First State Bancorporation Q2 2010 Earnings Call Transcript

First State Bancorporation (FSNM)

Q1 2010 Earnings Call

July 29, 2010 5:00 pm ET

Executives

Patrick Dee - President and COO

Chris Spencer - SVP and CFO

Jed Fanning - Chief Credit Officer

Presentation

Operator

Welcome to the First State Bancorporation Second Quarter Results Conference Call. (Operator Instructions) I would like to turn today's conference over to Mr. Chris Spencer , Chief Financial Officer, sir you may begin.

Chris Spence r

Thank you very much and good afternoon everyone and welcome to First State Bancorporation second quarter conference call. First State Bancorporation will be provide an online simulcast of this call on our web site which is http://www.fcbnm.com and an online replay will follow immediately after the call and continue for 10 days.

There will also be a replay, of this call for 10 days, which can be accessed toll free at 866-391-4964. Your host and conference leaders for the call this afternoon are myself Christopher C. 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 the company will comply with Securities and Exchange Commission regulations FD in all respect. Consequently the conference 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 it involves risks and uncertainties that could cause First State results to differ materially from those contained in such statements.

The call this afternoon, Pat Dee will open with some overview or comments regarding the quarter. I will proceed to go over the financial slides that are located on our website. Then Pat Dee will have some concluding remarks.

With that, I'll turn it over to Pat.

Pat Dee

Thank you, Chris. The second quarter for our company saw growth in non-brokered deposits, a further improvement in our liquidity and continued contraction in our loan portfolio.

Asset quality continues to be a major challenge, as evidenced by the high level of charge-offs and the provision for loan losses for the quarter. We have been successful in selling quite a few pieces of other real estate owned as the total OREO amount declined, even though we saw significant additions during the quarter.

Because of the losses in the quarter our consolidated company now has a negative stock holders' equity and our bank is now significantly undercapitalized under the regulatory definition.

Our allowance for loan losses stands at 7.05% of total loans, an increase from 6.36% at the end of the first quarter. Of the total of $123 million in the allowance, approximately $101 million is not included in our capital ratios.

Although, our liquidity is now substantial, we continue to monitor and manage it very closely. We continued to add deposits from national deposit listing services during the quarter a primarily to replace broker deposits, which we can not renew due to regulatory restrictions.

Our loan totals continue to decline due primarily to payoffs, which has helped our liquidity improve. Our loan charge-offs increased substantially compared to first quarter reversing the trend that we saw on the two previous quarters. Our provision for this quarter was less than the charge-offs recorded as we charged-off quite a few loans that have specific reserves on those loans at the end of the first quarter.

We continued to aggressively identify problem loans and take write-downs where needed. As in the past most recent appraisals are still reflecting a lower value than the prior appraisals on the real estate, underlying the collateral on our loans. We continue to refine our allowance for loan loss methodology and believe that we are maintaining it at an appropriate level.

During the second quarter, we closed two of our smaller branches, one in the Phoenix area and the other in Las Cruces, New Mexico. Chris will give more detail on our non-interest expenses, which were higher in the second quarter than in the first quarter, with very high levels of folio expense and FDIC insurance premiums.

We continue to pursue sources of additional capital for our bank as that is a critical need for us at this time. We were recently not able to redeem our trust preferred securities at a substantial discount, which if it had occurred would have improved our ability to recapitalize our holding company. Since we were unsuccessful in that effort we have broadened our efforts to include the possibility of raising capital, which maybe contributed directly into the bank.

If a significant capital raise is made directly into the bank it will solidify the bank's capital position that will most likely result in substantial dilution in the holding company's ownership of the bank to probably not more than 5%.

We continue to work closely with our regulators regarding our formal agreement and at this point we are not under any required time frames for increasing our capital. However, it is likely that given our asset quality trends and continued decline in capital, we may need to significantly increase the bank's capital by year-end or at least very soon thereafter.

We recently were unsuccessful in our appeal of the decision by the NASDAQ market to de-list our stock. So as of yesterday, our stock began trading in over-the-counter market.

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

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