PUB 20 ISSUE 2 NEW MEXICO PUBLISHED BY NEW MEXICO BANKERS ASSOCIATION, FOUNDED IN 1906 PHOTO BY: JIM RENFROW President’s Message — David Hockmuth Page 6 The Case for Stress Testing More Frequently — Jay Kenney Page 12 Artificial Intelligence The Point of No Return? — Mark Anderson Page 18
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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. PRESIDENT’S MESSAGE 6 PASSING THE TORCH By David Hockmuth, President, New Mexico Bankers Association EXECUTIVE VICE PRESIDENT’S MESSAGE 8 ADDRESSING HOMELESSNESS IN NEW MEXICO By John W. Anderson, Executive Vice President, New Mexico Bankers Association WASHINGTON UPDATE 10 AMERICA’S BANKS ARE STRONGER TOGETHER By Rob Nichols, President and CEO, American Bankers Association 12 THE CASE FOR STRESS TESTING MORE FREQUENTLY By Jay Kenney, SVP & Southwest Regional Manager, PCBB 16 “THE WORLD HAS CHANGED.” ARE YOU READY FOR THE DEPOSIT BATTLE ROYALE? By Rob Blackwell, Chief Content Officer and Head of External Affairs, IntraFi 18 ARTIFICIAL INTELLIGENCE THE POINT OF NO RETURN? By Mark Anderson, NMBA Legal and Legislative Assistant 22 THE CHALLENGES NEW MEXICANS FACE IN THE HOUSING MARKET: BUILDING HOMEOWNERSHIP OPPORTUNITIES By Daniela Freamon, New Mexico Mortgage Finance Authority BANK NEWS 24 BMO EXECUTIVE DARREL HACKETT TO SUCCEED RETIRING DAVE CASPER AS U.S. CEO GOVERNOR SIGNS EXECUTIVE ORDER CREATING AFFORDABLE HOUSING INVESTMENT COUNCIL 26 CONGRATULATIONS! NMBA 2023 COMMUNICATOR AWARD WINNER! Our Mission Contents President David Hockmuth Wells Fargo Bank, NA 200 Lomas, NW Albuquerque, NM 87102 President-Elect Mark Horn Pinnacle Bank 107 E. Aztec Ave. Gallup, NM 87301 Interim Secretary Treasurer Elizabeth Earls U.S. Bank, NA 1900 Jefferson, NE Albuquerque, NM 87109 Immediate Past President Jason Wyatt Western Commerce Bank 212 North Canal St. Carlsbad, NM 88220 TERMS EXPIRING 2023 Ken Clayton Western Bank, Artesia 320 W. Texas Artesia, NM 88210 Sheila Mathews Four Corners Community Bank 500 W. Main, Suite 101 Farmington, NM 87401 Jay Jenkins CNB Bank PO Box 1359 Carlsbad, NM 88220 TERMS EXPIRING 2024 Kyle Beasley Bank of Albuquerque 100 Sun Ave., NE, Suite 500 Albuquerque, NM 87109 Paul Mondragon Bank of America, NA 4401 Central Ave., NE Albuquerque, NM 87108 Elizabeth Earls U.S. Bank, NA 7900 Jefferson, NE Albuquerque, NM 87109 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 2023 NMBA Board of Directors 4
PRESIDENT’S MESSAGE DAVID HOCKMUTH President New Mexico Bankers Association It is with gratitude and respect that I write my final communiqué as President of the New Mexico Bankers Association. It has been an honor and privilege to serve this remarkable organization which has greatly improved our industry and strengthened our communities throughout New Mexico for over a century. Time seems to move faster as the years roll by; the end of my appointment is rapidly approaching. I have met many exceptional people in our great state. I want to commend those people who inspire others through their work to promote the well-being of our communities, notably John Anderson, Mark Anderson, Debbie Shaefer, the past and current board members of the NMBA, and the public servants and elected officials of our great state. As I reflect on the past several years, I am reminded of how hard bankers have worked to help New Mexico recover from COVID-19. There were close to 700,000 cases and 10,000 deaths in New Mexico alone as a result of the pandemic. Bankers served throughout that time, and we have worked relentlessly to help our state recover from the devastating impacts of COVID-19. We lost bankers along the way and there is no banker who did not suffer the loss of a loved one, friend, acquaintance or customer. Over 41,00 businesses received $3.4B through the Paycheck Protection Program facilitated by New Mexico bankers. Countless individuals were provided support and advice as our economy recovered. This work continues as we help small businesses grow stronger through the provision of products, services and financial education. Credit for these significant efforts is reflected in the loyalty of our customers. The NMBA engaged in a successful 2023 Legislative Session. Among numerous legislative issues that we addressed was the proposed establishment of a state bank, an idea of primary concern to the NMBA. John Anderson supervised a coordinated effort by bankers who wrote editorials, ran advertisements and appeared before interim legislative committees to testify that a state bank is a bad idea for our state. In the fall of 2022, we hosted legislative/banking meetings across the state to discuss the NMBA Legislative Agenda and received resounding support. As a result of our efforts, no bills creating a state bank were introduced in the 2023 Legislative Session. We continue to grow the bank Internship Program with the University of New Mexico and are now expanding those opportunities to New Mexico State University. Special thanks to Elizabeth Earls who has been a champion of the program from inception and is directly responsible for much of its success. Elizabeth has also graciously assumed the interim role of SecretaryTreasurer of the NMBA with the departure of Mike Lowrimore to Colorado. I invite you, your senior staff and directors to attend our 111th Annual Convention on September 14-16, 2023, at the Hyatt Regency Tamaya Resort. We are going big this year in one of the most majestic areas of New Mexico, nestled in the ancient lands of the Tamayame people between the Sandia Mountains and the Rio Grande River on the Santa Ana Pueblo. There is much to do with the family: horseback riding, golfing, swimming (four incredible pools), hiking, biking and a spa set amongst breathtaking views. Incredible food and culture make this an ideal location for our convention. We have planned an PASSING THE TORCH 6
