-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9ApHMlKDU2S72KVTnht3jEe8P/O/2t8d+KT87UjHSgB/Pm1i7JDXIX/ScfDm4qU KKxWJh/UjGEzueLKcWuO9g== 0000950134-03-011578.txt : 20030813 0000950134-03-011578.hdr.sgml : 20030813 20030813135856 ACCESSION NUMBER: 0000950134-03-011578 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST STATE BANCORPORATION CENTRAL INDEX KEY: 0000897861 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 850366665 STATE OF INCORPORATION: NM FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12487 FILM NUMBER: 03840367 BUSINESS ADDRESS: STREET 1: 7900 JEFFERSON NE CITY: ALBUQUERQUE STATE: NM ZIP: 87109 BUSINESS PHONE: 5052417500 MAIL ADDRESS: STREET 1: 7900 JEFFERSON NE CITY: ALBUQUERQUE STATE: NM ZIP: 87190 10-Q 1 d08125e10vq.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (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, 2003. 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 1-12487 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 X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] 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: 7,515,488 shares of common stock, no par value, outstanding as of August 11, 2003. 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 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Item 4. Controls and Procedures 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18
-1- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. FIRST STATE BANCORPORATION AND SUBSIDIARY Consolidated Condensed Balance Sheets (unaudited) (Dollars in thousands, except per share amounts)
June 30, 2003 December 31, 2002 ------------------ ------------------ Assets Cash and due from banks $ 45,892 $ 51,902 Interest-bearing deposits with banks 177 22,828 Federal funds sold 2,571 14,141 ------------------ ------------------ Total cash and cash equivalents 48,640 88,871 Investment securities: Available for sale (at market, amortized cost of $126,520 at June 30, 2003, and $120,617 at December 31,2002) 128,276 121,711 Held to maturity (at amortized cost, market value of $73,058 at June 30, 2003, and $70,127 at December 31, 2002) 71,359 67,819 Federal Home Loan Bank Stock and Federal Reserve Bank Stock at cost 8,419 4,564 ------------------ ------------------ Total investment securities 208,054 194,094 ------------------ ------------------ Mortgage loans available for sale 14,057 20,315 Loans held for investment net of unearned interest 1,095,758 996,710 Less allowance for loan losses 12,985 11,838 ------------------ ------------------ Net loans 1,096,830 1,005,187 Premises and equipment, net 18,993 16,503 Accrued interest receivable 5,275 5,384 Other real estate owned 373 908 Goodwill 43,223 43,412 Cash surrender value of bank owned life insurance 18,640 18,153 Deferred tax asset, net 3,014 3,373 Other assets, net 8,922 10,985 ------------------ ------------------ Total assets $ 1,451,964 $ 1,386,870 ================== ================== Liabilities and Stockholders' Equity Liabilities: Deposits: Non-interest-bearing $ 216,951 $ 189,063 Interest-bearing 913,522 890,621 ------------------ ------------------ Total deposits 1,130,473 1,079,684 Securities sold under agreements to repurchase and federal funds purchased 48,320 70,764 Borrowings 141,262 113,174 Other liabilities 6,157 5,780 ------------------ ------------------ Total liabilities 1,326,212 1,269,402 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 7,859,988 at June 30, 2003 and 7,704,884 at December 31, 2002; outstanding 7,467,938 at June 30, 2003 and 7,327,834 at December 31, 2002 84,834 82,294 Treasury stock, at cost (392,050 shares at June 30, 2003 and 377,050 at December 31, 2002) (5,778) (5,447) Retained earnings 45,538 39,899 Accumulated other comprehensive gains - Unrealized gains on investment securities, net of tax 1,158 722 ------------------ ------------------ Total stockholders' equity 125,752 117,468 ------------------ ------------------ Total liabilities and stockholders' equity $ 1,451,964 $ 1,386,870 ================== ================== Book value per share $ 16.84 $ 16.03 ================== ================== Tangible book value per share $ 10.94 $ 9.98 ================== ==================
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, 2003 and 2002 (unaudited) (Dollars in thousands, except per share amounts)
Three months Three months Six months Six months ended June 30, ended June 30, ended June 30, ended June 30, 2003 2002 2003 2002 -------------- -------------- -------------- -------------- Interest Income: Interest and fees on loans $ 19,638 $ 11,311 $ 38,212 $ 22,186 Interest on investment securities: Taxable 1,912 2,243 3,931 4,561 Nontaxable 36 38 71 78 Federal funds sold 24 40 91 110 Interest-bearing deposits other banks 11 24 55 75 -------------- -------------- -------------- -------------- Total interest income 21,621 13,656 42,360 27,010 -------------- -------------- -------------- -------------- Interest expense: Deposits 4,782 3,488 9,726 7,138 Short-term borrowings 158 150 318 308 Borrowings 750 149 1,514 258 -------------- -------------- -------------- -------------- Total interest expense 5,690 3,787 11,558 7,704 -------------- -------------- -------------- -------------- Net interest income before provision for loan losses 15,931 9,869 30,802 19,306 Provision for loan losses 1,271 519 2,318 1,188 -------------- -------------- -------------- -------------- Net interest income after provision for loan losses 14,660 9,350 28,484 18,118 -------------- -------------- -------------- -------------- Non-interest income: Service charges on deposit accounts 1,141 837 2,085 1,653 Other banking service fees 296 272 584 523 Credit and debit card transaction fees 982 1,060 1,956 1,975 Gain on sale or call of investment securities 8 8 33 21 Gains on sale of mortgage loans 1,156 526 2,075 1,124 Check imprint income 135 132 270 256 Other 282 177 562 317 -------------- -------------- -------------- -------------- Total non-interest income 4,000 3,012 7,565 5,869 -------------- -------------- -------------- -------------- Non-interest expenses: Salaries and employee benefits 6,222 3,829 12,101 7,710 Occupancy 1,444 1,020 2,762 2,017 Data processing 570 502 1,115 891 Credit and debit card interchange 388 546 810 998 Equipment 873 665 1,730 1,299 Legal, accounting, and consulting 315 157 599 358 Marketing 567 554 929 929 Telephone 389 205 695 418 Supplies 192 142 400 283 Other real estate owned 55 27 155 84 FDIC insurance premiums 44 30 87 58 Check imprint 129 117 253 230 Amortization of intangibles 28 -- 57 -- Other 1,398 936 2,765 1,714 -------------- -------------- -------------- -------------- Total non-interest expenses 12,614 8,730 24,458 16,989 -------------- -------------- -------------- -------------- Income before income taxes 6,046 3,632 11,591 6,998 Income tax expense 2,315 1,388 4,394 2,667 -------------- -------------- -------------- -------------- Net income $ 3,731 $ 2,244 $ 7,197 $ 4,331 ============== ============== ============== ============== Earnings per share: Basic earnings per share $ 0.50 $ 0.46 $ 0.97 $ 0.89 ============== ============== ============== ============== Diluted earnings per share $ 0.49 $ 0.44 $ 0.95 $ 0.85 ============== ============== ============== ============== Dividends per common share $ 0.11 $ 0.10 $ 0.21 $ 0.19 ============== ============== ============== ==============
