10-Q

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 March 31, 2009.

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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	¨	Smaller reporting Company	¨

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: 20,563,478 shares of common stock, no par value, outstanding as of May 5, 2009.

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	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	24
	PART II. - OTHER INFORMATION
Item 5.	Other Information	25
Item 6.	Exhibits	25
SIGNATURES		27

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PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements.

First State Bancorporation and Subsidiary

Consolidated Condensed Balance Sheets

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

	(unaudited) March 31, 2009			December 31, 2008
Assets
Cash and due from banks	$	68,052		$	64,891
Interest-bearing deposits with other banks		181,021			1,593
Federal funds sold		427			96
Total cash and cash equivalents		249,500			66,580
Investment securities:
Available for sale (at fair value, amortized cost of $400,029 at March 31, 2009, and $387,713 at December 31, 2008)		405,790			393,488
Held to maturity (at amortized cost, fair value of $68,793 at March 31, 2009, and $61,700 at December 31, 2008)		69,875			63,183
Non-marketable securities, at cost		30,661			32,325
Total investment securities		506,326			488,996
Mortgage loans held for sale		22,531			16,664
Other loans held for sale		406,634			—
Loans held for investment, net of unearned interest		2,274,883			2,737,925
Less allowance for loan losses		(91,277	)		(79,707	)
Net loans		2,612,771			2,674,882
Premises and equipment (net of accumulated depreciation of $26,142 at March 31, 2009 and $31,965 at December 31, 2008)		38,488			59,669
Premises and equipment held for sale, net		19,063			—
Accrued interest receivable		11,473			12,437
Other real estate owned		17,754			18,894
Intangible assets (net of accumulated amortization of $7,204 at March 31, 2009, and $6,603 at December 31, 2008)		14,927			15,529
Cash surrender value of bank-owned life insurance		45,758			45,304
Net deferred tax asset		6,260			6,260
Other assets, net		27,505			26,498
Total assets	$	3,549,825		$	3,415,049
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing	$	411,446		$	453,319
Non-interest-bearing held for sale		85,780			—
Interest-bearing		1,835,700			2,069,223
Interest bearing held for sale		394,243			—
Total deposits		2,727,169			2,522,542
Securities sold under agreements to repurchase		60,561			112,276
Securities sold under agreements to repurchase held for sale		3,129			—
Federal Home Loan Bank advances		498,971			497,594
Junior subordinated debentures		98,429			98,466
Other liabilities		26,265			24,917
Total liabilities		3,414,524			3,255,795
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 22,254,321 at March 31, 2009 and 22,025,214 at December 31, 2008; outstanding 20,532,979 at March 31, 2009 and 20,303,872 at December 31, 2008		223,349			222,921
Treasury stock, at cost (1,721,342 shares at March 31, 2009 and December 31, 2008)		(25,027	)		(25,027	)
Retained deficit		(66,593	)		(42,220	)
Accumulated other comprehensive income:
Unrealized gain on investment securities, net of tax		3,572			3,580
Total stockholders’ equity		135,301			159,254
Total liabilities and stockholders’ equity	$	3,549,825		$	3,415,049

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 months ended March 31, 2009 and 2008

(unaudited)

(Dollars in thousands, except per share amounts)

	Three Months ended March 31, 2009			Three Months ended March 31, 2008
Interest income:
Interest and fees on loans	$	35,910		$	47,194
Interest on marketable securities:
Taxable		4,142			4,806
Non-taxable		1,140			894
Federal funds sold		12			38
Interest-bearing deposits with other banks		26			37
Total interest income		41,230			52,969
Interest expense:
Deposits		11,944			17,025
Short-term borrowings		924			2,917
Long-term debt		1,089			167
Junior subordinated debentures		921			1,455
Total interest expense		14,878			21,564
Net interest income		26,352			31,405
Provision for loan losses		(33,300	)		(3,900	)
Net interest income (loss) after provision for loan losses		(6,948	)		27,505
Non-interest income:
Service charges		3,763			2,992
Credit and debit card transaction fees		952			937
Gain (loss) on investment securities		2,754			(236	)
Gain on sale of loans		1,365			1,247
Other		800			1,272
Total non-interest income		9,634			6,212
Non-interest expense:
Salaries and employee benefits		11,522			13,517
Occupancy		3,818			4,025
Data processing		1,477			1,549
Equipment		1,915			2,144
Legal, accounting, and consulting		1,354			576
Marketing		659			747
Telephone		371			493
Other real estate owned		960			502
FDIC insurance premiums		1,486			465
Amortization of intangibles		602			640
Other		2,895			3,103
Total non-interest expense		27,059			27,761
Income (loss) before income taxes		(24,373	)		5,956
Income tax expense		—			2,031
Net income (loss)	$	(24,373	)	$	3,925
Earnings (loss) per share:
Basic earnings (loss) per share	$	(1.19	)	$	0.19
Diluted earnings (loss) per share	$	(1.19	)	$	0.19
Dividends per common share	$	—		$	0.09

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Comprehensive Income (Loss)

For the three months ended March 31, 2009 and 2008

(unaudited)

(Dollars in thousands)

	Three months ended March 31, 2009			Three months ended March 31, 2008
Net (loss) income	$	(24,373	)	$	3,925
Other comprehensive income, net of tax—unrealized holding gains on securities available for sale arising during period		1,699			2,522
Reclassification adjustment for (gains) losses included in net income		(1,707	)		153
Total comprehensive (loss) income	$	(24,381	)	$	6,600

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 three months ended March 31, 2009 and 2008

(unaudited)

(Dollars in thousands)

	Three Months ended March 31, 2009			Three Months ended March 31, 2008
Cash flows from operating activities:
Net (loss) income	$	(24,373	)	$	3,925
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for loan losses		33,300			3,900
Provision for decline in value of other real estate owned		369			151
Net loss (gain) on sale of other real estate owned		94			(28	)
Depreciation and amortization		2,068			2,309
Share-based compensation expense		129			191
(Gain) loss on sale of investment securities available for sale		(2,754	)		236
Loss (gain) on disposal of premises and equipment		43			(13	)
Gain on sale of mortgage loans		(1,365	)		(1,247	)
Increase in bank-owned life insurance cash surrender value		(454	)		(457	)
Amortization of securities, net		2			(533	)
Amortization of core deposit intangible		602			640
Mortgage loans originated for sale		(107,762	)		(83,562	)
Proceeds from sale of mortgage loans held for sale		103,260			84,498
Deferred income taxes		—			(813	)
Decrease in accrued interest receivable		964			1,419
(Increase) decrease in other assets, net		(786	)		3,641
Increase in other liabilities, net		1,318			2,191
Net cash provided by operating activities		4,655			16,448
Cash flows from investing activities:
Net decrease (increase) in loans		31,691			(70,216	)
Purchases of investment securities carried at amortized cost		(8,700	)		(53,550	)
Maturities of investment securities carried at amortized cost		1,985			91,650
Purchases of investment securities carried at market		(106,094	)		(96,448	)
Maturities of investment securities carried at market		31,275			86,504
Sale of investment securities available for sale		65,279			—
Purchases of non-marketable securities carried at cost		(31	)		(913	)
Redemption of non-marketable securities carried at cost		1,695			—
Purchases of premises and equipment		(250	)		(570	)
Net proceeds from other real estate owned		3,694			1,862
Proceeds from the sale of fixed assets		4			13
Net cash provided by (used by) investing activities		20,548			(41,668	)
Cash flows from financing activities:
Net increase in interest-bearing deposits		160,720			24,886
Net increase (decrease) in non-interest-bearing deposits		43,907			(18,972	)
Net decrease in securities sold under agreements to repurchase		(48,586	)		(25,927	)
Proceeds from Federal Home Loan Bank advances		400,000			240,000
Payments on Federal Home Loan Bank advances		(398,623	)		(191,588	)
Proceeds from common stock issued		299			306
Dividends paid		—			(1,812	)
Treasury stock		—			(3	)
Net cash provided by financing activities		157,717			26,890
Increase in cash and cash equivalents		182,920			1,670
Cash and cash equivalent at beginning of period		66,580			84,709
Cash and cash equivalents at end of period	$	249,500		$	86,379

(Continued)

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Cash Flows

For the three months ended March 31, 2009 and 2008

(unaudited)

(Dollars in thousands)

(continued)

	Three Months ended March 31, 2009		Three Months ended March 31, 2008
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans	$	3,752	$	429
Additions to loans for sale of other real estate owned	$	728	$	—
Transfer of loans held for investment to loans held for sale	$	406,634	$	—
Transfer of loans held for sale to loans held for investment	$	—	$	338
Transfer of premises and equipment to premises and equipment held for sale	$	19,063	$	—
Transfer of fixed assets to other assets	$	477	$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	13,802	$	21,088
Cash received for income taxes	$	—	$	2,121

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,” “First State,” “we,” “our,” or similar terms) 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, 2008.