excellent agenda and will welcome our incoming NMBA President, Mark Horn. Mark is a bright fellow, and I know he will serve the NMBA with distinction and contribute significantly to its success. I want to offer my friend and mentor, Mike Lowrimore, a bittersweet adieu as he takes on new endeavors in Colorado. We have all significantly gained from Mike’s dedication to the NMBA. I know Mike and his wife Mary are thrilled to be living in beautiful Colorado where they are strategically located to be able to see more of their children’s families and grandchildren. It is with profound thanks and appreciation that I wish Mike and Mary Godspeed. Who knows? We might get lucky and see him this fall at Tamaya. Traveling throughout the state for the NMBA has been my favorite part of the job. It was an extraordinary opportunity to meet with incredible leaders and exceptional bankers in our state. It is a privilege to have the mentorship and friendship of John Anderson. To watch him at work on behalf of the NMBA with unparalleled dedication and concern for the broad spectrum of political and economic issues pertaining to New Mexico and our communities is to see kind expertise in action. John is a remarkable teacher, and everyone learns when he speaks. I wish the very best for all of you. We have an incredible group of leaders who serve this association so that all banks in the state prosper and all communities thrive. Thank you to Jay Jenkins and his lovely wife Kirstin for hosting John and me in Carlsbad. You could run for office if you wanted to, Jay, and would no doubt win. Thank you, Jayson Wyatt, for all of your advice and support. I appreciate your strong will and great sense of humor. Thank you, Sheila Mathews, for your years of faithful service. Your ability to solve problems is formidable. Thank you, Kyle Beasley, for your encouragement and dedication to this organization. It has been fun to circle back with you, Paul Mondragon — there’s a lot of water under the bridge since we worked together all those years ago. Thanks to Ken Clayton, Scott Czarniak, Aaron Emmert and Kamal Ali. It’s been great getting to know you all as we have worked to keep our industry on the right track. I appreciate all of our bankers who collaborate, cultivate and inspire an enduring sense of duty to the thriving growth of New Mexico. My time as President has meant a great deal to me. As I leave as your President, I want you to know that I will continue to serve the NMBA. David Hockmuth President New Mexico Bankers Association I appreciate all of our bankers who collaborate, cultivate and inspire an enduring sense of duty to the thriving growth of New Mexico. 7
ADDRESSING HOMELESSNESS IN NEW MEXICO David Hockmuth I want to personally thank our 20222023 President, David Hockmuth, for his leadership, counsel, intelligence, sense of humor and fresh ideas throughout his term. Like all CEOs, he is extremely busy, but always found time to deal with NMBA matters. We had a terrific time on our annual legislative road trip, driving around in his cool BMW. We had some mishaps along the way — only to be saved by Sheila Mathews and Max Myers. Sparing no expense, we stayed at a few hotels in which David noted, “At least we finally have hot water!” Above all, I want to thank David for his friendship, his unwavering support and for agreeing to be our President after a rather pricey fast food lunch on me. Housing and Homelessness With more than half a million people unhoused, including 100,000 children, the United States continues to struggle to solve the homelessness crisis. Homelessness is not a new issue but is one that often doesn’t receive a great deal of attention. The number of Americans living without homes, in shelters or on the streets continues to rise in many areas of the country at an alarming rate. Homelessness is often difficult to document. The same pandemic conditions that almost destroyed the U.S. economy and disproportionately impacted the most vulnerable kept the government from accurately counting the homeless population. Following a period of limited data, HUD recently completed its first Comprehensive Annual Homelessness Assessment Report in two years. It found approximately 600,000 persons are unhoused on any given night — a slight increase over pre-COVID numbers. While overall numbers were relatively stable during COVID, some demographics shifted substantially. Key findings of the report include: • 582,462 individuals are experiencing homelessness in the U.S. census conducted in 2020. • About 30% of people without homes are experiencing chronic patterns of homelessness. This means they’ve been without homes for more than 12 months or have experienced extended periods of extended homelessness over the past three years. EXECUTIVE VICE PRESIDENT’S MESSAGE JOHN W. ANDERSON Executive Vice President New Mexico Bankers Association • Most states saw their homeless populations rise since 2019, including four where the tally more than doubled (Delaware, Vermont, Louisiana, Maine). • Sixty percent of individuals experiencing homelessness are male, though unsheltered homelessness rose by 5% among women and girls. More than a quarter of those experiencing homelessness were with their families and children. • Much progress has been made in reducing homelessness among military veterans. Homelessness in this population declined by 11% over the past two years and has been halved since 2010. No factor matters more than access to housing. Poverty, mental illness and addiction do play roles, but they are less significant than housing. Housing researchers use the example of musical chairs: Imagine there are 10 people for nine