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First State Bancorporation
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First State Bancorporation is
having a very active 2007 adding de novo branches and integrating their 3 prior
acquisitions in New Mexico and Colorado
First State Bancorporation
7900 Jefferson N.E.
Albuquerque, NM 87109
H. Patrick Dee
COO and Exec. Vice President
Interview conducted by:
Lynn Fosse, Senior Editor
Published- May 25, 2007
H. Patrick Dee
COO and Exec. Vice President
March, 1984 to present
Executive Vice President and Chief Operating Officer for First State Bancorporation. Also
President and Chief Operating Officer of its subsidiary bank, First Community Bank. The
company is a $3.3 billion bank holding company, formed in 1988. The bank is a state
chartered bank formed in 1922 in Taos, New Mexico. Responsible for overall profitability
and growth of the company. During 1993, was principally involved in taking the company
public, along with the C.E.O. Have helped manage a rapid growth and expansion of the
organization, including the acquisitions of five separate institutions and the addition of
several de novo branches.
Other areas of responsibility during this time included those of the positions of Chief
Financial Officer and Chief Credit Officer, management of the organizations
investment portfolio, and extensive analyses of potential acquisitions and expansion
activities. Have overseen or managed the organizations financial and strategic
planning processes, asset/liability management, data processing, item processing, branch
operations, and relationships with external auditors and examiners. Member of the
companys and the banks Boards of Directors.
Currently a member of the Board of Directors of the Greater Albuquerque Chamber of
Commerce, including participation in its "Albuquerque Reads" literacy
initiative. Previously a member for six years of the Board of Directors of the New Mexico
Museum of Natural History Foundation, and Chairman of its Finance Committee. From 1994
through 2000, was a member of the Board of Directors of ACCION New Mexico, a non-profit
organization that makes loans to micro-entrepreneurs in New Mexico. Served as the Chairman
of the Board of ACCION New Mexico during 1999.
Bachelor of Science in Accounting, cum laude, from the University of Denver in June, 1977.
In April, 2007, received the Governors Corporate Volunteer Award for the State of
New Mexico. In May, 2001, was named the Financial Services Advocate of the year for
the state of New Mexico, by the U.S. Small Business Administration. Granted the
designation of Certified Public Accountant by the state of Colorado in January, 1979.
First State Bancorporation (NASDAQ: FSNM) is a New Mexico based commercial bank holding
company that provides services to customers from a total of 62 branches located in New
Mexico, Colorado, Utah and Arizona. Through its wholly owned subsidiary First Community
Bank, First State's strategy is to provide a business culture that offers individualized
customer service. First State's flexible approach, which combines direct access to
decision makers, the latest in technology, a wide menu of product offerings, and
increasingly convenient branch locations, has allowed First State to profitably capture
market share made available because of customer dissatisfaction caused by consolidation in
the banking industry.
First Community Bank, which has been in operation since 1922, is a state chartered,
community focused bank providing a full range of commercial banking services to small and
medium size commercial businesses in New Mexico, Colorado, Utah and Arizona. They offer a
full range of financial services to commercial and individual customers, including
checking accounts, short- and medium-term loans, revolving credit facilities, inventory
and accounts receivable financing, equipment financing, residential and small commercial
construction lending, residential mortgage loans, various savings programs, installment
and personal loans, safe deposit services and credit cards.
CEOCFO: Mr. Dee, what are the highlights of
the past year, and how do you keep it going?
Mr. Dee: Since the first quarter of
2006, we have completed three separate acquisitions. Two of those were New Mexico-based
companies and one was in Colorado. This has expanded our footprint, with branches in the
state of Arizona and in southern New Mexico and has substantially increased our presence
in the state of Colorado along the Front Range. As with any acquisition, there is an
integration period that takes some time. The first two acquisitions were done in January
of 2006, so those are fully integrated and running well at this point. The most recent one
was the acquisition of Front Range Capital Corporation in Colorado, which we completed on
the first of March of 2007. We are still in the process of completing that integration and
will convert their data processing system to ours the first week in July of this year.
Our earnings were much improved in the 1st Quarter of this year. Our total net
income was up 50% compared to the 1st Quarter of the prior year. Our earnings
per share increased from $0.24 in the 1st Quarter of 2006 to $0.31 in the 1st
Quarter of 2007. We are very excited about the growth opportunities with our expanded
footprint. This gives us a much better presence in the state of Colorado. We also have a
lot of potential in Arizona where we have already opened two new branches this year with
one more to follow. We are having a very active year in terms of de novo branches as we
are adding two in Colorado and one more later this year in New Mexico. As part of the
acquisition process, we are consolidating some branches. Two of those are branches we
recently acquired in Colorado and we are also going to close two more that were from one
of the acquisitions in New Mexico in 2006. We have a lot going on and we continue to see
great loan growth in all of our markets. Deposit growth has been a bit of a challenge but
we have an incentive program in place now with our employees to address that. We are very
excited about the near term prospects for the company.
