FIRST STATE BANCORPORATION - 10-Q Quarterly Report

FIRST STATE BANCORPORATION
(Exact name of registrant as specified in its charter)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 7,580,234 shares of common stock, no par value, outstanding as of November 7, 2003.

First State Bancorporation and Subsidiary
Consolidated Condensed Balance Sheets
(unaudited)
(Dollars in thousands, except per share amounts)


				September 30,			December 31,
				2003			2002

Assets
Cash and due from banks				$	54,371		$	51,902
Interest-bearing deposits with banks					7			22,828
Federal funds sold					3,744			14,141

			Total cash and cash equivalents		58,122			88,871
Investment securities:
		Available for sale (at market, amortized cost of $126,344 at September 30, 2003, and $120,617 at December 31, 2002)			126,974			121,711
		Held to maturity (at amortized cost, market value of $65,173 at September 30, 2003, and $70,127 at December 31, 2002)			65,070			67,819
		Federal Home Loan Bank Stock and Federal Reserve Bank Stock at cost			11,959			4,564

			Total investment securities		204,003			194,094

Mortgage loans available for sale					12,337			20,315
Loans held for investment net of unearned interest					1,151,364			996,710
Less allowance for loan losses					(13,471	)		(11,838	)

			Net loans		1,150,230			1,005,187
Premises and equipment, net					20,893			16,503
Accrued interest receivable					5,847			5,384
Other real estate owned					1,334			908
Goodwill					43,223			43,412
Cash surrender value of bank owned life insurance					18,875			18,153
Deferred tax asset, net					3,624			3,373
Other assets, net					11,523			10,985

			Total assets	$	1,517,674		$	1,386,870

			Liabilities and Stockholders’ Equity
Liabilities:
	Deposits:
		Non-interest-bearing		$	248,569		$	189,063
		Interest-bearing			907,709			890,621

			Total deposits		1,156,278			1,079,684
	Securities sold under agreements to repurchase and federal funds purchased				71,338			70,764
	Borrowings				155,296			113,174
	Other liabilities				5,092			5,780

			Total liabilities		1,388,004			1,269,402
Stockholders’ equity:
	Preferred stock, no par value, 1,000,000 shares authorized; none issued or outstanding				—			—
	Common stock, no par value, 20,000,000 shares authorized; issued 7,952,166 at September 30, 2003 and 7,704,884 at December 31, 2002; outstanding 7,560,116 at September 30, 2003 and 7,327,834 at December 31, 2002				86,298			82,294
	Treasury stock, at cost (392,050 shares at September 30, 2003 and 377,050 at December 31, 2002)				(5,778	)		(5,447	)
	Retained earnings				48,734			39,899
	Accumulated other comprehensive income - Unrealized gain on investment securities, net of tax				416			722

			Total stockholders’ equity		129,670			117,468

			Total liabilities and stockholders’ equity	$	1,517,674		$	1,386,870

Book value per share				$	17.15		$	16.03

Tangible book value per share				$	11.32		$	9.98

See accompanying notes to unaudited consolidated condensed financial statements.

First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Operations
For the three and nine months ended September 30, 2003 and 2002
(unaudited)
(Dollars in thousands, except per share amounts)


			Three months ended			Three months ended			Nine months ended			Nine months ended
			September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Interest Income:
	Interest and fees on loans		$	20,296		$	11,607		$	58,508		$	33,793
	Interest on investment securities:
		Taxable		1,723			2,038			5,654			6,599
		Nontaxable		40			35			111			113
	Federal funds sold			13			172			104			282
	Interest-bearing deposits other banks			4			108			59			183

		Total interest income		22,076			13,960			64,436			40,970

Interest expense:
	Deposits			4,533			3,594			14,259			10,732
	Short-term borrowings			236			152			554			460
	Borrowings			729			456			2,243			714

	Total interest expense			5,498			4,202			17,056			11,906

		Net interest income before provision for loan losses		16,578			9,758			47,380			29,064
Provision for loan losses				(1,645	)		(469	)		(3,963	)		(1,657	)

	Net interest income after provision for loan losses			14,933			9,289			43,417			27,407

Non-interest income:
	Service charges on deposit accounts			1,080			873			3,165			2,526
	Other banking service fees			312			282			896			805
	Credit and debit card transaction fees			1,020			1,129			2,976			3,104
	Gain on sale or call of investment securities			—			45			33			66
	Gains on sale of mortgage loans			919			676			2,994			1,800
	Check imprint income			148			133			418			389
	Other			257			127			819			444

		Total non-interest income		3,736			3,265			11,301			9,134

Non-interest expenses:
	Salaries and employee benefits			6,145			4,157			18,246			11,867
	Occupancy			1,633			1,064			4,395			3,081
	Data processing			592			495			1,707			1,386
	Credit and debit card interchange			418			524			1,228			1,522
	Equipment			908			676			2,638			1,975
	Legal, accounting, and consulting			273			185			872			543
	Marketing			646			543			1,575			1,472
	Telephone			375			201			1,070			619
	Supplies			171			138			571			421
	Other real estate owned			82			3			237			87
	FDIC insurance premiums			43			30			130			88
	Check imprint			138			135			391			365
	Amortization of intangibles			29			—			86			—
	Other			1,546			957			4,311			2,671

		Total non-interest expenses		12,999			9,108			37,457			26,097

Income before income taxes				5,670			3,446			17,261			10,444
Income tax expense				1,637			1,160			6,031			3,827

Net income			$	4,033		$	2,286		$	11,230		$	6,617

Earnings per share:
	Basic earnings per share		$	0.54		$	0.38		$	1.51		$	1.25

	Diluted earnings per share		$	0.53		$	0.36		$	1.48		$	1.21

	Dividends per common share		$	0.11		$	0.10		$	0.32		$	0.29

See accompanying notes to unaudited consolidated condensed financial statements.

