<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, 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: 3,426,073 shares of common
stock, no par value, outstanding as of May 6, 1999.
<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 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
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 8
SIGNATURES 8
<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 1999 1998
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 24,942,282 $ 18,093,685
Federal funds sold 12,400,000 --
------------ ------------
Total cash and cash equivalents 37,342,282 18,093,685
Investment securities:
Held to maturity (at amortized cost, market value of $31,575,221 at
March 31, 1999, and $60,932,276 at December 31, 1998) 31,587,315 60,957,141
Available for sale (at market, amortized cost of $69,686,054 at
March 31, 1999, and $61,105,643 at December 31, 1998) 69,298,770 61,147,174
------------ ------------
Total investments 100,886,085 122,104,315
------------ ------------
Loans and leases net of unearned interest 357,780,630 335,019,140
Less allowance for loan and lease losses 3,943,740 3,874,688
------------ ------------
Net loans and leases 353,836,890 331,144,452
Premises and equipment 13,297,217 14,791,656
Accrued interest receivable 2,891,937 2,513,957
Other real estate owned 2,205,647 697,204
Goodwill, net 647,418 673,469
Other assets 4,107,346 3,635,623
------------ ------------
Total assets $515,214,822 $493,654,361
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing $ 91,944,669 $ 87,246,490
Interest-bearing 326,319,640 321,774,705
------------ ------------
Total deposits 418,264,309 409,021,195
Securities sold under agreements to repurchase 47,600,443 36,692,999
Other liabilities 3,329,736 2,590,480
Long-term debt 1,184,769 1,195,569
------------ ------------
Total liabilities 470,379,257 449,500,243
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 3,426,073 at March 31, 1999 and
3,418,741 at December 31, 1998 29,214,220 29,107,146
Retained earnings 15,876,953 15,019,562
Unrealized (loss) gain on investment securities available for sale (255,608) 27,410
------------ ------------
Total stockholders' equity 44,835,565 44,154,118
------------ ------------
Total liabilities and stockholders' equity $515,214,822 $493,654,361
============ ============
Book value per share $13.09 $12.92
============ ============
Tangible book value per share $12.97 $12.71
============ ============
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, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
March 31, March 31,
1999 1998
------------ -----------
<S> <C> <C>
Interest Income:
Interest and fees on loans and leases $8,276,280 $7,540,342
Interest on investment securities:
Taxable 1,425,443 811,715
Nontaxable 58,411 38,129
Federal funds sold 61,037 72,747
------------ -----------
Total interest income 9,821,171 8,462,933
------------ -----------
Interest expense:
Deposits 2,863,076 2,819,350
Short-term borrowings 424,110 138,442
Long-term debt and capital lease 27,678 287,599
------------ -----------
Total interest expense 3,314,864 3,245,391
------------ -----------
Net interest income before provision for loan and lease losses 6,506,307 5,217,542
Provision for loan and lease losses 744,400 555,000
------------ -----------
Net interest income after provision for loan and lease losses 5,761,907 4,662,542
------------ -----------
Other Income:
Service charges on deposit accounts 469,300 427,619
Other banking service fees 90,048 85,640
Credit card transaction fees 317,390 254,400
Operating lease income 160,043 212,982
Other 271,204 135,511
------------ -----------
Total other income 1,307,985 1,116,152
------------ -----------
Other expenses:
Salaries and employee benefits 2,542,740 2,087,771
Occupancy 587,936 541,398
Data Processing 239,748 166,242
Credit card interchange 178,978 134,623
Equipment 380,934 350,820
Leased equipment depreciation 152,924 137,301
Legal, accounting, and consulting 147,179 131,555
Marketing 232,162 163,621
Other real estate owned expenses 43,561 23,723
Amortization of goodwill 26,051 26,051
Other 812,342 716,598
------------ -----------
Total other expenses 5,344,555 4,479,703
------------ -----------
Income before income taxes 1,725,337 1,298,991
Income tax expense 628,215 459,497
------------ -----------
Net income $1,097,122 $ 839,494
============ ===========
Basic earnings per share $0.32 $0.32
============ ===========
Diluted earnings per share $0.31 $0.29
============ ===========
Dividends per common share $0.07 $0.06
============ ===========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
2
<PAGE>
FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Statements of Comprehensive Income
For the three months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three month ended Three months ended
March 31, March 31,
1999 1998
------------------ -----------------
<S> <C> <C>
Net income $1,097,122 $839,494
Other comprehensive income net of tax-
Unrealized holding (losses) gains on securities
available for sale arising during period (283,018) 3,811
------------------ -----------------
Total comprehensive income $ 814,104 $843,305
================== =================
