<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q.- QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 1998.
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 22-25144
FIRST STATE BANCORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW MEXICO 85-0366665
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7900 JEFFERSON NE
ALBUQUERQUE, NEW MEXICO 87109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(505) 241-7500
(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 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes XX No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,588,295 shares of common
stock, no par value, outstanding as of May 7, 1998.
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARY
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 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 7
Item 6. Exhibits and Reports on Form 8-K 7
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 1998 1997
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 22,339,284 $ 20,999,596
Federal funds sold 7,600,000 11,000,000
--------------------------
Total cash and cash equivalents 29,939,284 31,999,596
Investment securities:
Held to maturity (at amortized cost, market value of $18,743,095 at
March 31, 1998, and $15,291,473 at December 31, 1997) 18,690,109 15,235,174
Available for sale (at market, amortized cost of $35,778,606 at
March 31, 1998, and $46,212,050 at December 31, 1997) 35,846,521 46,274,195
--------------------------
Total Investments 54,536,630 61,509,369
--------------------------
Loans and leases net of unearned interest 304,649,546 288,368,847
Less allowance for loan and lease losses 3,248,849 3,279,457
--------------------------
Net loans and leases 301,400,697 285,089,390
Premises and equipment 14,944,363 14,056,096
Accrued interest receivable 2,394,352 2,278,376
Other real estate owned 1 ,356,014 1,327,192
Goodwill, net 751,624 777,675
Other assets 3,700,273 4,006,630
--------------------------
Total assets $409,023,237 $401,044,324
==========================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 75,577,037 $ 72,773,120
Interest-bearing 274,681,715 272,817,577
--------------------------
Total deposits 350,258,752 345,590,697
Securities sold under agreements to repurchase 12,381,368 10,105,190
Other liabilities 2,887,366 2,597,599
Long-term debt 15,026,574 15,036,463
--------------------------
Total liabilities 380,554,060 373,329,949
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized, none -- --
issued or outstanding
Common stock, no par value, 20,000,000 shares authorized, issued and
outstanding 2,587,794 at March 31, 1998 and 2,583,867 at December 31,
1997 16,142,505 16,075,878
Retained earnings 12,281,848 11,597,484
Unrealized gains on investment securities available for sale 44,824 41,013
--------------------------
Total stockholders' equity 28,469,177 27,714,375
--------------------------
Total liabilities and stockholders' equity $409,023,237 $401,044,324
==========================
Book value per share $11.01 $10.73
==========================
Tangible book value per share $10.70 $10.40
==========================
See accompanying notes to consolidated condensed financial statements.
</TABLE>
1
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Statements of Operations
For the three months ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
March 31 March 31
1998 1997
--------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans and leases $7,540,342 $6,488,162
Interest on investment securities:
Taxable 811,715 654,511
Nontaxable 38,129 43,489
Federal funds sold 72,747 25,191
--------------------------
Total interest income 8,462,933 7,211,353
--------------------------
Interest expense:
Deposits 2,819,350 2,526,453
Short-term borrowings 138,442 200,709
Long-term debt and capital lease 287,599 71,302
--------------------------
Total interest expense 3,245,391 2,798,464
--------------------------
Net interest income before provision for loan and lease losses 5,217,542 4,412,889
Provision for loan and lease losses 555,000 262,500
--------------------------
Net interest income after provision for loan and lease losses 4,662,542 4,150,389
--------------------------
Other Income:
Service charges on deposit accounts 427,619 317,811
Other banking service fees 85,640 31,785
Credit card transaction fees 254,400 246,485
Operating lease income 212,982 237,563
Other 135,511 143,966
--------------------------
Total other income 1,116,152 977,610
--------------------------
Other expenses:
Salaries and employee benefits 2,087,771 1,737,114
Occupancy 541,398 526,484
Data Processing 166,242 137,643
Credit card interchange 134,623 144,519
Equipment 350,820 300,272
Leased equipment depreciation 137,301 154,524
