PUB 20 ISSUE 3 NEW MEXICO PUBLISHED BY NEW MEXICO BANKERS ASSOCIATION, FOUNDED IN 1906 PHOTO BY: JIM RENFROW Welcome 2023-2024 NMBA President Mark Horn A Man of Dedication and Commitment Page 6 Welcome To Yellowstone! An Annual Convention Update — By John W. Anderson Page 8 Labor Strikes and What They Represent in the Economy — By Mark Anderson Page 12
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OVER A CENTURY: BUILDING BETTER BANKS — HELPING NEW MEXICO REALIZE DREAMS The mission of the New Mexico Bankers Association (NMBA) is to serve member bank needs by acting as New Mexico banking’s representative to government, the public and the industry; providing resources, education and information to enhance the opportunities for success in banking; promoting unity within the industry on common issues; and seeking to improve the regulatory climate to the end that banks can profitably compete in the providing of financial and related products and services. ©2023 The New Mexico Bankers Association (NMBA) | The newsLINK Group, LLC. All rights reserved. The New Mexico Bankers Digest is published four times each year by The newsLINK Group, LLC for NMBA and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the NMBA, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The New Mexico Bankers Digest is a collective work, and as such, some articles are submitted by authors who are independent of NMBA. While the New Mexico Bankers Digest encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at 855.747.4003. 6 WELCOME 2023-2024 NMBA PRESIDENT MARK HORN A MAN OF DEDICATION AND COMMITMENT EXECUTIVE VICE PRESIDENT’S MESSAGE 8 WELCOME TO YELLOWSTONE! AN ANNUAL CONVENTION UPDATE By John W. Anderson, Executive Vice President, New Mexico Bankers Association WASHINGTON UPDATE 10 ADVOCATING FOR ACRE: HOW CONGRESS CAN HELP RURAL AMERICA By Rob Nichols, President and CEO, American Bankers Association 12 LABOR STRIKES AND WHAT THEY REPRESENT IN THE ECONOMY By Mark Anderson, NMBA Legal and Legislative Assistant 15 IS IT TIME TO HEDGE INTEREST RATE RISK WITH A FORWARD RATE LOCK? By Jay Kenney, SVP & Southwest Regional Manager, PCBB 18 NEW MEXICO MORTGAGE FINANCE AUTHORITY’S RESTORING OUR COMMUNITIES PROGRAM: HELPING TO RESTORE VACANT HOUSES AND PROVIDE AFFORDABLE HOUSING OPPORTUNITIES By Kristie Garcia, New Mexico Mortgage Finance Authority 20 STAYING VIGILANT: HOW TO PROTECT YOUR CUSTOMERS AND YOUR INSTITUTION FROM FRAUD IN UNCERTAIN TIMES By OnCourse Learning 22 111TH NMBA ANNUAL CONVENTION RECAP! 25 BANK NEWS 26 IN MEMORIAM Our Mission Contents President Mark Horn Pinnacle Bank 107 E. Aztec Ave. Gallup, NM 87301 President-Elect Kyle Beasley Bank of Albuquerque 100 Sun Ave., NE, Suite 500 Albuquerque, NM 87109 Secretary Treasurer Elizabeth Earls U.S. Bank, NA 1900 Jefferson, NE Albuquerque, NM 87109 Immediate Past President David Hockmuth Wells Fargo Bank, NA 200 Lomas, NW Albuquerque, NM 87102 TERMS EXPIRING 2024 Paul Mondragon Bank of America, NA 4401 Central Ave., NE Albuquerque, NM 87108 Jay Jenkins CNB Bank PO Box 1359 Carlsbad, NM 88220 Jason Wyatt Western Commerce Bank 212 North Canal St. Carlsbad, NM 88220 TERMS EXPIRING 2025 Scott Czarniak First National 1870 7300 Jefferson St., NE Albuquerque, NM 87109 Aaron Emmert Pioneer Bank 3000 N. Main St. Roswell, NM 88201 Kamal Ali PNC Bank 2494 Louisiana Blvd., NE Albuquerque, NM 87110 TERMS EXPIRING 2026 Renanah Taylor Bank of Montreal 303 Roma St. NW, Suite 100 Albuquerque, NM 87102 J. Chesley Steel Southwest Capital Bank 1410 Central Ave., SW Albuquerque, NM 87104 Max Myers Century Bank 100 South Federal Pl. Santa Fe, NM 87501 2023-2024 NMBA Board of Directors 4
How did you get started in banking? Like many of my peers, my journey into banking began unintentionally. I was raised in a tight-knit town of roughly 1,500 residents, where I developed a passion for the unique charm and intimacy only found in small-town life. As many young folks do, I left for college, initially pursuing business studies which eventually narrowed down to economics and finance. During my college breaks, I would return home to work at a local car dealership, changing oil and washing cars. These trips made it clear that, while I enjoyed being away, one day, I would either return home or plant my own roots in another similarly close community. While my boss appreciated my hard work at the dealership, he encouraged me to apply myself in new ways, seeking opportunities more aligned with my studies. Heeding his advice, I secured an internship the subsequent summer with Bank of Colorado/Pinnacle Bank, conveniently WELCOME 2023-2024 NMBA PRESIDENT MARK HORN A Man of Dedication and Commitment situated close to my hometown. This internship paved the way for a full-time position upon my graduation. Fast forward to today, I’m raising my family in our amazing community, and I’m celebrating 23 years of service with Pinnacle Bank. What are some of the best parts of being a banker in rural New Mexico? Banking in rural New Mexico presents a plethora of positives, but what stands out most prominently to me are the community ties and enduring relationships you don’t find everywhere. These small towns, despite their unparalleled charm, grapple with challenges and greatly benefit from active participation by their residents. Through banking, not only are we provided with a means to raise our families, but we also find avenues to invest back into the community. By dedicating our time, offering sponsorships and making donations, we have the privilege of making tangible impacts that make our community a better place. The deep connections we establish with individuals and businesses along the way are not only rewarding but truly fulfilling. What changes do you foresee in the banking industry and in New Mexico in the next five years? Banking is in a constant state of evolution. Technology changes the way we interact with customers, and we will continue to adapt to those changing behaviors and expectations. Regulations and oversight also can be catalysts for change. While New Mexico traditionally embraces change at a more measured pace, we in the banking sphere must be proactive, ensuring that the state keeps pace with broader industry transformations. Passive expectations won’t suffice; it’s crucial that we all actively steer growth in every facet, shaping 6
