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, 2007.

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 001-12487

FIRST STATE BANCORPORATION

(Exact name of registrant as specified in its charter)

NEW MEXICO	85-0366665
(State or other jurisdiction of incorporation or organization)	(IRS Employer 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  ¨     Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x

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: 20,244,601 shares of common stock, no par value, outstanding as of August 7, 2007.

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	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	22
	PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
	SIGNATURES	25

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

First State Bancorporation and Subsidiary

Consolidated Condensed Balance Sheets

(unaudited)

(Dollars in thousands, except share and per share amounts)

	June 30, 2007			December 31, 2006
Assets
Cash and due from banks	$	85,206		$	76,871
Interest-bearing deposits with other banks		3,923			2,084
Federal funds sold		27,110			5,425
Total cash and cash equivalents		116,239			84,380
Investment securities:
Available for sale (at market, amortized cost of $393,292 at June 30, 2007, and $420,573 at December 31, 2006)		388,278			416,002
Held to maturity (at amortized cost, market value of $57,217 at June 30, 2007, and $61,243 at December 31, 2006)		58,950			62,638
Non-marketable securities, at cost		21,262			14,112
Total investment securities		468,490			492,752
Mortgage loans available for sale		19,987			25,728
Other loans available for sale		37,928			—
Loans held for investment net of unearned interest		2,411,924			2,015,879
Less allowance for loan losses		(29,217	)		(23,125	)
Net loans		2,440,622			2,018,482
Premises and equipment (net of accumulated depreciation of $27,915 at June 30, 2007, and $24,713 at December 31, 2006)		69,724			59,011
Accrued interest receivable		16,094			13,879
Other real estate owned		23,099			6,396
Goodwill		123,925			66,185
Intangibles (net of accumulated amortization of $2,749 at June 30, 2007, and $1,663 at December 31, 2006)		19,605			9,242
Cash surrender value of bank owned life insurance		42,200			33,466
Deferred tax asset, net		8,237			—
Other assets, net		19,621			17,779
Total assets	$	3,347,856		$	2,801,572
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing	$	496,202		$	447,172
Interest-bearing		1,988,570			1,673,752
Total deposits		2,484,772			2,120,924
Securities sold under agreements to repurchase and federal funds purchased		180,917			149,171
Federal Home Loan Bank advances and other borrowings		250,200			155,683
Junior subordinated debentures		109,936			57,730
Deferred tax liability		—			256
Other liabilities		20,497			12,916
Total liabilities		3,046,322			2,496,680
Stockholders’ equity:
Preferred stock, no par value, 1,000,000 shares authorized; none issued or outstanding		—			—
Common stock, no par value, authorized 50,000,000 shares; issued 21,782,747 at June 30, 2007 and 21,594,410 at December 31, 2006; outstanding 20,237,439 at June 30, 2007 and 20,777,056 at December 31, 2006		219,626			216,692
Treasury stock, at cost (1,545,308 shares at June 30, 2007 and 817,354 shares at December 31, 2006)		(22,532	)		(6,360	)
Retained earnings		107,549			97,394
Accumulated other comprehensive loss - Unrealized loss on investment securities, net of tax		(3,109	)		(2,834	)
Total stockholders’ equity		301,534			304,892
Total liabilities and stockholders’ equity	$	3,347,856		$	2,801,572
Book value per share	$	14.90		$	14.67
Tangible book value per share	$	7.81		$	11.04

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Operations

For the three and six months ended June 30, 2007 and 2006

(unaudited)

(Dollars in thousands, except per share amounts)

	Three months ended June 30, 2007			Three months ended June 30, 2006			Six months ended June 30, 2007			Six months ended June 30, 2006
Interest income:
Interest and fees on loans	$	53,291		$	39,753		$	99,976		$	75,681
Interest on marketable securities:
Taxable		4,907			4,040			9,952			8,665
Non-taxable		609			589			1,265			1,163
Federal funds sold		170			211			295			402
Interest-bearing deposits with other banks		55			78			97			172
Total interest income		59,032			44,671			111,585			86,083
Interest expense:
Deposits		18,027			12,292			33,937			22,491
Short-term borrowings		4,888			2,079			8,978			4,142
Long-term debt		216			334			458			1,191
Junior subordinated debentures		1,726			1,116			2,897			2,159
Total interest expense		24,857			15,821			46,270			29,983
Net interest income		34,175			28,850			65,315			56,100
Provision for loan losses		(2,068	)		(1,380	)		(4,112	)		(4,109	)
Net interest income after provision for loan losses		32,107			27,470			61,203			51,991
Non-interest income:
Service charges on deposit accounts		2,635			1,846			4,777			3,618
Other banking service fees		248			242			471			469
Credit and debit card transaction fees		1,128			700			2,015			1,327
Gain (loss) on sale or call of investment securities		(12	)		—			30			(140	)
Check imprint income		184			135			361			267
Gain on sale of mortgage loans		1,310			1,216			2,759			2,432
Income on cash surrender value of bank-owned life insurance		956			319			1,310			549
Other		693			416			1,309			692
Total non-interest income		7,142			4,874			13,032			9,214
Non-interest expenses:
Salaries and employee benefits		13,694			11,039			25,954			21,641
Occupancy		3,838			2,669			7,079			5,348
Data processing		1,702			1,318			3,250			2,571
Equipment		2,074			1,470			3,923			2,853
Legal, accounting, and consulting		845			871			1,466			2,088
Marketing		773			983			1,721			2,014
Telephone		716			556			1,219			939
Supplies		338			322			672			662
Delivery expenses		307			255			594			511
Other real estate owned		330			53			516			116
FDIC insurance premiums		76			60			139			111
Amortization of intangibles		653			325			1,087			650
Check imprint expense		159			185			333			358
Other		2,732			2,827			5,225			5,160
Total non-interest expenses		28,237			22,933			53,178			45,022
Income before income taxes		11,012			9,411			21,057			16,183
Income tax expense		3,782			3,423			7,349			5,873
Net income	$	7,230		$	5,988		$	13,708		$	10,310
Earnings per share:
Basic earnings per share	$	0.35		$	0.34		$	0.66		$	0.59
Diluted earnings per share	$	0.35		$	0.33		$	0.66		$	0.58
Dividends per common share	$	0.09		$	0.08		$	0.17		$	0.16

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Comprehensive Income

For the three and six months ended June 30, 2007 and 2006

(unaudited)

(Dollars in thousands)

	Three months ended June 30, 2007			Three months ended June 30, 2006			Six months ended June 30, 2007			Six months ended June 30, 2006
Net Income	$	7,230		$	5,988		$	13,708		$	10,310
Other comprehensive loss, net of tax—unrealized holding losses on securities available for sale arising during period		(988	)		(1,017	)		(256	)		(2,132	)
Reclassification adjustment for (gains) losses included in net income		9			—			(19	)		90
Total comprehensive income	$	6,251		$	4,971		$	13,433		$	8,268

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Cash Flows

For the six months ended June 30, 2007 and 2006

(unaudited)

(Dollars in thousands)