Our consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

The Company’s Board of Directors meets quarterly and provides broad oversight to the Company’s business. Direct oversight of the Bank’s business, including development of strategic direction, policies, and other matters, is provided by its Board of Directors. The Bank board is composed entirely of internal management, with Michael R. Stanford, the Company’s President and Chief Executive Officer filling the positions of Chairman and Chief Executive Officer at the Bank.

In preparing the consolidated condensed financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. These estimates and assumptions are subject to a greater degree of uncertainty as a result of current economic conditions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses including the assessment of the underlying collateral values, the valuation of real estate acquired in satisfaction of loans, the assessment of impairment of intangible assets, and the valuation of deferred tax assets. In connection with the determination of the allowance for loan losses and real estate owned, management obtains independent appraisals for significant properties.

Management believes that the estimates and assumptions it uses to prepare the consolidated financial statements, including those related to the allowance for losses on loans, the valuation of real estate owned, and valuation of deferred tax assets are adequate. However, further deterioration of the loan portfolio and or changes in economic conditions would require future additions to the allowance and future adjustments to the valuation of real estate owned. Further, regulatory agencies, as an integral part of their examination process, periodically review the allowance for losses on loans and real estate owned, and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations. In addition, current uncertain and volatile economic conditions will likely affect our future business results.

The Company’s results of operations depend on establishing underwriting criteria to minimize loan losses and generating net interest income. The components of net interest income, interest income, and interest expense are affected by general economic conditions and by competition in the marketplace.

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Liquidity

The Company’s primary sources of funds are customer and brokered deposits, loan repayments, maturities of and cash flow from investment securities, and borrowings. Borrowings may include federal funds purchased, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank, the Federal Reserve Bank discount window, the Term Auction Facility (“TAF”) from the Federal Reserve Bank, and any other borrowing arrangement that the Company is eligible to participate in. Investment securities may be used as a source of liquidity either through sale of investment securities available for sale or pledging for qualified deposits, as collateral for Federal Home Loan Bank (“FHLB”) or Federal Reserve Bank borrowings, or as collateral for other liquidity sources.

In March 2009, the FHLB, which is a significant component of the Bank’s overall liquidity structure, replaced the Bank’s blanket lien with a custody arrangement, whereby the FHLB has custody and endorsement of the loans that collateralize the FHLB borrowings. Management is in the process of delivering loans to be held as collateral for the outstanding borrowings with FHLB under the custody arrangement. Management expects to deliver commercial real estate and one to four family real estate loan collateral with approximately $900 million in par value as collateral to the FHLB. While management believes these loans will be sufficient to fully secure existing borrowings, the FHLB determines the collateral values and therefore there is no assurance that the FHLB will not require additional collateral or repayment of existing borrowings. Based on the Bank’s current status with the FHLB, the Bank does not have the ability to draw down additional advances. Based on the Bank’s agreement with the FHLB and the FHLB’s credit policy, as the existing borrowings mature, they will be allowed to continuously renew for like amounts, but for terms not to exceed thirty days.

Under the terms of the Bank’s agreement with the FHLB, the FHLB may at its own option call the outstanding debt due and payable if any of the following have occurred: the Bank has suspended payment to any creditor or there has been an acceleration of the maturity of any indebtedness of the Bank to others; the FHLB reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Bank; or the FHLB reasonably and in good faith deems itself insecure in the collateral even though the Bank is not otherwise in default. The Bank has not received any notice from the FHLB regarding a call of its outstanding debt.

Management is currently working to establish additional borrowing capacity with the Federal Reserve discount window which we anticipate will provide additional liquidity in the form of additional borrowing capacity of approximately $100 million, subject to a subordination agreement with the FHLB.

The Company’s wholesale funding sources include FHLB borrowings, securities sold under agreements to repurchase, non Certificate of Deposit Account Registry Service (“CDARS”) reciprocal brokered deposits, and subordinate debentures. These wholesale funding sources totaled $898.4 million, $899.9 million, and $589.9 million at March 31, 2009, December 31, 2008, and March 31, 2008, respectively. The increase from March 31, 2008 is primarily due to FHLB advances which increased by $247.6 million and non CDARS reciprocal brokered deposits which increased by $184.7 million, partially offset by a reduction in securities sold under agreements to repurchase of $123.7 million. As the Bank’s FHLB borrowings increased, management expanded the utilization of other wholesale funding sources which resulted in the increase of non CDARS reciprocal brokered deposits. Non CDARS reciprocal brokered deposits at March 31, 2009 increased by $45.7 million compared to December 31, 2008 and securities sold under agreements to repurchase decreased by $48.6 million.

CDARS reciprocal deposits, which are not included in the wholesale funding discussion above, increased to $210.9 million from $64.3 million at March 31, 2008, primarily due to current events surrounding the financial services industry and the additional FDIC insurance available by reciprocating these deposits. Although the CDARS reciprocal deposits are considered brokered deposits for regulatory reporting purposes, the Bank considers them to be part of its core funding as these deposits represent customer funds that are usually in excess of the FDIC insurance limit of $250,000, thereby maximizing FDIC insurance through the use of the CDARS network. CDARS reciprocal deposits totaled $212.2 million at December 31, 2008.

During the first quarter of 2009, management began taking steps to lengthen the maturities of the Company’s wholesale funding sources and, to the extent possible, evaluating other liquidity sources available to diversify the Company’s liquidity exposure. Management secured additional funding from the FHLB for terms ranging between

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six months and three years to stabilize the Company’s short term liquidity position. In addition, the Company lengthened the average maturities of non CDARS reciprocal brokered deposits into the fifteen month to eighteen month time horizon. Our interest-bearing deposits with other banks totaled $181.0 million at March 31, 2009. The cash is being kept on hand, rather than used to reduce FHLB borrowings, to strengthen our liquidity position. The additional liquidity that has been brought into the Bank along with our loan repayments and core deposit growth, if any, during the year will be used to support operations.

At March 31, 2009, the Company and the Bank were considered “adequately capitalized” under regulatory guidelines, subjecting both entities to prompt supervisory and regulatory actions pursuant to the FDIC Improvement Act of 1991, and prohibiting us from accepting, renewing, or rolling over brokered deposits except with a waiver from the FDIC, which the Bank is currently pursuing, and subjecting the Bank to restrictions on the interest rates that can be paid on deposits.

In the event that our deposit generation is negatively impacted by the recent drop to “adequately capitalized” management believes that sufficient cash and liquid assets are on hand to maintain operations and meet all obligations as they come due. From a liquidity standpoint, the most significant ramification of the drop in capitalized category relates to our inability to rollover or renew existing brokered deposits, including CDARS reciprocal deposits, that mature or come up for renewal while the Bank is considered adequately capitalized, without a waiver from the FDIC.

Management currently anticipates that our cash and cash equivalents, expected cash flows from operations, and borrowing capacity will be sufficient to meet our anticipated cash requirements for working capital, loan originations, capital expenditures, and other obligations for at least the next twelve months.

