<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 June 30, 1999.
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: 3,275,444 shares of common
stock, no par value, outstanding as of June 30, 1999.
<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 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
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 10
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
First State Bancorporation and Subsidiary
Consolidated Condensed Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30 December 31
Assets 1999 1998
------ ------------- ------------
<S> <C> <C>
Cash and due from banks $ 26,636,931 $ 18,093,685
Federal funds sold 4,700,000 --
------------- ------------
Total cash and cash equivalents 31,336,931 18,093,685
Investment securities:
Held to maturity (at amortized cost, market value of $31,728,246 at
June 30, 1999, and $60,932,276 at December 31, 1998) 31,838,220 60,957,141
Available for sale (at market, amortized cost of $78,159,104 at
June 30, 1999, and $61,105,643 at December 31, 1998) 76,804,755 61,147,174
-------------- ------------
Total Investments 108,642,975 122,104,315
-------------- ------------
Loans and leases net of unearned interest 387,683,745 335,019,140
Less allowance for loan and lease losses 4,646,328 3,874,688
-------------- ------------
Net loans and leases 383,037,417 331,144,452
Premises and equipment 13,316,354 14,791,656
Accrued interest receivable 2,936,317 2,513,957
Other real estate owned 1,666,958 697,204
Goodwill, net 621,366 673,469
Other assets 5,462,664 3,635,623
-------------- ------------
Total assets $547,020,982 $493,654,361
============== ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 96,065,133 $ 87,246,490
Interest-bearing 340,161,884 321,774,705
-------------- ------------
Total deposits 436,227,017 409,021,195
Securities sold under agreements to repurchase 44,696,961 36,692,999
Other liabilities 12,764,228 2,590,480
Long-term debt 11,173,728 1,195,569
-------------- ------------
Total liabilities 504,861,934 449,500,243
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
3,427,944 at June 30, 1999 and 3,418,741 at December 31, 1998 29,250,451 29,107,146
Treasury Stock, at cost (152,500 shares at June 30, 1999) (3,012,031) ---
Retained earnings 16,814,498 15,019,562
Unrealized gains (losses) on investment securities available for sale (893,870) 27,410
-------------- ------------
Total stockholders' equity 42,159,048 44,154,118
-------------- ------------
Total liabilities and stockholders' equity $547,020,982 $493,654,361
============== ============
Book value per share $12.87 $12.92
============== ============
Tangible book value per share $12.95 $12.71
============== ============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Operations
For the three and six months ended June 30, 1999 and 1998
(unaudited)
<S> <C> <C> <C> <C>
Three Three Six Six
months months months months
Ended Ended Ended Ended
June 30 June 30 June 30 June 30
1999 1998 1999 1998
----------- --------- ----------- -----------
Interest Income:
<S> <C> <C> <C> <C>
Interest and fees on loans and leases $ 8,887,020 $7,972,817 $17,163,300 $15,513,159
Interest on investment securities:
Taxable 1,366,164 860,607 2,791,607 1,672,322
Nontaxable 58,508 38,405 116,919 76,534
Federal funds sold 50,930 126,157 111,967 198,904
----------- --------- ---------- ----------
Total interest income 10,362,622 8,997,986 20,183,793 17,460,919
Interest expense:
Deposits 2,898,090 2,871,287 5,761,166 5,690,637
Short-term borrowings 498,205 202,439 922,315 340,881
Long-term debt and capital lease 77,208 166,146 104,886 453,745
----------- ---------- ---------- ----------
Total interest expense 3,473,503 3,239,872 6,788,367 6,485,263
----------- --------- ---------- ----------
Net interest income before provision for loan and lease
losses 6,889,119 5,758,114 13,395,426 10,975,656
Provision for loan and lease losses 687,792 555,000 1,432,192 1,110,000
----------- --------- ---------- ----------
Net interest income after provision for loan and lease 6,201,327 5,203,114 11,963,234 9,865,656
----------- --------- ---------- ----------
Other Income:
Service charges on deposit accounts 509,283 433,452 978,583 861,071
Other banking service fees 102,375 86,573 192,423 172,213
Credit card transaction fees 379,214 294,955 696,604 549,355
Operating lease income 113,878 221,563 273,921 434,545
