UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
for the quarterly period ended September 30, 2009.
or
|
¨
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
for the transition period from
to
Commission file number 001-12487
FIRST STATE BANCORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
|
|
NEW MEXICO
|
|
85-0366665
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.)
|
|
|
|
|
|
7900 JEFFERSON NE
ALBUQUERQUE, NEW MEXICO
|
|
87109
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(505) 241-7500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
¨
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
|
|
|
|
|
|
|
|
|
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
x
|
|
|
|
|
|
|
Non-accelerated filer
|
|
¨
|
|
Smaller reporting Company
|
|
¨
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act. Yes
¨
No
x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,668,729 shares of common stock, no par value, outstanding as of November 3, 2009.
FIRST STATE BANCORPORATION AND SUBSIDIARY
- 1 -
PART I - FINANCIAL INFORMATION
|
Item 1.
|
Financial Statements.
|
First State Bancorporation and Subsidiary
Consolidated Condensed Balance Sheets
(unaudited)
(Dollars
in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
50,349
|
|
|
$
|
64,891
|
|
|
Interest-bearing deposits with other banks
|
|
|
114,160
|
|
|
|
1,593
|
|
|
Federal funds sold
|
|
|
217
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
164,726
|
|
|
|
66,580
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
Available for sale (at fair value, amortized cost of $490,195 at September 30, 2009, and $387,713 at December 31, 2008)
|
|
|
495,695
|
|
|
|
393,488
|
|
|
Held to maturity (at amortized cost, fair value of $60,413 at September 30, 2009, and $61,700 at December 31, 2008)
|
|
|
60,086
|
|
|
|
63,183
|
|
|
Non-marketable securities, at cost
|
|
|
30,079
|
|
|
|
32,325
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
585,860
|
|
|
|
488,996
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
8,525
|
|
|
|
16,664
|
|
|
Loans held for investment, net of unearned interest
|
|
|
2,117,267
|
|
|
|
2,737,925
|
|
|
Less allowance for loan losses
|
|
|
(114,603
|
)
|
|
|
(79,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
2,011,189
|
|
|
|
2,674,882
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment (net of accumulated depreciation of $28,519 at September 30, 2009, and $31,965 at December 31,
2008)
|
|
|
35,908
|
|
|
|
59,669
|
|
|
Accrued interest receivable
|
|
|
8,528
|
|
|
|
12,437
|
|
|
Other real estate owned
|
|
|
42,086
|
|
|
|
18,894
|
|
|
Intangible assets (net of accumulated amortization of $4,351 at September 30, 2009, and $6,603 at December 31, 2008)
|
|
|
5,673
|
|
|
|
15,529
|
|
|
Cash surrender value of bank-owned life insurance
|
|
|
10,891
|
|
|
|
45,304
|
|
|
Net deferred tax asset
|
|
|
—
|
|
|
|
6,260
|
|
|
Other assets, net
|
|
|
21,486
|
|
|
|
26,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,886,347
|
|
|
$
|
3,415,049
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
|
|
$
|
389,672
|
|
|
$
|
453,319
|
|
|
Interest-bearing
|
|
|
1,762,011
|
|
|
|
2,069,223
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,151,683
|
|
|
|
2,522,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
31,413
|
|
|
|
112,276
|
|
|
Federal Home Loan Bank advances
|
|
|
497,697
|
|
|
|
497,594
|
|
|
Junior subordinated debentures
|
|
|
98,356
|
|
|
|
98,466
|
|
|
Other liabilities
|
|
|
29,534
|
|
|
|
24,917
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,808,683
|
|
|
|
3,255,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 1,000,000 shares authorized; none issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, no par value, authorized 50,000,000 shares; issued 22,366,004 at September 30, 2009 and 22,025,214 at
December 31, 2008; outstanding 20,644,662 at September 30, 2009 and 20,303,872 at December 31, 2008
|
|
|
223,843
|
|
|
|
222,921
|
|
|
Treasury stock, at cost (1,721,342 shares at September 30, 2009 and December 31, 2008)
|
|
|
(25,027
|
)
|
|
|
(25,027
|
)
|
|
Retained deficit
|
|
|
(124,359
|
)
|
|
|
(42,220
|
)
|
|
Accumulated other comprehensive income - Unrealized gain on investment securities, net of tax
|
|
|
3,207
|
|
|
|
3,580
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
77,664
|
|
|
|
159,254
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,886,347
|
|
|
$
|
3,415,049
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated condensed financial statements.
- 2 -
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Operations
For the three and nine months ended September 30, 2009 and 2008
(unaudited)
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2009
|
|
|
Three months ended
September 30, 2008
|
|
|
Nine months ended
September 30, 2009
|
|
|
Nine months ended
September 30, 2008
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
26,777
|
|
|
$
|
43,757
|
|
|
$
|
97,386
|
|
|
$
|
134,637
|
|
|
Interest on marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
3,730
|
|
|
|
4,709
|
|
|
|
11,862
|
|
|
|
14,377
|
|
|
Non-taxable
|
|
|
(383
|
)
|
|
|
976
|
|
|
|
1,923
|
|
|
|
2,824
|
|
|
Federal funds sold
|
|
|
—
|
|
|
|
13
|
|
|
|
12
|
|
|
|
72
|
|
|
Interest-bearing deposits with other banks
|
|
|
100
|
|
|
|
13
|
|
|
|
269
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
30,224
|
|
|
|
49,468
|
|
|
|
111,452
|
|
|
|
151,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
8,552
|
|
|
|
13,419
|
|
|
|
31,990
|
|
|
|
45,203
|
|
|
Short-term borrowings
|
|
|
467
|
|
|
|
2,715
|
|
|
|
1,971
|
|
|
|
7,502
|
|
|
Long-term debt
|
|
|
2,220
|
|
|
|
556
|
|
|
|
5,536
|
|
|
|
1,264
|
|
|
Junior subordinated debentures
|
|
|
665
|
|
|
|
1,116
|
|
|
|
2,365
|
|
|
|
3,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
11,904
|
|
|
|
17,806
|
|
|
|
41,862
|
|
|
|
57,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
18,320
|
|
|
|
31,662
|
|
|
|
69,590
|
|
|
|
94,313
|
|
|
Provision for loan losses
|
|
|
(52,500
|
)
|
|
|
(15,635
|
)
|
|
|
(116,900
|
)
|
|
|
(48,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income after provision for loan losses
|
|
|
(34,180
|
)
|
|
|
16,027
|
|
|
|
(47,310
|
)
|
|
|
46,078
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
3,157
|
|
|
|
3,969
|
|
|
|
10,610
|
|
|
|
10,683
|
|
|
Credit and debit card transaction fees
|
|
|
871
|
|
|
|
1,037
|
|
|
|
2,867
|
|
|
|
3,013
|
|
|
Gain (loss) on sale or call of investment securities
|
|
|
4,209
|
|
|
|
(556
|
)
|
|
|
6,963
|
|
|
|
(682
|
)
|
|
Gain on sale of loans
|
|
|
665
|
|
|
|
840
|
|
|
|
3,290
|
|
|
|
3,196
|
|
|
Gain on sale of Colorado branches
|
|
|
—
|
|
|
|
—
|
|
|
|
23,292
|
|
|
|
—
|
|
|
Other
|
|
|
824
|
|
|
|
1,080
|
|
|
|
2,406
|
|
|
|
3,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
9,726
|
|
|
|
6,370
|
|
|
|
49,428
|
|
|
|
19,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
9,067
|
|
|
|
12,468
|
|
|
|
33,026
|
|
|
|
38,748
|
|
|
Occupancy
|
|
|
3,285
|
|
|
|
4,360
|
|
|
|
10,726
|
|
|
|
12,523
|
|
|
Data processing
|
|
|
1,340
|
|
|
|
1,341
|
|
|
|
4,252
|
|
|
|
4,267
|
|
|
Equipment
|
|
|
1,324
|
|
|
|
1,915
|
|
|
|
4,735
|
|
|
|
5,972
|
|
|
Legal, accounting, and consulting
|
|
|
2,489
|
|
|
|
590
|
|
|
|
5,432
|
|
|
|
1,956
|
|
|
Marketing
|
|
|
613
|
|
|
|
1,057
|
|
|
|
1,950
|
|
|
|
2,538
|
|
|
Telephone
|
|
|
426
|
|
|
|
479
|
|
|
|
1,220
|
|
|
|
1,545
|
|
|
Other real estate owned
|
|
|
2,143
|
|
|
|
627
|
|
|
|
3,918
|
|
|
|
2,329
|
|
|
FDIC insurance premiums
|
|
|
1,843
|
|
|
|
554
|
|
|
|
7,111
|
|
|
|
1,549
|
|
|
Penalties and interest
|
|
|
897
|
|
|
|
1
|
|
|
|
898
|
|
|
|
48
|
|
|
Goodwill impairment charge
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127,365
|
|
|
Amortization of intangibles
|
|
|
272
|
|
|
|
640
|
|
|
|
1,475
|
|
|
|
1,920
|
|
|
Other
|
|
|
2,841
|
|
|
|
3,228
|
|
|
|
8,968
|
|
|
|
9,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
26,540
|
|
|
|
27,260
|
|
|
|
83,711
|
|
|
|
210,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(50,994
|
)
|
|
|
(4,863
|
)
|
|
|
(81,593
|
)
|
|
|
(144,508
|
)
|
|
Income tax expense (benefit)
|
|
|
546
|
|
|
|
(3,085
|
)
|
|
|
546
|
|
|
|
(28,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(51,540
|
)
|
|
$
|
(1,778
|
)
|
|
$
|
(82,139
|
)
|
|
$
|
(116,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(2.49
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(3.99
|
)
|
|
$
|
(5.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(2.49
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(3.99
|
)
|
|
$
|
(5.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated condensed financial statements.
- 3 -
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Comprehensive Income (Loss)
For the three and nine months ended September 30, 2009 and 2008
(unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2009
|
|
|
Three months ended
September 30, 2008
|
|
|
Nine months ended
September 30, 2009
|
|
|
Nine months ended
September 30, 2008
|
|
|
Net loss
|
|
$
|
(51,540
|
)
|
|
$
|
(1,778
|
)
|
|
$
|
(82,139
|
)
|
|
$
|
(116,160
|
)
|
|
Other comprehensive loss, net of tax - unrealized holding (losses) gains on securities available for sale arising during period
|
|
|
2,336
|
|
|
|
(1,215
|
)
|
|
|
3,840
|
|
|
|
(3,537
|
)
|
|
Reclassification adjustment for (gains) losses included in net income (loss)
|
|
|
(2,546
|
)
|
|
|
345
|
|
|
|
(4,213
|
)
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(51,750
|
)
|
|
$
|
(2,648
|
)
|
|
$
|
(82,512
|
)
|
|
$
|
(119,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated condensed financial statements.
- 4 -
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Cash Flows
For the nine months ended September 30, 2009 and 2008
(unaudited)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2009
|
|
|
Nine months ended
September 30, 2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,139
|
)
|
|
$
|
(116,160
|
)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
116,900
|
|
|
|
48,235
|
|
|
Goodwill impairment charge
|
|
|
—
|
|
|
|
127,365
|
|
|
Provision for decline in value of premises and equipment
|
|
|
—
|
|
|
|
270
|
|
|
Provision for decline in value of other real estate owned
|
|
|
2,212
|
|
|
|
1,067
|
|
|
Net loss on sale of other real estate owned
|
|
|
205
|
|
|
|
363
|
|
|
Depreciation and amortization
|
|
|
5,077
|
|
|
|
6,663
|
|
|
Decrease in intangibles
|
|
|
8,382
|
|
|
|
—
|
|
|
Premium on deposits sold
|
|
|
(30,000
|
)
|
|
|
—
|
|
|
Share-based compensation expense
|
|
|
434
|
|
|
|
604
|
|
|
Gain on sale of mortgage loans
|
|
|
(3,290
|
)
|
|
|
(3,196
|
)
|
|
(Gain) loss on sale of investment securities available for sale
|
|
|
(6,963
|
)
|
|
|
682
|
|
|
Loss (gain) on disposal of premises and equipment
|
|
|
42
|
|
|
|
(5
|
)
|
|
Increase in bank-owned life insurance cash surrender value
|
|
|
(1,273
|
)
|
|
|
(1,350
|
)
|
|
Amortization of securities, net
|
|
|
1,164
|
|
|
|
(848
|
)
|
|
Amortization of core deposit intangible
|
|
|
1,475
|
|
|
|
1,920
|
|
|
Mortgage loans originated for sale
|
|
|
(245,165
|
)
|
|
|
(210,217
|
)
|
|
Proceeds from sale of mortgage loans held for sale
|
|
|
256,594
|
|
|
|
216,464
|
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
(34,322
|
)
|
|
Decrease in accrued interest receivable
|
|
|
2,819
|
|
|
|
3,279
|
|
|
Decrease in other assets, net
|
|
|
10,112
|
|
|
|
1,667
|
|
|
Increase (decrease) in other liabilities, net
|
|
|
4,694
|
|
|
|
(666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
41,280
|
|
|
|
41,815
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in loans
|
|
|
124,953
|
|
|
|
(241,183
|
)
|
|
Purchases of investment securities carried at amortized cost
|
|
|
(8,700
|
)
|
|
|
(56,515
|
)
|
|
Maturities of investment securities carried at amortized cost
|
|
|
11,805
|
|
|
|
95,584
|
|
|
Purchases of investment securities carried at fair value
|
|
|
(387,338
|
)
|
|
|
(173,769
|
)
|
|
Maturities of investment securities carried at fair value
|
|
|
103,505
|
|
|
|
161,154
|
|
|
Sale of investment securities available for sale
|
|
|
187,143
|
|
|
|
2,484
|
|
|
Purchases of non-marketable securities carried at cost
|
|
|
(51
|
)
|
|
|
(11,766
|
)
|
|
Redemption of non-marketable securities carried at cost
|
|
|
2,297
|
|
|
|
—
|
|
|
Purchases of premises and equipment
|
|
|
(380
|
)
|
|
|
(2,198
|
)
|
|
Surrender (purchase) of bank-owned life insurance
|
|
|
35,686
|
|
|
|
(500
|
)
|
|
Net proceeds from other real estate owned
|
|
|
8,504
|
|
|
|
7,475
|
|
|
Proceeds from the sale of fixed assets
|
|
|
4
|
|
|
|
35
|
|
|
Net cash paid upon branch sale
|
|
|
(81,890
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(4,462
|
)
|
|
|
(219,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in interest-bearing deposits
|
|
|
117,020
|
|
|
|
(68,081
|
)
|
|
Net increase (decrease) in non-interest-bearing deposits
|
|
|
19,672
|
|
|
|
(9,325
|
)
|
|
Net decrease in securities sold under agreements to repurchase
|
|
|
(75,955
|
)
|
|
|
(71,341
|
)
|
|
Proceeds from Federal Home Loan Bank advances
|
|
|
430,000
|
|
|
|
508,100
|
|
|
Payments on Federal Home Loan Bank advances
|
|
|
(429,897
|
)
|
|
|
(192,791
|
)
|
|
Proceeds from common stock issued
|
|
|
488
|
|
|
|
1,088
|
|
|
Dividends paid
|
|
|
—
|
|
|
|
(3,627
|
)
|
|
Treasury stock
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
61,328
|
|
|
|
164,017
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
98,146
|
|
|
|
(13,367
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
66,580
|
|
|
|
84,709
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
164,726
|
|
|
$
|
71,342
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
- 5 -
First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Cash Flows
For the nine months ended September 30, 2009 and 2008
(unaudited)
(Dollars in thousands)
(continued)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2009
|
|
Nine months ended
September 30, 2008
|
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
|
|
|
|
Additions to other real estate owned in settlement of loans
|
|
$
|
34,812
|
|
$
|
6,632
|
|
|
|
|
|
|
|
|
|
Additions to loans in settlement of other real estate owned
|
|
$
|
728
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Transfer of fixed assets to other assets
|
|
$
|
515
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Transfers from loans held for sale to loans held for investment
|
|
$
|
—
|
|
$
|
2,746
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
67,875
|
|
$
|
58,875
|
|
|
|
|
|
|
|
|
|
Cash received (paid) for income taxes
|
|
$
|
4,890
|
|
$
|
3,451
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated condensed financial statements.
- 6 -
First State Bancorporation and Subsidiary
Notes to Consolidated Condensed Financial Statements
(unaudited)
1. Consolidated Condensed Financial Statements
The accompanying consolidated condensed financial statements of First State Bancorporation and subsidiary (the “Company,”
“First State,” “we,” “our,” or similar terms) are unaudited and include our accounts and those of our wholly owned subsidiary, First Community Bank (the “Bank”). All significant intercompany accounts and
transactions have been eliminated. Information contained in our consolidated condensed financial statements and notes thereto should be read in conjunction with our consolidated financial statements and notes thereto contained in our Annual Report
on Form 10-K for the year ended December 31, 2008.
Our consolidated condensed financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim financial information and instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required for complete financial statements. In our
opinion, all adjustments (consisting of normally recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2009 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2009.
The Company’s Board of Directors meets
monthly (beginning in July 2009) 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 Michael R. Stanford, the Company’s President and Chief Executive Officer filling the positions of Chairman and Chief
Executive Officer at the Bank.