FIRST STATE BANCORPORATION AND SUBSIDIARY
Consolidated Condensed Statements of Comprehensive Income
For the three and nine months ended September 30, 2003 and 2002
(unaudited)
(Dollars in thousands, except per share amounts)

See accompanying notes to unaudited consolidated condensed financial statements.

First State Bancorporation and Subsidiary
Consolidated Condensed Statements of Cash Flows
For the three and nine months ended September 30, 2003 and 2002
(unaudited)
(Dollars in thousands, except per share amounts)


					Three months ended			Three months ended			Nine months ended			Nine months ended
					September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Operating activities:
		Net Income			$	4,033		$	2,286		$	11,230		$	6,617

	Adjustments to reconcile net income to net cash provided by (used by) operations:
			Provision for loan losses			1,645			469			3,963			1,657
			Provision for decline in value of other real estate owned			56			—			149			50
			Net gain on sale of other real estate owned			(7	)		—			(34	)		—
			Depreciation and amortization			810			591			2,278			1,716
			Income tax benefit of stock options exercised			669			—			1,741			—
			Increase in bank owned life insurance cash surrender value			(235	)		(109	)		(722	)		(328	)
			Amortization of securities, net			(17	)		(128	)		(372	)		(238	)
			Mortgage loans originated for sale			(60,823	)		(47,396	)		(181,814	)		(123,355	)
			Proceeds from sale of mortgage loans originated for sale			63,859			44,691			193,153			130,553
			(Increase) decrease in accrued interest receivable			(572	)		354			(463	)		659
			Increase in other assets, net			(2,855	)		(3,542	)		(717	)		(3,373	)
			Increase (decrease) in other liabilities, net			(1,065	)		284			(688	)		45

				Total adjustments		1,465			(4,786	)		16,474			7,386

				Net cash provided by (used by) operating activities		5,498			(2,500	)		27,704			14,003

	Cash flows from investing activities:
			Net increase in loans			(59,257	)		(29,646	)		(161,828	)		(97,217	)
			Purchases of investment securities carried at amortized cost			(7,314	)		(20,971	)		(30,806	)		(81,433	)
			Maturities of investment securities carried at amortized cost			13,720			4,193			33,522			61,300
			Purchases of investment securities carried at market			(12,540	)		(123,705	)		(85,675	)		(170,777	)
			Maturities of investment securities carried at market			9,077			120,238			72,958			189,693
			Purchases of premises and equipment			(2,683	)		(997	)		(6,582	)		(2,427	)
			Decrease in goodwill			—			—			189			—
			Proceeds from sales of and payments on other real estate owned			166			15			942			46
			Purchase of bank owned life insurance			—			(10,000	)		—			(10,000	)

				Net cash used by investing activities		(58,831	)		(60,873	)		(177,280	)		(110,815	)

	Cash flows from financing activities:
			Net increase (decrease) in interest-bearing deposits			(5,813	)		40,566			17,088			58,655
			Net increase in non-interest-bearing deposits			31,618			13,016			59,506			40,724
			Net increase (decrease) in securities sold under repurchase agreements and federal funds purchased			23,018			8,522			574			(10,283	)
			Proceeds from borrowings			45,000			—			95,000			25,000
			Payments on borrowings			(30,966	)		(22	)		(52,878	)		(279	)
			Common stock issued			795			51,410			2,263			51,580
			Dividends paid			(837	)		(495	)		(2,395	)		(1,432	)
			Purchase of treasury stock			—			—			(331	)		(94	)

				Net cash provided by financing activities		62,815			112,997			118,827			163,871

Increase (decrease) in cash and cash equivalents						9,482			49,624			(30,749	)		67,059
	Cash and cash equivalents at beginning of period					48,640			82,326			88,871			64,891

	Cash and cash equivalents at end of period				$	58,122		$	131,950		$	58,122		$	131,950

Supplemental disclosure of noncash investing and financing activities:
			Additions to other real estate owned in settlement of loans		$	1,176		$	—		$	1,547		$	625

			Additions to loans in settlement of other real estate owned		$	—		$	—		$	64		$	—

Supplemental disclosure of cash flow information:
			Cash paid for interest		$	5,736		$	4,158		$	18,060		$	12,141

			Cash paid for income taxes		$	1,820		$	1,525		$	3,903		$	3,870

See accompanying notes to unaudited consolidated condensed financial statements.

First State Bancorporation and Subsidiary
Notes to Consolidated Condensed Financial Statements
(unaudited)

The accompanying consolidated condensed financial statements of First State Bancorporation and subsidiary (the “Company”) are unaudited and include our accounts and those of our wholly owned subsidiary, First State Bank N.M. (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, 2002.

The consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In our opinion, all adjustments (consisting only of normally recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” This interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities (selected entities with related contractual, ownership, voting or other monetary interests, including certain special purpose entities), and requires certain additional disclosure with respect to these entities. The provisions of FIN 46 are immediately applicable to variable interest entities created after January 31, 2003. Initially, FIN 46 was to apply in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. At its October 8, 2003 meeting, the FASB agreed to defer the effective date of FIN 46 for variable interests held by public companies in all entities that were acquired prior to February 1, 2003. The deferral will require that public companies adopt the provisions of FIN 46 for periods ending after December 15, 2003. The Company does not expect the requirements of FIN 46 to have a material impact on the consolidated financial statements. As discussed in Note 8 of the consolidated financial statements on Form 10-K as of December 31, 2002, the Company has guaranteed preferred beneficial interests in the Company’s Junior Subordinated Deferrable Interest Debentures (Trust I and Trust II), which are currently consolidated in the Company’s consolidated financial statements. We believe the continued consolidation of Trust I and Trust II is appropriate under FIN 46. However, the application of FIN 46 to these types of trusts is an emerging issue and a possible unintended consequence of the interpretation of FIN 46 may be the deconsolidation of these types of trusts. The Company is currently evaluating the impact that deconsolidation of these trusts would have on the consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how a business enterprise classifies, measures and discloses in its financial statements certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that a business enterprise classify financial instruments that are within its scope as liabilities (or as assets in some circumstances). SFAS 150 is effective for contracts entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The FASB has proposed to defer provisions related to mandatorily redeemable financial instruments to periods beginning after December 15, 2004. The adoption of SFAS 150 on July 1, 2003 did not have a material impact on the consolidated financial statements, and the adoption of deferred provisions at January 1, 2005 is not expected to have a material impact on the consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of this statement as of December 31, 2002 had no effect on our consolidated financial position or results of operations.

We apply the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees and related interpretations in accounting for its fixed plan stock options.” As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method and have included the disclosure required by SFAS No. 148.

Had compensation costs been determined consistent with the fair value method of SFAS No. 123 at the grant dates for awards, net income and earnings per common share would have changed to the pro forma amounts indicated below.


	Three months						Nine months
	ended September 30,						ended September 30,

	2003			2002			2003			2002

	(Dollars in thousands, except per share amounts)
Net income as reported:	$	4,033		$	2,286		$	11,230		$	6,617
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		3			2			14			6
Deduct: Total stock-based employee compensation expense determined under fair value-based method for awards, net of related tax effects		(6	)		(7	)		(24	)		(21	)

Pro forma net income	$	4,030		$	2,281		$	11,220		$	6,602

Earnings per share:

Basic — as reported	$	0.54		$	0.38		$	1.51		$	1.25

Basic — pro forma	$	0.54		$	0.38		$	1.51		$	1.25

Diluted — as reported	$	0.53		$	0.36		$	1.48		$	1.21

Diluted — pro forma	$	0.53		$	0.36		$	1.48		$	1.20

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

The following is a reconciliation of the numerators and denominators of basic and diluted earnings per share for the three and nine months ended September 30:

Our Board of Directors has authorized us to purchase up to 525,000 shares of our common stock. As of September 30, 2003, we have purchased 392,050 shares including, 15,000 shares at an aggregate cost of $330,644 during the first nine months of 2003. We may purchase additional shares, the amount of which will be determined by market conditions.

We completed our acquisition of First Community Industrial Bank (“First Community”) on October 1, 2002 for approximately $67 million. We financed this acquisition through a public offering of our common stock in August 2002, which netted approximately $51.0 million and through the issuance of approximately $25.0 million in trust preferred securities in June of 2002. The acquisition was accounted for using the purchase method of accounting, and accordingly, the assets and liabilities of First Community were recorded at their respective fair values on October 1, 2002. We acquired approximately $343 million in loans and approximately $242 million in deposits and recognized goodwill of approximately $43 million related to the transaction. The First Community account balances acquired on October 1, 2002 and the results of operations since October 1, 2002 are included in the results of the Bank, which operates under the name First Community Bank in the Colorado and Utah markets.

During the first quarter of 2003, we completed the sale of certain mortgage loans available for sale obtained in the acquisition of First Community in 2002. The sale to unrelated third parties included 227 loans with a carrying value of approximately $8.5 million. The subsequent sale of the mortgage loans, which had been recorded at their

estimated fair value on the date of acquisition, resulted in an additional discount of approximately $277,000 that was recorded as a reduction of goodwill. This reduction of goodwill has subsequently been offset by $88,000 of additional items related to the acquisition.

The pro forma financial information below presents the condensed consolidated financial results assuming that First Community, acquired October 1, 2002, had been acquired at the beginning of 2002 and includes the effect of amortization of other acquired identifiable intangible assets from that date. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of future operations that would have been achieved had the acquisition taken place at the beginning of 2002. Pro forma information follows:


					Three months ended		Nine months ended
					September 30,		September 30,
					2002		2002

					(Dollars in thousands, except per share amounts)
Interest income:
	Interest and fees on loans				$	19,171	$	57,192
	Interest and dividends on securities:
		Taxable securities				2,111		6,697
		Non-taxable securities				35		113

			Total interest and dividends on securities			2,146		6,810
		Federal funds sold and interest-bearing bank balances				468		653

			Total interest income			21,785		64,655
Interest expense:
	Interest on deposits					5,735		17,240
	Short-term borrowings					152		460
	Long-term borrowings					997		3,050

			Total interest expense			6,884		20,750

				Net interest income before provision for loan losses		14,901		43,905
Provision for loan losses						1,635		3,427

				Net interest income after provision for loan losses		13,266		40,478
Non-interest income						3,276		9,172
Non-interest expenses						10,858		31,467

Income before taxes						5,684		18,183
Income tax expense						2,161		6,972

			Net income		$	3,523	$	11,211

Average common shares outstanding, basic						7,309,594		7,304,048
Average common shares outstanding, diluted						7,506,349		7,501,352
Basic earnings per share					$	0.48	$	1.53
Diluted earnings per share					$	0.47	$	1.49

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

This document includes 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. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “approximately,” “intend,” “plan,” “estimate,” or “anticipate” or the negative of those words or other comparable terminology. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statement. Some factors include fluctuations in interest rates, inflation, government regulations, loss of key personnel or inability to hire suitable personnel, faster or slower than anticipated growth, economic conditions, competitor’s responses to our marketing strategy or new competitive conditions, and competition in the geographic and business areas in which we conduct our operations.

