PUB 21 ISSUE 1 PUBLISHED BY NEW MEXICO BANKERS ASSOCIATION, FOUNDED IN 1906 PHOTO BY: JIM RENFROW NMBA Attends the Washington Summit By Mark Horn Page 4 2024 Legislative Summary: Mission Accomplished By John W. Anderson Page 6 Boeing’s Dance With Destruction By Mark Anderson Page 14
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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. ©2024 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 4 NMBA ATTENDS THE WASHINGTON SUMMIT By Mark Horn, President, New Mexico Bankers Association EXECUTIVE VICE PRESIDENT’S MESSAGE 6 2024 LEGISLATIVE SUMMARY: MISSION ACCOMPLISHED By John W. Anderson, Executive Vice President, New Mexico Bankers Association WASHINGTON UPDATE 8 THE REAL LOSERS IN THE REG II FIGHT By Rob Nichols, President and CEO, American Bankers Association 10 NAVIGATING UNCERTAINTIES Top Six Stress Testing Tips for Community Banks By Jay Kenney, SVP & Southwest Regional Manager, PCBB 12 NEW MEXICO MORTGAGE FINANCE AUTHORITY UNVEILS ITS 2023 TOP METRO AND RURAL MORTGAGE LENDERS WHO ARE FUELING AFFORDABLE HOUSING By Kristie Garcia, New Mexico Mortgage Finance Authority 14 BOEING’S DANCE WITH DESTRUCTION By Mark Anderson, Legal and Legislative Assistant, New Mexico Bankers Association 18 AN ILL WIND THAT BLOWS NO GOOD Economic Headwinds and Asset and Liability Management By Elizabeth Madlem, Vice President of Compliance Operations and Deputy General Counsel, Compliance Alliance 22 BANK NEWS 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 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 3
NMBA ATTENDS THE WASHINGTON SUMMIT PRESIDENT’S MESSAGE MARK HORN President New Mexico Bankers Association 4
The Annual ABA Washington Summit took place during the week of March 18, and I was able to attend for the first time. It was a great experience, and I hope to be able to attend again in the future. New Mexico was well-represented with four bankers in attendance, along with John Anderson. My fellow colleagues serve on the government relations, communications and emerging leaders committees, which speaks highly to our involvement as a state. The summit had a number of great speakers and panelists who discussed current issues concerning our industry. A few of the main topics were the ACRE Act, the Credit Card Competition Act and the SAFER Act. The ABA does a very nice job of holding thorough discussions of relevant topics, bringing them to the forefront of legislators’ agendas. In addition to attending the presentations during the summit, we were also able to visit the offices of our senators and representatives. Our visits were met with open doors and open minds on the issues of the day. The staffers inside these offices work tirelessly to assist the congressional leaders, and their depth and breadth of knowledge of current events is certainly impressive. Mark Horn, John Anderson, Ken Clayton, Liz Earls, Jay Jenkins and Lenwood Brooks Ken Clayton, Jay Jenkins, John Anderson, Liz Earls and Mark Horn John Anderson, Mark Horn, Liz Earls, Ken Clayton and Jay Jenkins Visitors to Washington during this time of year are largely comprised of tourists flocking to see the blooming cherry blossoms or school field trips yearning for a deeper, more tangible understanding of our government and nation’s history. I believe that as a banker in Washington at this time of year, I was given the opportunity to take a field trip of my own in a sense and gather a greater understanding of our industry and its history and continuing relationship with our lawmakers. The relationship between industries and lawmakers is often complex, and to go behind the scenes is both eye-opening and beneficial. I also believe that the seeds that we plant with our elected officials, if cared for in the right manner, have the potential to bloom into changes in our industry that we will all be excited to see, much the same as the striking cherry blossoms! 5