In preparing the consolidated condensed financial statements in conformity with accounting
principles generally accepted in the United States of America, management is required to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which
management believes to be reasonable under the circumstances. These estimates and assumptions are subject to a greater degree of uncertainty as a result of current economic conditions. As future events and their effects cannot be determined with
precision, actual results could differ significantly from these estimates 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, the assessment of impairment of intangible assets, and the valuation of deferred tax assets. In connection with the determination of the allowance for loan losses and
real estate owned, management obtains independent appraisals for significant properties.
Management believes that the
estimates and assumptions it uses to prepare the consolidated financial statements, including those related to the allowance for losses on loans, the valuation of real estate owned, and valuation of deferred tax assets are adequate. However, further
deterioration of the loan portfolio and or changes in economic conditions would require future additions to the allowance and future adjustments to the valuation of real estate owned. Further, regulatory agencies, as an integral part of their
examination process, periodically review the allowance for losses on loans and real estate owned, and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their
examinations. In addition, current uncertain and volatile economic conditions will likely affect our future business results.
The Company’s results of operations depend on establishing underwriting criteria to minimize loan losses and generating net interest income. The components of net interest income, interest income and interest expense are affected by
general economic conditions and by competition in the marketplace.
- 7 -
Liquidity
Management currently anticipates that our cash and cash equivalents, expected cash flows from operations, loan and investment security principal repayments, 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. This expectation assumes that, because we have provided the requisite collateral and are
in compliance with our debt agreement, the FHLB will continue to renew existing borrowings as they mature. However, if the FHLB were to call our borrowings due and payable based on the terms described below, the Company may not be able to continue
as a going concern without substantial disposition of assets, restructuring of the debt, or other means of raising capital. This expectation also assumes that core deposits remain stable. A substantial decline in core deposits would severely impact
the Company’s ability to meet its obligations for at least the next twelve months.
We continue to focus our 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 to us including
federal funds 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. We continue to accumulate and maintain excess cash liquidity from loan
reductions to compensate for the limited liquidity options currently available. In addition, during the third quarter, we surrendered approximately $36 million in bank-owned life insurance, increasing our cash liquidity.
The Company’s most liquid assets are cash and cash equivalents and marketable investment securities that are not pledged as collateral.
The levels of these assets are dependent on operating, financing, lending, and investing activities during any given period. At September 30, 2009, the carrying value of these assets (including pledged assets), approximating $720.5 million,
consisted of $164.7 million in cash and cash equivalents and $555.8 million in marketable investment securities. Approximately $483.8 million of marketable investment securities were pledged as collateral for FHLB borrowings, federal funds lines,
securities sold under agreements to repurchase, and for public funds on deposit at September 30, 2009.
The
Company’s primary sources of funds are customer deposits, loan repayments, maturities of and cash flow from investment securities, and borrowings. Investment securities may be used as a source of liquidity either through sale of investment
securities available for sale or pledging for qualified deposits, as collateral for borrowings, or as collateral for other liquidity sources. Borrowings may include federal funds purchased, securities sold under agreements to repurchase, borrowings
from the FHLB, and borrowings from the Federal Reserve Bank discount window.
The Bank has established two federal funds
borrowing lines for a total capacity of approximately $94 million, fully collateralized by investment securities and commercial loans. During the third quarter, the Bank secured a subordination agreement with the FHLB, which provides the Bank the
ability to pledge non-real estate commercial loans to the Federal Reserve Bank discount window. At the end of September, the Bank had approximately $72.5 million in borrowing capacity at the Federal Reserve Bank discount window, included in the $94
million referred to above, collateralized by $132 million in commercial loans.
At December 31, 2008, all outstanding
borrowings with the FHLB were collateralized by the Company’s loan portfolio through a blanket lien. During 2009, the blanket lien was replaced by a custody arrangement, whereby the FHLB has custody and endorsement of the loans that
collateralize the FHLB borrowings. Effective July 29, 2009, the FHLB increased the collateral requirements related to our outstanding borrowing position by reducing the available collateral percentage applied to the unpaid principal balance of
our pledged loans. As of June 30, 2009, the FHLB provided collateral value of approximately 60% of the outstanding unpaid principal balance of loans pledged. The percentage declined during the third quarter of 2009 and as of
September 30, 2009, the FHLB provided collateral value of approximately 29% of the outstanding unpaid principal balance of the loans pledged to the FHLB. The FHLB takes into consideration a number of factors in calculating the available
collateral value including: credit quality, past due status, loan type and loan documentation exceptions, among other factors.
In addition to investment securities of approximately $196 million, loan collateral with par value of approximately $1.3 billion has been delivered to satisfy the new requirements of the custody arrangement. For loans to qualify as
collateral, they must not be past due 90 days or more, must not be classified substandard or below, and must not be a loan to a director, employee or agent of the Company or the FHLB. Because collateral values are determined subjectively by the
FHLB, there is no assurance that the FHLB will not require additional collateral or repayment of
- 8 -
existing borrowings. Based on our current status with the FHLB, the Company no longer has the ability to draw down additional advances. Under the terms of the Bank’s agreement with the FHLB,
the FHLB may at its own option call the outstanding debt due and payable if any of the following have occurred: the Bank has suspended payment to any creditor or there has been an acceleration of the maturity of any indebtedness of the Bank to
others; the FHLB reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Bank; or the FHLB reasonably and in good faith deems itself insecure in the collateral even though the Bank is not
otherwise in default. Based on the Company’s agreement with the FHLB and the FHLB’s credit policy, as the existing borrowings mature, they will be allowed to continuously renew for like amounts, but for terms not to exceed thirty days. The
Company has not received any notice from the FHLB regarding a call of its outstanding debt.
At September 30, 2009, the
Bank was considered “adequately capitalized” while the Company was considered “undercapitalized” for the Tier 1 leverage ratio under regulatory guidelines, subjecting both entities to prompt supervisory and regulatory actions
pursuant to the FDIC Improvement Act of 1991, and prohibiting us from accepting, renewing, or rolling over brokered deposits except with a waiver from the FDIC and subjecting the Bank to restrictions on the interest rates that can be paid on
deposits.
In the event that the Bank’s deposit generation is negatively impacted by the recent drop to “adequately
capitalized” management believes that sufficient cash and liquid assets are on hand to maintain operations and meet all obligations as they come due. From a liquidity standpoint, the most significant ramification of the drop in capitalized
category relates to our inability to rollover or renew existing brokered deposits, including CDARS reciprocal deposits, that mature or come up for renewal while the Bank is considered adequately capitalized, without a waiver from the FDIC. The Bank
has not received a waiver from the FDIC. Brokered deposits and CDARS reciprocal deposits were $178.8 million and $97.3 million, respectively, at September 30, 2009.
In addition, the Bank is a participating institution in the Transaction Account Guarantee Program (“TAG Program”), which the FDIC extended in the third quarter from December 31, 2009 to
June 30, 2010. The TAG Program provides our deposit customers in non-interest bearing and interest-bearing NOW accounts paying fifty basis points or less full FDIC insurance for an unlimited amount.
On September 29, 2009, the FDIC issued a Notice of Proposed Rulemaking (“NPR”) that would require insured institutions to
prepay their estimated quarterly risk-based assessments. Specifically, under the proposed rule, institutions would prepay their estimated risk-based deposit insurance assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. If
the NPR is approved in its current form, it could have an adverse affect on our liquidity by an estimated $24 million to $26 million. The prepayment is not intended to cause a liquidity shortfall for institutions and may be avoided with a waiver;
however, it is anticipated that there will be few waivers granted.
In order to help improve the Company’s and the
Bank’s capital ratios, we suspended our cash dividend payments to shareholders in July 2008, and the Bank has not declared a cash dividend to the Company since May 2008. In early September 2008, we began notifying the holders of our trust
preferred securities that interest payments would be deferred, as allowed by the terms of those securities.
Capital Adequacy and
Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s
consolidated financial statements and could include placing the Company into receivership and raise substantial doubt about the Company’s ability to continue as a going concern.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s
capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
On July 2, 2009, the Company and the bank executed a written agreement (“Regulator Agreement”) with the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions
Division (collectively, the “Regulators”). The Regulator Agreement is based on findings of the Regulators identified in an examination of the Bank and the Company during January and February of 2009.
- 9 -
Under the terms of the Regulator Agreement, the Company and or the Bank agreed, among other
things, to engage an independent consultant acceptable to the Regulators to assess the Bank’s management and staffing needs, assess the qualifications and performance of all officers of the Bank, and assess the current structure and
compositions of the Bank’s board of directors and its committees. In addition, within 60 days of the Regulator Agreement, the Company and or the Bank 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. The term “new
brokered deposits” does not include renewals or rollovers of brokered deposits. 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 joint Compliance Committee to monitor and
coordinate the Company’s and the Bank’s compliance with the provisions of the Regulator Agreement, obtain prior approval for the appointment of new directors, the hiring or change in responsibilities of senior executive officers; and to
comply with restrictions on severance payments and indemnification payments to institution affiliated parties.
Failure to
comply with the provisions of the Regulator Agreement could subject the Company and/or the Bank to additional enforcement actions. We believe that the Company and or the Bank are in full compliance with the majority of the requirements of the
Regulator Agreement and in partial compliance with the remaining requirements, except for the requirements to submit an acceptable capital plan. Capital plans for the Company and the Bank were submitted timely, but have not been accepted by the
regulators due to the lack of solid evidence supporting an increase in capital levels they deem acceptable in the near future. We are continuing to work toward full compliance with the requirements for which we are currently in partial or
noncompliance. However, there can be no assurance that the Company will be able to comply fully with the provisions of the Regulator Agreement, or that efforts to comply with the Regulator Agreement will not have adverse effects on the
Company’s ability to continue as a going concern.
Although we do not believe we currently have the ability to raise new
capital at an acceptable price in the current economic environment, we continue to evaluate alternative capital strengthening strategies, and are currently working on other initiatives to strengthen our capital position including the potential sale
of other loans and normal loan amortization. At September 30, 2009, the Bank was considered “adequately capitalized” while the Company was considered “undercapitalized” for the Tier 1 leverage ratio under regulatory
guidelines. Based on the recent deterioration of the loan portfolio, there is a pressing need for additional capital. Based on the current economic environment, the Bank may be unable to maintain its “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.
The Bank will continue to conduct its banking business with customers in a normal fashion. The Bank’s deposits will remain insured by
the FDIC to the maximum limits allowed by law. Depending on the level of capital, the Regulators and or the FDIC can institute other corrective measures to require additional capital and have broad enforcement powers to impose substantial fines and
other penalties for violation of laws and regulations.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital (as defined in regulations and set forth in the following table) to risk-weighted assets, and of Tier I capital to average total assets (leverage ratio).
The regulatory capital calculation limits the amount of allowance for loan losses that is included in capital to 1.25 percent of risk-weighted assets. At September 30, 2009, the Company and the Bank had approximately $87 million of allowance
for loan losses which was excluded from regulatory capital.
- 10 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For capital
adequacy purposes
|
|
|
To be considered
well capitalized
|
|
|
As of September 30, 2009
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
|
|
(Dollars in thousands)
|
|
|
Total capital to risk-weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
187,206
|
|
8.8
|
%
|
|
$
|
171,106
|
|
8.0
|
%
|
|
$
|
213,882
|
|
10.0
|
%
|
|
Bank subsidiary
|
|
|
196,650
|
|
9.2
|
%
|
|
|
170,823
|
|
8.0
|
%
|
|
|
213,529
|
|
10.0
|
%
|
|
Tier I capital to risk-weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
93,603
|
|
4.4
|
%
|
|
|
85,553
|
|
4.0
|
%
|
|
|
128,329
|
|
6.0
|
%
|
|
Bank subsidiary
|
|
|
168,874
|
|
7.9
|
%
|
|
|
85,411
|
|
4.0
|
%
|
|
|
128,117
|
|
6.0
|
%
|
|
Tier I capital to average total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
93,603
|
|
3.2
|
%
|
|
|
117,624
|
|
4.0
|
%
|
|
|
147,030
|
|
5.0
|
%
|
|
Bank subsidiary
|
|
|
168,874
|
|
5.8
|
%
|
|
|
117,474
|
|
4.0
|
%
|
|
|
146,843
|
|
5.0
|
%
|
2. Recent Accounting Pronouncements
On July 1, 2009, the Financial Accounting Standards Board (“FASB”) launched its Accounting Standards Codification
(“ASC”). The ASC will become the sole source of authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009, except for rules and interpretive releases of the SEC. The adoption of the FASB’s ASC did not
have any impact on the Company’s consolidated financial statements.
In July 2009, the FASB issued authoritative guidance
that requires former “qualifying special-purpose entities” (“QSPEs”) to be evaluated for consolidation and also changes the approach to determining a variable interest entity’s (“VIE”) primary beneficiary and
requires companies to more frequently reassess whether they must consolidate VIEs. The guidance requires additional year-end and interim disclosures for public and nonpublic companies. The guidance is effective as of the beginning of the first
annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. For public entities, in
periods after initial adoption, certain comparative disclosures are required. Management does not expect this guidance to have any impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued authoritative guidance that will eliminate the concept of a QSPE and associated guidance that had been a
significant source of complexity, create more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarify other sale-accounting criteria, and change the initial measurement of a transferor’s interest in
transferred financial assets. The guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited. Management does not expect this guidance to have any impact on the Company’s consolidated financial statements.
In May 2009, the FASB issued authoritative guidance establishing principles and requirements for subsequent events. This guidance is to be
applied to the accounting for and disclosure of subsequent events not addressed in other previously issued guidance. The guidance is effective for interim or annual financial periods ending after June 15, 2009, and must be applied
prospectively. This guidance did not have any impact on the Company’s consolidated financial statements beyond the required disclosures contained herein.
In April 2009, the FASB issued authoritative guidance requiring disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual
financial statements. This guidance is effective for interim reporting periods ending after June 15, 2009. This guidance did not have any impact on the Company’s consolidated financial statements beyond the required disclosures contained
herein.
In April 2009, the FASB issued authoritative guidance providing additional guidance for estimating fair value when
the volume and level of activity for the asset or liability have significantly decreased. The guidance also identifies circumstances that indicate a transaction is not orderly and reaffirms that fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The guidance is effective for interim
reporting periods ending after June 15, 2009, and must be applied prospectively. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
- 11 -
In April 2009, the FASB issued authoritative guidance modifying the requirements for
recognizing other-than-temporarily impaired debt securities and significantly changing the existing impairment model for such securities. The current “intent and ability” indicator has been modified and other factors have been incorporated
to determine whether a debt security is other-than-temporarily impaired. The guidance also changes the trigger used to assess the collectability of cash flows from “probable that the investor will be unable to collect all amounts due” to
“the entity does not expect to recover the entire amortized cost basis of the security.” Disclosures about other-than-temporarily impaired debt and equity securities have been expanded and are required for interim and annual reporting
periods, effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2009, the FASB issued authoritative guidance amending previously issued guidance regarding the determination of whether an
other-than-temporary impairment has occurred. The guidance retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements contained in other guidance, is effective for interim and annual
reporting periods ending after December 15, 2008, and is applied prospectively. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
3. Colorado Branch Sale
On
June 26, 2009, we completed the sale of our Colorado branches to Great Western Bank, a South Dakota-based subsidiary of National Australia Bank. In June 2009, we transferred approximately $387 million in loans, $512 million in deposits and
securities sold under agreements to repurchase, $20 million of premises and equipment and other assets, and received a deposit premium of $30 million. After the write-off of the core deposit intangible associated with these deposits and investment
banking fees, we recorded a pretax gain of approximately $23.3 million. Transaction costs recorded as expenses totaled $1.8 million. At June 26, 2009, the weighted average interest rates on the loans and deposits, including securities sold
under agreements to repurchase, sold to Great Western Bank were approximately 6.09% and 1.82% respectively.
4. Earnings (loss) per Common
Share
Basic earnings (loss) per share are computed by dividing net loss (the numerator) by the weighted-average number of
common shares outstanding during the period (the denominator). Diluted earnings per share are calculated by increasing the basic earnings per share denominator by the number of additional common shares that would have been outstanding if dilutive
potential common shares for options had been issued.
The following is a reconciliation of the numerators and denominators of
basic and diluted loss per share for the three and nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(51,540
|
)
|
|
20,660,518
|
|
$
|
(2.49
|
)
|
|
$
|
(1,778
|
)
|
|
20,232,171
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities Options
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(51,540
|
)
|
|
20,660,518
|
|
$
|
(2.49
|
)
|
|
$
|
(1,778
|
)
|
|
20,232,171
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 12 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
Per Share
Amount
|
|
|
|
|
(Dollars in thousands, except share and per share amounts)
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,139
|
)
|
|
20,579,984
|
|
$
|
(3.99
|
)
|
|
$
|
(116,160
|
)
|
|
20,177,842
|
|
$
|
(5.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities Options
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,139
|
)
|
|
20,579,984
|
|
$
|
(3.99
|
)
|
|
$
|
(116,160
|
)
|
|
20,177,842
|
|
$
|
(5.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the net loss for the three and nine-month periods ended September 30,
2009 approximately 1,369,196 and 1,488,713 weighted-average stock options outstanding, respectively, were excluded from the calculation of diluted loss per share because their inclusion would have been antidilutive. Due to the net loss for the three
and nine month periods ended September 30, 2008, approximately 1,513,066 and 1,286,977 weighted-average stock options outstanding, respectively, were excluded from the calculation of diluted loss per share because their inclusion would have
been antidilutive.