CEOCFO: Some growth has been by acquisition
and some by new branches; how do you decide when and where, how does the strategy work?
Mr. Dee: Historically, we have not
been an active acquirer, except for the last fifteen to eighteen months. At this point, we
are through doing acquisitions at least for an extended period of time. We have always
done acquisitions for a strategic reason. In 2002, we did an acquisition to allow us to
enter the Colorado and Utah market places. One of the acquisitions that we did in early
2006 gave us our first presence in southern New Mexico and Arizona. The other acquisition
in 2006 was a very strategic addition to our footprint in New Mexico and this last one has
given us a much larger franchise in the state of Colorado. Historically, we have always
grown more on a de novo branch basis and that will once again be our focus in the future,
although we are going to take a bit of a break from that. For 2008, we currently have no
new branches scheduled to come on line. Future additions of branches will likely come in
the Arizona market, specifically the Phoenix and Scottsdale areas. We are doing what we
call a back to basics approach of growing into some of the capacity that we
have created the past several years with de novo branches or the acquisitions that we have
CEOCFO: Is there much difference in banking
in the four states?
Mr. Dee: It is surprisingly similar
yet there are differences in the market places. If we look at New Mexico, Colorado, Utah
and Arizona, there are different competitive factors. For example, the deposit pricing is
more competitive in Colorado and Arizona. What we find in common is that these markets and
our target market within those, is very consistent. We are still trying to attract the
small to medium-sized commercial business and are primarily taking them away from the big
banks, which dominate the marketplaces. Wells Fargo Company (NYSE:WFC) is one of the
market leaders in all four of those states. There are some different players in each of
the markets but in every case large banks have a dominant market share. For example, in
Arizona, the three largest banks control roughly 65% of the deposit market. Our business
model is very similar in all of the markets, as we go after the small to medium-sized
commercial business. We are also very active in residential construction lending in three
of the four states; Colorado, New Mexico and Utah. We have not geared up that activity in
Arizona and we may not, depending on what happens in that market place. The demographics
in the various states are very similar and again our business model is almost identical in
CEOCFO: The downside of large national banks
is well known; what differentiates First State from other local banks?
Mr. Dee: In each one of these markets
there is a bit of a void in the middle part of the market where we operate. There are a
tremendous number of very small community banks and there are a handful of the large banks
that dominate the market, but there are not that many that are in the mid range where we
fall. We have similar technical capabilities to what the large banks do. We have a
significant lending limit, but we think we have much better service levels than the large
banks are able to provide for the small to medium-sized commercial business. The reason
that people switch to us is that they can have the same technical capabilities that they
get at the big banks in terms of sweeps, remote capture, deposit products, and a full
range of cash management services. We can also provide a much more customer-friendly
service approach and oftentimes lower fees than what the larger banks charge. Compared to
the small banks, we are able to provide much more in the way of services.
CEOCFO: Do new commercial customers tend to
come in on the loan side?
Mr. Dee: In the majority of cases they
do. We actively pursue strictly deposit customers, but quite often the first chance we get
to do some banking services for a lot of these companies is in the form of some type of
loan. We probably see a majority of the activity come in on the loan side. Later we are
usually able to bring in the deposits from those customers.
CEOCFO: How local is the decision making as
you continue to expand and does it matter?
Mr. Dee: It very much matters. We have
found that to be extremely important. We have leadership that guides each state that we
are in, but we break each state up into local markets. For example, in Colorado we have
three main markets, one in the northern part of the state, one in the central part in the
Denver area and one in Colorado Springs. There are decision makers in each one of those
markets that can handle most of the loan decisions that are made and all of the day-to-day
customer service requirements are handled locally. When it gets to our largest credits,
generally those that are $10 million or more in terms of the total relationship, then we
do get other people involved from outside of those market areas in approving those loans.
From a risk management standpoint, we need to have more expertise looking at those largest
credits. Even there, we distinguish ourselves from the large banks as our decision-making
process is generally much quicker than what customers might experience with the large
banks. The people who are involved in the decision making process know and understand
these markets. We have only four states to keep track of and that is much easier than some
of the larger banks that have to go nation-wide. The similarities in our markets also make
it easier for us to get our arms around the credit risk.
CEOCFO: Over and above experience, what are
the intangibles you look for in the people you hire?
