<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 September 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: 3,279,992 shares of common
stock, no par value, outstanding as of November 4, 1999.
<PAGE>
FIRST STATE BANCORPORATION
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
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 None
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
First State Bancorporation and Subsidiary
Consolidated Condensed Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 22,446,373 $ 18,093,685
Federal funds sold 0 0
----------------------------------
Total cash and cash equivalents 22,446,373 18,093,685
Investment securities:
Held to maturity (at amortized cost, market value of $15,347,123 at
September 30, 1999 and $60,932,276 at December 31, 1998) 15,423,076 60,957,141
Available for sale (at market, amortized cost of $81,215,468 at
September 30, 1999, and $61,105,643 at December 31, 1998) 79,690,599 61,147,174
----------------------------------
Total Investments 95,113,675 122,104,315
----------------------------------
Loans and leases net of unearned interest 417,533,975 335,019,140
Less allowance for loan and lease losses 4,871,801 3,874,688
----------------------------------
Net loans and leases 412,662,174 331,144,452
Premises and equipment 13,473,462 14,791,656
Accrued interest receivable 3,219,068 2,513,957
Other real estate owned 2,052,363 697,204
Goodwill, net 595,315 673,469
Other assets 6,037,004 3,635,623
----------------------------------
Total assets $555,599,434 $493,654,361
==================================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing $ 90,290,875 $ 87,246,490
Interest-bearing 355,942,117 321,774,705
----------------------------------
Total deposits 446,232,992 409,021,195
Securities sold under agreements to repurchase 45,065,240 36,692,999
Other liabilities 9,785,660 2,590,480
Long-term debt 11,162,441 1,195,569
----------------------------------
Total liabilities 512,246,333 449,500,243
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
and outstanding 3,432,492 at September 30, 1999 and 3,418,741
at December 31, 1998 29,322,489 29,107,146
Treasury stock, at cost (152,500 shares at September 30, 1999) (3,012,031) --
Retained earnings 18,049,057 15,019,562
Unrealized (losses) gains on investment securities available for sale (1,006,414) 27,410
----------------------------------
Total stockholders' equity 43,353,101 44,154,118
----------------------------------
Total liabilities and stockholders' equity $555,599,434 $493,654,361
==================================
Book value per share $13.22 $12.92
==================================
Tangible book value per share $13.34 $12.71
==================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Operations
For the three and nine months ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended Nine months Nine months
September September Ended Ended
30, 30, September 30, September 30,
1999 1998 1999 1998
----------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans and leases $ 9,827,464 $8,103,280 $26,990,764 $23,616,439
Interest on investment securities:
Taxable 1,371,896 1,117,677 4,163,503 2,789,999
Nontaxable 57,910 39,241 174,829 115,775
Federal funds sold 46,404 127,451 158,371 326,355
----------------------------------------------------------
Total interest income 11,303,674 9,387,649 31,487,467 26,848,568
-----------------------------------------------------------
Interest expense:
Deposits 3,218,413 2,964,510 8,979,579 8,655,147
Short-term borrowings 429,621 299,365 1,351,936 640,246
Long-term debt and capital lease 165,636 28,520 270,522 482,265
----------------------------------------------------------
Total interest expense 3,813,670 3,292,395 10,602,037 9,777,658
----------------------------------------------------------
Net interest income before provision for loan and lease 7,490,004 6,095,254 20,885,430 17,070,910
Provision for loan and lease losses 903,400 642,000 2,335,592 1,752,000
----------------------------------------------------------
Net interest income after provision for loan and lease losses 6,586,604 5,453,254 18,549,838 15,318,910
----------------------------------------------------------
Other Income:
Service charges on deposit accounts 546,834 434,690 1,525,417 1,295,761
Other banking service fees 111,387 87,996 303,810 260,209
Credit card transaction fees 537,648 384,599 1,234,252 933,954
Operating lease income 104,422 203,850 378,343 638,395