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, 2003 and 2002 (unaudited) (Dollars in thousands, except per share amounts)
Three months ended Three months ended Six months ended Six months ended June 2003 June 2002 June 2003 June 2002 ------------------ ------------------ ------------------ ------------------ Net Income $ 3,731 $ 2,244 $ 7,197 $ 4,331 Other comprehensive gain net of tax- Unrealized holding gains on securities available for sale arising during period 293 910 458 23 Reclassification adjustment for gains included in net income (5) (8) (22) (21) ------------------ ------------------ ------------------ ------------------ Total comprehensive income $ 4,019 $ 3,146 $ 7,633 $ 4,333 ================== ================== ================== ==================
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, 2003 and 2002 (unaudited) (Dollars in thousands, except per share amounts)
Three months Three months Six months Six months ended ended ended ended June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 -------------- -------------- -------------- -------------- Operating activities: Net Income $ 3,731 $ 2,244 $ 7,197 $ 4,331 -------------- -------------- -------------- -------------- Adjustments to reconcile net income to net cash provided by operations: Provision for loan losses 1,271 519 2,318 1,188 Provision for decline in value of other real estate owned 11 -- 93 50 Net gain on sale of other real estate owned (27) -- (27) -- Depreciation and amortization 754 571 1,468 1,125 Income tax benefit of stock options exercised 553 -- 1,072 -- Increase in bank owned life insurance cash surrender value (245) (109) (487) (219) Amortization of securities, net (348) (62) (355) (110) Mortgage loans originated for sale (68,214) (40,544) (120,991) (75,959) Proceeds from sale of mortgage loans originated for sale 64,911 40,833 129,294 85,862 Decrease in accrued interest receivable 236 92 109 305 (Increase) decrease in other assets, net 2,198 (103) 2,138 169 (Decrease) increase in other liabilities, net (167) (567) 377 (239) -------------- -------------- -------------- -------------- Total adjustments 933 630 15,009 12,172 -------------- -------------- -------------- -------------- Net cash provided by operating activities 4,664 2,874 22,206 16,503 -------------- -------------- -------------- -------------- Cash flows from investing activities: Net increase in loans (52,532) (40,963) (102,571) (67,571) Purchases of investment securities carried at amortized cost (18,000) (22,404) (23,492) (60,462) Maturities of investment securities carried at amortized cost 11,182 8,830 19,802 57,107 Purchases of investment securities carried at market (42,066) (6,610) (73,135) (47,072) Maturities of investment securities carried at market 24,810 34,890 63,881 69,455 Purchases of premises and equipment (2,370) (763) (3,899) (1,430) (Increase) decrease in goodwill (66) -- 189 -- Proceeds from sales of and payments on other real estate owned 226 16 776 31 -------------- -------------- -------------- -------------- Net cash used in investing activities (78,816) (27,004) (118,449) (49,942) -------------- -------------- -------------- -------------- Cash flows from financing activities: Net increase in interest-bearing deposits 13,678 12,214 22,901 18,089 Net increase in non-interest-bearing deposits 17,970 23,579 27,888 27,708 Net increase (decrease) in securities sold under repurchase agreements and federal funds purchased 3,459 312 (22,444) (18,805) Proceeds from borrowings 50,000 25,000 50,000 25,000 Payments on borrowings (20,960) (11) (21,912) (257) Common stock issued 529 85 1,468 170 Dividends paid (824) (493) (1,558) (937) Purchase of treasury stock -- -- (331) (94) -------------- -------------- -------------- -------------- Net cash provided by financing activities 63,852 60,686 56,012 50,874 -------------- -------------- -------------- -------------- Increase (decrease) in cash and cash equivalents (10,300) 36,556 (40,231) 17,435 Cash and cash equivalents at beginning of period 58,940 45,770 88,871 64,891 -------------- -------------- -------------- -------------- Cash and cash equivalents at end of period $ 48,640 $ 82,326 $ 48,640 $ 82,326 ============== ============== ============== ============== Supplemental disclosure of noncash investing and financing activities: Additions to other real estate owned in settlement of loans $ 193 $ -- $ 371 $ 625 ============== ============== ============== ============== Additions to loans in settlement of other real estate owned -- -- 64 -- ============== ============== ============== ============== Supplemental disclosure of cash flow information: Cash paid for interest $ 5,943 $ 3,771 $ 12,324 $ 7,984 ============== ============== ============== ============== Cash paid for income taxes $ 2,083 $ 2,345 $ 2,083 $ 2,345 ============== ============== ============== ==============
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 our accounts and those of our wholly owned subsidiary, First State Bank N.M. (the "Bank"). All significant intercompany accounts and transactions have been eliminated. Information contained in our consolidated condensed financial statements and notes thereto should be read in conjunction with our consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2002. 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 notes required by accounting principles generally accepted in the United States of America for complete financial statements. In our opinion, 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, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 2. STOCK BASED COMPENSATION In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of this statement as of December 31, 2002 had no effect on our consolidated financial position or results of operations. We apply the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees and related interpretations in accounting for its fixed plan stock options." As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method and have included the disclosure required by SFAS No. 148. Had compensation costs been determined consistent with the fair value method of SFAS No. 123 at the grant dates for awards, net income and earnings per common share would have changed to the pro forma amounts indicated below.
