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First State Bancorporation has sustained excellent
core deposit and loan growth over a period of time in New Mexico and is starting to see
the same trends in Colorado, which is a much larger market with even more potential
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
February 10, 2005
Bio of COO,
H. Patrick Dee
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 State Bank N.M. The
company is a $1.8 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 merger of First State Bank with a related bank in 1991, the
acquisition of another bank in 1993, and an increase in the branch network from eight in
1993 to twenty-one by February, 2002. In October, 2002, an acquisition of a $360 million,
nine-branch industrial bank located in Colorado and Utah was completed.
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 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 30 branches located in New
Mexico, Colorado, and Utah. Through its wholly owned subsidiaries First State Bank N.M.
and 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 State Bank N.M., 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 and Utah. 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.
Dee, 2004 was a record earning year for First State, will you give us an overview of the
Mr. Dee: "We spent the last couple of years getting
better positioned in the Colorado and Utah markets with an acquisition that we completed
in late 2002. The first half of this year we completed that repositioning. We almost had
two very different years within a year. The first half started slowly with some of the
expenses related to relocating branches and hiring new people impacting the bottom-line.
The second half was characterized by continued strong core deposit and loan growth and
improvement in our net interest margin. We returned to some decent profitability numbers
that allowed us to post record earnings for the year and especially for the third and
fourth quarters of this year."
did you accomplish those goals?
Mr. Dee: "I think the key for our long-term core deposit
and loan growth has been hiring the right people. We have been very fortunate, especially
in our newer markets, to be able to attract some good talent primarily from the larger
banks. These are both commercial lenders and also people whose specialty is generating
deposits. A lot of it goes back to the people that we are able to hire and how successful
they have been at capitalizing on the opportunities that the big banks have provided us to
take market share away. We have benefited in the second half of the year from the increase
in interest rates. Our asset sensitivity on the balance sheet has allowed us to have an
expanding net interest margin in the second half of 2004 and that is something that we
think will continue into the first half of 2005; especially if the Fed continues to raise
CEOCFOinterviews: As the
right people are a focus for you, what do you look for in the people that are representing
Mr. Dee: "I think the most important thing for us is
someone who has the attitude of wanting to provide good customer service. Also someone who
is looking for a way where we can balance the needs of our customers against the safe and
sound banking principles that allow us to survive year-in and year-out. Our asset quality
has gradually improved over the past few years, so we have been able to grow our loan
portfolio substantially and yet not compromise the quality of it. On the deposit side, I
think our people are somewhat unique in that they look for ways to help the customer and
identify ways that the customer can utilize our systems for the maximum benefit of the
customer. We price our services so that we are adequately compensated for the services
that we provide. It is very important to us that if we are going to keep our customers
over a long period of time, that we help them realize how they can utilize our systems to
their advantage in most cases."
do you do going into a new market that gets you the customer, and do you need to change
the strategy at all as you have a continued presence?
Mr. Dee: "I think going into Colorado and Utah we were
very much an unknown quantity in the local communities. One of the things that we did was
to get involved in the communities in ways that are highly visible and also send the
message that we are an active partner in helping those communities develop. In some cases
that can be through supporting non-profit organizations or sponsoring events that may help
promote a healthy business environment in those communities. Also to make people aware
that we are there and we want to help the community and the people within that community.
I think our biggest success has come in doing side-by-side comparisons with other banks in
terms of the services that we can provide and the associated costs of those services. When
we get customers coming over to us that can see what we deliver, the word-of-mouth that
they spread throughout the community is probably the most effective means of advertising.
It is instantly credible in the market place when you have a customer that banks with you
telling their friends and business associates that the people at First State Bank or First
Community Bank have done a good job in providing the services that they expected at a
reasonable rate. Over time, I think our focus doesnt really change very much. We
still want to provide top-notch customer service as the starting point and then continue
to grow with our customers and make sure that we are helping them take advantage of the
capabilities that our systems have and not just letting them stagnate on their own without
any assistance from us."
does top-notch service mean at First State?
Mr. Dee: "On the lending side, the biggest difference is
that we can respond much more quickly to customers requests and offer them
alternatives as opposed to a simple yes or no on a loan request. All too often we hear
that other banks, because they have a loan committee that meets once a month out of state,
or something like that, just cant provide a timely response to some very urgent
lending needs that a customer might have. I think we have a big advantage there and we
want to continue to maintain that. On the deposit servicing side, I think the biggest
difference is that we try to be proactive in helping our customers utilize our services to
their full effectiveness. That makes for a happy customer that is going to tell their
associates about us and that we expect to keep for a long time."
CEOCFOinterviews: How do
you manage keeping up with the diverse locations?
Mr. Dee: "The key in our three states is that we have a
large base of really top-notch management people who are able to take us forward. As we
have become larger, we have gathered a much larger talent pool in terms of the management
of the company. At this point, New Mexico continues to grow steadily. It is much more
profitable than Colorado is right now. I think we have seen that our momentum in New
Mexico is continuing at a steady pace but there are still many opportunities for growth.
We have a less than six percent market share statewide and we are in the larger markets in
the state. We think we can continue to steal market share from the big banks in New Mexico
and improve our performance as Colorado and Utah start to come up to speed. From a
management standpoint, the key is having the right people in the right place, allowing
them to do their jobs, and giving them whatever support they need as we go forward."
there products that you are not offering that you would like to?