2. New Accounting Standards

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1. This FSP amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” and FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” Management did not early adopt and does not expect the adoption of FSP FAS 107-1 and APB 28-1 to have any impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with SFAS 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly and reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 is effective for interim reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009, but only if the entity early adopts FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” Management did not early adopt and does not expect the adoption of FSP FAS 157-4 to have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP modifies the requirements for recognizing other-than-temporarily impaired debt securities and significantly changes the existing impairment model for such securities. The current “intent and ability” indicator has been modified and other factors have been incorporated to determine whether a debt security is other-than-temporarily impaired. The FSP also changes the trigger used to assess the collectability of cash flows from “probable that the investor will be unable to collect all amounts due” to “the entity does not expect to recover the entire amortized cost basis of the security.” Disclosures about other-than-temporarily impaired debt and equity securities have been expanded and are required for interim and annual reporting periods. FSP FAS 115-2 and FAS

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124-2 is effective for interim and annual reporting periods ending after June 15, 2009. Early adoption is permitted for periods ending after March 15, 2009, but only if the entity early adopts FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly.” Management did not early adopt and does not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a material impact on the Company’s consolidated financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue 99-20”. FSP EITF 99-20-1 amends the impairment guidance in EITF Issue 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. This FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and is applied prospectively. Retrospective application is not permitted. The adoption of FSP EITF 99-20-1 did not have a material impact on the Company’s consolidated financial statements.

3. Colorado Branch Sale

On March 10, 2009, the Bank entered into a definitive agreement to sell its twenty full service branches in Colorado. The sale of the branches, which is subject to regulatory approval, is expected to close late in the second quarter of 2009. After the write-off of the associated core deposit intangible of $8.7 million, and transaction costs, the transaction is expected to generate a pre-tax gain of approximately $21 million. The aggregate carrying amount at March 31, 2009, of the loans to be transferred was $406.6 million, consisting of $415.1 million in total loans, offset by the associated allowance for loan losses of approximately $8.5 million. The aggregate carrying amounts of the deposits, securities sold under agreements to repurchase, and premises and equipment to be transferred were $480 million, $3.1 million, and $19.1 million, respectively. The loans, deposits, securities sold under agreements to repurchase, and premises and equipment have been classified as held for sale on the consolidated balance sheet. At March 31, 2009, the weighted average interest rates on the loans and deposits, including securities sold under agreements to repurchase, to be transferred were approximately 5.98% and 1.92%, respectively. While management believes that the sale of the Colorado branches will close, the definitive agreement provides the purchaser with walk-away provisions in the event of a material adverse change, including a decline in deposits below $430 million. The Company expects to incur associated costs of approximately $1.3 million, approximately $400,000 of which was incurred in the three months ended March 31, 2009.

4. Earnings (Loss) per Common Share

Basic earnings (loss) 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 (loss) per share are calculated by increasing the basic earnings (loss) per share denominator by the number of additional common shares that would have been outstanding if dilutive potential common shares for options had been issued.

The following is a reconciliation of the numerators and denominators of basic and diluted earnings (loss) per share for the three months ended March 31:

	Three Months Ended March 31,
	2009							2008
	Income (Numerator)			Shares (Denominator)	Per Share Amount			Income (Numerator)		Shares (Denominator)	Per Share Amount
	(Dollars in thousands, except share and per share amounts)
Basic EPS:
Net income (loss)	$	(24,373	)	20,468,411	$	(1.19	)	$	3,925	20,135,032	$	0.19
Effect of dilutive securities
Options		—		—					—	22,707
Diluted EPS:
Net income (loss)	$	(24,373	)	20,468,411	$	(1.19	)	$	3,925	20,157,739	$	0.19

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Due to the net loss for the three-month period ended March 31, 2009, 1,556,345 weighted average stock options outstanding were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the three-month period ended March 31, 2008, approximately 1,219,930 weighted average stock options outstanding 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.

5. Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment, other real estate owned, and certain other assets. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

SFAS 159 provides a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 permits the fair value option election on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company did not elect to apply the fair value option to any financial assets or liabilities, except as already applicable under other accounting standards.

SFAS 157 defines fair value, establishes a framework for measuring fair value and expands the disclosures about fair value measurements. Under SFAS 157, the Company groups its assets and liabilities at fair values in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the fair value of the asset or liability is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company used the following methods and significant assumptions to estimate fair value.

Securities available for sale – Securities available for sale are recorded at fair value on a recurring basis. For these securities, the Company obtains fair value measurements from Interactive Data Corporation (“IDC”), an independent pricing service. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are based on pricing models that vary by asset class and incorporate available trade, bid, and other market information. Because many fixed income securities do not trade on a daily basis, the pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Models are used to assess interest rate impact and develop prepayment scenarios. Relevant credit information, perceived market movements, and sector news are integrated into the pricing applications and models. Securities that are priced using these types of inputs are classified within Level 2 of the valuation hierarchy. Pricing as received from IDC is reviewed for reasonableness each quarter. In addition, the Company obtains pricing on select securities from Bloomberg and compares this pricing to the pricing obtained from IDC. No significant differences have been found.

Impaired loans – Impaired loans are reported at the present value of the estimated cash flow of expected repayments discounted using the loan’s contractual interest rate or at the fair value of the underlying collateral less estimated selling costs when it is determined that the source of repayment is dependent on the underlying collateral. Collateral values are estimated using independent appraisals or internally developed estimates based on the nature of the collateral and considering similar assets or other available information. The independent appraisals are considered Level 2 inputs as these appraisals generally utilize observable sales transactions for comparable properties. Internally developed estimates are considered Level 3 inputs.

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Loans held for sale – These loans are reported at the lower of cost or fair value. Fair value is determined based on expected proceeds based on sales contracts and commitments. At March 31, 2009, all of the Company’s loans held for sale are carried at cost, as generally, cost is less than the price at which we commit to sell the loan to the permanent investor.

Other real estate owned – These assets are reported at the lower of the investment in the related loan or the estimated fair value of the assets received. Fair value of the assets received is determined based on current market information, including independent appraisals minus estimated costs of disposition. Independent appraisals are considered Level 2 inputs, as these appraisals generally utilize observable sales transactions for comparable properties.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial Assets	Balance as of March 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Securities available for sale	$	405,790	$	5	$	405,785	$	—

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios. The valuation methodologies used to measure these fair value adjustments are described previously in this note.

	Carrying value at March 31, 2009									Period ended March 31, 2009
	(Dollars in thousands)
	Total			Level 1		Level 2		Level 3		Total Losses
Impaired loans	$	33,147	(1)	$	—	$	31,056	$	2,091	$	13,583	(2)
Other real estate owned		17,754	(3)		—		17,754		—		369	(4)
										$	13,952

(1) Represents the carrying value of loans for which a specific reserve was recorded based on the estimated value of the collateral.

(2) Represents the write-downs of loans during the period based on the estimated value of the collateral.

(3) Represents the fair value of other real estate owned that is measured at fair value less costs to sell.

(4) Represents write-downs during the period of other real estate owned subsequent to the initial classification as a foreclosed asset.

6. Guarantees and Commitments

In the normal course of business, various commitments and contingent liabilities are outstanding, such as standby letters of credit and commitments to extend credit. These financial instruments with off-balance sheet risk are not reflected in the consolidated financial statements.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to extend credit amounting to $318.8 million were outstanding at March 31, 2009.

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Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Standby letters of credit amounting to $46.5 million were outstanding at March 31, 2009.

The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

7. Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

On September 26, 2008, the Company and the Bank voluntarily entered into an Informal Agreement with the Regulators, the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions Division. Under the terms of the Informal Agreement, the Company and or the Bank agreed, among other things, to formulate a written plan to maintain a sufficient capital position at the Bank and at the Company, including attaining a tier 1 leverage ratio of 9% and a total risk-based capital ratio of 12% at the Bank level, with no date specified for achieving those levels. In addition, the Company and the Bank have agreed to maintain an adequate allowance for loan and lease losses; not to pay any dividends; not to distribute any interest, principal or other sums on trust preferred securities; not to issue or guarantee any debt or trust preferred securities; and not to purchase or redeem any shares of the Company’s stock. This Informal Agreement can be terminated by a joint decision between the Regulators if they conclude such action is warranted. Although management believes that the Company and the Bank are in substantial compliance with the terms of the Informal Agreement, there can be no assurance that the Company and the Bank will remain in substantial compliance, or that there will not be further action by the Regulators. At March 31, 2009, the Company and the Bank were considered “adequately capitalized” under regulatory guidelines, subjecting the Company and the Bank to prompt supervisory and regulatory actions pursuant to the FDIC Improvement Act of 1991, prohibiting the Bank from accepting, renewing, or rolling over brokered deposits except with a waiver from the FDIC, and subjecting the Bank to restrictions on the interest rates that can be paid on deposits. Under certain circumstances, a well capitalized or adequately capitalized institution may be treated as if the institution is in the next lower capital category. Depending on the level of capital, the Regulators and or the FDIC can institute other corrective measures to require additional capital and have broad enforcement powers to impose substantial fines and other penalties for violation of laws and regulations.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital (as defined in regulations and set forth in the following table) to risk-weighted assets, and of Tier I capital to average total assets (leverage ratio). The regulatory capital calculation limits the amount of allowance for loan losses that is included in capital to 1.25 percent of risk-weighted assets. At March 31, 2009, the Company and the Bank had approximately $55 million of allowance for loan losses which was excluded from regulatory capital.

