UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended June 30, 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: 20,621,271 shares of common stock, no par value, outstanding as of August 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	40
PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	41
Item 5.	Other Information	41
Item 6.	Exhibits	41
	SIGNATURES	43

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

First State Bancorporation and Subsidiary

Consolidated Condensed Balance Sheets

(unaudited)

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

	June 30, 2009			December 31, 2008
Assets
Cash and due from banks	$	56,780		$	64,891
Interest-bearing deposits with other banks		162,663			1,593
Federal funds sold		130			96
Total cash and cash equivalents		219,573			66,580
Investment securities:
Available for sale (at fair value, amortized cost of $381,532 at June 30, 2009, and $387,713 at December 31, 2008)		387,180			393,488
Held to maturity (at amortized cost, fair value of $66,785 at June 30, 2009, and $61,700 at December 31, 2008)		66,911			63,183
Non-marketable securities, at cost		30,671			32,325
Total investment securities		484,762			488,996
Mortgage loans held for sale		14,648			16,664
Loans held for investment, net of unearned interest		2,231,257			2,737,925
Less allowance for loan losses		(109,095	)		(79,707	)
Net loans		2,136,810			2,674,882
Premises and equipment (net of accumulated depreciation of $27,233 at June 30, 2009, and $31,965 at December 31, 2008)		37,152			59,669
Accrued interest receivable		11,076			12,437
Other real estate owned		29,671			18,894
Intangible assets (net of accumulated amortization of $4,080 at June 30, 2009, and $6,603 at December 31, 2008)		5,944			15,529
Cash surrender value of bank-owned life insurance		46,214			45,304
Net deferred tax asset		6,081			6,260
Other assets, net		15,073			26,498
Total assets	$	2,992,356		$	3,415,049
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing	$	399,626		$	453,319
Interest-bearing		1,798,268			2,069,223
Total deposits		2,197,894			2,522,542
Securities sold under agreements to repurchase		40,628			112,276
Federal Home Loan Bank advances		498,339			497,594
Junior subordinated debentures		98,393			98,466
Other liabilities		27,901			24,917
Total liabilities		2,863,155			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 22,342,504 at June 30, 2009 and 22,025,214 at December 31, 2008; outstanding 20,621,162 at June 30, 2009 and 20,303,872 at December 31, 2008		223,630			222,921
Treasury stock, at cost (1,721,342 shares at June 30, 2009 and December 31, 2008)		(25,027	)		(25,027	)
Retained deficit		(72,819	)		(42,220	)
Accumulated other comprehensive income - Unrealized gain on investment securities, net of tax		3,417			3,580
Total stockholders’ equity		129,201			159,254
Total liabilities and stockholders’ equity	$	2,992,356		$	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 and six months ended June 30, 2009 and 2008

(unaudited)

(Dollars in thousands, except per share amounts)

	Three months ended June 30, 2009			Three months ended June 30, 2008			Six months ended June 30, 2009			Six months ended June 30, 2008
Interest income:
Interest and fees on loans	$	34,699		$	43,686		$	70,609		$	90,880
Interest on marketable securities:
Taxable		3,990			4,862			8,132			9,668
Non-taxable		1,166			954			2,306			1,848
Federal funds sold		—			21			12			59
Interest-bearing deposits with other banks		143			18			169			55
Total interest income		39,998			49,541			81,228			102,510
Interest expense:
Deposits		11,494			14,759			23,438			31,784
Short-term borrowings		580			1,870			1,504			4,787
Long-term debt		2,227			541			3,316			708
Junior subordinated debentures		779			1,125			1,700			2,580
Total interest expense		15,080			18,295			29,958			39,859
Net interest income		24,918			31,246			51,270			62,651
Provision for loan losses		(31,100	)		(28,700	)		(64,400	)		(32,600	)
Net interest (loss) income after provision for loan losses		(6,182	)		2,546			(13,130	)		30,051
Non-interest income:
Service charges		3,690			3,722			7,453			6,714
Credit and debit card transaction fees		1,044			1,039			1,996			1,976
Gain (loss) on sale or call of investment securities		—			110			2,754			(126	)
Gain on sale of loans		1,260			1,109			2,625			2,356
Gain on sale of Colorado branches		23,292			—			23,292			—
Other		782			1,007			1,582			2,279
Total non-interest income		30,068			6,987			39,702			13,199
Non-interest expenses:
Salaries and employee benefits		12,437			12,763			23,959			26,280
Occupancy		3,623			4,138			7,441			8,163
Data processing		1,435			1,377			2,912			2,926
Equipment		1,496			1,913			3,411			4,057
Legal, accounting, and consulting		1,589			790			2,943			1,366
Marketing		678			734			1,337			1,481
Telephone		423			573			794			1,066
Other real estate owned		815			1,200			1,775			1,702
FDIC insurance premiums		3,782			530			5,268			995
Goodwill impairment charge		—			127,365			—			127,365
Amortization of intangibles		601			640			1,203			1,280
Other		3,233			3,111			6,128			6,214
Total non-interest expenses		30,112			155,134			57,171			182,895
Loss before income taxes		(6,226	)		(145,601	)		(30,599	)		(139,645	)
Income tax benefit		—			(27,294	)		—			(25,263	)
Net loss	$	(6,226	)	$	(118,307	)	$	(30,599	)	$	(114,382	)
Loss per share:
Basic loss per share	$	(0.30	)	$	(5.87	)	$	(1.49	)	$	(5.68	)
Diluted loss per share	$	(0.30	)	$	(5.87	)	$	(1.49	)	$	(5.68	)
Dividends per common share	$	0.00		$	0.09		$	0.00		$	0.18

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 and six months ended June 30, 2009 and 2008

(unaudited)

(Dollars in thousands)

	Three months ended June 30, 2009			Three months ended June 30, 2008			Six months ended June 30, 2009			Six months ended June 30, 2008
Net loss	$	(6,226	)	$	(118,307	)	$	(30,599	)	$	(114,382	)
Other comprehensive loss, net of tax - unrealized holding (losses) gains on securities available for sale arising during period		(155	)		(4,829	)		1,503			(2,347	)
Reclassification adjustment for (gains) losses included in net income (loss)		—			(90	)		(1,666	)		103
Total comprehensive loss	$	(6,381	)	$	(123,226	)	$	(30,762	)	$	(116,626	)

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Cash Flows

For the six months ended June 30, 2009 and 2008

(unaudited)

(Dollars in thousands)

	Six months ended June 30, 2009			Six months ended June 30, 2008
Cash flows from operating activities:
Net loss	$	(30,599	)	$	(114,382	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		64,400			32,600
Goodwill impairment charge		—			127,365
Provision for decline in value of other real estate owned		760			869
Net loss on sale of other real estate owned		56			136
Depreciation and amortization		3,591			4,514
Reduction in intangibles		8,382			—
Share-based compensation expense		251			396
Gain on sale of mortgage loans		(2,625	)		(2,356	)
(Gain) loss on sale of investment securities available for sale		(2,754	)		125
Loss (gain) on disposal of premises and equipment		42			(12	)
Increase in bank-owned life insurance cash surrender value		(910	)		(894	)
Amortization of securities, net		430			(766	)
Amortization of core deposit intangible		1,203			1,280
Mortgage loans originated for sale		(204,939	)		(152,695	)
Proceeds from sale of mortgage loans held for sale		209,580			160,621
Deferred income taxes		—			(30,319	)
Decrease in accrued interest receivable		55			3,009
Decrease in other assets, net		10,797			1,297
Increase (decrease) in other liabilities, net		4,279			(561	)
Net cash provided by operating activities		61,999			30,227
Cash flows from investing activities:
Net decrease (increase) in loans		71,771			(202,354	)
Purchases of investment securities carried at amortized cost		(8,700	)		(56,515	)
Maturities of investment securities carried at amortized cost		4,979			93,874
Purchases of investment securities carried at fair value		(122,951	)		(141,964	)
Maturities of investment securities carried at fair value		66,134			118,460
Sale of investment securities available for sale		65,279			2,484
Purchases of non-marketable securities carried at cost		(41	)		(5,280	)
Redemption of non-marketable securities carried at cost		1,695			—
Purchases of premises and equipment		(337	)		(1,430	)
Purchase of bank-owned life insurance		—			(500	)
Net proceeds from other real estate owned		4,736			4,481
Proceeds from the sale of fixed assets		4			15
Net cash paid upon branch sale		(75,243	)		—
Net cash provided by (used) by investing activities		7,326			(188,729	)
Cash flows from financing activities:
Net increase in interest-bearing deposits		149,579			35,620
Net (decrease) increase in non-interest-bearing deposits		(374	)		36,596
Net decrease in securities sold under agreements to repurchase		(66,740	)		(68,517	)
Proceeds from Federal Home Loan Bank advances		430,000			348,900
Payments on Federal Home Loan Bank advances		(429,255	)		(192,186	)
Proceeds from common stock issued		458			763
Dividends paid		—			(3,626	)
Treasury stock		—			(6	)
Net cash provided by financing activities		83,668			157,544
Increase (decrease) in cash and cash equivalents		152,993			(958	)
Cash and cash equivalents at beginning of period		66,580			84,709
Cash and cash equivalents at end of period	$	219,573		$	83,751

(Continued)

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Cash Flows

For the six months ended June 30, 2009 and 2008

(unaudited)

(Dollars in thousands)

(continued)

	Six months ended June 30, 2009		Six months ended June 30, 2008
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans	$	17,040	$	2,989
Additions to loans in settlement of other real estate owned	$	728	$	—
Transfer of fixed assets to other assets	$	477	$	—
Transfers from loans held for sale to loans held for investment	$	—	$	2,597
Supplemental disclosure of cash flow information:
Cash paid for interest	$	28,848	$	40,615
Cash received (paid) for income taxes	$	4,890	$	(3,039	)

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 normally recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 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

During the second quarter of 2009, we continued to focus our attention on the overall liquidity position of the Bank due to the current economic environment in addition to our classification as an “adequately capitalized” institution. We continued to accumulate and maintain excess cash liquidity from loan reductions and increased deposits to compensate for the inability to rollover or issue new brokered deposits including our CDARS Reciprocal deposits while considered an “adequately capitalized” institution. During the quarter, excluding the Colorado branch sale, our efforts contributed to a reduction in the total loan portfolio of $73 million and helped grow deposits $136 million excluding brokered deposits. As a result of our inability to rollover or issue new brokered deposits, we decreased our reliance on brokered deposits by $156 million during the quarter. Approximately $98 million of the decrease was made up of CDARS Reciprocal deposits consisting of our customers who we were not able to renew due to the classification of these deposits as brokered deposits under the regulatory definition.

The Company’s primary sources of funds are customer deposits, loan repayments, maturities of and cash flow from investment securities, and borrowings. Borrowings may include federal funds purchased and securities sold under agreements to repurchase. 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 FHLB borrowings, or as collateral for other sources.

The Company’s most liquid assets are cash and cash equivalents and marketable investment securities that are not pledged as collateral. The levels of these assets are dependent on operating, financing, lending and investing activities during any given period. At June 30, 2009, the carrying value of these assets, approximating $673.7 million, consisted of $219.6 million in cash and cash equivalents and $454.1 million in marketable investment securities. Approximately $50.0 million of cash and cash equivalents and $416.0 million of marketable investment securities were pledged as collateral for borrowings, federal funds lines, repurchase agreements and for public funds on deposit at June 30, 2009.