- 13 -
5. Investment Securities
Following is a summary of amortized cost and approximate market value of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated
market
value
|
|
|
|
(Dollars in thousands)
|
|
As of September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of the U.S. Treasury—Available for sale
|
|
$
|
75,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
75,000
|
|
Mortgage-backed securities (residential):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass-through certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
105,604
|
|
|
1,264
|
|
|
37
|
|
|
106,831
|
|
Held to maturity
|
|
|
23,130
|
|
|
909
|
|
|
—
|
|
|
24,039
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
251,564
|
|
|
2,422
|
|
|
900
|
|
|
253,086
|
|
Held to maturity
|
|
|
2,508
|
|
|
—
|
|
|
743
|
|
|
1,765
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
58,027
|
|
|
2,845
|
|
|
94
|
|
|
60,778
|
|
Held to maturity
|
|
|
34,448
|
|
|
161
|
|
|
—
|
|
|
34,609
|
|
Federal Home Loan Bank stock
|
|
|
23,094
|
|
|
—
|
|
|
—
|
|
|
23,094
|
|
Federal Reserve Bank stock
|
|
|
6,850
|
|
|
—
|
|
|
—
|
|
|
6,850
|
|
Bankers’ Bank of the West stock
|
|
|
135
|
|
|
—
|
|
|
—
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
580,360
|
|
$
|
7,601
|
|
$
|
1,774
|
|
$
|
586,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of the U.S. Treasury—Held to maturity
|
|
$
|
997
|
|
$
|
21
|
|
$
|
—
|
|
$
|
1,018
|
|
Obligations of U.S. government agencies—Available for sale
|
|
|
27,457
|
|
|
282
|
|
|
—
|
|
|
27,739
|
|
Mortgage-backed securities (residential):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass-through certificates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
143,705
|
|
|
4,875
|
|
|
42
|
|
|
148,538
|
|
Held to maturity
|
|
|
28,822
|
|
|
407
|
|
|
45
|
|
|
29,184
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
150,875
|
|
|
1,792
|
|
|
1,106
|
|
|
151,561
|
|
Held to maturity
|
|
|
3,133
|
|
|
—
|
|
|
1,910
|
|
|
1,223
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
65,676
|
|
|
942
|
|
|
968
|
|
|
65,650
|
|
Held to maturity
|
|
|
30,231
|
|
|
76
|
|
|
32
|
|
|
30,275
|
|
Federal Home Loan Bank stock
|
|
|
24,738
|
|
|
—
|
|
|
—
|
|
|
24,738
|
|
Federal Reserve Bank stock
|
|
|
7,452
|
|
|
—
|
|
|
—
|
|
|
7,452
|
|
Bankers’ Bank of the West stock
|
|
|
135
|
|
|
—
|
|
|
—
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
483,221
|
|
$
|
8,395
|
|
$
|
4,103
|
|
$
|
487,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 14 -
The amortized cost and estimated market value of investment securities at September 30,
2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Estimated
Market Value
|
|
|
|
(Dollars in thousands)
|
|
Within one year:
|
|
|
|
|
|
|
|
Available for sale
|
|
$
|
75,776
|
|
$
|
75,788
|
|
Held to maturity
|
|
|
501
|
|
|
511
|
|
One through five years:
|
|
|
|
|
|
|
|
Available for sale
|
|
|
3,995
|
|
|
4,218
|
|
Held to maturity
|
|
|
3,471
|
|
|
3,585
|
|
Five through ten years:
|
|
|
|
|
|
|
|
Available for sale
|
|
|
29,712
|
|
|
31,231
|
|
Held to maturity
|
|
|
2,980
|
|
|
3,018
|
|
After ten years:
|
|
|
|
|
|
|
|
Available for sale
|
|
|
23,544
|
|
|
24,541
|
|
Held to maturity
|
|
|
27,496
|
|
|
27,496
|
|
Mortgage-backed securities
(a)
|
|
|
128,734
|
|
|
130,869
|
|
Collateralized mortgage obligations
(a)
|
|
|
254,072
|
|
|
254,851
|
|
Federal Home Loan Bank stock
|
|
|
23,094
|
|
|
23,094
|
|
Federal Reserve Bank stock
|
|
|
6,850
|
|
|
6,850
|
|
Bankers’ Bank of the West stock
|
|
|
135
|
|
|
135
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
580,360
|
|
$
|
586,187
|
|
|
|
|
|
|
|
|
|
(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 3.7 years for pass-through certificates and 1.9 years for collateralized mortgage obligations.
|
Marketable securities available for sale with a fair value of approximately $455.3 million and marketable securities held to maturity with an amortized cost of approximately $28.5 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 September 30, 2009.
Proceeds from sales of investments in debt securities for the nine months ended September 30, 2009 were $187.1 million. Gross losses
realized were approximately $21,000 for the nine months ended September 30, 2009. Gross gains realized were approximately $6.9 million for the nine months ended September 30, 2009. The Company calculates gain or loss on sale of securities
based on the specific identification method.
During the quarter ended September 30, 2009, we reversed approximately $1.5
million in accrued interest on two Colorado metropolitan municipal district bonds. The bond agreements allow the districts to defer interest payments 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 cash flows, we reversed the accrued interest on these bonds.
The unrealized losses on investment securities are caused by fluctuations in market interest rates. The majority of the gross unrealized losses as of September 30, 2009 have been in an unrealized
loss position for less than 12 months. We have approximately 27 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.
- 15 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than twelve months
|
|
Greater than twelve months
|
|
Total
|
|
|
|
Fair Value
|
|
Unrealized
Loss
|
|
Fair Value
|
|
Unrealized
Loss
|
|
Fair Value
|
|
Unrealized
Loss
|
|
As of September 30, 2009
|
|
(Dollars in thousands)
|
|
Mortgage-backed securities
|
|
$
|
21,324
|
|
$
|
37
|
|
$
|
—
|
|
$
|
—
|
|
$
|
21,324
|
|
$
|
37
|
|
Collateralized mortgage obligations
|
|
|
85,472
|
|
|
1,209
|
|
|
4,634
|
|
|
434
|
|
|
90,106
|
|
|
1,643
|
|
Obligations of states and political subdivisions
|
|
|
1,198
|
|
|
13
|
|
|
2,639
|
|
|
81
|
|
|
3,837
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,994
|
|
$
|
1,259
|
|
$
|
7,273
|
|
$
|
515
|
|
$
|
115,267
|
|
$
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
12,513
|
|
$
|
87
|
|
$
|
—
|
|
$
|
—
|
|
$
|
12,513
|
|
$
|
87
|
|
Collateralized mortgage obligations
|
|
|
34,557
|
|
|
2,704
|
|
|
2,957
|
|
|
312
|
|
|
37,514
|
|
|
3,016
|
|
Obligations of states and political subdivisions
|
|
|
24,049
|
|
|
977
|
|
|
1,252
|
|
|
23
|
|
|
25,301
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,119
|
|
$
|
3,768
|
|
$
|
4,209
|
|
$
|
335
|
|
$
|
75,328
|
|
$
|
4,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Loans and Allowance for Loan Losses
Following is a summary of loans and non-performing loans by major categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
Non-Performing Loans
|
|
|
|
September 30, 2009
|
|
December 31, 2008
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
$
|
263,918
|
|
$
|
356,769
|
|
$
|
14,476
|
|
$
|
4,493
|
|
Consumer and other
|
|
|
30,430
|
|
|
41,474
|
|
|
3,647
|
|
|
2,394
|
|
Real estate – commercial
|
|
|
893,463
|
|
|
1,172,952
|
|
|
55,801
|
|
|
10,912
|
|
Real estate – one to four family
|
|
|
203,749
|
|
|
270,613
|
|
|
18,748
|
|
|
9,540
|
|
Real estate – construction
|
|
|
725,707
|
|
|
896,117
|
|
|
135,949
|
|
|
90,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment
|
|
|
2,117,267
|
|
|
2,737,925
|
|
|
228,621
|
|
|
118,277
|
|
Mortgage loans available for sale
|
|
|
8,525
|
|
|
16,664
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
2,125,792
|
|
$
|
2,754,589
|
|
$
|
228,621
|
|
$
|
118,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s loans are currently concentrated in New Mexico, Colorado, Utah,
and Arizona. The loan portfolio is heavily concentrated in real estate at approximately 86%. Similarly, the Company’s potential problem loans are concentrated in real estate loans, specifically the real estate construction category. These real
estate construction loans are considered to be the loans with the highest risk of loss. Real estate construction loans comprise approximately 34% of the total loans of the Company. Of the $726 million of real estate construction loans, approximately
39% are related to residential construction and approximately 61% are for commercial purposes or vacant land. Approximately 52% of our real estate construction loans are in New Mexico, approximately 21% are in Colorado, approximately 20% are in Utah
and approximately 7% are in Arizona.
The following is a summary of the real estate construction loans by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans September 30, 2009
(Dollars in thousands)
|
|
|
|
$
Total
|
|
% of
Total
|
|
|
$
Impaired
|
|
%
Impaired
|
|
|
$
Delinquent
|
|
%
Delinquent
|
|
|
$
YTD Charge Offs
Net of
Recoveries
|
|
1-4 family vertical construction
|
|
88,826
|
|
12
|
%
|
|
26,957
|
|
30.3
|
%
|
|
7,982
|
|
9.0
|
%
|
|
13,362
|
|
1-4 family lots and lot development
|
|
199,000
|
|
27
|
%
|
|
51,944
|
|
26.1
|
%
|
|
6,621
|
|
3.3
|
%
|
|
23,092
|
|
Commercial owner occupied
|
|
21,657
|
|
3
|
%
|
|
2,117
|
|
9.8
|
%
|
|
—
|
|
0.0
|
%
|
|
13
|
|
Commercial non-owner occupied (land development and vertical construction)
|
|
237,124
|
|
33
|
%
|
|
29,547
|
|
12.5
|
%
|
|
10,801
|
|
4.6
|
%
|
|
6,718
|
|
Vacant land
|
|
179,100
|
|
25
|
%
|
|
25,384
|
|
14.2
|
%
|
|
8,591
|
|
4.8
|
%
|
|
15,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
725,707
|
|
100
|
%
|
|
135,949
|
|
18.7
|
%
|
|
33,995
|
|
4.7
|
%
|
|
58,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 16 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans December 31, 2008
(Dollars in thousands)
|
|
|
|
$
Total
|
|
% of
Total
|
|
|
$
Impaired
|
|
%
Impaired
|
|
|
$
Delinquent
|
|
%
Delinquent
|
|
|
$
YTD Charge Offs
Net of Recoveries
|
|
1-4 family vertical construction
|
|
179,918
|
|
20
|
%
|
|
34,207
|
|
19.0
|
%
|
|
10,551
|
|
5.9
|
%
|
|
4,067
|
|
1-4 family lots and lot development
|
|
239,471
|
|
27
|
%
|
|
19,805
|
|
8.3
|
%
|
|
6,874
|
|
2.9
|
%
|
|
5,071
|
|
Commercial owner occupied
|
|
25,000
|
|
3
|
%
|
|
196
|
|
0.8
|
%
|
|
6,388
|
|
25.6
|
%
|
|
38
|
|
Commercial non-owner occupied (land development and vertical construction)
|
|
263,754
|
|
29
|
%
|
|
19,296
|
|
7.3
|
%
|
|
13,784
|
|
5.2
|
%
|
|
2,747
|
|
Vacant land
|
|
187,974
|
|
21
|
%
|
|
17,434
|
|
9.3
|
%
|
|
3,531
|
|
1.9
|
%
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
896,117
|
|
100
|
%
|
|
90,938
|
|
10.1
|
%
|
|
41,128
|
|
4.6
|
%
|
|
13,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in non-performing loans relates to various small to medium sized loans.
At September 30, 2009, the non-performing loans included approximately 340 borrower relationships. The largest borrower relationships are loans for acquisition and development of residential lots. The eight largest, with balances ranging from
$5.5 million to $10.1 million, comprise $61.3 million, or 27%, of the total non-performing loans and have balances of $19.9 million in New Mexico, $10.1 million in Arizona, $7.9 million in Colorado, and $23.4 million in Utah. The specific allowance
for loan losses on these loans totaled $3.9 million at September 30, 2009. These eight loans are collateralized by partially developed lots, developed lots and vertical construction. No other non-performing borrower relationship is greater than
3% 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.
The allowance for loan losses is that amount which, in management’s judgment, is considered adequate to provide for potential losses in
the loan portfolio. In analyzing the adequacy of the allowance for loan losses, management uses a comprehensive loan grading system to determine risk potential in the portfolio, and considers the results of internal and external loan reviews.
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 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.
We utilize external appraisals to determine the fair value of the collateral for all real estate related loans. 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.
Appraisals are obtained upon origination of real estate loans. Updated real estate appraisals are 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. Appraisals on other types of collateral, such as
equipment, are also subject to discounting; however, only 5% of our non-performing loans as of September 30, 2009 are secured by collateral other than real estate.
- 17 -
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, trends in volume and terms of loans, the quality 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 subjective factor for levels and trends in delinquencies is applied to all non-impaired delinquent loans and the subjective factor for levels and trends in
charge-offs and recoveries is applied to all non-impaired classified loans. Subjective factors related to trends in volume and terms of loans, national and local economic trends, and industry conditions are applied to all non-impaired loans.
Subjective factors related to changes in credit concentrations are applied to all non-impaired loans above an $8 million relationship level and changes in underwriting and policies are applied to all non-impaired loans below an $8 million
relationship level. The subjective factor related to the quality of lending management and staff is applied to all non-impaired Colorado and Utah loans. The subjective factors for overall problem loan levels and independent loan review results are
applied to all classified and special mention loans that are not impaired.
The following is a summary of changes to the
allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2009
|
|
|
Year ended
December 31, 2008
|
|
|
Nine months ended
September 30, 2008
|
|
|
|
|
(Dollars in thousands)
|
|
|
ALLOWANCE FOR LOAN LOSSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance beginning of period
|
|
$
|
79,707
|
|
|
$
|
31,712
|
|
|
$
|
31,712
|
|
|
Allowance related to loans sold
|
|
|
(7,747
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Provision charged to operations
|
|
|
116,900
|
|
|
|
71,618
|
|
|
|
48,235
|
|
|
Loans charged-off
|
|
|
(75,812
|
)
|
|
|
(25,587
|
)
|
|
|
(13,095
|
)
|
|
Recoveries
|
|
|
1,555
|
|
|
|
1,964
|
|
|
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance end of period
|
|
$
|
114,603
|
|
|
$
|
79,707
|
|
|
$
|
68,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in the provision for loan losses is due to increased non-performing
assets and net charge-offs. The carrying value of impaired loans was approximately $228.6 million, $118.3 million and $101.5 million at September 30, 2009, December 31, 2008, and September 30, 2008, respectively. The specific
reserve recorded on these loans was approximately $18.3 million, $16.2 million, and $5.1 million at September 30, 2009, December 31, 2008, and September 30, 2008, respectively.
7. Share-Based Compensation
For the three months ended September 30, 2009 and 2008, respectively, we recorded approximately $183,000 and $208,000 of pretax share-based compensation expense associated with outstanding unvested stock options and restricted stock
awards in salaries and employee benefits in the accompanying consolidated condensed statements of operations. For the nine months ended September 30, 2009 and 2008, respectively, we recorded approximately $434,000 and $604,000 of pretax
share-based compensation expense associated with outstanding unvested stock options and restricted stock awards in salaries and employee benefits in the accompanying consolidated condensed statements of operations.
The following table summarizes our stock option activity during the nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted average
exercise price
|
|
Outstanding at December 31, 2008
|
|
1,772,980
|
|
|
$
|
14.82
|
|
Granted
|
|
10,000
|
|
|
|
1.53
|
|
Expired
|
|
(105,500
|
)
|
|
|
10.49
|
|
Forfeited
|
|
(148,166
|
)
|
|
|
14.93
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
1,529,314
|
|
|
$
|
15.02
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2009
|
|
770,429
|
|
|
$
|
16.59
|
|
|
|
|
|
|
|
|
The Company estimated the weighted average fair value of options granted during the
nine months ended September 30, 2009 to be approximately $0.91 per share. The value of each stock option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate
of 1.65%; expected dividend yield of zero; an expected life of 6.5 years; and expected volatility of 62.07%.
