Magazine article American Banker

First State of N.M. Breathing Easier after Colo. Branch Deal

Magazine article American Banker

First State of N.M. Breathing Easier after Colo. Branch Deal

Article excerpt

Byline: Bonnie Mcgeer

With the pending sale of its Colorado branches, the pressure to raise capital is off for First State Bancorp. in Albuquerque, but it still must contend with rising problem loans.

H. Patrick Dee, the $3.4 billion-asset company's chief operating officer, said in an interview that its construction loans in particular likely will remain a headache.

"That's one of the things we're preparing for, and why we think it's important to get our capital ratios up, to be able to weather whatever problems we might have there in the future," he said. "We expect to continue to see more problems in that portfolio as we go forward."

First State announced Wednesday that the $4.3 billion-asset Great Western Bank in Watertown, S.D., agreed to buy its 20 Colorado branches.

Great Western, a unit of National Australia Bank Ltd., would take $444 million of loans and $477 million of deposits in the deal.

But First State would retain $210 million of loans from those branches - including all of the problem loans and all of the construction loans.

"This deal gives them a much-needed boost in their capital," said James Schutz, an analyst at Sterne, Agee & Leach Inc. "But it doesn't really do much for their asset-quality situation, because they're taking all of the problem loans with them."

First State, which has grown quickly by making three acquisitions over the past three years, has been downsizing lately, as losses on construction loans have mounted. Last year it closed its two branches in Utah. The Colorado sale would leave it with 36 branches in New Mexico and four in the Phoenix area.

"We are certainly sad to set a course to exit the Colorado market, which we worked very hard to put together over the last five years," Michael R. Stanford, First State's president and chief executive, said on a conference call Wednesday. …

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