At December 31, 2008, all outstanding borrowings with the FHLB were collateralized by a blanket pledge agreement on the Company’s loan portfolio. Subsequent to December 31, 2008, the FHLB notified the Company that its blanket lien was replaced by a custody arrangement, whereby the FHLB will have custody and endorsement of the loans that collateralize its FHLB borrowings. In addition to cash and investment securities of approximately $90 million, loan collateral with par value of approximately $900 million was delivered to satisfy the original requirements of the custody arrangement. However, effective July 29, 2009, the FHLB increased the collateral requirement. Management expects to deliver an additional $425 million in par value of loans and investment securities to satisfy the additional requirements. For loans to qualify as collateral, they must not be past due 90 days or more, must not be classified substandard or below, and must not be a loan to a director, employee or agent of the Company or the FHLB. Management believes the Company has sufficient loan and investment securities collateral to deliver to the FHLB to fully satisfy the new requirements. However, as the collateral values are determined subjectively by the FHLB, 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, the Company no longer has the ability to draw down additional advances. 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. Based on the Company’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. The Company has not received any notice from the FHLB regarding a call of its outstanding debt.

During the second quarter, management was also able to establish two additional federal funds borrowing lines for a total capacity of approximately $60 million at June 30, 2009 fully collateralized by investment securities.

2. New Accounting Standards

On July 1, 2009, the Financial Accounting Standards Board (“FASB”) launched its Accounting Standards Codification (“ASC”). Pursuant to Statement 168, the Codification will become the sole source of authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009, except for rules and interpretive releases of the SEC. Management does not expect the adoption of FASB to have any impact on the Company’s consolidated financial statements.

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In July 2009, the FASB issued Statement 167 “Consolidation of Variable Interest Entities.” Statement 167 amends FIN 46(R) to require former “qualifying special-purpose entities” (“QSPEs”) to be evaluated for consolidation and also changes the approach to determining a variable interest entity’s (“VIE”) primary beneficiary and requires companies to more frequently reassess whether they must consolidate VIEs. Statement 167 requires additional year-end and interim disclosures for public and nonpublic companies that are similar to the disclosures required for public companies by FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” Statement 167 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. For public entities, in periods after initial adoption, comparative disclosures for those disclosures that were not previously required by FSP FAS 140-4 and FIN 46(R)-8 are required only for periods after the effective date. Management does not expect the adoption of Statement 167 to have any impact on the Company’s consolidated financial statements.

In July 2009, the FASB issued Statement 166 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Statement 166 amends Statement 140 to eliminate the concept of a QSPE and associated guidance that had been a significant source of complexity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. (Former QSPEs will be evaluated for consolidation based on the provisions of FIN 46(R) as amended by Statement 167.) Statement 166 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Management does not expect the adoption of Statement 166 to have any impact on the Company’s consolidated financial statements.

In July 2009, the FASB issued Statement 165. Statement 165 establishes principles and requirements for subsequent events. This Statement is to be applied to the accounting for and disclosure of subsequent events not addressed in other applicable generally accepted accounting principles (“GAAP”). Statement 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The adoption of Statement 165 effective with this interim reporting period did not have any impact on the Company’s consolidated financial statements beyond the required disclosures contained herein.

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 are effective for interim reporting periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 effective with this interim reporting period did not have any impact on the Company’s consolidated financial statements beyond the required disclosures contained herein.

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. The adoption of FSP FAS 157-4 effective with this interim reporting period did not 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

- 9 -

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 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 effective with this interim reporting period did not 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 June 26, 2009, we completed the sale of our Colorado branches to Great Western Bank, a South Dakota-based subsidiary of National Australia Bank. On June 26, 2009, we transferred approximately $387 million in loans, $512 million in deposits and securities sold under agreements to repurchase, $20 million of premises and equipment and other assets, and received a deposit premium of $30 million. After the write-off of the core deposit intangible associated with these deposits and certain transaction costs of approximately $1.6 million, we recorded a pretax gain of approximately $23.3 million. The loans, deposits, securities sold under agreements to repurchase, and premises and equipment were classified as held for sale on the consolidated balance sheet at March 31, 2009. At June 26, 2009, the weighted average interest rates on the loans and deposits, including securities sold under agreements to repurchase, sold to Great Western Bank were approximately 6.09% and 1.82% respectively.

4. Earnings (loss) per Common Share

Basic earnings (loss) per share are computed by dividing net loss (the numerator) by the weighted-average number of common shares outstanding during the period (the denominator). Diluted earnings per share are calculated by increasing the basic earnings per share denominator by the number of additional common shares that would have been outstanding if dilutive potential common shares for options had been issued.

The following is a reconciliation of the numerators and denominators of basic and diluted loss per share for the three and six months ended June 30:

	Three Months Ended June 30,
	2009							2008
	Loss (Numerator)			Shares (Denominator)	Per Share Amount			Loss (Numerator)			Shares (Denominator)	Per Share Amount
	(Dollars in thousands, except share and per share amounts)
Basic EPS:
Net loss	$	(6,226	)	20,608,912	$	(0.30	)	$	(118,307	)	20,165,335	$	(5.87	)
Effect of dilutive securities
Options		—		—					—		—
Diluted EPS:
Net loss	$	(6,226	)	20,608,912	$	(0.30	)	$	(118,307	)	20,165,335	$	(5.87	)

Due to the net loss for the three-month periods ended June 30, 2009 and 2008, approximately 1,542,653 and 1,299,133 weighted-average stock options outstanding, respectively, were excluded from the calculation of diluted earnings (loss) per share because their inclusion would have been antidilutive.

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	Six Months Ended June 30,
	2009							2008
	Loss (Numerator)			Shares (Denominator)	Per Share Amount			Loss (Numerator)			Shares (Denominator)	Per Share Amount
	(Dollars in thousands, except share and per share amounts)
Basic EPS:
Net loss	$	(30,599	)	20,539,050	$	(1.49	)	$	(114,382	)	20,150,378	$	(5.68	)
Effect of dilutive securities
Options		—		—					—		—
Diluted EPS:
Net loss	$	(30,599	)	20,539,050	$	(1.49	)	$	(114,382	)	20,150,378	$	(5.68	)

Due to the net loss for the six-month periods ended June 30, 2009 and 2008, approximately 1,549,461 and 1,287,695 weighted-average stock options outstanding, respectively, were excluded from the calculation of diluted earnings (loss) per share because their inclusion would have been antidilutive.

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5. Investment Securities

Following is a summary of amortized cost and approximate market value of investment securities:

	Amortized Cost		Gross unrealized gains		Gross unrealized losses		Estimated market value
	(Dollars in thousands)
As of June 30, 2009
Obligations of the U.S. Treasury—Held to maturity	$	1,000	$	1	$	—	$	1,001
Obligations of U.S. government agencies—Available for sale		9,509		52		—		9,561
Mortgage-backed securities (residential):
Pass-through certificates:
Available for sale		127,110		2,326		86		129,350
Held to maturity		24,924		593		10		25,507
Collateralized mortgage obligations:
Available for sale		179,273		3,620		687		182,206
Held to maturity		2,696		—		792		1,904
Obligations of states and political subdivisions:
Available for sale		65,640		1,029		606		66,063
Held to maturity		38,291		101		19		38,373
Federal Home Loan Bank stock		23,084		—		—		23,084
Federal Reserve Bank stock		7,452		—		—		7,452
Bankers’ Bank of the West stock		135		—		—		135
Total	$	479,114	$	7,722	$	2,200	$	484,636
As of December 31, 2008
Obligations of the U.S. Treasury—Held to maturity	$	997	$	21	$	—	$	1,018
Obligations of U.S. government agencies—Available for sale		27,457		282		—		27,739
Mortgage-backed securities (residential):
Pass-through certificates:
Available for sale		143,705		4,875		42		148,538
Held to maturity		28,822		407		45		29,184
Collateralized mortgage obligations:
Available for sale		150,875		1,792		1,106		151,561
Held to maturity		3,133		—		1,910		1,223
Obligations of states and political subdivisions:
Available for sale		65,676		942		968		65,650
Held to maturity		30,231		76		32		30,275
Federal Home Loan Bank stock		24,738		—		—		24,738
Federal Reserve Bank stock		7,452		—		—		7,452
Bankers’ Bank of the West stock		135		—		—		135
Total	$	483,221	$	8,395	$	4,103	$	487,513

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The amortized cost and estimated market value of investment securities at June 30, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.

	Amortized Cost		Estimated Market Value
	(Dollars in thousands)
Within one year:
Available for sale	$	9,920	$	9,976
Held to maturity		1,950		1,953
One through five years:
Available for sale		4,210		4,347
Held to maturity		3,253		3,330
Five through ten years:
Available for sale		30,264		30,745
Held to maturity		6,450		6,460
After ten years:
Available for sale		30,755		30,556
Held to maturity		27,638		27,631
Mortgage-backed securities (a)		152,034		154,857
Collateralized mortgage obligations(a)		181,969		184,110
Federal Home Loan Bank stock		23,084		23,084
Federal Reserve Bank stock		7,452		7,452
Bankers’ Bank of the West stock		135		135
Total	$	479,114	$	484,636

(a) Substantially all of the Company’s mortgage-backed securities are due in 10 years or more based on contractual maturity. The estimated weighted average life, which reflects anticipated future prepayments, is approximately 3.9 years for pass-through certificates and 2.4 years for collateralized mortgage obligations.

Marketable securities available for sale with a fair value of approximately $383.8 million and marketable securities held to maturity with an amortized cost of approximately $32.2 million were pledged to collateralize deposits as required by law and for other purposes including collateral for securities sold under agreements to repurchase, FHLB borrowings and federal funds lines at June 30, 2009.

Proceeds from sales of investments in debt securities for the six months ended June 30, 2009 were $65.3 million. Gross losses realized were $21,000 for the six months ended June 30, 2009. Gross gains realized were $2.8 million for the six months ended June 30, 2009. The Company calculates gain or loss on sale of securities based on the specific identification method.

The unrealized losses on investment securities are caused by fluctuations in market interest rates. The majority of the gross unrealized losses as of June 30, 2009 have been in an unrealized loss position for less than 12 months. We have approximately 50 investment positions that are in an unrealized loss position. The underlying cash obligations of Ginnie Mae securities are guaranteed by the U.S. government. It is the belief of the Company that Freddie Mac, Fannie Mae, and/or the municipality issuing the debt will honor its interest payment schedule, as well as the full debt at maturity. The securities are purchased by the Company for their economic value. Because the decrease in fair value is primarily due to market interest rates, projected cash flows are expected to be in excess of amortized cost, and because the Company has the intent and ability to hold these investments until a market price recovery, or maturity of the securities, the Company has concluded that the investments are not considered other-than-temporarily impaired.

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	Less than twelve months				Greater than twelve months				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
As of June 30, 2009	(Dollars in thousands)
Mortgage-backed securities	$	30,872	$	96	$	—	$	—	$	30,872	$	96
Collateralized mortgage obligations		48,130		1,089		4,906		390		53,036		1,479
Obligations of states and political subdivisions		15,125		321		3,974		304		19,099		625
Total	$	94,127	$	1,506	$	8,880	$	694	$	103,007	$	2,200
As of December 31, 2008
Mortgage-backed securities	$	12,513	$	87	$	—	$	—	$	12,513	$	87
Collateralized mortgage obligations		34,557		2,704		2,957		312		37,514		3,016
Obligations of states and political subdivisions		24,049		977		1,252		23		25,301		1,000
Total	$	71,119	$	3,768	$	4,209	$	335	$	75,328	$	4,103

6. Loans and Allowance for Loan Losses

Following is a summary of loans and non-performing loans by major categories:

	Loans				Non-Performing Loans
	June 30, 2009		December 31, 2008		June 30, 2009		December 31, 2008
	(Dollars in thousands)
Commercial	$	279,507	$	356,769	$	7,677	$	4,493
Consumer and other		31,570		41,474		2,364		2,394
Real estate – commercial		898,435		1,172,952		36,381		10,912
Real estate – one to four family		186,184		270,613		17,205		9,540
Real estate – construction		835,561		896,117		147,676		90,938
Loans held for investment		2,231,257		2,737,925		211,303		118,277
Mortgage loans available for sale		14,648		16,664		—		—
Total loans	$	2,245,905	$	2,754,589	$	211,303	$	118,277

The Company’s loans are currently concentrated in New Mexico, Colorado, Utah, and Arizona. The loan portfolio is heavily concentrated in real estate at approximately 86%. Similarly, the Company’s potential problem loans are concentrated in real estate loans, specifically the real estate construction category. Real estate construction loans comprise approximately 37% of the total loans of the Company.

