<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ______________.
COMMISSION FILE NUMBER 22-25144
FIRST STATE BANCORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEW MEXICO 85-0366665
(STATE OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NO.)
111 LOMAS AVENUE N.W.
ALBUQUERQUE, NEW MEXICO 87102
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(505) 241-7500
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes XX No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,553,388 shares of common stock, no
par value, outstanding as of May 7, 1997.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(Check One):
Yes No XX
---- ----
<PAGE>
FIRST STATE BANCORPORATION
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
SIGNATURES 7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31 December 31
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 19,791,278 $ 15,711,932
Federal funds sold 710,000 -
---------------------------
Total cash and cash equivalents 20,501,278 15,711,932
Investment securities:
Held to maturity (at amortized cost, market value of $16,739,000 at
March 31, 1997, and $19,597,000 at December 31, 1996) 16,850,535 19,547,433
Available for sale (at market, amortized cost of $32,603,000 at
March 31, 1997, and $20,979,000 at December 31, 1996) 32,386,238 21,048,140
---------------------------
Total Investments 49,236,773 40,595,573
---------------------------
Loans and leases net of unearned interest 262,210,186 250,926,023
Less allowance for loan and lease losses 2,720,180 2,510,155
---------------------------
Net loans and leases 259,490,006 248,415,868
Other assets 21,513,314 20,245,072
---------------------------
Total assets 350,741,371 324,968,445
===========================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 58,154,089 $ 52,038,847
Interest-bearing 248,892,054 225,314,476
---------------------------
Total deposits 307,046,143 277,353,323
Other liabilities 21,767,193 26,564,610
---------------------------
Total liabilities 328,813,336 303,917,933
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized, none
issued or outstanding - -
Common stock, no par value, 4,000,000 shares authorized, issued and
outstanding 2,227,332 at March 31, 1997 and 2,172,357 at December 31,
1996 12,373,541 11,906,581
Retained earnings 9,697,598 9,097,986
Unrealized (losses) gains on investment securities available for sale (143,104) 45,945
---------------------------
Total stockholders' equity 21,928,035 21,050,512
---------------------------
Total liabilities and stockholders' equity $350,741,371 $324,968,445
===========================
Book value per share $9.98 $9.69
===========================
Tangible book value per share $9.63 $9.26
===========================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Statements of Operations
For the three months ended March 31, 1997, and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans and leases $6,488,162 $5,211,186
Interest on investment securities:
Taxable 654,511 480,231
Nontaxable 43,489 53,568
Federal funds sold 25,191 65,808
----------------------
Total interest income 7,211,353 5,810,793
----------------------
Interest expense:
Deposits 2,526,453 1,926,991
Short-term borrowings 200,709 116,885
Long-term debt and capital lease 71,302 106,972
----------------------
Total interest expense 2,798,464 2,150,848
----------------------
Net interest income before provision for loan and lease losses 4,412,889 3,659,945
Provision for loan and lease losses 262,500 118,500
----------------------
Net interest income after provision for loan and lease losses 4,150,389 3,541,445
----------------------
Other Income:
Service charges on deposit accounts 317,811 260,173
Other banking service fees 31,785 41,766
Credit card discount income 246,485 116,527
Operating lease income 237,563 -
Gain on sale or call of investment securities - 156
Other 143,966 188,181
----------------------
Total other income 977,610 606,803
----------------------
Other expenses:
Salaries and employee benefits 1,737,114 1,447,504
Occupancy 526,484 412,256
Data Processing 137,643 169,930
Credit card interchange 144,519 93,470
Equipment 300,272 255,793
Leased equipment depreciation 154,524 -
Legal, accounting and consulting 107,835 79,570
Marketing 194,517 161,089
Other real estate owned expenses 60,349 11,020
Amortization of intangibles 49,828 47,236
Other 671,803 727,392
----------------------
Total other expenses 4,084,888 3,405,260
----------------------
Income before income taxes 1,043,111 742,988
Income tax expense 333,539 238,393
----------------------
Net income $ 709,572 $ 504,595
======================