Three months Six months ended June 30, ended June 30, 2003 2002 2003 2002 ---------- ---------- ---------- ---------- (Dollars in thousands, except per share amounts) Net income as reported: $ 3,731 $ 2,244 $ 7,197 $ 4,331 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 11 2 11 4 Deduct: Total stock-based employee compensation expense determined under fair value-based method for awards, net of related tax effects (15) (7) (18) (14) ---------- ---------- ---------- ---------- Pro forma net income $ 3,727 $ 2,239 $ 7,190 $ 4,321 ========== ========== ========== ========== Earnings per share: Basic - as reported $ 0.50 $ 0.46 $ 0.97 $ 0.89 ========== ========== ========== ========== Basic - pro forma $ 0.50 $ 0.46 $ 0.97 $ 0.88 ========== ========== ========== ========== Diluted - as reported $ 0.49 $ 0.44 $ 0.95 $ 0.85 ========== ========== ========== ========== Diluted - pro forma $ 0.49 $ 0.44 $ 0.95 $ 0.85 ========== ========== ========== ==========
-6- 3. EARNINGS PER COMMON SHARE Basic earnings per share are computed by dividing net income (the numerator) by the weighted-average number of common shares outstanding during the period (the denominator). Diluted earnings per share are calculated by increasing the basic earnings 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:
Three months ended June 30, 2003 2002 ---------------------------------------------- ---------------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount -------------- -------------- -------------- -------------- -------------- -------------- (Dollars in thousands, except per share amounts) Basic EPS: Net income $ 3,731 7,423,589 $ 0.50 $ 2,244 4,887,784 $ 0.46 ============== ============== Effect of dilutive securities: Options 141,687 204,396 Diluted EPS: -------------- -------------- -------------- -------------- -------------- -------------- Net income $ 3,731 7,565,276 $ 0.49 $ 2,244 5,092,180 $ 0.44 ============== ============== ============== ============== ============== ==============
Six months ended June 30, 2003 2002 ---------------------------------------------- ---------------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount -------------- -------------- -------------- -------------- -------------- -------------- (Dollars in thousands, except per share amounts) Basic EPS: Net income $ 7,197 7,402,045 $ 0.97 $ 4,331 4,886,230 $ 0.89 ============== ============== Effect of dilutive securities: Options 150,867 197,556 Diluted EPS: -------------- -------------- -------------- -------------- -------------- -------------- Net income $ 7,197 7,552,912 $ 0.95 $ 4,331 5,083,786 $ 0.85 ============== ============== ============== ============== ============== ==============
4. TREASURY STOCK Our Board of Directors has authorized us to purchase up to 525,000 shares of our common stock. As of June 30, 2003, we have purchased 392,050 shares including 15,000 shares totaling $330,644 during the first six months of 2003. We may purchase additional shares, the amount of which will be determined by market conditions. 5. ACQUISITION OF FIRST COMMUNITY INDUSTRIAL BANK We completed our acquisition of First Community Industrial Bank ("First Community") on October 1, 2002 for approximately $67 million. We financed this acquisition through a public offering of our common stock in August 2002, which netted approximately $51.0 million and through the issuance of approximately $25.0 million in trust preferred securities in June of 2002. The acquisition was accounted for using the purchase method of accounting, and accordingly, the assets and liabilities of First Community were recorded at their respective fair values on October 1, 2002. We acquired approximately $343 million in loans and approximately $242 million in deposits and recognized goodwill of approximately $43 million related to the transaction. The First Community account balances acquired on October 1, 2002 and the results of operations since October 1, 2002 are included in the results of First State. -7- During the first quarter of 2003, we completed the sale of certain mortgage loans available for sale obtained in the acquisition of First Community in 2002. The sale to unrelated third parties included 227 loans with a carrying value of approximately $8.5 million. The subsequent sale of the mortgage loans, which had been recorded at their estimated fair value on the date of acquisition, resulted in an additional discount of approximately $277,000 that was recorded as a reduction of goodwill. This reduction of goodwill has subsequently been offset by $88,000 of additional items related to the acquisition. The pro forma financial information below presents the condensed consolidated financial results assuming that First Community, acquired October 1, 2002, had been acquired at the beginning of 2002 and includes the effect of amortization of other acquired identifiable intangible assets from that date. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of future operations that would have been achieved had the acquisition taken place at the beginning of 2002. Pro forma information follows:
Three months ended Six months ended June 30, June 30, 2002 2002 ------------------ ------------------ (Dollars in thousands, except per share amounts) Interest income: Interest and fees on loans .......................................... $ 19,131 $ 38,021 Interest and dividends on securities: Taxable securities ................................................ 2,249 4,586 Non-taxable securities ............................................ 38 78 ------------------ ------------------ Total interest and dividends on securities .................... 2,287 4,664 Federal funds sold and interest-bearing bank balances ............. 64 185 ------------------ ------------------ Total interest income ......................................... 21,482 42,870 Interest expense: Interest on deposits ................................................ 5,566 11,505 Short-term borrowings ............................................... 150 308 Long-term borrowings ................................................ 985 2,053 ------------------ ------------------ Total interest expense ........................................ 6,701 13,866 ------------------ ------------------ Net interest income before provision for loan losses ........ 14,781 29,004 Provision for loan losses .............................................. 777 1,792 ------------------ ------------------ Net interest income after provision for loan losses ......... 14,004 27,212 Non-interest income .................................................... 3,026 5,896 Non-interest expenses .................................................. 10,484 20,609 ------------------ ------------------ Income before taxes .................................................... 6,546 12,499 Income tax expense ..................................................... 2,544 4,811 ------------------ ------------------ Net income .................................................... $ 4,002 $ 7,688 ================== ================== Average common shares outstanding, basic ............................... 7,302,784 7,301,230 Average common shares outstanding, diluted ............................. 7,507,180 7,498,786 Basic earnings per share ............................................... $ 0.55 $ 1.05 Diluted earnings per share ............................................. $ 0.53 $ 1.03
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CONSOLIDATED CONDENSED BALANCE SHEETS Our total assets increased by $65.1 million from $1.387 billion as of December 31, 2002, to $1.452 billion as of June 30, 2003. The increase was primarily made up of a $14.0 million increase in investment securities and a $91.6 million increase in net loans offset by a $40.2 million decrease in cash and cash equivalents. -8- The following table presents the amounts of our loans, by category, at the dates indicated.
