10-Q 1 d10q.txt FORM 10-Q UNITED STATES 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, 2001. 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: 4,891,292 shares of common stock, no par value, outstanding as of August 3, 2001. FIRST STATE BANCORPORATION AND SUBSIDIARY Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements 2 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 11 - 1 - PART I - FINANCIAL INFORMATION Item 1. Financial Statements First State Bancorporation and Subsidiary Consolidated Condensed Balance Sheets (unaudited)
June 30, December 31, Assets 2001 2000 ------ --------------------- --------------------- Cash and due from banks $ 38,982,490 $ 33,467,021 Federal funds sold 7,480,000 5,400,000 --------------------- --------------------- Total cash and cash equivalents 46,462,490 38,867,021 Investment securities: Held to maturity (at amortized cost, market value of $84,787,109 at June 30, 2001, and $39,884,667 at December 31, 2000) 84,342,184 39,574,228 Available for sale (at market, amortized cost of $72,124,842 at June 30, 2001, and $94,837,331 at December 31, 2000) 73,119,439 94,834,722 --------------------- --------------------- Total investments 157,461,623 134,408,950 --------------------- --------------------- Loans net of unearned interest 493,093,723 460,083,579 Less allowance for loan losses 6,739,229 6,307,588 --------------------- --------------------- Net loans 486,354,494 453,775,991 Premises and equipment 14,089,897 12,751,108 Accrued interest receivable 3,999,352 4,501,193 Other real estate owned 1,604,372 2,016,412 Goodwill, net 412,955 465,058 Other assets 6,187,235 5,942,988 --------------------- --------------------- Total assets $716,572,418 $652,728,721 ===================== ===================== Liabilities and Stockholders' Equity ------------------------------------ Liabilities: Deposits: Non-interest-bearing $117,349,919 $ 98,628,158 Interest-bearing 468,342,503 429,780,077 --------------------- --------------------- Total deposits 585,692,422 528,408,235 Securities sold under agreements to repurchase 71,110,381 67,769,015 Other liabilities 3,546,865 4,131,766 Long-term debt 1,076,055 1,102,114 --------------------- --------------------- Total liabilities 661,425,723 601,411,130 Stockholders' equity: Common stock, no par value, 20,000,000 shares authorized, issued and outstanding 5,212,556 at June 30, 2001 and 5,202,630 at December 31, 2000 30,037,622 29,902,538 Treasury Stock, at cost (322,550 shares at June 30, 2001 and 309,550 at December 31, 2000) (4,275,788) (4,076,662) Retained earnings 28,728,429 25,493,437 Accumulated other comprehensive gains (losses) - Unrealized gain (loss) on investment securities available for sale 656,432 (1,722) --------------------- --------------------- Total stockholders' equity 55,146,695 51,317,591 --------------------- --------------------- Total liabilities and stockholders' equity $716,572,418 $652,728,721 ===================== ===================== Book value per share $11.28 $10.49 ===================== ===================== Tangible book value per share $11.19 $10.39 ===================== =====================
See accompanying notes to unaudited consolidated condensed financial statements. - 2 - First State Bancorporation and Subsidiary Consolidated Condensed Statements of Operations For the three and six months ended June 30, 2001 and 2000 (unaudited)
Three months Three months Six months Six months ended June 30, ended June 30, ended June 30, ended June 30, 2001 2000 2001 2000 ------------------------------------------------------------------ Interest Income: Interest and fees on loans $11,700,111 $10,396,790 $23,360,050 $20,751,620 Interest on investment securities: Taxable 2,000,068 1,976,978 3,975,614 3,348,231 Nontaxable 45,904 51,833 91,859 103,572 Federal funds sold 50,665 149,179 89,340 203,645 Other 170,267 58,707 277,228 137,826 ------------------------------------------------------------------ Total interest income 13,967,015 12,633,487 27,794,091 24,544,894 ------------------------------------------------------------------ Interest expense: Deposits 4,680,945 3,930,940 9,475,849 7,550,676 Short-term borrowings 560,801 646,903 1,311,275 1,188,117 Long-term debt 25,338 131,853 50,933 317,919 ------------------------------------------------------------------ Total interest expense 5,267,084 4,709,696 10,838,057 9,056,712 ------------------------------------------------------------------ Net interest income before provision for loan losses 8,699,931 7,923,791 16,956,034 15,488,182 Provision for loan losses 627,000 600,002 1,131,500 1,225,004 ------------------------------------------------------------------ Net interest income after provision for loan losses 8,072,931 7,323,789 15,824,534 14,263,178 ------------------------------------------------------------------ Non interest income: Service charges on deposit accounts 719,077 584,962 1,434,883 1,155,691 Other banking service fees 120,788 112,150 241,958 213,265 Credit card transaction fees 758,341 589,296 1,417,943 1,099,757 Operating lease income 7,015 9,767 16,062 114,822 Gain (Loss) on call/sale of investment securities 36,737 - 36,737 (333,142) Gain on sale of leasing division - - - 879,078 Gain on sale of mortgage loans 376,141 142,633 674,043 253,465 Other 204,970 204,926 392,251 406,736 ------------------------------------------------------------------ Total non interest income 2,223,069 1,643,734 4,213,877 3,789,672 ------------------------------------------------------------------ Non interest expenses: Salaries