011. The shares granted with service-based vesting conditions vest over a period of one to four years from the date of grant. Compensation expense related to the stock awards for the three and nine months ended September 30, 2005 was $275,000. No stock-based compensation expense was incurred in 2004.

(g) Reclassifications

Certain amounts in prior year financial statements have been reclassified to conform to the current year presentation.

(2) Securities

The amortized cost and estimated fair value of debt securities are as follows:

	September 30, 2005
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)
Securities available for sale:
U.S. treasuries	$	16,262	—	(85	)	16,177
U.S. government agencies		9,491	—	(8	)	9,483
State and municipal		53,277	1,484	(28	)	54,733
Mortgage-backed		41,002	93	(398	)	40,697
Marketable equity securities		1,003	4	—		1,007
Securities available for sale	$	121,035	1,581	(519	)	122,097
Securities held to maturity:
Mortgage-backed	$	386	—	—		386
	December 31, 2004
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
	(In thousands)
Securities available for sale:
U.S. treasuries	$	38,170	—	—		38,170
U.S. government agencies		8,482	—	(3	)	8,479
State and municipal		34,320	1			34,321
Mortgage-backed		43,748	124	(159	)	43,713
Marketable equity securities		1,004	—	—		1,004
Securities available for sale	$	125,724	125	(162	)	125,687
Securities held to maturity:
Mortgage-backed	$	640	5	—		645

11

(3) Loans

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

	September 30, 2005			December 31, 2004
	(In thousands)
Loans on real estate:
Residential and commercial mortgage	$	507,813		638,007
Construction		451,137		308,545
Equity lines of credit		75,982		81,936
Commercial loans		587,762		458,171
Agricultural loans		65,466		62,199
Lease financing		785		912
Installment loans to individuals		50,776		64,625
Overdrafts		1,063		5,589
SBA and other		24,493		22,004
		1,765,277		1,641,988
Less:
Allowance for loan losses		(25,019	)	(25,022	)
Net of unearned discount		(1,744	)	(167	)
		1,738,514		1,616,799
Loans held for sale		6,015		7,301
	$	1,744,529		1,624,100

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

	Three Months Ended September 30, 2005			Nine months Ended September 30, 2005
	(In thousands)
Balance, beginning of period	$	25,535		$	25,022
Provision for loan losses		—			1,700
Loans charged off		(592	)		(2,481	)
Recoveries on loans previously charged-off		76			778
Balance, end of period	$	25,019		$	25,019

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

	September 30, 2005		December 31, 2004
	(In thousands)
Impaired loans with a specific valuation allowance	$	23,383	27,970
Impaired loans without a specific valuation allowance		4,374	7,632
Total impaired loans	$	27,757	35,602
Valuation allowance related to impaired loans	$	10,445	9,290
Average investment in impaired loans	$	35,459	11,422

Due to a recovery on an impaired loan, interest income of $245,000 was recognized on impaired loans during the nine months ended September 30, 2005. No interest income was recognized for the periods from January 1, 2004 to July 16, 2004 and July 17, 2004 to September 30, 2004. At September 30, 2005, no additional funds were committed to be advanced in connection with impaired loans. At September 30, 2005 and December 31, 2004, the total investment in loans on nonaccrual was approximately $8,352,000 and $11,905,000, respectively.

12

(4) Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise from purchase business combinations. Goodwill and other intangible assets deemed to have indefinite lives generated from purchase combinations are tested for impairment no less than annually.

Intangible assets with definite lives are amortized over their respective estimated useful lives of two to 14 years to their estimated residual values and reviewed for impairment annually. The amortization expense represents the estimated decline in the value of the underlying deposits or loan customers acquired.

The changes in the carrying amount of goodwill for the periods ended September 30, 2005 and December 31, 2004 are as follows:

	Nine months Ended September 30, 2005		Year Ended December 31, 2004
	(In thousands)
Balance, beginning of period	$	328,185	9,226
Elimination of preacquisition goodwill		—	(9,226	)
Goodwill acquired on July 17, 2004		—	104,684
Goodwill acquired on December 31, 2004		—	223,501
Adjustment to goodwill
Increase related to income taxes		3,441	—
Balance, end of period	$	331,626	328,185

The Company revised its estimated value for its discontinued operations in the second quarter of 2005 based on additional information available related to the sale of the Collegiate Peaks Bank subsidiary. The Company determined that it would have an estimated tax liability associated with the sale of Collegiate Peaks Bank, resulting in additional goodwill of $3,441,000.

The following table presents the gross amounts of core deposits and customer relationships intangibles and the related accumulated amortization at the dates indicated:

	Useful life	September 30, 2005			December 31, 2004
		(In thousands)
Non-compete employment agreement	2 years	$	3,606		3,720
Core deposit intangible Centennial Bank	10 years		4,715		4,715
Core deposit intangible Guaranty Bank	9 to 13.6 years		45,700		45,702
			54,021		54,137
Accumulated amortization			(9,934	)	(777	)
		$	44,087		53,360

Amortization expense for intangible assets for the nine months ended September 30, 2005 and the period from July 17, 2004 to September 30, 2004 was $9,157,000 and $296,000, respectively.

(5) Borrowings

Borrowed funds include Treasury Tax and Loan notes, Federal Home Loan Bank (“FHLB”) borrowings, and a line of credit with First Tennessee. The FHLB borrowings are collateralized by a blanket pledge and security agreement. The Company had $118,335,000 and $39,770,000 outstanding under these borrowings at September 30, 2005 and December 31, 2004, with a total commitment of $275,219,000 at September 30, 2005.