June 30, 2003 December 31, 2002 June 30, 2002 ------------------------- ------------------------ ------------------------ (Dollars in thousands) Amount % Amount % Amount % ---------- ---------- ---------- ---------- ---------- ---------- Commercial $ 118,420 10.7% $ 100,813 9.9% $ 92,999 15.4% Real estate-mortgage 845,097 76.1% 759,884 74.7% 383,410 63.4% Real estate-construction 99,751 9.0% 100,458 9.9% 98,465 16.3% Consumer and other 32,490 2.9% 35,555 3.5% 25,862 4.3% Mortgage loans available for sale 14,057 1.3% 20,315 2.0% 4,384 0.6% ---------- ---------- ---------- ---------- ---------- ---------- Total $1,109,815 100.0% $1,017,025 100.0% $ 605,120 100.0% ========== ========== ========== ========== ========== ==========
Deposits, which are our main source of funds for loans and investments, increased by $50.8 million from $1.080 billion as of December 31, 2002, to $1.130 billion as of June 30, 2003. Securities sold under agreements to repurchase and federal funds purchased decreased $22.4 million from $70.8 million at December 31, 2002 to $48.3 million at June 30, 2003. The following table represents customer deposits, by category, at the dates indicated.
June 30, 2003 December 31, 2002 June 30, 2002 ------------------------ ------------------------ ------------------------ (Dollars in thousands) Amount % Amount % Amount % ---------- ---------- ---------- ---------- ---------- ---------- Non-interest-bearing $ 216,951 19.2% $ 189,063 17.5% $ 163,506 22.4% Interest-bearing demand 208,578 18.4% 192,067 17.8% 162,801 22.3% Money market savings accounts 131,125 11.6% 125,616 11.6% 36,908 5.1% Regular savings 58,636 5.2% 52,636 4.9% 48,248 6.6% Certificates of deposit less than $100,000 273,973 24.3% 298,900 27.7% 119,737 16.3% Certificates of deposit greater than $100,000 241,210 21.3% 221,402 20.5% 199,620 27.3% ---------- ---------- ---------- ---------- ---------- ---------- Total $1,130,473 100.0% $1,079,684 100.0% $ 730,820 100.0% ========== ========== ========== ========== ========== ==========
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 Our net income for the three months ended June 30, 2003, was $3.7 million, an increase of $1.5 million or 66% from $2.2 million for the same period of 2002. The increase in net income resulted from an increase in net interest income before provision for loan losses of $6.1 million and an increase in non-interest income of $988,000, partially offset by an increase in non-interest expenses of $3.9 million and income taxes of $927,000. Our annualized return on average assets was 1.05% for the three months ended June 30, 2003 and 2002. Our net interest income before the provision for loan losses increased $6.1 million to $15.9 million for the second quarter of 2003 compared to $9.9 million for the second quarter of 2002. This increase was composed of an $8.0 million increase in total interest income and a $1.9 million increase in total interest expense. The increase in interest income was composed of an increase of $10.0 million due to increased average interest earning assets of $506.4 million, offset by a $2.0 million decrease due to a 0.26% decrease in the yield on average interest earning assets. The increase in average interest-earning assets occurred in loans and investment securities, and was made possible by the acquisition of First Community in the fourth quarter of 2002 and our successful efforts to increase market share in New Mexico. The increase in total interest expense was composed of an increase of $4.8 million due to increased average interest-bearing liabilities of $449.5 million, offset by a decrease of $2.9 million due to a 0.28% decrease in the cost of interest-bearing liabilities. The increase in average interest-bearing liabilities was due to an increase in average interest-bearing deposits of $349.8 million, an increase in average borrowings of $79.0 million, and an increase in average trust preferred securities of $23.6 million. The increase in interest-bearing deposits is a result of the acquisition of First Community and our success in increasing market share in New Mexico. The increase in borrowings is due primarily to outstanding FHLB advances of First Community. The additional trust preferred securities were issued in June 2002 to help fund the First Community acquisition. -9- The decrease in yield on interest earning assets reflects the impact of the Federal Reserve Bank's reductions of the discount rate in November 2002 and June 2003. The reductions in the discount rate contributed to corresponding reductions in the prime rate. A substantial portion of our loan portfolio consists of adjustable rate loans whose rates are adjusted based upon the then prevailing prime rate. The decrease in the prime rate has led to a corresponding reduction in the yield on our loan portfolio. We aim to keep the maturity of our investment securities relatively short. As a result of the current low rate environment, our policy of investing in securities with short maturities has caused us to experience reduced yields on our securities as they mature and are reinvested. The decrease in our cost of interest bearing liabilities is a result of lower interest payments made to our deposit and repurchase agreement customers. The interest rate that we pay to our deposit and repurchase agreement customers is influenced by the level of the discount rate. As a result of the reductions in the discount rate made by the Federal Reserve Bank in 2002 and 2003, we reduced the interest rates that we pay on our customers' deposits and repurchase agreements that reduced the corresponding interest payments to these customers. This decrease was partially offset by the issuance of trust-preferred securities that bear a higher interest rate than customer deposits or repurchase agreements. We believe that the competitive environment for deposits will significantly determine the impact on the net interest margin of changes in interest rates. Management believes that the recent Federal Reserve Bank rate cut will cause continued margin compression during the second half of 2003. We also believe that additional decreases in rates would cause further compression of our net interest margin, while increases would cause an increase in our net interest margin. Our provision for loan losses was $1.3 million for the second quarter of 2003, compared to $519,000 for the second quarter of 2002. Net charge-offs for the second quarter of 2003 were $490,000 compared to $147,000 for the second quarter of 2002. The allowance for loan losses to total loans was 1.17% and the allowance for loan losses to non-performing loans was 130% at June 30, 2003, compared to the allowance for loan losses to total loans of 1.28% and the allowance for loan losses to non-performing loans of 277% at June 30, 2002. Total non-performing assets to total assets were 0.72% at June 30, 2003, compared to 0.41% at June 30, 2002. The increase in charge-offs and the decrease in the percentage of the allowance for loan losses to total loans and non-performing loans as of and for the quarter ended June 30, 2003 were directly related to the higher level of non-performing loans at First Community. We provide for loan losses based upon our 