Mr. Dee: I think the most important
factors center around the ability and willingness to take care of customers and to look
for ways to be proactive in servicing the wide range of needs that our customers have. We
try to hire people who have a bit of an entrepreneurial spirit. One of the differences
between our people and the larger banks is in the larger banks they have a strict set of
rules and guidelines and their employees know they cannot deviate beyond those. Banking is
a regulated industry so we too have a lot of policies and procedures, but we try to allow
people the flexibility to be able to think and structure loans in a way that still makes
sense from a risk standpoint for the bank and yet it provides most if not all of what the
customer is looking for. We dont want people who are robots; we want people who can
think and spend the extra time to get to know the customer and work with them.
CEOCFO: How have you been able to weather
the inverted yield curve?
Mr. Dee: In our case our interest rate
risk is very short on both sides of the balance sheet. The inverted yield curve does not
have as much of an effect on us as it does on many other banks. When rates migrated to
lower levels earlier in this decade, we did see a decrease in our interest margin. Yet at
its low point our margin was just a little bit under 4.5%. We have a low cost deposit
base, because of our commercial focus and the fact that there is a substantial
non-interest bearing component to that. Our loan pricing is competitive, but we do not
necessarily need to match the competition on every deal that comes across our desks. We
have the opportunity to do about as much loan volume as we care to, so we are able to
maintain pricing that makes sense for the bank and helps us preserve that interest margin.
Our business model is simple; we make loans to commercial customers, and we take in
deposits that are short-term as far as their repricing or duration. We have relatively
little interest-rate risk and the inverted yield curve simply does not cause us the same
issues as it does many other banks.
CEOCFO: Are there any services you feel you
need to add?
Mr. Dee: At this point we provide
almost everything our customers are asking for. We have been proactive recently in getting
our remote deposit capture product up and running. It is a product that we used in our
branches prior to introducing it to customers. We have stayed proactive in terms of cash
management, and a broad range of corporate services, essentially everything that our
customers look for.
CEOCFO: Please tell us about community
involvement for the company.
Mr. Dee: We are very active in each
one of our communities. That is one of the things that we have utilized over the years to
increase our visibility in the communities where we operate, and to send the message that
we are not just here to make loans and take your deposits, but we want to be actively
involved in the community. We encourage our officers and all of our staff to get involved
in activities or organizations in the community and we support those in a big way not just
with our employees time, but also with substantial amounts of money. We find
projects that our people like to get involved with and support those in each of the
markets and it pays dividends in terms of sending the message that we truly are a
community bank. We recognize that we are able to make a nice living from the customers who
bank with us and we want to give some of that back to the community.
CEOCFO: You have done some share
repurchasing; is that a focus for you?
Mr. Dee: It is. We did a stock
offering in December to allow us to complete this latest acquisition, but we found in the
1st Quarter of this year that our stock price had dropped down to a level where
we felt that it was prudent to start buying stock back. We had repurchased stock a few
years ago, but had taken a break for a period of time. We are active currently in buying
stock back. Our board in March of this year authorized us to buy up to a total of 5% of
our stock back. To date (May 16th), we are a little bit over half way through
that program and if the price stays down, we will continue to buy stock until we buy back
the full 5%. We think that is a good long-term move for our share holders. We can do that
without compromising our capital ratios and it has some earnings per share benefits for
our stock holders.
CEOCFO: You have increased your dividends!
Mr. Dee: Yes, we increased it
recently. We went public in 1993, began paying a dividend in 1994 and each year we have
increased our dividend. We are currently paying a dividend of 9 cents per share beginning
with the second quarter dividend in June.
CEOCFO: Are there any issues with the recent
acquisitions that need specific attention?
Mr. Dee: I think one part of our
performance that we are working hard on and is partly the function of the acquisitions
that we have done, particularly the latest acquisition, is our asset quality. It is not
quite as good as we would like it to be at this point. We have shown in the past where we
have done acquisitions, and have acquired assets that are not quite up to our standards,
that within a year or two we were able to get that remedied. In this case we are looking
at selling a large portion if not all of these non performing loans that we acquired. We
are confident that we have the plan in place to address this quickly.
CEOCFO: Why should potential investors be
Mr. Dee: We believe that we have a
unique franchise that operates in four states that have great growth trends and generally
very solid economic conditions. We have proven that our business model is simple, yet very
effective. We think we can continue to grow profitably and provide the kind of long term
return that our shareholders expect. The growth potential for us now is not going to come
just from New Mexico as it did in the past, but from the markets in Colorado, Utah and
Arizona, which are huge. We have a very small market share in each one of those and we
think for the long-term investor who expects returns in the high teens on a year in and
year out basis, we have proven we can do that. We are confident that we can continue to do
that in the future.
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