Other 186,783 217,279 457,987 352,790
----------- --------- --------- ---------
Total other income 1,291,533 1,253,822 2,599,518 2,369,974
----------- --------- --------- ---------
Other expenses:
Salaries and employee benefits 2,573,632 2,188,246 5,116,372 4,276,017
Occupancy 632,279 557,198 1,220,215 1,098,596
Data Processing 253,809 184,054 493,557 350,296
Credit card interchange 211,676 164,755 390,654 299,378
Equipment 396,487 362,224 777,421 713,044
Leased equipment depreciation 102,063 149,935 254,987 287,236
Legal, accounting and consulting 164,713 119,548 311,892 251,103
Marketing 239,475 202,989 471,637 366,610
Other real estate owned expenses 109,571 30,623 153,132 54,346
Amortization of intangibles 26,052 26,163 52,103 52,102
Other 913,743 879,380 1,726,085 1,596,090
----------- --------- ---------- ---------
Total other expenses 5,623,500 4,865,115 10,968,055 9,344,818
----------- --------- ---------- ---------
Income before income taxes 1,869,360 1,591,821 3,594,697 2,890,812
Income tax expense 642,158 559,338 1,270,373 1,018,835
----------- --------- --------- ---------
Net income $ 1,227,202 $1,032,483 $ 2,324,324 $ 1,871,977
=========== ========== =========== ===========
Earnings per common and common equivalent share $0.36 $0.35 $0.68 $0.68
=========== ========== =========== ===========
Earnings per common share-assuming full dilution $0.36 $0.32 $0.67 $0.61
=========== ========== =========== ===========
Dividends per common share $0.09 $0.06 $0.16 $0.12
=========== ========== =========== ===========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Statements of Comprehensive Income
For the three and six months ended June 30, 1999 and 1998
Three Three Six Six
months months months months
Ended June Ended June Ended June Ended June
1999 1998 1999 1998
-------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,227,202 $1,032,483 $2,324,324 $1,871,977
Other comprehensive income
net of tax-
Unrealized holding
(losses) gains on
securities available
for sale arising during
period (638,263) (39,927) (921,280) (36,116)
--------------- -------- ----------- ----------
Total comprehensive income $ 588,939 $ 992,556 $1,403,044 $1,835,861
=============== ========= =========== ==========
See accompanying notes to consolidated condensed financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Cash Flows
For the three and six months ended June 30, 1999 and 1998
(unaudited)
<S> <C> <C> <C> <C>
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30 June 30 June 30 June 30
1999 1998 1999 1998
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S>
Operating activities:
<S> <C> <C> <C> <C>
Net Income $ 1,227,202 $ 1,032,483 $ 2,324,324 $ 1,871,977
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustments to reconcile net income to cash
provide by operations:
Provisions for loan and lease losses 687,792 555,000 1,432,192 1,110,000
Provision for decline in value of other real estate owned 627 22,550 29,349 22,550
Depreciation and amortization 557,538 698,082 965,746 1,139,294
Increase in accrued interest receivable (44,380) (218,050) (422,360) (334,026)
Increase in other assets, net (1,026,516) (412,815) (1,352,442) (108,421)
Increase (decrease) in other liabilities, net (565,508) (198,286) 173,748 91,481
--------------------------------------------------------------
Total adjustments (390,447) 446,481 826,233 1,920,878
--------------------------------------------------------------
Net cash provided by operating activities 836,755 1,478,964 3,150,557 3,792,855
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from investing activities
Net increase in loans (29,888,320) (4,038,283) (54,863,495) (20,904,590)
Early payoff of Operating leases 137,492 -- 696,825 --
Purchases of investment securities available for sale (10,501,184) (7,125,000) (29,028,884) (15,059,400)
Maturities of investment securities available for sale 2,010,400 6,248,500 11,960,400 24,673,500
Purchases of investment securities held to maturity (91,286,000) (110,623,000) (180,386,000) (138,783,000)
Maturities of investment securities held to maturity 91,056,000 94,798,000 209,656,000 119,498,000
Purchases of premises and equipment (673,995) (1,638,776) (797,109) (2,994,292)
Sales of premises and equipment -- -- 543,177 --
Sales of other real estate owned 538,062 252,358 539,235 252,358
Additions to other real estate owned, net -- 186 -- (28,636)