	Six months ended June 30, 2007			Six months ended June 30, 2006
Operating activities:
Net Income	$	13,708		$	10,310
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,112			4,109
Net gain on sale of other real estate owned		(4	)		(42	)
Depreciation and amortization		4,330			3,481
Share-based compensation expense		539			662
(Gain) loss on sale of investment securities available for sale		(30	)		140
Loss (gain) on disposal of premises and equipment		3			(9	)
Increase in bank-owned life insurance cash surrender value		(281	)		(799	)
Amortization of premium or discount on securities, net		(705	)		(731	)
Amortization of core deposit intangible		1,087			650
Mortgage loans originated for sale		(193,409	)		(182,638	)
Proceeds from sale of mortgage loans available for sale		195,935			181,223
Excess tax benefits from share-based compensation		(908	)		(160	)
Deferred taxes		979			562
Decrease (increase) in accrued interest receivable		325			(173	)
Increase in other assets, net		(643	)		(2,215	)
Decrease in other liabilities, net		(8,732	)		(1,503	)
Total adjustments		2,598			2,557
Net cash provided by operating activities		16,306			12,867
Cash flows from investing activities:
Net increase in loans		(137,410	)		(163,580	)
Purchases of investment securities carried at amortized cost		—			(306,377	)
Maturities of investment securities carried at amortized cost		3,608			454,480
Purchases of investment securities carried at market		(6,598	)		(73,159	)
Maturities of investment securities carried at market		31,280			16,587
Sale of investment securities available for sale		70,992			99,248
Purchases of non-marketable securities carried at cost		(8,857	)		(1,914	)
Redemption of non-marketable securities carried at cost		6,678			8,236
Purchases of premises and equipment		(8,372	)		(6,381	)
Redemption of bank-owned life insurance		318			—
Net proceeds from other real estate owned		1,193			502
Proceeds from sales of fixed assets		56			8
Net cash (paid) received for business acquisitions		(57,164	)		25,245
Net cash (used in) provided by investing activities		(104,276	)		52,895
Cash flows from financing activities:
Net increase in interest-bearing deposits		8,634			143,820
Net (decrease) increase in non-interest-bearing deposits		(4,707	)		15,373
Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased		20,820			(101,681	)
Proceeds from Federal Home Loan Bank advances		235,000			105,000
Payments on Federal Home Loan Bank advances and other borrowings		(164,858	)		(197,574	)
Issuance of junior subordinated debentures		42,270			—
Proceeds from common stock issued		1,487			759
Costs associated with issuance of common stock		—			(618	)
Excess tax benefits from share-based compensation		908			160
Dividends paid		(3,553	)		(2,815	)
Treasury stock		(16,172	)		—
Net cash provided by (used in) financing activities		119,829			(37,576	)
Increase in cash and cash equivalents		31,859			28,186
Cash and cash equivalents at beginning of period		84,380			60,727
Cash and cash equivalents at end of period	$	116,239		$	88,913

(Continued)

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Cash Flows

For the six months ended June 30, 2007 and 2006

(unaudited)

(Dollars in thousands)

(continued)

	Six Months ended June 30, 2007			Six Months ended June 30, 2006
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans	$	3,873		$	1,149
Additions to other real estate owned from premises and equipment	$	6,973		$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	44,941		$	30,132
Cash paid for income taxes	$	4,848		$	5,305
Noncash financing and investing activities:
Stock options issued in connection with the acquisitions of Access and NMFC	$	—		$	992
Stock issued for the acquisitions		—			49,362
Summary of assets acquired, and liabilities assumed through acquisitions:
Cash and cash equivalents		14,836			25,245
Investment securities		72,549			167,480
Net loans		294,230			228,757
Accrued interest receivable		2,540			2,199
Goodwill and intangibles		69,189			33,583
Premises and equipment		13,230			24,267
Other real estate owned		8,057			197
Bank-owned life insurance		8,771			—
Other assets, net		897			1,745
Deferred tax asset (liability)		9,304			(4,926	)
Deposits		(359,921	)		(409,797	)
Securities sold under agreements to repurchase and federal funds purchased		(10,926	)		—
FHLB advances		(24,371	)		(6,808	)
Junior subordinated debentures		(10,072	)		(8,934	)
Other liabilities		(16,313	)		(2,654	)

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Notes to Consolidated Condensed Financial Statements

(unaudited)

1. Consolidated Condensed Financial Statements

The accompanying consolidated condensed financial statements of First State Bancorporation and subsidiary (the “Company” or “First State”) are unaudited and include our accounts and those of our wholly owned subsidiary, First Community Bank (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, 2006.

Our 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, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

2. Acquisitions

On March 1, 2007, we completed the acquisition of Front Range Capital Corporation and its subsidiary, Heritage Bank, (collectively “Front Range”) paying $72 million in cash. Under the terms of the agreement, each issued and outstanding share of Front Range common stock, the 1987 voting preferred stock, and the 1988 non-voting preferred stock were converted into the right to receive $35.904 (rounded to the nearest full cent) per share in cash, and each issued and outstanding share of Front Range 2000 non-voting preferred stock was converted into the right to receive $1,000 per share in cash. Concurrent with the merger of First State and Front Range, First Community Bank and Heritage Bank merged with First Community Bank surviving. As a result of the acquisition, the Bank franchise was strengthened, allowing for further growth along Colorado’s front range. The results of operations for Front Range are included in our results subsequent to the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands). We are in the process of finalizing the purchase accounting for the acquisition; thus, the allocation of the purchase price is subject to changes. On July 27, 2007, the Bank entered into a definitive agreement for the sale of certain loans acquired from Front Range and the related accrued interest. The loans had an estimated net realizable value at June 30, 2007 of approximately $37.9 million. The transaction closed on July 31, 2007 and the Bank received cash of $36.6 million, based on the principal balances and related accrued interest at July 27, 2007. At July 27, 2007, the loans had a carrying value of approximately $38.0 million and accrued interest of approximately $600,000. The difference between the carrying value of the loans and related accrued interest, and the cash received, will be recorded as an addition to goodwill of approximately $2.0 million in the third quarter of 2007.

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At March 1, 2007
Cash and cash equivalents	$	14,836
Investment securities		72,549
Net loans		294,230
Premises and equipment		13,230
Other real estate owned		8,057
Core deposit intangible asset		11,449
Goodwill		57,740
Cash surrender value of bank-owned life insurance		8,771
Deferred tax asset		9,304
Other assets		3,437
Total assets acquired		493,603
Deposits		359,921
Securities sold under agreements to repurchase and federal funds purchased		10,926
Borrowings		24,371
Junior subordinated debentures		10,072
Other liabilities		16,313
Total liabilities		421,603
Net assets acquired	$	72,000

The core deposit intangible assets are being amortized over their estimated useful lives of ten years.

The goodwill recognized in the acquisition is not expected to be deductible for tax purposes.

Pro Forma Financial Information

The unaudited pro forma financial information assumes that the Front Range acquisition was consummated on January 1 of the earliest indicated period. The pro forma adjustments are based on information available and certain assumptions that we believe are reasonable. Certain acquisition related adjustments are not included in the pro forma information since they were recorded after completion of the acquisitions and are not indicative of what the historical results of the combined company would have been had our companies actually been combined during the periods presented. 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 2006. Pro forma information follows.

	Six Months Ended June 30, 2007			Six Months Ended June 30, 2006
	(Dollars in thousands, except per share amounts)
Interest income	$	116,608		$	101,791
Interest expense		48,577			36,757
Net interest income		68,031			65,034
Provision for loan losses		(4,726	)		(4,638	)
Net interest income after provision for loan losses		63,305			60,396
Non-interest income		13,553			11,046
Non-interest expenses		56,077			55,238
Income before income taxes		20,781			16,204
Income tax expense		7,253			5,881
Net income	$	13,528		$	10,323
Basic earnings per share	$	0.66		$	0.50
Diluted earnings per share	$	0.65		$	0.49

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3. New Accounting Standards

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 allows companies to report selected financial assets and liabilities at fair value. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately on the balance sheet. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted, subject to certain conditions, and the concurrent adoption of SFAS No. 157. Management is currently evaluating this statement.

In September 2006, the FASB issued EITF Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-4”). Under EITF 06-4, an employer that enters into an endorsement split-dollar life insurance arrangement that provides an employee with a postretirement benefit should recognize a liability for the future benefits promised based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, with earlier application permitted. Management has not yet determined the impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 will apply whenever other standards require or permit assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. Early adoption is permitted. Management does not expect the adoption of SFAS 157 to have a material impact on our consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Our policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. No accrued interest or penalties have been booked at June 30, 2007. We believe that we have appropriate support for the income tax positions taken and to be taken on our tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

We adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not impact our consolidated financial condition, results of operations or cash flows. At January 1, 2007, we had no unrecognized tax benefits. Because there are no unrecognized tax benefits to be recognized, there will not be an impact to the effective tax rate in a future period. We do not expect the total amounts of unrecognized tax benefits to significantly increase within 12 months of the adoption of FIN 48. We file U.S. federal and state tax returns and are no longer subject to U.S. federal or state examinations by tax authorities for years prior to 2002.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”). SFAS 155 amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 addresses issues from SFAS 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” Under the original guidance, SFAS 155 removed the exemption for securitized financial instruments and included scenarios where certain discount mortgage-backed securities (“MBS’s”) and discount collateralized mortgage obligations (“CMO’s”) with embedded derivative components could be subject to the bifurcation rules of SFAS 133, and therefore be marked to market through earnings. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September

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15, 2006. In October 2006, the FASB met to discuss implementation issues and industry concerns surrounding SFAS 155. In January 2007, the FASB issued SFAS 133 Implementation Issue No. B40. Implementation Issue No. B40 includes a narrow scope exception from paragraph 13(b) of SFAS 133 for securitized interests that contain only an embedded derivative that is tied to the prepayment risk of the underlying prepayable financial assets, thereby excluding certain discount MBS’s and CMO’s from the bifurcation test. The guidance in Implementation Issue No. B40 generally applies to securitized interests in prepayable financial assets acquired after the adoption of SFAS 155. The adoption of SFAS 155 did not have a material impact on our consolidated financial statements.

