SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

for the quarterly period ended March 31, 2010.

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	¨
Non-accelerated filer	¨	Smaller reporting Company	x

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: 20,813,357 shares of common stock, no par value, outstanding as of May 12, 2010.

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	31
Item 4.	Controls and Procedures	33
PART II. - OTHER INFORMATION
Item 5.	Other Information	34
Item 6.	Exhibits	34
	SIGNATURES	36

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PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements.

First State Bancorporation and Subsidiary

Consolidated Condensed Balance Sheets

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

	(unaudited) March 31, 2010			December 31, 2009
Assets
Cash and due from banks	$	52,070		$	40,863
Interest-bearing deposits with other banks		263,016			104,938
Federal funds sold		151			144
Total cash and cash equivalents		315,237			145,945
Investment securities:
Available for sale (at fair value, amortized cost of $615,259 at March 31, 2010, and $472,737 at December 31, 2009)		616,891			473,580
Held to maturity (at amortized cost, fair value of $57,581 at December 31, 2009)		—			58,455
Non-marketable securities, at cost		27,655			30,089
Total investment securities		644,546			562,124
Mortgage loans held for sale		8,994			14,172
Loans held for investment, net of unearned interest		1,888,950			2,003,518
Less allowance for loan losses		(130,211	)		(129,222	)
Net loans		1,767,733			1,888,468
Premises and equipment (net of accumulated depreciation of $31,128 at March 31, 2010 and $29,934 at December 31, 2009)		33,371			34,583
Accrued interest receivable		7,580			8,106
Other real estate owned		52,471			46,503
Intangible assets (net of accumulated amortization of $4,883 at March 31, 2010, and $4,622 at December 31, 2009)		5,141			5,402
Cash surrender value of bank-owned life insurance		11,113			11,001
Net deferred tax asset		1,771			1,771
Income tax receivable		1,214			28,084
Other assets, net		11,903			12,408
Total assets	$	2,852,080		$	2,744,395
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing	$	364,540		$	350,704
Interest-bearing		1,810,065			1,683,624
Total deposits		2,174,605			2,034,328
Securities sold under agreements to repurchase		36,416			40,646
Federal Home Loan Bank advances		496,386			497,046
Junior subordinated debentures		98,283			98,319
Other liabilities		23,778			27,025
Total liabilities		2,829,468			2,697,364
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 22,492,347 at March 31, 2010 and 22,450,391 at December 31, 2009; outstanding 20,805,547 at March 31, 2010 and 20,729,049 at December 31, 2009		223,783			223,928
Treasury stock, at cost (1,686,800 shares at March 31, 2010 and 1,721,342 shares at December 31, 2009)		(24,427	)		(25,027	)
Retained deficit		(178,376	)		(152,713	)
Accumulated other comprehensive income:
Unrealized gain on investment securities, net of tax		1,632			843
Total stockholders’ equity		22,612			47,031
Total liabilities and stockholders’ equity	$	2,852,080		$	2,744,395

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Operations

For the three months ended March 31, 2010 and 2009

(unaudited)

(Dollars in thousands, except per share amounts)

	Three Months ended March  31, 2010			Three Months ended March  31, 2009
Interest income:
Interest and fees on loans	$	22,757		$	35,910
Interest on marketable securities:
Taxable		3,511			4,142
Non-taxable		631			1,140
Federal funds sold		—			12
Interest-bearing deposits with other banks		117			26
Total interest income		27,016			41,230
Interest expense:
Deposits		6,839			11,944
Short-term borrowings		199			924
Long-term debt		2,001			1,089
Junior subordinated debentures		594			921
Total interest expense		9,633			14,878
Net interest income		17,383			26,352
Provision for loan losses		(26,200	)		(33,300	)
Net interest loss after provision for loan losses		(8,817	)		(6,948	)
Non-interest income:
Service charges		2,766			3,763
Credit and debit card transaction fees		818			952
Gain on investment securities		2,219			2,754
Gain on sale of loans		573			1,365
Other		407			800
Total non-interest income		6,783			9,634
Non-interest expense:
Salaries and employee benefits		7,405			11,522
Occupancy		2,827			3,818
Data processing		1,220			1,477
Equipment		1,210			1,915
Legal, accounting, and consulting		907			1,354
Marketing		229			659
Telephone		339			371
Other real estate owned		4,487			960
FDIC insurance premiums		1,860			1,486
Amortization of intangibles		261			602
Other		2,884			2,895
Total non-interest expense		23,629			27,059
Loss before income taxes		(25,663	)		(24,373	)
Income tax expense		—			—
Net loss	$	(25,663	)	$	(24,373	)
Loss per share:
Basic loss per share	$	(1.24	)	$	(1.19	)
Diluted loss per share	$	(1.24	)	$	(1.19	)
Dividends per common share	$	—		$	—

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Comprehensive Loss

For the three months ended March 31, 2010 and 2009

(unaudited)

(Dollars in thousands)

	Three months ended March  31, 2010			Three months ended March  31, 2009
Net loss	$	(25,663	)	$	(24,373	)
Other comprehensive income, net of tax - unrealized holding gains on securities available for sale arising during period		1,819			1,704
Change in valuation allowance on deferred tax assets resulting from changes in unrealized holding gains on securities		312			(5	)
Reclassification adjustment for gains included in net income		(1,342	)		(1,707	)
Total comprehensive loss	$	(24,874	)	$	(24,381	)

See accompanying notes to unaudited consolidated condensed financial statements.

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Cash Flows

For the three months ended March 31, 2010 and 2009

(unaudited)

(Dollars in thousands)

	Three Months ended March  31, 2010			Three Months ended March  31, 2009
Cash flows from operating activities:
Net loss	$	(25,663	)	$	(24,373	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		26,200			33,300
Provision for decline in value of other real estate owned		2,277			369
Net loss on sale of other real estate owned		493			94
Depreciation and amortization		1,387			2,068
Share-based compensation expense (benefit)		(163	)		129
Gain on sale of investment securities available for sale		(2,219	)		(2,754	)
Loss on disposal of premises and equipment		3			43
Gain on sale of loans		(573	)		(1,365	)
Increase in bank-owned life insurance cash surrender value		(112	)		(454	)
Amortization of securities, net		2,007			2
Amortization of core deposit intangible		261			602
Mortgage loans originated for sale		(25,160	)		(107,762	)
Proceeds from sale of mortgage loans originated for sale		30,911			103,260
Decrease in accrued interest receivable		526			964
Change in income tax receivable		26,870			—
(Increase) decrease in other assets, net		348			(786	)
Increase (decrease) in other liabilities, net		(2,647	)		1,318
Net cash provided by operating activities		34,746			4,655
Cash flows from investing activities:
Net decrease in loans		65,340			31,691
Purchases of investment securities carried at amortized cost		—			(8,700	)
Maturities of investment securities carried at amortized cost		1,184			1,985
Purchases of investment securities carried at market		(200,739	)		(106,094	)
Maturities of investment securities carried at market		30,991			31,275
Sale of investment securities available for sale		84,709			65,279
Purchases of non-marketable securities carried at cost		(21	)		(31	)
Redemption of non-marketable securities carried at cost		2,455			1,695
Purchases of premises and equipment		(64	)		(250	)
Proceeds from sale of and payments on other real estate owned		15,279			3,694
Proceeds from the sale of fixed assets		7			4
Net cash provided by (used in) investing activities		(859	)		20,548
Cash flows from financing activities:
Net increase in interest-bearing deposits		126,441			160,720
Net increase in non-interest-bearing deposits		13,836			43,907
Net decrease in securities sold under agreements to repurchase		(4,230	)		(48,586	)
Proceeds from Federal Home Loan Bank advances		180,000			400,000
Payments on Federal Home Loan Bank advances		(180,660	)		(398,623	)
Proceeds from common stock issued		18			299
Net cash provided by financing activities		135,405			157,717
Increase in cash and cash equivalents		169,292			182,920
Cash and cash equivalent at beginning of period		145,945			66,580
Cash and cash equivalents at end of period	$	315,237		$	249,500

(Continued)

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First State Bancorporation and Subsidiary

Consolidated Condensed Statements of Cash Flows

For the three months ended March 31, 2010 and 2009

(unaudited)

(Dollars in thousands)

(continued)

	Three Months ended March  31, 2010		Three Months ended March  31, 2009
Supplemental disclosure of noncash investing and financing activities:
Additions to other real estate owned in settlement of loans	$	24,017	$	3,752
Loans originated through the sale of other real estate owned	$	—	$	728
Transfer of loans held for investment to loans held for sale	$	—	$	406,634
Transfer of premises and equipment to premises and equipment held for sale	$	—	$	19,063
Transfer of fixed assets to other assets	$	44	$	477
Transfer of investment securities held to maturity to investment securities available for sale	$	57,280	$	—
Release of common stock held in deferred compensation plan	$	600	$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	9,281	$	13,802
Cash received for income taxes	$	26,870	$	—

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, 2009.

Our consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

The Company’s Board of Directors meets monthly along with the Bank’s Board of Directors 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 H. Patrick Dee, 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 and it is reasonably possible that a change in these estimates will occur in the near term.