Through banking, not only are we provided with a means to raise our families, but we also find avenues to invest back into the community. the change we wish to see in our state and always making sure each change enhances our community and the services we provide. What advice do you have for young bankers? To a young banker, I would offer the same advice that was given to me by my mentors: 1. Take the job that provides you with the most experience in the least amount of time. Banking has so many different facets, so seek jobs that expose you to diversified experiences early and often. 2. Be willing to say yes! Say yes to the job that takes you to a town you’ve never heard of. Don’t get caught up in fancy job descriptions, as a career in banking is always changing. Say yes to doing hard work and taking on responsibilities; you’ll quickly learn about the banking industry and, hopefully, about yourself. Please tell us about your family. My wife, Tiffany, who grew up in Gallup, is a loving partner and is my most important colleague. She is an inspiration to our whole family in all she does. We have made our home together in Gallup for the past 10 years with our two children, a senior daughter in high school and a two-year-old son. We balance time with her family, who live locally, and with my family in Colorado. What are your interests outside of banking? What do you like to do for fun? Outside of banking, I enjoy spending time with friends and family and traveling when we can. I enjoy listening to music; my daughter and I take turns being confused by what we both consider to be good “music” these days. I also love cooking and trying new recipes, but I’m notorious around my house for burning the kale chips. After family time has been had, the chores are done and it’s time to turn in, I love reading any chance I can. What person or persons have had the greatest impact on you and your success as a banker? This is a difficult question to answer because so many have contributed to my personal growth and professional success. I owe my foundational values and character to my parents. They taught me that education is crucial and that it should be learned not only in school and books but through hard work and experience. This helped develop my unwavering work ethic and showed me the importance of gratitude. In my professional career, I’ve had the good fortune of having many different individuals contribute to my development in every phase of my path. Some I met as their banker who inspired me to be a better leader in our community, and others I’ve worked with or for that helped me develop into the banker I am today. 7
WELCOME TO YELLOWSTONE! AN ANNUAL CONVENTION UPDATE EXECUTIVE VICE PRESIDENT’S MESSAGE JOHN W. ANDERSON Executive Vice President New Mexico Bankers Association 8
The NMBA held its 111th Annual Convention at the beautiful Hyatt Regency Tamaya Resort on September 14-16. The event was a huge success! To get things rolling, we had a cocktail reception and vendor event at the Starlight Bowling Alley at the Santa Ana Resort and Casino. Ken Clayton, Western Bank Artesia, organized the event and put on an exhibition against former Artesia High School star bowler Will Davis. Ken won after bowling a 297 game, just three pins shy of a perfect game. Bankers, spouses, sponsors and vendors all bowled or cheered the teams on. It was a great event, with winners receiving cash prizes. NMBA Past President David Hockmuth opened the general session of the convention with a welcome and the introduction of our first speaker, Reilly White, Ph.D., Anderson School of Management. Professor White discussed the economic outlook for 2024, including insights into the macroeconomics and financial environment that banks can expect in 2024. He concluded with key trends, challenges and opportunities that will shape the banking sector, including changing economic circumstances, technology advances and costs and shifting customer expectations. Dale Dekker, a well-known businessman and respected architect, gave a rather impassioned plea for the business community to get involved in state and local politics. He pointed out that New Mexico ranks near the bottom in several categories, including crime and corrections, education, the economy, child well-being, health care, infrastructure, opportunity, percentage of persons living in poverty, income growth and population aged 25 and older with a high school diploma or higher. Frankly, with our abundance of natural resources and huge state budget surpluses, there is a real opportunity for the state to significantly improve. Political leaders must spend our resources wisely. Hugh Carney, Senior Vice President and Attorney with the ABA, addressed the post-Silicon Valley Bank regulatory response. He noted that the bank regulatory agencies have completed their postmortems on recent bank failures. While blame primarily lies with each bank’s failure to adequately manage risk, the regulators’ findings will drive supervisory and regulatory changes for all banks. He discussed regulatory changes for all banks. He discussed the regulatory treatment on unrealized losses, uninsured deposits and the condition of deposit insurance fund. Overall, he predicted that the Silicon Valley Bank failure will have a huge impact on banks and, in particular, in the examination and supervision arena. For our final dinner event, we were treated to a remarkable and timely guest speaker, Diane Branagan, a highly decorated animal trainer for film and television productions. As Jason Wyatt noted, “Everyone in the 100-plus-person audience was completely focused on her speech, not uttering a word while she spoke.” Her topic was “Everyone is teachable.” The following are some of the major tidbits she shared in her speech. At the beginning of