The increase in non-performing loans relates to various small to medium sized loans. At June 30, 2009, the non-performing loans included approximately 300 borrower relationships. The largest borrower relationships, that also have the highest risk of loss, are loans for acquisition and development of residential lots. The six largest, with balances ranging from $8.3 million to $15.8 million, comprise $62.0 million, or 29%, of the total non-performing loans and have balances of $42.1 million in New Mexico, $10.7 million in Colorado, and $9.3 million in Utah. The allowance for loan losses on these loans totaled $16.5 million at June 30, 2009. These six loans are collateralized by partially developed lots, developed lots and vertical construction. No other non-performing borrower relationship is greater than 4% of the total non-performing loans.

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

	Six months ended June 30, 2009			Year ended December 31, 2008			Six months ended June 30, 2008
	(Dollars in thousands)
ALLOWANCE FOR LOAN LOSSES:
Balance beginning of period	$	79,707		$	31,712		$	31,712
Allowance related to loans sold		(7,827	)		—			—
Provision charged to operations		64,400			71,618			32,600
Loans charged-off		(28,660	)		(25,587	)		(6,320	)
Recoveries		1,475			1,964			992
Balance end of period	$	109,095		$	79,707		$	58,984

The increase in the level of provision for loan losses is due to increased non-performing assets and net charge-offs. The recorded investment in impaired loans was approximately $211.3 million, $118.3 million and $73.9 million at June 30, 2009, December 31, 2008, and June 30, 2008, respectively. The allowance for loan losses recorded on these loans was approximately $34.1 million, $16.2 million, and $9.8 million at June 30, 2009, December 31, 2008, and June 30, 2008, respectively.

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As of the date of our filing, we have had no material change since June 30, 2009 that would impact the Company’s consolidated financials for the period ended June 30, 2009.

7. Share-Based Compensation

For the three months ended June 30, 2009 and 2008, respectively, we recorded approximately $122,000 and $205,000 of pretax share-based compensation expense associated with outstanding unvested stock options and restricted stock awards in salaries and employee benefits in the accompanying consolidated condensed statements of operations. For the six months ended June 30, 2009 and 2008, respectively, we recorded approximately $251,000 and $396,000 of pretax share-based compensation expense associated with outstanding unvested stock options and restricted stock awards in salaries and employee benefits in the accompanying consolidated condensed statements of operations.

The following table summarizes our stock option activity during the six months ended June 30, 2009:

	Shares		Weighted average exercise price
Outstanding at December 31, 2008	1,772,980		$	14.82
Granted	10,000			1.53
Exercised	—			—
Expired	(25,500	)		3.00
Forfeited	(131,000	)		13.04
Outstanding at June 30, 2009	1,651,980		$	14.88
Options exercisable at June 30, 2009	847,929		$	16.24

The Company estimated the weighted average fair value of options granted during the six months ended June 30, 2009 to be approximately $0.91 per share. The value of each stock option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 1.65%; expected dividend yield of zero; an expected life of 6.5 years; and expected volatility of 62.07%.

8. Goodwill

The excess of cost over the fair value of the net assets of acquired banks is recorded as goodwill. As a result of the Company’s market capitalization being less than stockholders’ equity at June 30, 2008, management performed an analysis to determine whether and to what extent the Company’s goodwill may have been impaired. The Company has one reporting unit. The estimated fair value of the Company, which was less than the Company’s stockholders’ equity balance at June 30, 2008, was determined using three methods: comparable transactions; discounted cash flow models, and a market premium approach. Because of the requirements defined in paragraph 23 of SFAS No. 142, “Goodwill and Other Intangible Assets,” the market premium approach, based on the fair value of the Company’s common stock on June 30, 2008 plus a control premium, received significant weighting in our analysis at the June 30, 2008 testing date. The second step of the analysis compared the implied fair value of goodwill to the carrying amount of goodwill on the Company’s balance sheet. If the carrying amount of the goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to the excess. The implied fair value of the Company’s goodwill was determined in the same manner as goodwill recognized in a business combination. That is, the estimated fair value of the Company on the test date is allocated to all of the Company’s individual assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business combination with the estimated fair value of the Company representing the price paid to acquire it. The allocation process performed on

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the test date is only for purposes of determining the implied fair value of goodwill and no assets or liabilities are written up or down, or are any additional unrecognized identifiable intangible assets recorded as part of this process. Based on the analysis, it was determined that the implied fair value of the Company’s goodwill was zero, resulting in the recognition of a goodwill impairment charge to earnings of $127.4 million in June 2008. The goodwill impairment charge had no effect on the Company’s or the Bank’s cash balances or liquidity.

9. 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. Additionally, SFAS 157 amended SFAS 107, “Disclosure about Fair Value of Financial Instruments (“SFAS 107”), and as such the Company follows SFAS 157 in determination of SFAS 107 fair value disclosure amounts. The disclosures required under SFAS 157 and SFAS 107 have been included in this note.

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 following is a description of the valuation methodologies used for assets and liabilities that are recorded at fair value and for estimating fair value for financial instruments not recorded at fair value (SFAS 107 disclosures).

Cash and cash equivalents – Carrying value approximates fair value since the majority of these instruments are payable on demand and do not present credit concerns.

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.

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Marketable securities held to maturity – The estimated fair value of the majority of securities held to maturity is determined in the same manner as securities available for sale. The remaining securities consist of municipal bonds that are carried at par, which we believe approximates fair value. Due to the lack of an active market for these municipal securities and the individuality of each of these municipal issuances where we hold the majority if not all of the issuance, we analyze these securities for impairment each quarter and have not considered it appropriate to report a value other than par. We currently have five of these securities totaling $32.0 million with a weighted average yield of 6.55% and remaining maturities greater than five years.

Non-marketable securities – These securities include Federal Home Loan Bank, Federal Reserve Bank, and Bankers’ Bank of the West stock. This stock is carried at cost, which approximates fair value. The fair value determination was determined based on the ultimate recoverability of the par value of the stock and considered, among other things, any significant decline in the net assets of the institutions, scheduled dividend payments, any impact of legislative and regulatory changes, and the liquidity position of the institutions.

Loans held for investment – We do not record loans at fair value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for SFAS 107 disclosure purposes. The estimated fair value of the loan portfolio is calculated by discounting scheduled cash flows over the estimated maturity of loans using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or repricing terms. Credit risk is accounted for through a reduction of contractual cash flows by loss estimates of classified loans and as a component of the discount rate.

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 and the internally developed estimates are considered Level 3 inputs.

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 June 30, 2009 and December 31, 2008, all of the Company’s loans held for sale are carried at cost, as generally, cost is less than the price at which the Company commits to sell the loan to the permanent investor.

Accrued interest receivable – Carrying value of interest receivable approximates fair value, since these instruments have short-term maturities.

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 less estimated costs of disposition. Independent appraisals are considered Level 2 inputs, as these appraisals generally utilize observable sales transactions for comparable properties.

Cash surrender value of bank-owned life insurance – The carrying value of cash surrender value of bank-owned life insurance is the amount realizable by the Company if it were to surrender the policy to the issuing company. Because the carrying value is equal to the amount the Company could realize in cash, the carrying value is considered its fair value.

Deposits – The estimated fair value of deposits with no stated maturity, such as demand deposits, savings accounts, and money market deposits, approximates the amounts payable on demand at June 30, 2009 and December 31, 2008. The fair value of fixed maturity certificates of deposit is estimated by discounting the future contractual cash flows using the rates currently offered for deposits of similar remaining maturities.

Securities sold under agreements to repurchase and federal funds purchased – The carrying value of securities sold under agreements to repurchase and federal funds purchased, which reset frequently to market interest rates, approximates fair value.

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FHLB advances and other – Fair values for FHLB advances and other are estimated based on the current rates offered for similar borrowing arrangements at June 30, 2009.

Junior subordinated debentures – The fair value of fixed junior subordinated debentures, the majority of which reset quarterly to market interest rates, is estimated by discounting the future contractual cash flows using the rates currently offered for similar borrowing arrangements.

Off-balance sheet items – The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the borrower or the Company, they only have value to the borrower and to the Company. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the SFAS 107 table because it is immaterial.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial Assets	Balance as of June 30, 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	$	387,180	$	21	$	387,159	$	—

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 June 30, 2009									Period ended June 30, 2009
	(Dollars in thousands)
	Total			Level 1		Level 2		Level 3		Total Losses
Impaired loans	$	211,303		$	—	$	179,774	$	31,529	$	50,198	(1)
Other real estate owned		29,671	(2)		—		29,671		—		760	(3)
										$	50,958

(1) Total losses on impaired loans represents the sum of charge offs, net of recoveries, of $27.2 million plus the increase in specific reserves of $23.0 million ($31.8 million at June 30, 2009 less $8.8 million at December 31, 2008) for the six-month period ended June 30, 2009.

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

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

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The table below is a summary of fair value estimates as of June 30, 2009 for financial instruments, as defined by SFAS 107. This table excludes financial instruments that are recorded at fair value on a recurring basis.

	June 30, 2009
	Carrying Amount		Fair Value
(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	219,573	$	219,597
Marketable securities held to maturity		66,911		66,785
Non-marketable securities		30,671		30,671
Loans, net		2,136,810		2,162,897
Accrued interest receivable		11,076		11,076
Cash surrender value of bank-owned life insurance		46,214		46,214
Financial liabilities:
Deposits		2,197,894		2,210,571
Securities sold under agreements to repurchase		40,628		40,628
FHLB advances		498,339		502,387
Junior subordinated debentures		98,393		98,418

10. 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 $189.9 million were outstanding at June 30, 2009.

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 $40.2 million were outstanding at June 30, 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.

11. 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 July 2, 2009, the Company and the bank executed a written agreement (“Regulator Agreement”) with the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions Division (collectively, the “Regulators”). The Regulator Agreement is based on findings of the Regulators identified in an examination of the Bank and the Company during January and February of 2009.

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Under the terms of the Regulator Agreement, the Company and or the Bank agreed, among other things, to engage an independent consultant acceptable to the Regulators to assess the Bank’s management and staffing needs, assess the qualifications and performance of all officers of the Bank, and assess the current structure and compositions of the Bank’s board of directors and its committees. In addition, within 60 days of the Regulator Agreement, the Company and or the Bank will submit a written plan to strengthen lending and credit risk management practices and improve the Bank’s position regarding past due loans, problem loans, classified loans, and other real estate owned; maintain sufficient capital at the Bank, holding company and the consolidated level; improve the Bank’s earnings and overall condition; and improve management of the Bank’s liquidity position, funds management process, and interest rate risk management. The Company and or the Bank have also agreed to maintain an adequate allowance for loan and lease losses; charge-off or collect assets classified as “loss” in the Report of Examination that have not been previously collected or charged off; not to pay any dividends; not to distribute any interest, principal or other sums on trust preferred securities; not to issue, increase or guarantee any debt; not to purchase or redeem any shares of the Company’s stock; and not to accept any new brokered deposits, even if the Bank is considered well capitalized. The term “new brokered deposits” does not include renewals or rollovers of brokered deposits. Within 30 days of the Regulator Agreement, the Bank must submit a written plan to the Regulators for reducing its reliance on brokered deposits.