--------------------------------------------------------------
Net cash used in investing activities (38,607,545) (22,126,015) (41,679,851) (33,346,060)
--------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in interest bearing deposits 13,842,244 5,012,905 18,387,179 6,877,043
Net increase in noninterest bearing deposits 4,120,464 5,213,803 8,818,643 8,017,720
Net increase (decrease) in securities sold (2,903,482) 10,809,442 8,003,962 13,085,620
under repurchase agreements
Federal Home Loan Bank borrowings 20,000,000 -- 20,000,000 --
Payments on long-term debt and capital lease obligations (11,041) (10,404) (21,841) (20,293)
Common stock issued 36,231 48,644 143,305 115,271
Dividends paid (306,946) (190,926) (546,677) (346,055)
Purchase of treasury stock (3,012,031) -- (3,012,031)
--------------------------------------------------------------
Net Cash provided by financing activities: 31,765,439 20,883,464 51,772,540 27,729,306
--------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (6,005,351) 236,413 13,243,246 (1,823,899)
--------------------------------------------------------------
Cash and cash equivalents at beginning of period 37,342,282 29,939,284 18,093,685 31,999,596
--------------------------------------------------------------
Cash and cash equivalents at end of period $ 31,336,931 $ 30,175,697 $ 31,336,931 $ 30,175,697
==============================================================
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans $ 1,538,338 -- $ 1,538,338 --
==============================================================
Issuance of common stock upon conversion -- $ 12,855,761 -- $ 12,855,761
of subordinated debentures ==============================================================
</TABLE>
4
<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-K for the year ended December 31, 1998.
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-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 and six month periods ended June 30, 1999, are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
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.
<TABLE>
<CAPTION>
Quarter Ended June 30,
----------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------------
Income Shares Per Income Shares Per
(Numerator) (Denominator) Share (Numerator) (Denominator) Share
Amount Amount
---------- ------------ ----- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available to common
stockholders $1,227,202 3,374,255 $0.36 $1,032,483 2,948,855 $0.35
===== =====
Effect of dilutive securities:
Options 82,021 106,953
Convertible debentures $ 96,925 463,702
Diluted EPS:
Net income available to common
stockholders plus interest and
amortization on convertible ---------- --------- ---------- ---------
debentures $1,227,202 3,456,276 $0.36 $1,129,408 3,519,510 $0.32
========== ========= ====== ========== ========= =====
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------------
Income Shares Per Income Shares Per
(Numerator) (Denominator) Share (Numerator) (Denominator) Share
---------- ------------ Amount ---------- ----------- Amount
------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income available to common
stockholders $2,324,324 3,398,451 $0.68 $1,871,977 2,767,924 $0.68
===== =====
Effect of dilutive securities:
Options 81,329 103,382
Convertible debentures $ 276,436 643,786
Diluted EPS:
Net income available to common
stockholders plus interest and
amortization on convertible
debentures ---------- --------- ---------- ---------
$2,324,324 3,479,780 $0.67 $2,148,413 3,515,092 $0.61
========== ========= ===== ========== ========= =====
</TABLE>
3. Convertible Subordinated Debentures
On April 28, 1998, the Company notified the holders of its 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 allowed management to redeem the Debentures at par if the
Company's common stock closed at 140% of the exercise price ($16.75) for 30
consecutive trading days. As of April 24, 1998 this condition was met. All of
the debenture holders exercised the conversion privilege, resulting in 823,969
shares of common stock being issued and $12.9 million being added to common
equity.
4. Treasury Stock
During the three months ended June 30, 1999 the Company purchased 152,500 shares
of its common stock totaling $3,012,031. Management does not anticipate any
additional purchases during 1999.