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As of March 31, 2009	Actual				For capital adequacy purposes				To be considered well capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Total capital to risk-weighted assets:
Consolidated	$	253,920	8.9	%	$	228,229	8.0	%	$	285,287	10.0	%
Bank subsidiary		257,046	9.0	%		227,918	8.0	%		284,897	10.0	%
Tier I capital to risk-weighted assets:
Consolidated		166,283	5.8	%		114,115	4.0	%		171,172	6.0	%
Bank subsidiary		220,747	7.8	%		113,959	4.0	%		170,938	6.0	%
Tier I capital to average total assets:
Consolidated		166,283	4.9	%		136,383	4.0	%		170,479	5.0	%
Bank subsidiary		220,747	6.5	%		136,221	4.0	%		170,276	5.0	%

8. Federal Home Loan Bank Advances

First Community Bank has FHLB advances as follows:

	As of March 31, 2009		As of December 31, 2008
	(Dollars in thousands)
$198 million note payable to FHLB, interest at 0.05%, due on January 2, 2009	$	—	$	198,000
$200 million note payable to FHLB, interest at 0.50%, due on January 2, 2009		—		200,000
$30 million note payable to FHLB, interest only at 2.42% payable monthly, due on April 2, 2009		30,000		30,000
$30 million note payable to FHLB, interest only at 2.66%, payable monthly, due on October 2, 2009		30,000		30,000
$30 million note payable to FHLB, interest only at 2.73%, payable monthly, due on April 12, 2010		30,000		30,000
$75 million note payable to FHLB, interest only at 1.85% payable monthly, due on January 29, 2010		75,000		—
$75 million note payable to FHLB, interest only at 1.00% payable monthly, due on July 30, 2009		75,000		—
$25 million note payable to FHLB, interest only at 2.07% payable monthly, due on July 30, 2010		25,000		—
$25 million note payable to FHLB, interest only at 2.34% payable monthly, due on January 31, 2011		25,000		—
$50 million note payable to FHLB, interest only at 2.48% payable monthly, due on February 28, 2011		50,000		—
$75 million note payable to FHLB, interest only at 2.66% payable monthly, due on August 29, 2011		75,000		—
$75 million note payable to FHLB, interest only at 2.27% payable monthly, due on September 20, 2010		75,000		—
$7.5 million note payable to FHLB, interest at 5.75%, payable in monthly principal and interest installments of approximately $144,000 through August 1, 2011		3,894		4,266
$7.5 million note payable to FHLB, interest at 5.78%, payable in monthly principal and interest installments of approximately $109,000 through August 1, 2013		5,077		5,328
Total	$	498,971	$	497,594

As of March 31, 2009, the contractual maturities of FHLB advances are as follows:

	(Dollars in thousands)
2009	$	136,925
2010		207,698
2011		152,278
2012		1,218
2013		852
Total	$	498,971

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9. Income Taxes

There was no income tax expense for the three months ended March 31, 2009, as the net operating loss and other net deferred tax assets were fully offset by a deferred tax asset valuation allowance. SFAS 109 requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if based on the available evidence, it is more likely than not that such assets will be not be realized. A valuation allowance of $29.0 million was established at December 31, 2008. The valuation allowance at March 31, 2009 was $35.9 million.

10. Allowance for Loan Losses

The following is a summary of changes to the allowance for loan losses.

ALLOWANCE FOR LOAN LOSSES:	Three months ended March 31, 2009			Year ended December 31, 2008			Three months ended March 31, 2008
	(Dollars in thousands)
Balance beginning of period	$	79,707		$	31,712		$	31,712
Allowance related to other loans held for sale		(8,469	)		—			—
Provision charged to operations		33,300			71,618			3,900
Loans charged-off		(14,303	)		(25,587	)		(1,809	)
Recoveries		1,042			1,964			693
Balance end of period	$	91,277		$	79,707		$	34,496

The increase in the level of provision for loan losses is due to increased non-performing assets, net charge-offs, and growth of the loan portfolio. The recorded investment in non-accrual loans was approximately $163.6 million, $114.1 million and $49.7 million at March 31, 2009, December 31, 2008, and March 31, 2008, respectively.

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”). These statements are based on management’s current expectations or predictions of future results or events. We make these forward-looking statements in reliance on the safe harbor provisions provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical fact, included in this Form 10-Q which relate to performance, development or activities that we expect or anticipate will or may happen in the future, are forward looking statements. The discussions regarding our growth strategy, expansion of operations in our markets, acquisitions, dispositions, competition, loan and deposit growth, timing of new branch openings, capital expectations, and response to consolidation in the banking industry include forward-looking statements. Other forward-looking statements may be identified by the use of forward-looking words such as “believe,” “expect,” “may,” “might,” “will,” “should,” “seek,” “could,” “approximately,” “intend,” “plan,” “estimate,” or “anticipate” or the negative of those words or other similar expressions.

Forward-looking statements involve inherent risks and uncertainties and are based on numerous assumptions. They are not guarantees of future performance. 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, 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. Forward-looking statements contained herein are made only as of the date made, and we do not undertake any obligation to update them to reflect events or circumstances after the date of this report to reflect the occurrence of unanticipated events.

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Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. These factors are included in our Form 10K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission.

Consolidated Condensed Balance Sheets

Our total assets increased by $135 million from $3.415 billion as of December 31, 2008 to $3.550 billion as of March 31, 2009. The increase in total assets is primarily due to a $179.4 million increase in interest-bearing deposits with other banks, partially offset by a $62 million decrease in net loans. The increase in interest-bearing cash is a result of an increase in deposits, including a $45.7 million increase in brokered deposits. Money market savings accounts and non-interest bearing demand accounts increased by $91 million and $43.9 million, respectively, but were partially offset by the decrease in securities sold under agreements to repurchase of $48.6 million. Although we experienced a significant increase in total deposits, FHLB advances were maintained at a level consistent with December 31, 2008, to strengthen our liquidity position by keeping cash on hand. Also, see “Liquidity” below.

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

	March 31, 2009				December 31, 2008				March 31, 2008
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Commercial	$	342,963	12.7	%	$	356,769	13.0	%	$	354,723	13.6	%
Real estate – commercial		1,146,975	42.5	%		1,172,952	42.6	%		963,664	36.9	%
Real estate – one- to four-family		270,114	10.0	%		270,613	9.8	%		242,302	9.3	%
Real estate – construction		882,733	32.6	%		896,117	32.5	%		982,847	37.6	%
Consumer and other		38,732	1.4	%		41,474	1.5	%		45,905	1.8	%
Mortgage loans available for sale		22,531	0.8	%		16,664	0.6	%		20,751	0.8	%
Total	$	2,704,048	100.0	%	$	2,754,589	100.0	%	$	2,610,192	100.0	%

Of the $2.7 billion in total loans, $406.6 million are held for sale as they are included in the anticipated sale of our Colorado branches.