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, valuation and other-than-temporary impairment of investment securities, 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 referred to above 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 other real estate owned. Further, regulatory agencies, as an integral part of their examination process, periodically review the allowance for losses on loans and other 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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Capital Adequacy and Regulatory Matters, Going Concern Consideration, and Management’s Plan

During 2008 and 2009, the Company experienced increases in both non-performing assets and potential problem loans, largely due to problem loans in the residential construction and lot development portfolios. At March 31, 2010, non-performing assets continued to increase, while potential problem loans decreased slightly. Potential problem loans are defined as loans presently accruing interest, and not contractually past due 90 days or more, but about which management has doubt as to the future ability of the borrower to comply with present repayment terms, which may result in the reporting of the loans as non-performing assets in the future. The significant increase in non-performing assets and potential problem loans over the last two years has resulted in a significant increase in the level of the Company’s provision for loan losses and the increase in non-accrual loans has continued to put pressure on net interest margin. The margin compression is a direct result of reversals of accrued interest on loans moving to non-accrual status during the period as well as the inability to accrue interest on the respective loans going forward, ultimately resulting in an earning asset with a zero yield. The level of non-accrual loans has increased to $286 million at March 31, 2010 from $258 million at December 31, 2009 and $164 million at March 31, 2009.

At March 31, 2010, the Bank’s regulatory capital status fell to “undercapitalized.” The Bank’s capital ratios are as follows: total risk-based capital ratio of 7.53 percent, a tier 1 risk-based capital ratio of 6.21 percent, and a leverage ratio of 4.11 percent. The total risk-based capital ratio is below the minimum level for adequately capitalized state member banks established by section 38 of the Federal Deposit Insurance Act (the “FDI Act”) and Subpart D of Regulation H of the Board of Governors of the Federal Reserve Bank (the “Federal Reserve”). The Bank is now deemed to be “undercapitalized” for the purposes of section 38 and Regulation H. The FDI Act prohibits the Bank from accepting, renewing, or rolling over any brokered deposits because the Bank is less than adequately capitalized.

Consequently, section 38 and Regulation H provide certain mandatory and discretionary supervisory actions. Provisions applicable to undercapitalized banks include: (i) Restricting payment of capital distributions and management fees; (ii) Requiring that the Federal Reserve monitor the condition of the bank; (iii) Requiring submission of a capital restoration plan; (iv) Restrictions on the growth of the bank’s assets; (v) Requiring prior approval of certain expansion proposals including new lines of business. Section 38 and Regulation H also give the Federal Reserve the discretion to impose a number of other discretionary supervisory actions. These requirements are in addition to those already in place pursuant to a formal agreement with the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions Division (collectively, the “Regulators”) described below.

As noted above, the Bank will be required to submit an acceptable capital restoration plan to the Federal Reserve that specifies the steps the Bank will take to return to adequately capitalized based on reasonable assumptions. If the capital plan is not deemed acceptable, the Federal Reserve could reclassify the capital category of the Bank and subject the Bank to the provisions of section 38 and Regulation H applicable to “significantly undercapitalized” institutions.

If the Bank is considered to be significantly undercapitalized by the Federal Reserve, either through further capital erosion or at the discretion of the Federal Reserve, section 38 and Regulation H allow the Federal Reserve to impose one or more discretionary corrective actions including, but not limited to the following corrective actions: (i) recapitalization or sale of the Bank; (ii) restrictions on the Bank’s transactions with affiliates; or (iii) further restrictions on interest rates paid on deposits. The Federal Reserve may also impose one or more of the discretionary corrective actions listed in section 38(f) of the FDI Act. The corrective actions would be imposed through the issuance of a Prompt Corrective Action Directive, which is a formal public action.

The Company remains “undercapitalized.” At the current time, the Company’s “undercapitalized” classification has no immediate impact on its day-to-day operations because the holding company has no immediate significant cash flow needs or significant obligations that are due in the next twelve months. In addition, the prompt corrective actions required by the Regulators are directed at the Bank. The Bank is currently subject to the prompt supervisory and regulatory actions pursuant to the FDIC Improvement Act of 1991.

In the event that deposit generation is negatively impacted by the recent drop to “undercapitalized” or if the Bank drops to “significantly undercapitalized,” due to possible reclassification by the Federal Reserve, management believes that sufficient cash and liquid assets are on hand to maintain operations and meet all obligations as they come due. The substantial erosion of the Bank’s capital position and the continued deterioration of the loan portfolio makes

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it unlikely that the Bank will be able to return to “adequately capitalized” status under regulatory guidelines without raising additional capital, a strategic merger, selling a significant amount of assets, obtaining government assistance, or some combination thereof.

As the Company’s financial condition has deteriorated, the Company has come under increasingly close scrutiny by its Regulators. On July 2, 2009, the Company and the Bank executed a written agreement (“Regulator Agreement”) with 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. Based on their assessment of the Company’s ability to operate in compliance with the Regulator Agreement, the regulatory authorities have broad discretion to take actions, including placing the Bank into a FDIC-administered receivership or conservatorship. If the Bank is considered to be “significantly undercapitalized” by the Federal Reserve, the Bank could be subject to further prompt corrective action measures of the Federal Reserve or FDIC which would further restrict the interest rates that can be paid on deposits making it difficult to remain competitive. The regulatory provisions under which the regulatory authorities act are intended to protect depositors, the deposit insurance fund and the banking system and are not intended to protect shareholders or other investors in other securities in a bank or its holding company. 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 additional restrictions on operations, substantial fines and other penalties for violation of laws and regulations. The Company cannot predict what additional actions the regulatory authorities may take.

Management has determined that significant additional sources of capital will likely be required for the Company to continue operating through 2010 and beyond. Although management does not believe that the Company currently has the ability to raise new capital through a public offering at an acceptable price, management continues to work with the Company’s investment bankers to evaluate alternative capital strengthening strategies, and are currently working on other initiatives to strengthen the Company’s capital position including the possibility of entering into a business combination with a strategic partner or a transaction with a private equity group. However, 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 condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result should the Company not be able to continue as a going concern.

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

Under the terms of the Regulator Agreement, the Company and 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 was required to 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. Within 30 days of the Regulator Agreement, the Bank was required to 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 Compliance Committee to monitor and coordinate the Company’s and the Bank’s compliance with the provisions of the Regulator Agreement,

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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. Management continues to work closely with the Regulators regarding the Regulator Agreement and believes that the Company and the Bank are in compliance with the requirements of the Regulator Agreement, except for the requirement to submit an acceptable capital plan. Capital plans for the Company and the Bank were submitted timely, but were not accepted by the regulators due to uncertainty around the Company’s ability to execute the plans. Management continues to work toward compliance with the requirements of the capital plans. However, there can be no assurance that the Company and or the Bank 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 Company’s ability to continue as a going concern.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital (as defined in regulations and set forth in the following table) to risk-weighted assets, and of Tier I capital to average total assets (leverage ratio). The regulatory capital calculation limits the amount of allowance for loan losses that is included in capital to 1.25 percent of risk-weighted assets. At March 31, 2010, the Company and the Bank had approximately $105.6 million of allowance for loan losses which was excluded from regulatory capital.

As of March 31, 2010	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	$	45,665	2.4	%	$	149,145	8.0	%	$	186,431	10.0	%
Bank subsidiary		140,204	7.5	%		148,866	8.0	%		186,082	10.0	%
Tier I capital to risk-weighted assets:
Consolidated		22,833	1.2	%		74,573	4.0	%		111,859	6.0	%
Bank subsidiary		115,623	6.2	%		74,433	4.0	%		111,649	6.0	%
Tier I capital to average total assets:
Consolidated		22,833	0.8	%		112,589	4.0	%		140,737	5.0	%
Bank subsidiary		115,623	4.1	%		112,401	4.0	%		140,502	5.0	%

Liquidity

The Company’s liquidity position consists of excess cash liquidity and several other liquidity sources. The cash liquidity at March 31, 2010 of approximately $263 million is made up of excess investable cash on the balance sheet including interest-bearing deposits with other banks and federal funds sold. The Company’s other liquidity sources include two borrowing lines for a total capacity of approximately $91 million, fully collateralized by investment securities and commercial loans, approximately $143 million of unpledged investments, and $8 million of redeemable bank-owned life insurance policies. Our total liquidity position during the first quarter increased $291 million compared to the fourth quarter of 2009 and continues to evolve based on the operations of the Bank. The increase in total liquidity is attributable to $159 million in certificates of deposit generated through deposit listing services outside of the Bank’s normal market areas of New Mexico and Arizona, continued runoff in the loan portfolio including loan payoffs and loan amortization, traditional deposit growth of approximately $25 million, receipt of approximately $26 million of federal tax refunds, and an increase in public customers in the FDIC Transaction Account Guarantee (TAG) program which results in the release of pledged investment securities. The increases were offset by a decline in brokered deposits including CDARS reciprocal maturities of $43 million during the three months ended March 31, 2010.

Management continues to focus their attention on the overall liquidity position of the Bank due to the current economic environment and capital structure of the Bank with particular focus on the level of cash liquidity along with monitoring the other liquidity sources available, including borrowing lines (fully secured by securities or loan collateral), and other assets that can be monetized including the cash surrender value of bank-owned life insurance. The Bank’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. Management continues to accumulate and maintain excess cash liquidity from loan reductions and increases in deposits to compensate for the limited liquidity options currently available.

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At March 31, 2010, the Bank had $126 million in brokered deposits including CDARS reciprocal which will mature in 2010, of which $66 million mature within 90 days. The Bank has maintained significant levels in overnight investments, which combined with normal expected repayments of loans outstanding, should provide adequate cash liquidity required to redeem these brokered deposits at maturity.

The Bank also paid off $105 million in FHLB borrowings during April of 2010 due to the level of excess cash accumulated to date, which decreased our exposure to the FHLB by approximately 20%. As of March 31, 2010, these FHLB borrowings were collateralized by investment securities, approximately 80% of which were released back to the Bank when the borrowings were paid off.