6
<PAGE>
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 $53.3 million from $493.7 million as of
December 31, 1998, to $547.0 million as of June 30, 1999, due to internal
growth. For the first six months of 1999, net loans increased by $51.9 million
from $331.1 million to $383.0 million while investment securities decreased by
$13.5 million from $122.1 million to $108.6 million. For the first six months
of 1999, premises and equipment decreased $1.5 million from $14.8 million to
$13.3 million and other assets increased $1.9 million from $3.6 million to $5.5
million.
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 and leases in
the Company's market area. The following table presents the amount of loans and
leases by category, at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 June 30, 1998
------------- ----------------- -------------
(in thousands)
Amount % Amount % Amount %
--------- ------- -------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 56,544 14.6% $ 53,942 16.1% $ 48,743 15.8%
Real Estate- Mortgage 197,065 50.8% 167,980 50.1% 157,620 51.1%
Real Estate-Construction 57,506 14.9% 47,357 14.1% 46,040 14.9%
Consumer and Other 19,156 4.9% 18,089 5.5% 16,885 5.5%
Leases 57,413 14.8% 47,651 14.2% 39,009 2.7%
-------- ------ -------- ------- -------- -------
$387,684 100.0% $335,019 100.0% $308,297 100.0%
======== ====== ======== ======= ======== =======
</TABLE>
Deposits, which are the Company's main source of funds for loans, investments
and federal funds sold, increased by $27.2 million from $409.0 million as of
December 31, 1998, to $436.2 million as of June 30, 1999. Non interest-bearing
deposits increased by $8.8 million and interest-bearing deposits increased by
$18.4 million. For the first six months of 1999, long-term debt increased by
$10.0 million due to Federal Home Loan Bank advances to fund loan demand.
Securities sold under agreements to repurchase increased $8.0 million from $36.7
million to $44.7 million as a result of the company's efforts to attract
customers with large short-term cash balances which the company invests in like
termed securities at a positive spread.
Consolidated Results of Operations For the Three Months Ended June 30, 1999.
Net income for the Company for the three months ended June 30, 1999, was $1.23
million, an increase of $200,000 or 19% from $1.03 million for the same period
of 1998. The Company's annualized return on average assets was 0.94% for the
second quarter of 1999, compared to 0.99% for the same period of 1998.
The provision for loan losses increased by $132,792 to $687,792 for the three
months ended June 30, 1999, from $555,000 for the three months ended June 30,
1998. The increase was due to loan growth and increased loan charge-offs.
Net interest income before provision for loan losses increased $1.1 million to
$6.9 million for the three months ended June 30, 1999, from $5.8 million for the
three months ended June 30, 1998, primarily due to increased loan and investment
security volume. The Company's net interest margin decreased to 5.72% at June
30, 1999, from 6.19% at June 30, 1998.
Total non-interest income increased by $40,000 to $1.29 million for the three
months ended June 30, 1999, compared to $1.25 million for the same period of
1998.
Total non-interest expense increased by $760,000 to $5.6 million for the second
quarter of 1999, from $4.9 million for the same period of 1998. Salaries and
employee benefits increased by $385,000 as a result of additions to personnel
due to growth and annual salary increases.
7
<PAGE>
Consolidated Results of Operations For the Six Months Ended June 30, 1999.
Net income for the Company for the six months ended June 30, 1999, was $2.3
million, an increase of $450,000 or 24% from $1.9 million for the same period of
1998. The Company's annualized return on average assets was 0.92% for the first
six months of 1999, compared to 0.93% for the same period of 1998.
The provision for loan losses increased by $322,192 to $1.4 million for the six
months ended June 30, 1999, from $1.1 milllion for the six months ended June 30,
1998. The increase was due to loan growth and increased loan charge-offs.
Net interest income before provision for loan losses increased $2.4 million to
$13.4 million for the six months ended June 30, 1999, from $11.0 million for the
six months ended June 30, 1998, primarily due to increased loan and investment
security volume. The Company's net interest margin decreased to 5.76% at June
30, 1999, from 6.09% at June 30, 1998.