Our total assets increased by $130.8 million from $1.387 billion as of December 31, 2002, to $1.518 billion as of September 30, 2003. The increase was primarily made up of a $9.9 million increase in investment securities, and a $145.0 million increase in net loans offset by a $30.7 million decrease in cash and cash equivalents.

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

Deposits, which are our main source of funds for loans and investments, increased by $76.6 million from $1.080 billion as of December 31, 2002, to $1.156 billion as of September 30, 2003. Borrowings increased $42.1 million from $113.2 million at December 31, 2002 to $155.3 million at September 30, 2003. The following table represents customer deposits, by category, at the dates indicated.

Consolidated Results of Operations For the Three Months Ended September 30, 2003

Our net income for the three months ended September 30, 2003, was $4.0 million, an increase of $1.7 million or 74% from $2.3 million for the same period of 2002. The increase in net income resulted from an increase in net interest income before provision for loan losses of $6.8 million and an increase in non-interest income of $471,000, partially offset by an increase in non-interest expenses of $3.9 million and income taxes of $477,000. Our annualized return on average assets was 1.08% for the three months ended September 30, 2003, compared to 0.96% for the same period of 2002.

Our net interest income before the provision for loan losses increased $6.8 million to $16.6 million for the third quarter of 2003 compared to $9.8 million for the third quarter of 2002. This increase was composed of an $8.1 million increase in total interest income and a $1.3 million increase in total interest expense. The increase in interest income was composed of an increase of $9.7 million due to increased average interest earning assets of $467.4 million, offset by a $1.6 million decrease due primarily to a 0.35% decrease in the yield on average total loans. Overall, the average yield on interest-earning assets increased 0.21% compared to prior year due to the higher average balances in interest-bearing deposits with banks and federal funds sold in 2002 used to fund the First Community acquisition on October 1, 2002. The increase in average interest-earning assets occurred in loans and investment securities, and was made possible by the acquisition of First Community in the fourth quarter of 2002 and our successful efforts to increase market share in New Mexico. The increase in total interest expense

was composed of an increase of $3.5 million due to increased average interest-bearing liabilities of $432.2 million, offset by a decrease of $2.2 million due to a 0.49% decrease in the cost of interest-bearing liabilities. The increase in average interest-bearing liabilities was due to an increase in average interest-bearing deposits of $321.2 million, an increase in federal funds purchased and securities sold under agreements to repurchase of $9.2 million, and an increase in average borrowings of $101.8 million. The increase in interest-bearing deposits is a result of the acquisition of First Community and our success in increasing market share in New Mexico. The increase in borrowings is due primarily to outstanding FHLB advances of First Community at the date of acquisition. The additional trust preferred securities were issued in June 2002 to help fund the First Community acquisition.

The decrease in yield on interest earning assets reflects continuing impact of the Federal Reserve Bank’s reductions of the discount rate in November 2002 and June 2003. The reductions in the discount rate contributed to corresponding reductions in the prime rate. A substantial portion of our loan portfolio consists of adjustable rate loans whose rates are adjusted based upon the then prevailing prime rate. The decrease in the prime rate has led to a corresponding reduction in the yield on our loan portfolio. We aim to keep the maturity of our investment securities relatively short. As a result of the current low rate environment, our policy of investing in securities with short maturities has caused us to experience reduced yields on our securities as they mature and are reinvested.

The decrease in our cost of interest bearing liabilities is a result of lower interest payments made to our deposit and repurchase agreement customers. The interest rate that we pay to our deposit and repurchase agreement customers is influenced by the level of the discount rate. As a result of the reductions in the discount rate made by the Federal Reserve Bank in 2002 and 2003, we reduced the interest rates that we pay on our customers’ deposits and repurchase agreements, which reduced the corresponding interest payments to these customers.

We believe that the competitive environment for deposits will determine significantly the impact changes in interest rates have on the net interest margin. Management believes that recent Federal Reserve Bank rate cuts will cause continued margin compression during the remainder of 2003. We also believe that additional decreases in rates would cause further compression of our net interest margin, while increases would cause an increase in our net interest margin.

Our provision for loan losses was $1.6 million for the third quarter of 2003, compared to $469,000 for the third quarter of 2002. Net charge-offs for the third quarter of 2003 were $1.2 million compared to $171,000 for the third quarter of 2002. The allowance for loan losses to total loans was 1.16% and the ratio of allowance for loan losses to non-performing loans was 128% at September 30, 2003, compared to the allowance for loan losses to total loans of 1.26% and the ratio of allowance for loan losses to non-performing loans of 226% at September 30, 2002. Total non-performing assets to total assets were 0.78% at September 30, 2003, compared to 0.44% at September 30, 2002. The increase in charge-offs, the decrease in the percentage of the allowance for loan losses to total loans, and the increase in non-performing loans as of and for the quarter ended September 30, 2003 were primarily related to the higher level of non-performing loans at First Community. We provide for loan losses based upon our judgments concerning the adequacy of the allowance for loan losses considering such factors as loan growth, delinquency trends, previous charge-off experience, and local and national economic conditions.