and employee benefits 3,304,262 2,890,450 6,445,662 5,801,575 Occupancy 859,275 754,297 1,660,881 1,540,072 Data Processing 328,947 290,512 654,918 574,012 Credit card interchange 387,554 299,142 728,612 561,824 Equipment 492,948 473,694 972,074 938,130 Leased equipment depreciation - - - 70,241 Legal, accounting, and consulting 135,010 211,064 258,629 406,708 Marketing 375,152 398,446 728,710 640,068 Other real estate owned expenses 56,382 31,497 182,611 46,782 Amortization of goodwill 26,052 26,052 52,103 52,103 Other 1,273,571 1,100,133 2,294,349 2,258,000 ------------------------------------------------------------------ Total non interest expenses 7,239,153 6,475,287 13,978,549 12,889,515 ------------------------------------------------------------------ Income before income taxes 3,056,847 2,492,236 6,059,862 5,163,335 Income tax expense 1,096,571 867,918 2,164,320 1,781,444 ------------------------------------------------------------------ Net income $ 1,960,276 $ 1,624,318 $ 3,895,542 $ 3,381,891 ================================================================== Basic earnings per share $0.40 $0.33 $0.80 $0.69 ================================================================== Diluted earnings per share $0.39 $0.33 $0.77 $0.68 ================================================================== Dividends per common share $0.09 $0.07 $0.16 $0.13 ==================================================================
See accompanying notes to unaudited consolidated condensed financial statements. - 3 - FIRST STATE BANCORPORATION AND SUBSIDIARY Consolidated Condensed Statements of Comprehensive Income For the three and six months ended June 30, 2001 and 2000 (unaudited)
Three months Three months Six months Six months ended June 2001 ended June 2000 ended June 2001 ended June 2000 ------------------------------------------------------------------- Net Income $1,960,276 $1,624,318 $3,895,542 $3,381,891 Other comprehensive income net of tax- Unrealized holding gains (losses) on securities 94,215 (17,393) 658,154 (166,461) Available for sale arising during period Less - Reclassification adjustment for losses included - - - 219,873 in net income ------------------------------------------------------------------- Total comprehensive income $2,054,491 $1,606,925 $4,553,696 $3,435,303 ===================================================================
See accompanying notes to unaudited consolidated condensed financial statements - 4 - First State Bancorporation and Subsidiary Consolidated Condensed Statements of Cash Flows For the three and six months ended June 30, 2001 and 2000 (unaudited)
Three Months Three Months Six Months Six Months ended ended ended ended June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 --------------------------------------------------------------- Cash flows from operating activities: Net Income $ 1,960,276 $ 1,624,318 $ 3,895,542 $ 3,381,891 --------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses 627,000 600,002 1,131,500 1,225,004 Provision for decline in value of other real estate owned 26,820 17,599 95,114 17,599 Depreciation and amortization 484,112 245,725 985,660 429,765 Losses on sales of investment securities - - - 333,142 Gain of sale of Leasing Division - - - (879,078) (Increase) decrease in accrued interest receivable (110,325) (648,377) 501,841 (962,690) Increase in other assets, net (121,947) (55,641) (583,298) (1,301,932) Increase (decrease) in other liabilities, net (1,143,624) (944,037) (461,454) 564,108 --------------------------------------------------------------- Total adjustments (237,964) (784,729) 1,669,363 (574,082) --------------------------------------------------------------- Net cash provided by operating activities 1,722,312 839,589 5,564,905 2,807,809 --------------------------------------------------------------- Cash flows from investing activities: Net increase in loans (25,312,708) (24,749,667) (34,478,337) (52,529,739) Proceeds from the sale of Leases - - - 64,427,001 Purchases of investment securities available for sale (13,140,000) (9,958,135) (47,190,500) (31,901,935) Maturities of investment securities available for sale 32,990,475 27,424 69,907,929 51,888 Purchases of investment securities held to maturity (132,127,455) (16,923,490) (162,127,455) (116,105,598) Maturities of investment securities held to maturity 87,881,216 20,522,214 117,331,068 103,022,214 Sale of investment securities available for sale - - - 11,936,858 Purchases of premises and equipment (1,472,454) (158,755) (2,248,856) (919,311) Sales of premises and equipment - - - 125,038 Sales of other real estate owned 367,338 196,996 1,085,261 316,439 --------------------------------------------------------------- Net cash used in investing activities (50,813,588) (31,043,413) (57,720,890) (21,577,145) --------------------------------------------------------------- Cash flows from financing activities: Net increase in interest-bearing deposits 23,249,209 15,178,843 38,562,426 18,334,370 Net increase in non-interest-bearing deposits 12,834,386 5,451,045 18,721,761 9,488,417 Net increase in securities sold under repurchase agreements 15,620,910 4,041,711 3,341,366 12,974,643 Payments on long-term debt (13,173) (12,060) (26,059) (23,856) Federal Home Loan Bank repayments - (10,000,000) - (10,000,000) Federal Funds purchased, net - - - (4,900,000) Common stock issued 64,881 67,886 135,084 170,268 Dividends paid (441,105) (352,638) (783,998) (612,553) Purchase of Treasury stock (94,861) (159,181) (199,126) (1,064,631) --------------------------------------------------------------- Net