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

	March 31, 2009				December 31, 2008				March 31, 2008
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Non-interest-bearing	$	497,226	18.2	%	$	453,319	18.0	%	$	466,447	18.1	%
Interest-bearing demand		302,056	11.1	%		296,732	11.8	%		331,072	12.8	%
Money market savings accounts		562,060	20.6	%		471,011	18.6	%		471,704	18.3	%
Regular savings		103,952	3.8	%		100,691	4.0	%		109,610	4.3	%
Certificates of deposit less than $100,000		328,136	12.0	%		325,110	12.9	%		372,136	14.4	%
Certificates of deposit greater than $100,000		485,527	17.9	%		471,826	18.7	%		712,726	27.6	%
CDARS Reciprocal deposits		210,920	7.7	%		212,249	8.4	%		64,307	2.5	%
Brokered deposits		237,292	8.7	%		191,604	7.6	%		52,599	2.0	%
Total	$	2,727,169	100.0	%	$	2,522,542	100.0	%	$	2,580,601	100.0	%

Of the $2.7 billion in total deposits, $85.8 million of non-interest bearing deposits and $394.2 million of interest-bearing deposits are held for sale as they are included in the anticipated sale of our Colorado branches.

Consolidated Results of Operations For the Three Months Ended March 31, 2009

Our net loss for the three months ended March 31, 2009 was $24.4 million, or $(1.19) per diluted share, compared to net income of $3.9 million or $0.19 per diluted share for the same period in 2008. The net loss for the three months ended March 31, 2009 resulted primarily from the level of provision for loans losses due to increased non-performing assets and charge-offs.

Our net interest income decreased approximately $5.0 million to $26.4 million for the three months ended March 31, 2009, compared to $31.4 million for the same period in 2008. This decrease was composed of an $11.7 million decrease in total interest income, partially offset by a $6.7 million decrease in total interest expense.

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The decrease in total interest income was composed of a decrease of $15.1 million due to a 1.83% decrease in the yield on average interest-earning assets, partially offset by an increase of $3.4 million due to increased average interest earning assets of $199.1 million. The increase in average earning assets occurred primarily in loans, due to the organic growth that occurred from March 31, 2008 to March 31, 2009.

The decrease in total interest expense was composed of a decrease of $10.0 million due to a 1.16% decrease in the cost of interest-bearing liabilities, partially offset by an increase of $3.3 million due to increased average interest-bearing liabilities of $174.9 million. The increase in average interest-bearing liabilities was primarily due to an increase in average interest-bearing deposits of $38.4 million, an increase in average short-term borrowings of $67.9 million, and an increase in long-term debt of $149.0 million, partially offset by a decrease in federal funds purchased and securities sold under agreement to repurchase of $80.2 million. Average short-term and long-term borrowings increased as the overall growth in our loan portfolio from March 31, 2008 to March 31, 2009 exceeded our ability to generate deposits. The decrease in average federal funds purchased and securities sold under agreements to repurchase was primarily due to a general decrease in securities sold under agreements to repurchase, caused primarily by a shift in depositors’ funds into higher rate deposit products including money market savings accounts, interest-bearing demand accounts, and certificates of deposit.

Our net interest margin was 3.27% and 4.12% for the first quarter of 2009 and 2008, respectively. The decrease in the net interest margin is primarily due to the decrease in the federal funds target rate that began in September 2007 and continued through December 2008. The Federal Reserve Bank has lowered the federal funds target rate by 500 basis points since September 2007, leading to an equal decrease in the prime lending rate. A significant portion of our loan portfolio is tied directly to the prime lending rate and adjusts daily when there is a change in the prime lending rate. The rates paid on customer deposits are influenced more by competition in our markets and tend to lag behind Federal Reserve Bank action in both timing and magnitude, particularly in this very low rate environment. In conjunction with the Federal Reserve Bank’s lower target rates, we have lowered selected deposit rates, but remain competitive in the markets we serve. Our asset sensitivity combined with the fact that deposit repricing is slow and minimal because of the low rate environment has had a negative impact on the margin. The increase in the level of non-accrual loans has also negatively impacted the net interest margin. Over the last year, and due to overall market conditions, our overall balance sheet mix has changed. We are currently targeting a loan to deposit ratio below 100%, but due to the strong loan growth in the first half of 2008, combined with a difficult deposit generating environment, the total amount of loans that exceed our deposits has grown, requiring us to utilize additional funding sources beginning in the second half of 2008. These circumstances have resulted in an increase in average borrowings of approximately $217 million since March 31, 2008, and contributed to the compression in our net interest margin. Although our borrowing rates have decreased, our core deposits, including non-interest bearing accounts provide for a lower overall funding source. In addition, in the first quarter of 2009, in order to strengthen our liquidity position, we issued additional brokered deposits and borrowed additional funds from the FHLB, resulting in an increase in lower yielding cash on the balance sheet. We have also lengthened the maturities of our newly issued brokered deposits and FHLB borrowings over the next two to three years to further strengthen our liquidity position. Although these activities may cause further margin compression, we believe that the improvement in our current liquidity position clearly outweighs the potential margin compression that could occur over the next few quarters. The extent of future changes in our net interest margin will depend on the amount and timing of any Federal Reserve rate changes, our overall liquidity position, our non-performing asset levels, our ability to manage the cost of interest-bearing liabilities, and our ability to stay competitive in the markets we serve.

Given current economic conditions and trends, we may continue to experience asset quality deterioration and higher levels of nonperforming loans in the near-term, as well as continued compression in our net interest margin, which would result in continued negative earnings and financial condition pressures.

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Non-interest Income

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

(Dollars in thousands)	First Quarter Ended March 31,					$ Change			% Change
	2009		2008
Service charges	$	3,763	$	2,992		$	771		26	%
Credit and debit card transaction fees		952		937			15		2
Gain (loss) on investment securities		2,754		(236	)		2,990		1,267
Gain on sale of mortgage loans		1,365		1,247			118		10
Other		800		1,272			(472	)	(37	)
	$	9,634	$	6,212		$	3,422		55	%

The increase in service charges on deposit accounts is primarily due to an increase in NSF fees charged per occurrence, a reduction in fees waived from deposit accounts, and an increase in account analysis fees.

The increase in gain on investment securities is due to an increase in sales of investment securities during the period. During the first quarter of 2009, certain securities were sold at a gain as part of our continued efforts to bolster capital. The 2008 loss on investment securities includes an other-than-temporary charge of $333,000 on FHLMC preferred stock, held in the available for sale portfolio and acquired as part of the acquisition of Front Range Capital Corporation in March 2007.

The decrease in other non-interest income is primarily due to a decrease in official check outsourcing fee income as official check processing was brought in-house in the fourth quarter of 2008. The decrease is also attributable to the redemption of VISA stock that occurred in the first quarter of 2008.

Non-interest Expenses

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

(Dollars in thousands)	First Quarter Ended March 31,				$ Change			% Change
	2009		2008
Salaries and employee benefits	$	11,522	$	13,517	$	(1,995	)	(15	)%
Occupancy		3,818		4,025		(207	)	(5	)
Data processing		1,477		1,549		(72	)	(5	)
Equipment		1,915		2,144		(229	)	(11	)
Legal, accounting, and consulting		1,354		576		778		135
Marketing		659		747		(88	)	(12	)
Telephone		371		493		(122	)	(25	)
Other real estate owned		960		502		458		91
FDIC insurance premiums		1,486		465		1,021		220
Amortization of intangibles		602		640		(38	)	(6	)
Other		2,895		3,103		(208	)	(7	)
	$	27,059	$	27,761	$	(702	)	(3	)%

The decrease in salaries and benefits is primarily due to a decrease in headcount. At March 31, 2009, full time equivalent employees totaled 775, compared to 873 at March 31, 2008. The decrease is also due to a decrease in share-based compensation expense, a decrease in incentive bonus expense, a decrease in self-insured medical and dental claims, and a decrease in expenses related to temporary help.

The increase in legal, accounting, and consulting is primarily due to legal and investment banking costs incurred in connection with the pending sale of our Colorado branches, and consultation costs related to a staffing model that was prepared in connection with our continued efforts to control non-interest expenses.

The increase in other real estate owned is primarily due to an increase in write-downs of properties to reflect their estimated fair values and an increase in losses on sales of properties.