Our total non-interest income increased by $471,000 to $3.7 million for the three months ended September 30, 2003, compared to $3.3 million for the same period of 2002. The increase was primarily composed of a $243,000 increase in gains on sale of mortgage loans, caused by greater new home construction and refinancing resulting from the lower interest rate environment. Service charges on deposit accounts increased $207,000 resulting from increased customer accounts and deposit activity.

We believe that if interest rates remain at current levels or begin to increase, the demand for mortgage loans to refinance existing mortgage loans or for new home construction will decrease and we will see a decrease in gains on sale of mortgage loans and other loan fees associated with our mortgage lending operations. Gains in the third quarter of 2003 decreased by $237,000 from the second quarter of 2003 reflecting a lower level of refinancing activity.

Our total non-interest expenses increased by $3.9 million to $13.0 million for the third quarter of 2003, compared to $9.1 million for the same period of 2002. This increase was due partially to a $2.0 million increase in salaries and employee benefits, a $569,000 increase in occupancy expense, and a $232,000 increase in equipment expense. The increases in salary, occupancy, and equipment expense are due primarily to the acquisition and merger of First Community and increased commissions for the production of mortgage loans originated for sale. The increase in occupancy expense was also impacted by two additional branch offices opened during 2003 in New Mexico and our newly completed support services facility in Albuquerque, New Mexico. We anticipate that occupancy and equipment expenses will continue to increase modestly during the remainder of fiscal 2003 and into 2004 as management continues to reposition branch locations in Colorado and Utah and opens one additional branch office in Santa Fe, N.M.

Income tax expense for the third quarter of 2003 was $1.6 million compared to $1.2 million for the third quarter of 2002, representing effective tax rates of approximately 28.9% and 33.7%, respectively. The decrease in the effective tax rate in the third quarter of 2003 compared to 2002 is due primarily to an increase in the estimated tax rate at which net deferred tax assets will be realized, resulting in a tax benefit of approximately $216,000 and a benefit of approximately $170,000 related to finalizing the 2002 tax return in September.

Consolidated Results of Operations For the Nine Months Ended September 30, 2003

Our net income for the nine months ended September 30, 2003, was $11.2 million, an increase of $4.6 million or 70% from $6.6 million for the same period of 2002. The increase in net income resulted from an increase in net interest income before provision for loan losses of $18.3 million and an increase in non-interest income of $2.2 million, partially offset by an increase in non-interest expenses of $11.4 million and income taxes of $2.2 million. Our annualized return on average assets was 1.05% for the nine months ended September 30, 2003, compared to 1.01% for the same period of 2002.

Our net interest income before the provision for loan losses increased $18.3 million to $47.4 million for the nine months ended September 30, 2003 compared to $29.1 million for the same period of 2002. This increase was composed of a $23.5 million increase in total interest income and a $5.2 million increase in total interest expense. The increase in interest income was composed of an increase of $29.1 million due to increased average interest earning assets of $489.2 million offset by a $5.6 million decrease due to a 0.12% decrease in the yield on average interest earning assets. The increase in average interest-earning assets occurred in loans and investment securities, and was made possible by the acquisition of First Community in the fourth quarter of 2002 and our successful efforts to increase market share in New Mexico. The increase in total interest expense was composed of an increase of $13.5 million due to increased average interest-bearing liabilities of $443.9 million, offset by a decrease of $8.3 million due to a 0.37% decrease in the cost of interest-bearing liabilities. The increase in average interest-bearing liabilities was due to an increase in average interest-bearing deposits of $341.5 million, an increase in average borrowings of $86.6 million and an increase in average trust preferred securities of $16.0 million. The increase in interest-bearing deposits is a result of the acquisition of First Community and our success in increasing market share in New Mexico. The increase in borrowings is due primarily to outstanding FHLB advances of First Community at the date of acquisition. The additional trust preferred securities were issued in June 2002 to help fund the First Community acquisition.

Our provision for loan losses was $4.0 million for the first nine months of 2003, compared to $1.7 million for the first nine months of 2002. Net charge-offs for the nine months ended September 30, 2003 were $2.3 million compared to $816,000 for the nine months ended September 30, 2002. The allowance for loan losses to total loans was 1.16% and the ratio of allowance for loan losses to non-performing loans was 128% at September 30, 2003, compared to the allowance for loan losses to total loans of 1.26% and the ratio of allowance for loan losses to non-performing loans of 226% at September 30, 2002. Total non-performing assets to total assets were 0.78% at September 30, 2003, compared to 0.44% at September 30, 2002. The increase in charge-offs, the decrease in the percentage of the allowance for loan losses to total loans, and the increase in non-performing loans as of and for the nine months ended September 30, 2003 were primarily related to the higher level of non-performing loans at First Community. We provide for loan losses based upon our judgments concerning the adequacy of the allowance for loan losses considering such factors as loan growth, delinquency trends, previous charge-off experience, and local and national economic conditions.

Our total non-interest income increased by $2.2 million to $11.3 million for the nine months ended September 30, 2003, compared to $9.1 million for the same period of 2002. For the first nine months of 2003 compared to the first nine months of 2002, the gains on sale of mortgage loans increased $1.2 million as a result of greater new home construction and refinancing resulting from the lower interest rate environment, and service charges on deposit accounts increased $639,000 as a result of increased customer accounts and deposit activity.