chairs. One person, weighed down by poor health, does not make it to a chair. Is the problem with that person’s health or the lack of chairs? Homelessness, then, is a supply-anddemand problem. Without enough housing, not everyone has a place to live. And the homes that do exist cost more as people compete for limited supply. So more people are priced out and more end up homeless. Locally, the New Mexico Coalition to End Homelessness estimates there are 19,000-20,000 homeless people throughout the year in the state. The percentage of New Mexico’s homeless population by category includes 43.3% — families with children; 7.8% — unaccompanied homeless youth; 5.1% — veterans; and 40% — chronically homeless individuals. When comparing homelessness by gender in our state, 44.14% are female and 52.88% male. Finally, when comparing by age: 5.6% — under 5 years old; 9.2% — 5 to 13 years old; 5.7% — 13 to 17 years old; 7.2% — 18 to 24 years old; 15.8% — 25 to 34 years old; 19.6% — 35 to 44 years old; 8
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 15.3% — 45 to 54 years old; 10% — 55 to 61 years old; and 8.2% — 62+ years old. So, what are we doing and what can we do in New Mexico to alleviate the homelessness crisis? The New Mexico Mortgage Finance Authority (MFA), the state’s Housing Authority, has made great progress in establishing a roadmap for handling the homelessness issue. In 2022, for homelessness assistance and prevention, more than 5,075 people experiencing homelessness or at imminent risk of experiencing homelessness received housing assistance from MFA’s nonprofit partners. MFA’s funding to those partners totaled $4.9 million. Homelessness was prevented for 935 individuals who received just over $3.1 million in MFA-funded rental assistance. The MFA has developed a call to action to create a stable housing environment for persons experiencing homelessness and with special needs. The actions will address the following: • New Mexico needs to expand its range of evidence-proven and housing+services models, tailored to local needs, to address homelessness. • Urban areas need both sitebased and scattered site models. Predevelopment funding, developer capacity, deeper subsidies and adequate and consistent supportive services are needed to create successful exits from homelessness. • Small (less than 30 units) housing+services developments or scattered site developments are often the best solution in rural counties, yet funding favors larger developments. Rural areas need adequate and consistent supportive services for small and scattered site single-family homes. • Lack of a comprehensive behavioral health care system makes it difficult for housing providers, including private sector property managers, to address the complex needs of tenants. Providers may not recognize the behavioral health needs of residents and be unsure of how to properly address challenges, perpetuating the cycle of housing instability. The number of Americans living without homes, in shelters or on the streets continues to rise in many areas of the country at an alarming rate. 9
ROB NICHOLS President and CEO American Bankers Association WASHINGTON UPDATE The U.S. banking system has long been the envy of the world. The reasons for this are many, but at the core, it’s because our nation has cultivated a vibrant, thriving financial services sector made up of banks of all sizes, charters, business models and risk profiles. Each one of these institutions has an important role to play in the overall economic ecosystem: from the community bank guiding a family through the purchase of a first home, to the midsize bank helping a small business manage its cashflows, to the regional bank providing commercial loans to promote the building of new retail centers and office spaces, to the large, globally active institution that supplies credit to multinational firms that provide thousands of jobs in the U.S. The breadth and diversity of our financial services sector is something no one should ever take for granted. That’s why ABA joined forces with the nation’s 51 state bankers associations to deliver a powerful message to members of Congress in the aftermath of the Silicon Valley Bank (SVB) and Signature Bank failures in March: the U.S. banking system remains the deepest and most resilient in the world, and policymakers in Washington need to keep it that way for the good of the country. That message continues to hold true in the wake of the unfortunate failure of First Republic Bank in early May. The sudden and swift collapse of these institutions is something that both banks and bank policymakers can and must learn from. But in recent days, there have been some in Washington who have seized this opportunity to advance misguided policy proposals — many of which have nothing to do with the failures of these banks. These include proposals that would make it significantly harder for community banks to compete and new capital requirements for larger banks that would limit their ability to lend at a time of economic uncertainty. Past experience has taught us that we are stronger and most effective in our advocacy when we speak with one voice and that there can be harmful consequences when we don’t. AMERICA’S BANKS ARE STRONGER TOGETHER 10