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The increase in FDIC insurance premiums is due to new FDIC assessment rates that took effect on January 1, 2009, as well as an increase in deposits. In February 2009, the FDIC adopted an additional final rule which includes an additional uniform two basis point increase as well as other adjustments that will take effect on April 1, 2009. In conjunction with the February ruling, the FDIC also adopted an interim rule, imposing a twenty basis point emergency special assessment on June 30, 2009, to be collected on September 30, 2009. The interim rule also permits the imposition of an additional emergency special assessment after June 30, 2009, of up to ten basis points. In May 2009, the U.S. Senate passed a bill that will increase the FDIC’s Treasury borrowing authority from $30 billion to $100 billion, allowing the FDIC to cuts its planned special assessment from twenty basis points to ten basis points. Based on the above, we expect our 2009 FDIC insurance premiums to be approximately $10 million, including the ten basis point emergency assessment. This estimate could change, depending on our level of deposits or further rulemaking.

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.

ALLOWANCE FOR LOAN LOSSES:	Three months ended March 31, 2009			Year ended December 31, 2008			Three months ended March 31, 2008
	(Dollars in thousands)
Balance beginning of period	$	79,707		$	31,712		$	31,712
Allowance related to other loans held for sale		(8,469	)		—			—
Provision for loan losses		33,300			71,618			3,900
Net charge-offs		(13,261	)		(23,623	)		(1,116	)
Balance end of period	$	91,277		$	79,707		$	34,496
Allowance for loan losses to total loans held for investment		4.01	%		2.91	%		1.33	%
Allowance for loan losses to non-performing loans		56	%		67	%		69	%

NON-PERFORMING ASSETS:	March 31, 2009			December 31, 2008			March 31, 2008
	(Dollars in thousands)
Accruing loans – 90 days past due	$	2		$	4,139		$	553
Non-accrual loans		163,585			114,138			49,748
Total non-performing loans		163,587			118,277			50,301
Other real estate owned		17,754			18,894			16,551
Total non-performing assets	$	181,341		$	137,171		$	66,852
Potential problem loans	$	246,200		$	130,884		$	71,862
Total non-performing assets to total assets		5.11	%		4.02	%		1.93	%

Our provision for loan losses was $33.3 million for the first quarter of 2009, compared to $3.9 million for the first quarter of 2008. The increase is primarily a result of an increase in net charge-offs, an increase in non-performing loans, and growth of the portfolio. The allowance for loan losses to non-performing loans decreased from 67% at December 31, 2008 to 56% at March 31, 2009, partially due to the offset of the $8.5 million allowance attributable to the loans available for sale included in the anticipated sale of our Colorado branches, all of which are performing credits. Non-performing loans increased by $45.3 million since December 31, 2008, while the $33.3 million provision for loan losses for the three months ended March 31, 2009 exceeded the net charge-offs for the quarter by approximately $20 million, further contributing to the decrease in the ratio of the allowance for loan losses to non-performing loans. In addition, approximately 95% of our non-performing loans are secured by real estate, where fair value is determined based on appraisals, mitigating our loss exposure compared to commercial and industrial or consumer loans where the collateral is less tangible. Approximately 40% of our non-performing loans are in New Mexico, approximately 28% are in Colorado, approximately 26% are in Utah, and approximately 6% are in Arizona. 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.

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Our loan portfolio remains heavily concentrated in real estate at 86%. Our market exposure in the real-estate construction industry at March 31, 2009 was approximately $882.7 million. Of the $882.7 million of real estate construction loans, approximately 46% of these loans are related to residential construction and approximately 54% are for commercial purposes or vacant land. Approximately 53% of our real estate construction loans are in New Mexico, approximately 20% are in Colorado, approximately 19% are in Utah, and approximately 8% are in Arizona.

Given current economic conditions and trends, we may continue to experience asset quality deterioration and higher levels of nonperforming loans in the near-term, which would result in continued negative earnings and financial condition pressures.

We sell virtually all of the residential mortgage loans that we originate and we have no securities that are backed by sub-prime mortgages.

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

Our liquidity management objective is to ensure our ability to satisfy cash flow requirements of depositors and borrowers, and to allow us to sustain our operations. Our primary sources of funds are customer and brokered deposits, loan repayments, maturities of and cash flow from investment securities, and borrowings. Borrowings may include federal funds purchased, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank, the Federal Reserve Bank discount window, the Term Auction Facility (“TAF”) from the Federal Reserve Bank, and any other borrowing arrangement that we are eligible to participate in. Investment securities may be used as a source of liquidity either through sale of investment securities available for sale or pledging for qualified deposits, as collateral for Federal Home Loan Bank or Federal Reserve Bank borrowings, or as collateral for other liquidity sources.

In March 2009, the FHLB, which is a significant component of our overall liquidity structure, replaced our blanket lien with a custody arrangement, whereby the FHLB has custody and endorsement of the loans that collateralize the FHLB borrowings. Management is in the process of delivering loans to be held as collateral for the outstanding borrowings with FHLB under the custody arrangement. Management expects to deliver commercial real estate and one to four family real estate loan collateral with approximately $900 million in par value as collateral to the FHLB. While management believes these loans will be sufficient to fully secure existing borrowings, the FHLB determines the collateral values and therefore there is no assurance that the FHLB will not require additional collateral or repayment of existing borrowings. Based on our current status with the FHLB, we do not have the ability to draw down additional advances. Based on our agreement with the FHLB and the FHLB’s credit policy, as the existing borrowings mature, they will be allowed to continuously renew for like amounts, but for terms not to exceed thirty days.

Under the terms of the Bank’s agreement with the FHLB, the FHLB may at its own option call the outstanding debt due and payable if any of the following have occurred: the Bank has suspended payment to any creditor or there has been an acceleration of the maturity of any indebtedness of the Bank to others; the FHLB reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Bank; or the FHLB reasonably and in good faith deems itself insecure in the collateral even though the Bank is not otherwise in default. We have not received any notice from the FHLB regarding a call of our outstanding debt.

We are focused on managing our liquidity exposure by decreasing our overall risk weighted assets and utilizing the various liquidity sources available to us and are currently working to establish additional borrowing capacity with the Federal Reserve discount window which we anticipate will provide additional liquidity in the form of additional borrowing capacity of approximately $100 million, subject to a subordination agreement with the FHLB.

Our wholesale funding sources include FHLB borrowings, securities sold under agreements to repurchase, non CDARS reciprocal brokered deposits, and subordinate debentures. These wholesale funding sources totaled $898.4 million, $899.9 million, and $589.9 million at March 31, 2009, December 31, 2008, and March 31, 2008, respectively. The increase from March 31, 2008 is primarily due to FHLB advances which increased by $247.6 million

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and non CDARS reciprocal brokered deposits which increased by $184.7 million, partially offset by a reduction in securities sold under agreements to repurchase of $123.7 million. As our FHLB borrowings increased, management expanded our utilization of other wholesale funding sources which resulted in the increase of non CDARS reciprocal brokered deposits. Non CDARS reciprocal brokered deposits at March 31, 2009 increased by $45.7 million compared to December 31, 2008 and securities sold under agreements to repurchase decreased by $48.6 million.

CDARS reciprocal deposits, which are not included in the wholesale funding discussion above, increased to $210.9 million from $64.3 million at March 31, 2008, primarily due to current events surrounding the financial services industry and the additional FDIC insurance available by reciprocating these deposits. Although the CDARS reciprocal deposits are considered brokered deposits for regulatory reporting purposes, we consider them to be part of our core funding as these deposits represent customer funds that are usually in excess of the FDIC insurance limit of $250,000, thereby maximizing FDIC insurance through the use of the CDARS network. CDARS reciprocal deposits totaled $212.2 million at December 31, 2008.

During the first quarter of 2009, we began taking steps to lengthen the maturities of our wholesale funding sources and, to the extent possible, evaluating other liquidity sources available to us to diversify our liquidity exposure. Management secured additional funding from the FHLB for terms ranging between six months and three years to stabilize our short term liquidity position, as having the additional funds in the Bank in the current environment outweighed any potential rate benefit foregone if the short end of the rate curve drops further. In addition, we lengthened the average maturities of our non CDARS reciprocal brokered deposits into the fifteen month to eighteen month time horizon, strengthening our short term liquidity position. Our interest-bearing deposits with other banks totaled $181.0 million at March 31, 2009. The cash is being kept on hand, rather than used to reduce FHLB borrowings, to strengthen our liquidity position. The additional liquidity that has been brought into the Bank along with our loan repayments and core deposit growth, if any, during the year will be used to support operations.