4. Share-Based Compensation

Effective on January 1, 2006, we adopted SFAS 123R using the modified prospective method, which requires measurement of compensation cost for all share-based awards at fair value on the grant date and recognition of compensation expense over the requisite service period for awards expected to vest.

For the three months ended June 30, 2007 and 2006, respectively, we recorded approximately $265,000 and $325,000 respectively, of pretax share-based compensation expense associated with outstanding unvested stock options and restricted stock awards in salaries and employee benefits in the accompanying consolidated condensed statements of operations. For the six months ended June 30, 2007 and 2006, respectively, we recorded approximately $539,000 and $662,000 respectively, of pretax share-based compensation expense associated with outstanding unvested stock options and restricted stock awards in salaries and employee benefits in the accompanying consolidated condensed statements of operations.

The following table summarizes our stock option activity during the six months ended June 30, 2007:

	Shares		Weighted average exercise price
Outstanding at December 31, 2006	1,423,396		$	15.39
Granted	102,500			21.23
Exercised	(167,801	)		7.14
Forfeited	(47,000	)		16.82
Outstanding at June 30, 2007	1,311,095		$	16.86
Options exercisable at June 30, 2007	520,095		$	14.69

The total pretax intrinsic value of options exercised during the six months ended June 30, 2007 was approximately $2.6 million. Total cash received from the exercise of options during the six months ended June 30, 2007 was $1.2 million. The Company estimated the weighted average fair value of options granted during the six months ended June 30, 2007 to be approximately $6.09. The value of each stock option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rate of 4.62%; expected dividend yield of 1.70%; an expected life of 6.0 years; and expected volatility of 25.93%.

5. 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.

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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,
	2007					2006
	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share
	(Dollars in thousands, except share and per share amounts)
Basic EPS:
Net income	$	7,230	20,408,485	$	0.35	$	5,988	17,612,630	$	0.34
Effect of dilutive securities
Options		—	199,925				—	297,411
Diluted EPS:
Net income	$	7,230	20,608,410	$	0.35	$	5,988	17,910,041	$	0.33

For the three-month periods ended June 30, 2007 and 2006, approximately 201,500 and 100,000 stock options outstanding, respectively, were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were equal to or greater than the average share price of the common shares, and therefore, their inclusion would have been antidilutive.

	Six Months Ended June 30,
	2007					2006
	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share
	(Dollars in thousands, except share and per share amounts)
Basic EPS:
Net income	$	13,708	20,623,534	$	0.66	$	10,310	17,533,677	$	0.59
Effect of dilutive securities
Options		—	225,458				—	317,954
Diluted EPS:
Net income	$	13,708	20,848,992	$	0.66	$	10,310	17,851,631	$	0.58

For the six-month periods ended June 30, 2007 and 2006, approximately 201,500 and 100,000 stock options outstanding, respectively, were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were equal to or greater than the average share price of the common shares, and therefore, their inclusion would have been antidilutive.

6. Treasury Stock

On March 26, 2007, our Board of Directors authorized the repurchase, through a revised share repurchase program, of up to five percent of the then current 20,825,782 outstanding shares, or approximately 1,040,000 shares. As of June 30, 2007, we had purchased 727,700 shares under the revised program. We may purchase additional shares, the amount of which will be determined by market conditions. We sponsor a deferred compensation plan, which is included in the consolidated financial statements. At June 30, 2007, the assets of the deferred compensation plan included 33,508 shares of our common stock. Under the previously authorized repurchase program we had purchased 784,100 shares, excluding the deferred compensation plan shares.

7. Junior Subordinated Debentures

On March 29, 2007, we formed First State NM Statutory Trust VI (“Trust VI”) for the purpose of issuing trust preferred securities (“Trust VI Securities”) in a pooled transaction to unrelated investors. Trust VI issued $20,000,000 of Trust VI Securities that qualify as Tier I capital for regulatory purposes and bear interest at an annual rate equal to the three-month LIBOR plus 1.65%. We invested the proceeds thereof in $20,619,000 of junior subordinated deferrable interest debentures of the Company (“Trust VI Debentures”) that also bear interest at an annual rate equal to the three-month LIBOR plus 1.65%. The Trust VI Securities and the Trust VI Debentures provide interest only payments payable at three-month intervals with the rate adjusted quarterly on March 15, June 15, September 15, and December 15. The three-month LIBOR rate at June 30, 2007 was 5.36% Both the Trust VI Securities and the Trust VI Debentures will mature on June 15, 2037; however, they are callable at par beginning June 15, 2012. So long as there are no events of default, interest payments may be deferred for up to twenty consecutive interest payment periods.

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On May 15, 2007, we formed First State NM Statutory Trust VII (“Trust VII”) for the purpose of issuing trust preferred securities (“Trust VII Securities”) in a pooled transaction to unrelated investors. On May 15, 2007 and June 29, 2007, Trust VII issued $10,000,000 and $11,000,000, respectively, of Trust VII Securities that qualify as Tier I capital for regulatory purposes and bear interest at an annual rate equal to the three-month LIBOR plus 1.45% The proceeds were invested in $21,651,000 of junior subordinated deferrable interest debentures of the Company (“Trust VII Debentures”) that also bear interest at an annual rate equal to the three-month LIBOR plus 1.45%. The Trust VII Securities and the Trust VII Debentures provide interest only payments payable at three-month intervals with the rate adjusted quarterly on March 6, June 6, September 6, and December 6. The three-month LIBOR rate at June 30, 2007 was 5.36%. Both the Trust VII Securities and the Trust VII Debentures will mature on September 6, 2037; however, they are callable at par beginning September 6, 2012. So long as there are no events of default, interest payments may be deferred for up to twenty consecutive interest payment periods.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Certain statements in this Form 10-Q are 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 (the “Exchange Act”). The discussions regarding our growth strategy, expansion of operations in our markets, acquisitions, competition, loan and deposit growth, timing of new branch openings, and response to consolidation in the banking industry include forward-looking statements. Other 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 actual results to differ materially from those in the forward-looking statement. Some factors include changes in interest rates, local business conditions, government regulations, loss of key personnel or inability to hire suitable personnel, successful integration of Front Range into our business, faster or slower than anticipated growth, economic conditions, our competitors’ responses to our marketing strategy or new competitive conditions, and competition in the geographic and business areas in which we conduct our operations. We are not undertaking any obligation to update these risks to reflect events or circumstances after the date of this report to reflect the occurrence of unanticipated events.

Consolidated Condensed Balance Sheets

Our total assets increased by $546 million from $2.802 billion as of December 31, 2006, to $3.348 billion as of June 30, 2007. The increase in total assets is primarily due to $493.6 million in assets acquired in the acquisition of Front Range, which included net loans of approximately $294.2 million, investments of approximately $72.5 million, premises and equipment of $13.2 million, and goodwill and intangibles of approximately $69.2 million. With the exception of approximately $2.0 million, the entire Front Range investment portfolio was sold, immediately following the close of the acquisition. The proceeds from the sale of the investment portfolio were used to pay off Front Range’s short-term borrowings and long-term debt, with the remainder of approximately $45.7 million going toward reduction of our existing short-term borrowings.

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The following table presents the amounts of our loans, by category, at the dates indicated.