Other 299,116 253,558 757,103 606,348
----------------------------------------------------------
Total other income 1,599,407 1,364,693 4,198,925 3,734,667
----------------------------------------------------------
Other expenses:
Salaries and employee benefits 2,855,714 2,254,677 7,972,086 6,530,694
Occupancy 668,764 585,050 1,888,979 1,683,646
Data Processing 246,668 198,985 740,225 549,281
Credit card interchange 306,493 229,212 697,147 528,590
Equipment 396,115 417,119 1,173,536 1,130,163
Leased equipment depreciation 81,139 129,673 336,126 416,909
Legal, accounting, and consulting 165,527 147,100 477,419 398,203
Marketing 285,126 260,586 756,763 627,196
Other real estate owned expenses 38,452 15,987 191,584 70,333
Amortization of goodwill 26,051 26,163 78,154 78,265
Other 954,627 846,993 2,680,712 2,443,083
----------------------------------------------------------
Total other expenses 6,024,676 5,111,545 16,992,731 14,456,363
----------------------------------------------------------
Income before income taxes 2,161,335 1,706,402 5,756,032 4,597,214
Income tax expense 734,723 609,779 2,005,096 1,628,614
----------------------------------------------------------
Net income $ 1,426,612 $1,096,623 $ 3,750,936 $ 2,968,600
==========================================================
Earnings per common and common equivalent share $0.44 $0.32 $1.12 $0.99
==========================================================
Earnings per common share assuming full dilution $0.42 $0.31 $1.09 $0.92
==========================================================
Dividends per common share $0.09 $0.06 $0.25 $0.18
==========================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Statements of Comprehensive Income
For the three and nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
Ended Ended Ended Ended
September 31, September 31, September 31, September 31,
1999 1998 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $1,426,612 $1,096,623 $3,750,936 $2,968,600
Other comprehensive income net of tax-
Unrealized holding (losses) gains on securities
available for sale arising during period (112,543) 141,091 (1,033,825) 104,975
------------------ -------------- --------------- -------------
Total comprehensive income $1,314,069 $1,237,714 $2,717,111 $3,073,575
================== ============== =============== =============
</TABLE>
See accompanying notes to consolidated condensed financial statements
3
<PAGE>
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Cash Flows
For the three and nine months ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities:
Net Income $ 1,426,612 $ 1,096,623 $ 3,750,936 $ 2,968,600
-----------------------------------------------------------
Adjustments to reconcile net income to cash provide by operations:
Provisions for loan and lease losses 903,400 642,000 2,335,592 1,752,000
Provision for decline in value of other real estate owned -- -- 29,349 22,550
Depreciation and amortization 450,893 455,589 1,416,639 1,594,883
(Increase) decrease in accrued interest receivable (282,751) 223,991 (705,111) (110,035)
Increase in other assets, net (516,363) (357,133) (1,868,805) (465,554)
Increase (decrease) in other liabilities, net 352,313 (28,503) 526,061 62,978
-----------------------------------------------------------
Total adjustments 907,492 935,944 1,733,725 2,856,822
-----------------------------------------------------------
Net cash provided by operating activities 2,334,104 2,032,567 5,484,661 5,825,422
-----------------------------------------------------------
Cash flows from investing activities:
Net increase in loans (31,141,253) (9,178,692) (86,004,748) (30,083,282)
Early payoff of operating leases 15,110 -- 711,935 --
Purchases of investment securities available for sale (4,091,687) (13,055,409) (33,120,571) (28,114,809)
Maturities of investment securities available for sale 1,031,481 8,940,000 12,991,881 33,613,500
Purchases of investment securities held to maturity (79,000,000) (76,372,753) (259,386,000) (215,155,753)
Maturities of investment securities held to maturity 95,405,000 72,050,000 305,061,000 191,548,000
Purchases of premises and equipment, net (600,364) 417,244 (1,397,473) (2,577,048)
Sales of premises and equipment -- -- 543,177 --
Sales of other real estate owned 227,691 -- 766,926 252,358
Additions to other real estate owned, net -- (193) -- (28,829)
-----------------------------------------------------------
