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First State Bancorporation Q1 2010 Earnings Call Transcript

First State Bancorporation Q1 2010 Earnings Call Transcript

First State Bancorporation (FSNM)

Q1 2010 Earnings Call

April 26, 2010 5:00 pm ET


Patrick Dee – President, Chief Operating Officer

Chris Spencer – Chief Financial Officer


Bain Slack – Keefe, Bruyette & Woods



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Welcome to the First State Bancorporation first quarter results conference call. (Operator Instructions) I’d like to turn today’s conference over Mr. Chris Spencer, Chief Financial Officer.

Chris Spencer

Welcome everyone to First State Bancorporation’s first quarter conference call. First State Bancorporation will provide an online simulcast of this call on our investor site, which is

. An online replay will follow immediately after the call.

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Myself, Christopher Spencer, Senior Vice President and Chief Financial Officer, H. Patrick Dee, President and Chief Executive Officer, and Jed Fanning, Chief Credit Officer of First State Bancorporation.

The Board of Directors of First State Bancorporation has adopted a policy that will comply with Securities and Exchange Commission regulation FD in all respects. Consequently, this call will proceed under an agenda, which I will announce momentarily. Matters outside the agenda items will not be discussed.

The subject matter of this conference call will include forward-looking statements. These statements are not historical facts and involve risks and uncertainties that could cause First State’s results to differ materially from those contained in such statements.

Our agenda this afternoon, Pat Dee will start with an overview of the quarter. I will then proceed to go over the financial slides that are available on our website. Then Pat will make some concluding remarks and then we’ll open it up for our analyst questions.

With that, I’ll turn it to Pat.

Patrick Dee

Thank you, Chris. The first quarter was very good for our overall deposit growth. Our liquidity continues to improve and our bank remains adequately capitalized. Asset quality continues to be a challenge, but we are seeing some moderation in certain trends. One noticeable bright spot is that our total potential problem loans decreased for the third quarter in a row.

Our allowance for loan losses now stands at 6.36% of total loans, down very slightly from 6.45% at year-end 2009. Of the total of $120 million in the allowance, over $95 million is not included in our capital ratios.

Despite the improvement in our liquidity, we continue to monitor and manage closely. Chris will provide more detail on the deposit growth, but we’re especially encouraged by the small increase in our core deposits outside of the fluctuations in our broker deposits and deposit listing service deposits.

Our loan totals continue to decline due primarily to payoffs, helping both our liquidity and our capital ratios. Our loan charge off totals moderated a little bit in the first quarter making the second quarter in a row with an improving trend in that area.

Our provision for this quarter was less than the charge offs recorded due primarily to the continuing drop in the loans outstanding in the loan categories that have high loss rates. We continue to aggressively identify problem loans and take write downs where needed. In general, most recent appraisals are reflecting a lower value than previous appraisals, but the decline in value for certain types of properties in various areas is definitely moderating.

We continue to refine our allowance for loan loss methodology and believe that we have an appropriate level in it at this time.

We are seeing slight negative trends in our general commercial real estate loan portfolio, but the quality in these loans is still far better than the construction and land development categories that have been so problematic for us.

Our unemployment level in New Mexico is 8.8%, remains well below the national level of 9.7%. In Arizona, it remains just below the national average at 9.6%.

We reduced our non-interest expenses in the first quarter and we remain focused on further expense reduction opportunities. We are closing two of our smallest branches in the second quarter; one in the Phoenix area and the other in southern New Mexico. Improving our overall efficiency remains a very high priority for us.

We continue to work with KBW to evaluate our capital position and to pursue alternatives to improve our capital numbers. At this time, we still have no concrete plans that we can report, but we’ll continue to evaluate the opportunities that are available.

Although those opportunities are fairly limited at this point in time, we are actively reviewing possible alternatives. We are in the final stages of an arrangement with some outside experts who are assisting us in assessing the remaining risk in our loan portfolio. We believe that information should be very helpful in determining how best to mitigate the losses in our loan portfolio and also in determining future staffing requirements and how much additional capital we might need.

We continue to work very closely with our regulators regarding our formal agreement and believe that we are in or at least very near to being in compliance with almost all of the provisions of that agreement.

We have very regular communications with them to keep them informed and to provide whatever information they might need.

Now, Chris will run through some detail on our results for the quarter, and then I’ll summarize a few thoughts.

Chris Spencer

We ended the quarter with total assets of approximately $2.9 billion, up $118 million from year-end 2009. This increase was the result of the deposit increase in the quarter, which in turn resulted in an increase in cash and investment securities.

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