Under regulatory pressure to raise capital, First State Bancorp. in Albuquerque is selling its Colorado branches to Great Western Bank in Watertown, S.D.

The $3.4 billion-asset First State, which has been suffering from losses on its construction lending, has 20 branches in Colorado.

It expects to record a pretax gain of about $16 million after expenses related to the sale.

The deal calls for Great Western, a unit of National Australia Bank Ltd., to take $444 million of loans, $477 million of deposits, and $19 million of buildings and equipment, First State said. The $4.3 billion-asset Great Western would pay a deposit premium of approximately $28 million.

About $210 million of loans from the Colorado branches, mostly construction loans, would be retained by First State.

Michael R. Stanford, First State's president and chief executive, said in a press release Wednesday that the sale would enable his company to achieve the elevated capital levels that regulators imposed.

Its First Community Bank had a total risk-based capital ratio of 10.33% at yearend, but a regulatory agreement requires it to boost that ratio to at least 12%.

Stanford said First State plans to intensify its focus on its home state, where it has 36 of its remaining 40 branches. (The other four are in Arizona.)

He said New Mexico has significant growth potential and continues to benefit from lower unemployment than the nation overall.

First State also announced Wednesday that it had withdrawn an application to participate in the Treasury Department's Troubled Asset Relief Program, because of uncertainty about the terms and other factors.

The branch deal is expected to close this summer. It would raise Great Western's branch count to 124 across seven states.

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