cash provided by financing activities 51,220,247 14,215,606 59,751,454 24,366,658 --------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 2,128,971 (15,988,218) 7,595,469 5,597,322 Cash and cash equivalents at beginning of period 44,333,519 44,311,401 38,867,021 22,725,861 --------------------------------------------------------------- Cash and cash equivalents at end of period $ 46,462,490 $ 28,323,183 $ 46,462,490 $ 28,323,183 =============================================================== Supplemental disclosure of noncash investing and financing activities: Additions to other real estate owned in settlement of loans $ 65,613 $ 196,600 $ 1,343,827 $ 196,600 =============================================================== Additions to loans in settlement of other real estate owned - - $ 575,493 - ===============================================================
See accompanying notes to unaudited consolidated condensed financial statements - 5 - 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 (the "Bank") (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, 2000. The consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 and six month periods ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 2. Earnings per Common Share Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") requires the computation of basic earnings per share and diluted earnings per share. Basic earnings per share are 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 had been issued. The following is a reconciliation of the numerators and denominators of basic and diluted earnings per share for the three and six months ended June 30:
Quarter Ended June 30, 2001 2000 ------------------------------------------------------------------------------ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------------------------------------------------------------------------ Basic EPS: Net income available to common stockholders $1,960,276 4,890,777 $0.40 $1,624,318 4,861,584 $0.33 ========= ========= Effect of dilutive securities: Options 144,287 107,648 Diluted EPS: Net income available to ------------------------------------------------------------------------------ common stockholders $1,960,276 5,035,064 $0.39 $1,624,318 4,969,232 $0.33 ==============================================================================
- 6 -
Six Months Ended June 30, 2001 2000 ------------------------------------------------------------------------------ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------------------------------------------------------------------------ Basic EPS: Net income available to common stockholders $3,895,542 4,893,637 $0.80 $3,381,891 4,892,806 $0.69 ========= ========= Effect of dilutive securities: Options 140,688 114,536 Diluted EPS: Net income available to ------------------------------------------------------------------------------ Common stockholders $3,895,542 5,034,325 $0.77 $3,381,891 5,007,342 $0.68 ==============================================================================
3. Sale of Leasing Division On March 1, 2000, the Company closed the sale of its subsidiary bank's commercial leasing division. The sale resulted in $63.7 million of leases being sold. The gain on the sale amounted to approximately $879,000, net of transaction costs. The proceeds from the sale were used to purchase investment securities, fund loan demand, and reduce short-term borrowings. 4. Treasury Stock The Company's Board of Directors has authorized management to purchase up to 525,000 shares of its common stock. As of June 30, 2001, management has purchased 322,550 shares including 13,000 shares totaling $199,126 during the first six months of 2001. Management intends to purchase additional shares the amount of which will be determined by cash available for dividends from the subsidiary bank. 5. Accounting Pronouncements Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS 133" which requires that all derivative instruments be recorded on the balance sheet at their fair values. The Company's management has performed an analysis of its financial instruments and concluded that it has no derivative instruments or hedging activity required to be recorded under SFAS No.133 or No.138. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. The Company is required to adopt the provisions of SFAS 141 immediately and SFAS 142 effective January 1, 2002. As of the date of adoption, the Company expects to have unamortized goodwill in the amount of $360,892. Amortization expense related to goodwill was $104,206 and $52,103 for the year ended December 31, 2000 and the six months ended June 30, 2001, respectively. - 7 - 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 $63.9 million from $652.7 million as of December 31, 2000, to $716.6 million as of June 30, 2001 due to increased market share and economic growth in the Company's market areas. For the first six months of 2001, net loans increased by $32.6 million from $453.8 million to $486.4 million, while investment securities increased by $23.1 million from $134.4 million to $157.5 million. Much of this growth resulted from the increase in deposits and customer repurchase agreements described below. For the first six months of 2001, premises and equipment increased $1.3 million from $12.8 million to $14.1 million. Approximately $770,000 of increase was due to the addition of two new branches in the second quarter of 2001. The following table presents the amounts of loans of the Company, by category, at the dates indicated.