In addition, the Bank is a participating institution in the TAG program for which the FDIC recently approved an Interim Rule extending the expiration of the program from June 30, 2010 to December 31, 2010. The TAG program provides our deposit customers in non-interest bearing and interest-bearing NOW accounts paying fifty basis points or less (twenty-five basis points or less beginning July 1^st) full FDIC insurance for an unlimited amount.

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

2. New Accounting Standards

In January 2010, the FASB issued Accounting Standards Update No. 2010-06. This update provides amendments to Topic 820 “Fair Value Measurements and Disclosures.” The update requires the separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements. The update also requires that reconciliation for fair value measurements using significant unobservable inputs (Level 3) present separately information about purchases, sales, issuances and settlements and clarifies existing disclosures regarding the level of disaggregation and inputs and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Adoption of this guidance effective in 2010 did not have a material impact on the Company’s consolidated financial statements. Management does not expect the guidance effective in 2011 to have a material impact on the Company’s consolidated financial statements.

3. Earnings (Loss) per Common Share

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

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

	Three Months Ended March 31,
	2010							2009
	Income (Numerator)			Shares (Denominator)	Per Share Amount			Income (Numerator)			Shares (Denominator)	Per Share Amount
	(Dollars in thousands, except share and per share amounts)
Basic EPS:
Net loss	$	(25,663	)	20,767,850	$	(1.24	)	$	(24,373	)	20,468,411	$	(1.19	)
Effect of dilutive securities
Options		—		—					—		—
Diluted EPS:
Net loss	$	(25,663	)	20,767,850	$	(1.24	)	$	(24,373	)	20,468,411	$	(1.19	)

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Due to the net loss for the three-month periods ended March 31, 2010 and 2009, 1,016,420 and 1,556,345 weighted average stock options outstanding, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

4. 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 March 31, 2010
Obligations of the U.S. government agencies—Available for sale	$	5,567	$	—	$	57	$	5,510
Mortgage-backed securities (residential):
Pass-through certificates—Available for sale		92,583		953		46		93,490
Collateralized mortgage obligations—Available for sale		453,755		3,154		1,872		455,037
Obligations of states and political subdivisions—Available for sale		63,354		835		1,335		62,854
Federal Home Loan Bank stock		23,125		—		—		23,125
Federal Reserve Bank stock		4,395		—		—		4,395
Bankers’ Bank of the West stock		135		—		—		135
Total	$	642,914	$	4,942	$	3,310	$	644,546
As of December 31, 2009
Obligations of U.S. government agencies—Available for sale	$	5,571	$	—	$	116	$	5,455
Mortgage-backed securities (residential):
Pass-through certificates:
Available for sale		98,007		594		177		98,424
Held to maturity		21,804		693		—		22,497
Collateralized mortgage obligations:
Available for sale		315,668		1,452		2,021		315,099
Held to maturity		2,348		—		703		1,645
Obligations of states and political subdivisions:
Available for sale		53,491		1,456		345		54,602
Held to maturity		34,303		136		1,000		33,439
Federal Home Loan Bank stock		23,103		—		—		23,103
Federal Reserve Bank stock		6,851		—		—		6,851
Bankers’ Bank of the West stock		135		—		—		135
Total	$	561,281	$	4,331	$	4,362	$	561,250

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The amortized cost and estimated market value of investment securities at March 31, 2010, 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	$	1,276	$	1,284
One through five years:
Available for sale		11,709		11,869
Five through ten years:
Available for sale		16,092		16,449
After ten years:
Available for sale		39,844		38,762
Mortgage-backed securities (a)		92,583		93,490
Collateralized mortgage obligations(a)		453,755		455,037
Federal Home Loan Bank stock		23,125		23,125
Federal Reserve Bank stock		4,395		4,395
Bankers’ Bank of the West stock		135		135
Total	$	642,914	$	644,546

(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 3.6 years for pass-through certificates and 2.7 years for collateralized mortgage obligations.

Marketable securities available for sale with a fair value of approximately $460.6 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 March 31, 2010.

Proceeds from sales of investments in debt securities for the three months ended March 31, 2010 were $84.7 million. Gross losses realized were zero for the three months ended March 31, 2010. Gross gains realized were approximately $2.2 million for the three months ended March 31, 2010. 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 March 30, 2010 have been in an unrealized loss position for less than 12 months as summarized in the table below. We have approximately 42 investment positions that are in an unrealized loss position. The underlying cash obligations of Ginnie Mae securities are guaranteed by the U.S. government. 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.

At March 23, 2010, the Company transferred its investment securities classified as held to maturity to available for sale due to the continued deteriorating capital position of the Bank. The potential to monetize gains while reducing risk weighted assets, and the lack of the current tax benefit from obligations of state and political subdivisions to the Company as a result of the losses incurred over the last two years led to the decision to transfer the entire held to maturity portfolio to the available for sale portfolio. Accordingly, the Company reclassified these securities with an amortized cost of $57.3 million, from held to maturity to available for sale as of March 23, 2010. The net unrealized loss at the date of transfer amounted to $350,000 and was recorded in other comprehensive income, net of tax.

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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 March 31, 2010	(Dollars in thousands)
Obligations of the U.S. government agencies	$	5,510	$	57	$	—	$	—	$	5,510	$	57
Mortgage-backed securities		10,566		46		—		—		10,566		46
Collateralized mortgage obligations		156,571		1,291		6,310		581		162,881		1,872
Obligations of states and political subdivisions		7,612		1,043		3,937		292		11,549		1,335
Total	$	180,259	$	2,437	$	10,247	$	873	$	190,506	$	3,310
As of December 31, 2009
Obligations of the U.S. government agencies	$	5,455	$	116	$	—	$	—	$	5,455	$	116
Mortgage-backed securities		39,876		177		—		—		39,876		177
Collateralized mortgage obligations		133,012		1,744		6,265		980		139,277		2,724
Obligations of states and political subdivisions		5,680		1,045		4,350		300		10,030		1,345
Total	$	184,023	$	3,082	$	10,615	$	1,280	$	194,638	$	4,362

5. Loans and Allowance for Loan Losses

Following is a summary of loans by major categories:

	Loans				Non-Performing Loans
	March 31, 2010		December 31, 2009		March 31, 2010		December 31, 2009
	(Dollars in thousands)
Commercial	$	247,194	$	259,353	$	17,058	$	13,037
Consumer and other		25,012		28,202		5,204		5,893
Real estate – commercial		889,777		883,598		62,118		70,065
Real estate – one to four family		175,716		187,085		22,641		22,497
Real estate – construction		551,251		645,280		179,210		146,197
Loans held for investment		1,888,950		2,003,518		286,231		257,689
Mortgage loans available for sale		8,994		14,172		—		—
Total loans	$	1,897,944	$	2,017,690	$	286,231	$	257,689

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. These real estate construction loans are considered to be the loans with the highest risk of loss. Real estate construction loans comprise approximately 29% of the total loans of the Company. Of the $551 million of real estate construction loans, approximately 38% are related to residential construction and approximately 62% are for commercial purposes or vacant land. Approximately 56% of our real estate construction loans are in New Mexico, approximately 20% are in Colorado, approximately 20% are in Utah and approximately 4% are in Arizona.

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The following is a summary of the real estate construction loans by type:

	Construction Loans March 31, 2010
	(Dollars in thousands)
	Total		% of Total		$ Non- Performing		% Non- Performing		$ Delinquent		% Delinquent		YTD Charge Offs Net of Recoveries
1-4 family vertical construction	$	51,819	9	%	$	27,039	52.2	%	$	3,356	6.5	%	$	2,797
1-4 family lots and lot development		162,724	29			73,892	45.4			1,902	1.2			377
Commercial owner occupied		14,220	3			2,366	16.6			—	—			—
Commercial non-owner occupied (land development and vertical construction)		158,300	29			48,522	30.7			9,165	5.8			9,931
Vacant land		164,188	30			27,391	16.7			4,257	2.6			4,397
Total	$	551,251	100	%	$	179,210	32.5	%	$	18,680	3.4	%	$	17,502
	Construction Loans December 31, 2009
	(Dollars in thousands)
	Total		% of Total		$ Non- Performing		% Non- Performing		$ Delinquent		% Delinquent		YTD Charge Offs Net of Recoveries
1-4 family vertical construction	$	63,464	10	%	$	24,098	38.0	%	$	11,548	18.2	%	$	16,185
1-4 family lots and lot development		180,749	28			61,169	33.8			7,534	4.2			31,189
Commercial owner occupied		18,535	3			2,117	11.4			—	—			13
Commercial non-owner occupied (land development and vertical construction)		217,879	33			34,117	15.7			16,238	7.5			13,125
Vacant land		164,653	26			24,696	15.0			1,861	1.1			19,301
Total	$	645,280	100	%	$	146,197	22.7	%	$	37,181	5.8	%	$	79,813

The increase in non-performing loans relates to various small-to medium-sized loans. At March 31, 2010, the non-performing loans included approximately 350 borrower relationships. The largest borrower relationships are loans for acquisition and development of residential lots. The 28 largest, with balances ranging from $2.9 million to $17.5 million, comprise $171.5 million, or 60%, of the total non-performing loans and have balances of $53.5 million in New Mexico, $8.0 million in Arizona, $38.1 million in Colorado, and $71.9 million in Utah. The $171.5 million is net of partial charge-offs of $35.2 million, the majority of which occurred in 2009. The allowance for loan losses on these loans totaled $28.6 million at March 31, 2010. These 28 loans are collateralized by partially developed lots, developed lots and vertical construction. No other non-performing borrower relationship is greater than 1% of the total non-performing loans.