Net cash used in investing activities (18,154,022) (17,199,803) (59,833,873) (50,545,863)
-----------------------------------------------------------
Cash flows from financing activities:
Net increase in interest bearing deposits 15,780,233 15,282,024 34,167,412 22,159,067
Net (decrease) increase in noninterest bearing deposits (5,774,258) 616,682 3,044,385 8,634,402
Net increase in securities sold under repurchase agreements 368,279 3,702,408 8,372,241 16,788,028
Federal Home Loan borrowings -- -- 20,000,000 --
Payments on Federal Home Loan Bank borrowings (10,000,000) -- (10,000,000) --
Payments on long-term debt (11,287) (9,536) (33,128) (29,829)
Federal funds purchased, net 6,800,000 -- 6,800,000 --
Common stock issued 72,038 25,034 215,343 140,305
Dividends paid (305,645) (204,993) (852,322) (551,048)
Purchase of treasury stock -- -- (3,012,031) --
-----------------------------------------------------------
Net Cash provided by financing activities 6,929,360 19,411,619 58,701,900 47,140,925
-----------------------------------------------------------
Decrease (increase) in cash and cash equivalents (8,890,558) 4,244,383 4,352,688 2,420,484
Cash and cash equivalents at beginning of period 31,336,931 30,175,697 18,093,685 31,999,596
-----------------------------------------------------------
Cash and cash equivalents at end of period $ 22,446,373 $ 34,420,080 $ 22,446,373 $ 34,420,080
===========================================================
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans $ 613,096 -- $ 2,151,434 --
===========================================================
Issuance of common stock upon conversion of subordinated debentures -- -- -- $ 12,855,761
===========================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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 nine month periods ended September 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" (SFAS 128). SFAS
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 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.
SFAS 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 SFAS 128. The following is a
reconciliation of the numerators and denominators of basic and diluted earnings
per share.
<TABLE>
<CAPTION>
Quarter Ended September 30,
----------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------------
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 $1,426,612 3,277,747 $0.44 $1,096,623 3,416,510 $0.32
===== =====
Effect of dilutive securities:
Options -- 98,987 -- 95,128
Diluted EPS -
Net income available to common
stockholders $1,426,612 3,376,734 $0.42 $1,096,623 3,511,638 $0.31
========== ========= ===== ========== ========= =====
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------------
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 $3,750,936 3,357,624 $1.12 $2,968,600 2,987,298 $0.99
===== =====
Effect of dilutive securities:
Options 88,196 99,556
Convertible debentures -- -- 276,436 426,035
----- ----- ------- -------
Diluted EPS -
Net income available to common
stockholders plus interest and
amortization on convertible
debentures $3,750,936 3,445,820 $1.09 $3,245,036 3,512,889 $0.92
========== ========= ===== ========== ========= =====
</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 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.
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. The Company's Board of Directors
has authorized the additional purchase of up to 250,000 shares.
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 $61.9 million from $493.7 million as of
December 31, 1998, to $555.6 million as of September 30, 1999, due to the
Company increasing market share in its trade areas. The Company's strategy is
to increase market share by differentiating itself from large institutions
headquartered out side New Mexico through its approach to customer service and
marketing. For the first nine months of 1999, net loans increased by $82.5
million from $335.0 million to $417.5 million. This increase in loans was
funded through a decrease in investment securities, and increases in deposits,
other liabilities, and long-term debt. Investment securities decreased by $27.0
million from $122.1 million to $95.1 million. For the first nine months of
1999, premises and equipment decreased $1.3 million from $14.8 million to $13.5
million as a result of the sale of premises and early payoffs of operating
leases. Other assets increased $2.4 million from $3.6 million to $6.0 million.