	June 30, 2007				December 31, 2006				June 30, 2006
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Commercial	$	329,161	13.3	%	$	295,566	14.5	%	$	253,942	13.3	%
Real estate-commercial		883,843	35.8	%		714,086	35.0	%		765,085	39.9	%
Real estate-one- to four-family		254,553	10.3	%		217,247	10.6	%		234,120	12.2	%
Real estate-construction		888,469	36.0	%		733,333	35.9	%		583,073	30.3	%
Consumer and other		55,898	2.3	%		55,647	2.7	%		59,499	3.1	%
Mortgage loans available for sale		19,987	0.8	%		25,728	1.3	%		22,968	1.2	%
Other loans available for sale		37,928	1.5	%		—	—			—	—
Total	$	2,469,839	100.0	%	$	2,041,607	100.0	%	$	1,918,687	100.0	%

Other loans available for sale consist of approximately fifty loans acquired from Front Range with potential credit concerns. These loans were recorded at their estimated net realizable value of approximately $37.9 million at June 30, 2007. On July 27, 2007, First State entered into a definitive agreement for the sale of these loans and the related accrued interest, to a third party investor. The sale of the loans closed on July 31, 2007 and the Company received proceeds totaling approximately $36.6 million. See Note 2 to the accompanying consolidated condensed financial statements.

We utilize deposits and Federal Home Loan Bank advances as our main source of funding for loans and investments. Deposits increased by $364 million from $2.121 billion as of December 31, 2006, to $2.485 billion as of June 30, 2007, primarily due to $359.9 million in deposits from the acquisition of Front Range. Securities sold under agreements to repurchase increased $31.7 million from $149.2 million at December 31, 2006 to $180.9 million at June 30, 2007, primarily due to the acquisition of Front Range, and a general increase in net activity in 2007. Junior subordinated debentures increased by $52.2 million, due to the acquisition of Front Range and its $10.1 million in outstanding junior subordinated debentures and the additional $42.3 of junior subordinated debentures issued during the six months ended June 30, 2007. See Note 7 to the accompanying consolidated condensed financial statements. Federal Home Loan Bank advances and other increased $94.5 million from $155.7 million at December 31, 2006 to $250.2 million at June 30, 2007. The increase in Federal Home Loan Bank advances and other is primarily due to the need to utilize borrowings to fund loan growth which has continued to outpace deposit growth.

The following table represents customer deposits, by category, at the dates indicated.

	June 30, 2007				December 31, 2006				June 30, 2006
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Non-interest-bearing	$	496,202	20.0	%	$	447,172	21.1	%	$	451,353	21.7	%
Interest-bearing demand		342,092	13.8	%		322,717	15.2	%		332,385	16.0	%
Money market savings accounts		336,698	13.5	%		222,263	10.5	%		250,738	12.1	%
Regular savings		121,486	4.9	%		107,812	5.1	%		110,233	5.3	%
Certificates of deposit less than $100,000		472,184	19.0	%		386,626	18.2	%		398,849	19.2	%
Certificates of deposit greater than $100,000		716,110	28.8	%		634,334	29.9	%		535,440	25.7	%
Total	$	2,484,772	100.0	%	$	2,120,924	100.0	%	$	2,078,998	100.0	%

Consolidated Results of Operations For the Three Months Ended June 30, 2006

Our net income for the three months ended June 30, 2007, was $7.2 million, or $0.35 per diluted share, compared to $6.0 million or $0.33 per diluted share for the same period in 2006. Our annualized return on average assets was 0.88% for the three months ended June 30, 2007, compared to 0.94% for the same period of 2006.

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Our net interest income increased $5.3 million to $34.2 million for the second quarter of 2007 compared to $28.9 million for the second quarter of 2006. This increase was composed of a $14.3 million increase in total interest income, partially offset by a $9.0 million increase in total interest expense.

The increase in interest income was composed of an increase of $12.7 million due to increased average interest earning assets of $628.1 million, and an increase of $1.6 million due to a 0.30% increase in the yield on average interest-earning assets. The increase in average interest-earning assets primarily occurred in loans. Of the total increase in average loans of $569.7 million, approximately $289.7 million of the increase was made possible by new loan production and our successful efforts to attract new customers and approximately $280.0 million was directly a result of the loans acquired in the Front Range transaction.

The increase in total interest expense was composed of an increase of $6.7 million due to increased average interest-bearing liabilities of $617.3 million and an increase of $2.3 million due to a 0.62% increase in the cost of interest-bearing liabilities. The increase in average interest-bearing liabilities was primarily due to an increase in average interest-bearing deposits of $386.4 million. The increase in average interest-bearing deposits is composed of approximately $42.7 million as a result of our success in increasing market share in New Mexico and Colorado and approximately $343.7 million was directly a result of the interest bearing deposits acquired in the Front Range transaction. Average short-term borrowings increased by $165.4 million. Short-term borrowings have increased as a result of deposit growth being lower than loan growth.

The increase in yield on interest earning assets of 0.30% reflects the continuing impact of the Federal Reserve Bank’s increase of the discount rate that continued through the first half of 2006. The increase in the discount rate contributes to a corresponding increase 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 increase in the prime rate has led to a corresponding increase in the yield on our loan portfolio.

The cost of interest bearing liabilities increased by 0.62% as a result of increasing interest rates precipitated by the Federal Reserve Bank’s rate increases. In addition, our mix of deposits has shifted toward higher cost deposit products, particularly shorter-term certificates of deposit greater than $100,000. The changes in deposit rates lag behind the increases from the Federal Reserve Bank, and are primarily market driven due to the competitive nature of deposits which impacts the rates that we pay on deposits. In addition, the increase in the discount rate has corresponded to an increase in interest expense related to our borrowings as the majority of our borrowings are short-term.

During the quarter ended June 30, 2007, the net interest margin decreased by 0.34% over the quarter ended June 30, 2006 and decreased by 0.04% over the first quarter of 2007. The decrease in the net interest margin was primarily due to the repricing of existing deposits, the higher cost of new deposits, and the need to utilize borrowings to fund loan growth which has continued to outpace deposit growth. In addition, the mix of our deposits has shifted toward higher cost deposit products. The Front Range acquisition also contributed to net interest margin compression, as Front Range’s net interest margin was lower than First State’s net interest margin on a stand-alone basis. In addition, the net interest margin may compress further in 2007 if we continue to experience strong loan growth without a corresponding increase in core deposits, or due to further repricing of deposits at higher rates.

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Non-interest Income

An analysis of the components of non-interest income is presented in the table below.

	Three Months Ended June 30,
(Dollars in thousands)	2007			2006		$ Change			% Change
Service charges on deposit accounts	$	2,635		$	1,846	$	789		43	%
Other banking service fees		248			242		6		2
Credit and debit card transaction fees		1,128			700		428		61
Gain (loss) on sale or call of investment securities		(12	)		—		(12	)	—
Check imprint income		184			135		49		36
Gain on sale of mortgage loans		1,310			1,216		94		8
Income on cash surrender value of bank- owned life insurance		956			319		637		200
Other		693			416		277		67
	$	7,142		$	4,874	$	2,268		47	%

Non-interest income for the second quarter of 2007 was $7.1 million, compared to $4.9 million for the second quarter of 2006, an increase of $2.3 million or 47%. The increase in service charges on deposit accounts is primarily due to an increase in overdraft and NSF fees and the Front Range acquisition. The increase in credit and debit card transaction fees is primarily due to increased transaction volume. The increase in income on cash surrender value of bank-owned life insurance is primarily due to the accrual of approximately $550,000 related to the death benefit of an insured employee.

Non-interest Expenses

An analysis of the components of non-interest expense is presented in the table below.