Our total non-interest expenses increased by $11.4 million to $37.5 million for the nine months ended September 30, 2003, compared to $26.1 million for the same period of 2002. This increase was due partially to a $6.4 million increase in salaries and employee benefits, a $1.3 million increase in occupancy expense, and a $663,000 increase in equipment expense. The increases in salary, occupancy, and equipment expense are due primarily to the acquisition and merger of First Community and increased commissions for the production of mortgage loans sold. The increase in occupancy expense was also impacted by two additional branch offices opened during 2003 in New Mexico and our newly completed support services facility in Albuquerque, New Mexico. We anticipate that occupancy and equipment expenses will continue to increase modestly during the remainder of fiscal 2003 and into 2004 as management continues to reposition branch locations in Colorado and Utah and opens one additional branch in Santa Fe, N.M.

Income tax expense for the nine months ended September 30, 2003 was $6.0 million compared to $3.8 million for the nine months ended September 30, 2002, representing effective tax rates of approximately 34.9% and 36.6%, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2003 compared to 2002 is due primarily to an increase in the estimated tax rate at which net deferred tax assets will be realized, resulting in a tax benefit of approximately $216,000 and a benefit of approximately $170,000 related to finalizing the 2002 tax return in September.

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. The principal factor affecting the amount of the provision in each of the periods presented was growth in the loan portfolio.


	Nine months ended			Twelve months ended			Nine months ended
	September 30, 2003			December 31, 2002			September 30, 2002

				(Dollars in thousands)
ALLOWANCE FOR LOAN LOSSES:
Balance beginning of period	$	11,838		$	7,207		$	7,207
Provision for loan losses		3,963			2,589			1,657
Net charge-offs		(2,330	)		(1,123	)		(816	)
Allowance related to acquired loans		—			3,165			—

Balance end of period	$	13,471		$	11,838		$	8,048

Allowance for loan losses to total loans		1.16	%		1.16	%		1.26	%
Allowance for loan losses to non-performing loans		128	%		108	%		226	%

NON-PERFORMING ASSETS:
Accruing loans - 90 days past due	$	15		$	721		$	416
Non-accrual loans		10,516			10,241			3,144

Total non-performing loans		10,531			10,962			3,560
Other real estate owned		1,334			908			800

Total non-performing assets	$	11,865		$	11,870		$	4,360

Potential problem loans	$	15,854		$	23,286		$	13,039

Total non-performing assets to total assets		0.78	%		0.86	%		0.44	%

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.

value of approximately $8.5 million. Included in the sale were approximately $3 million in face value of loans that were non-performing as of December 31, 2002. The subsequent sale of the mortgage loans, which had been recorded at their estimated fair value on the date of acquisition, resulted in an additional discount of approximately $277,000 that was recorded as a reduction of goodwill. This reduction of goodwill has subsequently been offset by $88,000 of additional items related to the acquisition.

Our primary sources of funds are customer deposits, loan repayments, and maturities of investment securities. We have additional sources of liquidity in the form of borrowings. Borrowings include federal funds purchased, securities sold under repurchase agreements, and borrowings from the Federal Home Loan Bank.

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


			Three Months Ended September 30,

			2003								2002

						Interest		Average						Interest		Average
			Average			Income or		Yield or			Average			Income or		Yield or
			Balance			Expense		Cost			Balance			Expense		Cost

			(Dollars in thousands)
Assets
Loans:
	Commercial		$	119,285		$	1,869		6.22	%	$	93,551		$	1,588		6.74	%
	Real estate-mortgage			860,378			14,969		6.90	%		398,195			7,081		7.05	%
	Real estate-construction			109,901			2,036		7.35	%		96,895			1,817		7.44	%
	Consumer			31,994			822		10.19	%		26,782			736		10.91	%
	Mortgage			18,599			600		12.80	%		5,634			385		27.07	%
	Other			593			—		—			657			—		—

		Total loans		1,140,750			20,296		7.06	%		621,714			11,607		7.41	%
Allowance for loan losses				(13,280	)							(8,037	)
Securities:
	U.S. government and mortgage-backed			184,906			1,644		3.53	%		184,466			2,017		4.34	%
	State and political subdivisions -
		Nontaxable		3,926			40		4.04	%		3,143			35		4.41	%
		Taxable		508			3		2.34	%		—			—		—
	Other			10,058			76		3.00	%		2,320			21		3.68	%

		Total securities		199,398			1,763		3.51	%		189,929			2,073		4.33	%
Interest-bearing deposits with banks				389			4		4.08	%		26,173			108		1.63	%
Federal funds sold				5,511			13		0.94	%		40,852			172		1.67	%

		Total interest-earning assets		1,346,048			22,076		6.51	%		878,668			13,960		6.30	%
Non-interest-earning assets:
Cash and due from banks				50,562								37,051
Other				101,788								37,177

		Total non-interest-earning assets		152,350								74,228

		Total assets	$	1,485,118							$	944,859

Liabilities and Stockholders’ Equity
Deposits:
	Interest-bearing demand accounts		$	201,763		$	210		0.41	%	$	168,612		$	351		0.83	%
	Certificates of deposit < $100,000			263,133			1,884		2.84	%		124,613			1,192		3.80	%
	Certificates of deposit > $100,000			242,672			1,852		3.03	%		174,843			1,605		3.64	%
	Money market savings accounts			142,028			461		1.29	%		69,946			293		1.66	%
	Regular savings accounts			59,314			126		0.84	%		49,678			153		1.23	%