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. Our total non-interest income increased by $988,000 to $4.0 million for the three months ended June 30, 2003, compared to $3.0 million for the same period of 2002. The increase was primarily composed of a $630,000 increase in gains on sales of mortgage loans, caused by greater new home construction and refinancing resulting from the lower interest rate environment, and a $304,000 increase in service charges on deposits resulting from increased customer accounts and deposit activity. We believe that if interest rates remain at current levels or begin to increase, the demand for mortgage loans to refinance existing mortgage loans or for new home construction will decrease and we will see a decrease in gains on sales of mortgage loans and other loan fees associated with our mortgage lending operations. Our total non-interest expenses increased by $3.9 million to $12.6 million for the second quarter of 2003, compared to $8.7 million for the same period of 2002. This increase was due partially to a $2.4 million increase in salaries and employee benefits, a $424,000 increase in occupancy expense, and a $208,000 increase in equipment expense. The increases in salary, occupancy, and equipment expense are due primarily to the acquisition and merger of First Community and increased commissions for the production of mortgage loans sold. The increase in occupancy expense was also impacted by an additional branch office opened during the first quarter in Santa Fe, N.M. We anticipate that occupancy and equipment expenses will continue to increase modestly during the remainder of fiscal 2003 as management continues to reposition branch locations in Colorado and Utah and opens one additional branch and a new support services facility in New Mexico. -10- CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 Our net income for the six months ended June 30, 2003, was $7.2 million, an increase of $2.9 million or 66% from $4.3 million for the same period of 2002. The increase in net income resulted from an increase in net interest income before provision for loan losses of $11.5 million and an increase in non-interest income of $1.7 million, partially offset by an increase in non-interest expenses of $7.5 million and income taxes of $1.7 million. Our annualized return on average assets was 1.03% for the six months ended June 30, 2003, compared to 1.04% for the same period of 2002. Our net interest income before the provision for loan losses increased $11.5 million to $30.8 million for the six months ended June 30, 2003 compared to $19.3 million for the same period of 2002. This increase was composed of a $15.4 million increase in total interest income and a $3.9 million increase in total interest expense. The increase in interest income was composed of an increase of $19.3 million due to increased average interest earning assets of $500.1 million offset by a $3.9 million decrease due to a 0.32% decrease in the yield on average interest earning assets. The increase in average interest-earning assets occurred in loans and investment securities, and was made possible by the acquisition of First Community in the fourth quarter of 2002 and our successful efforts to increase market share in New Mexico. The increase in total interest expense was composed of an increase of $9.8 million due to increased average interest-bearing liabilities of $449.9 million, offset by a decrease of $5.9 million due to a 0.31% decrease in the cost of interest-bearing liabilities. The increase in average interest-bearing liabilities was due to an increase in average interest-bearing deposits of $351.7 million, an increase in average borrowings of $79.0 million, and an increase in average trust preferred securities of $24.2 million. The increase in interest-bearing deposits is a result of the acquisition of First Community and our success in increasing market share in New Mexico. The increase in borrowings is due primarily to outstanding FHLB advances of First Community. The additional trust preferred securities were issued in June 2002 to help fund the First Community acquisition. Our provision for loan losses was $2.3 million for the first six months of 2003, compared to $1.2 million for the first six months of 2002. Net charge-offs for the six months ended June 30, 2003 were $1.2 million compared to $645,000 for the six months ended June 30, 2002. The allowance for loan losses to total loans was 1.17% and the allowance for loan losses to non-performing loans was 130% at June 30, 2003, compared to the allowance for loan losses to total loans of 1.28% and the allowance for loan losses to non-performing loans of 277% at June 30, 2002. Total non-performing assets to total assets were 0.72% at June 30, 2003, compared to 0.41% at June 30, 2002. The increase in charge-offs and the decrease in the percentage of the allowance for loan losses to total loans and non-performing loans as of and for the six months ended June 30, 2003 were directly related to the higher level of non-performing loans at First Community. We provide for loan losses based upon our 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. Our total non-interest income increased by $1.7 million to $7.6 million for the six months ended June 30, 2003, compared to $5.9 million for the same period of 2002. For the first six months of 2003 compared to the first six months of 2002, the gains on sales of mortgage loans increased $951,000 as a result of greater new home construction and refinancing resulting from the lower interest rate environment, and service charges on deposit accounts increased $432,000 as a result of increased customer accounts and deposit activity. Our total non-interest expenses increased by $7.5 million to $24.5 million for the six months ended June 30, 2003, compared to $17.0 million for the same period of 2002. This increase was due partially to a $4.4 million increase in salaries and employee benefits, a $745,000 increase in occupancy expense, and a $431,000 increase in equipment expense. The increases in salary, occupancy, and equipment expense are due primarily to the acquisition and merger of First Community and increased commissions for the production of mortgage loans sold. The increase in occupancy expense was also impacted by an additional branch office opened during the first quarter in Santa Fe, N.M. We anticipate that occupancy and equipment expenses will continue to increase modestly during the remainder of fiscal 2003 as management continues to reposition branch locations in Colorado and Utah and opens one additional branch and a new support services facility in New Mexico. -11- ALLOWANCE FOR LOAN LOSSES We use a systematic methodology, which is applied monthly, to determine the amount of allowance for loan losses and the resultant provisions for loan losses we consider adequate to provide for anticipated loan losses. The allowance is increased by provisions charged to operations and reduced by loan charge-offs, net of recoveries. The following table sets forth information regarding changes in our allowance for loan losses for the periods indicated. The principal factor affecting the amount of the provision in each of the periods presented was growth in the loan portfolio.