- 18 -
8. Goodwill
The excess of cost over the fair value of the net assets of acquired banks is recorded as goodwill. As a result of the Company’s market capitalization being less than stockholders’ equity at
June 30, 2008, management performed an analysis to determine whether and to what extent the Company’s goodwill may have been impaired. The Company has one reporting unit. The estimated fair value of the Company, which was less than the
Company’s stockholders’ equity balance at June 30, 2008, was determined using three methods: comparable transactions; discounted cash flow models, and a market premium approach. Because of the requirements defined in the FASB
authoritative guidance on Goodwill and Other Intangible Assets, the market premium approach, based on the fair value of the Company’s common stock on June 30, 2008 plus a control premium, received significant weighting in our analysis at
the June 30, 2008 testing date. The second step of the analysis compared the implied fair value of goodwill to the carrying amount of goodwill on the Company’s balance sheet. If the carrying amount of the goodwill exceeds the implied fair
value of that goodwill, an impairment loss must be recognized in an amount equal to the excess. The implied fair value of the Company’s goodwill was determined in the same manner as goodwill recognized in a business combination. That is, the
estimated fair value of the Company on the test date is allocated to all of the Company’s individual assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business
combination with the estimated fair value of the Company representing the price paid to acquire it. The allocation process performed on the test date is only for purposes of determining the implied fair value of goodwill and no assets or liabilities
are written up or down, or are any additional unrecognized identifiable intangible assets recorded as part of this process. Based on the analysis, it was determined that the implied fair value of the Company’s goodwill was zero, resulting in
the recognition of a goodwill impairment charge to earnings of $127.4 million in June 2008. The goodwill impairment charge had no effect on the Company’s or the Bank’s cash balances or liquidity.
9. Fair Value
The Company
uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time,
the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment, other real estate owned, and certain other assets. These nonrecurring fair value adjustments typically
involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.
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.
- 19 -
Securities available for sale – Securities available for sale are recorded at fair
value on a recurring basis. For these securities, the Company obtains fair value measurements from Interactive Data Corporation (“IDC”), an independent pricing service. Where quoted market prices are available in an active market,
securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are based on pricing models that vary by asset class and incorporate available trade, bid, and other market information.
Because many fixed income securities do not trade on a daily basis, the pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing.
Models are used to assess interest rate impact and develop prepayment scenarios. Relevant credit information, perceived market movements, and sector news are integrated into the pricing applications and models. Securities that are priced using these
types of inputs are classified within Level 2 of the valuation hierarchy. Pricing as received from IDC is reviewed for reasonableness each quarter. In addition, the Company obtains pricing on select securities from Bloomberg and compares this
pricing to the pricing obtained from IDC. No significant differences have been found.
Marketable securities held to maturity
– The estimated fair value of the majority of securities held to maturity is determined in the same manner as securities available for sale. The remaining securities consist of municipal bonds that are carried at par, which we believe
approximates fair value. Due to the lack of an active market for these municipal securities and the individuality of each of these municipal issuances where we hold the majority if not all of the issuance, we analyze these securities for impairment
each quarter and have not considered it appropriate to report a value other than par. We currently have four of these securities totaling $29.1 million with a weighted average coupon of 6.64% and remaining maturities greater than five years. Two of
the bond agreements, with a par value of $18.8 million and a weighted average coupon of 7.95%, 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 cash flows, we reversed the accrued interest on these bonds.
Non-marketable securities – These securities include Federal Home Loan Bank, Federal Reserve Bank, and Bankers’ Bank of the West stock. This stock is carried at cost, which approximates fair value. The fair value determination was
determined based on the ultimate recoverability of the par value of the stock and considered, among other things, any significant decline in the net assets of the institutions, scheduled dividend payments, any impact of legislative and regulatory
changes, and the liquidity position of the institutions.
Loans held for investment – We do not record loans at fair
value on a recurring basis. As such, valuation techniques discussed herein for loans are primarily for estimating fair value for disclosure purposes. The estimated fair value of the loan portfolio is calculated by discounting scheduled cash flows
over the estimated maturity of loans using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or repricing terms. Credit risk is accounted for through a reduction of
contractual cash flows by loss estimates of classified loans and as a component of the discount rate.
Impaired loans –
Impaired loans are reported at the present value of the estimated cash flow of expected repayments discounted using the loan’s contractual interest rate or at the fair value of the underlying collateral less estimated selling costs when it is
determined that the source of repayment is dependent on the underlying collateral. Collateral values are estimated using independent appraisals or internally developed estimates based on the nature of the collateral and considering similar assets or
other available information. Due to the potential for real estate values to change rapidly, appraised values used in our analysis of impairment of 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. As a general rule we apply a 10% discount rate to independent appraisals. A larger discount is applied to appraisals
that are older than one year or where the property is not secured by real estate. Appraisals with discounts up to 10% are considered Level 2 inputs. Appraisals with discounts greater than 10% and the internally developed estimates are considered
Level 3 inputs.
Loans held for sale – These loans are reported at the lower of cost or fair value. Fair value is
determined based on expected proceeds based on sales contracts and commitments. At September 30, 2009 and December 31, 2008, all of the Company’s loans held for sale are carried at cost, as generally, cost is less than the price at
which the Company commits to sell the loan to the permanent investor.
- 20 -
Accrued interest receivable – Carrying value of interest receivable approximates fair
value, since these instruments have short-term maturities.
Other real estate owned – These assets are reported at the
lower of the investment in the related loan or the estimated fair value of the assets received. Fair value of the assets received is determined based on current market information, including independent appraisals less estimated costs of
disposition. Due to the potential for real estate values to change rapidly, appraised values used in our analysis of impairment of real estate are discounted when considered necessary 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. As a general rule we apply a 10% discount rate to independent appraisals. A larger discount is applied to
appraisals that are older than one year or where the property is not secured by real estate. 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 September 30, 2009 and December 31, 2008. The fair value of fixed maturity certificates of deposit is estimated by discounting the future contractual cash flows using the rates
currently offered for deposits of similar remaining maturities.
Securities sold under agreements to repurchase and federal
funds purchased – The carrying value of securities sold under agreements to repurchase and federal funds purchased, which reset frequently to market interest rates, approximates fair value.
FHLB advances and other – Fair values for FHLB advances and other are estimated based on the current rates offered for similar
borrowing arrangements at September 30, 2009.
Junior subordinated debentures – The fair value of fixed junior
subordinated debentures, the majority of which reset quarterly to market interest rates, is estimated by discounting the future contractual cash flows using the rates currently offered for similar borrowing arrangements.
Off-balance sheet items – The majority of our commitments to extend credit carry current market interest rates if converted to loans.
Because these commitments are generally unassignable by either the borrower or the Company, they only have value to the borrower and to the Company. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the
SFAS 107 table because it is immaterial.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
Balance as of
September 30, 2009
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
495,695
|
|
$
|
26
|
|
$
|
495,669
|
|
$
|
—
|
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.
- 21 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at September 30, 2009
|
|
Period ended
September 30, 2009
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Total
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Losses
|
|
|
Impaired loans
|
|
$
|
228,621
|
|
|
$
|
—
|
|
$
|
154,092
|
|
$
|
74,529
|
|
$
|
83,784
|
(1)
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
42,086
|
(2)
|
|
|
—
|
|
|
38,215
|
|
|
3,871
|
|
|
2,212
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
85,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total losses on impaired loans represents the sum of charge offs, net of recoveries, of $74.3 million plus the increase in specific reserves of $9.5 million ($18.3
million at September 30, 2009 less $8.8 million at December 31, 2008) for the nine-month period ended September 30, 2009.
|
|
(2)
|
Represents the fair value of other real estate owned that is measured at fair value less costs to sell.
|
|
(3)
|
Represents write-downs during the period of other real estate owned subsequent to the initial classification as a foreclosed asset.
|
The table below is a summary of fair value estimates as of September 30, 2009 for financial instruments. This table excludes financial
instruments that are recorded at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
(Dollars in thousands)
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
164,726
|
|
$
|
164,744
|
|
Marketable securities held to maturity
|
|
|
60,086
|
|
|
60,413
|
|
Non-marketable securities
|
|
|
30,079
|
|
|
30,079
|
|
Loans, net
|
|
|
2,011,189
|
|
|
2,028,347
|
|
Accrued interest receivable
|
|
|
8,528
|
|
|
8,528
|
|
Cash surrender value of bank-owned life insurance
|
|
|
10,891
|
|
|
10,891
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,151,683
|
|
|
2,160,605
|
|
Securities sold under agreements to repurchase
|
|
|
31,413
|
|
|
31,413
|
|
FHLB advances
|
|
|
497,697
|
|
|
507,412
|
|
Junior subordinated debentures
|
|
|
98,356
|
|
|
98,363
|
10. Guarantees and Commitments
In the normal course of business, various commitments and contingent liabilities are outstanding, such as standby letters of credit and
commitments to extend credit. These financial instruments with off-balance sheet risk are not reflected in the consolidated financial statements.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to extend credit
amounting to $202 million were outstanding at September 30, 2009.
Standby letters of credit are written conditional
commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers. Standby letters of credit amounting to $36.7 million were outstanding at September 30, 2009.
The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial
properties.
- 22 -
11. Federal Home Loan Bank Advances
First Community Bank has FHLB advances as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
September 30, 2009
|
|
As of
December 31, 2008
|
|
|
|
(Dollars in thousands)
|
|
$198 million note payable to FHLB, interest at 0.05%, due on January 2, 2009
|
|
$
|
—
|
|
$
|
198,000
|
|
$200 million note payable to FHLB, interest at 0.50%, due on January 2, 2009
|
|
|
—
|
|
|
200,000
|
|
$30 million note payable to FHLB, interest only at 2.42% payable monthly, due on April 2, 2009
|
|
|
—
|
|
|
30,000
|
|
$75 million note payable to FHLB, interest only at 0.12% payable monthly, due on October 22, 2009
|
|
|
75,000
|
|
|
—
|
|
$30 million note payable to FHLB, interest only at 2.66%, payable monthly, due on October 2, 2009
|
|
|
30,000
|
|
|
30,000
|
|
$75 million note payable to FHLB, interest only at 1.85% payable monthly, due on January 29, 2010
|
|
|
75,000
|
|
|
—
|
|
$30 million note payable to FHLB, interest only at 2.73%, payable monthly, due on April 12, 2010
|
|
|
30,000
|
|
|
30,000
|
|
$25 million note payable to FHLB, interest only at 2.07% payable monthly, due on July 30, 2010
|
|
|
25,000
|
|
|
—
|
|
$75 million note payable to FHLB, interest only at 2.27% payable monthly, due on September 20, 2010
|
|
|
75,000
|
|
|
—
|
|
$25 million note payable to FHLB, interest only at 2.34% payable monthly, due on January 31, 2011
|
|
|
25,000
|
|
|
—
|
|
$50 million note payable to FHLB, interest only at 2.48% payable monthly, due on February 28, 2011
|
|
|
50,000
|
|
|
—
|
|
$75 million note payable to FHLB, interest only at 2.66% payable monthly, due on August 29, 2011
|
|
|
75,000
|
|
|
—
|
|
$30 million note payable to FHLB, interest only at 2.54%, payable monthly, due on April 2, 2012
|
|
|
30,000
|
|
|
—
|
|
$7.5 million note payable to FHLB, interest at 5.75%, payable in monthly principal and interest installments of approximately
$144,000 through August 1, 2011
|
|
|
3,132
|
|
|
4,266
|
|
$7.5 million note payable to FHLB, interest at 5.78%, payable in monthly principal and interest installments of approximately
$109,000 through August 1, 2013
|
|
|
4,565
|
|
|
5,328
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
497,697
|
|
$
|
497,594
|
|
|
|
|
|
|
|
|
As of September 30, 2009, the contractual maturities of FHLB advances are as
follows:
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
$
|
105,651
|
|
2010
|
|
|
207,699
|
|
2011
|
|
|
152,278
|
|
2012
|
|
|
31,218
|
|
2013
|
|
|
851
|
|
|
|
|
|
|
Total
|
|
$
|
497,697
|
|
|
|
|
|
All outstanding borrowings with the FHLB are collateralized by the Company’s
loan portfolio and pledged marketable securities as discussed in Note 1.
12. Income Taxes
Income tax expense of $546,000 for the three and nine months ended September 30, 2009 is due to the limitation of our net operating loss
carryback for alternative minimum tax purposes. No additional expense was recorded, as the net operating loss and other net deferred tax assets were fully offset by a deferred tax asset valuation allowance. SFAS 109 requires a reduction of the
carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. A valuation allowance of $29.0 million was established at December 31, 2008.
The valuation allowance at September 30, 2009 was $65.1 million. The net deferred tax asset as of September 30, 2009 is zero, as the amount which represented the amount of taxes paid in 2008 and 2007 that could be recovered by carrying
back tax losses in 2009 is classified as current income tax receivable and is included in other assets. $5.6 million of our current receivable of $7.2 million will be realized through the carry back
- 23 -
of the net operating loss generated in 2009 generating refunds of taxes paid in 2008 and 2007. After the Colorado branch sale, in the second quarter, the Company increased the estimated rate at
which net deferred taxes are expected to be realized to 39.5%. The income tax benefit for the three and nine months ended September 30, 2008 resulted from the pre-tax loss. The effective income tax rate of 63.4% and 19.6%, respectively, for the
three and nine months ended September 30, 2008, is due to the impact of permanent non-deductible and non-taxable items in 2008, principally the non-deductible portion of the goodwill impairment charge.
13. Subsequent Events
On
November 6, 2009, legislation was signed into law which will enable the Company to carry back tax net operating losses five years versus the two years currently allowed. The Company currently has a valuation allowance offsetting its net
operating losses due to the uncertainty of its ability to realize them in future years. The extended carry back period will allow the Company to recover approximately $9.8 million in addition to the current tax receivable. This estimate is based on
the 2009 taxable loss generated through September 30, 2009, and will result in a tax benefit in the fourth quarter ending December 31, 2009. The amount is subject to change based on the taxable income or loss generated in the fourth
quarter; however, we do not anticipate a significant change.
|
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, capital
expectations, and response to consolidation in the banking industry include forward-looking statements. Other forward-looking statements may be identified by the use of forward-looking words such as “believe,” “expect,”
“may,” “might,” “will,” “should,” “seek,” “could,” “approximately,” “intend,” “plan,” “estimate,” or “anticipate” or the negative of those
words or other similar expressions.
Forward-looking statements involve inherent risks and uncertainties and are based on numerous
assumptions. They are not guarantees of future performance. A number of important factors could cause actual results to differ materially from those in the forward-looking statement. Some factors include changes in interest rates, local business
conditions, government regulations, loss of key personnel or inability to hire suitable personnel, asset quality and loan loss trends, faster or slower than anticipated growth, economic conditions, our competitors’ responses to our marketing
strategy or new competitive conditions, and competition in the geographic and business areas in which we conduct our operations. Forward-looking statements contained herein are made only as of the date made, and we do not undertake any obligation to
update them to reflect events or circumstances after the date of this report to reflect the occurrence of unanticipated events.
Because
forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements.
These factors are included in our Form 10-K for the year ended December 31, 2008, and updated in our Form 10-Q for the period ended June 30, 2009, as filed with the Securities and Exchange Commission. We have also included our revised risk
factors that are relevant for the current period.
Consolidated Condensed Balance Sheets
Our total assets decreased by $528.7 million from $3.415 billion as of December 31, 2008, to $2.886 billion as of September 30, 2009. The decrease
in total assets is primarily due to the branch sale of approximately $387 million in loans and $20 million in premises and equipment. In addition, in September 2009, we surrendered approximately $36 million of bank-owned life insurance for liquidity
and risk-based capital purposes. These decreases were partially offset
- 24 -
by an increase in available for sale securities of $102.2 million. Our deposits decreased by $370.9 million from $2.523 billion at December 31, 2008, to $2.152 billion at September 30,
2009. The decrease in deposits is primarily due to the branch sale of approximately $512 million in deposits and a reduction in brokered deposits of $128 million, offset by an increase in our non-brokered deposits of $269 million.
