Wednesday, September 01, 2010
First State Finds Investors
By Winthrop Quigley
Copyright © 2010 Albuquerque Journal Journal Staff Writer
First State Bancorporation says it has found new investors it expects to inject more than $150 million into the company in time to satisfy federal orders delivered Tuesday to increase its capital or face further regulatory sanctions.
The Albuquerque-headquartered holding company, which owns First Community Bank, said the Federal Reserve System just issued a directive giving First State 60 days to raise enough new money to adequately capitalize the bank.
It can do that either by securing new investment or by selling to or merging with another company.
First Community Bank is classified as significantly undercapitalized and the Federal Reserve order does not specify what action it would take if First Community fails to improve its capital position.
First State president H. Patrick Dee told the Journal that new but unnamed investors "in all likelihood" would invest "a fair amount more" than the $150 million injection required to adequately capitalize the bank.
"The potential investors we've had very detailed discussions with are some of the most sophisticated private equity bank investors in the United States, if not the entire world," Dee said. "These people are very knowledgeable about banks. They have large amounts of money they would like to invest in banks where they think they can achieve attractive returns."
"The regulators are aware we've been working on this capital raise," Dee said.
Dee would not identify the potential investors. However, according to SNL Financial, a data analysis firm in Virginia, more than a dozen commercial banking companies comparable to First State have raised close to $3 billion in new capital since 2009 from several well known private equity firms, including CapGen Financial, The Carlyle Group and Warburg Pincus.
Dee said investors were attracted by the size and location of First Community branches, its large and loyal customer base and its management.
Until new capital arrives, customers will see few if any changes as a result of the Federal Reserve directive, Dee said. The company is already doing most of what the regulators ordered it to do, including suspending dividends for investors and bonuses for officers, he said.
However, First Community will lower the interest it pays to some depositors to satisfy orders that it not pay rates better than the local market average. For example, a one-year certificate of deposit with a $2,500 minimum that pays 1.2 percent will pay 1 percent when it renews, and new depositors will receive the lower rates immediately. Dee estimated 95 percent of interest rates may have to be adjusted, but that the cap on interest payments would be removed once the bank is adequately capitalized.
First State, burdened with too many bad real estate loans, lost $51.8 million in the three months ending June 30. The company increased its provisions for loan losses from $31.1 million in the second quarter of 2009 to $43 million this year. Nonperforming loans increased from $257.7 million as of Dec. 31 to $268.8 million as of June 30.
First State shares ended over-the-counter trading Tuesday down 3 cents, at 12 cents a share. First State shares traded at $27.47 in 2006. Nasdaq delisted its stock in July after it traded consistently for less than $1 a share.
The company shook up its management last December when Dee replaced long-time CEO Michael R. Stanford and New Mexico State University business school dean Garrey Carruthers replaced Leonard J. DeLayo as board chairman.