(6) Subordinated Debentures and Trust Preferred Securities

Excluding unamortized premium of $247,000, the Company had a $41,229,000 aggregate balance of subordinated debentures outstanding with a weighted average cost of 7.9% at September 30, 2005. 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,

13

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 following table summarizes the terms of each subordinated debenture issuance at September 30, 2005 (dollars in thousands):

Series	Date Issued	Amount		Maturity Date	Call Date*	Fixed or Variable Rate	Rate Adjuster		Rate at September 30, 2005		Next Rate Reset Date
CenBank Trust I	9/7/2000	$	10,310	9/7/2030	9/7/2010	Fixed	N/A		10.6	%	N/A
CenBank Trust II	2/22/2001		5,155	2/22/2031	2/22/2011	Fixed	N/A		10.2	%	N/A
CenBank Trust III	4/15/2004		15,454	4/15/2034	4/15/2009	Variable	LIBOR + 2.65	%	6.3	%	10/15/2005
Guaranty Capital Trust III	7/7/2003		10,310	7/7/2033	7/7/2008	Variable	LIBOR + 3.10	%	6.7	%	10/15/2005

* Call date represents the earliest call date by the Company without penalty.

(7) Commitments

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

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

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

	September 30, 2005 (Successor)		December 31, 2004 (Successor)
	(In thousands)
Commitments to extend credit	$	563,214	468,059
Standby letters of credit		33,425	71,266
Commercial letters of credit		232	574

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Several of the commitments may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer. Commitments to extend credit under overdraft protection agreements are commitments for possible future extensions of credit to existing deposit customers. These lines of credit are uncollateralized and usually do not 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 Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Substantially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments if deemed necessary.

The Company enters into commercial letters of credit on behalf of its customers which authorize a third party to draw drafts on the Company up to a stipulated amount and with specific terms and conditions. A commercial letter of credit is a

14

conditional commitment on the part of the Company to provide payment on drafts drawn in accordance with the terms of the commercial letter of credit.

(8) Capital Ratios

At September 30, 2005 and December 31, 2004, the Company had leverage ratios of 9.01% and 8.70%, Tier 1 risk-weighted capital ratios of 9.61% and 9.39%, and total risk-weighted capital ratios of 10.86% and 10.64%, respectively. The Company actively monitors its regulatory capital ratios to ensure that the Company and its bank subsidiaries are well capitalized under the applicable regulatory framework.

(9) Business Combination

On December 20, 2004, the Company entered into a definitive agreement to acquire all of the outstanding stock of First MainStreet Financial, Ltd. in exchange for approximately 10 million Company shares with an estimated value of $10.50 per share. The acquisition of First MainStreet was consummated as of October 1, 2005, pursuant to which First MainStreet Bank, N.A. was merged with and into Centennial Bank of the West.

(10) Assets Held for Sale and Discontinued Operations

On August 25, 2005, the Company entered into a definitive agreement to sell 100% of the outstanding stock of Collegiate Peaks Bank. The transaction is subject to regulatory approvals and is expected to close late in the fourth quarter of 2005. As of September 30, 2005, the Company has recorded an impairment of fair value for Collegiate Peaks Bank of $1,509,000. The $1,509,000 impairment consisted of 2005 net income of $790,000 that will not be reflected as an adjustment to the sale price, a $794,000 reduction to the value of the Collegiate Peaks Bank from its estimated value at December 31, 2004 of $18,434,000, offset by the payment of $74,000 of disposition costs during the nine months ended September 30, 2005. Earnings from Collegiate Peaks between September 30, 2005 and its disposition date will be offset by an increased impairment, as the purchase price will not be adjusted for the additional earnings. The Company had no income from operations from the subsidiary in 2004, as the subsidiary was acquired in connection with the purchase of Guaranty Corporation on December 31, 2004. The following table presents the assets and liabilities of the subsidiary which are held for sale at September 30, 2005 and the summary results of operations of the subsidiary for the nine months ended September 30, 2005:

	September 30, 2005
	(In thousands)
Assets held for sale:
Cash and cash equivalents	$	17,174
Investments		16,377
Loans and leases, net		51,060
Other intangible assets		3,551
Goodwill		8,922
Other assets		3,222
Fair value adjustment		(1,509	)
Total assets held for sale	$	98,797
Liabilities associated with assets held for sale:
Deposits	$	74,449
Securities sold under repurchase agreements		4,729
Other liabilities		1,676
Total liabilities associated with assets held for sale	$	80,854

15

	Nine months Ended September 30, 2005
	(In thousands)
Interest income	$	3,499
Noninterest income		317
Net income		790

(11) Subsequent Events

On June 24, 2005, the Company announced the signing of a definitive agreement to acquire all the outstanding stock and options of Foothills Bank for $27.5 million in cash. Foothills Bank is located in Wheat Ridge, Colorado, and had $137 million in assets, $93 million in net loans and $126 million in deposits at September 30, 2005. This transaction was consummated as of November 1, 2005, pursuant to which Foothills Bank was merged with and into Guaranty Bank and Trust Company.

On November 8, 2005, the Company entered into a $70 million 364-day Revolving Credit Agreement with U.S. Bank National Association. This new revolving credit facility replaces the $20 million revolving credit facility the Company had in place with First Tennessee Bank National Association, which was terminated in connection with the Company entering into the new credit facility with U.S. Bank. The new credit facility is secured by a pledge of 100% of the outstanding capital stock of the Company’s bank subsidiary, Guaranty Bank and Trust Company, pursuant to a Pledge Agreement, dated as of November 8, 2005.

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

The following is management’s discussion and analysis of the major factors that influenced our financial performance for the three months and nine months ended September 30, 2005. This analysis should be read in conjunction with our 2004 consolidated financial statements as filed on our Form S-1 registration statement and with the unaudited financial statements and notes as set forth in this report. Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refers to Centennial Bank Holdings, Inc. on a consolidated basis.

Forward-Looking Information

Certain statements contained in this Quarterly Report on Form 10-Q (“Report”), including, without limitation, statements containing the words “believes”, “anticipates”, “intends”, “expects”, and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in those areas in which we operate, demographic changes, competition, fluctuations in interest rates, continued ability to attract and employ qualified personnel, changes in business strategy or development plans, changes in governmental regulation, credit quality, the availability of capital to fund the expansion of our business, economic, political and global changes arising from natural disasters, the war on terrorism, the conflict with Iraq and its aftermath, and other “Risk Factors” referenced in our Form S-1 registration statement, as supplemented from time to time. When relying on forward-looking statements to make decisions with respect to our Company, investors and others are cautioned to consider these and other risks and uncertainties. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. The forward-looking statements are made as of the date of this Report, and we do not intend, and assume no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. All forward-looking statements contained in this Report are expressly qualified by these cautionary statements.