The Board of Directors of the Company and the Bank are also required to appoint a joint Compliance Committee to monitor and coordinate the Company’s and the Bank’s compliance with the provisions of the Regulator Agreement, obtain prior approval for the appointment of new directors, the hiring or change in responsibilities of senior executive officers; and to comply with restrictions on severance payments and indemnification payments to institution affiliated parties.

Failure to comply with the provisions of the Regulator Agreement could subject the Company and/or the Bank to additional enforcement actions. We believe that the Company and or the Bank have already implemented or are acting in accordance with most of the requirements of the Regulator Agreement, and we intend to take such actions as may be necessary to enable the Company and or the Bank to comply with the remaining requirements of the Regulator Agreement. However, there can be no assurance that the Company will be able to comply fully with the provisions of the Regulator Agreement, or that efforts to comply with the Regulator Agreement will not have adverse effects on the operations and financial condition of the Company.

The Bank will continue to conduct its banking business with customers in a normal fashion. The Bank’s deposits will remain insured by the FDIC to the maximum limits allowed by law. 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 June 30, 2009, the Company and the Bank had approximately $79 million of allowance for loan losses which was excluded from regulatory capital.

As of June 30, 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	$	247,616	10.6	%	$	187,152	8.0	%	$	233,940	10.0	%
Bank subsidiary		251,522	10.8	%		186,853	8.0	%		233,566	10.0	%
Tier I capital to risk-weighted assets:
Consolidated		164,116	7.0	%		93,576	4.0	%		140,364	6.0	%
Bank subsidiary		221,339	9.5	%		93,427	4.0	%		140,140	6.0	%
Tier I capital to average total assets:
Consolidated		164,116	4.7	%		140,821	4.0	%		176,026	5.0	%
Bank subsidiary		221,339	6.3	%		140,669	4.0	%		175,836	5.0	%

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12. Federal Home Loan Bank Advances

First Community Bank has FHLB advances as follows:

	As of June 30, 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
$75 million note payable to FHLB, interest only at 1.00% payable monthly, due on July 30, 2009		75,000		—
$30 million note payable to FHLB, interest only at 2.66%, payable monthly, due on October 2, 2009		30,000		30,000
$75 million note payable to FHLB, interest only at 1.85% payable monthly, due on January 29, 2010		75,000		—
$30 million note payable to FHLB, interest only at 2.73%, payable monthly, due on April 12, 2010		30,000		30,000
$25 million note payable to FHLB, interest only at 2.07% payable monthly, due on July 30, 2010		25,000		—
$75 million note payable to FHLB, interest only at 2.27% payable monthly, due on September 20, 2010		75,000		—
$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		—
$30 million note payable to FHLB, interest only at 2.54%, payable monthly, due on April 2, 2012		30,000		—
$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		3,515		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		4,824		5,328
Total	$	498,339	$	497,594

As of June 30, 2009, the contractual maturities of FHLB advances are as follows:

	(Dollars in thousands)
2009	$	106,292
2010		207,699
2011		152,278
2012		31,218
2013		852
Total	$	498,339

All outstanding borrowings with the FHLB are collateralized by the Company’s loan portfolio, cash, and marketable securities as discussed in Note 1.

13. Income Taxes

There was no income tax expense for the three and six months ended June 30, 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 not be realized. A valuation allowance of $29.0 million was established at December 31, 2008. The valuation allowance at June 30, 2009 was $41.3 million. The net deferred tax asset as of June 30, 2009 represents the amount of taxes paid in 2008 and 2007 that could be recovered by carrying back tax losses in 2009. After the Colorado branch sale, the Company increased the estimated rate at which net deferred taxes are expected to be realized to 39.5%. The income tax benefit for the three and six months ended June 30, 2008 resulted from the pre-tax loss. The effective income tax rate of 18.7% and 18.1%, respectively, for the three and six months ended June 30, 2008, is due to the impact of permanent non-deductible and non-taxable items in 2008, principally the non-deductible portion of the goodwill impairment charge.

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14. Subsequent Events

As of the date of our filing, we have had no material change since June 30, 2009 that would impact the Company’s consolidated financials for the period ended June 30, 2009.

On July 29, 2009, the FHLB increased the Company’s collateral requirement. Management expects to deliver an additional $425 million in par value of loans and investment securities to satisfy the additional requirements. See discussion in Note 1.

On August 5, 2009, the Company announced the retention of Keefe, Bruyette & Woods (“KBW”) as a financial advisor to the Corporation for the review of strategic alternatives to enhance shareholder value, including the possibility of entering into a business combination with a strategic partner. There can be no assurance that the review of strategic alternatives will result in the Company pursuing any particular transaction or strategy, or if it pursues any such transaction or strategy, that it will be completed. The Company does not expect to make further public comment regarding the review until the Board of Directors has approved a specific transaction or otherwise deems disclosure of significant developments is appropriate.

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.

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 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission. We have also included our revised risk factors that are relevant for the current period.

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Risk Factors

It may be difficult to trade our shares if we are unable to maintain our listing on the Nasdaq Stock Market or if our stock becomes subject to the penny stock rules of the Securities and Exchange Commission (“SEC”).

Our shares are currently listed with Nasdaq on its Global Select Market. This listing is dependent on us maintaining certain minimum listing standards, including, among others, minimum bid price and stockholders’ equity standards. If we continue to incur losses as we did in 2008 and in the six months ended June 30, 2009 and cannot maintain the standards for continued listing on the Nasdaq Global Select Market, our common stock could be subject to delisting. Trading in our common stock could then be conducted on the over-the-counter market on the OTC Bulletin Board, and we could become subject to the penny stock rules maintained by the SEC. These rules impose additional sales practice requirements on broker-dealers. The additional sales practice requirements could materially adversely affect the willingness or ability of broker-dealers to sell our common stock. As a result, it may be difficult to sell shares or to obtain accurate quotations as to the price of our shares. In addition, it may be more difficult for us to obtain additional equity financing due to liquidity concerns of potential investors. In the past six months, our share price has been below $1.00, but not for thirty consecutive business days, the determining time for failure to meet the minimum bid price on Nasdaq. We have not received a notice from Nasdaq concerning our trading price. Although Nasdaq previously suspended its rules requiring a minimum bid price until July 31, 2009, such rules have now been reinstated. We believe we are currently in compliance with all other listing standards applicable to us. There can be no assurance that we will be able to maintain compliance or that the Nasdaq Stock Market will not revise the standards in a way that would make it more difficult for us to comply.

We operate in a highly regulated environment; changes in federal and state laws and regulations and accounting principles may adversely affect us.

We are a bank holding company. Bank holding companies and their subsidiaries operate in a highly regulated environment, subject to extensive supervision and examination by federal and state bank regulatory agencies. We are subject to changes in federal and state law, as well as changes in regulation and governmental policies, income tax law, and accounting principles. Any change in applicable regulations, or federal or state legislation, or in accounting principles could have a significant impact on us and our results of operations. Additional legislation or regulations, including the EESA (“Emergency Economic Stabilization Act”) and any other legislation or regulation that could be brought about by the current credit and liquidity crisis, may significantly affect our powers, authority, and operations. If new legislation, regulations, or accounting principles are enacted or adopted, our results of operations and financial condition may be adversely affected.

In particular, we are subject to the Bank Holding Company Act of 1956, as amended, and to regulation and supervision by the Federal Reserve Board. First Community Bank, as a state member bank of the Federal Reserve System, is subject to regulation and supervision by the Federal Reserve Board and the New Mexico Financial Institutions Division of the Regulation and Licensing Department and, because its deposits are insured, by the Federal Deposit Insurance Corporation. Our operations in Arizona may also be subject to regulation and supervision by the Arizona State Banking Department. Regulators have significant discretion and power to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of the regulators’ supervisory and enforcement duties. If regulators exercise these powers, our results of operations and financial condition may be adversely affected.

The Federal Reserve Board has a policy stating that a bank holding company is expected to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support the subsidiary bank. Under this doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices if it fails to commit resources to such a subsidiary bank. A capital injection may be required at times when the holding company may be required to borrow the funds or otherwise obtain the funds from external sources. If we are required to make such a capital injection, we may need to seek capital in order to do so and we may not be able to borrow or otherwise raise capital on favorable terms, or at all.

Non-compliance of our Regulator Agreement may adversely affect our operations.

As a result of the most recent safety and soundness examination of the Company and our subsidiary First Community Bank, which was conducted jointly by the Federal Reserve and the New Mexico Financial Institutions Division, we entered into an agreement on July 2, 2009 (the “Regulator Agreement”). Under the terms of the Regulator Agreement, we agreed, among other things, to engage an independent consultant acceptable to the regulators to assess

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the Bank’s management and staffing needs, assess the qualifications and performance of all officers of the Bank, and assess the current structure and compositions of the Bank’s board of directors and its committees. In addition, within 60 days of the Regulator Agreement, the Company and or the Bank will submit a written plan to strengthen lending and credit risk management practices and improve the Bank’s position regarding past due loans, problem loans, classified loans, and other real estate owned; maintain sufficient capital at the Bank, holding company and the consolidated level; improve the Bank’s earnings and overall condition; and improve management of the Bank’s liquidity position, funds management process, and interest rate risk management. The Company and or the Bank have also agreed to maintain an adequate allowance for loan and lease losses; charge-off or collect assets classified as “loss” in the Report of Examination that have not been previously collected or charged off; not to pay any dividends; not to distribute any interest, principal or other sums on trust preferred securities; not to issue, increase or guarantee any debt; not to purchase or redeem any shares of the Company’s stock; and not to accept any new brokered deposits, even if the Bank is considered well capitalized. There can be no assurance that the Company and or the Bank’s plans or level of capital will be deemed sufficient by the Regulators. Compliance with the terms of the Regulator Agreement may be expensive, and may take a significant amount of time of our management. However, if we fail to comply with the terms of the Regulator Agreement, we may be subject to further regulations.

Defaults in the repayment of loans may negatively affect our business.

A borrower’s default on its obligations under one or more of our loans may result in lost principal and interest income and increased operating expenses as a result of the allocation of management time and resources to the collection and work-out of the loan. In certain situations, where collection efforts are unsuccessful or acceptable work-out arrangements cannot be reached, we may have to write-off the loan in whole or in part. In these situations, we may acquire real estate or other assets, if any, which secure the loan through foreclosure or other similar available remedies. In these cases, the amount owed under the defaulted loan often exceeds the value of the assets acquired.

We regularly make a determination of an allowance for loan losses based on available information, including the quality of and trends in our loan portfolio, economic conditions, the value of the underlying collateral, historical charge-offs, and the level of our non-accruing loans. Provisions for this allowance result in an expense for the period. Given the current economic conditions and trends, management believes we will continue to experience credit deterioration and higher levels of nonperforming loans in the near-term, which may cause us to continue to have negative earnings or otherwise adversely impact our financial condition and results of operations.

To qualify as collateral under the FHLB credit policy, loans must not be past due 90 days or more or classified substandard or below. Continuing deterioration of the loan performance could result in the Company being unable to satisfy the collateral requirements of the FHLB and the financial condition of the Company may be adversely affected.