Diane’s career, 29 years ago, she worked for a company that trained horses, camels, lions, tigers, dogs and cats. That was her introduction to handling animals on film and TV sets. She has been exposed to everything from primates to big cats. Her first film experience was on “Titanic,” where she trained dogs and rats. She still works with dogs and sometimes wolves, but she now primarily trains horses. Diane said she always keeps in mind that animals have different brains. They can’t talk to you, but they can certainly communicate. She uses the 1% rule: If you can just make it better by 1% each day, at the end of 100 days, you’re significantly better. If they just learn a little bit each day, then after three months of preparation, they’ll have something to present to the camera. That’s how she learns as well, in little increments. She said it’s about coming in to work every day, learning and pushing herself. And that’s what she does with the actors. She said that there are some actors who have never been around horses, and you can tell that they are fearful and that if a person is afraid of an animal, it reads on film. So, before filming a season of “Yellowstone,” for example, she does a cowboy camp, where she gets the actors working with the horses. She also stated that she would rather work with someone who knows nothing about horses than someone who went on trail rides in the fifth grade. She believes that it’s hard to unlearn bad habits, whereas if they come in with a clean canvas, she can teach them a lot. Diane also said that any horse trainer will tell you that you have to look where you’re going, not where you’ve been. She teaches that when horses are pulling a wagon, the driver really needs to look ahead on the road, so they can send the horses to that point. If the driver is looking directly down at the horses, there is no guidance for them. She equated it to driving a car while looking at the steering wheel instead of the road. Diane said that people eventually get it, hence her topic, “Everyone is teachable.” She tells the actors she works with, “What you find difficult today will be your warm-up tomorrow.” Thanks to all of our sponsors, exhibitors and bankers who participated in the 111th Annual Convention. Next year will be even better! And, finally, I want to thank our Past President, David Hockmuth, for providing the NMBA and me with a great year. David is a true professional. 9
ROB NICHOLS President and CEO American Bankers Association WASHINGTON UPDATE With your help, we can help remove one of the roadblocks standing in the way of the nation’s farmers and ranchers. ADVOCATING FOR ACRE: HOW CONGRESS CAN HELP RURAL AMERICA Farmers and ranchers today face numerous challenges: from the skyrocketing costs of materials to supply chain disruptions to difficulties purchasing rural land — all while interest rates are rising. As a result, many are relying more on credit than ever before. For those who are young, beginning or socially disadvantaged farmers, these obstacles can seem insurmountable — in fact, 69% of young farmers say that access to capital is a top challenge to beginning a career in farming. Fortunately, there is a simple solution that can help make credit more accessible to these agricultural borrowers: the bipartisan ACRE Act, a bill that ABA is aggressively championing in Congress. Formerly known as ECORA, this bill would amend the IRS code to level the playing field for banks — especially community banks — by allowing lenders to exclude from gross income any interest they receive on loans that are secured by farm real estate or aquaculture facilities. The bill also allows for the exclusion of interest on certain home mortgage loans in rural communities. Removing the taxation of interest will bring down the cost of making these loans, making them more affordable for farmers, ranchers and rural homeowners. In fact, ABA estimates that this important legislation could expand access to affordable agricultural and home loans to more than 4,000 rural communities across the U.S. and deliver approximately $1.4 billion in annual interest expense savings to farmers and ranchers in 2023 — savings that can make a crucial difference to the nation’s producers. This simple, commonsense solution does not require the creation of new government payments or programs — quite the opposite. It provides an avenue for increasing competition and generating growth in rural communities efficiently and organically. It also levels the playing field between all agricultural lenders, which will result in more choices and lower rates for rural borrowers. 10
ABA has been a vocal proponent of this bill, and we were pleased to see such a significant response from lawmakers in this Congress. The ACRE Act already has 20 bipartisan cosponsors in the House and has been introduced in the Senate by Sens. Jerry Moran (R-KS) and Angus King (I-ME). Lawmakers now have an opportunity to help sustain and grow rural America by sending this bill to President Biden’s desk. That’s why ABA is urging bankers and their customers to get in touch with their members of Congress and urge them to pass the bill. Bankers can contact their lawmakers easily through ABA’s grassroots platform, SecureAmericanOpportunity.com. The association has also prepared a toolkit, accessible at www.aba.com/ACREtoolkit, that provides an issue backgrounder, talking points and key points that bankers can use when explaining to lawmakers why this law is needed. Our nation needs a thriving agricultural sector. With your help, we can help remove one of the roadblocks standing in the way of the nation’s farmers and ranchers. Email Rob at nichols@aba.com. 11