The following table presents the amounts of our loans, by category, at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
September 30, 2008
|
|
|
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial
|
|
$
|
263,918
|
|
12.4
|
%
|
|
$
|
356,769
|
|
13.0
|
%
|
|
$
|
352,579
|
|
12.8
|
%
|
|
Real estate-commercial
|
|
|
893,463
|
|
42.1
|
%
|
|
|
1,172,952
|
|
42.6
|
%
|
|
|
1,117,029
|
|
40.4
|
%
|
|
Real estate-one- to four-family
|
|
|
203,749
|
|
9.6
|
%
|
|
|
270,613
|
|
9.8
|
%
|
|
|
283,262
|
|
10.3
|
%
|
|
Real estate-construction
|
|
|
725,707
|
|
34.1
|
%
|
|
|
896,117
|
|
32.5
|
%
|
|
|
950,238
|
|
34.4
|
%
|
|
Consumer and other
|
|
|
30,430
|
|
1.4
|
%
|
|
|
41,474
|
|
1.5
|
%
|
|
|
43,048
|
|
1.6
|
%
|
|
Mortgage loans available for sale
|
|
|
8,525
|
|
0.4
|
%
|
|
|
16,664
|
|
0.6
|
%
|
|
|
14,981
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,125,792
|
|
100.0
|
%
|
|
$
|
2,754,589
|
|
100.0
|
%
|
|
$
|
2,761,137
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents customer deposits, by category, at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
September 30, 2008
|
|
|
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|
|
|
|
(Dollars in thousands)
|
|
|
Non-interest-bearing
|
|
$
|
389,672
|
|
18.1
|
%
|
|
$
|
453,319
|
|
18.0
|
%
|
|
$
|
476,094
|
|
19.1
|
%
|
|
Interest-bearing demand
|
|
|
336,950
|
|
15.7
|
%
|
|
|
296,732
|
|
11.8
|
%
|
|
|
296,955
|
|
11.9
|
%
|
|
Money market savings accounts
|
|
|
390,288
|
|
18.1
|
%
|
|
|
471,011
|
|
18.6
|
%
|
|
|
535,075
|
|
21.4
|
%
|
|
Regular savings
|
|
|
90,008
|
|
4.2
|
%
|
|
|
100,691
|
|
4.0
|
%
|
|
|
102,685
|
|
4.1
|
%
|
|
Certificates of deposit less than $100,000
|
|
|
237,932
|
|
11.1
|
%
|
|
|
325,110
|
|
12.9
|
%
|
|
|
346,010
|
|
13.9
|
%
|
|
Certificates of deposit greater than $100,000
|
|
|
430,758
|
|
20.0
|
%
|
|
|
471,826
|
|
18.7
|
%
|
|
|
522,929
|
|
20.9
|
%
|
|
CDARS Reciprocal deposits
|
|
|
97,271
|
|
4.5
|
%
|
|
|
212,249
|
|
8.4
|
%
|
|
|
155,143
|
|
6.2
|
%
|
|
Brokered deposits
|
|
|
178,804
|
|
8.3
|
%
|
|
|
191,604
|
|
7.6
|
%
|
|
|
62,390
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,151,683
|
|
100.0
|
%
|
|
$
|
2,522,542
|
|
100.0
|
%
|
|
$
|
2,497,281
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Results of Operations
Our net loss for the three months ended September 30, 2009 was $51.5 million or $(2.49) per diluted share, compared to a net loss of $1.8 million or
$(0.09) per diluted share for the same period in 2008. First State’s net loss for the nine months ended September 30, 2009 was $82.1 million, or $(3.99) per diluted share, compared to a net loss of $116.2 million, or $(5.76) per diluted
share for the same period in 2008. The net loss for the three and nine months ended September 30, 2009 resulted primarily from the significant provision for loan losses due to the level of non-performing assets and increased charge-offs,
mitigated by the gain on the sale of our Colorado branches of $23.3 million in June 2009. The results for the three and nine months ended September 30, 2008 were negatively impacted by a $127.4 million non-cash goodwill impairment charge that
occurred in the second quarter of 2008 as well as provisioning for loan losses due primarily to increasing levels of non-performing assets.
First State has disclosed in this Form 10-Q certain non-GAAP financial measures to provide meaningful supplemental information regarding First State’s operational performance and to enhance investors’ overall understanding of
First State’s operating financial performance. Management believes that these non-GAAP financial measures allow for additional transparency and are used by some investors, analysts, and other users of First State’s financial information as
performance measures. These non-GAAP financial measures are presented for supplemental informational purposes only for understanding First State’s operating results and should not be considered a substitute for financial information presented
in accordance with GAAP. These non-GAAP financial measures presented by First State may be different from non-GAAP financial measures used by other companies. The table below presents performance ratios in accordance with GAAP and a reconciliation
of the non-GAAP financial measurements to the GAAP financial measurements.
- 25 -
FINANCIAL SUMMARY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
(Unaudited - $ in thousands except per-share amounts)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net loss as reported
|
|
$
|
(51,540
|
)
|
|
$
|
(1,778
|
)
|
|
$
|
(82,139
|
)
|
|
$
|
(116,160
|
)
|
|
Goodwill impairment charge, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107,290
|
|
|
Gain on sale of Colorado branches
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,292
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss excluding goodwill impairment charge and gain on sale of Colorado branches
|
|
$
|
(51,540
|
)
|
|
$
|
(1,778
|
)
|
|
$
|
(105,431
|
)
|
|
$
|
(8,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP basic and diluted loss per share
|
|
$
|
(2.49
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(3.99
|
)
|
|
$
|
(5.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share excluding goodwill impairment charge and gain on sale of Colorado branches
|
|
$
|
(2.49
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(5.12
|
)
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP return on average assets
|
|
|
(6.92
|
)%
|
|
|
(0.20
|
)%
|
|
|
(3.33
|
)%
|
|
|
(4.48
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets excluding goodwill impairment charge and gain on sale of Colorado branches
|
|
|
(6.92
|
)%
|
|
|
(0.20
|
)%
|
|
|
(4.27
|
)%
|
|
|
(0.34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP return on average equity
|
|
|
(169.44
|
)%
|
|
|
(3.63
|
)%
|
|
|
(80.48
|
)%
|
|
|
(56.13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity excluding goodwill impairment charge and gain on sale of Colorado branches
|
|
|
(169.44
|
)%
|
|
|
(3.63
|
)%
|
|
|
(103.30
|
)%
|
|
|
(4.29
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income as reported
|
|
$
|
9,726
|
|
|
$
|
6,370
|
|
|
$
|
49,428
|
|
|
$
|
19,569
|
|
|
Gain on sale of Colorado branches
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,292
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income excluding gain on sale of Colorado branches
|
|
$
|
9,726
|
|
|
$
|
6,370
|
|
|
$
|
26,136
|
|
|
$
|
19,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense as reported
|
|
$
|
26,540
|
|
|
$
|
27,260
|
|
|
$
|
83,711
|
|
|
$
|
210,155
|
|
|
Goodwill impairment charge
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(127,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense excluding goodwill impairment charge
|
|
$
|
26,540
|
|
|
$
|
27,260
|
|
|
$
|
83,711
|
|
|
$
|
82,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio *
|
|
|
94.63
|
%
|
|
|
71.68
|
%
|
|
|
70.33
|
%
|
|
|
184.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio excluding goodwill impairment charge and gain on sale of Colorado branches
|
|
|
94.63
|
%
|
|
|
71.68
|
%
|
|
|
87.45
|
%
|
|
|
72.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating expenses to average assets
|
|
|
3.57
|
%
|
|
|
3.12
|
%
|
|
|
3.39
|
%
|
|
|
8.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses to average assets excluding goodwill impairment charge and gain on sale of Colorado branches
|
|
|
3.57
|
%
|
|
|
3.12
|
%
|
|
|
3.39
|
%
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
2.53
|
%
|
|
|
3.87
|
%
|
|
|
2.93
|
%
|
|
|
3.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets
|
|
|
4.09
|
%
|
|
|
5.61
|
%
|
|
|
4.13
|
%
|
|
|
7.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
3.18
|
%
|
|
|
7.12
|
%
|
|
|
3.18
|
%
|
|
|
7.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Subsidiary
|
|
|
5.75
|
%
|
|
|
8.02
|
%
|
|
|
5.75
|
%
|
|
|
8.02
|
%
|
|
|
|
|
|
|
|
Total risk based capital ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
8.75
|
%
|
|
|
10.44
|
%
|
|
|
8.75
|
%
|
|
|
10.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Subsidiary
|
|
|
9.21
|
%
|
|
|
10.45
|
%
|
|
|
9.21
|
%
|
|
|
10.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
(Efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income.)
|
- 26 -
The net loss excluding the gain on sale of Colorado branches for the nine months ended September 30,
2009, was $105.4 million compared to a net loss excluding goodwill impairment charge of $8.9 million for 2008. The net operating loss per diluted share excluding the gain on sale of Colorado branches for the nine months ended June 30, 2009 was
$(5.12) compared to a net loss per diluted share excluding goodwill impairment charge of $(0.44) for the same period in 2008.
Our net
interest income decreased $13.4 million to $18.3 million for the three months ended September 30, 2009 compared to $31.7 million for the same period in 2008. This decrease was composed of a $19.2 million decrease in total interest income,
partially offset by a $5.9 million decrease in total interest expense. Our net interest margin was 2.53% and 3.87% for the third quarter of 2009 and 2008, respectively, and 2.96% for the second quarter of 2009. The net interest margin was 2.93% and
3.98% for the nine months ended September 30, 2009 and 2008, respectively.
The decrease in total interest income for the three months
ended September 30, 2009 was composed of a decrease of $11.7 million due to a 1.86% decrease in the yield on average interest-earning assets, and a decrease of $7.5 million due to a decrease in average interest earning assets of $387.1 million.
The decrease in average earning assets occurred primarily in loans, primarily due to the Colorado branch sale on June 26, 2009, and the run-off of other loans, partially offset by an increase in interest-bearing deposits with other banks. In
addition, during the quarter ended September 30, 2009, we reversed approximately $1.5 million in accrued interest on two Colorado metropolitan municipal district bonds. The bond agreements allow the districts to defer interest payments 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 cash flows, we reversed the accrued interest on these bonds.
The decrease in total interest expense for the three months ended September 30, 2009 was composed of a decrease of $4.2 million due to a 0.61%
decrease in the cost of interest-bearing liabilities, and a decrease of $1.7 million due to an increase in average interest-bearing liabilities of $353.5 million. The decrease in average interest-bearing liabilities was primarily due to a decrease
in average interest-bearing deposits of $279.0 million, due to the Colorado branch sale that occurred on June 26, 2009, partially offset by increases in interest bearing deposits in our existing markets. Average short-term debt and securities
sold under agreements to repurchase decreased by $234.1 million and $117.7 million, respectively, offset by an increase in average long-term borrowings of $277.5 million.
Our net interest income decreased $24.7 million to $69.6 million for the nine months ended September 30, 2009 compared to $94.3 million for the same period in 2008. This decrease was composed of a
$40.5 million decrease in total interest income, partially offset by a $15.8 million decrease in total interest expense.
The decrease in
total interest income for the nine months ended September 30, 2009 was composed of a decrease of $37.4 million due to a 1.71% decrease in the yield on average interest-earning assets, and a decrease of $3.1 million primarily due to the reversal
of approximately $1.5 million in accrued interest on two Colorado metropolitan municipal district bonds. Average interest earning assets were $3.172 million at September 30, 2009, compared to $3.166 million at September 30, 2008. Average
loans decreased by $126.6 million, but were offset by the increase in average interest-bearing deposits with other banks.
The decrease in
total interest expense for the nine months ended September 30, 2009 was composed of a decrease of $19.3 million due to a 0.79% decrease in the cost of interest-bearing liabilities, partially offset by an increase of $3.5 million on flat average
interest-bearing liabilities. Average interest bearing deposits decreased by $47.5 million, average securities sold under agreements to repurchase decreased by $108.2 million, and average short term borrowings decreased by $80.5 million. These
decreases were offset by an increase in average long term debt of $236.3 million.
The decrease in the net interest margin is primarily due to
the decrease in the federal funds target rate that began in September 2007 and continued through December 2008, along with the increase in non-performing assets throughout 2008 and the first three quarters of 2009. The Federal Reserve Bank has
lowered the federal funds target rate by 500 basis points, 400 of which occurred in calendar 2008, leading to an equal decrease in the prime lending rate. Approximately 70% of loans held for investment is tied directly to the prime lending rate and
adjusts daily when there is a change in the prime lending rate. Approximately 35% of loans that are tied directly to the prime lending rate have an interest rate floor. The rates paid on customer deposits are influenced more by competition in our
markets and tend to lag behind Federal Reserve Bank action in both timing and magnitude, particularly in this very low rate environment. Although we have lowered selected deposit rates since the beginning of 2008, we continue to remain competitive
in the markets we serve.
- 27 -
In addition, during the quarter ended September 30, 2009, we reversed approximately $1.5 million in
accrued interest on two Colorado metropolitan municipal district bonds. Although the bond agreements allow the districts to defer interest payments, which they have elected to do, we considered it appropriate to reverse the accrued interest as we
moved these bonds to non accrual status at the end of the quarter.
Our asset sensitivity including the increase in excess cash, the decrease
in the prime lending rate, and the increase in non-accrual loans combined with an increase in borrowings and minimal deposit repricing continues to have a negative impact on the net interest margin.
In the first quarter of 2009, in order to increase our liquidity position, we issued additional brokered deposits and borrowed additional funds from the
Federal Home Loan Bank (“FHLB”), resulting in an increase in lower yielding cash on the balance sheet. This strategy increased our cash liquidity and at the same time has resulted in further margin compression by increasing our earning
asset base with lower yielding assets and contributing to an increase in interest expense. As part of our strategy, we focused on maturities of 15 to 24 months for brokered deposits issued in the first quarter of 2009, as well as maturities over the
next two to three years for FHLB borrowings to further strengthen our liquidity position. Although these activities as noted above have contributed to the recent margin compression, we continue to believe that the improvement in our current
liquidity position in the current banking environment outweighs the margin compression we have seen over the last few quarters.
The increase
in non accrual 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 percent rate. The level of non accrual loans has increased to $229 million at the end of September 2009 from $99 million at the end of September 2008.
Non accrual loans now make up 8% of interest earning assets compared to 3% a year ago.
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 non-performing loans in the near-term, as well as continued compression in our net interest margin, which would result in continued negative earnings and financial condition pressures.
Non-interest Income and Non-interest Expense
An analysis of the components of non-interest income for the three months ended September 30, 2009 and 2008 is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
(Dollars in thousands)
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
Service charges
|
|
$
|
3,157
|
|
$
|
3,969
|
|
|
$
|
(812
|
)
|
|
(20
|
)%
|
|
Credit and debit card transaction fees
|
|
|
871
|
|
|
1,037
|
|
|
|
(166
|
)
|
|
(16
|
)
|
|
Gain (loss) on sale or call of investment securities
|
|
|
4,209
|
|
|
(556
|
)
|
|
|
4,765
|
|
|
(857
|
)
|
|
Gain on sale of loans
|
|
|
665
|
|
|
840
|
|
|
|
(175
|
)
|
|
(21
|
)
|
|
Other
|
|
|
824
|
|
|
1,080
|
|
|
|
(256
|
)
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,726
|
|
$
|
6,370
|
|
|
$
|
3,356
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in service charges and credit and debit card transaction fees is primarily due to the
completion of the sale of our Colorado branches on June 26, 2009.
The increase in gain on investment securities is due to an increase in
sales of investment securities during the period. Certain securities were sold at a gain as part of our continued efforts to bolster capital by repositioning U.S. Agency securities into GNMA securities which are guaranteed by the U.S. government and
therefore have a lower risk weighting for capital purposes. The 2008 loss on investment securities includes an other-than-temporary impairment charge of $565,000 on FHLMC preferred stock acquired as part of the acquisition of Front Range Capital
Corporation in March 2007, partially offset by gains from calls and sales of securities during the period.
- 28 -
The decrease in gain on sale of residential mortgage loans is primarily due to decreased volumes. During the
third quarter of 2009 we sold approximately $46 million in loans compared to approximately $56 million during the same period in 2008. The decline in volume is due primarily to the closure of our Colorado mortgage operations in conjunction with the
Colorado branch sale.
The decrease in other non-interest income is primarily due to a decrease in rental income, related to the sale of our
Colorado branches and a decrease in bank owned life insurance income. 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. The
surrenders resulted in a tax penalty of approximately $896,000 which is included in other non-interest expense.
An analysis of the components
of non-interest expense for the three months ended September 30, 2009 and 2008 is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
(Dollars in thousands)
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries and employee benefits
|
|
$
|
9,067
|
|
$
|
12,468
|
|
$
|
(3,401
|
)
|
|
(27
|
)%
|
|
Occupancy
|
|
|
3,285
|
|
|
4,360
|
|
|
(1,075
|
)
|
|
(25
|
)
|
|
Data processing
|
|
|
1,340
|
|
|
1,341
|
|
|
(1
|
)
|
|
—
|
|
|
Equipment
|
|
|
1,324
|
|
|
1,915
|
|
|
(591
|
)
|
|
(31
|
)
|
|
Legal, accounting, and consulting
|
|
|
2,489
|
|
|
590
|
|
|
1,899
|
|
|
322
|
|
|
Marketing
|
|
|
613
|
|
|
1,057
|
|
|
(444
|
)
|
|
(42
|
)
|
|
Telephone
|
|
|
426
|
|
|
479
|
|
|
(53
|
)
|
|
(11
|
)
|
|
Other real estate owned
|
|
|
2,143
|
|
|
627
|
|
|
1,516
|
|
|
242
|
|
|
FDIC insurance premiums
|
|
|
1,843
|
|
|
554
|
|
|
1,289
|
|
|
233
|
|
|
Penalties and interest
|
|
|
897
|
|
|
1
|
|
|
896
|
|
|
896
|
|
|
Amortization of intangibles
|
|
|
272
|
|
|
640
|
|
|
(368
|
)
|
|
(58
|
)
|
|
Other
|
|
|
2,841
|
|
|
3,228
|
|
|
(387
|
)
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,540
|
|
$
|
27,260
|
|
$
|
(720
|
)
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in salaries and employee benefits is primarily due to a decrease in headcount. At
September 30, 2009, full time equivalent employees totaled 559 compared to 860 at September 30, 2008. 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 a decrease in self-insured medical and dental claims.
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, partially offset by higher lease impairment charges on vacated office space in
the third quarter of 2009 compared to 2008.
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 Colorado Mortgage division closure.
The
increase in legal, accounting, and consulting expense resulted partially higher legal fees as a result of our written agreement with the regulators and higher levels of non-performing loans. In addition, we incurred approximately $1.5 million in
consulting fees related to a staffing model and various revenue enhancement models that were prepared in connection with our continued efforts to control non-interest expenses and increase other non-interest income.