The policy response to these failures should not place America’s competitive, thriving banking system at risk. Rather, we must seek solutions that preserve that competitive landscape and ensure that banks of all sizes with diverse business models are allowed to compete and succeed in serving the needs of their communities. To achieve that goal, we all must stand together as an industry and resist efforts to divide us. Past experience has taught us that we are stronger and most effective in our advocacy when we speak with one voice and that there can be harmful consequences when we don’t. In the days to come, there will be many conversations about the future of banking regulation, about potential changes to the deposit insurance system and what we can do to preserve the depth and diversity of our banking system. By speaking with a united voice on these and other issues, we can move our industry forward and work with policymakers to understand what happened at SVB, Signature and First Republic. But, even more importantly, we can reinforce the overwhelming strength and resilience of the U.S. banking sector and lift up the work our nation’s banks do every day to make our communities better. Email Rob at rnichols@aba.com. The breadth and diversity of our financial services sector is something no one should ever take for granted. 11
Like other financial providers, some banks perform annual stress tests designed to see how the institution would fare under various economic scenarios, from a moderate downturn to the most severe hypothetical shockwave. Some community banks aren’t required to perform annual stress tests. However, if there is one thing the financial industry has learned from the recent bank failures, it’s that stress can arise suddenly, especially in a rapidly changing market environment. Now more than ever, it’s crucial for your management team to have tools on hand that can help you be both proactive and responsive in the face of any other challenges that arise within the industry. As a management tool, stress tests help executives identify potential flaws in their current plans and practices and help your team brainstorm and even test solutions. What Should a Stress Test Cover? Every community bank is a little different, and its executives are the best judges of what is missioncritical. In general, however, you should ensure that your organization can: • Maintain capital reserves sufficient to absorb severe losses. • Keep capital above the minimum requirement. • Continue lending — the backbone of most community banks’ business. By Jay Kenney, SVP & Southwest Regional Manager, PCBB THE CASE FOR STRESS TESTING MORE FREQUENTLY What Are the Potential Benefits of Stress Testing More Often? Even if not required, all institutions can benefit from stress tests. After all, the purpose of stress testing is to ensure your organization can withstand changing economic conditions. The market has been volatile and often unpredictable in the past few years, proving that your organization may not be able to see every change coming down the pipeline that will affect your capital and earnings. Given how quickly these events have happened, stress testing can allow your organization to plot out and anticipate any scenario you can fathom. If you stress test for these potentialities as the market changes, you’ll have time to assess weaknesses in your portfolio and address them, just in case a hypothetical situation becomes a reality. It’s far better for your staff, your customers and your community if you can hash out a plan ahead of time for a scenario than to have to discover and deal with any challenges in real-time when your business is already being impacted. Stress testing can also indirectly help you with your strategic planning, business continuity plans and various other aspects of your institution that could be affected in each scenario. For most financial institutions, ensuring that most essential processes can continue even if economic conditions worsen means managing lending concentrations. Given the increased uncertainty in commercial real estate (CRE) and trends in remote work, it makes sense for some community banks to pay particular 13
attention to the potential effects of different future scenarios on CRE lending. For example, a community bank that holds commercial loans secured by office properties may consider a higher vacancy rate, as we expect that some tenants may not renew their leases at the same square footage (or at all). Here Are 5 Ways To Make Stress Testing Easier. Some banks treat stress tests as a very big deal, an annual operation that wars with other priorities for employee time and energy. Instead, incorporate stress testing into your quotidian processes by doing the following: 1. Avoid dispersed and siloed systems, data sources, and models. Make it easy for your staff to access all the information they need to test on the transaction level and the portfolio level for both baseline scenarios and severely adverse scenarios. Share data and coordinate processes as what you are: a single business. 2. Create stress tests that align with business objectives. When your bank wants to ask “what if” about any part of your operation, you don’t need to redesign the Parthenon. Ask the question, figure out what you need in order to answer it and move ahead with getting the answer. 3. Don’t involve manually intensive processes to answer your questions. For example, if you have to collate piles of paper (or electronic files) to determine your current debt service or FICO score upon every deal, then your overall business processes need more automation. 4. Execute driver-specific stress tests rather than tests based on standalone macroeconomic indicators. This can help you understand how your Now more than ever, it’s crucial for your management team to have tools on hand that can help you be both proactive and responsive in the face of any other challenges that arise within the industry. strategies may fare under various market scenarios and understand stress thresholds within lines of business. 5. Include stress tests that use the same data and calculation methods as your daily business practices. The more you align stress testing to your firm’s regular work, the more your bank will be able to either change direction if and when the market surprises you or plan for an expected economic change. By making stress testing easier, you make it more likely that your bank will follow through on asking what might happen to various lines of business as the world changes. You can then use that information to make informed decisions to strengthen your community bank’s future, become more resilient, and adapt to market changes much faster. To continue this discussion, or for more information, please contact Jay Kenney at jkenney@pcbb.com. 14