The increase in loans and leases 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>
September 30, 1999 December 31, 1998 September 30, 1998
------------------ ----------------- ------------------
(in thousands)
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 64,472 15.4% $ 53,942 16.1% $ 48,344 15.2%
Real Estate-Mortgage 202,936 48.6% 167,980 50.1% 159,164 50.2%
Real Estate-Construction 66,852 16.0% 47,357 14.1% 49,579 15.6%
Consumer and Other 20,197 4.9% 18,089 5.5% 17,084 5.4%
Leases 63,077 15.1% 47,651 14.2% 43,098 13.6%
----------------------------------------------------------------------
$417,534 100.0% $335,019 100.0% $317,269 100.0%
======================================================================
</TABLE>
6
<PAGE>
Deposits, which are the Company's main source of funds for loans, investments
and federal funds sold, increased by $37.2 million from $409.0 million as of
December 31, 1998, to $446.2 million as of September 30, 1999, as a result of
the company executing its market share strategy. Non-interest-bearing deposits
increased by $3.1 million and interest-bearing deposits increased by $34.1
million. For the first nine months of 1999, long-term debt increased by $10.0
million due to Federal Home Loan Bank borrowings used to fund loan demand.
Securities sold under agreements to repurchase increased $8.4 million from $36.7
million to $45.1 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 interest rate spread.
Consolidated Results of Operations For the Three Months Ended September 30,
1999.
Net income for the Company for the three months ended September 30, 1999, was
$1.43 million, an increase of $330,000 or 33% from $1.10 million for the same
period of 1998. The Company's annualized return on average assets was 1.03% for
the third quarter of 1999, compared to 1.00% for the same period of 1998.
The provision for loan losses increased by $261,400 to $903,400 for the three
months ended September 30, 1999, from $642,000 for the three months ended
September 30, 1998. The increase was due to loan growth and increased loan
charge-offs.
Net interest income before provision for loan losses increased $1.39 million to
$7.49 million for the three months ended September 30, 1999, from $6.10 million
for the three months ended September 30, 1998, primarily due to increased loan
and investment security volume. The Company's net interest margin decreased to
5.91% at September 30, 1999, from 6.15% at September 30, 1998. The decrease was
due to the Federal Reserve Board's interest rate cuts in the third and fourth
quarters of 1998.
Total non-interest income increased by $200,000 to $1.60 million for the three
months ended September 30, 1999, compared to $1.40 million for the same period
of 1998, primarily due to an increase in service charges on deposit accounts and
other banking and service fees as a result of increased deposits.
Total non-interest expense increased by $910,000 million to $6.02 million for
the third quarter of 1999, from $5.11 million for the same period of 1998.
Salaries and employee benefits increased by $600,000 as a result of additions to
personnel due to growth and annual salary increases.
Consolidated Results of Operations For the Nine Months Ended September 30, 1999.
Net income for the Company for the nine months ended September 30, 1999, was
$3.75 million, an increase of $780,000 or 26% from $2.97 million for the same
period of 1998. The Company's annualized return on average assets was 0.96% for
the first nine months of 1999, compared to 0.95% for the same period of 1998.
The provision for loan losses increased by $590,000 to $2.34 million for the
nine months ended September 30, 1999, from $1.75 million for the nine months
ended September 30, 1998. The increase was due to loan growth and increased
loan charge-offs.
Net interest income before provision for loan losses increased $3.82 million to
$20.89 million for the nine months ended September 30, 1999, from $17.07 million
for the nine months ended September 30, 1998, primarily due to increased loan
and investment security volume. The Company's net interest margin decreased to
5.81% at September 30, 1999, from 6.15% at September 30, 1998. The decrease was
due to the Federal Reserve Board's interest rate cuts in the third and fourth
quarters of 1998.
Total non-interest income increased by $470,000 to $4.20 million for the nine
months ended September 30, 1999, compared to $3.73 million for the same period
of 1998, primarily due to an increase in service charges on deposit accounts and
other banking and service fees as a result of increased deposits.