Earnings per common and common equivalent share $0.30 $0.24
======================
Earnings per common share-assuming full dilution $0.28 $0.22
======================
Dividends per common share $0.05 $0.05
======================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
For the three months ended March 31, 1997, and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Operating activities:
Net Income $ 709,572 $ 504,595
---------------------------
Adjustments to reconcile net income to cash provide by operations:
Provisions for loan and lease losses 262,500 118,500
Provision for decline in value of other real estate owned 21,300 -
Depreciation and amortization 291,026 303,857
Gain on call or sale of investment securities - (156)
Increase (decrease) in accrued interest receivable (388,594) 132,661
Increase in other assets, net (985,475) (243,159)
Increase in other liabilities, net 638,232 359,446
---------------------------
Total adjustments 161,011 671,149
---------------------------
Net cash provided by operating activities 548,561 1,175,744
---------------------------
Cash flows from investing activities:
Net increase in loans (11,430,216) (17,772,350)
Purchases of investment securities available for sale (11,617,368) (3,151,600)
Maturities of investment securities available for sale - 5,000,000
Purchases of investment securities held to maturity - (2,500,000)
Maturities of investment securities held to maturity 2,700,000 5,110,000
Sale of investment securities available for sale - 500,156
Purchases of premises and equipment (25,803) (511,732)
Sales of other real estate owned - 68,417
Additions to other real estate owned, net - (145,156)
---------------------------
Net cash used in investing activities (20,373,387) (13,402,265)
---------------------------
Cash flows from financing activities:
Net increase in interest bearing deposits 23,577,578 8,798,034
Net increase in noninterest bearing deposits 6,115,242 1,252,315
Net increase (decrease) in securities sold under repurchase agreements (2,606,573) 616,964
Payments on Federal Home Loan Bank borrowings (970,000) -
Payments on long-term debt (10,076) (8,210)
Federal funds purchased, net (1,500,000) -
Common stock issued 117,961 98,196
Dividends paid (109,960) (99,083)
---------------------------
Net Cash provided by financing activities: 24,614,172 10,658,216
---------------------------
Increase (decrease) in cash and cash equivalents 4,789,346 (1,568,305)
Cash and cash equivalents at beginning of period 15,711,932 14,787,266
---------------------------
Cash and cash equivalents at end of period $ 20,501,278 $ 13,218,961
===========================
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans $ 93,578 $ 128,240
===========================
Issuance of common stock upon conversion of subordinated debentures $ 349,000 -
===========================
</TABLE>
See accompanying notes to consolidated condensed financial statement
3
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements are unaudited and
include the accounts of First State Bancorporation (the "Company") and its
subsidiary, First State Bank of Taos (100% owned).
All significant intercompany accounts and transactions have been eliminated.
Information contained in the consolidated condensed financial statements and
notes thereto of the Company should be read in conjunction with the Company's
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996.
The consolidated condensed financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normally recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
Net income per common share and common equivalent share are computed by dividing
net income applicable to common stock by the total of the weighted average
number of common shares outstanding and any additional dilutive effect of stock
options and warrants outstanding during the respective periods. The dilutive
effect of stock options and warrants is computed using the average market price
of the Company's common stock for the period.
Net income per common share, assuming full dilution, is computed based on the
weighted average number of common shares outstanding during the period, and any
additional dilutive effect of stock options and warrants during the period. The
dilutive effect of outstanding stock options and warrants is computed using the
greater of the closing price or the average market price of the Company's common
stock for the period. Net income per common share, assuming full dilution, also
includes the dilution which would result if the convertible debentures
outstanding during the period had been converted at the beginning of the period.