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“THE WORLD HAS CHANGED.” ARE YOU READY FOR THE DEPOSIT BATTLE ROYALE? In just over a year, banks have gone through a head-snapping change, from being stuffed with cash and worried about having too much liquidity to watching those deposits leave in droves. Core deposits are on the decline, forcing banks to pay up on CDs and savings to try to stem the outflow. With the Federal Reserve expected to continue raising interest rates to combat inflation, deposit pressure is likely to worsen in the months ahead. According to the results of IntraFi’s most recent quarterly survey, 88% of bank executives think deposit competition tightened over the past 12 months, and 84% expect it to get worse in the coming year. To better understand how banks should be thinking about funding, IntraFi recently sat down with Neil Stanley, founder and CEO of The CorePoint, to discuss the battle for deposits, strategies to attract and retain customers, what banks should do if the Federal Reserve continues hiking rates, and more. What follows is our conversation, edited for length and clarity. Are we headed for a recession? All economies go into a recession at some time or another, and the last two we’ve had have been severe. It’s natural to be cautious after such upheaval, but the fear-mongering has been excessive. Bankers should take a hard look at employment data, inflation data, GDP history, and interest rates. I highly recommend looking at the Atlanta Fed’s GDPNow, which forecasts GDP based on real-time statistics. Right now, it’s forecasting 2.5% GDP growth for the first quarter. That’s not stunning, but it doesn’t indicate an economic catastrophe either. The U.S. economy has proved more resilient than its critics would have you believe. By Rob Blackwell, Chief Content Officer and Head of External Affairs, IntraFi 16
How squeezed are banks going to get if the Fed keeps raising rates? We’ve been through a lot, yet net interest margins have pretty much stabilized. Current data from the Uniform Bank Performance Reports compiled for December 2022 show that margins have actually increased slightly. So, it depends on what you’re looking at and what you’re doing. However, not all the rate hikes have flowed through to income statements yet. That will take a while. In a recent LinkedIn post, you asked bankers if they’re ready for the deposit battle that’s coming in 2023. Are they? Some are. Those who’ve been asleep for the last 15 years aren’t, and soon they’re going to wake up and realize this isn’t just a rate game. They may think the highest rate wins, but that’s not true. Of course, the low rate doesn’t win, either. Some bankers are refusing to change rates, and if they don’t find another way to keep their deposits, they’re going to experience some real pain. I just spoke with a banker this morning who’d publicly rolled out 5% CDs and 4% savings accounts without any kind of plan to keep from repricing all those accounts. How much is the deposit runoff we’re experiencing a natural correction of the deposit glut from the pandemic? We hit peak core deposits — $17.4 trillion — in the first or second quarter of 2022. By the end of 2022, we were at $16.4 trillion. Yes, money supply can go down, but it doesn’t go down easily. Ultimately, we’re talking about public policy and governmental engagement, and it’s hard to imagine public policy allowing the money supply to go back to 2019 levels. I also don’t think we’re headed back to the interest rate levels of 2019. As money supply grew, bank deposits moderated, plateaued, and are now dropping a little, but interest rates have to rise because of the inflation the money supply created. They’re going to pretty much do the same thing— plateau and drop slightly, but not to the levels of before all the stimulus. You were quoted in a recent American Banker article about how several large banks are offering higher rates, but only to consumers outside their branch network. What are your thoughts on that? It’s basically a bet on apathy. They’re likely betting that local markets won’t think it’s a big deal, but it is. Imagine if your rate was 0.4%, but it would be 4.6% if you lived in another state. On, say, a hundred thousand dollars, that’s a lot of money. As a bank CEO, I would never have supported that kind of strategy because it’s not good service. But if nobody protests, they’ll keep doing it. What’s the best way for banks to attract new deposits? One way is to pursue refinancing, which is the same idea as refinancing a mortgage. Many people have CDs with a sub-1% or sub-2% interest rate, and they’re waiting for maturity, kicking themselves because they could get 4.5% today. These are your refi candidates. Today, early withdrawal penalties tend to be trivial, given that many are based on sub-1% rates. Those amounts can be made up in no time now. Additionally, refi CDs can mature on the exact same day as current certificates using the customized approach I mentioned earlier. Any bank can run the numbers and show a customer, net of penalty, what they would end up with if they refinanced. By doing so, it can attract people who think they’ve made a mistake and have to wait. When they realize they don’t, they’re ecstatic. This beats the idea of a rate war in every possible way. In general, banks that pause to assess the situation, those that use better tools and products than the competition, are going to be much better off. IntraFi’s products have helped set institutions apart over the years. CDARS was a huge differentiator for us because we could tell customers we could insure their accounts even if they were five, 10, or even 20 times the size of our FDIC insurance. To listen to the full conversation, visit https://bankingwithinterest.libsyn.com/ are-banks-ready-for-the-deposit-battle-royale-in-2023 In general, banks that pause to assess the situation, those that use better tools and products than the competition, are going to be much better off. 17