As of June 30, 2009, our allowance for loan losses was $109.1 million or 4.89% of total loans held for investment. Our allowance for loan losses may not be sufficient to cover future loan losses. Future adjustments to the allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used or further adverse developments arise with respect to our nonperforming or performing loans. Material additions to our allowance for loan losses could have a material adverse effect on our financial condition and results of operations.

In addition, bank regulatory agencies periodically review our allowance for loan losses and the values we attribute to real estate acquired through foreclosure or other similar remedies. These regulatory agencies may require us to adjust our determination of the value for these items. If we are required to adjust our allowance for loan losses, our results of operations and financial condition may be adversely affected.

Our profitability depends significantly on local and overall economic conditions.

Our success is dependent to a significant extent upon local economic conditions in the communities we serve and the general economic conditions in the United States. The economic conditions, including real estate values, in these areas and throughout the United States, have a significant impact on loan demand, the ability of borrowers to repay these loans, and the value of the collateral securing these loans. The current decline in general economic conditions, including the decline in real estate values, has resulted in an increase in our nonperforming assets and an increase in our charge-offs on defaulted loans during 2008. A further decline in economic conditions, including depressed real estate values, over a prolonged period of time in any of these areas could cause additional significant increases in nonperforming assets and could continue to affect our ability to recover on defaulted loans by foreclosing and selling the real estate collateral, which could continue to cause decreased operating results, liquidity, and capital. As of June 30, 2009, approximately 86% of the book value of our loan portfolio consisted of loans collateralized by various types of real estate.

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Our loan portfolio is currently concentrated in New Mexico, Colorado, Utah, and Arizona. Adverse economic conditions in these states could have a greater effect on our ability to attract deposits and result in high rates of loss and delinquency on our loan portfolio compared to competitors who may have more geographic diversification.

We may not be able to meet the cash flow requirements of our depositors and borrowers unless we have sufficient liquidity.

Liquidity is the ability to meet current and future cash flow needs on a timely basis at a reasonable cost. Our liquidity is used to make loans and to repay deposit liabilities as they become due or are demanded by customers. We regularly monitor our overall liquidity position to ensure that various alternative strategies exist to cover unanticipated events that could affect liquidity. Without sufficient liquidity from these potential sources, we may not be able to meet the cash flow requirements of our depositors and borrowers. Also, see Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”

The recent disruption and illiquidity in the credit markets are continuing challenges that have generally made potential funding sources more difficult to access, less reliable, and more expensive. In addition, liquidity in the inter-bank market, as well as the markets for commercial paper, certificates of deposits, and other short-term instruments have significantly contracted. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. These market conditions have made the management of our own and our customers’ liquidity significantly more challenging. At December 31, 2008, all outstanding borrowings with the FHLB were collateralized by a blanket pledge agreement on the Company’s loan portfolio. Subsequent to December 31, 2008, the FHLB notified the Company that its blanket lien will be replaced by a custody arrangement, whereby the FHLB will have custody and endorsement of the loans that collateralize its FHLB borrowings. Sufficient collateral was delivered to satisfy the original requirements of the custody arrangement; however, effective July 29, 2009, the FHLB increased the collateral requirement. Loan collateral with approximately $900 million in par value and approximately $90 million in cash and investment securities has been delivered as collateral to FHLB and management expects to deliver an additional $425 million in par value of loans and investment securities if needed to satisfy the additional requirements. Management believes that we have sufficient loan and investment securities collateral to deliver to the FHLB to fully satisfy the new requirements. However, as the collateral values are determined subjectively by the FHLB, 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, the Company no longer has the ability to draw down additional advances. 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.

Based on the Company’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. The Company has not received any notice from the FHLB regarding a call of its outstanding debt.

A further deterioration in the credit markets or a prolonged period without improvement of market liquidity could adversely affect our liquidity and financial position, including our regulatory capital ratios, and could adversely affect our business, results of operations, and prospects.

Supervisory guidance on commercial real estate concentrations could restrict our activities and impose financial requirements or limitations on the conduct of our business.

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation have joint supervisory guidance on sound risk management practices for concentrations in commercial real estate lending. The guidance is intended to help ensure that institutions pursuing a significant commercial real estate lending strategy remain healthy and profitable while continuing to serve the credit needs of their communities. The agencies are concerned that rising commercial real estate loan concentrations may expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in commercial real estate markets. The guidance reinforces and enhances existing regulations and guidelines for safe and sound real estate lending. The guidance provides supervisory criteria, including numerical indicators to assist in identifying institutions

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with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny. The guidance does not limit banks’ commercial real estate lending, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations. The lending and risk management practices will be taken into account in supervisory evaluation of capital adequacy. Our commercial real estate portfolio as of June 30, 2009, meets the definition of commercial real estate concentration as set forth in the final guidelines. If our risk management practices are found to be deficient, it could result in increased reserves and capital costs.

Fluctuations in interest rates could reduce our profitability.

Our net interest income may be reduced by changes in the interest rate environment. Our earnings depend to a significant extent on the interest rate differential. The interest rate differential or “spread” is the difference between the interest earned on loans, securities, and other interest-earning assets, and interest paid on deposits, borrowings, and other interest-bearing liabilities. These rates are highly sensitive to many factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. In particular, changes in the discount rate by the Board of Governors of the Federal Reserve System (“Federal Reserve”) usually lead to changes in interest rates, which affect our interest income, interest expense, and securities portfolio. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations. We cannot assure you that we can minimize our interest rate risk. In addition, an increase in the general level of interest rates may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, which may cause us to continue to have negative earnings or otherwise adversely impact our results of operations and financial condition.

In addition, our net income is affected by our interest rate sensitivity. Interest rate sensitivity is the difference between our interest-earning assets and our interest-bearing liabilities maturing or repricing within a given time period. Interest rate sensitivity is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. Since the middle of 2007, and as of December 31, 2008, the Federal Reserve has lowered the discount rate 500 basis points which has negatively impacted our interest spread. As of June 30, 2009, our cumulative interest rate gap for the period up to three months was a positive $636.4 million. If additional rate decreases occur, our results of operations and financial condition may be further adversely affected.

Our real estate construction loan portfolio may expose us to increased credit risk.

At June 30, 2009, our portfolio of real estate construction loans totaled $835.6 million or 37.2% of total loans. Approximately 43% of these loans are related to residential construction and approximately 57% are for commercial purposes or vacant land. During 2007, 2008, and the first half of 2009, the housing markets declined, evidenced by excess lot inventory and higher levels of completed unsold housing inventory. The decline in the housing market, sub-prime loan crisis, and tightening of credit markets has led to higher than normal foreclosure rates on a national level. Of the states that we operate in, Arizona, where we have the lowest dollar amount of real estate construction loans, has had the largest downturn in the residential real estate market. Although New Mexico, Colorado, and Utah have not experienced as significant a downturn in the residential real estate market, foreclosure rates have had a ripple effect on the construction industry as well as the acquisition and development sectors exposing us to increased credit risk within our construction loan portfolio.

Banking regulations have restricted our ability to pay dividends.

The Company and First Community Bank are both currently precluded from paying dividends pursuant to the Regulator Agreement. There is no assurance that the Company or First Community Bank will be able or permitted to resume paying dividends.

Although we hold all of the outstanding capital stock of First Community Bank, we are a legal entity separate and distinct from First Community Bank. Our ability to pay dividends on our common stock or service our obligations will depend primarily on the ability of First Community Bank to pay dividends to us. First Community Bank’s ability to pay dividends and make other capital distributions to us is governed by federal and state law. Federal and state regulatory limitations on a bank’s dividends generally are based on the bank’s capital levels and current and retained earnings. The earnings of First Community Bank may not be sufficient to make capital distributions to us in an amount sufficient for us to service our obligations or to pay dividends on our common stock. During the third quarter of 2008, we suspended the payment of interest on all of our existing trust preferred securities, pursuant to an informal agreement with regulators. We have since entered into the Regulator Agreement which prohibits us from making such payments.

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First Community Bank is prohibited under federal law from paying any dividend that would cause it to become “undercapitalized.” It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of income available from the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. Federal Reserve Board policy also provides that bank holding companies should not maintain such a level of cash dividends that would undermine the bank holding company’s ability to provide financial resources as needed to its insured banking subsidiaries. Additionally, the Federal Reserve Board has the right to object to a distribution on safety and soundness grounds. Depending upon the circumstances, the Federal Reserve Board could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

The terms of our trust preferred securities may restrict our ability to pay dividends.

The terms of our trust preferred securities allow us to suspend payments of interest, at our option, for up to five years. Since we have exercised our option to suspend those payments, we are prohibited from paying any dividends on any class of capital stock for as long as the trust preferred interest payments remain suspended. Pursuant to the Regulator Agreement, we are prohibited from paying interest on all of our existing trust preferred securities. Our ability to make interest payments on the trust preferred securities is highly dependent on receiving dividends from First Community Bank. There is no assurance that we will be able to resume making the interest payments.

Consolidated Condensed Balance Sheets

Our total assets decreased by $422.7 million from $3.415 billion as of December 31, 2008, to $2.992 billion as of June 30, 2009. The decrease in total assets is primarily due to the branch sale of approximately $387 million in loans and $20 million in premises and equipment. Our deposits decreased by $324.6 million from $2.523 billion at December 31, 2008, to $2.198 billion at June 30, 2009. The decrease in deposits is primarily due to the branch sale of approximately $512 million in deposits and a reduction in brokered deposits of $112 million, offset by in increase in our non-brokered deposits of $296 million.

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

	June 30, 2009				December 31, 2008				June 30, 2008
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Commercial	$	279,507	12.4	%	$	356,769	13.0	%	$	352,039	12.9	%
Real estate-commercial		898,435	40.0	%		1,172,952	42.6	%		1,060,150	38.8	%
Real estate-one- to four-family		186,184	8.3	%		270,613	9.8	%		272,509	10.0	%
Real estate-construction		835,561	37.2	%		896,117	32.5	%		987,306	36.2	%
Consumer and other		31,570	1.4	%		41,474	1.5	%		45,062	1.6	%
Mortgage loans available for sale		14,648	0.7	%		16,664	0.6	%		12,611	0.5	%
Total	$	2,245,905	100.0	%	$	2,754,589	100.0	%	$	2,729,677	100.0	%

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

	June 30, 2009				December 31, 2008				June 30, 2008
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Non-interest-bearing	$	399,626	18.2	%	$	453,319	18.0	%	$	522,015	19.7	%
Interest-bearing demand		297,871	13.6	%		296,732	11.8	%		327,370	12.4	%
Money market savings accounts		452,811	20.6	%		471,011	18.6	%		614,666	23.2	%
Regular savings		91,865	4.2	%		100,691	4.0	%		110,139	4.2	%
Certificates of deposit less than $100,000		245,252	11.2	%		325,110	12.9	%		358,362	13.5	%
Certificates of deposit greater than $100,000		418,543	19.0	%		471,826	18.7	%		631,408	23.8	%
CDARS Reciprocal deposits		113,031	5.1	%		212,249	8.4	%		62,943	2.4	%
Brokered deposits		178,895	8.1	%		191,604	7.6	%		20,000	0.8	%
Total	$	2,197,894	100.0	%	$	2,522,542	100.0	%	$	2,646,903	100.0	%

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Consolidated Results of Operations

Our net loss for the three months ended June 30, 2009 was $6.2 million or $(0.30) per diluted share, compared to a net loss of $118.3 million or $(5.87) per diluted share for the same period in 2008. First State’s net loss for the six months ended June 30, 2009 was $30.6 million, or $(1.49) per diluted share, compared to a net loss of $114.4 million, or $(5.68) per diluted share for the same period in 2008. The net loss for the three and six months ended June 30, 2009 resulted primarily from the increase in provision for loan losses due to increased non-performing assets and increased charge-offs partially offset by the gain on the sale of our Colorado branches of $23.3 million in June 2009. The net loss for the three and six months ended June 30, 2008 was the result of a $127.4 million non-cash goodwill impairment charge and an increased provision for loan losses due primarily to increased levels of non-performing assets.