Legal, accounting and consulting 131,555 107,835
Marketing 163,621 194,517
Other real estate owned expenses 23,723 60,349
Amortization of goodwill 26,051 26,051
Other 716,598 695,580
--------------------------
Total other expenses 4,479,703 4,084,888
--------------------------
Income before income taxes 1,298,991 1,043,111
Income tax expense 459,497 333,539
--------------------------
Net income $ 839,494 $ 709,572
==========================
Basic earnings per share $0.32 $0.32
==========================
Diluted earnings per share $0.29 $0.29
==========================
Dividends per common share $0.06 $0.06
==========================
</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, 1998, and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
Operating activities:
Net Income $ 839,494 $ 709,572
---------------------------
Adjustments to reconcile net income to cash provide by operations:
Provisions for loan and lease losses 555,000 262,500
Provision for decline in value of other real estate owned -- 21,300
Depreciation and amortization 441,212 291,026
Increase in accrued interest receivable (115,976) (388,594)
(Increase) decrease in other assets, net 304,394 (985,475)
Increase in other liabilities, net 289,767 638,232
---------------------------
Total adjustments 1,474,397 (161,011)
---------------------------
Net cash provided by operating activities 2,313,891 548,561
---------------------------
Cash flows from investing activities:
Net increase in loans (16,866,307) (11,430,216)
Purchases of investment securities available for sale (7,934,400) (11,617,368)
Maturities of investment securities available for sale 18,425,000 --
Purchases of investment securities held to maturity (28,160,000) --
Maturities of investment securities held to maturity 24,700,000 2,700,000
Purchases of premises and equipment (1,355,516) (25,803)
Additions to other real estate owned, net (28,822) --
---------------------------
Net cash used in investing activities (11,220,045) (20,373,387)
---------------------------
Cash flows from financing activities:
Net increase in interest bearing deposits 1,864,138 23,577,578
Net increase in noninterest bearing deposits 2,803,917 6,115,242
Net increase (decrease) in securities sold under repurchase agreements 2,276,178 (2,606,573)
Payments on Federal Home Loan Bank borrowings -- (970,000)
Payments on long-term debt (9,889) (10,076)
Federal funds purchased, net -- (1,500,000)
Common stock issued 66,627 117,961
Dividends paid (155,129) (109,960)
---------------------------
Net Cash provided by financing activities: 6,845,842 24,614,172
---------------------------
Increase (decrease) in cash and cash equivalents (2,060,312) 4,789,346
Cash and cash equivalents at beginning of period 31,999,596 15,711,932
---------------------------
Cash and cash equivalents at end of period $ 29,939,284 $ 20,501,278
===========================
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans -- $ 93,578
===========================
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, 1997.
The consolidated condensed financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and instructions to Form 10-Q. 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, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
2. EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128). FAS 128
requires the computation of basic earnings per share and diluted earnings per
share. Basic earnings per share is computed by dividing income available to
common stockholders (the numerator) by the weighted-average number of common
shares outstanding during the period (the denominator). Diluted earnings per
share is calculated by increasing the basic earning per share denominator by
the number of additional common shares that would have been outstanding if
dilutive potential common shares for options, warrants, and convertible
securities had been issued and increasing the basic earnings per share numerator
by the after tax amount of interest and amortization associated with the
convertible debentures. FAS 128 is effective for years ended after December 15,
1997, and is required to be applied retroactively upon adoption. All previous
periods have been restated to conform to the requirements of FAS 128. The
following is a reconciliation of the numerators and denominators of basic and
diluted earnings per share for the three months ended March 31:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available to common
stockholders $ 839,494 2,585,422 $0.32 $709,572 2,197,173 $0.32
===== =====
Effect of dilutive securities:
Options 99,219 75,741
Warrants -- 15,274
Convertible debentures $ 179,510 823,881 $ 52,620 349,790
---------- --------- -------- ---------
Diluted EPS:
Net income available to common
stockholders plus interest and
amortization on convertible
debentures $1,019,004 3,508,522 $0.29 $762,192 2,637,978 $0.29
========== ========= ===== ======== ========= =====
</TABLE>
4
<PAGE>
3. CONVERTIBLE SUBORDINATED DEBENTURES
On April 28, 1998, the Company notified the holders of it's 7.5% Convertible
Subordinated Debentures due 2017, that the Debentures would be called for
redemption at 100% of the original principal plus accrued interest on May 29,
1998. The balance of the Debentures was $13,800,000 at March 31, 1998.
4. REPORTING COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued FAS No.
130, "Reporting Comprehensive Income" (FAS 130). FAS No. 130 requires
disclosure in the financial statements of comprehensive income that encompasses
earnings and those items currently required to be reported directly in the
equity section of the balance sheet, such as unrealized gains and losses on
available-for-sale securities. Management has adopted the provisions of FAS 130
effective January 1, 1998. The following table shows comprehensive income for
the periods ended March 31:
<TABLE>
<CAPTION>
1998 1997
======================
<S> <C> <C>
Net Income $839,494 $ 709,572
---------------------
Other Comprehensive income, net of tax
Unrealized gains (losses) on securities
arising during the period 3,811 (189,049)
=====================
Comprehensive income $843,305 $ 520,523
=====================
</TABLE>
5. ACCOUNTING STANDARD ISSUED NOT YET IMPLEMENTED
In June 1997, the FASB issued FAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 requires disclosures
about segments of an enterprise and related information about the different
types of business activities in which an enterprise engages and the different
economic environments in which it operates. FAS 131 is effective for the
Company's financial statements beginning December 31, 1998. The impact of FAS
131 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 $8.0 million from $401.0 million as of
December 31, 1997, to $409.0 million as of March 31, 1998, due to increasing
market share and economic growth in the Company's market areas. For the first
three months of 1998, net loans increased by $16.2 million from $288.4 million
to $304.6 million, while investment securities decreased by $7.0 million from
$61.5 million to $54.5 million. For the first three months of 1998, other
assets increased $701,000, primarily as a result of increases to premises and
equipment for expansion of the Company's corporate offices and operation center.
The increase in loans is due largely to the Company's efforts to increase its
market share, increased economic growth, and demand for loans in the Company's
market areas. Total commercial loans increased by approximately $1.6 million,
real estate loans increased by approximately $11.8 million, and leases increased
by approximately $3.0 million.
Investment securities decreased by $7.0 million as a result of maturities which
were used to fund loan growth.
Deposits, which are the Company's main source of funds for loans, investments
and federal funds sold, increased by $4.7 million from $345.6 million as of
December 31, 1997, to $350.3 million as of March 31, 1998. Non-interest-bearing
deposits increased by $2.8 million and interest-bearing deposits increased by
$1.9 million. For
5
<PAGE>
the first three months of 1998, other liabilities increased by $2.6 million due
largely to a $2.3 million increase in securities sold under agreements to
repurchase.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998.
Net income for the Company for the three months ended March 31, 1998, was
$839,494, an increase of $129,922 or 18.3% from $709,572 for the same period of
1997. The Company's annualized return on average assets was 0.86% for the first
quarter of 1998, compared to 0.85% for the same period of 1997.
The provision for loan losses increased by $292,500 from $262,500 for the three
months ended March 31, 1997, to $555,000 for the three months ended March 31,
1998. This increase was due to charge-offs in 1998, see--"Allowance for Loan
and Lease Losses and Non-Performing Assets."
Net interest income before provision for loan losses increased $805,000 to
$5.2 million for the three months ended March 31, 1998, from $4.4 million for
the three months ended March 31, 1997, primarily due to increased loan volume
and increased investment securities. The Company's net interest margin was
5.92% at March 31, 1998, compared to 5.87% at March 31, 1997.
Total non-interest income increased by $138,542 to $1.1 million for the three
months ended March 31, 1998, compared to $977,610 for the same period of 1997,
primarily due to increased service charges on deposit accounts, resulting from
increased deposits.
Total non-interest expense increased by $400,000 to $4.5 million for the first
quarter of 1998, compared to $4.1 million for the same period of 1997. Salaries
and employee benefits increased by $350,657 which reflects annual salary
increases, additions to personnel to service loan and deposit growth, and an
$85,000 charge relating to compensation expense for employee stock options.
ALLOWANCE FOR LOAN AND LEASE LOSSES AND NON-PERFORMING ASSETS
The following tables set forth the Allowance for Loan and Lease Losses and Non-
Performing assets.
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31,1998 December 31, 1997 March 31, 1997
ALLOWANCE FOR LOAN AND LEASE LOSSES: --------------- ------------------ ---------------
<S> <C> <C> <C>
Balance beginning of Period $3,279 $2,510 $2,510
Provision for loan and lease losses 555 1,537 263
Net charge-offs 585 768 53
---------------------------------------------------
Balance end of period $3,249 $3,279 $2,720
===================================================
Allowance for loan and lease losses to total loans
and leases 1.07 1.14% 1.04%
Allowance for loan and lease losses to
non-performing loans and leases 74% 102% 146%
NON-PERFORMING ASSETS:
March 31,1998 December 31, 1997 March 31, 1997
-------------- ----------------- --------------
Accruing loans - 90 days past due $ 48 $ 107 $ 111
Non-accrual loans 4,359 3,123 1,747
Restructured loans -- -- --
---------------------------------------------------
Total non-performing loans 4,407 3,230 1,858
Other real estate owned 1,356 1,327 1,435
---------------------------------------------------
Total non-performing assets $5,763 $4,557 $3,293
===================================================
Potential problem loans and leases $3,960 $3,873 --
===================================================
Total non-performing assets to total assets 1.41% 1.14% 0.94%
</TABLE>
Loans secured by real estate and other real estate owned comprise approximately
$4.9 million of the non-performing assets as of March 31, 1998. Based primarily
on the appraised values of the underlying properties, specific reserves of
$99,000, within the Allowance for Loan and Lease Losses, have been established
for these
6
<PAGE>
loans and properties. Management believes that the economies in its
market areas are strong and has not made any changes to its underwriting
policies.