There are two high-profile economic stories currently in the news that, on first observation, would seem to indicate completely contradictory realities. The first story is the continual championing of “Bidenomics” by President Joe Biden’s economic team, a catch-all term that is supposed to encapsulate the current success and vigor of the American economy. The second story is the continual occurrence of high-profile labor strikes this year, including UPS, the Writers and Actors Guilds and, perhaps most significantly, the United Auto Workers (UAW) Strike and Kaiser Permanente healthcare workers. This is certainly the most significant and wide-scale labor action in decades and directly flies in the face of many economic narratives presented by both Congress and the Presidency, no matter which party holds majority power at the time. One of the elephants in the room when talking about organized labor action is that, in America, there has been very little of it in the past 40+ years. The most common form of labor action that Americans are used to seeing is when professional sports leagues go on strike. When a high-profile league like MLB, the NBA or NFL goes on strike, the amount of money that individual participants in the fight make — much higher than the average American income — tends to skew the power dynamics for many people. When someone making $12 an hour sees a millionaire athlete fighting for increased pay, the tendency is to label the athlete as “spoiled” or “ungrateful.” But, that is an overly facile reading of the situation. Professional sports strikes are an extremely high-profile example of what labor can accomplish with leverage. Owners are forced to almost always give in because they realize the talent pool would continually weaken if there is a refusal to pay top-line labor its worth, thus creating a far inferior product and, ultimately, cutting into profit and harming the perception of the league. AND WHAT THEY REPRESENT IN THE ECONOMY By Mark Anderson, NMBA Legal and Legislative Assistant LABOR STRIKES 12
But professional sports leagues are an outlier in terms of American labor strikes. Professional athletes are able to come to the table with assets that individuals employed at other large corporations often don’t. Three of the most obvious factors in preventing wide-scale labor action are the gutting of organized labor, fear of retaliation and lack of any leverage over management, all of which do not apply to professional athletes. So, given the myriad factors systemically preventing organized labor action in America, it says that workers are getting increasingly desperate, fearless and unwilling to believe what management promises them. Labor strikes for normal workers, as those who participate in them often say, are not enjoyable but a move of last resort when relations with management become completely untenable. There is a lot of pain associated with labor strikes for workers, so it is a profound indictment of the current economy that we are seeing them pop up at a rate thought inconceivable in recent decades. It’s also worth noting that a low unemployment rate gives workers more freedom to strike as well, as there is not as much fear that one will not be able to find employment when losing a job, particularly a low-wage one. These simultaneous labor strikes indicate that the American economy is being stretched to its outer limits based on its current structure. As the “Bidenomics” pitch from the White House indicates, traditional top-line indicators such as unemployment, the stock market, year-to-year inflation, GDP and consumer spending are looking strong. However, President Biden’s own comments and support for the striking autoworkers indicate that even he understands that something is amiss despite the strong top-line numbers. Biden, in his comments regarding the commencement of the UAW strike, indicated that the record profits auto manufacturers have seen in recent years must be adequately shared with the workforce. He even marched on the picket line with the autoworkers and spoke to them, encouraging them in their fight. This is a sign that, even in the upper echelons of D.C., where worker power is typically scoffed at, there is an understanding that public sentiment is largely with the striking workers right now. We’re at a tipping point in American history where corporate power has become so overwhelming that even some of its past loyal custodians are looking for ways to rein it in. When looking at all of the recent labor actions as a whole, common threads emerge. Wildly successful companies have seemingly created a separate cottage industry in the form of stock buybacks and, crucially, have increasingly wedded executive compensation to the stock price. A stock buyback is one of the principal ways a company can use its cash, including investing in its operations, paying off debt or paying out dividends to investors. Crucially, with a buyback, the company can increase earnings per share, all else being equal. When pursued enough over time, buybacks can elevate investors’ returns significantly. They’re also a more tax-efficient way to return the earnings of the business to shareholders, as opposed to dividends, which are taxable. While stock buybacks can juice returns for shareholders, they can also starve a company of money needed in other areas, such as research and development or investment in new products and facilities. Notably, in the past 12 months, the Big Three automakers (General Motors, Ford and Stellantis) have authorized $5 billion in stock buybacks and reported $21 billion in profits in the first six months of 2023. In the negotiations with the automakers, the UAW specifically targeted stock buybacks as providing a major obstacle in companies spending more on their workers. “Our union has also proposed an enhanced profit-sharing formula that would provide workers $2 for every $1 million spent by Ford on stock buybacks, special dividends and increases to normal dividends,” said UAW President Shawn Fain. “Ford has responded with a concessionary proposal that would change the profit-sharing formula so that workers would actually earn less.” Aside from stock buybacks, another component that has contributed to the current corporate environment is tying CEO pay to stock performance. According to a 2021 research report by the Economic Policy Institute, “Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay and because so much of their pay (more than 80%) is stock-related, not because they are increasing their productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of the top 13