	Three Months Ended June 30,
(Dollars in thousands)	2007		2006		$ Change			% Change
Salaries and employee benefits	$	13,694	$	11,039	$	2,655		24	%
Occupancy		3,838		2,669		1,169		44
Data processing		1,702		1,318		384		29
Equipment		2,074		1,470		604		41
Legal, accounting, and consulting		845		871		(26	)	(3	)
Marketing		773		983		(210	)	(21	)
Telephone		716		556		160		29
Supplies		338		322		16		5
Delivery		307		255		52		20
Other real estate owned		330		53		277		523
FDIC insurance premiums		76		60		16		27
Amortization of intangibles		653		325		328		101
Check imprint expense		159		185		(26	)	(14	)
Other		2,732		2,827		(95	)	(3	)
	$	28,237	$	22,933	$	5,304		23	%

Non-interest expenses were $28.2 million and $22.9 million for the quarters ended June 30, 2007 and 2006, respectively, and represent an increase of $5.3 million or 23%. The acquisition of Front Range contributed approximately $3.8 million toward the overall increase in non-interest expenses during the quarter. Of the $2.7 million increase in salaries and benefits, $1.8 million is due to the additional employees of Front Range, and includes

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approximately $417,000 in retention and stay bonuses for Front Range employees. The remaining increase in salaries and benefits is primarily due to normal compensation increases for job performance and an increase in incentives. In addition to the non-recurring retention and stay bonus expense, management expects a reduction in salary expense of approximately $500,000 in the third quarter of 2007, due to general staffing reductions that occurred in the second quarter. The increase in occupancy expense reflects the acquisition of Front Range, the lease of space in Phoenix for three new branches, additional administrative space in Albuquerque, a new branch in Rio Rancho, and a new branch location in Denver. The increase in equipment is primarily due to Front Range and our continued organic growth. The increase in expenses related to other real estate owned is primarily due to a write-down of a property and expenses related to other real estate owned acquired in the Front Range transaction. The increase in amortization of intangibles is due to the acquisition of Front Range.

Consolidated Results of Operations for the Six Months Ended June 30, 2007

Our net income for the six months ended June 30, 2007, was $13.7 million, or $0.66 per diluted share, compared to $10.3 million or $0.58 per diluted share for the same period in 2006. Our annualized return on average assets was 0.88% for the six months ended June 30, 2007, compared to 0.82% for the same period of 2006.

Our net interest income increased $9.2 million to $65.3 million for the six months ended June 30, 2007 compared to $56.1 million for the same period of 2006. This increase was composed of a $25.5 million increase in total interest income, partially offset by a $16.3 million increase in total interest expense.

The increase in interest income was composed of an increase of $20.6 million due to increased average interest earning assets of $519.9 million, and an increase of $4.9 million due to a 0.43% increase in the yield on average interest-earning assets. The increase in average interest-earning assets primarily occurred in loans. Of the total increase in average loans of $481.4 million, approximately $289.7 million of the increase was made possible by new loan production and our successful efforts to attract new customers and approximately $191.7 million was directly a result of the loans acquired in the Front Range transaction.

The increase in total interest expense was composed of an increase of $10.0 million due to increased average interest-bearing liabilities of $481.8 million and an increase of $6.3 million due to a 0.74% increase in the cost of interest-bearing liabilities. The increase in average interest-bearing liabilities was primarily due to an increase in average interest-bearing deposits of $336.2 million. The increase in average interest-bearing deposits is composed of approximately $101.8 million as a result of our success in increasing market share in New Mexico and Colorado and approximately $234.4 million was directly a result of the interest bearing deposits acquired in the Front Range transaction. Average short-term borrowings increased by $136.3 million, but this increase was partially offset by a $47.7 million decrease in long-term debt. Short-term borrowings have increased as a result of deposit growth being lower than loan growth.

Non-interest Income

An analysis of the components of non-interest income is presented in the table below.

	Six Months Ended June 30,
(Dollars in thousands)	2007		2006			$ Change		% Change
Service charges on deposit accounts	$	4,777	$	3,618		$	1,159	32	%
Other banking service fees		471		469			2	—
Credit and debit card transaction fees		2,015		1,327			688	52
Gain (loss) on sale or call of investment securities		30		(140	)		170	(121	)
Check imprint income		361		267			94	35
Gain on sale of mortgage loans		2,759		2,432			327	13
Income on cash surrender value of bank- owned life insurance		1,310		549			761	139
Other		1,309		692			617	89
	$	13,032	$	9,214		$	3,818	41	%

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Non-interest income for the six months ended June 30, 2007 was $13.0 million, compared to $9.2 million for the same period in 2006, an increase of $3.8 million or 41%. The increase in service charges on deposit accounts is primarily due to an increase in overdraft and NSF fees and the Front Range acquisition. The increase in credit and debit card transaction fees is primarily due to increased transaction volume. The increase in income on cash surrender value of bank-owned life insurance is primarily due to the accrual of approximately $550,000 related to the death benefit of an insured employee. The increase in other non-interest income includes $132,000 of interest income on monies held in escrow for the exchange of Front Range shares for cash that is non-recurring. The increase in other non-interest income is also due to an increase in rental income and gains on sales of other real estate owned.

Non-interest Expenses

An analysis of the components of non-interest expense is presented in the table below.

	Six Months Ended June 30,
(Dollars in thousands)	2007		2006		$ Change			% Change
Salaries and employee benefits	$	25,954	$	21,641	$	4,313		20	%
Occupancy		7,079		5,348		1,731		32
Data processing		3,250		2,571		679		26
Equipment		3,923		2,853		1,070		38
Legal, accounting, and consulting		1,466		2,088		(622	)	(30	)
Marketing		1,721		2,014		(293	)	(15	)
Telephone		1,219		939		280		30
Supplies		672		662		10		2
Delivery		594		511		83		16
Other real estate owned		516		116		400		345
FDIC insurance premiums		139		111		28		25
Amortization of intangibles		1,087		650		437		67
Check imprint expense		333		358		(25	)	(7	)
Other		5,225		5,160		65		1
	$	53,178	$	45,022	$	8,156		18	%

Non-interest expenses were $53.2 million and $45.0 million for the six months ended June 30, 2007 and 2006, respectively, and represent an increase of $8.2 million or 18%. The acquisition of Front Range contributed approximately $5.1 million toward the overall increase in non-interest expenses during the six months ended June 30, 2007. Of the $4.3 million increase in salaries and benefits, approximately $2.5 million is due to the additional employees of Front Range, and includes approximately $617,000 in retention and stay bonuses for Front Range employees. The remaining increase in salaries and benefits is primarily due to normal compensation increases for job performance and an increase in incentives and mortgage loan commissions. In addition to the non-recurring retention and stay bonus expense, management expects a reduction in salary expense of approximately $1.0 million over the remaining six months of 2007, due to general staffing reductions that occurred in the second quarter. The increase in occupancy expense reflects the acquisition of Front Range, the lease of space in Phoenix for three new branches, additional administrative space in Albuquerque, a new branch in Rio Rancho, and a new branch location in Denver. The increase in data processing expense is primarily due to fees related to the Front Range system conversion, an increase in ATM processing fees and an increase in expenses associated with software maintenance contracts. The increase in equipment is primarily due to Front Range and our continued organic growth. The decrease in legal, accounting and consulting expense is primarily due to expenses incurred in the six months ended June 30, 2006, for the conversion and implementation of information systems related to the acquisitions of Access Anytime Bancorp Inc. and New Mexico Financial Corporation. The increase in expenses related to other real estate owned is primarily due to a write-down of a property and expenses related to other real estate owned acquired in the Front Range transaction. The

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increase in amortization of intangibles is due to the acquisition of Front Range. Management expects reductions in non-interest expenses over the remainder of 2007 as efficiencies are realized from the Front Range acquisition, primarily in the areas of salaries, occupancy and data processing, as well as from staffing reductions throughout the Company that occurred in the second quarter of 2007. These reductions will be offset by increases in expenses relating to the four new branches that opened in the second quarter of 2007, and one new branch that is expected to open in the fourth quarter of 2007.

In June 2007, one New Mexico branch facility was closed. This property is included in other real estate owned and is currently listed for sale. In July 2007, two branch facilities in Colorado were closed. We expect to close two New Mexico branch facilities in the third and fourth quarters of 2007. Of the owned properties, one was sold in July 2007, and the other will be listed for sale. We are currently pursuing sub-leases for the two leased properties.

In November 2006, the FDIC adopted a new rule on the risk-based assessment system that will enable the FDIC to more closely tie each bank’s premiums to the risk it poses to the deposit insurance fund. As a result, the FDIC set new assessment rates that took effect at the beginning of 2007, which are significantly higher than the previous assessment rates. The new rulemaking allowed eligible insured depository institutions to share a one-time assessment credit pool, which offset premiums for a period of time. First Community Bank’s share of the one-time credit will be used up in the third quarter of 2007. As a result, we expect an approximate increase in FDIC insurance premium expense of approximately $300,000 in the third quarter of 2007, and an increase of approximately $400,000 in the fourth quarter of 2007, as compared to the second quarter of 2007.

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.