First State has disclosed in this Form 10-Q certain non-GAAP financial measures to provide meaningful supplemental information regarding First State’s operational performance and to enhance investors’ overall understanding of First State’s operating financial performance. Management believes that these non-GAAP financial measures allow for additional transparency and are used by some investors, analysts, and other users of First State’s financial information as performance measures. These non-GAAP financial measures are presented for supplemental informational purposes only for understanding First State’s operating results and should not be considered a substitute for financial information presented in accordance with GAAP. These non-GAAP financial measures presented by First State may be different from non-GAAP financial measures used by other companies. The table below presents performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measurements to the GAAP financial measurements.

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FINANCIAL SUMMARY:

	Three Months Ended June 30,						Six Months Ended June 30,
(Unaudited - $ in thousands except per-share amounts)	2009			2008			2009			2008
Net income (loss) as reported	$	(6,226	)	$	(118,307	)	$	(30,599	)	$	(114,382	)
Goodwill impairment charge, net of tax		—			107,484			—			107,484
Gain on sale of Colorado branches		(23,292	)		—			(23,292	)		—
Net income (loss) excluding goodwill impairment charge and gain on sale of Colorado branches	$	(29,518	)	$	(10,823	)	$	(53,891	)	$	(6,898	)
GAAP basic and diluted earnings (loss) per share	$	(0.30	)	$	(5.87	)	$	(1.49	)	$	(5.68	)
Diluted earnings (loss) per share excluding goodwill impairment charge and gain on sale of Colorado branches	$	(1.43	)	$	(0.54	)	$	(2.61	)	$	(0.34	)
GAAP return on average assets		(0.71	)%		(13.58	)%		(1.77	)%		(6.65	)%
Return on average assets excluding goodwill impairment charge and gain on sale of Colorado branches		(3.35	)%		(1.24	)%		(3.12	)%		(0.40	)%
GAAP return on average equity		(18.59	)%		(149.19	)%		(42.71	)%		(72.38	)%
Return on average equity excluding goodwill impairment charge and gain on sale of Colorado branches		(88.13	)%		(13.65	)%		(75.22	)%		(4.36	)%
Non-interest income as reported	$	30,068		$	6,987		$	39,702		$	13,199
Gain on sale of Colorado branches		(23,292	)		—			(23,292	)		—
Non-interest income excluding gain on sale of Colorado branches	$	6,776		$	6,987		$	16,410		$	13,199
Non-interest expense as reported	$	30,112		$	155,134		$	57,171		$	182,895
Goodwill impairment charge		—			(127,365	)		—			(127,365	)
Non-interest expense excluding goodwill impairment charge	$	30,112		$	27,769		$	57,171		$	55,530
Efficiency ratio *		54.76	%		405.76	%		62.84	%		241.13	%
Efficiency ratio excluding goodwill impairment charge and gain on sale of Colorado branches		95.01	%		72.63	%		84.47	%		73.21	%
GAAP operating expenses to average assets		3.42	%		17.81	%		3.31	%		10.64	%
Operating expenses to average assets excluding goodwill impairment charge and gain on sale of Colorado branches		3.42	%		3.19	%		3.31	%		3.23	%
Net interest margin		2.96	%		3.96	%		3.11	%		4.04	%
Average equity to average assets		3.80	%		9.10	%		4.15	%		9.19	%
Leverage ratio:
Consolidated		4.66	%		7.11	%		4.66	%		7.11	%
Bank Subsidiary		6.29	%		7.88	%		6.29	%		7.88	%
Total risk based capital ratio:
Consolidated		10.58	%		10.44	%		10.58	%		10.44	%
Bank Subsidiary		10.77	%		10.32	%		10.77	%		10.32	%

* (Efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.)

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The net loss excluding the gain on sale of our Colorado branches for the second quarter was a loss of $29.5 million, or $(1.43) per diluted share. This compares to a net loss, excluding a goodwill impairment charge, net of tax, of $10.8 million or $(0.54) per diluted share for the second quarter of 2008. The net loss excluding the gain on sale of Colorado branches for the six months ended June 30, 2009, was $53.9 million compared to a net loss excluding goodwill impairment charge of $6.9 million for 2008. The net operating loss per diluted share excluding the gain on sale of Colorado branches for the six months ended June 30, 2009 was $(2.61) compared to a net loss per diluted share excluding goodwill impairment charge of $(0.34) for the same period in 2008.

Our net interest income decreased $6.3 million to $24.9 million for the three months ended June 30, 2009 compared to $31.2 million for the same period in 2008. This decrease was composed of a $9.5 million decrease in total interest income, partially offset by a $3.2 million decrease in total interest expense.

The decrease in total interest income for the three months ended June 30, 2009 was composed of a decrease of $11.1 million due to a 1.54% decrease in the yield on average interest-earning assets, partially offset by an increase of $1.4 million due to increased average interest earning assets of $210.7 million. The increase in average earning assets occurred primarily in interest-bearing deposits with other banks.

The decrease in total interest expense for the three months ended June 30, 2009 was composed of a decrease of $5.8 million due to a 0.63% decrease in the cost of interest-bearing liabilities, partially offset by an increase of $2.6 million due to increased average interest-bearing liabilities of $183.4 million. The increase in average interest-bearing liabilities was primarily due to an increase in average interest-bearing deposits of $101.6 million. Average long-term borrowings increased by $280.5 million, offset by a decrease in average short-term debt of $72.7 million, and a decrease in securities sold under agreements to repurchase of $125.9 million.

Our net interest income decreased $11.4 million to $51.3 million for the six months ended June 30, 2009 compared to $62.7 million for the same period in 2008. This decrease was composed of a $21.3 million decrease in total interest income, partially offset by a $9.9 million decrease in total interest expense.

The decrease in total interest income for the six months ended June 30, 2009 was composed of a decrease of $26.1 million due to a 1.68% decrease in the yield on average interest-earning assets, partially offset by an increase of $5.1 million due to increased average interest earning assets of $205.2 million. The increase in average interest earning assets occurred primarily in interest bearing deposits with other banks, and loans.

The decrease in total interest expense for the six months ended June 30, 2009 was composed of a decrease of $15.3 million due to a 0.89% decrease in the cost of interest-bearing liabilities, partially offset by an increase of $5.5 million due to increased average interest-bearing liabilities of $179.3 million. The increase in average interest-bearing liabilities was primarily due to an increase in average long term debt of $215.2 million, partially offset by a decrease in securities sold under agreements to repurchase of $103.2 million, and an increase in interest-bearing deposits of $70.2 million.

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, along with the increase in non-performing assets throughout 2008 and the first half of 2009. The Federal Reserve Bank has lowered the federal funds target rate by 500 basis points, 400 of which occurred in calendar 2008, 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.

Our asset sensitivity including the increase in excess cash during the second quarter of 2009, the decrease in the prime lending rate over the last eighteen months, the increase in non-accrual loans combined with an increase in borrowings and slow and minimal deposit repricing continues to have a negative impact on the net interest margin. The average level of excess cash including interest-bearing deposits with other banks and federal funds sold increased by $219 million and $131 million for the three and six months ended June 30, 2009, respectively while non-accrual loans increased from $74 million at the end of June 30, 2008 to $211 million at the end of June 30, 2009. Of the $211 million, only $185 million negatively impacted the net interest margin. Average borrowings increased $82 million and $109 million for the three and six months ended June 30, 2009, respectively, generating additional interest expense during the period. From a deposit perspective, we have lowered selected deposit rates since the beginning of 2008, but

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continue to remain competitive in the markets we serve. During the second quarter of 2009 we were required to monitor and maintain our deposit rates no higher than 75 bps above the average local area rates consistent with regulatory requirements for “adequately capitalized” institutions. This contributed to a decrease in our cost of deposits during the second quarter of 2009; however, the excess cash liquidity and increase in non accrual loans negated much of the benefit of the decrease in deposit rates on the overall net interest margin.

In the first quarter of 2009, in order to increase our liquidity position, we issued additional brokered deposits and borrowed additional funds from the Federal Home Loan Bank (“FHLB”), resulting in an increase in lower yielding cash on the balance sheet. We also focused on longer maturities of brokered deposits issued in the first quarter of 2009, as well as longer maturities of FHLB borrowings over the next two to three years to further strengthen our liquidity position. Although these activities as noted above have contributed to the recent margin compression, we continue to believe that the improvement in our current liquidity position clearly outweighs the potential margin compression that could continue 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.

Non-interest Income and Non-interest Expense

An analysis of the components of non-interest income for the three months ended June 30, 2009 and 2008 is presented in the table below.

Non-interest income (Dollars in thousands)	Three Months Ended June 30,
	2009		2008		$ Change			% Change
Service charges	$	3,690	$	3,722	$	(32	)	(1	)%
Credit and debit card transaction fees		1,044		1,039		5		—
Gain on sale or call of investment securities		—		110		(110	)	(100	)
Gain on sale of loans		1,260		1,109		151		14
Gain on sale of Colorado branches		23,292		—		23,292		—
Other		782		1,007		(225	)	(22	)
	$	30,068	$	6,987	$	23,081		330	%

The increase in gain on sale of mortgage loans is primarily due to increased volumes. During the second quarter of 2009 we sold $106 million in loans compared to $76 million during the same period in 2008, realizing a smaller gain per loan sold.

The gain on sale of our Colorado branches is from the completion of our sale transaction to Great Western Bank on June 26, 2009.

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An analysis of the components of non-interest expense for the three months ended June 30, 2009 and 2008 is presented in the table below.

Non-interest expense (Dollars in thousands)	Three Months Ended June 30,
	2009		2008		$ Change			% Change
Salaries and employee benefits	$	12,437	$	12,763	$	(326	)	(3	)%
Occupancy		3,623		4,138		(515	)	(12	)
Data processing		1,435		1,377		58		4
Equipment		1,496		1,913		(417	)	(22	)
Legal, accounting, and consulting		1,589		790		799		101
Marketing		678		734		(56	)	(8	)
Telephone		423		573		(150	)	(26	)
Other real estate owned		815		1,200		(385	)	(32	)
FDIC insurance premiums		3,782		530		3,252		614
Amortization of intangibles		601		640		(39	)	(6	)
Goodwill impairment charge		—		127,365		(127,365	)	(100	)
Other		3,233		3,111		122		4
	$	30,112	$	155,134	$	(125,022	)	(81	)%

The decrease in salaries and employee benefits is primarily due to a decrease in headcount. At June 30, 2009, full time equivalent employees totaled 587 compared to 905 at June 30, 2008. The decrease is also due to a decrease in incentive bonus expense, a decrease in self-insured medical and dental claims, partially offset by increased mortgage commissions and separation pay associated with the sale of the Colorado branches and the closure of our Colorado Mortgage division. The separation pay related to the Colorado branches and the Colorado Mortgage division totaled $1.3 million.

The decrease in occupancy is primarily due to a decrease in building depreciation expense and leasehold amortization due to the classification of the Colorado branches to held for sale prior to the completion of the sale, and lower lease impairment charges in the second quarter of 2009 compared to 2008.

The decrease in equipment is primarily due to the decrease in depreciation expense on equipment related to the Colorado branches classified as held for sale prior to the completion of the sale.