Overview

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

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

16

Background

On March 3, 2004, we were incorporated in Delaware under the name Centennial C Corp. On July 16, 2004, in a cash purchase funded by the proceeds of our sale of 18,500,000 shares of our common stock, we acquired our predecessor and changed our name to Centennial Bank Holdings, Inc. On December 31, 2004, we acquired Guaranty Corporation, a bank holding company and a Colorado corporation, which operated 18 branches in Colorado through its three banking subsidiaries. The acquisitions were accounted for using the purchase method of accounting. Centennial’s financial statements as of December 31, 2004 present the consolidated financial position of Centennial at December 31, 2004, which includes Guaranty.

For purposes of comparison and analysis of the three months ended September 30, 2005 to the three months ended September 30, 2004, the period from July 17, 2004 to September 30, 2004 has been combined with the Predecessor period from July 1 to July 16, 2004; and such combined period is hereinafter referred to as the “combined three-month period.” For purposes of comparison and analysis of the nine months ended September 30, 2005 to the nine months ended September 30, 2004, the period from July 17, 2004 to September 30, 2004 has been combined with the Predecessor period from January 1 to July 16, 2004 and such combined period is hereinafter referred to as the “combined nine-month period.”

Critical Accounting Policies

Our accounting policies are integral to understanding the financial results reported. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and consistently applied from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies that we believe are critical and involve significant management judgment.

Allowance for Loan Losses

The loan portfolio is the largest category of assets on our consolidated balance sheets. We determine probable losses inherent in our loan portfolio and establish an allowance for those losses by considering factors including historical loss rates, expected cash flows and estimated collateral values. In assessing these factors, we use organizational history and experience with credit decisions and related outcomes. The allowance for loan losses represents our best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. We evaluate our allowance for loan losses quarterly. If our underlying assumptions later prove to be inaccurate based on subsequent loss evaluations, the allowance for loan losses is adjusted.

We estimate the appropriate level of allowance for loan losses by separately evaluating impaired and nonimpaired loans. A specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan. The methodology used to assign an allowance to a nonimpaired loan is much more subjective. Generally, the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics and by exercising judgment to assess the impact of factors such as changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets. Because the economic and business climate in any given industry or market, and its impact on any given borrower, can change rapidly, the risk profile of the loan portfolio is continually assessed and adjusted when appropriate. Notwithstanding these procedures, there still exists the possibility that our assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required.

We estimate the appropriate level of loan loss allowance by conducting a detailed review of a significant number of much smaller portfolio segments that comprise the consumer and commercial loan portfolios. We segment the loan portfolio into as many components as practical. Each component would normally have similar characteristics, such as risk classification, past due status, type of loan, industry or collateral. The risk profile of certain segments of the loan portfolio may be improving, while the risk profile of others may be deteriorating. As a result, changes in the appropriate level of the allowance for different segments may offset one another. Adjustments to the allowance represent the impact from the analysis of all loan segments.

Investment in Debt and Equity Securities

We classify our investments in debt and equity securities as eitherheld-to-maturityoravailable-for-salein accordance with Statement of Financial Accounting Standards No. 115,Accounting for Certain Investments in Debt and Equity Securities. Securities classified as held-to-maturity are recorded at cost or amortized cost. Available-for-sale securities are

17

carried at fair value. Fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position and results of operations. If the estimated value of investments is less than the cost or amortized cost, we evaluate whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred and we determine that the impairment is other-than-temporary, we expense the impairment of the investment in the period in which the event or change occurred.

Deferred Income Taxes

Deferred income taxes reflect the estimated future tax effects of temporary differences between the reported amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced.

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is evaluated for impairment annually, unless there are factors present that may be indicative of a potential impairment, in which case, a goodwill impairment test is performed more frequently than annually. The first step in testing for impairment is to determine the fair value of each reporting unit. If the carrying amount of any reporting unit exceeds its fair value, an impairment to goodwill is recorded. The evaluation of goodwill involves estimations of discount rates, the timing of projected future cash flows, and utilization of market based valuation techniques. The assumptions used in the evaluation of goodwill are subject to change with changes in economic conditions and other factors. Changes in assumptions used to evaluate this intangible asset affect its value and could have a material adverse impact on our results of operations.

Purchase Accounting

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,Business Combinations(SFAS No. 141), and SFAS No. 142,Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after September 30, 2001 as well as all purchase method business combinations completed after September 30, 2001. SFAS No. 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill. In connection with our mergers and acquisitions, we estimate the fair value of assets and liabilities as required, including intangible assets, based on various methods, including market prices, discounted cash flows, and other present value valuation techniques. The valuation methods we use may require management to make numerous estimates and assumptions.

This discussion has highlighted those accounting policies that we consider to be critical to our financial reporting process. However, all the accounting policies are important, and therefore you are encouraged to review each of the policies included in Note 2 to our 2004 consolidated financial statements set forth in our Form S-1 registration statement as supplemented from time to time, to gain a better understanding of how our financial performance is measured and reported.