The number of shares used in the net income per share calculations at March 31,
1997, and 1996, are as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Earnings per common and common equivalent share 2,327,203 2,072,697
Earnings per common share-assuming full dilution 2,676,993 2,623,574
</TABLE>
2. CONVERTIBLE SUBORDINATED DEBENTURES
On April 30, 1997, the Company called for redemption its 7% Convertible
Subordinated Debentures due November 3, 2003, with a balance of $3,439,000 at
March 31, 1997. Prior to the redemption date, $3,424,000 principal amount of the
debentures were converted into the Company's common stock at a conversion rate
of $10.50 per share or 326,058 shares. The remaining $15,000 were redeemed at
101% of the original principal balance plus accrued interest.
4
<PAGE>
On May 2, 1997, the Company completed an offering for $13,800,000 of 7.5%
Convertible Subordinated Debentures due 2017. The debentures pay interest semi-
annually on April 30 and October 30 until maturity, are convertible into the
Company's common stock at $16.75 per share, are callable at the Company's option
if the price of its common stock equals or exceeds 140% of the exercise price
for at least 30 consecutive trading days without any premium or at a redemption
premium as defined in the Prospectus dated April 28, 1997, beginning May 1,
2001. Management intends to use the proceeds of these debentures to provide
capital to its wholly-owned subsidiary, First State Bank of Taos, for general
corporate purposes and for possible future acquisitions.
3. ACCOUNTING STANDARD ISSUED NOT YET IMPLEMENTED
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
which supersedes Accounting Practice Bulletin No. 15, Earnings per share. SFAS
No. 128, which specifies the computation, presentation, and disclosures
requirements for earnings per share (EPS), was issued to simplify the
computation of EPS. It replaces the presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted EPS. Basic EPS,
unlike primary EPS, excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Diluted EPS is computed similarly to
fully diluted EPS under APB 15. SFAS No. 128 is effective for financial
statements for years ending after December 15, 1997. The impact of SFAS No. 128
is not expected to be material in relation to the consolidated financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED CONDENSED BALANCE SHEETS
The Company's total assets increased by $25.7 million from $325.0 million as of
December 31, 1996, to $350.7 million as of March 31, 1997, due to internal
growth. For the first three months of 1997, net loans increased by $11.1 million
from $248.4 million to $259.5 million while investment securities increased by
$8.6 million from $40.6 million to $49.2 million. For the first three months of
1997, other assets increased $1.3 million from $20.2 million to $21.5 million.
Total cash and cash equivalents increased by $4.8 million partially due to
increased reserve requirements resulting from increased deposits.
The increase in loans is due largely to the Company's efforts to increase its
market share and increased economic activity and demand for loans in the
Company's market area. Total commercial loans increased by approximately $2.0
million, real estate loans increased by approximately $5.4 million and leases
increased by approximately $3.2 million.
Investment securities increased by $8.6 million as a result of an increase in
deposits.
Deposits, which are the Company's main source of funds for loans, investments
and federal funds sold, increased by $29.6 million from $277.4 million as of
December 31, 1996, to $307.0 million as of March 31, 1997. Non interest-bearing
deposits increased by $6.1 million and interest-bearing deposits increased by
$23.5 million. For the first three months of 1997, other liabilities decreased
by $4.8 million due largely to a $2.6 million decrease in securities sold under
repurchase agreements and a $1.5 million decrease in Federal funds purchased.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997.
Net income for the Company for the three months ended March 31, 1997, was
approximately $710,000, an increase of $205,000 or 41% from $505,000 for the
same period of 1996. The Company's annualized return on average assets was 0.85%
for the first quarter of 1997, compared to 0.78% for the same period of 1996.
The provision for loan losses increased by $144,000 from $118,500 for the three
months ended March 31, 1996, to $262,500 for the three months ended March 31,
1997. This increase was due to the increases in loans.
Net interest income before provision for loan losses increased $752,944 to
$4,412,889 for the three months ended March 31, 1997, from $3,659,945 for the
three months ended March 31, 1996, primarily due to increased loan volume. The
Company's net interest margin decreased to 5.87% at March 31, 1997, from 6.42%
at March 31, 1996. This decrease is due primarily to increased competition
resulting in lower yields on real estate loans.