The increase in legal, accounting, and consulting resulted from legal fees of approximately $350,000 incurred in connection with the sale of our Colorado branches, and consulting costs of approximately $170,000 related to a staffing model that was prepared in connection with our continued efforts to control non-interest expenses. In addition, legal fees in 2009 have been higher as a result of higher levels of non performing loans.

The decrease in expenses for other real estate owned is primarily due to a decrease in write-downs of properties to reflect their fair values, partially offset by an increase in other expenses related to the properties.

The increase in FDIC insurance premiums is due in part to new FDIC assessment rates that took effect on January 1, 2009, as well as an increase in average deposits. Also, in February 2009, the FDIC adopted an additional final rule which included an additional uniform two basis point increase as well as other adjustments that took effect on April 1, 2009. In addition, in May 2009, the FDIC issued a final rule establishing a special assessment of five basis points on each FDIC-insured depository institution’s assets, minus its Tier 1 capital, as of June 30, 2009. The special assessment which totaled $1.4 million will be collected September 30, 2009.

The goodwill impairment charge represents the write-off of goodwill in the second quarter of 2008.

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An analysis of the components of non-interest income for the six months ended June 30, 2009 and 2008 is presented in the table below.

Non-interest income (Dollars in thousands)	Six Months Ended June 30,
	2009		2008			$ Change			% Change
Service charges	$	7,453	$	6,714		$	739		11	%
Credit and debit card transaction fees		1,996		1,976			20		1
Gain (loss) on sale or call of investment securities		2,754		(126	)		2,880		(2,286	)
Gain on sale of loans		2,625		2,356			269		11
Gain on sale of Colorado branches		23,292		—			23,292		—
Other		1,582		2,279			(697	)	(31	)
	$	39,702	$	13,199		$	26,503		201	%

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

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 increase capital. The loss on investment securities in 2008 includes an “other-than-temporary” impairment 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, partially offset by gains from calls and sales of securities during the period.

The increase in gain on sale of mortgage loans is primarily due to increased volumes. During the first half of 2009 we sold $210 million in loans compared to $161 million during the same period in 2008, realizing a smaller gain per loan sold.

The gain on sale of our Colorado branches is from the completion of our sale transaction to Great Western Bank on June 26, 2009.

The decrease in other non-interest income is due primarily to a decrease in check imprint income, and a decrease in earnings on cash deposited with our official check outsourcing vendor.

An analysis of the components of non-interest expense for the six months ended June 30, 2009 and 2008 is presented in the table below.

Non-interest expense (Dollars in thousands)	Six Months Ended June 30,
	2009		2008		$ Change			% Change
Salaries and employee benefits	$	23,959	$	26,280	$	(2,321	)	(9	)%
Occupancy		7,441		8,163		(722	)	(9	)
Data processing		2,912		2,926		(14	)	—
Equipment		3,411		4,057		(646	)	(16	)
Legal, accounting, and consulting		2,943		1,366		1,577		115
Marketing		1,337		1,481		(144	)	(10	)
Telephone		794		1,066		(272	)	(26	)
Other real estate owned		1,775		1,702		73		4
FDIC insurance premiums		5,268		995		4,273		429
Amortization of intangibles		1,203		1,280		(77	)	(6	)
Goodwill impairment charge		—		127,365		(127,365	)	(100	)
Other		6,128		6,214		(86	)	(1	)
	$	57,171	$	182,895	$	(125,724	)	(69	)%

The decrease in salaries and employee benefits is primarily due to a decrease in headcount. At June 30, 2009, full time equivalent employees totaled 587 compared to 905 at June 30, 2008. The decrease is also due to a decrease in incentive bonus expense, a decrease in self-insured medical and dental claims, partially offset by increased mortgage commissions and separation-pay associated with the sale of the Colorado branches and the closure of our Colorado Mortgage division.

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The decrease in occupancy is primarily due to a decrease in building depreciation expense and leasehold amortization due to classification of the Colorado branches to held for sale prior to the completion of the sale, and lower lease impairment charges in the second quarter of 2009 compared to 2008.

The decrease in equipment is primarily the decrease in depreciation expense on equipment related to the Colorado branches classified as held for sale prior to the completion of the sale.

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

The increase in expenses for other real estate owned is primarily due to an increase in the number of properties partially offset by a decrease in Oreo write-downs.

The increase in FDIC insurance premiums is due to new FDIC assessment rates that took effect on January 1, 2009, the five basis point special assessment, as well as an increase in deposits. The final rule also permits the imposition of an additional emergency special assessment after June 30, 2009, of up to five basis points per quarter through 2009.

The decrease in other non-interest expense includes decreases in supply expense, delivery expense, check imprint expense, and travel and entertainment expense which are part of our bank wide expense reduction strategy, partially offset by increases in our D & O insurance.

There was no income tax benefit for the three and six months ended June 30, 2009, as the net operating loss and other net deferred tax assets were fully offset by a deferred tax asset valuation allowance.

Allowance for Loan Losses

We use a systematic methodology, which is applied monthly to determine the amount of allowance for loan losses and the resultant provisions for loan losses we consider adequate to provide for anticipated loan losses. The allowance is increased by provisions charged to operations, and reduced by loan charge-offs, net of recoveries. The following table sets forth information regarding changes in our allowance for loan losses for the periods indicated.

	Six months ended June 30, 2009			Year ended December 31, 2008			Six months ended June 30, 2008
	(Dollars in thousands)
ALLOWANCE FOR LOAN LOSSES:
Balance beginning of period	$	79,707		$	31,712		$	31,712
Provision for loan losses		64,400			71,618			32,600
Net charge-offs		(27,185	)		(23,623	)		(5,328	)
Allowance related to loans sold		(7,827	)		—			—
Balance end of period	$	109,095		$	79,707		$	58,984
Allowance for loan losses to total loans held for investment		4.89	%		2.91	%		2.17	%
Allowance for loan losses to non-performing loans		52	%		67	%		80	%
	June 30, 2009			December 31, 2008			June 30, 2008
	(Dollars in thousands)
NON-PERFORMING ASSETS:
Accruing loans – 90 days past due	$	—		$	4,139		$	1
Non-accrual loans		211,303			114,138			73,929
Total non-performing loans	$	211,303			118,277			73,930
Other real estate owned		29,671			18,894			15,610
Total non-performing assets	$	240,974		$	137,171		$	89,540
Potential problem loans	$	258,922		$	130,884		$	74,791
Total non-performing assets to total assets		8.05	%		4.02	%		2.58	%

Our provision for loan losses was $31.1 million and $64.4 million for the three and six month periods ended June 30, 2009, respectively, compared to $28.7 million and $32.6 million for the same periods in 2008. The increase in the

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provision during the six months of 2009 resulted from the increase in non-performing loans, and the increase in net charge-offs. 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.

Approximately 39% of our non-performing loans are in New Mexico, approximately 28% are in Colorado, approximately 25% are in Utah, and approximately 8% are in Arizona. The real estate construction loan category currently comprises the largest percentage of non-performing loans, at approximately 70% at June 30, 2009. Of the $836 million of real estate construction loans, approximately 43% are related to residential construction and approximately 57% are for commercial purposes or vacant land.

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

During the second quarter of 2009, we continued to focus our attention on the overall liquidity position of the Bank due to the current economic environment in addition to our classification as an “adequately capitalized” institution. We continued to accumulate and maintain excess cash liquidity from loan reductions and increased deposits to compensate for the inability to rollover or issue new brokered deposits including our CDARS Reciprocal deposits while considered an “adequately capitalized” institution. During the quarter, excluding the Colorado branch sale, our efforts contributed to a reduction in the total loan portfolio of $73 million and helped grow deposits $136 million excluding brokered deposits. As a result of our inability to rollover or issue new brokered deposits, we decreased our reliance on brokered deposits by $156 million during the quarter. Approximately $98 million of the decrease was made up of CDARS Reciprocal deposits consisting of our customers who we were not able to renew due to the classification of these deposits as brokered deposits under the regulatory definition.

The Company’s primary sources of funds are customer deposits, loan repayments, maturities of and cash flow from investment securities, and borrowings. Borrowings may include federal funds purchased and securities sold under agreements to repurchase. 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 FHLB borrowings, or as collateral for other sources.

The Company’s most liquid assets are cash and cash equivalents and marketable investment securities that are not pledged as collateral. The levels of these assets are dependent on operating, financing, lending and investing activities during any given period. At June 30, 2009, the carrying value of these assets, approximating $673.7 million, consisted of $219.6 million in cash and cash equivalents and $454.1 million in marketable investment securities. Approximately $50.0 million of cash and cash equivalents and $416.0 million of marketable investment securities were pledged as collateral for borrowings, federal funds lines, repurchase agreements and for public funds on deposit at June 30, 2009.

At December 31, 2008, all outstanding borrowings with the FHLB were collateralized by a blanket pledge agreement on the Company’s loan portfolio. Subsequent to December 31, 2008, the FHLB notified the Company that its blanket lien was replaced by a custody arrangement, whereby the FHLB will have custody and endorsement of the loans that collateralize its FHLB borrowings. In addition to cash and investment securities of approximately $90 million, loan collateral with par value of approximately $900 million was delivered to satisfy the original requirements of the custody arrangement. However, effective July 29, 2009, the FHLB increased the collateral requirement. Management expects to deliver an additional $425 million in par value of loans and investment securities to satisfy the additional requirements. For loans to qualify as collateral, they must not be past due 90 days or more, must not be classified substandard or below, and must not be a loan to a director, employee or agent of the Company or the FHLB. Management believes the Company has sufficient loan and investment securities collateral to deliver to the FHLB to

- 35 -

fully satisfy the new requirements. However, as the collateral values are determined subjectively by the FHLB, 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, the Company no longer has the ability to draw down additional advances. 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.

Based on the Company’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. The Company has not received any notice from the FHLB regarding a call of its outstanding debt.

During the second quarter, management was also able to establish two additional federal funds borrowing lines for a total capacity of approximately $60 million at June 30, 2009 fully collateralized by investment securities.

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 formal agreement. On July 2, 2009, the Company and the bank executed a written agreement (the “Regulator Agreement”) with the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions Division. The Regulator Agreement is based on findings of the Regulators identified in an examination of the Bank and the Company during January and February of 2009. Several of the provisions in the Regulator Agreement are similar to an informal agreement entered into by the Company and the Bank in September 2008.

Under the terms of the Regulator Agreement, the Company and or the Bank agreed, among other things, to engage an independent consultant acceptable to the Regulators to assess the Bank’s management and staffing needs, assess the qualifications and performance of all officers of the Bank, and assess the current structure and compositions of the Bank’s board of directors and its committees. In addition, within 60 days of the Regulator Agreement, the Company and or the Bank will submit a written plan to strengthen lending and credit risk management practices and improve the Bank’s position regarding past due loans, problem loans, classified loans, and other real estate owned; maintain sufficient capital at the Bank, holding company and the consolidated level; improve the Bank’s earnings and overall condition; and improve management of the Bank’s liquidity position, funds management process, and interest rate risk management. The Company and or the Bank have also agreed to maintain an adequate allowance for loan and lease losses; charge-off or collect assets classified as “loss” in the Report of Examination that have not been previously collected or charged off; not to pay any dividends; not to distribute any interest, principal or other sums on trust preferred securities; not to issue, increase or guarantee any debt; not to purchase or redeem any shares of the Company’s stock; and not to accept any new brokered deposits, even if the Bank is considered well capitalized. The term “new brokered deposits” does not include renewals or rollovers of brokered deposits. Within 30 days of the Regulator Agreement, the Bank must submit a written plan to the Regulators for reducing its reliance on brokered deposits.