The allowance for loan losses is established through a provision for loan losses charged to operations as losses are estimated. Loan amounts determined to be uncollectible are charged-off to the allowance and recoveries of amounts previously charged-off, if any, are credited to the allowance.

Management uses a systematic methodology, which is applied monthly, to evaluate the amount of allowance for loan losses and the resultant provisions for loan losses it considers adequate to provide for probable inherent losses in the portfolio. This estimate is 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 the estimate.

The allowance consists of specific, historical, and subjective components. The methodology includes the following elements:

– A periodic detailed analysis of the loan portfolio

– A systematic loan grading system

– A periodic review of the summary of the allowance for loan loss balance

– Identification of loans to be evaluated on an individual basis for impairment under ASC Section 310-10-35, “Subsequent Measurement” of ASC Topic 310, “Receivables”

– Consideration of internal factors such as our size, organizational structure, loan portfolio structure, loan administration procedures, past due and delinquency trends, and historical loss experience

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– Consideration of risks inherent in different kinds of lending

– Consideration of external factors such as local, regional, and national economic factors

– An overall evaluation of the quality of the underlying collateral, and holding and disposition costs

Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement, including contractual interest payments. When a loan has been identified as impaired, the amount of impairment is measured using 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 the liquidation of the underlying collateral.

The following summarizes impaired loans, which include troubled debt restructurings (“TDR’s”) at March 31, 2010 and December 31, 2009.

(Dollars in thousands)	March 31, 2010		December 31, 2009
TDR’s – non-performing loans	$	12,431	$	—
TDR’s – performing loans		22,185		—
Total TDR’s		34,616		—
Non TDR’s – non-performing loans		273,553		257,689
Total impaired loans	$	308,169	$	257,689

A TDR is a formal restructuring of a loan where the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a reduction in the stated interest rate, reduction in the loan balance or accrued interest, and extension of the maturity date. TDR’s can involve loans remaining on non-accrual, moving to non-accrual, or continuing on accruing status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of six months to demonstrate the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a non-accrual loan. TDR’s are evaluated in accordance with ASC Topic 310-10-40, “Troubled Debt Restructurings by Creditors.” At March 31, 2010 there were commitments to advance funds on TDR’s of approximately $300,000.

The allowance recorded on total impaired loans in accordance with ASC Section 310-10-35, “Subsequent Measurement” of ASC Topic 310, “Receivables” was approximately $45.0 million and $24.5 million at March 31, 2010 and December 31, 2009, respectively.

We utilize external appraisals to determine the fair value of the collateral for all real estate related loans. Appraisals are obtained upon origination of real estate loans. Updated real estate appraisals are generally obtained at the time a loan is classified as a non-performing asset and determined to be impaired, unless a current appraisal is already on file. New appraisals for impaired loans are obtained annually thereafter or sooner if circumstances indicate that a significant change in value has occurred. Due to the potential for real estate values to change rapidly, appraised values for real estate are discounted to account for deteriorating real estate markets. These discounts consider economic differences that exist in the various markets we serve as well as differences experienced by type of loan and collateral and typically range from 0% to 30% depending on the circumstances surrounding each individual loan. A larger discount may be applied to stale dated appraisals where a current appraisal has been ordered but not yet received. For loans secured by other types of assets such as inventory, equipment, and receivables, the values are typically established based on current financial information of the borrower after applying discounts, usually 50% to 100% for stale dated financial information; however, only 7% of our non-performing loans as of March 31, 2010 are secured by collateral other than real estate.

Historical credit loss rates are applied to all commercial and real estate loans, smaller than an established threshold and thus not subject to individual review. The loss rates are derived from a migration analysis, which tracks the historical net charge-off experience.

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The subjective portion of the allowance for loan losses, which is judgmentally determined, is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pools of loans. In calculating the subjective portion of the allowance for loan loss, we consider levels and trends in delinquencies, charge-offs and recoveries, changes in underwriting and policies, the experience of lending management and staff, national and local economic conditions, industry conditions, changes in credit concentrations, independent loan review results, and overall problem loan levels.

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

	Three months ended March  31, 2010			Year ended December 31,  2009			Three months ended March  30, 2009
	(Dollars in thousands)
ALLOWANCE FOR LOAN LOSSES:
Balance beginning of period	$	129,222		$	79,707		$	79,707
Allowance related to loans sold		—			(7,747	)		(8,469	)
Provision charged to operations		26,200			162,600			33,300
Loans charged-off		(25,528	)		(107,506	)		(14,303	)
Recoveries		317			2,168			1,042
Balance end of period	$	130,211		$	129,222		$	91,277

The allowance for loan losses was 6.89%, 6.45% and 4.01% of total loans held for investment at March 31, 2010, December 31, 2009 and March 31, 2009, respectively.

6. 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.

Accounting guidance 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. This fair value option election is 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 guidance.

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.

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 the majority of securities, the Company obtains fair value measurements from Interactive Data Corporation (“IDC”), an

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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. The Company has five securities consisting of municipal bonds that are classified within level 3 of the valuation hierarchy. These five bonds have a par value of $29.4 million, weighted average coupon of 6.64%, and remaining weighted average lives of 19.74 years. The estimated fair value of these securities totaling $28.4 million is calculated by discounting scheduled or anticipated cash flows through maturity using current rates at which similar bonds would be entered into based on current market conditions, equivalent estimated average lives, and additional credit risk premiums to incorporate associated credit risk.

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 the entry price fair value for 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. External appraisals are used to determine the fair value of the collateral for all real estate related loans. Appraisals are obtained upon origination of real estate loans. Updated real estate appraisals are generally obtained at the time a loan is classified as a non-performing asset and determined to be impaired, unless a current appraisal is already on file. New appraisals for impaired loans are obtained annually thereafter or sooner if circumstances indicate that a significant change in value has occurred. Due to the potential for real estate values to change rapidly, appraised values for real estate are discounted to account for deteriorating real estate markets. These discounts consider economic differences that exist in the various markets we serve as well as differences experienced by type of loan and collateral and typically range from 0% to 30% depending on the circumstances surrounding each individual loan. A larger discount may be applied to stale dated appraisals where a current appraisal has been ordered but not yet received. For loans secured by other types of assets such as inventory, equipment, and receivables, the values are typically established based on current financial information of the borrower after applying discounts, usually 50% to 100% for stale dated financial information; however only 7% of our non-performing loans as of March 31, 2010 are secured by collateral other than real estate. Appraisals with discounts up to 10% are considered Level 2 inputs. Appraisals with discounts greater than 10% and the internally developed estimates, including discounted estimated cash flows of expected repayments are considered Level 3 inputs.

Loans held for sale – These loans are reported at the lower of cost or fair value, less costs to sell. Fair value is determined based on expected proceeds based on sales contracts and commitments. At March 31, 2010 and December 31, 2009, all of the Company’s loans held for sale are carried at cost, as generally, cost is less than the price at which 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.

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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. Due to the potential for real estate values to change rapidly, appraised values for real estate are discounted to account for deteriorating real estate markets. These discounts consider economic differences that exist in the various markets we serve as well as differences experienced by type of loan and collateral and typically range from 0% to 30% depending on the circumstances surrounding each individual loan. A larger discount may be applied to stale dated appraisals where a current appraisal has been ordered but not yet received. Appraisals with discounts up to 10% are considered Level 2 inputs. Appraisals with discounts greater than 10% are considered Level 3 inputs.

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 March 31, 2010 and December 31, 2009. 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.

FHLB advances and other – Fair values for FHLB advances and other are estimated based on the current rates offered for similar borrowing arrangements at March 31, 2010.

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 fair value of financial instruments table below because it is immaterial.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial Assets	Balance as of March  31, 2010		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:
Obligations of U.S. government agencies:	$	5,510	$	—	$	5,510	$	—
Mortgage-backed securities:				—
FHLMC		1,086		—		1,086		—
FNMA		1,002		—		1,002		—
GNMA		540,129		—		540,129		—
Other		6,310		—		6,310		—
Obligations of states and political subdivisions		62,854		—		34,454		28,400
Total securities available for sale	$	616,891	$	—	$	588,491	$	28,400

(Dollars in thousands)	Balance beginning of year		Total  net gains (losses) included  in net Income		Total net  gains (losses) included in other comprehensive income			Purchases, sales, issuances and settlements, net		Net transfers into and/or out of Level 3		Balance end of  year		Net unrealized gains (losses) included in net income related  to assets and liabilities held at period end
Year ended December 31, 2009
Securities available for sale:
Obligations of states and political subdivisions (a) (b)	$	—	$	—	$	(1,000	)	$	—	$	29,400	$	28,400	$	—
Total securities available for sale	$	—	$	—	$	(1,000	)	$	—	$	29,400	$	28,400	$	—

(a) Classified as Level 3 securities in 2010 due to the reclassification from the held to maturity portfolio to the available for sale portfolio where assets are measured at fair value on a recurring basis.

(b) The Company’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstances that caused the transfer.

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Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

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

	Carrying value at March 31, 2010									Period ended March 31,  2010
	(Dollars in thousands)
	Total			Level 1		Level 2		Level 3		Total Losses
Impaired loans including accruing TDR’s	$	308,169		$	—	$	161,794	$	146,375	$	45,726	(1)
Other real estate owned		52,471	(2)		—		43,359		9,112		2,277	(3)
										$	48,003

(1) Total losses on impaired loans represents the sum of charge offs, net of recoveries, of $25,211 million, plus the increase in specific reserves of $20,515 million for the three month period ended March 31, 2010.

(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.