I recently saw a CNN segment that would be darkly comical if its implications weren’t so incredibly frightening. In the segment, a CNN anchor was interviewing an artificial intelligence (AI) expert and essentially posed the question, “Will artificial intelligence wipe out humanity in the next five years?” The AI expert, without missing a beat, responded with something to the effect of, “No, I think that’s far too aggressive a timeline; there are still so many kinks to be ironed out. If anything, we’re looking at a much longer timeline than that.” With a completely straight face, the anchor responded, “Well, that’s a relief to hear it won’t happen that soon.” Without context, that sounds like material from an absurdist comedy sketch. However, the exchange illustrates how foreboding much of the general consensus is around AI and, given how larger societal forces tend to play out, how helpless even those closest to its development seem in preventing its potential worst outcomes or excesses. Another maddening aspect around the discussion of AI is that there seems to be such a variety of opinions that no consensus can remotely be reached on how to regulate it or rein it in. For every expert who is saying to pump the brakes on the panic and doomsday scenarios, there is another expert saying that doomsday scenarios are well within the realm of possibility and, in fact, likely. It’s a topic that seems to engender intellectual whiplash, even among those most intimately acquainted with the matter. In a survey of top CEOs by Yale’s Chief Executive Leadership Institute, 34% of respondents said AI could “destroy humanity” within 10 years, while 58% said they didn’t think the potential catastrophe of AI was overstated. Early in June 2023, a group of influential tech leaders, business leaders and scientists signed an open letter urging a six-month pause on advanced AI development. This is contrasted by the less alarmist views of tech billionaires such as Bill Gates, Mark Zuckerberg and Marc Andreessen. Notably, Zuckerberg has employed the “godfather of AI” Yan Lecun as Meta’s Chief AI Scientist. Any way one slices it, there is a distinctly foreboding feeling that surrounds artificial intelligence, and the meager assurances of a few tech billionaires are certainly cold comfort for the vast majority of people. ARTIFICIAL INTELLIGENCE THE POINT OF NO RETURN? By Mark Anderson, NMBA Legal and Legislative Assistant 18
In theory, artificial intelligence could be used to supplement and enhance the quality of work and the morale of workforces, but it’s awfully difficult to envision that being the case. That tends not to be the direction that multinational corporations, who will ultimately be tasked as custodians of AI, usually go. At the recent Yale CEO Summit in June of this year, top CEOs talked in broad, agreeable terms about the potential applications of AI, a far cry from the apocalyptic scenarios screaming from the headlines. As the Fortune article documenting the Summit details, “The comments of professional services CEOs reflected an overwhelming belief that AI can never truly replace human judgment in their fields, even as the new technology disrupts many facets of their business. There was an overwhelming agreement that, for all AI’s usefulness in automating what can be automated, AI is best used to buttress rather than supplant human professionals, freeing them up for higher value-added work while delivering services with the empathy and appreciation of ambiguity that only humans are capable of.” The Fortune article also details possible uses for artificial intelligence in the banking industry, as suggested by current Lazard CEO and former Office of Management and Budget Director Peter Orszag. “AI provides the opportunity to replace some menial work of investment banking, whether it’s having executive assistants go back and forth on finding a time for a meeting to summarizing meeting notes. It’s also an incredible opportunity for our talented young analysts who spend a lot of time pulling data from multiple sources to streamline the research process as well as how that information is used in various applications. All of that can be automated and that frees up our people for higher value-added tasks where we’ll put their skills to better use,” said Orszag, who was also careful to stress the immaturity of the technology. “I tested putting together an email using GPT4 but ended up redoing most of it myself. There were a couple of 19