	Six months ended June 30, 2007			Twelve months ended December 31, 2006			Six months ended June 30, 2006
	(Dollars in thousands)
ALLOWANCE FOR LOAN LOSSES:
Balance beginning of period	$	23,125		$	17,413		$	17,413
Allowance related to acquired loans		2,958			2,128			2,128
Provision for loan losses		4,112			6,993			4,109
Net charge-offs		(978	)		(3,409	)		(1,972	)
Balance end of period	$	29,217		$	23,125		$	21,678
Allowance for loan losses to total loans held for investment		1.21	%		1.15	%		1.14	%
Allowance for loan losses to non-performing loans		90	%		166	%		200	%
	June 30, 2007			December 31, 2006			June 30, 2006
	(Dollars in thousands)
NON-PERFORMING ASSETS:
Accruing loans – 90 days past due	$	247		$	75		$	16
Non-accrual loans		32,280			13,851			10,844
Total non-performing loans		32,527			13,926			10,860
Other real estate owned		23,099			6,396			1,664
Total non-performing assets	$	55,626		$	20,322		$	12,524
Potential problem loans	$	56,039		$	35,916		$	31,064
Total non-performing assets to total assets		1.66	%		0.73	%		0.48	%

Our provision for loans losses was $2.1 million for the second quarter of 2007 compared to $1.4 million for the same period in 2006. The provision for loan losses for the six months ended June 30, 2007 was $4.1 million, consistent with the same period in 2006. The allowance for loans losses was 1.21% and 1.14% of total loans held for investment at June 30, 2007 and June 30, 2006, respectively. The ratio of allowance for loan losses to non-performing loans was 90% and 200% at June 30, 2007 and June 30, 2006, respectively. In assessing the adequacy of the allowance, management reviews the size, quality, and risks of loans in the portfolio, and considers factors such as specific known risks, past experience, the status and amount of non-performing assets, and economic conditions.

Since our acquisition of Front Range in the first quarter, our management team has been working diligently on

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monitoring our problem assets. In order to help avoid potential credit issues from the newly acquired loan portfolio, management took a very detailed approach, to better expose potential credit concerns. This detailed review, combined with our prior understanding of the Front Range loan portfolio, resulted in the decision to sell approximately 50 loans with potential credit concerns, with a combined face balance of approximately $47.4 million. These loans have been recorded at their estimated net realizable value of approximately $37.9 million and are classified as other loans available for sale. Of this $37.9 million, approximately $14.8 million is included in non-accrual loans and approximately $8.8 million is included in potential problem loans.

On July 27, 2007, First State entered into a definitive agreement for the sale of these loans and the related accrued interest, to a third party investor. The sale of the loans closed on July 31, 2007, and the Company received proceeds totaling approximately $36.6 million. See Note 2 to the accompanying consolidated condensed financial statements.

Other real estate owned increased approximately $21.4 million compared to the same period of 2006. Other real estate owned at June 30, 2007 includes $9.1 million in foreclosed or repossessed assets, $7.0 million in other real estate owned acquired as part of the Front Range acquisition, and approximately $7.0 million in facilities listed for sale.

The increase in foreclosed or repossessed assets includes a $5.6 million residential lot development property in Denver, Colorado, which was transferred to other real estate owned in December 2006. During the second quarter, the Company reached agreement to sell this property to a national homebuilder. This agreement involves the sale of the lots in phases, with the last purchase to be completed in mid 2009. In mid July, the Company received $1.1 million from the first of five takedowns and the value of the property was reduced accordingly.

Of the $7.0 million of other real estate owned acquired from Front Range, $5.7 million represents the appraised value of an 8.2 acre property in Broomfield, Colorado, purchased by Front Range in 2001 and referred to as “Heritage Place.” The Heritage Place property was under contract to be sold, however, the contract was terminated in July 2007. The Company has accepted another offer for Heritage Place for approximately $4.6 million. Pursuant to the new contract, the sale is expected to close within ninety days, which will result in a $1.1 million increase to goodwill, representing the difference between the carrying value and the contract price.

The $7.0 million of facilities listed for sale relates to our decision during the quarter to sell the real estate associated with two recently closed facilities, one new branch facility built by Front Range which will not be occupied, and our decision to forego the future build out related to three parcels of vacant land previously held for future branch locations. This increase in other real estate owned did not consist of any foreclosed or repossessed assets due to the deterioration of loan relationships.

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.

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, brokered certificates of deposit, and junior subordinated debentures. Borrowings include federal funds purchased, securities sold under repurchase agreements, and borrowings from the Federal Home Loan Bank. To increase our liquidity, we have recently increased our junior subordinated debentures, as they qualify as capital for regulatory purposes.

First State assumed certain noncancellable operating leases with unrelated parties in conjunction with the acquisition of Front Range. Minimum future payments under these leases are approximately $3.2 million through 2017.

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.

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	Three Months Ended June 30,
	2007							2006
	Average Balance			Interest Income or Expense		Average Yield or Cost		Average Balance			Interest Income or Expense		Average Yield or Cost
	(Dollars in thousands)
Assets
Loans:
Commercial	$	340,808		$	7,393	8.70	%	$	242,449		$	5,282	8.74	%
Real estate		2,026,213			44,200	8.75	%		1,551,712			32,645	8.44	%
Consumer		57,584			1,459	10.16	%		60,953			1,494	9.83	%
Mortgage		19,063			239	5.03	%		19,562			332	6.81	%
Other		2,247			—	—			1,506			—	—
Total loans		2,445,915			53,291	8.74	%		1,876,182			39,753	8.50	%
Allowance for loan losses		(28,858	)						(21,355	)
Securities:
U.S. government and mortgage-backed		408,141			4,652	4.57	%		357,914			3,881	4.35	%
State and political subdivisions:
Non-taxable		47,786			609	5.11	%		45,383			589	5.21	%
Other		19,952			255	5.13	%		12,160			159	5.24	%
Total securities		475,879			5,516	4.65	%		415,457			4,629	4.47	%
Interest-bearing deposits with other banks		5,566			55	3.96	%		6,141			78	5.09	%
Federal funds sold		12,957			170	5.26	%		14,446			211	5.86	%
Total interest-earning assets		2,940,317			59,032	8.05	%		2,312,226			44,671	7.75	%
Non-interest-earning assets:
Cash and due from banks		74,706							70,346
Other		315,352							195,969
Total non-interest-earning assets		390,058							266,315
Total assets		3,301,517							2,557,186
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing demand accounts	$	352,950		$	974	1.11	%	$	327,294		$	922	1.13	%
Certificates of deposit > $100,000		712,414			8,631	4.86	%		459,397			4,929	4.30	%
Certificates of deposit < $100,000		461,687			5,298	4.60	%		456,931			4,314	3.79	%
Money market savings accounts		343,233			2,811	3.28	%		247,201			1,820	2.95	%
Regular savings accounts		119,795			313	1.05	%		112,821			307	1.09	%
Total interest-bearing deposits		1,990,079			18,027	3.63	%		1,603,644			12,292	3.07	%
Federal funds purchased and securities sold under agreements to repurchase		205,984			2,247	4.38	%		157,235			1,637	4.18	%
Short-term borrowings		200,064			2,641	5.29	%		34,649			442	5.12	%
Long-term debt		16,041			216	5.40	%		35,408			334	3.78	%
Junior subordinated debentures		93,897			1,726	7.37	%		57,845			1,116	7.74	%
Total interest-bearing liabilities		2,506,065			24,857	3.98	%		1,888,781			15,821	3.36	%
Non-interest-bearing demand accounts		469,377							441,484
Other non-interest-bearing liabilities		20,822							9,484
Total liabilities		2,996,264							2,339,749
Stockholders’ equity		305,253							217,437
Total liabilities and stockholders’ equity	$	3,301,517						$	2,557,186
Net interest income				$	34,175						$	28,850
Net interest spread						4.07	%						4.39	%
Net interest margin						4.66	%						5.00	%
Ratio of average interest-earning assets to average interest-bearing liabilities						117.33	%						122.42	%