18

Results of Operations

The following table summarizes certain key financial results for us for the periods indicated:

	Three Months Ended September 30,								Nine months Ended September 30,
(In thousands, except share data)	2005 (Successor)		2004 (Combined)			Change - Favorable (Unfavorable)			2005 (Successor)			2004 (Combined)			Change - Favorable (Unfavorable)
Results of Operations:
Interest income	$	34,514	$	10,419		$	24,095		$	96,925		$	31,541		$	65,384
Interest expense		8,641		2,220			(6,421	)		19,854			8,492			(11,362	)
Net interest income		25,873		8,199			17,674			77,071			23,049			54,022
Provision for loan losses		—		3,700			3,700			1,700			4,700			3,000
Net interest income after provision for losses		25,873		4,499			21,374			75,371			18,349			57,022
Noninterest income		2,732		1,209			1,523			7,649			3,225			4,424
Noninterest expense		20,727		7,982			(12,745	)		66,927			19,070			(47,857	)
Income (loss) before income taxes		7,878		(2,274	)		10,152			16,093			2,504			13,589
Provision for income taxes		2,748		91			(2,657	)		5,482			1,790			(3,692	)
Income from continuing operations		5,130		(2,365	)		7,495			10,611			714			9,897
Income (loss) from discontinued operations		—		—			—			(794	)		—			(794	)
Net income (loss)	$	5,130	$	(2,365	)	$	7,495		$	9,817		$	714		$	9,103
Share Data:
Basic earnings per share	$	0.10	$	(0.12	)(a)		nm		$	0.19		$	0.04	(a)		nm
Diluted earnings per share	$	0.10	$	(0.12	)(a)		nm		$	0.19		$	0.04	(a)		nm
Average shares outstanding		51,902,937		19,000,000			nm			52,137,132			19,000,000			nm
Diluted average shares outstanding		52,002,019		19,000,000			nm			52,170,523			19,000,000			nm

(a)	–	Represents combined net loss of Predecessor and Successor divided by Successor weighted average basic or diluted shares outstanding for the respective period.
nm	-	Change in earnings (loss) per share is not meaningful due to the change in outstanding shares resulting from the acquisition of the predecessor in July 2004.

Net income increased $9.1 million from the combined nine-month period ended September 30, 2004 to $9.8 million for the nine months ended September 30, 2005. Excluding the net income of $8.8 million from the acquisition of Guaranty, the most significant changes between the nine-month period ended September 30, 2005 and the combined nine-month period ended September 30, 2004 are as follows: an increase in the provision for loan loss of $3.0 million and an increase in noninterest expenses of $3.7 million. During the nine months ended September 30, 2005, we experienced $0.8 million loss associated with our decision to sell our Collegiate Peaks Bank subsidiary, which represents the difference between the expected net proceeds from the sale and the amount estimated as its value at December 31, 2004.

Net interest income increased $54.0 million to $77.1 million from combined nine-month period ended September 30, 2004. The acquisition of Guaranty accounted for an increase of $52.8 million. Excluding the net interest income from Guaranty, net interest income increased by $1.3 million for the nine months ended September 30, 2005 from $23.0 million for the combined nine-month period ended September 30, 2004. This increase in net interest income was composed of a $3.3 million increase in interest income against a $2.0 million increase in interest expense.

Net Interest Income and Net Interest Margin

The Company had net interest income of $77.1 million and $25.9 million for the nine months and three months ended September 30, 2005. The Company’s interest income was $96.9 million and $34.5 million for the nine and three months ended September 30, 2005. Interest expense was $19.9 million and $8.6 million for the nine and three months ended September 30, 2005. Interest income and interest expense increased by $63.5 million and $10.7 million, respectively, in 2005 from the combined nine-month period ended September 30, 2004 due to the Guaranty acquisition.

19

The net interest income for the nine months ended September 30, 2005 increased by $54.0 million to $77.1 million from the combined nine-month period ended September 30, 2005. Net interest income increased by $17.7 million to $25.9 million for the three months ended September 30, 2005 from the combined three-month period ended September 30, 2004. The acquisition of Guaranty accounted for $52.8 million and $18.0 million for the nine and three-month period increases, respectively. Excluding the impact caused by the Guaranty transaction, the net interest income for the nine month period ended September 30, 2005 increased by $1.3 million, or 5.5%, from the combined nine-month period ended September 30, 2004. The primary driver of this increase was an increase in interest rates.

The net interest margin for the nine months ended September 30, 2005 was 5.56%, with a spread of 5% between the earnings on assets of 7.0% and cost of interest bearing liabilities of 2.0%. Our interest margin for the three months ended September 30, 2005 was 5.45%, with an interest spread of 4.7% between our yield on interest bearing assets and cost of interest bearing liabilities. The increasing interest rate environment led to an increase in both our yield on assets and cost of funds during the three months ended September 30, 2005, with the cost of fund increasing more than the yield on the assets. The lower interest margin for the three months ended September 30, 2005 as compared to the nine months ended September 30, 2005 is the result of a temporary increase to our certificate of deposit rates and money market rates that was implemented to increase our deposits.

20

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

	Three months Ended September 30, 2005						Nine months Ended September 30, 2005
	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:
Loans held for investment(1)(2)(3)	$	1,728,822	$	32,909	7.55	%	$	1,684,687	$	91,989	7.30	%
Investments:
Taxable(1)		75,816		638	3.34	%		84,940		2,121	3.34	%
Tax-exempt(4)		54,822		626	4.53	%		46,279		1,797	5.19	%
Equity securities		20,435		230	4.47	%		15,563		597	5.13	%
Other earning assets		15,880		111	2.77	%		22,885		421	2.45	%
Total interest earning assets		1,895,775		34,514	7.22	%		1,854,354		96,925	6.99	%
Non-earning assets:
Cash and due from banks		62,416						57,901
Other assets		514,748						514,007
Total assets	$	2,472,939					$	2,426,262
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	106,906	$	103	0.38	%	$	113,303	$	300	0.35	%
Money market		498,507		2,605	2.07	%		514,444		6,298	1.64	%
Savings		76,858		139	0.72	%		80,174		425	0.71	%
Time certificates of deposit		494,306		3,801	3.05	%		455,962		8,018	2.35	%
Total interest-bearing deposits		1,176,577		6,648	2.24	%		1,163,883		15,041	1.73	%
Borrowings:
Repurchase agreements		31,252		249	3.16	%		30,330		608	2.68	%
Federal funds purchased		4,771		44	3.66	%		5,279		132	3.34	%
Borrowings and subordinated debentures		157,590		1,700	4.28	%		131,082		4,076	4.16	%
Total interest-bearing liabilities		1,370,190		8,641	2.50	%		1,330,574		19,854	2.00	%
Noninterest-bearing liabilities:
Demand deposits		482,336						480,793
Other liabilities		102,445						96,879
Total liabilities		1,954,971						1,908,246
Stockholders’ equity		517,968						518,016
Total liabilities and stockholders’ equity	$	2,472,939					$	2,426,262
Net interest income			$	25,873					$	77,071
Net interest margin					5.41	%					5.56	%

(1) Yields on loans and securities have not been adjusted to a tax-equivalent basis because the impact is not material.