At March 31, 2009, we were considered “adequately capitalized” under regulatory guidelines, subjecting the Company and the Bank to prompt supervisory and regulatory actions pursuant to the FDIC Improvement Act of 1991, and prohibiting us from accepting, renewing, or rolling over brokered deposits except with a waiver from the FDIC, which we are currently pursuing, and subjecting the Bank to restrictions on the interest rates that can be paid on deposits.

We believe that the sale of our Colorado branches will return us to “well capitalized” at June 30, 2009. However, in the event that our deposit generation is negatively impacted by our recent drop to “adequately capitalized” we believe that we have sufficient cash and liquid assets on hand to maintain our operations and meet all of our obligations as they come due. From a liquidity standpoint, the most significant ramification of the drop in capitalized category relates to our inability to rollover or renew existing brokered deposits, including CDARS reciprocal deposits, that mature or come up for renewal while the Bank is considered adequately capitalized, without a waiver from the FDIC, which we are currently pursuing.

We currently anticipate that our cash and cash equivalents, expected cash flows from operations, and borrowing capacity will be sufficient to meet our anticipated cash requirements for working capital, loan originations, capital expenditures, and other obligations for at least the next twelve months.

Capital and Capital Resources

On December 31, 2008 and January 27, 2009, respectively, to prepare for any opportunity to issue capital that may arise, we filed a universal shelf registration and an amendment to the shelf registration that allows the Company to issue any combination of common stock, preferred stock, depositary shares, debt securities, and warrants from time to time in one or more offerings up to a total dollar amount of $100 million.

In order to help improve the Company’s and the Bank’s capital ratios, we suspended our cash dividend payments to shareholders in July 2008, and the Bank has not declared a cash dividend to the Company since May 2008. In early September 2008, we began notifying the holders of our trust preferred securities that interest payments would be deferred, as allowed by the terms of those securities. These actions, among others have been incorporated into a proposed capital plan that was submitted to our Regulators, the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions Division, in connection with an Informal Agreement between the Company, the Bank,

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and the Regulators which was entered into on September 26, 2008. Under the terms of the Informal Agreement, the Company and or the Bank agreed, among other things, to formulate a written plan to maintain a sufficient capital position at the Bank and at the Company, including attaining a tier 1 leverage ratio of 9% and a total risk-based capital ratio of 12% at the Bank level, with no date specified for achieving those levels. In addition, the Company and the Bank have agreed to maintain an adequate allowance for loan and lease losses; not to pay any dividends; not to distribute any interest, principal or other sums on trust preferred securities; not to issue or guarantee any debt or trust preferred securities; and not to purchase or redeem any shares of the Company’s stock. This Informal Agreement can be terminated by a joint decision between the Regulators if they conclude such action is warranted. Although management believes that the Company and the Bank are in substantial compliance with the terms of the Informal Agreement, there can be no assurance that the Company and the Bank will remain in substantial compliance or that there will not be further action by the Regulators.

Although we do not believe we currently have the ability to raise new capital at an acceptable price in the current economic environment, we continue to evaluate alternative capital strengthening strategies, and are currently working on other initiatives to strengthen our capital position. The other options available to help us return to “well capitalized” status and to help us achieve the desired capital ratios without raising additional capital would entail a reduction in the Bank’s risk weighted asset base. Reducing our balance sheet in the near term could strengthen our capital position and help us achieve the requested 9% tier 1 leverage ratio and the 12% total risk-based capital ratio at the Bank. These initiatives have been focused primarily on the sale of individual loans or pools of loans, and on March 10, 2009, resulted in the execution of a definitive agreement to sell the Bank’s twenty full service branches in Colorado. We believe that the sale of the Colorado branches and the subsequent reduction in the overall level of loans will return us to “well capitalized” status at June 30, 2009. We also expect that the Colorado sale combined with other potential loan sales and normal loan amortization and repayments will help us achieve a tier 1 leverage ratio above 9% and a total risk-based capital ratio above 12% at the Bank as requested under the Informal Agreement, but the timing is uncertain. This transaction, combined with the potential sale of other loans and normal loan amortization and repayments should also help us achieve a total risk-based capital ratio above 12% at the Company, however, there is no assurance that the Company and the Bank will reach or maintain the capital levels currently deemed necessary by the Regulators. While management believes that the sale of the Colorado branches will close, the definitive agreement provides the purchaser with walk-away provisions in the event of a material adverse change, including a decline in deposits below $430 million.

We applied for $90 million of capital from the U.S. government under TARP, but recently withdrew that application due in part to the uncertainty surrounding the availability and terms of the TARP funding, the potential dilution to our shareholders, and the positive capital impact from the pending sale of our Colorado branches.

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 balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

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	Three Months Ended March 31,
	2009							2008
	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	$	347,736		$	4,566	5.33	%	$	337,574		$	6,266	7.47	%
Real estate		2,329,896			30,129	5.24	%		2,154,373			39,477	7.37	%
Consumer		39,066			959	9.96	%		46,488			1,186	10.26	%
Mortgage		20,402			256	5.09	%		17,648			265	6.04	%
Other		1,321			—	—			2,504			—	—
Total loans		2,738,421			35,910	5.32	%		2,558,587			47,194	7.42	%
Allowance for loan losses		(91,626	)						(32,292	)
Securities:
U.S. government and mortgage-backed		344,836			3,951	4.65	%		406,189			4,560	4.52	%
State and political subdivisions:
Non-taxable		98,343			1,140	4.70	%		74,475			894	4.83	%
Taxable		3,454			50	5.87	%		489			8	6.58	%
Other		31,176			141	1.83	%		19,530			238	4.90	%
Total securities		477,809			5,282	4.48	%		500,683			5,700	4.58	%
Interest-bearing deposits with other banks		26,368			26	0.40	%		3,148			37	4.73	%
Federal funds sold		24,029			12	0.20	%		5,074			38	3.01	%
Total interest-earning assets		3,266,627			41,230	5.12	%		3,067,492			52,969	6.95	%
Non-interest-earning assets:
Cash and due from banks		62,927							66,958
Other		188,718							309,961
Total non-interest-earning assets		251,645							376,919
Total assets	$	3,426,646						$	3,412,119
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing demand accounts	$	308,808		$	517	0.68	%	$	335,469		$	876	1.05	%
Certificates of deposit > $100,000		479,079			4,007	3.39	%		724,061			7,239	4.02	%
Certificates of deposit < $100,000		333,802			2,694	3.27	%		375,285			4,069	4.36	%
Brokered CDs		208,008			1,017	1.98	%		51,204			676	5.31	%
CDARS reciprocal deposits		197,491			1,257	2.58	%		66,949			782	4.70	%
Money market savings accounts		499,021			2,324	1.89	%		429,685			3,148	2.95	%
Regular savings accounts		101,492			128	0.51	%		106,653			235	0.89	%
Total interest-bearing deposits		2,127,701			11,944	2.28	%		2,089,306			17,025	3.28	%
Federal funds purchased and securities sold under agreements to repurchase		129,654			99	0.31	%		209,844			1,292	2.48	%
Short-term borrowings		271,085			825	1.23	%		203,215			1,625	3.22	%
Long-term debt		160,575			1,089	2.75	%		11,615			167	5.78	%
Junior subordinated debentures		98,447			921	3.79	%		98,594			1,455	5.94	%
Total interest-bearing liabilities		2,787,462			14,878	2.16	%		2,612,574			21,564	3.32	%
Non-interest-bearing demand accounts		461,007							458,648
Other non-interest-bearing liabilities		23,470							24,246
Total liabilities		3,271,939							3,095,468
Stockholders’ equity		154,707							316,651
Total liabilities and Stockholders’ equity	$	3,426,646						$	3,412,119
Net interest income				$	26,352						$	31,405
Net interest spread						2.96	%						3.63	%
Net interest margin						3.27	%						4.12	%
Ratio of average interest-earning assets to average interest-bearing liabilities						117.19	%						117.41	%

To effectively measure and manage interest rate risk, we use gap analysis and simulation analysis to determine the impact on net interest income under various interest rate scenarios, balance sheet trends, and strategies. From these analyses, we quantify interest rate risk and we develop and implement appropriate strategies. Additionally, we utilize duration and market value sensitivity measures when these measures provide added value to the overall interest rate risk management process. The overall interest rate risk position and strategies are reviewed by management and the Board of Directors of the Bank on an ongoing basis.