See accompanying notes to consolidated condensed financial statements
</TABLE>
3
<PAGE>
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Cash Flows
For the three months ended March 31, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net Income $ 1,097,122 $ 839,494
------------ ------------
Adjustments to reconcile net income to cash provided by operations:
Provisions for loan and lease losses 744,400 555,000
Provision for decline in value of other real estate owned 28,722 --
Depreciation and amortization 408,208 441,212
Increase in accrued interest receivable (377,980) (115,976)
(Increase) decrease in other assets, net (325,926) 304,394
Increase in other liabilities, net 739,256 289,767
------------ ------------
Total adjustments 1,216,680 1,474,397
------------ ------------
Net cash provided by operating activities 2,313,802 2,313,891
------------ ------------
Cash flows from investing activities:
Net increase in loans (24,975,175) (16,866,307)
Early payoff of Operating Leases 559,333 --
Purchases of investment securities available for sale (18,527,700) (7,934,400)
Maturities of investment securities available for sale 9,950,000 18,425,000
Purchases of investment securities held to maturity (89,100,000) (28,160,000)
Maturities of investment securities held to maturity 118,600,000 24,700,000
Purchases of premises and equipment (123,114) (1,355,516)
Sales of premises and equipment 543,177 --
Additions to other real estate owned, net -- (28,822)
Payments received on loans classified as other real estate owned 1,173 --
------------ ------------
Net cash used in investing activities (3,072,306) (11,220,045)
------------ ------------
Cash flows from financing activities:
Net increase in interest-bearing deposits 4,544,935 1,864,138
Net increase in non-interest-bearing deposits 4,698,179 2,803,917
Net increase in securities sold under repurchase agreements 10,907,444 2,276,178
Payments on long-term debt (10,800) (9,889)
Common stock issued 107,074 66,627
Dividends paid (239,731) (155,129)
------------ ------------
Net Cash provided by financing activities 20,007,101 6,845,842
------------ ------------
Increase (decrease) in cash and cash equivalents 19,248,597 (2,060,312)
Cash and cash equivalents at beginning of period 18,093,685 31,999,596
============ ============
Cash and cash equivalents at end of period $ 37,342,282 $ 29,939,284
============ ============
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans $ 1,538,338 --
============ ============
See accompanying notes to consolidated condensed financial statement
</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 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, 1999, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
2. Earnings per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("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. 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>
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 $1,097,122 3,423,140 $0.32 $ 839,494 2,585,422 $0.32
========= =========
Effect of dilutive securities:
Options 80,419 99,219
Convertible debentures --- $ 179,510 823,881
---------- --------- ---------- ---------
Diluted EPS:
Net income available to common
stockholders plus interest and
amortization on convertible
debentures $1,097,122 3,503,559 $0.31 $1,019,004 3,508,522 $0.29
========== ========= ========= ========== ========= =========
</TABLE>
5
<PAGE>
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.
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 $21.5 million from $493.7 million as of
December 31, 1998, to $515.2 million as of March 31, 1999, due to increasing
market share and economic growth in the Company's market areas. For the first
three months of 1999, net loans increased by $22.7 million from $331.1 million
to $353.8 million, while investment securities decreased by $21.2 million from
$122.1 million to $100.9 million.
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 $1.0 million,
real estate loans increased by approximately $16.3 million, and leases increased
by approximately $5.5 million.
Investment securities decreased by $21.2 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 $9.2 million from $409.0 million as of
December 31, 1998, to $418.3 million as of March 31, 1999. Non- interest-
bearing deposits increased by $4.7 million and interest-bearing deposits
increased by $4.5 million. For the first three months of 1999, securities sold
under agreements to repurchase increased $10.9 million principally as a result
of an increase in securities sold to one customer.
Consolidated Results of Operations For the Three Months Ended March 31, 1999
Net income for the Company for the three months ended March 31, 1999, was
$1,097,122, an increase of $257,628 or 30.7% from $839,494 for the same period
of 1998. The Company's annualized return on average assets was 0.90% for the
first quarter of 1999, compared to 0.86% for the same period of 1998.
The provision for loan losses increased by $189,400 from $555,000 for the three
months ended March 31, 1998, to $744,400 for the three months ended March 31,
1999. This increase was due to charge-offs in 1999, see--"Allowance for Loan
and Lease Losses and Non-Performing Assets."