EXECUTIVE VICE PRESIDENT’S MESSAGE JOHN W. ANDERSON Executive Vice President New Mexico Bankers Association 2024 LEGISLATIVE SUMMARY: MISSION ACCOMPLISHED Introduction The 2024 Legislature adjourned at noon on Thursday, February 15, having considered 344 House bills and 317 Senate bills over the course of 30 days. Seventy-two bills were approved by the Legislature. Of the 72 bills, Governor Michelle Grisham signed 69 bills and vetoed three. In her press conference shortly after the close of the session, the governor noted that she was frustrated that many of the public safety measures were not enacted by the 2024 Legislature. The governor was also frustrated with the defeats of several environmental bills relating to water treatment and increasing oil and gas royalty rates. Special Session The governor, who was disappointed at what she saw as inadequate programs on public safety legislation she supported, indicated that she may call a special session on the public safety issue. No date has been set, nor are we certain that such an event will materialize. The official filing day for the state’s 111 legislative seats was filled with a number of surprises. Senator Greg Baca, Senate minority leader from Belen, did not file for re-election, nor did House Minority Leader Ryan Lane from Aztec. There were a number of surprises in that Senator Bill Burt (R-Alamogordo) and Representative Jason Harper (R-Rio Rancho) decided not to seek re-election. Overall, there are 23 members of the 112-person Legislature that have chosen not to seek re-election including four House members that are running for a seat in the state Senate. Legislative Retirements and Races Current senators who have indicated that they will not seek re-election: • Ron Griggs (Alamogordo) • Brenda McKenna (Corrales) • Mark Moores (Albuquerque) • Steven Neville (Farmington) • Jerry Ortiz y Pino (Albuquerque) • Cliff Pirtle (Roswell) • Nancy Rodriguez (Santa Fe) • Gregg Schmedes (Bernalillo County) • Bill Tallman (Albuquerque) • Bill Burt (Alamogordo) Current House members who may not seek re-election: • Bill Rehm (Albuquerque) • Gail Chasey (Albuquerque) • Candy Ezzell (Roswell) — will run for Senate seat • James Townsend (Artesia) — will run for Senate seat • Larry Scott (Hobbs) — will run for Senate seat • Ryan Lane (Aztec) • Jason Harper (Rio Rancho) • Anthony Allison (Fruitland) Tax Package (HB 252) The Legislature enacted a tax package that will result in a net general fund loss of $227 million in FY 26, the first full year in which the tax cuts are felt. The loss would have been $300 million but for the increase in tax revenue gained by flattening the corporate income tax to 5.9%, which increases revenues by $16 million, and reducing the capital gains deduction, which increases revenue by $61 million. Some of the other tax revisions included in HB 252 include: • Reforms personal income tax brackets without any tax increases; • Adds GRT deduction for Medicaid recipients’ home renovations; 6
• Changes capital gains deduction to $2,500 or 40% for the sale of a New Mexico business valued at not more than $1 million; • Eliminates lower corporate income tax bracket, making it a flat 5.9% rate for all corporate income; and • Ensures receipts derived from copayments or deductibles by health care providers are GRT deductible. Paid Family and Medical Leave Act (SB 3) Clearly, one of the most controversial bills considered by the 2024 Legislature was SB 3 (Stewart), the Paid Family and Medical Leave Act. This was the fourth session in which the issue has been addressed, and, again, SB 3 was defeated in the House 34-36, with 11 Democrats joining all House Republicans voting against the legislation. Opponents cited the following reasons for opposition: the ease with which the law could be abused, inadequate protection for employers, the program’s fiscal unsustainability, the unrealistically large amount of leave (12 weeks) that could be taken every year for a wide range of purposes, the imposition of a tax on employers and employees to create the program, and the disruption the program would have on workplaces, especially for small businesses. Budget The Legislature approved a budget of $10.2 billion for the next fiscal year beginning on July 1, 2024, an increase of over 6% from the current year. Reserves will be held at 30%. Some of the budget highlights include: • $10.5 million for the Local Economic Development Act job creation fund (LEDA); • $6.7 million for the Job Training Incentive Program (JTIP); • $100 million for career technical education; • $750 million for road maintenance construction and improvements; • $50 million