		Total interest-bearing deposits		908,910			4,533		1.98	%		587,692			3,594		2.43	%
Federal funds purchased and securities sold under agreements to repurchase				72,142			94		0.52	%		62,929			152		0.96	%
Borrowings				102,778			487		1.88	%		1,011			11		4.22	%
Trust Preferred securities				32,500			384		4.69	%		32,500			445		5.44	%

		Total interest-bearing liabilities		1,116,330			5,498		1.95	%		684,132			4,202		2.44	%
Non-interest-bearing demand accounts				235,515								168,054
Other non-interest-bearing liabilities				5,249								3,164

		Total liabilities		1,357,094								855,350
Stockholders’ equity				128,024								89,509

		Total liabilities and stockholders’ equity	$	1,485,118							$	944,859

Net interest income						$	16,578							$	9,758

Net interest spread									4.56	%							3.86	%
Net interest margin									4.89	%							4.41	%
Ratio of average interest-earning assets to average interest-bearing liabilities									120.58	%							128.44	%


			Nine Months Ended September 30,

			2003								2002

						Interest		Average						Interest		Average
			Average			Income or		Yield or			Average			Income or		Yield or
			Balance			Expense		Cost			Balance			Expense		Cost

			(Dollars in thousands)
Assets
Loans:
	Commercial		$	108,337		$	5,168		6.38	%	$	90,265		$	4,689		6.95	%
	Real estate-mortgage			824,568			43,500		7.05	%		368,099			20,218		7.34	%
	Real estate-construction			102,159			5,654		7.40	%		97,332			5,465		7.51	%
	Consumer			33,240			2,543		10.23	%		25,884			2,118		10.94	%
	Mortgage			13,548			1,643		16.21	%		5,336			1,303		32.65	%
	Other			593			—		—			591			—		—

		Total loans		1,082,445			58,508		7.23	%		587,507			33,793		7.69	%
Allowance for loan losses				(12,692	)							(7,681	)
Securities:
	U.S. government and mortgage-backed			187,377			5,450		3.89	%		180,163			6,536		4.85	%
	State and political subdivisions -
		Nontaxable		3,405			111		4.36	%		3,349			113		4.53	%
		Taxable		514			7		1.82	%		—			—		—
	Other			7,869			197		3.35	%		2,307			63		3.67	%

		Total securities		199,165			5,765		3.87	%		185,819			6,712		4.83	%
Interest-bearing deposits with banks				6,187			59		1.27	%		15,133			183		1.61	%
Federal funds sold				12,376			104		1.12	%		22,563			282		1.67	%

		Total interest-earning assets		1,300,173			64,436		6.63	%		811,022			40,970		6.75	%
Non-interest-earning assets:
Cash and due from banks				46,796								34,143
Other				99,720								35,461

		Total non-interest-earning assets		146,516								69,604

		Total assets	$	1,433,997							$	872,945

Liabilities and Stockholders’ Equity
Deposits:
	Interest-bearing demand accounts			199,689			691		0.46	%	$	159,770		$	960		0.80	%
	Certificates of deposit < $100,000			278,782			6,152		2.95	%		116,761			3,518		4.03	%
	Certificates of deposit > $100,000			233,239			5,554		3.18	%		170,631			4,882		3.83	%
	Money market savings accounts			139,824			1,501		1.44	%		72,583			929		1.71	%
	Regular savings accounts			56,950			361		0.85	%		47,288			443		1.26	%

		Total interest-bearing deposits		908,484			14,259		2.10	%		567,033			10,732		2.53	%
Federal funds purchased and securities sold under agreements to repurchase				63,258			255		0.54	%		63,481			460		0.97	%
Borrowings				87,612			1,381		2.11	%		1,026			59		7.65	%
Trust preferred securities				32,500			1,161		4.78	%		16,453			655		5.32	%

		Total interest-bearing liabilities		1,091,854			17,056		2.09	%		647,993			11,906		2.46	%
Non-interest-bearing demand accounts				212,552								151,640
Other non-interest-bearing liabilities				5,166								3,187

		Total liabilities		1,309,572								802,820
Stockholders’ equity				124,425								70,125

		Total liabilities and stockholders’ equity	$	1,433,997							$	872,945

Net interest income						$	47,380							$	29,064

Net interest spread									4.54	%							4.29	%
Net interest margin									4.87	%							4.79	%
Ratio of average interest-earning assets to average interest-bearing liabilities									119.08	%							125.16	%

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

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, calls of investment securities, unscheduled repayments of loans, early withdrawals of deposits and other factors. As of September 30, 2003, our cumulative interest rate gap for the period up to three months was a positive $212.7 million and for the period up to one year was a positive $273.6 million. Based solely on our interest rate gap of twelve months or less, our net income could be unfavorably impacted by decreases in interest rates or favorably impacted by increases in interest rates.

The following table sets forth our estimate of maturity or repricing, and the resulting interest rate gap of our interest-earning assets and interest-bearing liabilities at September 30, 2003. The amounts are based upon regulatory reporting formats and, therefore, may not be consistent with financial information appearing elsewhere in this report that has been prepared in accordance with accounting principles generally accepted in the United States of America. The amounts could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawals of deposits, and competition.