The table below is a summary of fair value estimates as of March 31, 2010, for financial instruments. This table excludes financial instruments that are recorded at fair value on a recurring basis.

	2010
	Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	315,237	$	315,237
Federal Home Loan Bank, Federal Reserve Bank, and Bankers’ Bank of the West stock		27,655		27,655
Loans, net		1,777,733		1,793,182
Accrued interest receivable		7,580		7,580
Cash surrender value of bank-owned life insurance		11,113		11,113
Financial liabilities:
Deposits		2,174,605		2,183,472
Securities sold under agreements to repurchase		36,416		36,416
FHLB advances		496,386		503,719
Junior subordinated debentures		98,283		98,283

7. 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 $145.7 million were outstanding at March 31, 2010.

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 $19.0 million were outstanding at March 31, 2010.

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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.

8. Income Taxes

There was no income tax expense (benefit) for the three months ended March 31, 2010 and 2009, as the net operating loss and other net deferred tax assets were fully offset by a deferred tax asset valuation allowance. ASC Topic 740, “Income Taxes” requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if based on the available evidence, it is more likely than not that such assets will be not be realized. The valuation allowance at March 31, 2010, December 31, 2009, and March 31, 2009 was $64.5 million, $61.7 million and $35.9 million, respectively.

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

Forward-Looking Statements

Certain statements in this Form 10-Q are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s current expectations or predictions of future results or events. We make these forward-looking statements in reliance on the safe harbor provisions provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical fact, included in this Form 10-Q which relate to performance, development or activities that we expect or anticipate will or may happen in the future, are forward looking statements. The discussions regarding our growth strategy, expansion of operations in our markets, acquisitions, dispositions, competition, loan and deposit growth or decline, 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, lack of available credit, lack of confidence in the financial markets, 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, 2009, as filed with the Securities and Exchange Commission.

Consolidated Condensed Balance Sheets

Our total assets increased by $108 million from $2.744 billion as of December 31, 2009 to $2.852 billion as of March 31, 2010. The increase in total assets is primarily due to a $158.1 million increase in interest-bearing deposits with other banks and an $82.4 million increase in investment securities, partially offset by a $120.7 million decrease in net loans. The increase in interest-bearing cash is a result of approximately $159 million in deposits outside of our normal market areas of New Mexico and Arizona generated through deposit listing services, traditional deposit growth of approximately $25 million, and continued runoff in the loan portfolio including loan payoffs and loan amortization. Total deposits were $2.175 billion at March 31, 2010, compared to $2.034 billion at December 31, 2009. Investment securities increased as excess cash was used to purchase GNMA securities which are guaranteed by the U.S. government and therefore have a lower risk weighting for capital purposes.

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

	March 31, 2010				December 31, 2009				March 31, 2009
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Commercial	$	247,194	13.0	%	$	259,353	12.8	%	$	342,963	12.7	%
Real estate-commercial		889,777	46.9			883,598	43.8			1,146,975	42.5
Real estate-one- to four-family		175,716	9.3			187,085	9.3			270,114	10.0
Real estate-construction		551,251	29.0			645,280	32.0			882,733	32.6
Consumer and other		25,012	1.3			28,202	1.4			38,732	1.4
Mortgage loans available for sale		8,994	0.5			14,172	0.7			22,531	0.8
Total	$	1,897,944	100.0	%	$	2,017,690	100.0	%	$	2,704,048	100.0	%

Of the $2.7 billion in total loans at March 31, 2009, $406.6 million were held for sale due to the anticipated sale of our Colorado branches completed in June 2009.

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

	March 31, 2010				December 31, 2009				March 31, 2009
	Amount		%		Amount		%		Amount		%
	(Dollars in thousands)
Non-interest-bearing	$	364,540	16.8	%	$	350,704	17.2	%	$	497,226	18.2	%
Interest-bearing demand		357,784	16.5			353,705	17.4			302,056	11.1
Money market savings accounts		366,073	16.8			381,566	18.8			562,060	20.6
Regular savings		90,534	4.2			88,044	4.3			103,952	3.8
Certificates of deposit less than $100,000		236,474	10.9			232,852	11.5			328,136	12.0
Certificates of deposit greater than $100,000		600,756	27.5			425,739	20.9			485,527	17.9
CDARS Reciprocal deposits		23,401	1.1			56,741	2.8			210,920	7.7
Brokered deposits		135,043	6.2			144,977	7.1			237,292	8.7
Total	$	2,174,605	100.0	%	$	2,034,328	100.0	%	$	2,727,169	100.0	%

Of the $2.7 billion in total deposits at March 31, 2009, $85.8 million of non-interest bearing deposits and $394.2 million of interest-bearing deposits were held for sale due to the anticipated sale of our Colorado branches completed in June 2009.

Consolidated Results of Operations For the Three Months Ended March 31, 2010

Our net loss for the three months ended March 31, 2010 was $25.7 million, or $(1.24) per diluted share, compared to a net loss of 24.4 million or $(1.19) per diluted share for the same period in 2009. The net loss for the three months ended March 31, 2010 resulted primarily from the level of provision for loans losses due to the level of non-performing assets and charge-offs and write-downs of other real estate owned.

Our net interest income decreased approximately $9.0 million to $17.4 million for the three months ended March 31, 2010, compared to $26.4 million for the same period in 2009. This decrease was composed of a $14.2 million decrease in total interest income, partially offset by a $5.2 million decrease in total interest expense.

The decrease in total interest income was composed of a decrease of $5.7 million due to a 1.15% decrease in the yield on average interest-earning assets, and a decrease of $8.5 million due to decreased average interest earning assets of $508.6 million. The decrease in average earning assets occurred primarily in loans, due primarily to our Colorado branch sale in June 2009, partially offset by an increase in average investment securities and interest-bearing deposits with other banks.

The decrease in total interest expense was composed of a decrease of $3.5 million due to a 0.53% decrease in the cost of interest-bearing liabilities, and a decrease of $1.7 million due to decreased average interest-bearing liabilities of $397.9 million. The decrease in average interest-bearing liabilities occurred primarily in average interest-bearing deposits, due to the sale of our Colorado branches in June 2009. Securities sold under agreements to repurchase also

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decreased, primarily due to a shift in depositors’ funds into higher rate deposit products and a shift into non-interest and interest-bearing NOW accounts paying fifty basis points or less as these accounts offered full FDIC insurance for unlimited amounts through the Bank’s participation in the TAG program.

Our net interest margin was 2.56% and 3.27% for the first quarter of 2010 and 2009, respectively. The decrease in the net interest margin is primarily due to the increase in non-performing assets, the repositioning of the investment portfolio, and the increased level of interest bearing cash which has occurred over the last twelve months.

The increase in non-performing loans has continued to put pressure on our net interest margin. The margin compression is a direct result of reversals of accrued interest on loans moving to non-accrual status during the period as well as the inability to accrue interest on the respective loan going forward, ultimately resulting in an earning asset with a zero yield. The level of non-accrual loans has increased to $286 million at the end of March 2010 from $164 million at the end of March 2009. Non-accrual loans currently make up 10.2% of interest earning assets compared to 4.8% a year ago.

The repositioning of the investment portfolio has also contributed to the margin compression as we have sold a significant portion of the investment portfolio with higher yields over the last twelve months in order to monetize gains in the investment portfolio. We have replaced the investments sold with GNMA investments which are 0% risk weighted for regulatory capital purposes, but are at lower yields in the current rate environment as we continue to focus on shorter average life investments in anticipation of rates increasing over the next 12 to 24 months. In addition, during the third quarter of 2009, we classified two Colorado metropolitan municipal district bonds with a fair value of $17.8 million as non-accrual investment securities due to the status of the developments and related uncertainty of the cash flows.

The increased level of interest bearing cash is the result of improving our cash liquidity position in the current banking environment; however, it negatively impacts our margin. In order to generate additional cash liquidity in the first quarter of 2009, 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. This strategy increased our cash liquidity and at the same time resulted in further margin compression by increasing our earning asset base with lower yielding assets and contributing to an increase in interest expense. Management continues to believe it is prudent to operate with the higher levels of excess cash in the near term. In addition, during the first quarter of 2010 we began to focus our efforts on generating deposits outside of our normal market areas of New Mexico and Arizona through the use of two deposit listing services due to our inability to issue brokered deposits. We have focused on maturities of 12 to 24 months for these out of market certificates of deposit with $159 million generated during the quarter.

The rates paid on customer deposits also impact the margin and 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. Although we have lowered selected deposit rates since the beginning of 2009 and are restricted to the rates we can pay as an institution due to our capital category, we continue to remain competitive in the markets we serve.

The extent of future changes in our net interest margin will depend on the amount and timing of any Federal Reserve rate changes, our overall liquidity position, our non-performing asset levels, our ability to manage the cost of interest-bearing liabilities, and our ability to stay competitive in the markets we serve.

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

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Non-interest Income

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

(Dollars in thousands)	First Quarter Ended March 31,
	2010		2009		$ Change			% Change
Service charges	$	2,766	$	3,763	$	(997	)	(26.5	)%
Credit and debit card transaction fees		818		952		(134	)	(14.1	)
Gain (loss) on investment securities		2,219		2,754		(535	)	(19.4	)
Gain on sale of mortgage loans		573		1,365		(792	)	(58.0	)
Other		407		800		(393	)	(49.1	)
	$	6,783	$	9,634	$	(2,851	)	(29.6	)%

The decrease in service charges on deposit accounts is primarily due to the completion of the sale of the Colorado branches on June 26, 2009.

During the first quarters of 2010 and 2009, certain securities were sold at a gain as part of our continued efforts to bolster capital.