(2) Includes average non-accrual loans of $9.2 million and $10.3 million for the three and nine month periods ended September 30, 2005, respectively.

(3) Net loan fees of $1.8 million and $5.9 million for the three and nine month periods ended September 30, 2005, 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.

Provision for Loan Losses

The provision for loan losses represents a charge against earnings. The provision is that amount required to maintain the allowance for loan losses at a level that in our judgment, is adequate to absorb loan losses inherent in the loan portfolio. In periods when an existing allowance for loan losses is determined to exceed the amount required, the allowance for loan losses is reduced, which decreases the charge to earnings through the provision for loan losses. When an existing allowance for loan losses is deemed to be understated, an additional provision is recorded, resulting in an additional charge to earnings through the provision for loan losses.

We recorded a charge to earnings through the provision for loan losses of $1.7 million for the nine months ended September 30, 2005 and $4.7 million for the combined nine-month period ended September 30, 2004. We recorded the 2005 provision due to the deterioration of several large loans during the first three months of 2005. The 2004 change reflected a $3.7 million charge during the combined three-month period ended September 30, 2004 that was due to a deterioration of several large loans in the loan portfolio.

21

Noninterest Income

The following table presents the major categories of noninterest income:

	Nine months Ended September 30,
	2005		Combined 2004			Increase (Decrease)
	(In thousands)
Customer service and other fees	$	5,957	$	2,974		$	2,983
Gain (loss) on sale of securities		11		(66	)		75
Gain on sale of assets		601		233			368
Net gain on sale of loans		1,060		—			1,060
Other		20		84			(62	)
Total noninterest income	$	7,649	$	3,225		$	4,424

Total noninterest income of $7.6 million for the nine months ended September 30, 2005 increased $4.4 million over the combined nine-month period ended September 30, 2004. The acquisition of Guaranty resulted in a $5.0 million increase to noninterest income. Excluding the impact of the Guaranty transaction, noninterest income decreased by $0.3 million, primarily due to a decrease in service charges and insufficient check fees.

Noninterest Expense

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

	Nine months Ended September 30,
	2005		Combined 2004			Increase
	(In thousands)
Salaries and employee benefits	$	30,224	$	8,938		$	21,286
Occupancy		4,939		1,635			3,304
Furniture and equipment		2,590		910			1,680
Amortization		9,157		296			8,861
Professional services		1,795		644			1,151
Merger, acquisition and transition expenses		8,436		2,240	��		6,196
Other		9,786		4,407			5,379
Total noninterest expense	$	66,927	$	19,070		$	47,857

Total noninterest expense increased $47.9 million from the combined nine-month period ended September 30, 2004 to $66.9 million for the nine months ended September 30, 2005. Excluding the $44.2 million of noninterest expenses that are the result of the Guaranty acquisition, we incurred an increase in our noninterest expenses of $3.7 million. The primary drivers of the $3.7 million expense were $1.1 million in salaries and benefits, $1.4 million of merger and acquisition costs, $1.0 million in professional services, and $0.9 million of amortization expense. These increases were offset by $0.7 million in reduced costs for other noninterest expenses. The increase in salaries and benefits is the result of compensation programs for designated bank and holding company employees and officers deemed to be key contributors to the success of the Company. The costs associated with the programs have been recorded at the holding company. The merger and acquisition costs incurred during 2005 are associated with the acquisition and integration of Guaranty, while the costs incurred during the combined nine-month period ended September 30, 2004 constituted acquisition related costs for the acquisition of our Predecessor. Our professional services expense has increased primarily due to the costs of registering and operating as a company with publicly traded securities. We have contracted for internal audit and Sarbanes-Oxley implementation services and changed auditors in 2005. The increased amortization expense is the result of amortization of the core deposit intangible asset that was recorded in connection with the acquisition of our Predecessor.

22

Financial Condition

The following table sets forth certain key consolidated balance sheet data:

	At September 30, 2005		At December 31, 2004		Increase (Decrease)
	(In thousands)
Earning assets	$	1,917,580	$	1,828,853	$	88,727
Total assets		2,540,169		2,399,201		140,968
Deposits		1,721,609		1,678,499		43,110

Loans

The following table sets for the amount of our loans outstanding at the dates indicated.

	September 30, 2005			December 31, 2004			Increase (Decrease)			% Change
	(In thousands)
Real estate—mortgage	$	583,795		$	719,943		$	(136,148	)	(18.9	)%
Real estate—construction		451,137			308,545			142,592		46.2	%
Commercial		587,762			458,171			129,591		28.3	%
Agricultural		65,466			62,199			3,267		5.3	%
Consumer		50,776			64,625			(13,849	)	(21.4	)%
Leases receivable and other		26,341			28,505			(2,164	)	(7.6	)%
Total gross loans		1,765,277			1,641,988			123,289		7.5	%
Less: allowance for loan losses		(25,019	)		(25,022	)		(3	)	0.0	%
Unearned discount		(1,744	)		(167	)		1,577		944.3	%
Net loans	$	1,738,514		$	1,616,799		$	121,715		7.5	%
Loans held for sale at lower of cost or market	$	6,015		$	7,301		$	(1,286	)	(17.6	)%

Our lending portfolio increased 7.5%, or $121.7 million from December 31, 2004. We maintained a diversified loan portfolio and experienced balanced growth throughout our loan portfolio. The changes in balances for real estate – mortgage, real estate – construction and commercial loans was primarily driven by a change in classification methodology implemented after the acquisition of Guaranty to ensure consistency between the bank subsidiaries.