June 30, 2001 December 31, 2000 June 30, 2000 ----------------------------------------------------- (in thousands) Amount % Amount % Amount % ----------------------------------------------------- Commercial $ 84,884 17.2% $ 82,901 18.0% $ 74,325 17.7% Real estate-mortgage 312,119 63.3% 284,450 61.8% 251,508 60.1% Real estate-construction 71,018 14.4% 68,282 14.9% 70,386 16.8% Consumer and other 25,073 5.1% 24,451 5.3% 22,486 5.4% ----------------------------------------------------- $493,094 100.0% $460,084 100.0% $418,705 100.0% =====================================================
Deposits, which are the Company's main source of funds for loans, investments, and federal funds sold, increased by $57.3 million from $528.4 million as of December 31, 2000, to $585.7 million as of June 30, 2001. Management believes that a significant portion of the Company's deposit growth is a result of recent acquisition and divestiture activity by large out of state banks in the Company's largest market area. Customer repurchase agreements increased $3.3 million from $67.8 million to $71.1 million at June 30, 2001 compared to December 31, 2000. The following table represents customer deposits, by category, at the dates indicated.
June 30, 2001 December 31, 2000 June 30, 2000 ----------------------------------------------------- (in thousands) Amount % Amount % Amount % ----------------------------------------------------- Non-interest-bearing $117,350 20.0% $ 98,628 18.7% $ 98,792 20.1% Interest-bearing demand 115,549 19.7% 123,316 23.3% 100,661 20.5% Money market savings 51,008 8.7% 46,939 8.9% 51,020 10.4% Regular savings 40,233 6.9% 35,654 6.7% 33,882 6.9% Certificates of deposit less than $100,000 119,146 20.4% 108,786 20.6% 98,274 20.0% Certificates of deposit greater than $100,000 142,406 24.3% 115,085 21.8% 108,729 22.1% ----------------------------------------------------- $585,692 100.0% $528,408 100.0% $491,358 100.0% =====================================================
Consolidated Results of Operations For the Three Months Ended June 30, 2001 Net income for the Company for the three months ended June 30, 2001, was $1.96 million, an increase of $340,000 or 21% from $1.62 million for the same period of 2000. The increase in net income resulted from an increase in net interest income before provision for loan losses of $776,000 and an increase in other income of $579,000, partially offset by an increase in non-interest expense of $764,000 and income taxes of $229,000. The Company's annualized return on average assets was 1.14% for the three months ended June 30, 2001, compared to 1.12% for the same period of 2000. The net interest income before the provision for loan losses increased $776,000 to $8.7 million for the second quarter of 2001 compared to $7.9 million for the second quarter of 2000. This increase was composed of a $1.3 million increase in total interest income offset by a $557,000 increase in total interest expense. The increase in interest income was composed of an increase of $2.6 million due to increased average interest earning assets of $108.2 million, offset by $1.3 million due to a 0.74% decrease in the yield on average interest earning assets. The increase in total interest expense was due to a $986,000 increase resulting from an $84.0 million increase in average interest bearing liabilities and a $429,000 decrease due to a 0.26% decrease in the cost of interest bearing liabilities. - 8 - The recent decreases in interest rate precipitated by the Federal Reserve Board's decreases in the discount rate have decreased the yield on interest earnings assets and have caused management to decrease rates paid on deposits. The impact on the net interest margin of additional decreases in interest rates will be significantly determined by the competitive environment for deposits. Management believes that additional decreases in rates will cause compression of the Company's net interest margin. The provision for loan losses was $627,000 for the second quarter of 2001, compared to $600,002 for the second quarter of 2000. Net charge-offs for the second quarter of 2001 were $346,000 compared to $202,000 for the second quarter of 2000. Management provides for loan losses based upon its judgments concerning the adequacy of the allowance for loan losses considering such factors as loan growth, delinquency trends, previous charge-off experience, and local and national economic conditions. Total non-interest income increased by $579,000 to $2.2 million for the three months ended June 30, 2001, compared to $1.6 million for the same period of 2000. The increase was primarily composed of a $234,000 increase in gains on sales of mortgage loans, caused