We’re at a tipping point in American history where corporate power has become so overwhelming that even some of its past loyal custodians are looking for ways to rein it in. There have been multiple major strikes across completely disparate industries (UPS, The Writers Guild, The Screen Actors Guild, UAW and Kaiser Permanente) because companies have not been investing enough in their infrastructure and workforce. It’s no longer sustainable, and the momentum is currently behind the American worker. That could obviously change because corporate power has a multitude of ways of fighting back. But we’re currently in a moment where the American public realizes that labor needs more power in order to sustain the kind of country most of us want to live in. For instance, the United Auto Workers took a major haircut in 2008, and they recognize that this is a moment, with public sentiment on the side of workers, to strike for a better deal. Both UPS and the Writers Guild have shown how much labor can extract from management when they are organized and have a coherent, well-reasoned and researched set of demands. No, labor shouldn’t expect miracles, but fighting for fair treatment is something that is currently being instilled in millions of Americans. It’s an encouraging sign because, for decades, too many Americans were not aware of unfair or unjust labor practices and, in the year 2023, that is clearly changing. I think most people can agree that this is an extremely positive development. 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or were taxed more). Stock-related components of CEO compensation constitute a large and increasing share of total compensation; realized stock awards and stock options were 73.1% of total compensation in 2016 ($12.6 million out of $17.2 million) and were 83.1% of total compensation ($20.1 million out of $24.2 million) in our sample for 2020. The growth of these stock-related components from 2016 to 2020 was the sole reason total CEO realized compensation grew by $7.0 million from $17.2 million to $24.2 million, up 40.5%. Of the stock-related components of compensation, stock awards make up a growing share while the share of stock options in CEO compensation packages has decreased over time.” As the study indicates, corporations have increasingly tied CEO pay to stock performance. However, as has been proven time and time again, stock performance often doesn’t reflect the health of a company or its workforce. For instance, a company can lay off a large part of its workforce and the stock price will often go up. Or a company can gut some of its key infrastructure and the stock price may improve under the guise of efficiency. A 1982 SEC ruling drastically changed the complexion of our economy and we’re still seeing the fallout today. As an article from Vox discusses, “After the stock market crash of 1929 and the Great Depression, the United States government passed the Securities Act of 1933 and the Securities Exchange Act of 1934 to try to prevent it from happening again. The 1934 legislation didn’t bar stock buybacks, per se, but it barred companies from doing anything to manipulate their stock prices. Companies knew that if they did a stock buyback, it could open them up to accusations from the Securities and Exchange Commission of trying to manipulate their stock price, so most just didn’t. Reagan appointed John Shad to head the SEC in 1981. A former vice chair of a major Wall Street securities firm, Shad was the first financial executive to head the agency in 50 years, and it showed. In 1982, the SEC adopted rule 10b-18, which provides a ‘safe harbor’ for companies in stock buybacks. As long as companies stick to specific parameters — such as not buying more than 25% of the stock’s average daily trading volume in a single day — they won’t be dinged for stock manipulation. Companies have spent trillions of dollars on their shareholders since the 1980s. Over the last 15 years, firms have spent an estimated 94% of corporate profits on buybacks and dividends. Stock buybacks and dividends aren’t necessarily a bad thing; they’re a way for shareholders to reap the rewards of a company’s success. But shareholder primacy, in which corporate boards prioritize maximizing profits and returns to shareholders above all else, has been on the rise since the 1980s — along with a focus on short-term profits instead of long-term stability and success.” 14
In the current interest rate environment, hedging is proving to be a particularly useful tool to secure the interests of both banks and borrowers: the forward rate lock (FRL) hedge. PCBB’s SVP of Hedging Solutions, Femi Audifferen, explains why now might be a good time for community banks to get started with this lending solution for new and existing loans. What is a Forward Rate Lock Hedge? A forward rate lock is an agreement between a borrower and a financial institution to set a fixed rate for future financing. While the FRL eliminates the risk of the borrower’s rate changing before financing begins, the hedge component (a forward rate swap) also ensures the institution’s loan pricing spread is preserved. FRLs are most often used to fix rates on permanent financing following construction and to fix future rates on existing resettable loans. These strategies are particularly useful when the yield curve is inverted or when rates have risen — both of these conditions currently exist. The forward swap rate for an FRL is calculated the same way a standard swap rate would be — averaging the projected rates of a specific pricing index (usually SOFR or the fed funds rate) over a specified term. The fundamental difference is that an FRL rate is calculated based on projected rates from a future date, which could be up to several years in the future. Why Now? The Federal Reserve has expressed a commitment to continue its tight monetary policy until inflation is brought down to