Total non-interest income increased by $200,000 to $2.6 million for the six
months ended June 30, 1999, compared to $2.4 million for the same period of
1998, primarily due to an increase in service charges on deposit accounts and
other banking and service fees of $138,000.
Total non-interest expense increased by $1.7 million to $11.0 million for the
first six months of 1999, from $9.3 million for the same period of 1998.
Salaries and employee benefits increased by $840,000 as a result of additions to
personnel due to growth and annual salary increases.
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)
ALLOWANCE FOR LOAN AND LEASE
LOSSES: June 30, 1999 December 31, 1998 June 30, 1998
--------------- --------------------- ------------------
<S> <C> <C> <C>
Balance beginning of period $3,875 $3,280 $3,280
Provision for loan and lease losses 1,432 2,322 1,110
Net charge-offs 661 1,727 976
--------------- ---------------------- ------------------
Balance end of period $4,646 $3,875 $3,414
=============== ====================== ==================
Allowance for loan and lease losses to
non-performing loans and leases 1.20% 1.16% 1.11%
Allowance for loan and lease losses to
non-performing loans and leases 137% 58% 70%
NON-PERFORMING ASSETS: June 30, 1999 December 31, 1998 June 30, 1998
--------------- ---------------------- -------------------
Accruing loans - 90 days past due $ 149 $ 79 $ 29
Non-accrual loans 3,233 6,566 4,828
---------------- ---------------------- -------------------
Total non-performing loans 3,382 6,645 4,857
Other real estate owned 1,667 697 1,081
---------------- ---------------------- -------------------
Total non-performing assets $5,049 $7,342 $5,938
================ ====================== ===================
Potential problem loans and leases $5,905 $3,289 $1,490
Total non-performing assets to total assets 0.92% 1.49% 1.38%
</TABLE>
Non-accrual loans decreased by approximately $3,333,000 as a result of the
foreclosure of a loan of approximately $1,500,000 and the pay-off and charge-
offs of loans on non-accrual status.
8
<PAGE>
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 its 7.5% Debentures that
the Debentures would be called for redemption at 100% of the original principal
plus accrued interest on May 29, 1998. The Indenture allowed management to
redeem the Debentures at par when the Company's common stock closed at 140% of
the exercise price ($16.75) for 30 consecutive trading days. As of April 24,
1998 this condition was met. All of the Debenture holders exercised the
conversion privilege resulting in 823,869 shares of common stock being issued
and $12.8 million being added to common equity.
Year 2000
The Company began its Year 2000 planning and evaluation process in 1997. Early
on, the awareness stage was completed by management and the Board of Directors.
The various systems (hardware and software) of the Company have been assigned
into the various categories of critical, essential, and moderate importance.
The assessment stage is complete for all systems.
All of the Company's systems are provided by reputable third party vendors, with
only very minor programming changes made internally. Sixteen systems have been
identified as critical to the Company's daily processing. Of those, thirteen
have been certified by the provider to be Year 2000 compliant, while one has
been certified by the provider to not be date sensitive. The other two critical
systems have been determined by Company personnel to not be date sensitive.
Twenty-seven systems have been identified as essential to the Company's daily
operations. All twenty-seven of the essential systems have been certified by
the provider as being Year 2000 compliant.
The Company's Year 2000 testing began in the second quarter of 1998 and is
substantially complete, with limited re-testing of certain systems remaining.
No significant problems have been encountered in the testing process.
Many of the Company's larger loan and deposit customers have been contacted
regarding their readiness for the Year 2000, to determine if the Company has
significant credit risk or exposure to declining liquidity, due to potential
problems of customers related to Year 2000 issues. Information is being
gathered on most of these larger customers and determinations made regarding the
relative risk to these customers. To date, significant loss or liquidity
exposure has not been identified among the Company's customer base, but
additional evaluation is being performed on an ongoing basis.
The direct costs to date of the Company's Year 2000 effort have totaled
approximately $275,000. These include allocated salary cost of approximately
$79,000 and equipment costs of approximately $180,000. There are indirect costs
related to significant amounts of time being spent by existing Company
personnel, for development of test plans, test scripts, and for actual testing.