by greater new home construction and refinancing resulting from the lower interest rate environment, a $169,000 increase in credit card transaction fees resulting from increased transaction volume due to increased market share, and a $134,000 increase in service charges on deposits resulting from increased deposits. Total non-interest expense increased by $764,000 to $7.2 million for the second quarter of 2001, compared to $6.5 million for the same period of 2000. This increase was due partially to increases in salaries and employee benefits and occupancy expense. Salary and benefit expense increased $414,000 resulting from a $199,000 increase in mortgage loan commissions, $65,000 from two new branches opened during the quarter, and the Company's overall growth and annual salary increases. Occupancy expense increased $105,000, of which $62,000 resulted from the two new branches opened during the quarter. Consolidated Results of Operations For the Six Months Ended June 30, 2001 Net income for the Company for the six months ended June 30, 2001, was $3.9 million, an increase of $514,000 or 15% from $3.4 million for the same period of 2000. The increase in net income resulted from an increase in net interest income before provision for loan losses of $1.5 million and an increase in other income of $424,000, partially offset by an increase in non-interest expense of $1.1 million and income taxes of $383,000. The Company's annualized return on average assets was 1.18% for the six months ended June 30, 2001, compared to 1.18% for the same period of 2000. The net interest income before the provision for loan losses increased $1.5 million to $17.0 million for the six months ended June 30, 2001 compared to $15.5 million for the same period of 2000. This increase was composed of a $3.2 million increase in total interest income offset by a $1.8 million increase in total interest expense. The increase in interest income was composed of an increase of $4.5 million due to increased average interest earning assets of $92.3 million offset by $1.3 million due to a 0.33% decrease in the yield on average interest earning assets. The increase in total interest expense was due to a $1.6 million increase resulting from a $70.6 million increase in average interest bearing liabilities and an $188,000 increase due to a 0.12% increase in the cost of interest bearing liabilities. The provision for loan losses was $1.1 million for the first six months of 2001, compared to $1.2 million for the first six months of 2000. Net charge-offs for the six months ended June 30, 2001 were $699,000 compared to $774,000 for the six months ended June 30, 2000. The allowance for loan losses to total loans was 1.37% and the allowance for loan losses to non-performing loans was 266% at June 30, 2001, compared to allowance for loan losses to total loans of 1.39% and the allowance for loan losses to non-performing assets to total assets of 163% at June 30, 2000. Total non-performing assets to total assets were 0.58% at June 30, 2001, compared to 0.90% at June 30, 2000. - 9 - Total non-interest income increased by $424,000 to $4.2 million for the six months ended June 30, 2001, compared to $3.8 million for the same period of 2000. For the first six months of 2001 compared to the first six months of 2000, the gain on sale of mortgage loans increased $421,000 caused by greater new home construction and refinancing resulting from the lower interest rate environment, credit card transaction fees increased $318,000 resulting from increased transaction volume due to increased market share, and service charges on deposit accounts increased $279,000 as a result of increased deposits. Included in total other income for 2000 was a $879,000 gain on the sale of the leasing division, a loss of $333,000 on securities sold, and $115,000 of operating lease income. Total non-interest expense increased by $1.1 million to $14.0 million for the six months ended June 30, 2001, compared to $12.9 million for the same period of 2000. This increase was due partially to $644,000 in salary expense resulting from $479,000 from the increase in mortgage loan commissions, and $73,000 from the two new branches opened in the second quarter of 2001,and the Company's overall growth and annual salary increases. Occupancy expense grew $121,000, $75,000 related to the two new branches opened in the second quarter. Credit card interchange expense grew $167,000 as a result of increased volume, and other real estate owned expense grew $136,000 as a result of $95,114 in charge- offs during the first six months of 2001. Allowance for Loan Losses The following tables set forth the allowance for loan losses and non-performing assets.