Nonperforming Assets

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

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

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

	September 30, 2005			December 31, 2004			Increase (Decrease)
	(Dollars in thousands)
Nonaccrual loans, not restructured	$	8,352		$	11,905		$	(3,553	)
Accruing loans past due 90 days or more		1,806			2,494			(688	)
Total nonperforming loans (NPLs)		10,158			14,399			(4,241	)
Other real estate owned		2,532			5,707			(3,175	)
Total nonperforming assets (NPAs)	$	12,690		$	20,106		$	(7,416	)
Selected ratios:
NPLs to total loans held for investment		0.58	%		0.88	%		(0.30	)%
NPAs to total assets		0.50	%		0.84	%		(0.34	)%

23

Nonperforming loans decreased by $4.2 million from December 31, 2004 to $10.2 million as of September 30, 2005. The majority of this decrease is due to a $3.6 million decrease in the nonaccrual loans as of September 30, 2005. Other real estate owned (“OREO”) decreased $3.2 million from December 31, 2004 to $2.5 million as of September 30, 2005. During 2005, we sold two OREO properties for $3.1 million that were held by Guaranty and had a carrying value of approximately $2.7 million. We believe that our OREO properties are readily marketable.

Impaired Loans

Impaired loans are commercial, commercial real estate, other real estate-related and individually significant mortgage and consumer loans for which it is probable that we will not be able to collect all amounts due according to the original contractual terms of the loan agreement. The category of impaired loans is not coextensive with the category of nonaccrual loans, although the two categories overlap. Nonaccrual loans include impaired loans which are not reviewed on an individual basis for impairment, and represent loans on which the accrual of interest is discontinued when collectibility of principal and interest is uncertain or payments of principal or interest have become contractually past due 90 days. We may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired if it is probable that we will collect all amounts due in accordance with the original contractual terms of the loan or the loan is not a commercial, commercial real estate, other real estate-related or an individually significant mortgage or consumer loan.

In determining whether or not a loan is impaired, we apply our loan review procedures on a case-by-case basis taking into consideration the circumstances surrounding the loan and borrower, including the collateral value, the reasons for the delay, the borrower’s prior payment record, the amount of the shortfall in relation to the principal and interest owed, and the length of the delay. We measure impairment on a loan-by-loan basis using either the present value of expected future cash flows discounted at the loan’s effective interest rate or at the fair value of the collateral if the loan is collateral dependent, less estimated selling costs. At September 30, 2005, we had $27.8 million of impaired loans. We had $17.4 million of loans out of the $27.8 million of impaired loans that had sufficient collateral to ensure collection of the outstanding loan balance. Included in the allowance for loan losses was $10.4 million for impaired loan balances in excess of the respective estimated collateral value.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level that, in our judgment, is adequate to absorb loan losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectibility of the loan portfolio, historical loss experience, and other significant factors affecting loan portfolio collectibility, including the 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.

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

As discussed above, a loan is considered impaired when it is probable that we will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. A loan that has been purchased or acquired in a transfer is considered impaired when, based on current information and events, it is probable that we will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. We have evaluated the loans we acquired in our acquisitions of our predecessor and Guaranty for impairment, and management believes that no additional impairment exists at this time. Losses on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs.

In estimating the general allowance for loan losses, we group the balance of the loan portfolio into segments that have common characteristics, such as loan type, collateral type or risk rating. Loans typically segregated by risk rating are those that have been assigned risk ratings using regulatory definitions of “special mention,” “substandard,” and “doubtful”. Loans graded as “loss” are generally charged off immediately.

For each general allowance portfolio segment, we apply loss factors to calculate the required allowance. These loss factors are based upon at least three years of historical loss rates, adjusted for qualitative factors affecting loan portfolio collectibility as described above. Qualitative adjustment factors are expressed in basis points and adjust historical loss factors downward up to 40 basis points and upward up to 75 basis points.

24

The specific allowance for impaired loans and the general allowance are combined to determine the required allowance for loan losses. The amount calculated is compared to the actual allowance for loan losses at each quarter end and any shortfall is covered by an additional provision for loan losses. As a practical matter, our allowance methodology may show that an unallocated allowance exists at quarter end.

	Nine months Ended September 30, 2005
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance, December 31, 2004	$	25,022
Loan charge offs
Real estate—mortgage		1,216
Real estate—construction		20
Commercial		921
Agricultural		—
Consumer		226
Leases receivable and other		98
Total loan charge offs		2,481
Recoveries:
Real estate—mortgage		95
Real estate—construction		84
Commercial		422
Agricultural		7
Consumer		69
Lease receivable and other		101
Total recoveries		778
Net loan charge offs		1,703
Provision for the allowance for loan losses		1,700
Ending balance, September 30, 2005	$	25,019
Loans held for investment	$	1,763,533
Average loans held for investment		1,679,761
Non-performing loans		10,158
Selected ratios:
Net charge-offs to average loans held for investment		0.10	%
Provision for the allowance for loans to average loans held for investment		0.10	%
Allowance for loans to loans held for investment at end of period		1.42	%
Allowance for loans to nonperforming loans		246.30	%

The allowance for loan losses of $25.0 million at September 30, 2005 represented 1.4% of total loans and 246.3% of nonperforming loans as of that date. At December 31, 2004 the allowance for loan losses of $25.0 million represented 1.5% of total loans and 173.8% of nonperforming loans.

Investment Securities

We manage our investment portfolio principally to provide liquidity and balance our overall interest rate risk. To a lesser extent, we manage our investment portfolio to provide earnings with a view to minimize credit risk.