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	Six Months Ended June 30,
	2007							2006
	Average Balance			Interest Income or Expense		Average Yield or Cost		Average Balance			Interest Income or Expense		Average Yield or Cost
	(Dollars in thousands)
Assets
Loans:
Commercial	$	324,546		$	13,858	8.61	%	$	234,797		$	10,023	8.61	%
Real estate		1,910,100			82,676	8.73	%		1,515,710			62,009	8.25	%
Consumer		56,864			2,833	10.05	%		63,047			3,046	9.74	%
Mortgage		20,511			609	5.99	%		17,871			603	6.80	%
Other		2,267			—	—			1,445			—	—
Total loans		2,314,288			99,976	8.71	%		1,832,870			75,681	8.33	%
Allowance for loan losses		(26,991	)						(20,638	)
Securities:
U.S. government and mortgage-backed		418,190			9,530	4.60	%		382,752			8,301	4.37	%
State and political subdivisions:
Non-taxable		50,067			1,265	5.10	%		44,855			1,163	5.23	%
Other		17,519			422	4.86	%		14,788			364	4.96	%
Total securities		485,776			11,217	4.66	%		442,395			9,828	4.48	%
Interest-bearing deposits with other banks		4,012			97	4.88	%		6,040			172	5.74	%
Federal funds sold		11,389			295	5.22	%		14,302			402	5.67	%
Total interest-earning assets		2,815,465			111,585	7.99	%		2,295,607			86,083	7.56	%
Non-interest-earning assets:
Cash and due from banks		72,538							70,820
Other		280,096							192,685
Total non-interest-earning assets		352,634							263,505
Total assets	$	3,141,108						$	2,538,474
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing demand accounts	$	341,401		$	1,924	1.14	%	$	325,450		$	1,791	1.11	%
Certificates of deposit > $100,000		684,661			16,444	4.84	%		447,507			9,083	4.09	%
Certificates of deposit < $100,000		435,282			9,859	4.57	%		420,702			7,524	3.61	%
Money market savings accounts		311,832			5,090	3.29	%		246,467			3,477	2.84	%
Regular savings accounts		116,902			620	1.07	%		113,793			616	1.09	%
Total interest-bearing deposits		1,890,078			33,937	3.62	%		1,553,919			22,491	2.92	%
Federal funds purchased and securities sold under agreements to repurchase		189,863			4,126	4.38	%		152,893			2,984	3.94	%
Short-term borrowings		183,940			4,852	5.32	%		47,649			1,158	4.90	%
Long-term debt		17,235			458	5.36	%		64,921			1,191	3.70	%
Junior subordinated debentures		77,965			2,897	7.49	%		57,853			2,159	7.53	%
Total interest-bearing liabilities		2,359,081			46,270	3.96	%		1,877,235			29,983	3.22	%
Non-interest-bearing demand accounts		455,694							436,765
Other non-interest-bearing liabilities		17,522							9,802
Total liabilities		2,832,297							2,323,802
Stockholders’ equity		308,811							214,672
Total liabilities and stockholders’ equity	$	3,141,108						$	2,538,474
Net interest income				$	64,315						$	56,100
Net interest spread						4.03	%						4.34	%
Net interest margin						4.68	%						4.93	%
Ratio of average interest-earning assets to average interest-bearing liabilities						119.35	%						122.29	%

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 First Community Bank on an ongoing basis.

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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, 2007, our cumulative interest rate gap for the period up to three months was a positive $166.5 million and for the period up to one year was a positive $86.2 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, 2007. 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.

	Less than three months		Three months to less than one year			One to five years		Over five years		Total
	(Dollars in thousands)
Interest-earning assets:
Investment securities	$	16,090	$	190,736		$	186,618	$	75,046	$	468,490
Interest-bearing deposits with other banks		2,400		793			730		—		3,923
Federal funds sold		27,110		—			—		—		27,110
Loans:
Commercial		206,347		51,544			82,041		6,797		346,729
Real estate		1,090,966		320,465			535,574		119,315		2,066,320
Consumer		10,346		11,419			26,590		8,435		56,790
Total interest-earning assets	$	1,353,259	$	574,957		$	831,553	$	209,593	$	2,969,362
Interest-bearing liabilities:
Savings and NOW accounts	$	160,056	$	193,725		$	353,782	$	92,713	$	800,276
Certificates of deposit greater than $100,000		405,551		205,570			103,051		1,938		716,110
Certificates of deposit less than $100,000		107,880		253,299			108,873		2,132		472,184
Securities sold under agreements to repurchase		180,917		—			—		—		180,917
FHLB advances and other		236,994		2,683			9,242		1,281		250,200
Junior subordinated debentures		95,365		—			10,024		4,547		109,936
Total interest-bearing liabilities	$	1,186,763	$	655,277		$	584,972	$	102,611	$	2,529,623
Interest rate gap	$	166,496	($	80,320	)	$	246,581	$	106,982	$	439,739
Cumulative interest rate gap at June 30, 2007	$	166,496	$	86,176		$	332,757	$	439,739
Cumulative gap ratio at June 30, 2007		1.14		1.05			1.14		1.17

Item 4. Controls and Procedures.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2007, pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures and internal control over financial reporting are, to the best of their knowledge, effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Our Chief Executive Officer and Chief Financial Officer have also concluded that there were no changes in our internal control over financial reporting or in other factors that occurred during the registrant’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

On June 1, 2007 we held our 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:

Name	Term	Shares Voted
		For	Withheld
H. Patrick Dee	3 years	18,661,819	269,190
Leonard J. DeLayo, Jr.	3 years	18,467,351	463,658
Kathleen L. Avila	3 years	18,772,203	158,806

As a result of the election of the above listed directors, our Board of Directors will consist of those directors and the following directors: Michael R. Stanford, Douglas M. Smith, M.D., Herman N. Wisenteiner, A.J. (Jim) Wells, Lowell A. Hare, Nedra Matteucci, and Daniel H. Lopez, PhD.

On June 29, 2007 Linda Childears was appointed to the Board of Directors, as reported in our Form 8-K filed on July 5, 2007. Ms. Childears will serve until 2008, at which time she will be subject to election by shareholders at the Company’s annual meeting.

2. Proposal to ratify the selection of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2007.

Votes: For 18,639,584; Against 281,683; Abstain 9,741.

Item 5. Other Information

None

Item 6. Exhibits.

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of May 22, 2002, by and among First State Bancorporation, First State Bank N.M. (formerly known as First State Bank of Taos), First Community Industrial Bank, Blazer Financial Corporation, and Washington Mutual Finance Corporation. (6)
2.2	Agreement and Plan of Merger, dated as of August 31, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc. and AccessBank. (9)
2.3	Agreement and Plan of Merger, dated as of September 2, 2005, by and among First State Bancorporation, New Mexico Financial Corporation, and Ranchers Banks. (10)
2.4	Amendment Number 1 to the Agreement and Plan of Merger, dated September 29, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc., and AccessBank. (11)
2.5	Agreement and Plan of Merger, dated as of October 4, 2006, by and among First State Bancorporation, MSUB, Inc., Front Range Capital Corporation, and Heritage Bank. (15)
2.6	Loan Purchase Agreement, dated July 27, 2007, by and between First Community Bank, successor by merger to Heritage Bank and CAPFINANCIAL CV2, LLC. (20)
3.1	Restated Articles of Incorporation of First State Bancorporation. (1)
3.2	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (14)
3.3	Amended Bylaws of First State Bancorporation. (7)
10.1	Executive Employment Agreement. (5)
10.2	First State Bancorporation 2003 Equity Incentive Plan. (4)
10.3	Deferred Compensation Agreement. (7) (Participation and contributions to this Plan have been frozen as of December 31, 2004.)
10.4	First Amendment to Executive Employment Agreement. (8)
10.5	Officer Employment Agreement. (8)
10.6	First Amendment to Officer Employment Agreement. (8)
10.7	First State Bancorporation Deferred Compensation Plan. (3)
10.8	First State Bancorporation Compensation and Bonus Philosophy and Plan. (17)
10.9	First Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (13)
10.10	Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (13)

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10.11	Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (2)
10.12	Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (12)
10.13	Third Amendment to First State Bancorporation 2003 Equity Incentive Plan. (14)
10.14	Compensation Committee Approval and Board Ratification of Certain Executive Salaries. (16)
10.15	Fourth Amendment to the First State Bancorporation 2003 Equity Incentive Plan. *
10.16	Second Amendment to Executive Employment Agreement (Stanford) (19)
10.17	Second Amendment to Executive Employment Agreement (Dee) (19)
10.18	Second Amendment to Executive Employment Agreement (Spencer) (19)
10.19	Second Amendment to Executive Employment Agreement (Martin) (19)
14	Code of Ethics for Executives. (7)
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. *
99.1	First State Bancorporation Compensation Committee Charter, as amended. (18)

(1) Incorporated by reference from First State Bancorporation’s Registration Statement on Form S-2, Commission File No. 333-24417, declared effective April 25, 1997.