The decrease in gain on sale of loans is primarily due to decreased volumes of sales of residential mortgage loans. During the first quarter of 2010, we sold approximately $31 million in loans compared to approximately $103 million during the same period in 2009. The decline in volume is primarily due to the closure of the Colorado mortgage operations in conjunction with the Colorado branch sale and, to a lesser extent, to the continued sluggish housing market.

The decrease in other non-interest income is primarily due to a decrease in bank-owned life insurance income of approximately $342,000. In September 2009, we surrendered bank owned life insurance policies with a current value of approximately $36 million for liquidity and risk-based capital purposes.

Non-interest Expenses

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

(Dollars in thousands)	First Quarter Ended March 31,
	2010		2009		$ Change			% Change
Salaries and employee benefits	$	7,405	$	11,522	$	(4,117	)	(35.7	)%
Occupancy		2,827		3,818		(991	)	(26.0	)
Data processing		1,220		1,477		(257	)	(17.4	)
Equipment		1,210		1,915		(705	)	(36.8	)
Legal, accounting, and consulting		907		1,354		(447	)	(33.0	)
Marketing		229		659		(430	)	(65.3	)
Telephone		339		371		(32	)	(8.6	)
Other real estate owned		4,487		960		3,527		367.4
FDIC insurance premiums		1,860		1,486		374		25.2
Amortization of intangibles		261		602		(341	)	(56.6	)
Other		2,884		2,895		(11	)	(0.4	)
	$	23,629	$	27,059	$	(3,430	)	(12.7	)%

The decrease in salaries and benefits is primarily due to a decrease in headcount. At March 31, 2010, full time equivalent employees totaled 506, compared to 775 at March 31, 2009. The sale of the Colorado branches and the related closure of the Colorado mortgage division accounted for a headcount reduction of 193. The decrease is also due to lower mortgage commissions as a result of reduced volume in mortgage loans originated for sale.

The decrease in occupancy is primarily due to a decrease in building depreciation expense, leasehold amortization, and rent and related expenses due to the sale of the Colorado branches and the Colorado mortgage division closure.

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The decrease in equipment is primarily due to the decrease in depreciation expense on equipment and a decrease in equipment rental and associated costs due to the sale of the Colorado branches and the Colorado mortgage division closure.

The decrease in legal, accounting, and consulting expense is primarily due to expenses incurred in the first quarter of 2009 related to the sale of the Colorado branches that did not recur in 2010.

The decrease in marketing expenses is primarily due to a decrease in direct advertising and Bank sponsorships and contributions resulting from our expense reduction initiative.

The increase in other real estate owned expense is primarily due to an increase in write-downs of properties to reflect their fair values, an increase in losses on sales of properties, and an increase in taxes and insurance incurred on the larger portfolio of properties.

The increase in FDIC insurance premiums is due to higher FDIC assessment rates as well as changes in our deposit mix. 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. The premiums have also been impacted by an additional assessment on balances in the TAG program which have grown to approximately $330 million at March 31, 2010.

The decrease in amortization of intangibles is due to the sale of the Colorado branches on June 26, 2009.

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.

	Three months ended March  31, 2010			Year ended December 31,  2009			Three months ended March  31, 2009
	(Dollars in thousands)
ALLOWANCE FOR LOAN LOSSES:
Balance beginning of period	$	129,222		$	79,707		$	79,707
Allowance related to other loans held for sale		—			(7,747	)		(8,469	)
Provision for loan losses		26,200			162,600			33,300
Net charge-offs		(25,211	)		(105,338	)		(13,261	)
Balance end of period	$	130,211		$	129,222		$	91,277
Allowance for loan losses to total loans held for investment		6.89	%		6.45	%		4.01	%
Allowance for loan losses to non-performing loans		45.49	%		50.15	%		55.80	%
	March 31, 2010			December 31, 2009			March 31, 2009
	(Dollars in thousands)
NON-PERFORMING ASSETS:
Accruing loans – 90 days past due	$	247		$	—		$	2
Non-accrual loans		285,984			257,689			163,585
Total non-performing loans		286,231			257,689			163,587
Other real estate owned		52,471			46,503			17,754
Non-accrual investment securities		17,775			18,775			—
Total non-performing assets	$	356,477		$	322,967		$	181,341
Potential problem loans	$	168,929		$	173,003		$	246,200
Total non-performing assets to total assets		12.50	%		11.77	%		5.11	%

The allowance for loan losses was 6.89%, 6.45% and 4.01% of total loans held for investment at March 31, 2010, December 31, 2009 and March 31, 2009, respectively. Non-performing loans increased by $28.5 million in the first quarter of 2010, to $286.2 million from $257.7 million at December 31, 2009, which compares to increases of $45.3 million, $47.7 million, $17.3 million, and $29.1 million in the first, second, third and fourth quarters of 2009, respectively. Potential problem loans declined by $4.1 million in the first quarter of 2010 to $168.9 million, from $173.0 million at December 31, 2009. Potential problem loans are defined as loans presently accruing interest, and

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not contractually past due 90 days or more, but about which management has doubt as to the future ability of the borrower to comply with present repayment terms, which may result in the reporting of the loans as non-performing assets in the future. Net charge-offs totaled $25.2 million for the first quarter of 2010, as all specific reserves that have been determined to be collateral dependent continued to be charged-off. During the recent economic downturn, the majority of loan losses are attributable to construction, residential development, and vacant land loans. For the quarter ended March 31, 2010, $17.4 million of the $25.2 million in net charge-offs, or 69.0%, were related to construction, residential development, and vacant land loans. For the years ended December 31, 2009 and 2008, construction, residential development, and vacant land loans accounted for 76.8% and 58.1% of net charge-offs, respectively. For the period from January 1, 2008 through March 31, 2010, construction, residential development, and vacant land loan balances have declined by approximately $380 million, including charge-offs of $112.0 million, from $931.0 million at the end of 2007 to $551.3 million at March 31, 2010, a decrease of approximately 40%. 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.

The following summarizes impaired loans, which include non-accrual loans and performing and non-performing troubled debt restructurings (“TDR’s”), at March 31, 2010 and December 31, 2009.

(Dollars in thousands)	March 31, 2010		December 31, 2009
TDR’s – non-performing loans	$	12,431	$	—
TDR’s – performing loans		22,185		—
Total TDR’s		34,616		—
Non TDR’s – non-performing loans		273,553		257,689
Total impaired loans	$	308,169	$	257,689

A TDR is a formal restructuring of a loan where the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a reduction in the stated interest rate, reduction in the loan balance or accrued interest, and extension of the maturity date. TDR’s can involve loans remaining on non-accrual, moving to non-accrual, or continuing on accruing status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of six months to demonstrate the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains classified as a non-accrual loan. TDR’s are evaluated in accordance with ASC Topic 310-10-40, “Troubled Debt Restructurings by Creditors.” At March 31, 2010, there were commitments to advance funds on TDR’s of approximately $300,000.

The allowance recorded on total impaired loans in accordance with ASC Topic 310-10-35 (specific reserves) was approximately $45.0 million and $24.5 million at March 31, 2010 and December 31, 2009, respectively.

Approximately 36% of our non-performing loans are in New Mexico, approximately 22% are in Colorado, approximately 33% are in Utah, and approximately 9% are in Arizona.

Other real estate owned increased approximately $6.0 million compared to December 31, 2009, and $34.7 million compared to March 31, 2009. We continue to be successful in disposing of real estate after gaining control of the properties. During the quarter ended March 31, 2010, we took title to properties totaling $24.0 million and disposed of properties with a carrying value of $15.3 million. Other real estate owned at March 31, 2010 includes $49.0 million in foreclosed or repossessed assets, and $3.5 million in facilities and vacant land listed for sale.

Non-accrual investment securities include 30 year municipal utility district bonds related to two residential housing developments in the Denver, Colorado metropolitan area which are not current on debt service. The terms of the agreements allow the districts to defer interest in the case where available funds from development of the district are not sufficient to cover the debt service. Due to the status of the developments and related uncertainty of the timing of the cash flows, we have classified these investments as non-accrual.

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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.

Capital Adequacy, Regulatory Matters, and Going Concern Considerations

At March 31, 2010, the Bank’s regulatory capital status fell to “undercapitalized.” The Bank’s capital ratios are as follows: total risk-based capital ratio of 7.53 percent, a tier 1 risk-based capital ratio of 6.21 percent, and a leverage ratio of 4.11 percent. The total risk-based capital ratio is below the minimum level for adequately capitalized state member banks established by section 38 of the Federal Deposit Insurance Act (the “FDI Act”) and Subpart D of Regulation H of the Board of Governors of the Federal Reserve Bank (the “Federal Reserve”). The Bank is now deemed to be “undercapitalized” for the purposes of section 38 and Regulation H. The FDI Act prohibits the Bank from accepting, renewing, or rolling over any brokered deposits because the Bank is less than adequately capitalized.

Consequently, section 38 and Regulation H provide certain mandatory and discretionary supervisory actions. Provisions applicable to undercapitalized banks include: (i) Restricting payment of capital distributions and management fees; (ii) Requiring that the Federal Reserve monitor the condition of the bank; (iii) Requiring submission of a capital restoration plan; (iv) Restrictions on the growth of the bank’s assets; (v) Requiring prior approval of certain expansion proposals including new lines of business. Section 38 and Regulation H also give the Federal Reserve the discretion to impose a number of other discretionary supervisory actions. These requirements are in addition to those already in place pursuant to a formal agreement with the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions Division (collectively, the “Regulators”) described below.