The carrying value of our portfolio of investment securities at September 30, 2005 and December 31, 2004 was as follows:

	September 30, 2005		December 31, 2004		Increase (Decrease)			% Change
	(In thousands)
Securities available-for-sale:
U.S. Treasury securities	$	16,177	$	38,170	$	(21,993	)	(57.6	)%
U.S. Government agencies		9,483		8,479		1,004		11.8	%
Obligations of state and political subdivisions		54,733		34,321		20,412		59.5	%
Mortgage backed securities		40,697		43,713		(3,016	)	(6.9	)%
Marketable equity securities		1,007		1,004		3		0.3	%
Total securities available-for-sale	$	122,097	$	125,687	$	(3,590	)	(2.9	)%
Securities held-to-maturity:
Mortgage-backed securities	$	386	$	640	$	254		(39.7	)%
Bank stocks, at cost	$	24,834	$	12,770	$	12,064		94.5	%

25

The carrying value of our investment securities at September 30, 2005 totaled $147.3 million compared to $139.1 million at December 31, 2004. We restructured the makeup of our investment portfolio during the first nine months of 2005 away from lower yielding securities to somewhat higher yielding securities with acceptable risk profiles. This restructuring accounts for the majority of the changes in the carrying values from December 31, 2004.

Borrowings

Excluding unamortized premium of $247,000, the Company had a $41,229,000 aggregate balance of subordinated debentures outstanding with a weighted average cost of 7.9% at September 30, 2005. 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. During the nine months ended September 30, 2005, $603,000 of premium on these trust preferred securities was amortized against interest expense.

Our borrowings at September 30, 2005 increased by $78.6 million from December 31, 2004 to $118.3 million. The primary reason for the additional borrowings was to fund the increase in our loan portfolio. For the period ended September 30, 2005, our loan portfolio increased by $120.4 million, which was funded by increased deposits of $43.1 million and the additional borrowings.

Borrowed funds include Treasury Tax and Loan notes, Federal Home Loan Bank (“FHLB”) borrowings, and a revolving line of credit with First Tennessee Bank National Association (“First Tennessee”). The FHLB borrowings are collateralized by a blanket pledge and security agreement and the stock of the Company’s subsidiaries. The Company had $118,335,000 and $39,770,000 outstanding under these borrowings at September 30, 2005 and December 31, 2004, with a total commitment of $275,219,000 at September 30, 2005.

On November 8, 2005, the Company entered into a $70 million 364-day Revolving Credit Agreement with U.S. Bank National Association. This new revolving credit facility replaces the $20 million revolving credit facility the Company had in place with First Tennessee, which was terminated in connection with the Company entering into the new credit facility with U.S. Bank. The new credit facility is secured by a pledge of 100% of the outstanding capital stock of the Company’s bank subsidiary, Guaranty Bank and Trust Company, pursuant to a Pledge Agreement, dated as of November 8, 2005.

Capital Resources

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

At September 30, 2005, the Company had a leverage ratio of 9.01%, Tier 1 risk-weighted capital ratio of 9.61% and total risk-weighted capital ratio of 10.86%. The Company actively monitors its regulatory capital ratios to ensure that the Company and its bank subsidiaries are well capitalized under the applicable regulatory framework.

Contractual Obligations

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.

26

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

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

	September 30, 2005 (Successor)		December 31, 2004 (Successor)
	(In thousands)
Commitments to extend credit	$	563,214	468,059
Standby letters of credit		33,425	71,266
Commercial letters of credit		232	574

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Several of the commitments may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer. Commitments to extend credit under overdraft protection agreements are commitments for possible future extensions of credit to existing deposit customers. These lines of credit are uncollateralized and usually do not 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 Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Substantially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments if deemed necessary.

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

Off Balance Sheet Arrangements

We do not have off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, liquidity, capital expenditures or capital resources.

Liquidity

Based on our existing business plan, we believe that our level of liquid assets is sufficient to meet our current and presently anticipated funding needs.

On a stand-alone basis, we currently rely on dividends from our subsidiary banks as the main source of liquidity. At September 30, 2005, the amount available for dividends from our banks, without regulatory approval, was $22.0 million. We require liquidity for the payment of interest on the subordinated debentures, for operating expenses, principally salaries and benefits, stock redemption and for the payment of dividends to our shareholders, if any.

The banks rely on deposits as their principal source of funds and, therefore, must be in a position to service depositors’ needs as they arise. Our goal is to maintain a loan-to-deposit ratio (total loans held for sale plus total loans and leases held for investment to total deposits) below approximately 90% and a liquidity ratio (liquid assets, including cash and due from banks, Federal funds sold and investment securities not pledged as collateral expressed as a percentage of total deposits) above approximately 15%.

Our deposits tend to be cyclical, decreasing at the beginning of the year and ramping up during the balance of the year. In addition, while fluctuations in the balances of a few large depositors may cause temporary increases and decreases in liquidity from time to time, we have not experienced difficulty in dealing with such fluctuations from existing liquidity sources.

27

Our liquidity may be impacted negatively, however, by several other factors, including expenses associated with unforeseen or pending litigation.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

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

Our individual bank and holding company Asset Liability Management Committees, or our ALCOs, address interest rate risk. The committees are comprised of members of our senior management, with a board member on the holding company ALCO. 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 a quarterly basis using traditional gap analysis, earnings at risk analysis and economic value at risk analysis under 100 and 200 basis point change scenarios. Each of these analyses measures different interest rate risk factors inherent in the balance sheet. Traditional gap analysis, although not a complete view of these risks, provides a fair representation of our current interest rate risk exposure. Traditional gap analysis calculates the dollar amount of mismatches between assets and liabilities, at certain time periods, whose interest rates are subject to repricing at their contractual maturity date or repricing period.

Gap Analysis

A traditional measure of a financial institution’s interest rate risk is the static gap analysis. A static gap is the difference between the amount of assets and liabilities that are expected to mature or reprice within a specific period. Generally, a positive gap benefits an institution during periods of rising interest rates, and a negative gap benefits an institution during periods of declining interest rates.

28

At September 30, 2005, we had a positive gap of $198 million or 7.8% percent of our total assets, that would be subject to repricing within one year, with a total positive gap of $555 million or 21.9% of our total assets. The following table sets forth information concerning repricing opportunities for our interest-earning assets and interest bearing liabilities as of September 30, 2005. The amount of assets and liabilities shown within a particular period were determined in accordance with their contractual maturities, except that adjustable rate products are included in the period in which they are first scheduled to adjust and not in the period in which they mature. Such assets and liabilities are classified by the earlier of their maturity or repricing date.