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 28, 1998, the Company notified the holders of it's 7.5% Convertible
Subordinated Debentures due 2017, that the Debentures would be called for
redemption at 100% of the original principal plus accrued interest on May 29,
1998. The balance of the Debentures was $13,800,000 at March 31, 1998.
The Indenture allows management to redeem the Debentures at par if the Company's
common stock closes at 140% of the exercise price ($16.75) for 30 consecutive
trading days. As of April 24, 1998 this condition was met. Because of the
difference in the exercise price and market price management believes that most
holders will convert the Debentures into common stock prior to redemption.
Conversion of the Debentures will improve the Company's cash flow through the
elimination of debt service.
FORWARD-LOOKING STATEMENTS
Statements which are forward-looking are not historical facts, and involve risks
and uncertainties that could cause the Company's results to differ materially
from those in any forward-looking statements. These risks include the possible
loss of key personnel, need for additional capital should the Company experience
faster than anticipated growth, changes in economic conditions, interest rate
risk, factors which could affect the Company's ability to compete in its trade
areas, changes in regulations and governmental policies, and the risks described
in the Company's Securities and Exchange Commission filings.
ITEM 5. CONVERTIBLE SUBORDINATED DEBENTURE REDEMPTION
On April 28, 1998, the Company notified the holders of it's 7.5% Convertible
Subordinated Debentures due 2017, that the Debentures would be called for
redemption at 100% of the original principal plus accrued interest on May 29,
1998. The balance of the Debentures was $13,800,000 at March 31, 1998.
The Indenture allows management to redeem the Debentures at par if the Company's
common stock closes at 140% of the exercise price ($16.75) for 30 consecutive
trading days. As of April 24, 1998 this condition was met. Because of the
difference in the exercise price and market price management believes that most
holders will convert the Debentures into common stock prior to redemption.
Conversion of the Debentures will improve the Companys cash flow through the
elimination of debt service.
ITEM 6. EXHIBIT 27 FINANCIAL DATA SCHEDULE
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 13, 1998 By: Michael R. Stanford
--------------------------------------------------------
Michael R. Stanford, President & Chief Executive Officer
Date: May 13, 1998 By: H. Patrick Dee
--------------------------------------------------------
H. Patrick Dee, Executive Vice President & Chief
Operating Officer
Date: May 13, 1998 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
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,339,284
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,846,521
<INVESTMENTS-CARRYING> 18,690,109
<INVESTMENTS-MARKET> 18,743,095
<LOANS> 304,649,546
<ALLOWANCE> 3,248,849
<TOTAL-ASSETS> 409,023,237
<DEPOSITS> 350,258,752
<SHORT-TERM> 12,381,368
<LIABILITIES-OTHER> 2,887,366
<LONG-TERM> 15,026,574
0
0
<COMMON> 28,424,353
<OTHER-SE> 44,824
<TOTAL-LIABILITIES-AND-EQUITY> 409,023,237
<INTEREST-LOAN> 7,540,342
<INTEREST-INVEST> 922,591
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,462,933
<INTEREST-DEPOSIT> 2,819,350
<INTEREST-EXPENSE> 3,245,391
<INTEREST-INCOME-NET> 5,217,542
<LOAN-LOSSES> 555,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,479,703
<INCOME-PRETAX> 1,298,991
<INCOME-PRE-EXTRAORDINARY> 839,494
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 839,494
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 5.69
<LOANS-NON> 4,359,000
<LOANS-PAST> 48,000
<LOANS-TROUBLED> 3,960,000
<LOANS-PROBLEM> 5,217,542
<ALLOWANCE-OPEN> 3,279,000
<CHARGE-OFFS> 616,000
<RECOVERIES> 31,000
<ALLOWANCE-CLOSE> 3,249,000
<ALLOWANCE-DOMESTIC> 3,249,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