thoughts that the technology put forward that I may not have thought of myself. The right way to think about it, at least for now, is augmentation.” Many CEOs are echoing similar sentiments, but it’s not uncommon for those at the top to offer comforting statements in their comments. In fact, it’s to be expected. The reality is that, in an already remarkably precarious labor situation in America and many other countries, AI has the further potential to cause massive upheavals. Senate Majority Leader Chuck Schumer and President Biden, two men not exactly known for being on the cutting edge of issues or pushing bold policy agendas, have even expressed grave concern about not getting a handle on AI before it is completely unleashed. Schumer proposed to convene the top minds in artificial intelligence to lay a foundation for the type of legislation that can make sure AI doesn’t, for one, completely upend the economy and, most importantly, doesn’t shake the foundation of who we are as human beings. Congress isn’t exactly known for acting swiftly or boldly, but it’s telling that even those deeply entrenched in Washington are seeing how potentially disruptive and catastrophic a fully realized version of AI could be without the proper regulations and safeguards. Since the 2008 financial crisis, the United States has largely shifted to a gig economy for vast swaths of the population. A gig economy is defined as a labor market that largely relies on temporary or parttime positions filled by independent contractors and freelancers, rather than full-time permanent employees. One of The reality is that, in an already remarkably precarious labor situation in America and many other countries, AI has the further potential to cause massive upheavals. 20
the reasons why the unemployment rate is so often touted as the measure of economic success in America is that, in a gig economy, it is easier to yo-yo and fudge employment numbers than it is, say, real wages. We now live in an economy where employment does not necessarily mean someone is able to make ends meet; in fact, quite often it doesn’t. The gig economy, combined with our overriding economic structure, has wildly increased financial precarity among the U.S. populace. Since 2008, a continuing sentiment echoed to this day is that “the economy never really recovered for regular Americans.” Unfortunately, in a multitude of ways, this is true. Notoriously, the 2008 bailout, while addressing the economic emergency at the time, was largely directed at the highest levels of our economy, largely institutional interests, while millions of average Americans suffered economic setbacks they still haven’t fully recovered from. This includes losing life savings, home foreclosures, and a permanent decrease in gainful employment opportunities. The gig economy, in retrospect, was the logical extension of the fallout from the 2008 financial crisis. It has made economic conditions far more precarious for many Americans and has essentially made millions of people into freelance mercenary employees, only chasing the next paycheck to make ends meet. There are millions of people who find themselves in this situation despite making perfectly fine life choices, but the vagaries of the system have beaten and bruised them pretty severely. Even if one doesn’t take a maximalist view of the potential fallout of more sophisticated, omnipresent artificial intelligence, there’s no denying that it looms as another tool to severely discipline labor and make the economic existence of many people more precarious. The hyperbolic talk of AI wiping out humanity belies the more likely, mundane fallout from AI’s spread. It will likely drive America further into a gig economy without a solid financial foundation and genuine security. This will increase all the issues that bother most Americans, no matter what your political perspective is — crime, homelessness, economic distress, lack of trust in our institutions, etc. AI is foreboding, not because its’ most maximalist outcomes will come true, but because we know, given the trajectory of many aspects of our society, it won’t be used to enhance the human experience, but instead used to make the lives of human beings more difficult. 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 21
THE CHALLENGES NEW MEXICANS FACE IN THE HOUSING MARKET: BUILDING HOMEOWNERSHIP OPPORTUNITIES By Daniela Freamon, New Mexico Mortgage Finance Authority In the previous year, the New Mexico Mortgage Finance Authority (MFA) conducted a comprehensive statewide study to assess housing needs and solidify an actionable plan to address the housing crisis in New Mexico. This plan, known as the New Mexico Housing Strategy, is the first-of-its-kind initiative for the state, identifying five key strategies to address the statewide housing needs. Its primary objective is to create homeownership opportunities for New Mexicans, particularly those in low- and moderateincome households. This study provided valuable insights into the challenges faced by New Mexicans aspiring to become homeowners, highlighting two primary obstacles: constraints on saving money for a down payment and rising home prices. Over the last decade, in most counties, gross rent has increased more than income growth, while apartment vacancy has remained historically low at 3.2%. This high demand, coupled with limited supply and insufficient income growth, has resulted in rising rent prices, making it difficult for renters to save for future homeownership. Additionally, between 2019 and January 2022, home 22