Twelve months Six months ended ended Six months ended June 30, 2003 December 31, 2002 June 30, 2002 ------------------ ------------------ ------------------ (Dollars in thousands) ALLOWANCE FOR LOAN LOSSES: Balance beginning of period $ 11,838 $ 7,207 $ 7,207 Provision for loan losses 2,318 2,589 1,188 Net charge-offs (1,171) (1,123) (645) Allowance related to acquired loans -- 3,165 -- ================== ================== ================== Balance end of period $ 12,985 $ 11,838 $ 7,750 ================== ================== ================== Allowance for loan losses to total loans 1.17% 1.16% 1.28% Allowance for loan losses to non-performing loans 130% 108% 277% NON-PERFORMING ASSETS: Accruing loans - 90 days past due $ 24 $ 721 $ 297 Non-accrual loans 10,001 10,241 2,503 ------------------ ------------------ ------------------ Total non-performing loans 10,025 10,962 2,800 Other real estate owned 373 908 815 ------------------ ------------------ ------------------ Total non-performing assets $ 10,398 $ 11,870 $ 3,615 ================== ================== ================== Potential problem loans $ 13,985 $ 23,286 $ 12,445 ================== ================== ================== Total non-performing assets to total assets 0.72% 0.86% 0.41%
Potential problem loans are loans not included in non-performing loans that we have doubts as to the ability of the borrowers to comply with present loan repayment terms. During the first quarter of 2003, we completed the sale of certain mortgage loans available for sale obtained in the acquisition of First Community in 2002. The sale to unrelated third parties included 227 loans with a carrying value of approximately $8.5 million. Included in the sale were approximately $3 million in face value of loans that were non-performing as of December 31, 2002. The subsequent sale of the mortgage loans, which had been recorded at their estimated fair value on the date of acquisition, resulted in an additional discount of approximately $277,000, which was recorded as a reduction of goodwill. This reduction of goodwill has subsequently been offset by $88,000 of additional items related to the acquisition. LIQUIDITY AND CAPITAL EXPENDITURES Our primary sources of funds are customer deposits, loan repayments, and maturities of investment securities. We have 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. -12- 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 our ratio of average interest-earning assets to average interest-bearing liabilities. 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, 2003 2002 ------------------------------------------ ---------------------------------------- INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR BALANCE EXPENSE COST BALANCE EXPENSE COST ------------ ------------ ------------ ------------ ------------ ------------ (DOLLARS IN THOUSANDS) ASSETS Loans: Commercial............................ $ 109,007 $ 1,735 6.38% $ 89,572 $ 1,558 6.98% Real estate--mortgage................. 829,431 14,638 7.08% 370,296 6,779 7.34% Real estate--construction............. 96,633 1,831 7.60% 97,904 1,862 7.63% Consumer.............................. 33,060 840 10.19% 25,504 692 10.88% Mortgage.............................. 12,444 594 19.15% 4,120 420 40.89% Other................................. 483 -- -- 552 -- -- ------------ ------------ ------------ ------------ ------------ ------------ Total loans........................ 1,081,058 19,638 7.29% 587,948 11,311 7.72% Allowance for loan losses................. (12,657) (7,646) Securities: U.S. government and mortgage-backed... 189,504 1,841 3.90% 176,980 2,221 5.03% State and political subdivisions: Nontaxable.......................... 3,141 36 4.60% 3,404 38 4.48% Taxable............................. 515 3 2.34% -- -- -- Other................................. 7,414 68 3.68% 2,308 21 3.65% ------------ ------------ ------------ ------------ ------------ ------------ Total securities................... 200,574 1,948 3.90% 182,692 2,280 5.01% Interest-bearing deposits with banks...... 2,810 11 1.57% 6,238 25 1.61% Federal funds sold ....................... 8,437 24 1.14% 9,554 40 1.72% ------------ ------------ ------------ ------------ ------------ ------------ Total interest-earning assets...... 1,292,879 21,621 6.71% 786,432 13,656 6.97% Non-interest-earning assets: Cash and due from banks................... 45,560 34,644 Other..................................... 98,384 34,853 ------------ ------------ Total non-interest-earning assets.. 143,944 69,497 ------------ ------------ Total assets....................... $ 1,424,166 $ 848,283 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Interest-bearing demand accounts...... $ 201,881 $ 247 0.49% $ 158,565 $ 313 0.79% Certificates of deposit < $100,000.... 279,850 2,068 2.96% 118,399 1,138 3.86% Certificates of deposit > $100,000.... 231,649 1,855 3.21% 167,018 1,573 3.78% Money market savings accounts......... 141,398 491 1.39% 71,245 318 1.79% Regular savings accounts.............. 57,643 121 0.84% 47,356 146 1.24% ------------ ------------ ------------ ------------ ------------ ------------ Total interest-bearing deposits.... 912,421 4,782 2.10% 562,583 3,488 2.49% Federal funds purchased and securities.... sold under agreements to repurchase..... 58,988 158 1.07% 61,904 151 0.98% Borrowings................................ 79,981 352 1.77% 1,028 23 8.97% Trust preferred securities................ 32,500 398 4.91% 8,880 125 5.65% ------------ ------------ ------------ ------------ ------------ ------------ Total interest-bearing liabilities...................... 1,083,890 5,690 2.11% 634,395 3,787 2.39% Non-interest-bearing demand accounts...... 210,845 149,767 Other non-interest-bearing liabilities.... 5,050 3,076 ------------ ------------ Total liabilities.................. 1,299,785 787,238 Stockholders' equity...................... 124,381 61,045 ------------ ------------ Total liabilities and stockholders' equity.......... $ 1,424,166 $ 848,283 ============ ============ ------------ ------------ Net interest income....................... $ 15,931 $ 9,869 ============ ============ Net interest spread....................... 4.60% 4.58% Net interest margin....................... 4.94% 5.03% Ratio of average interest-earning assets to average interest-bearing liabilities.. 119.28% 123.97%
-13-