As noted above, the Bank will be required to submit an acceptable capital restoration plan to the Federal Reserve that specifies the steps the Bank will take to return to adequately capitalized based on reasonable assumptions. If the capital plan is not deemed acceptable, the Federal Reserve could reclassify the capital category of the Bank and subject the Bank to the provisions of section 38 and Regulation H applicable to “significantly undercapitalized” institutions.

If the Bank is considered to be significantly undercapitalized by the Federal Reserve, either through further capital erosion or at the discretion of the Federal Reserve, section 38 and Regulation H allow the Federal Reserve to impose one or more discretionary corrective actions including, but not limited to the following corrective actions: (i) recapitalization or sale of the Bank; (ii) restrictions on the Bank’s transactions with affiliates; or (iii) further restrictions on interest rates paid on deposits. The Federal Reserve may also impose one or more of the discretionary corrective actions listed in section 38(f) of the FDI Act. The corrective actions would be imposed through the issuance of a Prompt Corrective Action Directive, which is a formal public action.

The Company remains “undercapitalized.” At the current time, the Company’s “undercapitalized” classification has no immediate impact on its day-to-day operations because the holding company has no immediate significant cash flow needs or significant obligations that are due in the next twelve months. In addition, the prompt corrective actions required by the Regulators are directed at the Bank. The Bank is currently subject to the prompt supervisory and regulatory actions pursuant to the FDIC Improvement Act of 1991.

In the event that deposit generation is negatively impacted by the recent drop to “undercapitalized” or if the Bank drops to “significantly undercapitalized,” due to possible reclassification by the Federal Reserve, management believes that sufficient cash and liquid assets are on hand to maintain operations and meet all obligations as they come due. The substantial erosion of the Bank’s capital position and the continued deterioration of the loan portfolio makes it unlikely that the Bank will be able to return to “adequately capitalized” status under regulatory guidelines without raising additional capital, a strategic merger, selling a significant amount of assets, obtaining government assistance, or some combination thereof.

As the Company’s financial condition has deteriorated, the Company has come under increasingly close scrutiny by its Regulators. On July 2, 2009, the Company and the Bank executed a written agreement (“Regulator Agreement”)

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with 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. Based on their assessment of the Company’s ability to operate in compliance with the Regulator Agreement, the regulatory authorities have broad discretion to take actions, including placing the Bank into a FDIC-administered receivership or conservatorship. If the Bank is considered to be “significantly undercapitalized” by the Federal Reserve, the Bank could be subject to further prompt corrective action measures of the Federal Reserve or FDIC which would further restrict the interest rates that can be paid on deposits making it difficult to remain competitive. The regulatory provisions under which the regulatory authorities act are intended to protect depositors, the deposit insurance fund and the banking system and are not intended to protect shareholders or other investors in other securities in a bank or its holding company. 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 additional restrictions on operations, substantial fines and other penalties for violation of laws and regulations. The Company cannot predict what additional actions the regulatory authorities may take.

Management has determined that significant additional sources of capital will likely be required for the Company to continue operating through 2010 and beyond. Although management does not believe that the Company currently has the ability to raise new capital through a public offering at an acceptable price, management continues to work with the Company’s investment bankers to evaluate alternative capital strengthening strategies, and are currently working on other initiatives to strengthen the Company’s capital position including the possibility of entering into a business combination with a strategic partner or a transaction with a private equity group. However, 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 condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result should the Company not be able to continue as a going concern.

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

Under the terms of the Regulator Agreement, the Company and 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 was required to 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. Within 30 days of the Regulator Agreement, the Bank was required to 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 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. Management continues to work closely with the Regulators regarding the Regulator

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Agreement and believes that the Company and the Bank are in compliance with the requirements of the Regulator Agreement, except for the requirement to submit an acceptable capital plan. Capital plans for the Company and the Bank were submitted timely, but were not accepted by the regulators due to uncertainty around the Company’s ability to execute the plans. Management continues to work toward compliance with the requirements of the capital plans. However, there can be no assurance that the Company and or the Bank 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 Company’s ability to continue as a going concern.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital (as defined in regulations and set forth in the following table) to risk-weighted assets, and of Tier I capital to average total assets (leverage ratio). The regulatory capital calculation limits the amount of allowance for loan losses that is included in capital to 1.25 percent of risk-weighted assets. At March 31, 2010, the Company and the Bank had approximately $105.6 million of allowance for loan losses which was excluded from regulatory capital.

As of March 31, 2010	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	$	45,665	2.4	%	$	149,145	8.0	%	$	186,431	10.0	%
Bank subsidiary		140,204	7.5	%		148,866	8.0	%		186,082	10.0	%
Tier I capital to risk-weighted assets:
Consolidated		22,833	1.2	%		74,573	4.0	%		111,859	6.0	%
Bank subsidiary		115,623	6.2	%		74,433	4.0	%		111,649	6.0	%
Tier I capital to average total assets:
Consolidated		22,833	0.8	%		112,589	4.0	%		140,737	5.0	%
Bank subsidiary		115,623	4.1	%		112,401	4.0	%		140,502	5.0	%

Liquidity

The Company’s liquidity position consists of excess cash liquidity and several other liquidity sources. The cash liquidity at March 31, 2010 of approximately $263 million is made up of excess investable cash on the balance sheet including interest-bearing deposits with other banks and federal funds sold. The Company’s other liquidity sources include two borrowing lines for a total capacity of approximately $91 million, fully collateralized by investment securities and commercial loans, approximately $143 million of unpledged investments, and $8 million of redeemable bank owned life insurance policies. Our total liquidity position during the first quarter increased $291 million compared to the fourth quarter of 2009 and continues to evolve based on the operations of the Bank. The increase in total liquidity is attributable to $159 million in certificates of deposit generated through deposit listing services outside of the Bank’s normal market areas of New Mexico and Arizona, continued runoff in the loan portfolio including loan payoffs and loan amortization, traditional deposit growth of approximately $25 million, receipt of approximately $26 million of federal tax refunds, and an increase in public customers in the FDIC Transaction Account Guarantee (TAG) program which results in the release of pledged investment securities. The increases were offset by a decline in brokered deposits including CDARS reciprocal maturities of $43 million during the three months ended March 31, 2010.

Management continues to focus their attention on the overall liquidity position of the Bank due to the current economic environment and capital structure of the Bank with particular focus on the level of cash liquidity along with monitoring the other liquidity sources available, including borrowing lines (fully secured by securities or loan collateral), and other assets that can be monetized including the cash surrender value of bank-owned life insurance. The Bank’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. Management continues to accumulate and maintain excess cash liquidity from loan reductions and increases in deposits to compensate for the limited liquidity options currently available.

At March 31, 2010, the Bank had $126 million in brokered deposits including CDARS reciprocal which will mature in 2010 of which $66 million mature within 90 days. The Bank has maintained significant levels in overnight investments, which combined with normal expected repayments of loans outstanding, should provide adequate cash liquidity required to redeem these brokered deposits at maturity.

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The Bank also paid off $105 million in FHLB borrowings during April of 2010 due to the level of excess cash accumulated to date, which decreased our exposure to the FHLB by approximately 20%. As of March 31, 2010, these FHLB borrowings were collateralized by investment securities, approximately 80% of which were released back to the Bank when the borrowings were paid off.

In addition, the Bank is a participating institution in the TAG program for which the FDIC recently approved an Interim Rule extending the expiration of the program from June 30, 2010 to December 31, 2010. The TAG program provides our deposit customers in non-interest bearing and interest-bearing NOW accounts paying fifty basis points or less (twenty-five basis points or less beginning July 1^st) full FDIC insurance for an unlimited amount.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The following tables set forth, for the periods indicated, information with respect to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense from interest-bearing liabilities, resultant yields or costs, net interest income, net interest spread, net interest margin, and our ratio of average interest-earning assets to average interest-bearing liabilities. No tax equivalent adjustments were made and all average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

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	Three Months Ended March 31,
	2010							2009
	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	$	254,846		$	3,167	5.04	%	$	347,736		$	4,566	5.33	%
Real estate		1,678,509			18,860	4.56	%		2,329,896			30,129	5.24	%
Consumer		25,505			643	10.22	%		39,066			959	9.96	%
Mortgage		6,896			87	5.12	%		20,402			256	5.09	%
Other		1,156			—	—	%		1,321			—	—	%
Total loans		1,966,912			22,757	4.69	%		2,738,421			35,910	5.32	%
Allowance for loan losses		(129,033	)						(91,626	)
Securities:
U.S. government and mortgage-backed		493,988			3,406	2.80	%		344,836			3,951	4.65	%
State and political subdivisions:
Non-taxable		83,477			631	3.07	%		98,343			1,140	4.70	%
Taxable		490			8	6.62	%		3,454			50	5.87	%
Other		28,698			97	1.37	%		31,176			141	1.83	%
Total securities		606,653			4,142	2.77	%		477,809			5,282	4.48	%
Interest-bearing deposits with other banks		184,301			117	0.26	%		26,368			26	0.40	%
Federal funds sold		147			—	0.10	%		24,029			12	0.20	%
Total interest-earning assets		2,758,013			27,016	3.97	%		3,266,627			41,230	5.12	%
Non-interest-earning assets:
Cash and due from banks		47,886							62,927
Other.		146,673							188,718
Total non-interest-earning assets		194,559							251,645
Total assets	$	2,823,539						$	3,426,646
Liabilities and Stockholders’ Equity
Deposits:
Interest-bearing demand accounts	$	365,720		$	398	0.44	%	$	308,808		$	517	0.68	%
Certificates of deposit > $100,000		506,592			2,976	2.38	%		479,079			4,007	3.39	%
Certificates of deposit < $100,000		235,605			1,397	2.40	%		333,802			2,694	3.27	%
Brokered CDs		143,856			793	2.24	%		208,008			1,017	1.98	%
CDARS reciprocal deposits		40,364			230	2.31	%		197,491			1,257	2.58	%
Money market savings accounts		372,397			934	1.02	%		499,021			2,324	1.89	%
Regular savings accounts		89,918			111	0.50	%		101,492			128	0.51	%
Total interest-bearing deposits		1,754,452			6,839	1.58	%		2,127,701			11,944	2.28	%
Federal funds purchased and securities sold under agreements to repurchase		40,176			25	0.25	%		129,654			99	0.31	%
Short-term borrowings		180,000			174	0.39	%		271,085			825	1.23	%
Long-term debt		316,614			2,001	2.56	%		160,575			1,089	2.75	%
Junior subordinated debentures		98,300			594	2.45	%		98,447			921	3.79	%
Total interest-bearing liabilities		2,389,542			9,633	1.63	%		2,787,462			14,878	2.16	%
Non-interest-bearing demand accounts		364,131							461,007
Other non-interest-bearing liabilities		25,036							23,470
Total liabilities		2,778,709							3,271,939
Stockholders’ equity		44,830							154,707
Total liabilities and Stockholders’ equity	$	2,823,539						$	3,426,646
Net interest income				$	17,383						$	26,352
Net interest spread						2.34	%						2.96	%
Net interest margin						2.56	%						3.27	%
Ratio of average interest-earning assets to average interest-bearing liabilities						115.42	%						117.19	%