Mr. Dee: "We are always looking for opportunities to
upgrade on the technical side of the business, which seems to be evolving very quickly;
particularly relative to Check 21. We are looking at ways to assist our commercial
customers in getting better availability of funds through electronically making deposits
as opposed to having to come into the bank. The basic banking products probably do not
change that much year-in and year-out, but how customers access those products in terms of
convenience and speed, has changed tremendously. We try to stay abreast of that and
respond to our customers needs as we go forward, primarily to maintain our
competitive positioning relative to the larger banks. When it comes to technology, in some
ways we are small enough that we can respond to some of those changes more quickly than
many of the larger banks can. We simply do not have the broad geography and the variety of
systems in different locations to try to implement new technology into. In many cases it
is easier for us to get something developed and marketed to our customers more quickly
than the larger banks are able to."
you describe your typical commercial customer, and are they doing personal banking with
you as well?
Mr. Dee: "Our typical commercial customer is what we
characterize as a small to medium sized business, which could be anything probably up to
$100 million in annual sales. That is a wide range. We do an effective job of banking the
very small mom-and-pop type businesses as well as the corporate entities that require
state-of-the-art cash management products. We cover a wide variety of businesses in that
respect. Probably the only market that we dont attempt to compete with are the very
large companies that have a nationwide presence or perhaps lending needs that go beyond
the $30 million plus that we have as a legal lending limit. In New Mexico, that limits us
almost not at all in terms of the potential market. In Colorado, since it is a larger
market and there are larger companies there, we try to attract customers that fall below
the size of the very large ones that the big banks compete so aggressively for. That is
where we concentrate our efforts and where we have found, up to this point, that there are
tremendous possibilities in terms of us gaining market share. In the vast majority of
cases, the owners of commercial customers bank with us also."
is ahead for First State?
Mr. Dee: "In the near term, we want to develop our
presence in Colorado and Utah, because we still have a very small market share in those
states. In some respects, we are almost like a de novo bank in those areas. Even though we
made an acquisition to get into these markets, we had to make changes to the industrial
bank that we acquired, to convert it to a commercial bank. It was almost like starting
from scratch. Colorado is a very rapidly rebounding economy; one that went through some
difficult times the past several years but is now showing some good job growth and also
steady population growth. The turnaround in the jobs picture there is really the key to
long-term health in Colorado. We want to continue to grow in New Mexico and we think we
have the right people and facilities in place to do that. In Colorado and Utah we have
hired some additional commercial lenders and mortgage bankers that we think will help us
develop a presence there that will be significant over a longer period of time. Long term,
we believe that the state of Arizona may hold some possibilities for us. Arizona is
similar to New Mexico, Colorado and Utah in that it shows very positive job growth numbers
with good population growth. Also we believe, because of the domination of the large
banks, primarily in the Phoenix and Tucson markets, Arizona will hold some opportunities
for us. We are just beginning to take a look at those possibilities."
CEOCFOinterviews: Do you
see new branches in those areas in the future?
Mr. Dee: "We believe we will continue to add new
branches in select locations. We recently closed one of the industrial bank branches in
Lakewood, Colorado and we are working very hard to tie down a site for a new location
there. We are also always looking for opportunities in New Mexico. Eventually, once we get
more volume of business built up in Colorado, we will probably add more branches in
Colorado than we will in New Mexico. Right now, we are still concentrating on getting
those branches that we have a little more up to speed before we expand further. Putting up
a new branch is something where you really have to set that process in motion two to three
years in advance of when you want to open the doors, so we have started that process
are the challenges going forward?
Mr. Dee: "I think the challenges for us are continuing
to sustain our growth by hiring good people and giving them the systems to service the
customer. We also need to keep up with the technology requirements of our customers and in
doing so, make the bank more efficient. I think we are well positioned with all the
changes that we have made the past few years. Those changes had an impact on our
bottom-line and reduced some of our performance numbers. On the surface, if you look at
2004 as a whole, you would say our performance numbers are mediocre. But what that
doesnt tell you is that if you look at the second half of 2004, and the momentum
that we have carrying us forward, that the future is indeed very bright for us. We have
sustained excellent core deposit and loan growth over a period of time in New Mexico. We
are starting to see the same trends in Colorado, which is a much larger market with even
more potential that what New Mexico has. We believe we have a relatively simple
methodology by going after customers that we know we can bank profitably and providing a
good return for our shareholders."
have declared a two-for-one stock split and increased your dividend; will you tell us more
Mr. Dee: "We decided to do the stock split for a couple
of reasons; first, we are always looking for ways to increase the float and liquidity in
our stock. Our stock price has increased steadily over the past three years to a point
where we felt that a stock split was appropriate. We believe that over a period of time
that the shares issued in the split will help increase the activity in our stock. Also,
concurrent with that, we increased our cash dividend. We wanted to send the message that
although our earnings were flat, in terms of earnings per share from 2003 to 2004, that we
have enough confidence in our future results to be able to go ahead and increase the cash
dividend at this point. We wanted to send the message to the market that we have turned
the corner in terms of what we think our future performance is going to hold and we wanted
to reward our shareholders accordingly."
closing, is there anything else investors should know about First State?
Mr. Dee: "I think the biggest thing is that we have been
and will continue to be opportunistic in terms of developing this company. We went public
a little over eleven years ago. We only had a little inkling of how the banking landscape
was going to change. One of the keys of our success has been that we are not locked into a
particular path of taking the company forward. We adjust to the opportunities that are
there and try to capitalize on those that present themselves along the way. Not everything
we have done has succeeded but the majority of the decisions that we have made have proven
to be very rewarding to our shareholders. If someone invested in our stock in the IPO and
held that stock to the end of 2004, they would have a compound annual rate of return,
including dividends, of about 18.5%. I think our long-term focus is probably one of the
things that has served us best over the years that we have been a public company.
Sometimes we do some things in the short-run that may have a slightly negative impact on
earnings, but ultimately we are doing the things that will reward our shareholders over a
period of time in a manner where they will be very satisfied."
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