(Dollars in thousands) ------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES : June 30, 2001 December 31, 2000 June 30, 2000 ------------------------------------------------------------------- Balance beginning of period $6,308 $5,387 $5,387 Provision for loan losses 1,131 2,475 1,225 Net charge-offs 700 1,554 774 ------------------------------------------------------------------- Balance end of period $6,739 $6,308 $5,838 =================================================================== Allowance for loan losses to total loans 1.37% 1.37% 1.39% Allowance for loan losses to non-performing loans 266% 325% 163% NON-PERFORMING ASSETS: Accruing loans - 90 days past due $ 14 $ 6 $ - Non-accrual loans 2,518 1,937 3,578 ------------------------------------------------------------------- Total non-performing loans 2,532 1,943 3,578 Other real estate owned 1,604 2,016 1,780 ------------------------------------------------------------------- Total non-performing assets $4,136 $3,959 $5,358 =================================================================== Potential problem loans $8,323 $5,053 $4,901 =================================================================== Total non-performing assets to total assets 0.58% 0.61% 0.90%
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. Forward-Looking Statements Statements that 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 effect changes in economic conditions may have on overall loan quality, changes in net interest margin due to changes in interest rates, possible loss of key personnel, need for additional capital should the Company experience faster than anticipated growth, factors which could affect the Company's ability to compete in its trade areas, changes in regulations and governmental policies. - 10 - Item 3. Quantitative and Qualitative Disclosures About Market Risk The following tables set forth, for the periods indicated, information with respect to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense from interest-bearing liabilities, resultant yields or costs, net interest income, net interest spread, net interest margin, and the ratio of average interest-earning assets to average interest-bearing liabilities for the Company. No tax equivalent adjustments were made and all average balances are daily average balance. Non-accruing loans have been included in the table as loans carrying a zero yield.
Three Months Ended June 30, 2001 2000 ------------------------------------------------------------------------------- Interest Interest Average Income or Average Average Income or Average Balance Expense Yield or Cost Balance Expense Yield or Cost ------------------------------------------------------------------------------- (Dollars in thousands) Assets Loans and leases: Commercial............................ $ 81,846 $ 2,075 10.17% $ 71,994 $ 1,780 9.92% Real estate--mortgage................. 297,831 7,000 9.43% 241,466 5,826 9.68% Real estate--construction............. 70,617 1,793 10.18% 67,896 2,032 12.00% Consumer.............................. 24,797 476 7.70% 21,421 618 11.57% Leases................................ 2 - - 4 - - Mortgage.............................. 5,010 356 28.50% 1,460 141 38.74% Other................................. 547 - - 505 - - ------------------------------------------------------------------------------- Total loans and leases............. 480,650 11,700 9.76% 404,746 10,397 10.30% Allowance for loan and lease losses....... (6,774) (5,817) Securities: U.S. government and mortgage-backed 156,478 2,138 5.48% 118,562 1,919 6.49% State and political subdivisions: Nontaxable......................... 4,045 46 4.56% 4,552 52 4.58% Taxable............................ - - - - - Other.............................. 2,245 32 5.72% 2,127 116 21.87% ------------------------------------------------------------------------------- Total securities................... 162,768 2,216 5.46% 125,241 2,087 6.68% Federal funds sold........................ 4,747 51 4.31% 9,926 149 6.02% ------------------------------------------------------------------------------- Total interest-earning assets 648,165 13,967 8.64% 539,913 12,633 9.39% Non-interest-earning assets: Cash and due from banks................... 24,413 24,148 Other .................................... 25,909 25,800 ---------- -------- Total non-interest-earning assets.... 50,322 49,948 ---------- -------- Total assets....................... $691,713 $584,044 ========== ======== Liabilities and Stockholders' Equity Deposits: Interest-bearing demand accounts...... $113,006 $ 405 1.44% $103,864 $ 564 2.18% Certificates of deposit............... 256,767 3,674 5.74% 199,438 2,746 5.52% Money market savings accounts......... 49,314 361 2.94% 45,264 387 3.43% Regular savings accounts.............. 39,335 241 2.46% 33,564 234 2.80% ------------------------------------------------------------------------------- Total interest-bearing deposits. 