While the subject of this week's bad banks to keep an eye on, the Albuquerque, NM-based holding company of First Community Bank has been taking aggressive actions to right its balance sheet.
Rather than continue to pursue federal bailout money from the U.S. Treasury Department, First State Bancorporation has instead opted to close and or sell various branches and some of its loans outside of its home state.
First State, the bank holding company of First Community Bank, has reached a definitive agreement to sell its Colorado branches to Great Western Bank, a South Dakota-based subsidiary of National Australia Bank.
The deal is subject to regulatory approval and is anticipated to close in the summer of 2009.
The terms of the transaction call for the transfer of approximately $444 million in loans and $477 million in deposits to Great Western for a net premium of $20 million. After transactions costs, First State expects to record a pretax gain of approximately $16 million.
It is a costly deal for First State. For starters, First State bought the Colorado branches two years ago when it purchased Front Range and its wholly owned subsidiary, Heritage Bank, from former Colorado Congressman Bob Beauprez for $72 million.
For another reason, for its $20 million acquisition price, Great Western is getting $19 million of buildings and equipment.
In announcing the transaction, Michael R. Stanford, president and CEO of First State said this transaction would boost its total risk-based capital ratio at both the bank and holding company levels to above 12%, compared to 10.3% as of Dec. 31, 2008.
"We anticipate that this transaction will help us achieve the regulatory requirements for capital levels in the near future," Stanford said. "We plan to intensify our efforts in our legacy market, New Mexico, which has significant growth potential and continues to outperform the nation as a whole in terms of unemployment. We will continue to downsize our loan portfolio in order to strengthen our capital ratios and liquidity."
"This is the first step in our plans to manage our capital levels for the foreseeable future," stated H. Patrick Dee, executive vice president and COO of First State. "We will continue to aggressively manage our problem assets, step up our efforts toward growing deposits, and focus further on expense reduction initiatives."
Last fall, First State closed its two Utah branches, one in a building that it owned in Salt Lake City and has listed for sale and the other in a leased building Midvale, which it expects to sublease through the end of the lease term in June 2011.
On announcement of the Colorado deal, First State also announced that it withdrew its application for TARP funding.
"After careful consideration, we believe that it is in the best interests of our shareholders to proceed on a course of action that does not include TARP funding," Stanford said. "The uncertainty surrounding the availability and terms of the TARP funding, combined with the low market price of our common stock, make the Treasury's program much less attractive than it appeared to be when we initially applied for it."
First State's lost $124.6 million last year, compared to net income of $24.8 million a year earlier.
In discussing its condition with analysts last month, Patrick Dee said the decision to leave Utah was a good one.
"As we have moved further in to the Utah portfolio liquidation, we have found that our decision to leave that market was a wise one as we have a disproportionate number of problem loans in that state," Dee said. "We will continue to reduce our exposure to construction loans of all types and we should see a more marked decrease in our loan totals in Utah in the quarters ahead."
First State's delinquent loans increased fairly sharply in the fourth quarter to $75.7 million or 2.75% of total loans. About $14 million of that was on loans that were renewed just after year end. The change in delinquent loans was driven primarily by Utah which increased to $44.6 million at Dec. 31, representing close to 60% of all the delinquencies and 16.45 of total loans in Utah.
Dee said the bank holding company is continuing its efforts to sell its Utah loans.
First Community Bank listed total assets at yearend of $3.44 billion.
Among its nonperforming assets, First Community reported $18.9 million in repossessed real estate of which $11.4 million was in construction and development projects.
The bank showed $26.7 million in commercial nonresidential property loans past due less than 90 days and an additional $11 million of such loans listed as in nonaccrual status.
Download this story and all of the stories in the Watch List Newsletter here. The Adobe pdf version also includes all of this week’s leads of distressed properties and loans of concern, lease cancellations applied for in bankruptcy proceedings, all of the local and national facility closures & layoffs, and lists of loans approaching their maturity date. Plus the pdf version contains bonus news items not found in these columns or the CoStar Group web news pages.
Receive notice when a new Watch List Newsletter column is published by receiving The Watch List E-Mail Alert. It's free and the quickest way to link directly to the news and leads you want. Just e-mail me your name, title, company, company business, city, state, and e-mail address. You can reach me by clicking on the byline above or e-mailing me at Mark Heschmeyer