Net interest income before provision for loan losses increased $1.3 million to
$6.5 million for the three months ended March 31, 1999, from $5.2 million for
the three months ended March 31, 1998, primarily due to increased loan volume
and increased investment securities. The Company's net interest margin was 5.75%
at March 31, 1999, compared to 5.92% at March 31, 1998.
Total non interest income increased by $191,833 to $1.3 million for the three
months ended March 31, 1999, compared to $1.1 million for the same period of
1998.
6
<PAGE>
Total non-interest expense increased by $864,852 to $5.3 million for the first
quarter of 1999, compared to $4.5 million for the same period of 1998. Salaries
and employee benefits increased by $454,969 which reflects annual salary
increases and additions to personnel to service loan and deposit growth.
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: March 31, 1999 December 31, 1998 March 31,1998
-------------- ----------------- -------------
<S> <C> <C> <C>
Balance beginning of Period $3,875 $3,279 $3,279
Provision for loan and lease losses 744 2,322 555
Net charge-offs 675 1,726 585
-------------- ----------------- -------------
Balance end of period $3,944 $3,875 $3,249
============== ================= =============
Allowance for loan and lease losses to total loans
and leases 1.10% 1.16% 1.07%
Allowance for loan and lease losses to
non-performing loans and leases 111% 58% 74%
NON-PERFORMING ASSETS: March 31, 1999 December 31, 1998 March 31, 1998
-------------- ----------------- -------------
Accruing loans - 90 days past due $ 89 $ 79 $ 48
Non-accrual loans 3,459 6,566 4,359
Restructured loans -- -- --
-------------- ----------------- -------------
Total non-performing loans 3,548 6,645 4,407
Other real estate owned 2,206 697 1,356
-------------- ----------------- -------------
Total non-performing assets $5,754 $7,342 $5,763
============== ================= =============
Potential problem loans and leases $4,620 $3,289 $3,960
============== ================= =============
Total non-performing assets to total assets 1.12% 1.49% 1.41%
============== ================= =============
</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.
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 the critical and essential systems and
substantially complete for the systems of moderate importance.
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
7
<PAGE>
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 $245,000. These include allocated salary cost of approximately
$69,000 and equipment costs of approximately $150,000. 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 is developing contingency plans which are anticipated to be
completed by June 30, 1999. 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.
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.
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.
<TABLE>
<CAPTION>
FIRST STATE BANCORPORATION
<S> <C> <C>
Date: May 13, 1999 By: Michael R. Stanford
------------ ---------------------------------------------------------------------
Michael R. Stanford, President & Chief Executive Officer
Date: May 13, 1999 By: H. Patrick Dee
------------ ---------------------------------------------------------------------
H. Patrick Dee, Executive Vice President & Chief Operating Officer
Date: May 13, 1999 By: Brian C. Reinhardt
------------ ---------------------------------------------------------------------
Brian C. Reinhardt, Senior Vice President and Chief Financial Officer
</TABLE>
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 24,942,282
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,298,770
<INVESTMENTS-CARRYING> 31,587,315
<INVESTMENTS-MARKET> 31,575,221
<LOANS> 357,780,630
<ALLOWANCE> 3,943,740
<TOTAL-ASSETS> 515,214,822
<DEPOSITS> 418,264,309
<SHORT-TERM> 47,600,443
<LIABILITIES-OTHER> 3,329,736
<LONG-TERM> 1,184,769
0
0
<COMMON> 45,091,173
<OTHER-SE> (255,608)
<TOTAL-LIABILITIES-AND-EQUITY> 515,214,822
<INTEREST-LOAN> 8,276,280
<INTEREST-INVEST> 1,483,854
<INTEREST-OTHER> 61,037
<INTEREST-TOTAL> 9,821,171
<INTEREST-DEPOSIT> 2,863,076
<INTEREST-EXPENSE> 3,314,864
<INTEREST-INCOME-NET> 6,506,307
<LOAN-LOSSES> 744,400
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,344,555
<INCOME-PRETAX> 1,725,337
<INCOME-PRE-EXTRAORDINARY> 1,097,122
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,097,122
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 5.60
<LOANS-NON> 3,459,000
<LOANS-PAST> 89,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,620,000
<ALLOWANCE-OPEN> 3,875,000
<CHARGE-OFFS> 715,000
<RECOVERIES> 40,000
<ALLOWANCE-CLOSE> 3,944,000
<ALLOWANCE-DOMESTIC> 3,944,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