458,422 4,681 4.10% 382,130 3,931 4.13% Federal funds purchased and securities sold under agreements to repurchase...... 64,022 561 3.51% 49,763 647 5.21% Note payable.............................. 1,982 25 9.27% 7,584 132 6.98% ------------------------------------------------------------------------------- Total interest-bearing 523,526 5,267 4.04% 439,477 4,710 4.30% liabilities.................... Non-interest-bearing demand accounts...... 109,445 93,501 Other non-interest-bearing liabilities.... 4,080 4,807 ---------- -------- Total liabilities............... 637,051 537,785 Stockholders' equity...................... 54,662 46,259 ---------- -------- Total liabilities and Stockholders' equity.......... $691,713 $584,044 ========== ============ ======== ========== Net interest income....................... $ 8,700 $ 7,923 ============ ========== Net interest spread....................... 18.48% 20.40% Net interest margin....................... 5.38% 5.89% Ratio of average interest-earning assets to average interest-bearing liabilities 123.81% 122.85%
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Six Months Ended June 30, 2001 2000 -------------------------------------------------------------------------------------- Interest Interest Average Income or Average Average Balance Income or Average Balance Expense Yield or Cost Expense Yield or Cost -------------------------------------------------------------------------------------- (Dollars in thousands) Assets Loans and leases: Commercial......................... $ 80,817 $ 3,783 9.44% $ 70,231 $ 3,396 9.75% Real estate--mortgage.............. 290,908 13,897 9.63% 233,348 11,128 9.62% Real estate--construction.......... 69,378 3,662 10.64% 67,126 3,905 11.73% Consumer........................... 24,699 1,408 11.50% 21,088 1,209 11.56% Leases............................. 2 - - 20,249 837 8.34% Mortgage........................... 4,428 610 27.78% 1,338 276 41.60% Other.............................. 548 - - 440 - - -------------------------------------------------------------------------------------- Total loans and leases.......... 470,780 23,360 10.01% 413,820 20,751 10.11% Allowance for loan and lease losses.... (6,706) (5,740) Securities: U.S. government and mortgage-backed 143,428 4,189 5.89% 104,729 3,259 6.28% State and political subdivisions: Nontaxable...................... 4,049 92 4.58% 4,572 104 4.59% Taxable......................... - - - - - Other........................... 2,231 64 5.78% 2,111 227 21.68% -------------------------------------------------------------------------------------- Total securities................ 149,708 4,345 5.85% 111,412 3,590 6.50% Federal funds sold..................... 3,813 89 4.71% 6,673 204 6.16% -------------------------------------------------------------------------------------- Total interest-earning assets 624,301 27,794 8.98% 531,905 24,545 9.31% Non-interest-earning assets: Cash and due from banks................ 23,275 24,564 Other ................................. 25,311 26,091 ---------- ------------ Total non-interest-earning assets. 48,586 50,655 ---------- ------------ Total assets.................... $666,181 $576,820 ========== ============ Liabilities and Stockholders' Equity --------------------------------------- Deposits: Interest-bearing demand accounts... $108,606 896 1.66% $101,636 $ 1,037 2.06% Certificates of deposit............ 247,296 7,257 5.92% 198,240 5,328 5.42% Money market savings accounts...... 48,295 834 3.48% 44,646 740 3.34% Regular savings accounts........... 37,955 489 2.60% 33,436 446 2.69% -------------------------------------------------------------------------------------- Total interest-bearing deposits 442,152 9,476 4.32% 377,958 7,551 4.03% Federal funds purchased and securities sold under agreements to repurchase.... 62,685 1,312 4.22% 47,987 1,188 4.99% Note payable........................... 1,088 50 9.27% 9,380 318 6.84% -------------------------------------------------------------------------------------- Total interest-bearing 505,925 10,838 4.32% 435,325 9,057 4.20% liabilities................. Non-interest-bearing demand accounts... 102,369 90,974 Other non-interest-bearing liabilities. 4,232 4,502 ---------- ------------ Total liabilities............ 612,526 530,801 Stockholders' equity................... 53,655 46,019 ---------- ------------ Total liabilities and Stockholders' equity....... $666,181 $576,820 ========== ========== ============ ========== Net interest income.................... $16,956 $15,488 ========== ========== Net interest spread.................... 9.39% 10.30% Net interest margin.................... 5.48% 5.87% Ratio of average interest-earning assets to average interest-bearing liabilities 123.40% 122.19%