Most of this time is spent as part of their normal job responsibilities, with no
additional direct cost incurred.
The major risks of the Company's Year 2000 issues are its ability to provide
consistent daily processing of customer information and the soundness of the
Company's loan portfolio. The Company is managing this risk by performing
extensive analysis and testing to identify potential problem areas for its
systems and throughout its customer base. The possible impacts on the Company
would include a substantial loss of customers and the related revenue on those
customers' relationships, as well as possible loan losses resulting from the
inability of the Company's customers to repay their loans on a timely basis.
The Company has developed contingency plans which will undergo continuing review
and testing. These plans include plans for replacement of non-compliant system,
other processing alternatives, and liquidity matters.
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
9
<PAGE>
the risks described in the Company's Securities and Exchange Commission filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Company's market risk profile from the
information disclosed in the Company's Form 10-K for the year ended December 31,
1998.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 4, 1999 the Company held its annual meeting of shareholders. At that
meeting the following items were submitted to a vote of security holders:
1. The following three directors were elected:
SHARES VOTED
-----------------
NAME TERM FOR WITHHOLD
---- ------- --------- --------
Douglas M. Smith 3 Years 2,895,287 178,564
Herman N. Wisenteiner 3 Years 2,895,287 178,564
Kevin L. Reid 3 Years 2,895,287 178,564
The following directors term of office continue until the annual meeting
indicated: 2000, Eloy A. Jeantete, Michael R. Stanford, and Marshall G. Martin,
and 2001, H. Patrick Dee, Leonard J. DeLayo, Jr., and Bradford M. Johnson.
2. Proposal to ratify the selection of KPMG LLP as the independent public
accountants of the Company. Votes: For 3,028,957; Against 20,884; Abstain
24,010.
Item 6. Exhibits and Reports on Form 8-K
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: August 11, 1999 By: Michael R. Stanford
--------------- ----------------------------------------
Michael R. Stanford, President
& Chief Executive Officer
Date: August 11, 1999 By: H. Patrick Dee
--------------- ----------------------------------------
H. Patrick Dee, Executive Vice President
& Chief Operating Officer
Date: August 11, 1999 By: Brian C. Reinhardt
--------------- ----------------------------------------
Brian C. Reinhardt, Executive Vice
President and Chief Financial Officer
10
<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 REFERNCE BY
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 26,636,931
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,804,755
<INVESTMENTS-CARRYING> 31,838,220
<INVESTMENTS-MARKET> 31,728,246
<LOANS> 387,683,745
<ALLOWANCE> 4,646,328
<TOTAL-ASSETS> 547,020,982
<DEPOSITS> 436,227,017
<SHORT-TERM> 44,696,961
<LIABILITIES-OTHER> 12,764,228
<LONG-TERM> 11,173,728
0
0
<COMMON> 43,052,918
<OTHER-SE> (893,870)
<TOTAL-LIABILITIES-AND-EQUITY> 547,020,982
<INTEREST-LOAN> 17,163,300
<INTEREST-INVEST> 2,908,526
<INTEREST-OTHER> 111,967
<INTEREST-TOTAL> 20,183,793
<INTEREST-DEPOSIT> 5,761,166
<INTEREST-EXPENSE> 6,788,367
<INTEREST-INCOME-NET> 13,395,426
<LOAN-LOSSES> 1,432,192
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,968,055
<INCOME-PRETAX> 3,594,697
<INCOME-PRE-EXTRAORDINARY> 2,324,324
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,324,324
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.67
<YIELD-ACTUAL> 5.39<F1>
<LOANS-NON> 3,233,000
<LOANS-PAST> 149,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,905,000
<ALLOWANCE-OPEN> 3,875,000
<CHARGE-OFFS> 829,000
<RECOVERIES> 168,000
<ALLOWANCE-CLOSE> 4,646,000
<ALLOWANCE-DOMESTIC> 4,646,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>* NII BEFORE PROVISION
</FN>
</TABLE>