The Board of Directors of the Company and the Bank are also required to appoint a joint Compliance Committee to monitor and coordinate the Company’s and the Bank’s compliance with the provisions of the Regulator Agreement, obtain prior approval for the appointment of new directors, the hiring or change in responsibilities of senior executive officers; and to comply with restrictions on severance payments and indemnification payments to institution affiliated parties.

Failure to comply with the provisions of the Regulator Agreement could subject the Company and/or the Bank to additional enforcement actions. We believe that the Company and or the Bank have already implemented or are acting

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in accordance with most of the requirements of the Regulator Agreement, and we intend to take such actions as may be necessary to enable the Company and or the Bank to comply with the remaining requirements of the Regulator Agreement. However, there can be no assurance that the Company will be able to comply fully with the provisions of the Regulator Agreement, or that efforts to comply with the Regulator Agreement will not have adverse effects on the operations and financial condition of the Company.

The Bank will continue to conduct its banking business with customers in a normal fashion. The Bank’s deposits will remain insured by the FDIC to the maximum limits allowed by law.

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 including the potential sale of other loans and normal loan amortization.

In October 2008, we applied for $90 million of capital from the U.S. government under TARP, but withdrew that application in the first quarter 2009 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 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 June 30,
	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	$	336,756		$	4,437	5.28	%	$	343,799		$	5,687	6.65	%
Real estate		2,262,569			29,110	5.16	%		2,252,069			36,642	6.54	%
Consumer		35,576			903	10.18	%		45,684			1,142	10.05	%
Mortgage		20,409			249	4.89	%		15,028			215	5.75	%
Other		1,065			—	—			2,453			—	—
Total loans		2,656,375			34,699	5.24	%		2,659,033			43,686	6.61	%
Allowance for loan losses		(92,619	)						(35,494	)
Securities:
U.S. government and mortgage-backed		364,454			3,817	4.20	%		398,711			4,612	4.65	%
State and political subdivisions:
Non-taxable		100,945			1,166	4.63	%		80,962			954	4.74	%
Taxable		3,384			50	5.93	%		2,737			40	5.88	%
Other		30,661			123	1.61	%		22,679			210	3.72	%
Total securities		499,444			5,156	4.14	%		505,089			5,816	4.63	%
Interest-bearing deposits with other banks		225,212			143	0.25	%		2,499			18	2.90	%
Federal funds sold		303			—	—			4,050			21	2.09	%
Total interest-earning assets		3,381,334			39,998	4.74	%		3,170,671			49,541	6.28	%
Non-interest-earning assets:
Cash and due from banks		69,464							65,925
Other		173,269							302,631
Total non-interest-earning assets		242,733							368,556
Total assets	$	3,531,448						$	3,503,733
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing demand accounts	$	332,539		$	528	0.64	%	$	331,389		$	703	0.85	%
Certificates of deposit > $100,000		497,532			3,931	3.17	%		662,600			6,001	3.64	%
Certificates of deposit < $100,000		333,727			2,557	3.07	%		370,333			3,701	4.02	%
Money market savings accounts		586,833			2,308	1.58	%		534,646			3,180	2.39	%
Regular savings accounts		103,365			134	0.52	%		109,594			202	0.74	%
CDARS Reciprocal		147,550			999	2.72	%		68,667			645	3.78	%
Brokered CDs		206,987			1,037	2.01	%		29,689			327	4.43	%
Total interest-bearing deposits		2,208,533			11,494	2.09	%		2,106,918			14,759	2.82	%
Securities sold under agreements to repurchase		60,814			37	0.24	%		186,730			620	1.34	%
Short-term borrowings		150,330			543	1.45	%		223,009			1,250	2.25	%
Long-term debt		348,220			2,227	2.57	%		67,722			541	3.21	%
Junior subordinated debentures		98,410			779	3.18	%		98,557			1,125	4.59	%
Total interest-bearing liabilities		2,866,307			15,080	2.11	%		2,682,936			18,295	2.74	%
Non-interest-bearing demand accounts		505,412							481,463
Other non-interest-bearing liabilities		25,384							20,388
Total liabilities		3,397,103							3,184,787
Stockholders’ equity		134,345							318,946
Total liabilities and stockholders’ equity	$	3,531,448						$	3,503,733
Net interest income				$	24,918						$	31,246
Net interest spread						2.63	%						3.54	%
Net interest margin						2.96	%						3.96	%
Ratio of average interest-earning assets to average interest-bearing liabilities						117.97	%						118.18	%

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	Six Months Ended June 30,
	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	$	342,216		$	9,003	5.31	%	$	340,687		$	11,953	7.06	%
Real estate		2,293,800			59,239	5.21	%		2,203,221			76,120	6.95	%
Consumer		37,312			1,862	10.06	%		46,086			2,328	10.16	%
Mortgage		22,652			505	4.50	%		16,338			479	5.90	%
Other		1,192			—	—			2,478			—	—
Total loans		2,697,172			70,609	5.28	%		2,608,810			90,880	7.01	%
Allowance for loan losses		(92,125	)						(33,893	)
Securities:
U.S. government and mortgage-backed		354,699			7,768	4.42	%		402,450			9,173	4.58	%
State and political subdivisions:
Non-taxable		99,651			2,306	4.67	%		77,719			1,848	4.78	%
Taxable		3,419			100	5.90	%		1,613			48	5.98	%
Other		30,917			264	1.72	%		21,105			447	4.26	%
Total securities		488,686			10,438	4.31	%		502,887			11,516	4.61	%
Interest-bearing deposits with other banks		126,340			169	0.27	%		2,823			55	3.92	%
Federal funds sold		12,101			12	0.20	%		4,562			59	2.60	%
Total interest-earning assets		3,324,299			81,228	4.93	%		3,119,082			102,510	6.61	%
Non-interest-earning assets:
Cash and due from banks		66,214							66,441
Other		180,951							306,296
Total non-interest-earning assets		247,165							372,737
Total assets	$	3,479,339						$	3,457,926
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing demand accounts	$	320,739		$	1,045	0.66	%	$	333,454		$	1,579	0.95	%
Money market savings accounts		543,169			4,632	1.72	%		485,142			6,328	2.62	%
Regular savings accounts		102,434			262	0.52	%		108,124			437	0.81	%
Certificates of deposit > $100,000		488,357			7,938	3.28	%		693,331			13,240	3.84	%
Certificates of deposit < $100,000		333,764			5,251	3.17	%		372,808			7,770	4.19	%
CDARS Reciprocal deposits		172,383			2,256	2.64	%		67,808			1,427	4.23	%
Brokered CDs		207,494			2,054	2.00	%		37,446			1,003	5.39	%
Total interest-bearing deposits		2,168,340			23,438	2.18	%		2,098,113			31,784	3.05	%
Securities sold under agreements to repurchase		95,044			136	0.29	%		198,287			1,912	1.94	%
Short-term borrowings		210,374			1,368	1.31	%		213,112			2,875	2.71	%
Long-term debt		254,916			3,316	2.62	%		39,668			708	3.59	%
Junior subordinated debentures		98,428			1,700	3.48	%		98,575			2,580	5.26	%
Total interest-bearing liabilities		2,827,102			29,958	2.14	%		2,647,755			39,859	3.03	%
Non-interest-bearing demand accounts		483,332							470,055
Other non-interest-bearing liabilities		24,432							22,317
Total liabilities		3,334,866							3,140,127
Stockholders’ equity		144,473							317,799
Total liabilities and stockholders’ equity	$	3,479,339						$	3,457,926
Net interest income				$	51,270						$	62,651
Net interest spread						2.79	%						3.58	%
Net interest margin						3.11	%						4.04	%
Ratio of average interest-earning assets to average interest-bearing liabilities						117.59	%						117.80	%

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

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Rising and falling interest rate environments can have various impacts on a bank’s net interest income, depending on the short-term interest rate gap that the bank maintains, the relative changes in interest rates that occur when the bank’s various assets and liabilities reprice, unscheduled repayments of loans, early withdrawals of deposits and other factors. As of June 30, 2009, our cumulative interest rate gap for the period up to three months was a positive $636.4 million and for the period up to one year was a positive $98.9 million. 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 June 30, 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:
Interest-bearing deposits with other banks	$	161,797	$	634		$	232		$	—	$	162,663
Investment securities		43,978		75,799			183,953			181,032		484,762
Federal funds sold		130		—			—			—		130
Loans:
Commercial		159,593		47,454			61,476			10,984		279,507
Real estate		838,023		221,987			586,822			287,996		1,934,828
Consumer		9,547		6,076			12,080			3,867		31,570
Total interest-earning assets	$	1,213,068	$	351,950		$	844,563		$	483,879	$	2,893,460
Interest-bearing liabilities:
Savings and NOW accounts	$	168,508	$	213,786		$	382,300		$	77,953	$	842,547
Certificates of deposit greater than $100,000		92,677		240,514			84,963			389		418,543
Certificates of deposit less than $100,000		55,137		133,945			55,641			529		245,252
CDARS Reciprocal deposits		55,444		52,326			5,261			—		113,031
Brokered deposits		—		111,868			67,027			—		178,895
Securities sold under agreements to repurchase		40,628		—			—			—		40,628
FHLB advances and other		75,642		136,981			285,716			—		498,339
Junior subordinated debentures		88,663		—			9,730			—		98,393
Total interest-bearing liabilities	$	576,699	$	889,420		$	890,638		$	78,871	$	2,435,628
Interest rate gap	$	636,369	$	(537,470	)	$	(46,075	)	$	405,008	$	457,832
Cumulative interest rate gap at June 30, 2009	$	636,369	$	98,899		$	52,824		$	457,832
Cumulative gap ratio at June 30, 2009		2.10		1.07			1.02			1.19

Item 4. Controls and Procedures.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 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 4. Submission of Matters to a Vote of Security Holders.

On June 3, 2009 we held our annual meeting of shareholders. At that meeting the following items were submitted to a vote of security holders:

1. The following four directors were elected:

	Term	Shares Voted
Name		For	Withheld
Michael R. Stanford	1 year	17,497,989	453,861
Nedra J. Matteucci	1 year	17,456,716	495,134
Lowell A. Hare	1 year	17,454,924	496,926
A.J. (Jim) Wells	1 year	17,442,806	509,044

As a result of the election of the above listed directors, our Board of Directors will consist of those directors and the following directors: H. Patrick Dee, Leonard J. DeLayo, Jr., Michael J. Blake, Garrey E. Carruthers, Ph.D., Daniel H. Lopez, Ph.D., and Kathleen L. Avila.

2. Proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2009.

Votes:    For 17,382,977;        Against 544,857;        Abstain 24,016

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)
2.7	Written Agreement, dated July 2, 2009, by and between First Community Bank, Federal Reserve Bank of Kansas City, and New Mexico Financial Institutions Division. (23)
2.8	Retention of Financial Advisor, dated August 5, 2009, by and between First State Bancorporation and Keefe, Bruyette & Woods (24)
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)

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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. *
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.

(23) Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 9, 2009.

(24) Incorporated by reference from First State Bancorporation’s Form 8-K filed on August 6, 2009.

* Filed herewith.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST STATE BANCORPORATION
Date: August 7, 2009	By:	/s/ Michael R. Stanford
		Michael R. Stanford, President & Chief Executive Officer
Date: August 7, 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)
2.7	Written Agreement, dated July 2, 2009, by and between First Community Bank, Federal Reserve Bank of Kansas City, and New Mexico Financial Institutions Division. (23)
2.8	Retention of Financial Advisor, dated August 5, 2009, by and between First State Bancorporation and Keefe, Bruyette & Woods (24)
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.

(23) Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 9, 2009

(24) Incorporated by reference from First State Bancorporation’s Form 8-K filed on August 6, 2009

* Filed herewith.

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