values in New Mexico surged by 36%, surpassing the national increase of 33%. One of the most significant barriers to homeownership is saving for a down payment, especially for high-priced homes. To avoid mortgage insurance, households must save a down payment ranging from at least $20,000 in the counties with lower median prices up to over $50,000 in more urban places, and around $80,000 or more in Santa Fe and Los Alamos. To address this issue, the New Mexico MFA developed and implemented the Down Payment Advantage program. This program provided a first come, first served grant of $25,000 to eligible low-income, firsttime homebuyers, which could be used in conjunction with the FirstHome loan. The grant assisted with the minimum down payment, closing costs (including pre-paid items) and, in some cases, an additional principal reduction payment on the first mortgage loan. Borrowers had the option to combine the grant with other down payment assistance programs offered by MFA, resulting in a maximum of $35,000 in funding. The $25,000 was provided without the requirement of repayment to MFA by the homeowner. However, if the borrower utilized other down payment loan options, such as FirstDown Down Payment Assistance or HomeNow Down Payment Assistance, the loan amount would become due upon sale, transfer or refinance. The program proved to be highly successful and provided a total of $7.6 million in funding and assisted 304 New Mexicans in achieving homeownership. Homeownership is widely recognized as one of the most effective means of building wealth, enabling families to accumulate assets, supporting retirement and passing on generational wealth. Access to homeownership is also paramount for economic stability by protecting against inflation and involuntary displacement. The combination of rising home values, inadequate income growth and increased rents has created an unstable and challenging housing market for New Mexicans. However, MFA aims to serve as a resource to the community and minimize these barriers through programs like the Down Payment Advantage and other homeowner assistance programs. The lack of housing stability not only interferes with a household’s self-sufficiency and their ability to pursue economic mobility for their families but also has adverse effects on state and local economic development and growth. 23
BANK NEWS BMO EXECUTIVE DARREL HACKETT TO SUCCEED RETIRING DAVE CASPER AS U.S. CEO BMO Harris Bank recently announced that CEO Dave Casper is retiring. Succeeding Casper, who has led the U.S. operation of Toronto-based parent BMO Financial Group since 2018, will be Darrel Hackett, a 19-year BMO veteran. The appointment of Hackett gives BMO’s U.S. Bank the distinction of being the first among the top 15 in the country to be run by a Black executive. Hackett is currently BMO’s President of U.S. Wealth Management. BMO’s U.S. unit is the nation’s 11th-largest commercial bank following the completion of its acquisition in February of San Francisco-based Bank of the West, which Casper shepherded over 14 months from when it was announced in December 2021. That transaction gives the bank a big presence in California to go with its large footprint in the Midwest since the 2011 acquisition of Milwaukee-based Marshall & Ilsley. Hackett takes over at a time when performance south of the Canadian border is far more important to BMO’s success than it was for most of the time it has owned Harris. Nearly half of BMO’s earnings now are coming from the U.S. Hackett will continue to be based in Chicago, where BMO’s U.S. operation is headquartered. The bank is Chicago’s second largest by deposits, trailing only JPMorgan Chase, the largest bank in the U.S. Before running wealth management, Hackett had executive roles, including management of BMO’s business banking group in the U.S. 24
GOVERNOR SIGNS EXECUTIVE ORDER CREATING AFFORDABLE HOUSING INVESTMENT COUNCIL Governor Michelle Lujan Grisham recently signed an executive order which created a Housing Investment Council with a mission to bring New Mexico’s affordable housing development up to pace to meet demand in the state. The council’s work begins at a crucial moment as average rent in the state has increased by 70% since 2017, but wages have only grown by 15%. “It is time to go big on affordable housing. We need thousands of homes to meet demand and give New Mexicans a stable foundation,” said Governor Lujan Grisham. “We secured more than $82 million in the last legislative session to address housing, and an investment plan is the next step in ensuring we make the most of every housing dollar in our state.” The members of the council selected by the governor include: • Brian Egolf, Former House Speaker, Chair • Senator Michael Padilla • Representative Meredith Dixon • Izzy Hernandez, Mortgage Finance Authority • Lorrie Chavez, CEO, Santo Domingo Housing Authority • Kent Thurston, CEO, KT Homes, LLC The executive order signed by the governor directs the council to develop a strategic housing investment plan that addresses gaps in available housing resources, inefficiencies in regulatory and zoning that impact housing development, workforce and business shortages in the housing development industries, the facilitation of public-private partnerships and more. “We have a big job to do,” said Brian Egolf, former House Speaker and Chair of the council. “The next six months will be a spring so that we can have a package to present to the legislature. I’m looking to have results a year from now.” “I think this is one of the most important things we can do for our young families especially,” said Senator Michael Padilla. “It is going to give them a sense of place which leads to a better home life for their children. If you don’t know where you are going to sleep at night, the last thing you are going to focus on is your homework if you even got to school that day. This is going to lend itself to a lot more down the road.” “Housing that is accessible and affordable is central to getting families in stable and safe environments,” said Representative Meredith Dixon. “The council’s work will happen before January, so there will be something for us to put into action when the next session starts. It’s imperative the work starts right away to help get New Mexicans into the homes they deserve.” 25
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.
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