The decrease in marketing expenses is primarily due to a decrease in direct advertising costs. Marketing costs were higher in the 2008 period due to the
Bank’s new ad campaign combined with costs associated with the introduction of the Bank’s new deposit products.
The increase in
expenses for other real estate owned is primarily due to an increase in write-downs of properties to reflect further deterioration of fair values subsequent to foreclosure and an increase in other expenses related to the properties, both
commensurate with the increase in number of properties.
- 29 -
The increase in FDIC insurance premiums is due to new FDIC assessment rates that took effect on
January 1, 2009, as well as an increase in average deposits. 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 increase in penalties and interest is due to interest and penalties of $896,000 related to the surrender of certain
bank-owned life insurance.
The decrease in amortization of intangibles is due to the sale of our Colorado branches on June 26, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
(Dollars in thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
Service charges
|
|
$
|
10,610
|
|
$
|
10,683
|
|
|
$
|
(73
|
)
|
|
(1
|
)%
|
|
Credit and debit card transaction fees
|
|
|
2,867
|
|
|
3,013
|
|
|
|
(146
|
)
|
|
(5
|
)
|
|
Gain (loss) on sale or call of investment securities
|
|
|
6,963
|
|
|
(682
|
)
|
|
|
7,645
|
|
|
(1,121
|
)
|
|
Gain on sale of loans
|
|
|
3,290
|
|
|
3,196
|
|
|
|
94
|
|
|
3
|
|
|
Gain on sale of Colorado branches
|
|
|
23,292
|
|
|
—
|
|
|
|
23,292
|
|
|
—
|
|
|
Other
|
|
|
2,406
|
|
|
3,359
|
|
|
|
(953
|
)
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,428
|
|
$
|
19,569
|
|
|
$
|
29,859
|
|
|
153
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in service charges and credit and debit card transaction fees is due to the completion
of the sale of our Colorado branches on June 26, 2009, partially offset by an increase in NSF fees charged per occurrence, an increase in account analysis fees, an increase in non-customer ATM fees, and a reduction in fees waived from deposit
accounts.
The increase in gain on investment securities is due to an increase in sales of investment securities during the period. Certain
securities were sold at a gain as part of our continued efforts to bolster capital as described above. The 2008 loss on investment securities includes an other-than-temporary charge of $898,000 on FHLMC preferred stock as described above, partially
offset by gains from calls and sales of securities during the period.
The gain on sale of our Colorado branches is from sale transaction
completed on June 26, 2009.
The decrease in other non-interest income is primarily due to a decrease in check imprint income, a decrease
in official check outsourcing fee income as official check processing was brought in-house in the fourth quarter of 2008, a decrease attributable to the redemption of VISA stock that occurred in the first quarter of 2008, a decrease in rental income
related to the sale of our Colorado branches on June 26, 2009 and a decrease in bank-owned life insurance income. 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. The surrenders resulted in a tax penalty of approximately $896,000 which is included in other non-interest expense.
- 30 -
An analysis of the components of non-interest expense for the nine months ended September 30, 2009 and
2008 is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
(Dollars in thousands)
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ Change
|
|
|
% Change
|
|
|
Salaries and employee benefits
|
|
$
|
33,026
|
|
$
|
38,748
|
|
$
|
(5,722
|
)
|
|
(15
|
)%
|
|
Occupancy
|
|
|
10,726
|
|
|
12,523
|
|
|
(1,797
|
)
|
|
(14
|
)
|
|
Data processing
|
|
|
4,252
|
|
|
4,267
|
|
|
(15
|
)
|
|
—
|
|
|
Equipment
|
|
|
4,735
|
|
|
5,972
|
|
|
(1,237
|
)
|
|
(21
|
)
|
|
Legal, accounting, and consulting
|
|
|
5,432
|
|
|
1,956
|
|
|
3,476
|
|
|
178
|
|
|
Marketing
|
|
|
1,950
|
|
|
2,538
|
|
|
(588
|
)
|
|
(23
|
)
|
|
Telephone
|
|
|
1,220
|
|
|
1,545
|
|
|
(325
|
)
|
|
(21
|
)
|
|
Other real estate owned
|
|
|
3,918
|
|
|
2,329
|
|
|
1,589
|
|
|
68
|
|
|
FDIC insurance premiums
|
|
|
7,111
|
|
|
1,549
|
|
|
5562
|
|
|
359
|
|
|
Penalties and interest
|
|
|
898
|
|
|
48
|
|
|
850
|
|
|
1,771
|
|
|
Amortization of intangibles
|
|
|
1,475
|
|
|
1,920
|
|
|
(445
|
)
|
|
(23
|
)
|
|
Goodwill impairment charge
|
|
|
—
|
|
|
127,365
|
|
|
(127,365
|
)
|
|
(100
|
)
|
|
Other
|
|
|
8,968
|
|
|
9,395
|
|
|
(427
|
)
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,711
|
|
$
|
210,155
|
|
$
|
(126,444
|
)
|
|
(60
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in salaries and employee benefits is primarily due to a decrease in headcount. At
September 30, 2009, full time equivalent employees totaled 559 compared to 860 at September 30, 2008. 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 a decrease in incentive bonus expense and a decrease in self-insured medical and dental claims, partially offset by increased mortgage commissions and separation-pay associated with the sale of the Colorado branches and
the closure of our Colorado Mortgage division. The separation pay related to the Colorado branches and the Colorado Mortgage division totaled $1.3 million.
The decrease in occupancy is primarily due to a decrease in building depreciation expense, leasehold amortization, and rent and related expenses due to the sale of the Colorado branches and Colorado
Mortgage division closure, partially offset by higher lease impairment charges on vacated office space in the third quarter of 2009 compared to 2008.
The decrease in equipment is primarily due to the decrease in equipment depreciation expense and equipment rental and associated costs on equipment related to the Colorado branches that were sold in June 2009.
The increase in legal, accounting, and consulting expense resulted from legal and investment banking fees incurred in connection with the sale of our
Colorado branches of approximately $850,000, consulting costs of $1.5 million related to a staffing model and various revenue enhancement models that were prepared in connection with our continued efforts to control non-interest expenses and
increase other non-interest income, and legal fees associated with our written agreement with the regulators and higher levels of non-performing loans.
The increase in expenses for other real estate owned is primarily due to an increase in write-downs of properties subsequent to foreclosure to reflect their fair values and an increase in other expenses
related to the properties, both commensurate with the increase in number of properties.
The increase in FDIC insurance premiums is due to new
FDIC assessment rates that took effect on January 1, 2009, the five basis point special assessment of $1.4 million that occurred in the second quarter of 2009, as well as an increase in deposits. The final rule also permits the imposition of an
additional emergency special assessment after June 30, 2009, of up to five basis points per quarter through 2009.
The increase in
penalties and interest is due to interest and penalties of $896,000 related to the surrender of certain bank-owned life insurance.
The
decrease in amortization of intangibles is due to the sale of our Colorado branches on June 26, 2009.
Income tax expense in the quarter
ended September 30, 2009 of $546,000 is due to the limitation on alternative minimum tax carrybacks due to our net operating loss position.
- 31 -
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2009
|
|
|
Year ended
December 31, 2008
|
|
|
Nine months ended
September 30, 2008
|
|
|
|
|
(Dollars in thousands)
|
|
|
ALLOWANCE FOR LOAN LOSSES:
|
|
|
|
|
|
Balance beginning of period
|
|
$
|
79,707
|
|
|
$
|
31,712
|
|
|
$
|
31,712
|
|
|
Provision for loan losses
|
|
|
116,900
|
|
|
|
71,618
|
|
|
|
48,235
|
|
|
Net charge-offs
|
|
|
(74,257
|
)
|
|
|
(23,623
|
)
|
|
|
(11,573
|
)
|
|
Allowance related to loans sold
|
|
|
(7,747
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance end of period
|
|
$
|
114,603
|
|
|
$
|
79,707
|
|
|
$
|
68,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans held for investment
|
|
|
5.41
|
%
|
|
|
2.91
|
%
|
|
|
2.49
|
%
|
|
Allowance for loan losses to non-performing loans
|
|
|
50
|
%
|
|
|
67
|
%
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
September 30, 2008
|
|
|
|
|
(Dollars in thousands)
|
|
|
NON-PERFORMING ASSETS:
|
|
|
|
|
|
Accruing loans – 90 days past due
|
|
$
|
—
|
|
|
$
|
4,139
|
|
|
$
|
1,988
|
|
|
Non-accrual loans
|
|
|
228,621
|
|
|
|
114,138
|
|
|
|
99,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
228,621
|
|
|
|
118,277
|
|
|
|
101,486
|
|
|
Other real estate owned
|
|
|
42,086
|
|
|
|
18,894
|
|
|
|
15,929
|
|
|
Non-accrual investment securities
|
|
|
18,775
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
289,482
|
|
|
$
|
137,171
|
|
|
$
|
117,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential problem loans
|
|
$
|
205,782
|
|
|
$
|
130,884
|
|
|
$
|
95,444
|
|
|
Total non-performing assets to total assets
|
|
|
10.03
|
%
|
|
|
4.02
|
%
|
|
|
3.38
|
%
|
Our provision for loan losses was $52.5 million and $116.9 million for the three and nine month
periods ended September 30, 2009, respectively, compared to $15.6 million and $48.2 million for the same periods in 2008. The increase in the provision resulted from the increase in non-performing loans, and the increase in net charge-offs.
First State’s allowance for loan losses was 5.41% and 2.49% of total loans held for investment at September 30, 2009 and September 30, 2008, respectively. The increase in the provision is a result of an increase in non-performing
loans and higher levels of net charge-offs. Non-performing loans increased by $110.3 million during the first three quarters of 2009, including increases of $45.3 million and $47.7 million in the first and second quarters respectively, while the
increase for the third quarter fell to $17.3 million. Potential problem loans increased by $74.9 million from December 31, 2008; however, for the quarter ended September 30, 2009, they declined by $53.1 million. Net charge-offs totaled
$74.3 million during the first three quarters of 2009, including $13.3 million and $13.9 million in the first and second quarters, respectively. Net charge-offs for the third quarter ended September 30, 2009 were $47.1 million which
incorporates acceleration in the timing of when previously provided specific loan reserves are charged off. Historically, specifically provided reserves were taken as charge-offs upon final resolution of the problem loans. Given the current economic
environment and negative trends in commercial real estate, in the quarter ended September 30, 2009, we began charging off specific reserves that have been determined to be collateral dependent with no other sources of potential repayment or
indication of possible recovery. In assessing the adequacy of the allowance, management reviews the size, quality, and risks of loans in the portfolio, and considers factors such as specific known risks, past experience, the status and amount of
non-performing assets, and economic conditions.
Approximately 39% of our non-performing loans are in New Mexico, approximately 26% are in
Colorado, approximately 21% are in Utah, and approximately 14% are in Arizona. The real estate construction loan category currently comprises the largest percentage of non-performing loans, at approximately 58% at September 30, 2009. Of the
$726 million of real estate construction loans, approximately 39% are related to residential construction and approximately 61% are for commercial purposes or vacant land. Approximately 52% of our real estate construction loans are in New Mexico,
approximately 21% are in Colorado, approximately 20% are in Utah and approximately 7% are in Arizona.
- 32 -
Given current economic conditions and trends, we may continue to experience asset quality deterioration and
higher levels of non-performing loans in the near-term, which would result in continued negative earnings and financial condition pressures.
We sell virtually all of the residential mortgage loans that we originate and we have no securities that are backed by sub-prime mortgages.
Potential problem loans are loans not included in non-performing loans that we have doubts as to the ability of the borrowers to comply with present loan repayment terms.
Liquidity and Capital Resources
We continue to focus our 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 to us including federal funds
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. We continue to accumulate and maintain excess cash liquidity from loan reductions to
compensate for the limited liquidity options currently available. In addition, during the third quarter, we surrendered approximately $36 million in bank-owned life insurance, increasing our cash liquidity.
The Company’s most liquid assets are cash and cash equivalents and marketable investment securities that are not pledged as collateral. The levels of
these assets are dependent on operating, financing, lending, and investing activities during any given period. At September 30, 2009, the carrying value of these assets (including pledged assets), approximating $720.5 million, consisted of
$164.7 million in cash and cash equivalents and $555.8 million in marketable investment securities. Approximately $483.8 million of marketable investment securities were pledged as collateral for FHLB borrowings, federal funds lines, securities sold
under agreements repurchase, and for public funds on deposit at September 30, 2009.
The Company’s primary sources of funds are
customer deposits, loan repayments, maturities of and cash flow from investment securities, and borrowings. Investment securities may be used as a source of liquidity either through sale of investment securities available for sale or pledging for
qualified deposits, as collateral for borrowings, or as collateral for other liquidity sources. Borrowings may include federal funds purchased, securities sold under agreements to repurchase, borrowings from the FHLB, and borrowings from the Federal
Reserve Bank discount window.
The Bank has established two federal funds borrowing lines for a total capacity of approximately $94 million,
fully collateralized by investment securities and commercial loans. During the third quarter, the Bank secured a subordination agreement with the FHLB, which provides the Bank the ability to pledge non real estate commercial loans to the Federal
Reserve Bank discount window. At the end of September, the Bank had approximately $72.5 million in additional borrowing capacity included in the $94 million above attributable to $132 million in commercial loans currently pledged to the Federal
Reserve Bank discount window.
At December 31, 2008, all outstanding borrowings with the FHLB were collateralized by the Company’s
loan portfolio through a blanket lien. During 2009, the FHLB notified the Company that its blanket lien was replaced by a custody arrangement, whereby the FHLB has custody and endorsement of the loans that collateralize the FHLB borrowings.
Effective July 29, 2009, the FHLB increased the collateral requirements related to our outstanding borrowing position by reducing the available collateral percentage applied to the unpaid principal balance of our pledged loans. As of
June 30, 2009, the FHLB provided collateral value of approximately 60% of the outstanding unpaid principal balance of loans pledged. The percentage declined during the third quarter of 2009 and as of September 30, 2009, the FHLB
provided collateral value of approximately 29% of the outstanding unpaid principal balance of the loans pledged to the FHLB. The FHLB takes into consideration a number of factors in calculating the available collateral value including: credit
quality, past due status, loan type and loan documentation exceptions, among other factors.
In addition to investment securities of
approximately $196 million, loan collateral with par value of approximately $1.3 billion has been delivered to satisfy the new requirements of the custody arrangement. For loans to qualify as collateral, they must not be past due 90 days or more,
must not be classified substandard or below, and must not be a loan to a director, employee or agent of the Company or the FHLB. Because collateral values are determined subjectively by the FHLB, there is no assurance that the FHLB will not require
additional collateral or repayment of existing borrowings. Based on our current status with the FHLB, the Company no longer has the ability to draw down additional advances. Under the terms of the Bank’s agreement with the FHLB, the FHLB may at
its own option call the outstanding debt due and payable if any of the following have occurred: the Bank has suspended payment to any creditor or there has been an acceleration of the maturity of any indebtedness of the Bank to others; the FHLB
reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Bank; or the FHLB reasonably and in good faith deems itself insecure in the collateral even though the Bank is not otherwise in
default. Based on the Company’s agreement with the FHLB and the FHLB’s credit policy, as the existing borrowings mature, they will be allowed to continuously renew for like amounts, but for terms not to exceed thirty days. The Company has
not received any notice from the FHLB regarding a call of its outstanding debt.
- 33 -
At September 30, 2009, the Bank was considered “adequately capitalized” while the Company was
considered “undercapitalized” for the Tier 1 leverage ratio under regulatory guidelines, subjecting both entities to prompt supervisory and regulatory actions pursuant to the FDIC Improvement Act of 1991, and prohibiting us from accepting,
renewing, or rolling over brokered deposits except with a waiver from the FDIC and subjecting the Bank to restrictions on the interest rates that can be paid on deposits.
In the event that the Bank’s deposit generation is negatively impacted by the recent drop to “adequately capitalized” management believes that sufficient cash and liquid assets are on hand
to maintain operations and meet all obligations as they come due. From a liquidity standpoint, the most significant ramification of the drop in capitalized category relates to our inability to rollover or renew existing brokered deposits, including
CDARS reciprocal deposits, that mature or come up for renewal while the Bank is considered adequately capitalized, without a waiver from the FDIC. The Bank has not received a waiver from the FDIC. Brokered deposits and CDARS reciprocal deposits were
$178.8 million and $97.3 million, respectively, at September 30, 2009.
In addition, the Bank is a participating institution in the
Transaction Account Guarantee Program (“TAG Program”), which the FDIC extended in the third quarter from December 31, 2009 to June 30, 2010. The TAG Program provides our deposit customers in non-interest bearing and
interest-bearing NOW accounts paying fifty basis points or less full FDIC insurance for an unlimited amount.
On September 29, 2009, the
FDIC issued a NPR that would require insured institutions to prepay their estimated quarterly risk-based assessments. Specifically, under the proposed rule, institutions would prepay their estimated risk-based deposit insurance assessments for the
fourth quarter of 2009 and for all of 2010, 2011 and 2012. If the NPR is approved in its current form, it could have an adverse affect on our liquidity by an estimated $24 million to $26 million. The prepayment is not intended to cause a liquidity
shortfall for institutions and may be avoided with a waiver; however, it is anticipated that there will be few waivers granted.