	Less than 3 months			3 months to 1 year			1 to 5 years			Over 5 years			Non-rate sensitive			Total
	(In thousands)
Interest-bearing cash and cash equivalents	$	20,735		$	5,000		$	—		$	—		$	—		$	25,735
Investment securities		35,746			20,880			22,995			42,860			24,834			147,317
Loans, gross		1,183,637			225,207			279,452			74,694			6,558			1,769,548
All other assets		53,922			8,242			11,456			8,341			515,610			597,569
Totals	$	1,294,040		$	259,329		$	313,903		$	125,895		$	547,002		$	2,540,169
Deposits	$	784,777		$	350,378		$	54,484		$	—		$	531,970		$	1,721,609
Assets under repurchase agreements and federal funds purchases		31,304			—			—			—			—			31,304
Borrowings		109,246			—			4,871			4,218			—			118,335
Subordinated debentures		—			25,764			—			15,712			—			41,476
All other liabilities		47,235			7,021			2,818			—			48,337			105,411
Stockholder’s equity		—			—			—			—			522,034			522,034
Totals	$	972,562		$	383,163		$	62,173		$	19,930		$	1,102,341		$	2,540,169
Period gap		321,478			(123,834	)		251,730			105,965			(555,339	)
Cumulative gap		321,478			197,644			449,374			555,339
Cumulative rate sensitive gap %		12.7	%		7.8	%		17.7	%		21.9	%

ITEM 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934). The Company’s disclosure controls were designed to provide a reasonable assurance that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls’ stated goals. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer, have concluded that the Company’s disclosure controls and procedures are effective at September 30, 2005 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.

29

PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

On December 31, 2004, an adversary proceeding was filed in the United States Bankruptcy Court for the District of Colorado, by the trustees of the Will Hoover Company, or the Hoover Company, and William Gordon Hoover, Jr., or Hoover, seeking to avoid certain transfers that occurred over a four-year period commencing in 1999 under the United States Bankruptcy Code. The trustees allege that certain transfers were made by the Hoover Company and Hoover with actual fraudulent intent, that the transfers were made for less than reasonably equivalent value and occurred at a time when the Hoover Company and Hoover were insolvent, or were rendered insolvent by the transfers, and that certain other transfers were preferential as to other creditors, were made for less than reasonably equivalent value or were made by the Hoover Company or Hoover with actual fraudulent intent. On September 7, 2005, the Court granted in part our motion for summary judgment and dismissed $8.5 million of the claims relating to alleged transfers for payment of items credited in the check collection process. On November 10, 2005, the trustees filed a motion requesting reconsideration of the order dismissing those claims. We intend to file a response opposing the trustees’ motion. We intend to continue to vigorously contest the remaining claims, which amount to approximately $2.5 million.

On July 22, 2005 and August 18, 2005, two separate but similar actions were filed in the Denver District Court, Denver, Colorado by investors who provided funds to Hoover, the Hoover Company or related entities against Guaranty Bank and Trust Company and a former officer. The investors allege that certain activities of Guaranty Bank and its former officer with respect to the customer relationship with Hoover, the Hoover Company and related entities aided and abetted Hoover and the Hoover Company in securities violations, violations of the Colorado Organized Crime Control Act and a civil conspiracy causing the investors to incur damages. The investors are seeking actual and statutory treble damages against Guaranty Bank and its former officer. The alleged actual losses claimed in connection with such activities are in excess of $13.1 million. We intend to vigorously defend these actions.

At this time, we cannot determine whether the outcome of the above matters will have a material adverse impact on our consolidated financial position or results of operations.

We are party to various other legal proceedings in the ordinary course of business. We do not believe that the outcome of any of these matters will have a material adverse effect on our consolidated financial position or results of operations.

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

None.

ITEM 3. Defaults Upon Senior Securities

None.

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

None.

ITEM 5. Other Information

On November 8, 2005, the Company entered into a $70 million 364-day Revolving Credit Agreement with U.S. Bank National Association. This new revolving credit facility replaces the $20 million revolving credit facility the Company had in place with First Tennessee Bank National Association, which was terminated in connection with the Company entering into the new credit facility with U.S. Bank. The new credit facility is secured by a pledge of 100% of the outstanding capital stock of the Company’s bank subsidiary, Guaranty Bank and Trust Company, pursuant to a Pledge Agreement, dated as of November 8, 2005.

Under the new credit facility, the Company is able to borrow at an interest rate equal to, at the Company’s option, either (i) the lending bank’s federal funds rate plus 1.50%, (ii) the lending bank’s prime rate minus 0.75% or (iii) LIBOR plus 1.50%. As of November 10, 2005, the Company had an aggregate of $11.7 million in debt outstanding under the new credit facility. The new credit facility requires the Company to maintain certain financial and capital ratios, and contains, among other things, other covenants, conditions, representations and warranties and events of default customary for facilities of this type.

U.S. Bank performs various commercial banking services for the Company, for which they receive usual and customary fees.

30

ITEM 6. Exhibits

Exhibit Number	Description
3.1	Certificate of Incorporation of the Company, as amended to date (incorporated herein by reference from Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-124855), as amended).
3.2	Bylaws of the Company, as amended to date (incorporated herein by reference from Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-124855), as amended).
10.1	Revolving Credit Agreement, dated as of November 8, 2005, between the Company and U.S. Bank National Association.
10.2	Pledge Agreement, dated as of November 8, 2005, between the Company and U.S. Bank National Association.
31.1	15d-14(a) Certification of Chief Executive Officer.
31.2	15d-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certification of Chief Executive Officer.
32.2	Section 1350 Certification of Chief Financial Officer.

31

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: November 11, 2005	CENTENNIAL BANK HOLDINGS, INC.
	/s/    PAUL W. TAYLOR
	Paul W. Taylor
	Executive Vice President and Chief Financial Officer

32