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

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Rising and falling interest rate environments can have various impacts on a bank’s net interest income, depending on the short-term interest rate gap that the bank maintains, the relative changes in interest rates that occur when the bank’s various assets and liabilities reprice, unscheduled repayments of loans, early withdrawals of deposits and other factors. As of March 31, 2010, our cumulative interest rate gap for the period up to three months was a positive $275,000 and for the period up to one year was a negative $204,000. Based solely on our interest rate gap for the period up to three months, our net income would be favorably impacted by increases in interest rates or unfavorably impacted by decreases in interest rates. For the period three months to less than one year, our net income would be unfavorably impacted by increases in interest rates. However, the current rates on existing financial instruments including caps and floors as instruments reprice or the lack of ability to replace financial instruments at maturity such as brokered deposits may cause fluctuations in the net interest margin inconsistent with general expectations based solely on the movement in interest rates. In addition, a large portion of interest-bearing liabilities include savings and NOW accounts, where rates are influenced more by competition in the marketplace versus changes in the interest rate environment. The amounts could also be significantly affected by external factors such as changes in prepayment assumptions and early withdrawal of deposits. The following table sets forth our estimate of maturity or repricing, and the resulting interest rate gap of our interest-earning assets and interest-bearing liabilities at March 31, 2010.

	Less than three months		Three months to less than one year			One to five years			Over five years		Total
	(Dollars in thousands)
Interest-earning assets:
Investment securities	$	59,734	$	152,712		$	317,657		$	114,443	$	644,546
Interest-bearing deposits with other banks		262,150		627			239			—		263,016
Federal funds sold		151		—			—			—		151
Loans held for investment:
Commercial		130,875		47,634			46,176			22,509		247,194
Real estate		560,839		177,582			543,470			334,853		1,616,744
Consumer		7,551		5,164			9,269			3,028		25,012
Total loans held for investment		699,265		230,380			598,915			360,390		1,888,950
Mortgage loans available for sale		8,994		—			—			—		8,994
Total interest-earning assets	$	1,030,294	$	383,719		$	916,811		$	474,833	$	2,805,657
Interest-bearing liabilities:
Savings and NOW accounts	$	162,877	$	199,485		$	362,368		$	89,661	$	814,391
Certificates of deposit greater than $100,000		129,940		285,848			184,063			905		600,756
Certificates of deposit less than $100,000		60,678		110,005			65,184			607		236,474
Brokered deposits		58,016		67,027			10,000			—		135,043
CDARS reciprocal deposits		7,971		13,422			2,008			—		23,401
Securities sold under agreements to repurchase		36,416		—			—			—		36,416
FHLB advances		210,670		177,067			108,649			—		496,386
Junior subordinated debentures		88,663		9,620			—			—		98,283
Total interest-bearing liabilities	$	755,231	$	862,474		$	732,272		$	91,173	$	2,441,150
Interest rate gap	$	275,063	$	(478,755	)	$	184,539		$	383,660	$	364,507
Cumulative interest rate gap at March 31, 2010	$	275,063	$	(203,692	)	$	(19,153	)	$	364,507
Cumulative gap ratio at March 31, 2010		1.36		0.87			0.99			1.15

Item 4. Controls and Procedures.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2010, pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures and internal control over financial reporting are, to the best of their knowledge, effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

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

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PART II. – OTHER INFORMATION

Item 5. Other Information.

None

Item 6. Exhibits.

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of May 22, 2002, by and among First State Bancorporation, First State Bank N.M. (formerly known as First State Bank of Taos), First Community Industrial Bank, Blazer Financial Corporation, and Washington Mutual Finance Corporation. (19)
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. (4)
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. (5)
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. (6)
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. (10)
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. (15)
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. (22)
2.8	Retention of Financial Advisor, dated August 5, 2009, by and between First State Bancorporation and Keefe, Bruyette & Woods. (23)
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. (9)
3.4	Amended Bylaws of First State Bancorporation. (24)
3.5	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (18)
10.1	Executive Employment Agreement. (19)
10.2	First State Bancorporation 2003 Equity Incentive Plan. (19)
10.3	Executive Deferred Compensation Plan. (19) (Participation and contributions to this Plan have been frozen as of December 31, 2004.)
10.4	First Amendment to Executive Employment Agreement. *
10.5	Officer Employment Agreement. *
10.6	First Amendment to Officer Employment Agreement. *
10.7	First State Bancorporation Deferred Compensation Plan. (3)
10.8	First State Bancorporation Compensation and Bonus Philosophy and Plan. (12)
10.9	First Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (8)
10.10	Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (8)
10.11	Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (13)
10.12	Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (7)
10.13	Third Amendment to First State Bancorporation 2003 Equity Incentive Plan. (9)
10.14	Compensation Committee Approval and Board Ratification of Certain Executive Salaries. (11)
10.15	Fourth Amendment to First State Bancorporation 2003 Equity Incentive Plan. (16)
10.16	Second Amendment to Executive Employment Agreement (Stanford). (14)
10.17	Second Amendment to Executive Employment Agreement (Dee). (14)
10.18	Second Amendment to Executive Employment Agreement (Spencer). (14)
10.19	Second Amendment to Executive Employment Agreement (Martin). (14)
10.20	Key Executives Incentive Plan. (17)
10.21	Second Amendment to the First State Bancorporation Deferred Compensation Plan. (2)
10.22	Executive Compensation Plan of Heritage Bank. (2)

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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. (20)
10.27	Branch purchase agreement, dated as of March 10, 2009, by and among Great Western Bank, First Community Bank, and First State Bancorporation. (21)
14	Code of Ethics for Executives. (19)
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 Current Report on Form 8-K filed September 2, 2005.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(24) Incorporated by reference from First State Bancorporation’s Form 10-K filed on March 31, 2010.

* Filed herewith.

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SIGNATURES

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

	FIRST STATE BANCORPORATION
Date: May 17, 2010	By:	/s/ H. Patrick Dee
		H. Patrick Dee, President & Chief Executive Officer
Date: May 17, 2010	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. (19)
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. (4)
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. (5)
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. (6)
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. (10)
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. (15)
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. (22)
2.8	Retention of Financial Advisor, dated August 5, 2009, by and between First State Bancorporation and Keefe, Bruyette & Woods. (23)
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. (9)
3.4	Amended Bylaws of First State Bancorporation. (24)
3.5	Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation. (18)
10.1	Executive Employment Agreement. (19)
10.2	First State Bancorporation 2003 Equity Incentive Plan. (19)
10.3	Executive Deferred Compensation Plan. (19) (Participation and contributions to this Plan have been frozen as of December 31, 2004.)
10.4	First Amendment to Executive Employment Agreement. *
10.5	Officer Employment Agreement. *
10.6	First Amendment to Officer Employment Agreement. *
10.7	First State Bancorporation Deferred Compensation Plan. (3)
10.8	First State Bancorporation Compensation and Bonus Philosophy and Plan. (12)
10.9	First Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (8)
10.10	Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan. (8)
10.11	Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (13)
10.12	Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan. (7)
10.13	Third Amendment to First State Bancorporation 2003 Equity Incentive Plan. (9)
10.14	Compensation Committee Approval and Board Ratification of Certain Executive Salaries. (11)
10.15	Fourth Amendment to First State Bancorporation 2003 Equity Incentive Plan. (16)
10.16	Second Amendment to Executive Employment Agreement (Stanford). (14)
10.17	Second Amendment to Executive Employment Agreement (Dee). (14)
10.18	Second Amendment to Executive Employment Agreement (Spencer). (14)
10.19	Second Amendment to Executive Employment Agreement (Martin). (14)
10.20	Key Executives Incentive Plan. (17)
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. (20)
10.27	Branch purchase agreement, dated as of March 10, 2009, by and among Great Western Bank, First Community Bank, and First State Bancorporation. (21)
14	Code of Ethics for Executives. (19)

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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 Current Report on Form 8-K filed September 2, 2005.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(24) Incorporated by reference from First State Bancorporation’s Form 10-K filed on March 31, 2010.

* Filed herewith.

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