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.
On December 31, 2008 and January 27, 2009, respectively, to prepare for any
opportunity to issue capital that may arise, we filed a universal shelf registration and an amendment to the shelf registration that allows the Company to issue any combination of common stock, preferred stock, depositary shares, debt securities,
and warrants from time to time in one or more offerings up to a total dollar amount of $100 million.
In order to help improve the
Company’s and the Bank’s capital ratios, we suspended our cash dividend payments to shareholders in July 2008, and the Bank has not declared a cash dividend to the Company since May 2008. In early September 2008, we began notifying the
holders of our trust preferred securities that interest payments would be deferred, as allowed by the terms of those securities. These actions, among others have been incorporated into a formal agreement. On July 2, 2009, the Company and the
bank executed a written agreement (the “Regulator Agreement”) with the Federal Reserve Bank of Kansas City and the New Mexico Financial Institutions Division. The Regulator Agreement is based on findings of the Regulators identified in an
examination of the Bank and the Company during January and February of 2009. Several of the provisions in the Regulator Agreement are similar to an informal agreement entered into by the Company and the Bank in September 2008.
Under the terms of the Regulator Agreement, the Company and or the Bank agreed, among other things, to engage an independent consultant acceptable to the
Regulators to assess the Bank’s management and staffing needs, assess the qualifications and performance of all officers of the Bank, and assess the current structure and compositions of the Bank’s board of directors and its committees. In
addition, within 60 days of the Regulator Agreement, the Company and or the Bank 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
- 34 -
collected or charged off; not to pay any dividends; not to distribute any interest, principal or other sums on trust preferred securities; not to issue, increase or guarantee any debt; not to
purchase or redeem any shares of the Company’s stock; and not to accept any new brokered deposits, even if the Bank is considered well capitalized. The term “new brokered deposits” does not include renewals or rollovers of brokered
deposits. Within 30 days of the Regulator Agreement, the Bank 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 joint Compliance Committee to monitor and coordinate the Company’s and the Bank’s compliance with the provisions
of the Regulator Agreement, obtain prior approval for the appointment of new directors, the hiring or change in responsibilities of senior executive officers; and to comply with restrictions on severance payments and indemnification payments to
institution affiliated parties.
Failure to comply with the provisions of the Regulator Agreement could subject the Company and/or the Bank to
additional enforcement actions. We believe that the Company and or the Bank are in full compliance with the majority of the requirements of the Regulator Agreement and in partial compliance with the remaining requirements, except for the
requirements to submit an acceptable capital plan. Capital plans for the Company and the Bank were submitted timely, but have not been accepted by the regulators due to the lack of solid evidence supporting an increase in capital levels they deem
acceptable in the near future. We are continuing to work toward full compliance with the requirements for which we are currently in partial or noncompliance. However, there can be no assurance that the Company will be able to comply fully with the
provisions of the Regulator Agreement, or that efforts to comply with the Regulator Agreement will not have adverse effects on the Company’s ability to continue as a going concern.
The Bank will continue to conduct its banking business with customers in a normal fashion. The Bank’s deposits will remain insured by the FDIC to the maximum limits allowed by law.
Although we do not believe we currently have the ability to raise new capital at an acceptable price in the current economic environment, we continue to
evaluate alternative capital strengthening strategies, and are currently working on other initiatives to strengthen our capital position including the potential sale of other loans and normal loan amortization. At September 30, 2009, the Bank
was considered “adequately capitalized” while the Company was considered “undercapitalized” for the Tier 1 leverage ratio under regulatory guidelines. Based on the recent deterioration of the loan portfolio, there is a pressing
need for additional capital. Based on the current economic environment, the Bank may be unable to maintain its “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.
Although we do not believe we currently have the
ability to raise new capital at an acceptable price in the current economic environment, we continue to evaluate alternative capital strengthening strategies, and are currently working on other initiatives to strengthen our capital position
including the potential sale of other loans and normal loan amortization.
|
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.
- 35 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
|
Average
Yield or Cost
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
Average
Yield or Cost
|
|
|
|
|
(Dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
270,941
|
|
|
$
|
3,549
|
|
|
5.20
|
%
|
|
$
|
350,133
|
|
|
$
|
5,633
|
|
6.40
|
%
|
|
Real estate
|
|
|
1,898,700
|
|
|
|
22,349
|
|
|
4.67
|
%
|
|
|
2,352,668
|
|
|
|
36,872
|
|
6.23
|
%
|
|
Consumer
|
|
|
29,030
|
|
|
|
774
|
|
|
10.58
|
%
|
|
|
43,833
|
|
|
|
1,103
|
|
10.01
|
%
|
|
Mortgage
|
|
|
8,027
|
|
|
|
105
|
|
|
5.19
|
%
|
|
|
9,405
|
|
|
|
149
|
|
6.30
|
%
|
|
Other
|
|
|
1,002
|
|
|
|
—
|
|
|
—
|
|
|
|
1.750
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,207,700
|
|
|
|
26,777
|
|
|
4.81
|
%
|
|
|
2,757,789
|
|
|
|
43,757
|
|
6.31
|
%
|
|
Allowance for loan losses
|
|
|
(114,576
|
)
|
|
|
|
|
|
|
|
|
|
(59,525
|
)
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and mortgage-backed
|
|
|
367,409
|
|
|
|
3,569
|
|
|
3.85
|
%
|
|
|
381,000
|
|
|
|
4,465
|
|
4.66
|
%
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
96,607
|
|
|
|
(383
|
)
|
|
(1.57
|
)%
|
|
|
82,988
|
|
|
|
976
|
|
4.68
|
%
|
|
Taxable
|
|
|
2,313
|
|
|
|
34
|
|
|
5.83
|
%
|
|
|
3,454
|
|
|
|
50
|
|
5.76
|
%
|
|
Other
|
|
|
30,632
|
|
|
|
127
|
|
|
1.64
|
%
|
|
|
28,660
|
|
|
|
194
|
|
2.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
496,961
|
|
|
|
3,347
|
|
|
2.67
|
%
|
|
|
496,102
|
|
|
|
5,685
|
|
4.56
|
%
|
|
Interest-bearing deposits with other banks
|
|
|
166,431
|
|
|
|
100
|
|
|
0.24
|
%
|
|
|
1,697
|
|
|
|
13
|
|
3.05
|
%
|
|
Federal funds sold
|
|
|
188
|
|
|
|
—
|
|
|
0.13
|
%
|
|
|
2,787
|
|
|
|
13
|
|
1.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,871,280
|
|
|
|
30,224
|
|
|
4.18
|
%
|
|
|
3,258,375
|
|
|
|
49,468
|
|
6.04
|
%
|
|
Non-interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
50,724
|
|
|
|
|
|
|
|
|
|
|
66,678
|
|
|
|
|
|
|
|
|
Other
|
|
|
145,442
|
|
|
|
|
|
|
|
|
|
|
205,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest-earning assets
|
|
|
196,166
|
|
|
|
|
|
|
|
|
|
|
272,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,952,870
|
|
|
|
|
|
|
|
|
|
$
|
3,471,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand accounts
|
|
$
|
312,932
|
|
|
$
|
485
|
|
|
0.61
|
%
|
|
$
|
314,350
|
|
|
$
|
582
|
|
0.74
|
%
|
|
Certificates of deposit > $100,000
|
|
|
427,080
|
|
|
|
3,096
|
|
|
2.88
|
%
|
|
|
614,250
|
|
|
|
5,891
|
|
3.82
|
%
|
|
Certificates of deposit < $100,000
|
|
|
243,427
|
|
|
|
1,744
|
|
|
2.84
|
%
|
|
|
317,039
|
|
|
|
2,599
|
|
3.26
|
%
|
|
Money market savings accounts
|
|
|
428,300
|
|
|
|
1,461
|
|
|
1.35
|
%
|
|
|
577,610
|
|
|
|
3,249
|
|
2.24
|
%
|
|
Regular savings accounts
|
|
|
91,291
|
|
|
|
116
|
|
|
0.50
|
%
|
|
|
106,307
|
|
|
|
202
|
|
0.76
|
%
|
|
CDARS Reciprocal
|
|
|
97,984
|
|
|
|
712
|
|
|
2.88
|
%
|
|
|
103,241
|
|
|
|
694
|
|
2.67
|
%
|
|
Brokered CDs
|
|
|
178,872
|
|
|
|
938
|
|
|
2.08
|
%
|
|
|
26,123
|
|
|
|
202
|
|
3.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
1,779,886
|
|
|
|
8,552
|
|
|
1.91
|
%
|
|
|
2,058,920
|
|
|
|
13,419
|
|
2.59
|
%
|
|
Securities sold under agreements to repurchase
|
|
|
31,101
|
|
|
|
20
|
|
|
0.26
|
%
|
|
|
148,822
|
|
|
|
454
|
|
1.21
|
%
|
|
Short-term borrowings
|
|
|
150,000
|
|
|
|
447
|
|
|
1.18
|
%
|
|
|
384,133
|
|
|
|
2,261
|
|
2.34
|
%
|
|
Long-term debt
|
|
|
347,919
|
|
|
|
2,220
|
|
|
2.53
|
%
|
|
|
70,416
|
|
|
|
556
|
|
3.14
|
%
|
|
Junior subordinated debentures
|
|
|
98,374
|
|
|
|
665
|
|
|
2.68
|
%
|
|
|
98,521
|
|
|
|
1,116
|
|
4.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,407,280
|
|
|
|
11,904
|
|
|
1.96
|
%
|
|
|
2,760,812
|
|
|
|
17,806
|
|
2.57
|
%
|
|
Non-interest-bearing demand accounts
|
|
|
398,293
|
|
|
|
|
|
|
|
|
|
|
495,043
|
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities
|
|
|
26,616
|
|
|
|
|
|
|
|
|
|
|
21,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,832,189
|
|
|
|
|
|
|
|
|
|
|
3,276,911
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
120,681
|
|
|
|
|
|
|
|
|
|
|
194,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders’ equity
|
|
$
|
2,952,870
|
|
|
|
|
|
|
|
|
|
$
|
3,471,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
18,320
|
|
|
|
|
|
|
|
|
|
$
|
31,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
2.21
|
%
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
2.53
|
%
|
|
|
|
|
|
|
|
|
3.87
|
%
|
|
Ratio of average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
119.27
|
%
|
|
|
|
|
|
|
|
|
118.02
|
%
|
- 36 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
Average
Yield or Cost
|
|
|
Average
Balance
|
|
|
Interest
Income or
Expense
|
|
Average
Yield or Cost
|
|
|
|
|
(Dollars in thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
318,196
|
|
|
$
|
12,552
|
|
5.27
|
%
|
|
$
|
343,859
|
|
|
$
|
17,587
|
|
6.83
|
%
|
|
Real estate
|
|
|
2,160,653
|
|
|
|
81,590
|
|
5.05
|
%
|
|
|
2,253,400
|
|
|
|
112,991
|
|
6.70
|
%
|
|
Consumer
|
|
|
34,521
|
|
|
|
2,635
|
|
10.21
|
%
|
|
|
45,329
|
|
|
|
3,431
|
|
10.11
|
%
|
|
Mortgage
|
|
|
17,723
|
|
|
|
609
|
|
4.59
|
%
|
|
|
14,010
|
|
|
|
628
|
|
5.99
|
%
|
|
Other
|
|
|
1,128
|
|
|
|
—
|
|
—
|
|
|
|
2,234
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,532,221
|
|
|
|
97,386
|
|
5.14
|
%
|
|
|
2,658,832
|
|
|
|
134,637
|
|
6.76
|
%
|
|
Allowance for loan losses
|
|
|
(99,691
|
)
|
|
|
|
|
|
|
|
|
(42,499
|
)
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and mortgage-backed
|
|
|
358,982
|
|
|
|
11,337
|
|
4.22
|
%
|
|
|
395,247
|
|
|
|
13,638
|
|
4.61
|
%
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
|
|
|
98,625
|
|
|
|
1,923
|
|
2.61
|
%
|
|
|
79,488
|
|
|
|
2,824
|
|
4.75
|
%
|
|
Taxable
|
|
|
3,046
|
|
|
|
134
|
|
5.88
|
%
|
|
|
2,231
|
|
|
|
98
|
|
5.87
|
%
|
|
Other
|
|
|
30,821
|
|
|
|
391
|
|
1.70
|
%
|
|
|
23,641
|
|
|
|
641
|
|
3.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
491,474
|
|
|
|
13,785
|
|
3.75
|
%
|
|
|
500,607
|
|
|
|
17,201
|
|
4.59
|
%
|
|
Interest-bearing deposits with other banks
|
|
|
139,851
|
|
|
|
269
|
|
0.26
|
%
|
|
|
2,445
|
|
|
|
68
|
|
3.72
|
%
|
|
Federal funds sold
|
|
|
8,086
|
|
|
|
12
|
|
0.20
|
%
|
|
|
3,966
|
|
|
|
72
|
|
2.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
3,171,632
|
|
|
|
111,452
|
|
4.70
|
%
|
|
|
3,165,850
|
|
|
|
151,978
|
|
6.41
|
%
|
|
Non-interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
60,994
|
|
|
|
|
|
|
|
|
|
66,521
|
|
|
|
|
|
|
|
|
Other
|
|
|
168,984
|
|
|
|
|
|
|
|
|
|
272,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest-earning assets
|
|
|
229,978
|
|
|
|
|
|
|
|
|
|
339,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,301,919
|
|
|
|
|
|
|
|
|
$
|
3,462,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand accounts
|
|
$
|
318,108
|
|
|
$
|
1,530
|
|
0.64
|
%
|
|
$
|
327,039
|
|
|
$
|
2,160
|
|
0.88
|
%
|
|
Money market savings accounts
|
|
|
504,459
|
|
|
|
6,093
|
|
1.61
|
%
|
|
|
514,213
|
|
|
|
9,542
|
|
2.48
|
%
|
|
Regular savings accounts
|
|
|
98,679
|
|
|
|
377
|
|
0.51
|
%
|
|
|
107,514
|
|
|
|
639
|
|
0.79
|
%
|
|
Certificates of deposit > $100,000
|
|
|
467,706
|
|
|
|
11,036
|
|
3.15
|
%
|
|
|
734,844
|
|
|
|
20,559
|
|
3.74
|
%
|
|
Certificates of deposit < $100,000
|
|
|
303,321
|
|
|
|
6,995
|
|
3.08
|
%
|
|
|
286,013
|
|
|
|
8,887
|
|
4.15
|
%
|
|
CDARS Reciprocal deposits
|
|
|
147,311
|
|
|
|
2,968
|
|
2.69
|
%
|
|
|
79,705
|
|
|
|
2,121
|
|
3.55
|
%
|
|
Brokered CDs
|
|
|
197,849
|
|
|
|
2,991
|
|
2.02
|
%
|
|
|
35,624
|
|
|
|
1,295
|
|
4.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
2,037,433
|
|
|
|
31,990
|
|
2.10
|
%
|
|
|
2,084,952
|
|
|
|
45,203
|
|
2.90
|
%
|
|
Securities sold under agreements
to repurchase
|
|
|
73,496
|
|
|
|
156
|
|
0.28
|
%
|
|
|
181,678
|
|
|
|
2,366
|
|
1.74
|
%
|
|
Short-term borrowings
|
|
|
190,028
|
|
|
|
1,815
|
|
1.28
|
%
|
|
|
270,535
|
|
|
|
5,136
|
|
2.54
|
%
|
|
Long-term debt
|
|
|
286,258
|
|
|
|
5,536
|
|
2.59
|
%
|
|
|
49,992
|
|
|
|
1,264
|
|
3.38
|
%
|
|
Junior subordinated debentures
|
|
|
98,410
|
|
|
|
2,365
|
|
3.21
|
%
|
|
|
98,557
|
|
|
|
3,696
|
|
5.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,685,625
|
|
|
|
41,862
|
|
2.08
|
%
|
|
|
2,685,714
|
|
|
|
57,665
|
|
2.87
|
%
|
|
Non-interest-bearing demand accounts
|
|
|
454,674
|
|
|
|
|
|
|
|
|
|
478,445
|
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities
|
|
|
25,168
|
|
|
|
|
|
|
|
|
|
21,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,165,467
|
|
|
|
|
|
|
|
|
|
3,186,053
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
136,452
|
|
|
|
|
|
|
|
|
|
276,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
3,301,919
|
|
|
|
|
|
|
|
|
$
|
3,462,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
69,590
|
|
|
|
|
|
|
|
|
$
|
94,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
2.61
|
%
|
|
|
|
|
|
|
|
|
3.54
|
%
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
2.93
|
%
|
|
|
|
|
|
|
|
|
3.98
|
%
|
|
Ratio of average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
118.10
|
%
|
|
|
|
|
|
|
|
|
117.88
|
%
|
To effectively measure and manage interest rate risk, we use gap analysis and simulation analysis to
determine the impact on net interest income under various interest rate scenarios, balance sheet trends, and strategies. From these analyses, we quantify interest rate risk and we develop and implement appropriate strategies. Additionally, we
utilize duration and market value sensitivity measures when these measures provide added value to the overall interest rate risk management process. The overall interest rate risk position and strategies are reviewed by management and the Board of
Directors of First Community Bank on an ongoing basis.