Total non-interest expense increased by $2.54 million to $17.00 million for the
first nine months of 1999, from $14.46 million for the same period of 1998.
Salaries and employee benefits increased by $1.44 million as a result of
additions to personnel due to growth, annual salary increases.
7
<PAGE>
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: September 30, 1999 December 31, 1998 September 30, 1998
------------------- ------------------ -------------------
<S> <C> <C> <C>
Balance beginning of period $3,875 $3,280 $3,280
Provision for loan and lease losses 2,335 2,322 1,752
Net charge-offs 1,338 1,727 1,258
------------------------------------------------------------
Balance end of period $4,872 $3,875 $3,774
============================================================
Allowance for loan and lease losses to non-performing
loans and leases 1.17% 1.16% 1.19%
Allowance for loan and lease losses to non-performing
loans and leases 171% 58% 57%
NON-PERFORMING ASSETS: September 30, 1999 December 31, 1998 September 30, 1998
------------------ ----------------- ------------------
Accruing loans - 90 days past due $ 104 $ 79 $ 97
Non-accrual loans 2,752 6,566 6,526
Total non-performing loans 2,856 6,645 6,623
Other real estate owned 2,052 697 1,006
------------------------------------------------------------
Total non-performing assets $4,908 $7,342 $7,629
============================================================
Potential problem loans and leases $5,753 $3,289 $1,600
Total non-performing assets to total assets 0.88% 1.49% 1.69%
</TABLE>
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.
8
<PAGE>
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 $302,000. These include allocated salary cost of approximately
$89,000 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 the risks described
in the Company's Securities and Exchange Commission filings. Forward-looking
statements with respect to the Year 2000 may differ materially if commitments or
representations from third parties are not fulfilled.
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 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
<TABLE>
<S> <C>
Date: November 4, 1999 By: Michael R. Stanford
------------------------------------------------------------------------------------------
Michael R. Stanford, President & Chief Executive Officer
Date: November 4, 1999 By: H. Patrick Dee
------------------------------------------------------------------------------------------
H. Patrick Dee, Executive Vice President & Chief Operating Officer
Date: November 4, 1999 By: Brian C. Reinhardt
------------------------------------------------------------------------------------------
Brian C. Reinhardt, Executive Vice President & Chief Financial Officer
</TABLE>
9
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 22,446,373
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,690,599
<INVESTMENTS-CARRYING> 15,423,076
<INVESTMENTS-MARKET> 15,347,123
<LOANS> 417,533,975
<ALLOWANCE> 4,871,801
<TOTAL-ASSETS> 555,599,434
<DEPOSITS> 446,232,992
<SHORT-TERM> 45,065,240
<LIABILITIES-OTHER> 9,785,660
<LONG-TERM> 11,162,441
0
0
<COMMON> 44,359,515
<OTHER-SE> (11,006,414)
<TOTAL-LIABILITIES-AND-EQUITY> 555,599,434
<INTEREST-LOAN> 26,990,764
<INTEREST-INVEST> 4,338,332
<INTEREST-OTHER> 158,371
<INTEREST-TOTAL> 31,487,467
<INTEREST-DEPOSIT> 8,979,579
<INTEREST-EXPENSE> 10,602,037
<INTEREST-INCOME-NET> 20,885,430
<LOAN-LOSSES> 2,335,592
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,992,731
<INCOME-PRETAX> 5,756,032
<INCOME-PRE-EXTRAORDINARY> 3,750,936
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,750,936
<EPS-BASIC> 1.12
<EPS-DILUTED> 109
<YIELD-ACTUAL> 5,45
<LOANS-NON> 2,752,000
<LOANS-PAST> 104,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,753,000
<ALLOWANCE-OPEN> 3,875,000
<CHARGE-OFFS> 1,629,502
<RECOVERIES> 291,024
<ALLOWANCE-CLOSE> 4,872,000
<ALLOWANCE-DOMESTIC> 41,872,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