its 2% target and has stated that rates will likely be higher for longer. Bond market activity currently suggests the situation will play out differently. The alternative view is that economic weakness from tight monetary policy will force the Fed to deviate from its current policy path sooner rather than later, meaning the Fed will cut rates by the end of this year or early in 2024. According to Audifferen, while the Federal Reserve continues to emphasize rates will be higher for longer, the currently divergent market expectations bring about an opportunity for borrowers seeking the security of a fixed-rate loan. Since the bond market is projecting rates to fall, forward starting swaps are currently at a discount to standard spot rates. “In a normal upward-sloping yield curve environment, rates are higher the longer the term of the loan and the further out the start date of the loan,” Audifferen explains. This current disconnect between market and Fed projections is reflected in an inverted yield curve, where variable-rate loans (based on short-term indices) pay more than longer-term fixed-rate loans. The market is ripe for borrowers to take advantage of this irregular trend. Of course, the inverted yield curve opportunity isn’t the only upside of entering an FRL agreement. Here are three primary benefits to both FRL borrowers and the issuing financial institution: 1. Eliminating future rate uncertainty for borrowers and banks. Banks typically mitigate their interest rate risk from longer-term loans by adjusting the fixed rate every 5Ys, but with rates higher by 450bp in the last 16 months, these resets are creating significant credit risk for banks and market risk for their borrowers. Using an FRL, the borrower sets their rate today, but it’s not effective until the loan’s repricing date. This solution gives the borrower time to prepare (cut costs, increase rents, etc.) for the higher debt service. Regulators will like the fact that banks have a strategy in place to manage their reset risk. 2. Protecting institutions and borrowers from credit stress due to higher reset rates. Although most institutions conduct stress testing on their loan portfolios, the magnitude of rate hikes we have witnessed over the last year is such that some loans may be approaching debt service covenant limits or at least create credit stress for both the institution and the borrower. “By fixing the rate with a forward rate lock before rates go up further, the institution is able to reduce credit stress for its customer and itself. Regardless of what happens to rates in the next 12-24 months, the borrower is guaranteed a fixed rate they can budget around,” says Audifferen. Keeping credit stress in check is critical for the lender to maintain a healthy portfolio, so offering an FRL to your borrowers can help you reach your goal on this front. IS IT TIME TO HEDGE INTEREST RATE RISK WITH A FORWARD RATE LOCK? By Jay Kenney, SVP and Southwest Regional Manager, PCBB 15
Let’s honor yours. HONORING FAMILIES HTRUST.COM ∙ 575.758.7700 ∙ Offices in Taos, Santa Fe & Albuquerque A state-chartered, locally-owned, independent trust company 3. Protecting your institution from Net Interest Margin (NIM) compression. In recent years, when interest rates were low, cost of funding wasn’t a significant issue for banks. As rates have risen rapidly and more than expected, financial institutions have needed to increase the rate on their deposits to avoid losing customers to more competitive offers. As such, the substantially higher cost of funds has compressed NIM. Without hedging, institutions have to wait for the reset period (e.g. 5Y reset on a 10Y term loan) to reprice their loans, while paying higher rates on their deposits in the meantime. This is where the FRL comes in to help reduce that risk. “With forward rate locks, financial institutions can essentially convert from conventional 5Y repricing loans, at their next reset, to one that resets every month,” explains Audifferen. “So as rates go up, deposit costs increase, but they are matched by rising interest income on the loan, with the borrower still benefiting from the fixed rate.” Banks also generate additional fee income from the swap with the refinancing. Your bank may be hesitant to offer hedging solutions primarily due to complexities related to derivatives, but there are options to outsource the hedging function when working with a correspondent bank. PCBB’s Borrower’s Loan Protection® uniquely eliminates the need for you to handle the derivatives associated with an FRL. “So, from the institution’s perspective, they handle the loan, while PCBB handles every other aspect associated with the swap,” Audifferen explains. “We carry the swap on our books and handle all of the operational, collateral, and regulatory requirements. Essentially, the financial institution is able to provide its customer with the fixed-rate term they want, while carrying a floating rate on their books, without engaging directly with a derivative.” With its many benefits, from helping ease credit stress to protection against NIM compression, an FRL is a unique solution that’s a great option for your borrowers as well. Thanks to their ability to protect the borrower against future rate uncertainty without exposing the bank to interest rate risk, an FRL agreement can be a win-win for everyone. To continue this discussion or for more information, please contact Jay Kenney. Jay Kenney SVP and Southwest Regional Manager for PCBB pcbb.com | jkenney@pcbb.com Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management, international services, lending solutions and risk management advisory services. Recognized by American Banker as one of the “Best Banks to Work For” in 2022. 16