						Three
				Less than		months to				More than
				three		less than		One to five		five
				months		one year		years		years			Total

				(Dollars in thousands)
Interest-earning assets:
	Investment securities			$	51,135	$	76,971	$	43,834	$	32,063		$	204,003
	Interest-bearing deposits with banks				7		—		—		—			7
	Federal funds sold				3,744		—		—		—			3,744
	Loans:
		Commercial			86,169		18,729		19,732		422			125,052
		Real estate			466,095		217,217		283,003		40,937			1,007,252
		Consumer			9,689		6,974		13,860		874			31,397

			Total interest-earning assets	$	616,839	$	319,891	$	360,429	$	74,296		$	1,371,455

Interest-bearing liabilities:
	Savings and NOW accounts			$	135,329	$	—	$	—	$	274,758		$	410,087
	Certificates of deposit of $100,000 or more				62,015		107,914		74,898		2,036			246,863
	Other time accounts				56,964		108,195		83,733		1,867			250,759
	Fed funds purchased				23,900		—		—		—			23,900
	Securities sold under agreements to repurchase				47,438		—		—		—			47,438
	Borrowings				78,469		42,907		33,159		761			155,296

			Total interest-bearing liabilities	$	404,115	$	259,016	$	191,790	$	279,422		$	1,134,343

Interest rate gap				$	212,724	$	60,875	$	168,639	$	(205,126	)	$	237,112

Cumulative interest rate gap at September 30, 2003				$	212,724	$	273,599	$	442,238	$	237,112

Cumulative gap ratio at September 30, 2003					1.53		1.41		1.52		1.21

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2003 pursuant to Exchange Act rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of management’s evaluation.


Exhibit
No.		Description

3.1		Restated Articles of Incorporation of First State Bancorporation. (1)
3.2		Amended Bylaws of First State Bancorporation. (2)
4.1		Shareholder Protection Rights Agreement dated October 25, 1996. (3)
10.1		Code of Ethics for Executives. (2)
10.2		First State Bancorporation 2003 Equity Incentive Plan. (4)
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.

We filed a current report on Form 8-K, dated July 22, 2003, announcing our second quarter 2003 financial results.

We filed a current report on Form 8-K, dated July 28, 2003, announcing that Mr. Michael R. Stanford, our President and Chief Executive Officer and a member of our Board of Directors, had entered into a “trading plan” pursuant to the requirements of Rule 10b5-1(c) promulgated by the Securities and Exchange Commission under Section 10(b) of the Securities Exchange Act of 1934, as amended.

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.


Exhibit
No.		Description

3.1		Restated Articles of Incorporation of First State Bancorporation.⁽¹⁾
3.2		Amended Bylaws of First State Bancorporation.⁽²⁾
4.1		Shareholder Protection Rights Agreement dated October 25, 1996.⁽³⁾
10.1		Code of Ethics for Executives.⁽²⁾
10.2		First State Bancorporation 2003 Equity Incentive Plan.⁽⁴⁾
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.


(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, 2003.

		or

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements.
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and Procedures.
PART II — OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
EXHIBIT INDEX
EX-31.1 Certification of CEO - Section 302
EX-31.2 Certification of CFO - Section 302
EX-32.1 Certification of CEO - Section 906
EX-32.2 Certification of CFO - Section 906


		Page

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	17

	PART II. OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K	17

	SIGNATURES	18


			Three Months Ended September 30,

			2003						2002

			Income		Shares		Per Share		Income		Shares		Per Share
			(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount

					(Dollars in thousands, except per share amounts)
Basic EPS:
	Net income		$	4,033		7,511,874	$	0.54	$	2,286		6,080,409	$	0.38

Effect of dilutive securities:
	Options					107,881						196,755

Diluted EPS:
		Net income	$	4,033		7,619,755	$	0.53	$	2,286		6,277,164	$	0.36


			Nine Months Ended September 30,

			2003						2002

			Income		Shares		Per Share		Income		Shares		Per Share
			(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount

					(Dollars in thousands, except per share amounts)
Basic EPS:
	Net income		$	11,230		7,439,057	$	1.51	$	6,617		5,288,664	$	1.25

Effect of dilutive securities:
	Options					134,807						197,304

Diluted EPS:
		Net income	$	11,230		7,573,864	$	1.48	$	6,617		5,485,968	$	1.21

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NEW MEXICO (State or other jurisdiction of incorporation or organization)		85-0366665 (IRS Employer Identification No.)


7900 JEFFERSON NE ALBUQUERQUE, NEW MEXICO (Address of principal executive offices)		87109 (Zip Code)

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

(2)		Incorporated by reference from the Company’s Form 10-Q for the quarter ended March 31, 2003.

(3)		Incorporated by reference from the Company’s Form 10-QSB for the quarter ended September 30, 1996.

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


		FIRST STATE BANCORPORATION

Date: November 12, 2003		By: /s/ Michael R. Stanford

		Michael R. Stanford, President & Chief Executive Officer

Date: November 12, 2003		By: /s/ Christopher C. Spencer

		Christopher C. Spencer, Senior Vice President and Chief Financial Officer


		September 30, 2003					December 31, 2002					September 30, 2002

							(Dollars in thousands)
		Amount		%			Amount		%			Amount		%

Commercial		$	125,052		10.7	%	$	100,813		9.9	%	$	95,401		15.0	%
Real estate-mortgage			883,040		75.9	%		759,884		74.7	%		409,582		64.3	%
Real estate-construction			111,875		9.6	%		100,458		9.9	%		96,868		15.2	%
Consumer and other			31,397		2.7	%		35,555		3.5	%		27,756		4.4	%
Mortgage loans available for sale			12,337		1.1	%		20,315		2.0	%		7,693		1.1	%

	Total	$	1,163,701		100.0	%	$	1,017,025		100.0	%	$	637,300		100.0	%