- 37 -
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 September 30, 2009, our cumulative interest rate gap for the period up to three months was a positive $456.3 million and for the period up to one year was a negative $87.3 million. Based solely on our interest rate gap for
the period up to three months, our net income could be further unfavorably impacted by additional decreases in interest rates or favorably impacted by increases in interest rates. For the period three months to less than one year, our net income
could be further unfavorably impacted by increases in interest rates.
The following table sets forth our estimate of maturity or repricing,
and the resulting interest rate gap of our interest-earning assets and interest-bearing liabilities at September 30, 2009. The amounts could be significantly affected by external factors such as changes in prepayment assumptions, early
withdrawals of deposits, and competition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
three
months
|
|
Three
months to
less than one
year
|
|
|
One to five
years
|
|
Over five
years
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits with other banks
|
|
$
|
113,928
|
|
$
|
—
|
|
|
$
|
232
|
|
$
|
—
|
|
$
|
114,160
|
|
Investment securities
|
|
|
119,233
|
|
|
104,746
|
|
|
|
218,521
|
|
|
143,360
|
|
|
585,860
|
|
Federal funds sold
|
|
|
217
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
217
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
145,734
|
|
|
44,554
|
|
|
|
55,651
|
|
|
17,979
|
|
|
263,918
|
|
Real estate
|
|
|
738,131
|
|
|
220,980
|
|
|
|
573,277
|
|
|
299,056
|
|
|
1,831,444
|
|
Consumer
|
|
|
10,130
|
|
|
5,459
|
|
|
|
11,300
|
|
|
3,541
|
|
|
30,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
1,127,373
|
|
$
|
375,739
|
|
|
$
|
858,981
|
|
$
|
463,936
|
|
$
|
2,826,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and NOW accounts
|
|
$
|
163,449
|
|
$
|
202,482
|
|
|
$
|
365,925
|
|
$
|
85,390
|
|
$
|
817,246
|
|
Certificates of deposit greater than $100,000
|
|
|
130,400
|
|
|
227,530
|
|
|
|
72,435
|
|
|
393
|
|
|
430,758
|
|
Certificates of deposit less than $100,000
|
|
|
55,735
|
|
|
127,046
|
|
|
|
54,580
|
|
|
571
|
|
|
237,932
|
|
CDARS Reciprocal deposits
|
|
|
51,930
|
|
|
40,371
|
|
|
|
4,970
|
|
|
—
|
|
|
97,271
|
|
Brokered deposits
|
|
|
43,827
|
|
|
114,977
|
|
|
|
20,000
|
|
|
—
|
|
|
178,804
|
|
Securities sold under agreements to repurchase
|
|
|
31,413
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
31,413
|
|
FHLB advances and other
|
|
|
105,651
|
|
|
207,008
|
|
|
|
185,038
|
|
|
—
|
|
|
497,697
|
|
Junior subordinated debentures
|
|
|
88,626
|
|
|
—
|
|
|
|
9,730
|
|
|
—
|
|
|
98,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
671,031
|
|
$
|
919,414
|
|
|
$
|
712,678
|
|
$
|
86,354
|
|
$
|
2,389,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate gap
|
|
$
|
456,342
|
|
$
|
(543,675
|
)
|
|
$
|
146,303
|
|
$
|
377,582
|
|
$
|
436,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate gap at September 30, 2009
|
|
$
|
456,342
|
|
$
|
(87,333
|
)
|
|
$
|
58,970
|
|
$
|
436,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative gap ratio at September 30, 2009
|
|
|
1.68
|
|
|
0.95
|
|
|
|
1.03
|
|
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2009, pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures and internal control over financial reporting are, to the best of their knowledge, effective to ensure that information required to be disclosed in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Our Chief Executive Officer and Chief Financial Officer have also concluded that there were no changes in our internal control over financial reporting or in other factors that occurred during the registrant’s most recent fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
- 38 -
PART II – OTHER INFORMATION
|
Item 5.
|
Other Information
|
None
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of May 22, 2002, by and among First State Bancorporation, First State Bank N.M. (formerly known as First State Bank of Taos), First Community
Industrial Bank, Blazer Financial Corporation, and Washington Mutual Finance Corporation.
(20)
|
|
2.2
|
|
Agreement and Plan of Merger, dated as of August 31, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc. and AccessBank.
(5)
|
|
2.3
|
|
Agreement and Plan of Merger, dated as of September 2, 2005, by and among First State Bancorporation, New Mexico Financial Corporation, and Ranchers Banks.
(6)
|
|
2.4
|
|
Amendment Number 1 to the Agreement and Plan of Merger, dated September 29, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc., and AccessBank.
(7)
|
|
2.5
|
|
Agreement and Plan of Merger, dated as of October 4, 2006, by and among First State Bancorporation, MSUB, Inc., Front Range Capital Corporation, and Heritage Bank.
(11)
|
|
2.6
|
|
Loan Purchase Agreement, dated July 27, 2007, by and between First Community Bank, successor by merger to Heritage Bank and CAPFINANCIAL CV2, LLC.
(16)
|
|
2.7
|
|
Written Agreement, dated July 2, 2009, by and between First Community Bank, Federal Reserve Bank of Kansas City, and New Mexico Financial Institutions Division.
(23)
|
|
2.8
|
|
Retention of Financial Advisor, dated August 5, 2009, by and between First State Bancorporation and Keefe, Bruyette & Woods
(24)
|
|
3.1
|
|
Restated Articles of Incorporation of First State Bancorporation.
(1)
|
|
3.2
|
|
Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation.
(3)
|
|
3.3
|
|
Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation.
(10)
|
|
3.4
|
|
Amended Bylaws of First State Bancorporation.
(20)
|
|
3.5
|
|
Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation.
(19)
|
|
10.1
|
|
Executive Employment Agreement.
(20)
|
|
10.2
|
|
First State Bancorporation 2003 Equity Incentive Plan.
(20)
|
|
10.3
|
|
Executive Deferred Compensation Plan.
(20)
(Participation and contributions to this Plan have been frozen as of December 31, 2004.)
|
|
10.4
|
|
First Amendment to Executive Employment Agreement.
(4)
|
|
10.5
|
|
Officer Employment Agreement.
(4)
|
|
10.6
|
|
First Amendment to Officer Employment Agreement.
(4)
|
|
10.7
|
|
First State Bancorporation Deferred Compensation Plan.
(3)
|
|
10.8
|
|
First State Bancorporation Compensation and Bonus Philosophy and Plan.
(13)
|
|
10.9
|
|
First Amendment to the First State Bancorporation 2003 Equity Incentive Plan.
(9)
|
|
10.10
|
|
Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan.
(9)
|
|
10.11
|
|
Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan.
(14)
|
|
10.12
|
|
Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan.
(8)
|
|
10.13
|
|
Third Amendment to First State Bancorporation 2003 Equity Incentive Plan.
(10)
|
|
10.14
|
|
Compensation Committee Approval and Board Ratification of Certain Executive Salaries.
(12)
|
|
10.15
|
|
Fourth Amendment to First State Bancorporation 2003 Equity Incentive Plan.
(17)
|
|
10.16
|
|
Second Amendment to Executive Employment Agreement (Stanford).
(15)
|
|
10.17
|
|
Second Amendment to Executive Employment Agreement (Dee).
(15)
|
|
10.18
|
|
Second Amendment to Executive Employment Agreement (Spencer).
(15)
|
|
10.19
|
|
Second Amendment to Executive Employment Agreement (Martin).
(15)
|
|
10.20
|
|
Key Executives Incentive Plan.
(18)
|
|
10.21
|
|
Second Amendment to the First State Bancorporation Deferred Compensation Plan.
(2)
|
|
10.22
|
|
Executive Compensation Plan of Heritage Bank.
(2)
|
|
10.23
|
|
Form of Adoption Agreement for Executive compensation Plan of Heritage Bank.
(2)
|
- 39 -
|
|
|
|
|
10.24
|
|
Executive Retirement Plan of Heritage Bank Amendment and Restatement.
(2)
|
|
10.25
|
|
Form of Adoption Agreement for Executive Retirement Plan of Heritage Bank.
(2)
|
|
10.26
|
|
First Amendment to the Key Executives Incentive Plan.
(21)
|
|
10.27
|
|
Branch purchase agreement, dated as of March 10, 2009, by and among Great Western Bank, first Community Bank, and First State Bancorporation.
(22)
|
|
14
|
|
Code of Ethics for Executives.
(20)
|
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
|
|
32.1
|
|
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. *
|
|
32.2
|
|
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. *
|
|
(1)
|
Incorporated by reference from Amendment 1 to First State Bancorporation’s Registration Statement on Form S-2, Commission File No. 333-24417, declared
effective April 25, 1997.
|
|
(2)
|
Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2007.
|
|
(3)
|
Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2005.
|
|
(4)
|
Incorporated by reference from First State Bancorporation’s Form 10-Q for the quarter ended March 31, 2005.
|
|
(5)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 2, 2005.
|
|
(6)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 6, 2005.
|
|
(7)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 30, 2005.
|
|
(8)
|
Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed May 1, 2003 (SEC file No. 333-104906).
|
|
(9)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended March 31, 2006.
|
|
(10)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2006.
|
|
(11)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed October 5, 2006.
|
|
(12)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed November 2, 2006.
|
|
(13)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on January 26, 2006.
|
|
(14)
|
Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed June 2, 1997 (SEC file No. 333-28217).
|
|
(15)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 27, 2007.
|
|
(16)
|
Incorporated by reference to Exhibit 2.1 from First State Bancorporation’s Form 8-K filed on August 1, 2007.
|
|
(17)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2007.
|
|
(18)
|
Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on August 10, 2007.
|
|
(19)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2008.
|
|
(20)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended September 30, 2008.
|
|
(21)
|
Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on December 30, 2008.
|
|
(22)
|
Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2008.
|
|
(23)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 9, 2009.
|
|
(24)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on August 6, 2009.
|
- 40 -
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: November 9, 2009
|
|
By:
|
|
/s/ Michael R. Stanford
|
|
|
|
|
|
Michael R. Stanford, President & Chief Executive Officer
|
|
|
|
|
|
Date: November 9, 2009
|
|
By:
|
|
/s/ Christopher C. Spencer
|
|
|
|
|
|
Christopher C. Spencer, Senior Vice President and Chief Financial Officer
|
- 41 -
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of May 22, 2002, by and among First State Bancorporation, First State Bank N.M. (formerly known as First State Bank of Taos), First Community
Industrial Bank, Blazer Financial Corporation, and Washington Mutual Finance Corporation.
(20)
|
|
2.2
|
|
Agreement and Plan of Merger, dated as of August 31, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc. and AccessBank.
(5)
|
|
2.3
|
|
Agreement and Plan of Merger, dated as of September 2, 2005, by and among First State Bancorporation, New Mexico Financial Corporation, and Ranchers Banks.
(6)
|
|
2.4
|
|
Amendment Number 1 to the Agreement and Plan of Merger, dated September 29, 2005, by and among First State Bancorporation, Access Anytime Bancorp, Inc., and AccessBank.
(7)
|
|
2.5
|
|
Agreement and Plan of Merger, dated as of October 4, 2006, by and among First State Bancorporation, MSUB, Inc., Front Range Capital Corporation, and Heritage Bank.
(11)
|
|
2.6
|
|
Loan Purchase Agreement, dated July 27, 2007, by and between First Community Bank, successor by merger to Heritage Bank and CAPFINANCIAL CV2, LLC.
(16)
|
|
2.7
|
|
Written Agreement, dated July 2, 2009, by and between First Community Bank, Federal Reserve Bank of Kansas City, and New Mexico Financial Institutions Division.
(23)
|
|
2.8
|
|
Retention of Financial Advisor, dated August 5, 2009, by and between First State Bancorporation and Keefe, Bruyette & Woods
(24)
|
|
3.1
|
|
Restated Articles of Incorporation of First State Bancorporation.
(1)
|
|
3.2
|
|
Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation.
(3)
|
|
3.3
|
|
Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation.
(10)
|
|
3.4
|
|
Amended Bylaws of First State Bancorporation.
(20)
|
|
3.5
|
|
Articles of Amendment to the Restated Articles of Incorporation of First State Bancorporation.
(19)
|
|
10.1
|
|
Executive Employment Agreement.
(20)
|
|
10.2
|
|
First State Bancorporation 2003 Equity Incentive Plan.
(20)
|
|
10.3
|
|
Executive Deferred Compensation Plan.
(20)
(Participation and contributions to this Plan have been frozen as of December 31, 2004.)
|
|
10.4
|
|
First Amendment to Executive Employment Agreement.
(4)
|
|
10.5
|
|
Officer Employment Agreement.
(4)
|
|
10.6
|
|
First Amendment to Officer Employment Agreement.
(4)
|
|
10.7
|
|
First State Bancorporation Deferred Compensation Plan.
(3)
|
|
10.8
|
|
First State Bancorporation Compensation and Bonus Philosophy and Plan.
(13)
|
|
10.9
|
|
First Amendment to the First State Bancorporation 2003 Equity Incentive Plan.
(9)
|
|
10.10
|
|
Second Amendment to the First State Bancorporation 2003 Equity Incentive Plan.
(9)
|
|
10.11
|
|
Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan.
(14)
|
|
10.12
|
|
Restated and Amended Access Anytime Bancorp, Inc. 1997 Stock Option and Incentive Plan.
(8)
|
|
10.13
|
|
Third Amendment to First State Bancorporation 2003 Equity Incentive Plan.
(10)
|
|
10.14
|
|
Compensation Committee Approval and Board Ratification of Certain Executive Salaries.
(12)
|
|
10.15
|
|
Fourth Amendment to First State Bancorporation 2003 Equity Incentive Plan.
(17)
|
|
10.16
|
|
Second Amendment to Executive Employment Agreement (Stanford).
(15)
|
|
10.17
|
|
Second Amendment to Executive Employment Agreement (Dee).
(15)
|
|
10.18
|
|
Second Amendment to Executive Employment Agreement (Spencer).
(15)
|
|
10.19
|
|
Second Amendment to Executive Employment Agreement (Martin).
(15)
|
|
10.20
|
|
Key Executives Incentive Plan.
(18)
|
|
10.21
|
|
Second Amendment to the First State Bancorporation Deferred Compensation Plan.
(2)
|
|
10.22
|
|
Executive Compensation Plan of Heritage Bank.
(2)
|
|
10.23
|
|
Form of Adoption Agreement for Executive compensation Plan of Heritage Bank.
(2)
|
|
10.24
|
|
Executive Retirement Plan of Heritage Bank Amendment and Restatement.
(2)
|
|
10.25
|
|
Form of Adoption Agreement for Executive Retirement Plan of Heritage Bank.
(2)
|
|
10.26
|
|
First Amendment to the Key Executives Incentive Plan.
(21)
|
|
10.27
|
|
Branch purchase agreement, dated as of March 10, 2009, by and among Great Western Bank, first Community Bank, and First State Bancorporation.
(22)
|
|
14
|
|
Code of Ethics for Executives.
(20)
|
- 42 -
|
|
|
|
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
|
|
32.1
|
|
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.*
|
|
32.2
|
|
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.*
|
|
(1)
|
Incorporated by reference from Amendment 1 to First State Bancorporation’s Registration Statement on Form S-2, Commission File No. 333-24417, declared
effective April 25, 1997.
|
|
(2)
|
Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2007.
|
|
(3)
|
Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2005.
|
|
(4)
|
Incorporated by reference from First State Bancorporation’s Form 10-Q for the quarter ended March 31, 2005.
|
|
(5)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 2, 2005.
|
|
(6)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 6, 2005.
|
|
(7)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed September 30, 2005.
|
|
(8)
|
Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed May 1, 2003 (SEC file No. 333-104906).
|
|
(9)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended March 31, 2006.
|
|
(10)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2006.
|
|
(11)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed October 5, 2006.
|
|
(12)
|
Incorporated by reference from First State Bancorporation’s Current Report on Form 8-K filed November 2, 2006.
|
|
(13)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on January 26, 2006.
|
|
(14)
|
Incorporated by reference from Access Anytime Bancorp, Inc.’s Registration Statement on Form S-8, filed June 2, 1997 (SEC file No. 333-28217).
|
|
(15)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 27, 2007.
|
|
(16)
|
Incorporated by reference to Exhibit 2.1 from First State Bancorporation’s Form 8-K filed on August 1, 2007.
|
|
(17)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2007.
|
|
(18)
|
Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on August 10, 2007.
|
|
(19)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended June 30, 2008.
|
|
(20)
|
Incorporated by reference from First State Bancorporation’s 10-Q for the quarter ended September 30, 2008.
|
|
(21)
|
Incorporated by reference to Exhibit 10.1 from First State Bancorporation’s Form 8-K filed on December 30, 2008.
|
|
(22)
|
Incorporated by reference from First State Bancorporation’s 10-K for the year ended December 31, 2008.
|
|
(23)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on July 9, 2009
|
|
(24)
|
Incorporated by reference from First State Bancorporation’s Form 8-K filed on August 6, 2009
|
- 43 -
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