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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 March 31, 2009, our cumulative interest rate gap for the period up to three months was a positive $691,000 and for the period up to one year was a positive $118,000. Based solely on our interest rate gap of 12 months or less, our net income could be further unfavorably impacted by additional 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 March 31, 2009. 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	$	46,862	$	108,592		$	187,969	$	162,903	$	506,326
Interest-bearing deposits with other banks		180,789		—			232		—		181,021
Federal funds sold		427		—			—		—		427
Loans:
Commercial		209,976		45,480			76,792		10,715		342,963
Real estate		1,043,108		213,068			800,582		265,595		2,322,353
Consumer		12,265		7,155			14,958		4,354		38,732
Total interest-earning assets	$	1,493,427	$	374,295		$	1,080,533	$	443,567	$	3,391,822
Interest-bearing liabilities:
Savings and NOW accounts	$	192,818	$	250,020		$	443,832	$	81,398	$	968,068
Certificates of deposit greater than $100,000		154,054		226,382			104,598		493		485,527
Certificates of deposit less than $100,000		75,219		169,454			82,450		1,013		328,136
Brokered deposits		82,224		30,000			125,068		—		237,292
CDARS reciprocal deposits		115,549		89,271			6,100		—		210,920
Securities sold under agreements to repurchase		63,690		—			—		—		63,690
FHLB advances		30,632		181,953			286,386		—		498,971
Junior subordinated debentures		88,663		—			9,766		—		98,429
Total interest-bearing liabilities	$	802,849	$	947,080		$	1,058,200	$	82,904	$	2,891,033
Interest rate gap	$	690,578	$	(572,785	)	$	22,333	$	360,663	$	500,789
Cumulative interest rate gap at March 31, 2009	$	690,578	$	117,793		$	140,126	$	500,789
Cumulative gap ratio at March 31, 2009		1.86		1.07			1.05		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 March 31, 2009, 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 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. (20)
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. (5)
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. (6)
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. (7)
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. (11)
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. (16)
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. (3)
3.3	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (10)
3.4	Amended Bylaws of First State Bancorporation. (20)
3.5	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (19)
10.1	Executive Employment Agreement. (20)
10.2	First State Bancorporation 2003 Equity Incentive Plan. (20)
10.3	Executive Deferred Compensation Plan. (20) (Participation and contributions to this Plan have been frozen as of December 31, 2004.)
10.4	First Amendment to Executive Employment Agreement. (4)
10.5	Officer Employment Agreement. (4)
10.6	First Amendment to Officer Employment Agreement. (4)
10.7	First State Bancorporation Deferred Compensation Plan. (3)
10.8	First State Bancorporation Compensation and Bonus Philosophy and Plan. (13)
10.9	First Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (9)
10.10	Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (9)
10.11	Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (14)
10.12	Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (8)
10.13	Third Amendment to First State Bancorporation 2003 Equity Incentive Plan. (10)
10.14	Compensation Committee Approval and Board Ratification of Certain Executive Salaries. (12)
10.15	Fourth Amendment to First State Bancorporation 2003 Equity Incentive Plan. (17)
10.16	Second Amendment to Executive Employment Agreement (Stanford). (15)
10.17	Second Amendment to Executive Employment Agreement (Dee). (15)
10.18	Second Amendment to Executive Employment Agreement (Spencer). (15)
10.19	Second Amendment to Executive Employment Agreement (Martin). (15)
10.20	Key Executives Incentive Plan. (18)
10.21	Second Amendment to the First State Bancorporation Deferred Compensation Plan. (2)
10.22	Executive Compensation Plan of Heritage Bank. (2)
10.23	Form of Adoption Agreement for Executive compensation Plan of Heritage Bank. (2)
10.24	Executive Retirement Plan of Heritage Bank Amendment and Restatement. (2)
10.25	Form of Adoption Agreement for Executive Retirement Plan of Heritage Bank. (2)
10.26	First Amendment to the Key Executives Incentive Plan. (21)
10.27	Branch purchase agreement, dated as of March 10, 2009, by and among Great Western Bank, first Community Bank, and First State Bancorporation. (22)
14	Code of Ethics for Executives. (20)

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31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

(1) Incorporated by reference from Amendment 1 to 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 First State Bancorporation’s 10-K for the year ended December 31, 2007.

(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 Form 10-Q for the quarter ended March 31, 2005.

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

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

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

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

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

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

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

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

(13) Incorporated by reference from First State Bancorporation’s Form 8-K filed on January 26, 2006.

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

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

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

(17) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2007.

(18) Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on August 10, 2007.

(19) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2008.

(20) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended September 30, 2008.

(21) Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on December 30, 2008.

(22) Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2008.

* 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: May 11, 2009	By:	/s/ Michael R. Stanford
		Michael R. Stanford, President & Chief Executive Officer
Date: May 11, 2009	By:	/s/ Christopher C. Spencer
		Christopher C. Spencer, Senior Vice President and Chief Financial Officer

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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. (20)
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. (5)
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. (6)
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. (7)
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. (11)
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. (16)
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. (3)
3.3	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (10)
3.4	Amended Bylaws of First State Bancorporation. (20)
3.5	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (19)
10.1	Executive Employment Agreement. (20)
10.2	First State Bancorporation 2003 Equity Incentive Plan. (20)
10.3	Executive Deferred Compensation Plan. (20) (Participation and contributions to this Plan have been frozen as of December 31, 2004.)
10.4	First Amendment to Executive Employment Agreement. (4)
10.5	Officer Employment Agreement. (4)
10.6	First Amendment to Officer Employment Agreement. (4)
10.7	First State Bancorporation Deferred Compensation Plan. (3)
10.8	First State Bancorporation Compensation and Bonus Philosophy and Plan. (13)
10.9	First Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (9)
10.10	Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (9)
10.11	Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (14)
10.12	Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (8)
10.13	Third Amendment to First State Bancorporation 2003 Equity Incentive Plan. (10)
10.14	Compensation Committee Approval and Board Ratification of Certain Executive Salaries. (12)
10.15	Fourth Amendment to First State Bancorporation 2003 Equity Incentive Plan. (17)
10.16	Second Amendment to Executive Employment Agreement (Stanford). (15)
10.17	Second Amendment to Executive Employment Agreement (Dee). (15)
10.18	Second Amendment to Executive Employment Agreement (Spencer). (15)
10.19	Second Amendment to Executive Employment Agreement (Martin). (15)
10.20	Key Executives Incentive Plan. (18)
10.21	Second Amendment to the First State Bancorporation Deferred Compensation Plan. (2)
10.22	Executive Compensation Plan of Heritage Bank. (2)
10.23	Form of Adoption Agreement for Executive compensation Plan of Heritage Bank. (2)
10.24	Executive Retirement Plan of Heritage Bank Amendment and Restatement. (2)
10.25	Form of Adoption Agreement for Executive Retirement Plan of Heritage Bank. (2)
10.26	First Amendment to the Key Executives Incentive Plan. (21)
10.27	Branch purchase agreement, dated as of March 10, 2009, by and among Great Western Bank, first Community Bank, and First State Bancorporation. (22)
14	Code of Ethics for Executives. (20)
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. *

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32.2 Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

(1) Incorporated by reference from Amendment 1 to 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 First State Bancorporation’s 10-K for the year ended December 31, 2007.

(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 Form 10-Q for the quarter ended March 31, 2005.

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

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

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

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

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

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

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

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

(13) Incorporated by reference from First State Bancorporation’s Form 8-K filed on January 26, 2006.

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

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

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

(17) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2007.

(18) Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on August 10, 2007.

(19) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2008.

(20) Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended September 30, 2008.

(21) Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on December 30, 2008.

(22) Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2008.

* Filed herewith.

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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: May 11, 2009

/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: May 11, 2009

/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 March 31, 2009 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

May 11, 2009

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 March 31, 2009 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

May 11, 2009

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.