To effectively measure and manage interest rate risk, the Company uses gap analysis and simulation analysis to determine the impact on net interest income under various interest rate scenarios, balance sheet trends, and strategies. From these analyses, interest rate risk is quantified and appropriate strategies are developed and implemented. Additionally, duration and market value sensitivity measures are utilized when they provide added value to the overall interest rate risk management process. The overall interest rate risk position and strategies are reviewed by management and the Bank's Board of Directors on an ongoing basis. - 12 - Rising and falling interest rate environments can have various impacts on a bank's net interest income, depending on the short-term interest rate gap that the bank maintains, the relative changes in interest rates that occur when the bank's various assets and liabilities reprice, unscheduled repayments of loans, early withdrawals of deposits and other factors. As of June 30, 2001, the Company's cumulative interest rate gap for the period up to three months was a positive $108.6 million for the period up to one year was a positive $123.5 million. Based solely on the Company's interest rate gap of twelve months or less, net income of the Company could be unfavorably impacted by decreases in interest rates or favorably impacted by increases in interest rates. The following table sets forth the estimated maturity or repricing, and the resulting interest rate gap of the Company's interest-earning assets and interest-bearing liabilities at June 30, 2001. The amounts are based upon regulatory reporting formats and, therefore, may not be consistent with financial information appearing elsewhere in this report that has been prepared in accordance with accounting principles generally accepted in the United States of America. The amounts could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawals of deposits, and competition.
Three months to Less than less than three one One to five Over five months year years years Total ----------- ---------- ---------- ---------- -------- (Dollars in thousands) Interest-earning assets: Investment securities....................................... $ 74,908 $ 39,692 $ 35,042 $ 7,820 $157,462 Federal funds sold.................................... 7,480 -- -- -- 7,480 Loans and leases: Commercial................................................ 51,764 16,440 15,181 1,499 84,884 Real estate............................................... 171,062 81,295 111,838 18,942 383,137 Consumer.................................................. 4,845 7,280 12,324 624 25,073 ----------- ---------- ---------- ---------- -------- Total interest-earning assets.......................... 310,059 144,707 174,385 28,885 658,036 ----------- ---------- ---------- ---------- -------- Interest-bearing liabilities: Savings and NOW accounts.................................... 58,414 -- -- 148,376 206,790 Certificates of deposit of $100,000 or more................. 39,093 75,631 27,344 338 142,406 Other time accounts......................................... 32,808 54,193 31,937 208 119,146 Other interest-bearing liabilities.......................... 71,110 -- -- -- 71,110 ----------- ---------- ---------- ---------- -------- Total interest-bearing liabilities..................... 201,425 129,824 59,281 148,922 539,452 ----------- ---------- ---------- ---------- -------- Interest rate gap............................................. 108,634 14,883 $115,104 ($120,037) $118,584 =========== ========== ========== ========== ======== Cumulative interest rate gap at June 30, 2001................. $108,634 $123,517 $238,621 $ 118,584 =========== ========== ========== ========== Cumulative gap ratio at June 30, 2001......................... 1.54 1.37 1.61 1.22 =========== ========== ========== ==========
PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On June 8, 2001 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 ------------------------------------------------------------------- H. Patrick Dee 3 years 4,739,951 21,487 Leonard J. DeLayo, Jr. 3 years 4,739,951 21,487 Bradford M. Johnson 3 years 4,739,951 21,487 2. Proposal to approve amendments to the 1993 Stock Option Plan to increase the number of shares available for grant from 600,000 to 730,000, and to prohibit any reductions of the exercise price (repricing) of previously fixed stock option award under the plan. Votes: For 4,553,861; Against 156,192; Abstain 51,385. 3. Proposal to ratify the selection of KPMG LLP as the independent public accountants of the Company. Votes: For 4,690,888; Against 34,246; Abstain 36,305. Item 6. Exhibits and Reports on Form 8-K None - 13 - 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 10, 2001 Michael R. Stanford --------------------------------------------------------- Michael R. Stanford, President & Chief Executive Officer Date: August 10, 2001 H. Patrick Dee --------------------------------------------------------- H. Patrick Dee, Executive Vice President & Chief Operating Officer Date: August 10, 2001 Brian C. Reinhardt --------------------------------------------------------- Brian C. Reinhardt, Executive Vice President and Chief Financial Officer - 14 -