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We’ve all seen vacant and abandoned houses in our neighborhoods, downtown areas and throughout our communities. We also know that many New Mexicans are in need of affordable, quality homes. The New Mexico Mortgage Finance Authority (MFA) is working to simultaneously address these issues through its new Restoring Our Communities (ROC) Program. MFA launched the ROC Program on September 1, 2023, to help meet New Mexico’s need for affordable housing units while assisting communities in reducing vacant and abandoned houses that decrease property values. Homeowners within close proximity to abandoned homes can pay higher insurance premiums as well. “By implementing this much-needed program, our goal is to help our fellow New Mexicans get into affordable homes while, at the same time, improve and strengthen communities by eliminating houses that are vacant or have been abandoned,” said Isidoro Hernandez, MFA Executive Director/CEO. The ROC program provides funding to approved service providers for the acquisition, rehabilitation and resale of single-family homes, with a goal of increasing homeownership opportunities for low-moderate- and middle-income households. The program objectives are to: 1. Provide funding for the acquisition and rehabilitation of vacant or abandoned houses to increase affordable housing units in New Mexico. 2. Create and preserve affordable housing and provide affordable housing opportunities for low-moderate- and middle-income homebuyers. While individual homebuyers are not eligible to apply for ROC Program funding, MFA will work with eligible agencies to administer the program under applicable program guidelines. MFA allocated $4 million in funding from the New Mexico Housing Trust Fund to the ROC program. The Notice of Funding Availability (NOFA) for fiscal year 2023 opened on September 1, and the $4 million will be awarded to qualified service providers on a first-come, first-serve basis for qualifying projects. The NOFA will remain open as long as there are available funds. Applications and forms may be downloaded from MFA’s website by scanning the QR code. https://housingnm.org/resources/2023restoring-our-communities-program Eligible applicants may be located in any geographic area within the State of New Mexico and include, but are not limited to: • Public and private non-profit organizations • For-profit organizations • Governmental housing agencies • Authorities, entities or instrumentalities • Regional housing authorities • Public housing authority • Tribal governments • Tribal housing agencies or housing authorities • Developers • Builders • Corporations • Limited liability companies • Partnerships • Joint ventures • Syndicates, associations or other entities that can assume contractual liability and legal responsibility through the execution of a performance agreement and/or other written agreements with MFA NEW MEXICO MORTGAGE FINANCE AUTHORITY’S RESTORING OUR COMMUNITIES PROGRAM HELPING TO RESTORE VACANT HOUSES AND PROVIDE AFFORDABLE HOUSING OPPORTUNITIES By Kristie Garcia, New Mexico Mortgage Finance Authority 18
Service providers who apply for project funding will be scored on their financial strengths, experience in acquisition, rehabilitation and sale of real property, implementation plan and readiness to proceed. They must have a marketing plan in place, including working with lenders and real estate sales agents, to advertise and sell to the targeted homebuyers once the home rehabilitation is completed. “We look forward to working with qualified service providers that will continue to create affordable housing opportunities for New Mexicans,” said Theresa Laredo-Garcia, MFA Program Development Manager. “Communities are stronger when homeowners take pride in their neighborhoods, and that starts with eliminating vacant houses in the community.” Low-moderate- and middle-income households or individuals are qualified beneficiaries of the ROC Program. The maximum limit for middle-income households is 150% area median income. For example, in Valencia County, 150% of the area median income for a family of four is $119,850. If you have any questions about the ROC Program, please contact Theresa Laredo-Garcia at tgarcia@housingnm.org or (505) 767-2244. The New Mexico Mortgage Finance Authority (MFA) launched its new Restoring Our Communities Program (ROC) on September 1, 2023, to help meet New Mexico’s need for affordable housing units while assisting communities in reducing vacant and abandoned houses that decrease property values. MFA allocated $4 million in funding from the New Mexico Housing Trust Fund to the ROC Program. This before-and-after photo is an example of a previous home restoration project made possible by MFA. (Photos courtesy Homewise and Google Earth) 19
STAYING VIGILANT: HOW TO PROTECT YOUR CUSTOMERS AND YOUR INSTITUTION FROM FRAUD IN UNCERTAIN TIMES By OnCourse Learning Fraudsters are known to prey on victims when they are facing uncertainty, distress and anxiety. The current times are no different, as several recent bank failures and financial instability have left consumers feeling vulnerable about their personal and business finances. This heightened concern has created an environment where they may be more susceptible to being taken advantage of or making hasty decisions. Fraudsters are using typical phishing, social engineering and malware tactics but with a fresh spin to exploit this uncertainty. Three Most Common Types of Financial Fraud 1. Phishing scams involve fraudulent emails or messages that appear to be from legitimate financial institutions. These messages often contain links to fake websites that resemble actual sites but are designed to steal login credentials and other sensitive information. 2. Social engineering involves manipulating people into providing personal or financial information using techniques such as pretexting, baiting and quid pro quo. These methods involve creating false identities or offering something of value in exchange for personal information. 3. Malware and malicious software are used to gain access to personal information. These can be downloaded onto a computer through email attachments or links in messages and, once installed, can be used to steal passwords and account numbers. With advances in artificial intelligence and the use of bots, it’s going to be harder to detect fraud. Institutions and customers will need to work together to keep each other and their assets protected. Ways to Prevent Financial Fraud There are several steps financial institutions can implement to combat these threats and help protect their customers, as well as their organization. These start at the institution level. Employee Training: Banks and credit staff are at the front of the fight. They must be fully trained in risk management. Staying in compliance will protect the clients and the institution. 20