SIX MONTHS ENDED JUNE 30, 2003 2002 ---------------------------------------- --------------------------------------- INTEREST INTEREST AVERAGE AVERAGE INCOME OR AVERAGE AVERAGE INCOME OR YIELD OR BALANCE EXPENSE YIELD OR COST BALANCE EXPENSE COST ------------ ---------- ------------- ------------ --------- --------- (DOLLARS IN THOUSANDS) ASSETS Loans: Commercial....................... $ 102,781 $ 3,298 6.47% $ 88,595 $ 3,100 7.06% Real estate--mortgage............ 806,470 28,533 7.13% 352,836 13,137 7.51% Real estate--construction........ 98,260 3,618 7.43% 97,546 3,648 7.54% Consumer......................... 33,871 1,721 10.25% 25,430 1,382 10.96% Mortgage......................... 10,963 1,042 19.17% 5,197 919 35.66% Other............................ 590 - - 562 - - ------------ --------- ---------- ------------ --------- ------- Total loans................... 1,052,935 38,212 7.32% 570,166 22,186 7.85% Allowance for loan losses............ (12,394) (7,502) Securities: U.S. government and mortgage-backed 188,639 3,806 4.07% 177,948 4,519 5.12% State and political subdivisions: Nontaxable..................... 3,142 71 4.56% 3,454 78 4.55% Taxable........................ 517 5 1.95% - - - Other............................ 6,764 120 3.58% 2,300 42 3.68% ------------ --------- ---------- ------------ --------- ------- Total securities.............. 199,062 4,002 4.05% 183,702 4,639 5.09% Interest-bearing deposits with banks. 9,133 55 1.21% 9,635 75 1.57% Federal funds sold................... 15,863 91 1.16% 13,415 110 1.65% ------------ --------- ---------- ------------ --------- ------- Total interest-earning assets 1,276,993 42,360 6.69% 776,918 27,010 7.01% Non-interest-earning assets: Cash and due from banks.............. 44,878 32,542 Other ............................... 98,678 34,596 ------------ ------------ Total non-interest-earning assets 143,556 67,138 ------------ ------------ Total assets.................. $ 1,408,155 $ 836,554 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Interest-bearing demand accounts. $ 198,630 $ 479 0.49% $ 155,362 $ 608 0.79% Certificates of deposit < $100,000 286,692 4,267 3.00% 116,357 2,376 4.12% Certificates of deposit > $100,000 228,459 3,704 3.27% 165,723 3,228 3.93% Money market savings accounts.... 138,709 1,040 1.51% 72,972 636 1.76% Regular savings accounts......... 55,751 236 0.85% 46,099 290 1.27% ------------ --------- ---------- ------------ --------- ------- Total interest-bearing deposits 908,241 9,726 2.16% 556,513 7,138 2.59% Federal funds purchased and securities sold under agreements to repurchase 58,727 318 1.09% 63,772 308 0.97% Borrowings........................... 80,014 728 1.83% 1,035 48 9.35% Trust preferred securities........... 32,500 786 4.88% 8,297 210 5.10% ------------ --------- ---------- ------------ --------- ------- Total interest-bearing 1,079,482 11,558 2.16% 629,617 7,704 2.47% liabilities.............. Non-interest-bearing demand accounts 200,946 143,324 Other non-interest-bearing liabilities 5,128 3,199 ------------ ------------ Total liabilities............. 1,285,556 776,140 Stockholders' equity................. 122,599 60,414 ------------ ------------ Total liabilities and stockholders' equity $ 1,408,155 $ 836,554 ============= --------- ============= --------- Net interest income.................. $30,802 $ 19,306 ========= ========= Net interest spread ................. 4.53% 4.54% Net interest margin ................. 4.86% 5.01% Ratio of average interest-earning assets to average interest-bearing liabilities 118.30% 123.40%
-14- To effectively measure and manage interest rate risk, we use 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, we quantify interest rate risk and we develop and implement appropriate strategies. Additionally, we utilize duration and market value sensitivity measures when these measures 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 Board of Directors of the Bank on an ongoing basis. 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, 2003, our cumulative interest rate gap for the period up to three months was a positive $133.4 million and for the period up to one year was a positive $263.7 million. Based solely on our interest rate gap of twelve months or less, our net income could be unfavorably impacted by decreases in interest rates or favorably impacted by increases in interest rates. The following table sets forth our estimate of maturity or repricing, and the resulting interest rate gap of our interest-earning assets and interest-bearing liabilities at June 30, 2003. 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 LESS THAN MONTHS TO ONE THREE LESS THAN TO FIVE OVER FIVE MONTHS ONE YEAR YEARS YEARS TOTAL ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Interest-earning assets: Investment securities............................. $ 19,031 $ 119,597 $ 56,212 $ 13,214 $ 208,054 Interest-bearing deposits with banks.............. 177 -- -- -- 177 Federal funds sold................................ 2,571 -- -- -- 2,571 Loans: Commercial..................................... 82,810 15,855 19,158 597 118,420 Real estate.................................... 410,015 211,767 294,605 42,518 958,905 Consumer....................................... 10,835 7,214 13,567 874 32,490 ---------- ---------- ---------- ---------- ---------- Total interest-earning assets............. $ 525,439 $ 354,433 $ 383,542 $ 57,203 $1,320,617 ---------- ---------- ---------- ---------- ---------- Interest-bearing liabilities: Savings and NOW accounts.......................... $ 131,452 $ -- $ -- $ 266,887 $ 398,339 Certificates of deposit of $100,000 or more....... 72,665 95,699 70,929 1,917 241,210 Other time accounts............................... 77,076 108,438 86,731 1,728 273,973 Fed funds purchased............................... 9,040 -- -- -- 9,040 Securities sold under agreements to repurchase.... 39,280 -- -- -- 39,280 Borrowings........................................ 62,500 20,000 57,809 953 141,262 ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities........ $ 392,013 $ 224,137 $ 215,469 $ 271,485 $1,103,104 ---------- ---------- ---------- ---------- ---------- Interest rate gap...................................... $ 133,426 $ 130,296 $ 168,073 ($ 214,282) $ 217,513 ========== ========== ========== ========== ========== Cumulative interest rate gap at June 30, 2003.......... $ 133,426 $ 263,722 $ 431,795 $ 217,513 ========== ========== ========== ========== Cumulative gap ratio at June 30, 2003.................. 1.34 1.43 1.52 1.20 ========== ========== ========== ==========
FORWARD-LOOKING STATEMENTS This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking words such as "believe," "expect," "may," "will," "should," "seek," "approximately," "intend," "plan," "estimate," or "anticipate" or the negative of those words or other comparable terminology. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause -15- actual results to differ materially from those in the forward-looking statement. Some factors include fluctuations in interest rates, inflation, government regulations, loss of key personnel, faster or slower than anticipated growth, economic conditions, competition's responses to our marketing strategy, and competition in the geographic and business areas in which we conduct our operations. ITEM 4. CONTROLS AND PROCEDURES. An evaluation was performed under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 30, 2003 pursuant to Exchange Act rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of management's evaluation. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On June 6, 2003 we held our annual meeting of shareholders. At that meeting the following items were submitted to a vote of security holders: 1. The following four directors were elected:
SHARES VOTED NAME TERM FOR WITHHELD ------------------- ---------- ---------- ---------- Michael R. Stanford 3 years 6,274,793 710,772 Marshall G. Martin 3 years 6,280,734 704,831 Lowell A. Hare 3 years 6,927,187 58,378 A. J. (Jim) Wells 3 years 6,907,687 77,878
As a result of the election of the above listed directors, our Board of Directors will consist of those directors and the following directors: H. Patrick Dee, Leonard J. DeLayo, Jr., Herman N. Wisenteiner, Bradford M. Johnson, Douglas M. Smith, M.D., and Kevin L. Reid. 2. Proposal to ratify the selection of KPMG LLP as our independent public accountants. Votes: For 6,815,565; Against 164,097; Abstain 5,903. 3. Proposal to approve the First State Bancorporation 2003 Equity Incentive Plan. Votes: For 4,231,186; Against 1,072,863; Abstain 21,885. -16- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits
Exhibit No. Description - ------- ----------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of First State Bancorporation. (1) 3.2 Amended Bylaws of First State Bancorporation. (2) 4.1 Shareholder Protection Rights Agreement dated October 25, 1996. (3) 10.1 Code of Ethics for Executives. (2) 10.2 First State Bancorporation 2003 Equity Incentive Plan. (4) 31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of CEO pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of CFO pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------- (1) Incorporated by reference from the Company's Registration Statement on Form S-2, Commission File No. 333-24417, declared effective April 25, 1997. (2) Incorporated by reference from the Company's Form 10-Q for the quarter ended March 31, 2003. (3) Incorporated by reference from the Company's Form 10-QSB for the quarter ended September 30, 1996. (4) Incorporated by reference from the Company's Current Report on Form 8-K filed June 9, 2003. (b) Reports on Form 8-K. We filed a current report on Form 8-K, dated May 19, 2003, announcing our first quarter 2003 financial results. We filed a current report on Form 8-K, dated May 30, 2003, announcing that Mr. Michael R. Stanford, our President and Chief Executive Officer, and a member of our Board of Directors, had entered into a "trading plan" pursuant to the requirements of Rule 10b5-1(c) promulgated by the Securities and Exchange Commission under Section 10(b) of the Securities Exchange Act of 1934, as amended. We filed a current report on Form 8-K, dated June 9, 2003, announcing that we held our annual meeting of shareholders. During the annual meeting, the shareholders of the Company elected the four director nominees; Michael R. Stanford, Marshall G. Martin, Lowell A. Hare, and A. J. (Jim) Wells, for terms ending at the 2006 annual meeting or until their successors are duly elected and qualified. The shareholders ratified the appointment of KPMG LLP as independent auditors for the year ending December 31, 2003. The shareholders also approved the First State Bancorporation 2003 Equity Incentive Plan to replace the First State Bancorporation 1993 Stock Option Plan. -17- SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST STATE BANCORPORATION Date: August 13, 2003 By: /s/ Michael R. Stanford -------------------------------------------------- Michael R. Stanford, President & Chief Executive Officer Date: August 13, 2003 By: /s/ Christopher C. Spencer -------------------------------------------------- Christopher C. Spencer, Senior Vice President and Chief Financial Officer -18- EXHIBIT INDEX
Exhibit No. Description - ------- ----------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of First State Bancorporation. (1) 3.2 Amended Bylaws of First State Bancorporation. (2) 4.1 Shareholder Protection Rights Agreement dated October 25, 1996. (3) 10.1 Code of Ethics for Executives. (2) 10.2 First State Bancorporation 2003 Equity Incentive Plan. (4) 31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of CEO pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of CFO pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------- (1) Incorporated by reference from the Company's Registration Statement on Form S-2, Commission File No. 333-24417, declared effective April 25, 1997. (2) Incorporated by reference from the Company's Form 10-Q for the quarter ended March 31, 2003. (3) Incorporated by reference from the Company's Form 10-QSB for the quarter ended September 30, 1996. (4) Incorporated by reference from the Company's Current Report on Form 8-K filed June 9, 2003. EX-31.1 3 d08125exv31w1.txt CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Michael R. Stanford, certify that: 1. I have reviewed this report on Form 10-Q of First State Bancorporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986); c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/ Michael R. Stanford ------------------------------------- Michael R. Stanford President and Chief Executive Officer EX-31.2 4 d08125exv31w2.txt CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.2 CHIEF FINANCIAL OFFICER CERTIFICATION I, Christopher C. Spencer, certify that: 1. I have reviewed this report on Form 10-Q of First State Bancorporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986); c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/ Christopher C. Spencer ----------------------------- Christopher C. Spencer Senior Vice President and Chief Financial Officer, and Principal Accounting Officer EX-32.1 5 d08125exv32w1.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of First State Bancorporation, a New Mexico corporation (the "Company"), for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael R. Stanford, as President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to First State Bancorporation and will be retained by First State Bancorporation and furnished to the Securities and Exchange Commission or its staff upon request. /s/ Michael R. Stanford - ------------------------------------- Michael R. Stanford President and Chief Executive Officer August 13, 2003 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-32.2 6 d08125exv32w2.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of First State Bancorporation, a New Mexico corporation (the "Company"), for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report), I, Christopher C. Spencer, as Senior Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to First State Bancorporation and will be retained by First State Bancorporation and furnished to the Securities and Exchange Commission or its staff upon request. /s/ Christopher C. Spencer - -------------------------------------------------- Christopher C. Spencer Senior Vice President and Chief Financial Officer, and Principal Accounting Officer August 13, 2003 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----