(2) Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed June 2, 1997, SEC file No. 333-28217.

(3) Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2005.

(4) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed June 9, 2003.

(5) Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2001.

(6) Incorporated by reference from First State Bancorporation’s Form 8-K filed on May 31, 2002.

(7) Incorporated by reference from First State Bancorporation’s Form 10-Q for the quarter ended March 31, 2003.

(8) Incorporated by reference from First State Bancorporation’s Form 10-Q for the quarter ended March 31, 2005.

(9) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 2, 2005.

(10) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 6, 2005.

(11) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 30, 2005.

(12) Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed May 1, 2003, SEC file No. 333-104906.

(13) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended March 31, 2006.

(14) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2006.

(15) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed October 5, 2006.

(16) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed November 2, 2006.

(17) Incorporated by reference from First State Bancorporation’s Form 8-K filed on January 20, 2006.

(18) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended March 31, 2007.

(19) Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 27, 2007.

(20) Incorporated by reference to Exhibit 2.1 from First State Bancorporation’s Form 8-K filed on August 1, 2007.

 * Filed herewith.

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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 9, 2007	By:	/s/ Michael R. Stanford
		Michael R. Stanford, President & Chief Executive Officer

Date: August 9, 2007	By:	/s/ Christopher C. Spencer
		Christopher C. Spencer, Senior Vice President and Chief Financial Officer

- 25 -

EXHIBIT INDEX

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of May 22, 2002, by and among First State Bancorporation, First State Bank N.M. (formerly known as First State Bank of Taos), First Community Industrial Bank, Blazer Financial Corporation, and Washington Mutual Finance Corporation. (6)
2.2	Agreement and Plan of Merger, dated as of August 31, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc. and AccessBank. (9)
2.3	Agreement and Plan of Merger, dated as of September 2, 2005, by and among First State Bancorporation, New Mexico Financial Corporation, and Ranchers Banks. (10)
2.4	Amendment Number 1 to the Agreement and Plan of Merger, dated September 29, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc., and AccessBank. (11)
2.5	Agreement and Plan of Merger, dated as of October 4, 2006, by and among First State Bancorporation, MSUB, Inc., Front Range Capital Corporation, and Heritage Bank. (15)
2.6	Loan Purchase Agreement, dated July 27, 2007, by and between First Community Bank, successor by merger to Heritage Bank and CAPFINANCIAL CV2, LLC. (20)
3.1	Restated Articles of Incorporation of First State Bancorporation. (1)
3.2	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (14)
3.3	Amended Bylaws of First State Bancorporation. (7)
10.1	Executive Employment Agreement. (5)
10.2	First State Bancorporation 2003 Equity Incentive Plan. (4)
10.3	Deferred Compensation Agreement. (7) (Participation and contributions to this Plan have been frozen as of December 31, 2004.)
10.4	First Amendment to Executive Employment Agreement. (8)
10.5	Officer Employment Agreement. (8)
10.6	First Amendment to Officer Employment Agreement. (8)
10.7	First State Bancorporation Deferred Compensation Plan. (3)
10.8	First State Bancorporation Compensation and Bonus Philosophy and Plan. (17)
10.9	First Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (13)
10.10	Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (13)
10.11	Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (2)
10.12	Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (12)
10.13	Third Amendment to First State Bancorporation 2003 Equity Incentive Plan. (14)
10.14	Compensation Committee Approval and Board Ratification of Certain Executive Salaries. (16)
10.15	Fourth Amendment to First State Bancorporation 2003 Equity Incentive Plan. *
10.16	Second Amendment to Executive Employment Agreement (Stanford) (19)
10.17	Second Amendment to Executive Employment Agreement (Dee) (19)
10.18	Second Amendment to Executive Employment Agreement (Spencer) (19)
10.19	Second Amendment to Executive Employment Agreement (Martin) (19)
14	of Ethics for Executives. (7)
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. *
99.1	First State Bancorporation Compensation Committee Charter, as amended. (18)

(1) Incorporated by reference from First State Bancorporation’s Registration Statement on Form S-2, Commission File No. 333-24417, declared effective April 25, 1997.

(2) Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed June 2, 1997, SEC file No. 333-28217.

(3) Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2005.

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(4) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed June 9, 2003.

(5) Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2001.

(6) Incorporated by reference from First State Bancorporation’s Form 8-K filed on May 31, 2002.

(7) Incorporated by reference from First State Bancorporation’s Form 10-Q for the quarter ended March 31, 2003.

(8) Incorporated by reference from First State Bancorporation’s Form 10-Q for the quarter ended March 31, 2005.

(9) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 2, 2005.

(10) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 6, 2005.

(11) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 30, 2005.

(12) Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed May 1, 2003, SEC file No. 333-104906.

(13) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended March 31, 2006.

(14) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2006.

(15) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed October 5, 2006.

(16) Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed November 2, 2006.

(17) Incorporated by reference from First State Bancorporation’s Form 8-K filed on January 20, 2006.

(18) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended March 31, 2007.

(19) Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 27, 2007.

(20) Incorporated by reference to Exhibit 2.1 from First State Bancorporation’s Form 8-K filed on August 1, 2007.

 * Filed herewith.

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EX-10.15

Exhibit 10.15

Erratum – The attached third amendment to the First State Bancorporation 2003 Equity Incentive Plan should be the fourth amendment to the plan.

THIRD AMENDMENT TO THE

FIRST STATE BANCORPORATION 2003 EQUITY INCENTIVE PLAN

1. Recitals. Pursuant to its authority under Section 13.1 of the First State Bancorporation 2003 Equity Incentive Plan (the “Plan”), First State Bancorporation wishes to revise certain provisions of the Plan.

2. Amendment of Plan. The following amendment to the Plan is adopted, effective as provided in Paragraph 3 below:

A. Section 2.2 of the plan is amended in its entirety to read as follows:

“Award” shall mean the grant of Options, Restricted Stock, Stock Appreciation rights (“SARs) or other stock-based grant under the Plan. Unless otherwise specified in the applicable Option Agreement or Restricted Stock Award Agreement, any Award hereunder shall be granted on the date of a quarterly meeting of the Board of Directors.

B. Subsection 2.13(a) of the Plan is amended in its entirety to read as follows:

(a) Publicly Traded. If the Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, then the Fair Market Value per share shall be deemed to be closing sale price for the Stock or security in the over-the-counter market on the date of Award as reported by the National Association of Securities Dealers Automated Quotation System, or, if the price is not reported thereby, the closing bid on the date of Award, as reported by the National Quotations Bureau.

C. Section 2.31 of the Plan is amended in its entirety to read as follows:

“SAR” shall mean a stock appreciation right granted pursuant to Section 8 of the Plan.

3. Effective Date. This Third Amendment shall be effective as of March 1, 2007.

4. Terms and Conditions of Plan. Except for the amendment in paragraph 2, all terms and conditions of the Plan are unamended and shall remain in full force and effect.

[Next page is execution page.]

IN WITNESS WHEREOF, First State Bancorporation has caused this Third Amendment to be executed by its duly authorized officer as of the date set forth below.

FIRST STATE BANCORPORATION
By:	/s/ Leonard J. DeLayo, Jr.
Title:	Chairman, First State Bancorporation
Date:	January 23, 2007

EX-31.1

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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 9, 2007
	/s/ Michael R. Stanford
	Michael R. Stanford President and Chief Executive Officer

EX-31.2

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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 9, 2007
	/s/ Christopher C. Spencer
	Christopher C. Spencer Senior Vice President and Chief Financial Officer, and Principal Accounting Officer

EX-32.1

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, 2007 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. §1350, as adopted pursuant to §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 9, 2007

This certification accompanies the Report pursuant to § 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 § 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

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, 2007 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. §1350, as adopted pursuant to §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 9, 2007

This certification accompanies the Report pursuant to § 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 § 18 of the Securities Exchange Act of 1934, as amended.