Total non-interest income increased by $370,807 to $977,610 for the three months
ended March 31, 1997, compared to $606,803 for the same period of 1996,
primarily due to an increase in credit card discount income of $129,958, and an
increase in income from operating leases of $237,563.
5
<PAGE>
Total non-interest expense increased by $680,128 to $4,084,888 for the first
quarter of 1997, compared to $3,404,760 for the same period of 1996. The opening
and staffing of the Bernalillo branch in August 1996, additions to personnel to
service loan and deposit growth, increased credit card interchange expense and
lease equipment depreciation accounted for a substantial portion of the increase
in non-interest expense.
LIQUIDITY AND CAPITAL EXPENDITURES
The Company's primary sources of funds are customer deposits, loan repayments,
and maturities of investment securities. The Company has additional sources of
liquidity in the form of borrowings. Borrowings include federal funds purchased,
securities sold under repurchase agreements and borrowings from the Federal Home
Loan Bank.
On April 30, 1997, the Company called for redemption its 7% Convertible
Subordinated Debentures due November 3, 2003, with a balance of $3,439,000 at
March 31, 1997. Prior to the redemption date, $3,424,000 principal amount of the
debentures were converted into the Company's common stock at a conversion rate
of $10.50 per share or 326,058 shares. The remaining $15,000 were redeemed at
101% of the original principal balance plus accrued interest.
On May 2, 1997, the Company completed an offering for $13,800,000 of 7.5%
Convertible Subordinated Debentures due 2017. The debentures pay interest semi-
annually on April 30 and October 30 until maturity, are convertible into the
Company's common stock at $16.75 per share, are callable at the Company's option
if the price of its common stock equals or exceeds 140% of the exercise price
for at least 30 consecutive trading days without any premium or at a redemption
premium as defined in the Prospectus dated April 28, 1997, beginning May 1,
2001. Management intends to use the proceeds of these debentures to provide
capital to its wholly-owned subsidiary, First State Bank of Taos, for general
corporate purposes and for possible future acquisitions.
ITEM 6. EXHIBIT 27 FINANCIAL DATA SCHEDULE
6
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST STATE BANCORPORATION
Date: May 9, 1997 By: Michael R. Stanford
----------- --------------------------------------------------------
Michael R. Stanford, President & Chief Executive Officer
Date: May 9, 1997 By: H. Patrick Dee
----------- --------------------------------------------------------
H. Patrick Dee, Executive Vice President & Chief
Operating Officer
Date: May 9, 1997 By: Brian C. Reinhardt
----------- --------------------------------------------------------
Brian C. Reinhardt, Senior Vice President and Chief
Financial Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 19,791,278
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 710,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,386,238
<INVESTMENTS-CARRYING> 16,850,535
<INVESTMENTS-MARKET> 16,739,000
<LOANS> 262,210,186
<ALLOWANCE> 2,720,180
<TOTAL-ASSETS> 350,741,371
<DEPOSITS> 307,046,143
<SHORT-TERM> 15,321,942
<LIABILITIES-OTHER> 2,746,328
<LONG-TERM> 3,698,923
0
0
<COMMON> 22,071,139
<OTHER-SE> (143,104)
<TOTAL-LIABILITIES-AND-EQUITY> 350,741,371
<INTEREST-LOAN> 6,488,162
<INTEREST-INVEST> 723,191
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,211,353
<INTEREST-DEPOSIT> 2,526,453
<INTEREST-EXPENSE> 2,798,464
<INTEREST-INCOME-NET> 4,412,889
<LOAN-LOSSES> 262,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,084,888
<INCOME-PRETAX> 1,043,111
<INCOME-PRE-EXTRAORDINARY> 709,572
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 709,572
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 5.72
<LOANS-NON> 1,746,643
<LOANS-PAST> 111,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,510,155
<CHARGE-OFFS> 82,931
<RECOVERIES> 30,456
<ALLOWANCE-CLOSE> 2,720,180
<ALLOWANCE-DOMESTIC> 2,720,180
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