Educate Customers: Banks and credit unions should provide regular education to their customers on how to identify and prevent fraud. This includes advising them to keep their personal and financial information safe and secure, to monitor their account transactions regularly and to report any suspicious activity immediately. Implement Strong Authentication Measures: Financial institutions should implement multi-factor authentication for their online and mobile banking services to ensure that only authorized users can access their accounts. Monitor Transactions: Banks and credit unions should closely monitor customer transactions for any unusual activity or signs of bank fraud. This can be done using automated fraud detection systems that can identify patterns and anomalies in customer behavior. Secure Sensitive Information: Financial institutions should ensure that sensitive information such as customer data and login credentials are securely stored and transmitted using encryption and other security measures. Stay Up-to-Date With Fraud Trends: Banks and credit unions should stay abreast of the latest fraud trends and tactics used by fraudsters to stay ahead of potential threats. These include identity theft, cybersecurity and account takeovers. Have a Response Plan in Place: Banks and credit unions should have a comprehensive response plan in place that outlines the steps to be taken in case of a suspected fraud incident. This should include notifying customers, law enforcement and regulatory authorities if necessary. It’s important to encourage customers and members to maintain heightened vigilance. Remind them to always contact their trusted financial institution if they are unsure if a communication is legitimate and to be wary of providing personal information online. Consumers should also regularly check their accounts for unauthorized transactions and monitor their credit reports for signs of identity theft. By being vigilant and taking steps to protect themselves, customers and members can help protect your institution and maintain consumer trust. Years ago, simply having a good firewall was all a financial institution needed to stop most fraud. With advances in technology, there have been advances in crimes as well. Financial institutions must do more to protect their customers and themselves. The rise of cloud-based banking has led to more sophisticated attacks. Fraud prevention starts at the institutional level, but its effects are felt at every level. By utilizing these resources and staying up-to-date on the latest fraud prevention techniques, financial institutions can better protect their customers from fraud and ensure the security of their organization. To learn more, please visit www.oncourselearning.com. 21
NMBA 111th Annual Convention Recap! Speaker Diane Branagan Butch Mathews, John Anderson and Liz Earls Outgoing NMBA President David Hockmuth and EVP John Anderson Newly-elected NMBA President Mark Horn 22
The Advisors’ Trust Company® Zia Trust, Inc. 505.881.3338 www.ziatrust.com 6301 Indian School Road, Suite 800, Albuquerque, NM 87110 It’s an honor to serve residents of The Land of Enchantment, and clients in 41 other states. We’ll Meet You. even out Here. Our team of Trust Officers and 3 local offices provide fiduciary services across the state. We work alongside your clients’ investment advisor Bisti Badlands, De-Na-Zin Wilderness Area, New Mexico Diamond Sponsorship: $5,000 Emerald Sponsorship: $3,000 Platinum Sponsorship: $2,500 Gold Sponsorship: $2,000 Silver Sponsorship: $1,000 Wells Fargo Bank Diamond Sponsor Federal Home Loan Bank Diamond Sponsor Capital CDC Emerald Sponsor NFP Platinum Sponsor BHG Platinum Sponsor Banc Consulting Partners Gold Sponsor WestPay Gold Sponsor ePay Resources Silver Sponsor Performance Trust Silver Sponsor ADT Silver Sponsor Texas Tech School of Banking Silver Sponsor Western Bank Silver Sponsor Thank You to Our Convention Sponsors! John Anderson and Liz Earls 23
To browse the winning issue, please scan QR code. To see the list of winners on The Communicator Awards website, please scan QR code. Congratulations! 2023 COMMUNICATOR AWARD WINNER! NMBA We are very pleased to announce that the Bankers Digest magazine earned the Award of Distinction for an association magazine. The Award of Distinction is presented for projects that exceed industry standards in quality and achievement and represents the best in marketing and communication. https://www.communicatorawards.com/winners/ https://new-mexico-bankers-digest.thenewslinkgroup.org/ pub-19-2022-issue-4/ This past year marked the 29th year of The Communicator Awards. This distinguished award is dedicated to recognizing excellence, effectiveness, and innovation across all areas of communication; they are the leading international awards program honoring talent in this highly acclaimed field. The Communicator Awards receives almost 5,000 entries from companies, agencies, studios, and boutique shops of all sizes, making it, globally, one of the largest award shows of its kind. They honor work that transcends craft; work that makes a lasting impact and provides an equal chance of winning to all entrants regardless of company or agency size and project budget. The goal is to reward excellence. The Awards provide winners and their clients the recognition they deserve and give communications and creative professionals proof and validation that their work is highly regarded by their peers within the industry.
www.thenewslinkgroup.orgRkJQdWJsaXNoZXIy ODQxMjUw