to shore up rural hospitals; • 3% compensation increase for all state employees; • $50 million to the NM Housing Trust Fund and $50 million to the Affordable Housing Act; • $125 million to the NM Finance Authority for the Opportunity Enterprise Fund for housing development and infrastructure; • $300 million for the Land of Enchantment Fund to support natural resource projects; and • $15 million for medical professionals’ loan repayment assistance. General Obligation Bonds The legislation authorizes the issuance of general obligation bonds totaling approximately $289.6 million. The bill includes bond issues for senior citizen facilities statewide ($30.4 million), library resource acquisitions ($19 million), and higher education, special school and tribal school capital improvements and acquisitions ($229.6 million). Capital Outlay Projects (SB 275) The legislation appropriates in excess of $1 billion to capital outlay projects statewide, including $932.2 million from the general fund and $73.5 million from other state funds. The appropriations contained in the legislation are non-recurring expenses for state agencies, higher education, judiciary, individual legislative and governor’s projects. Bills Monitored by the NMBA That Were Enacted by Legislature and Signed by the Governor: • HB 5: Workforce Development and Apprenticeship Fund — Support • HB 83: Angel Investment Tax Credit Extension — Support • HB 177: New Mexico Match Fund — Support • HB 195: Housing Opportunity Enterprise Fund — Support • SB 7/HB 2: Housing Trust Fund — Support • SB 216: NM Finance Authority Housing Projects — Support • SB 7/HB 2: Housing Trust Fund Appropriation — Support • SB 125/HB 252: Military Income Tax Exemption-Sunset Removal — Support Bills Monitored by the NMBA That Failed To Be Enacted by the Legislature: • HB 246: Financial Literacy Mandate for Graduation — Support • HB 125/SB 110: State Bank — Opposed • SB 37: Revised Uniform Unclaimed Property Act — Support • SB 3: Paid Family and Medical Leave Act — Oppose • HB 71: Student Loan Bill of Rights — Neutral • HB 248: Removal of Cap on Social Security Taxation — Support • HB 249: Social Security Taxation Indexing — Support Among the Governor’s Key Priorities To Pass and Be Signed by the Governor Are: • SB 271: Repeat Felony Offender No-Bond Hold • HB 129: 7-Day Firearm Waiting Period • SB 5: Firearms Near Polling Places • HB 236: Public Safety Return to Work • SB 96: Increase Second-Degree and Attempted Murder Penalties • SB 128: State Fire Members Retirement • SB 175: Law Enforcement and Corrections Recruitment ($25 million) • HB 193: Law Enforcement Retention • HB 41: Clean Fuels • HB 177: New Mexico Match Fund ($75 million) • SB 17: Health Care Delivery and Access Act (Hospital Assessment/Tax) 7
ROB NICHOLS President and CEO American Bankers Association WASHINGTON UPDATE I n 2010, the Durbin Amendment was dropped into Dodd-Frank in the dead of night, and without so much as a hearing, the government imposed restrictions and price controls on debit cards and connected checking accounts. Bankers warned that mega-retailers would not pass on any savings at the checkout and that bank customers would ultimately foot the bill in lost rewards. Both predictions have proven true, but for reasons clear only to the Federal Reserve, the government is poised to double down on this misguided policy with another 30% cut in debit interchange followed by an automatic biannual adjustment. This “one-way ratchet” will continue to hack away at debit programs every two years based on data and a formula of the Fed’s choosing without public comment. The Fed is proposing to slash the interchange rate cap from 21 cents to around 14.4 cents — and recent research estimates that this move could reduce interchange revenue for banks by $3 billion annually. That’s essentially the equivalent of the government reaching into banks’ pockets, taking money allocated to ensuring affordable, seamless, secure banking products and services, and handing it over to the very largest retailers. Retailers will claim that they intend to pass those savings on to consumers. But as we’ve seen in the 13 years since the original Durbin price caps took effect, those promises ring hollow. That means that the real losers in this fight will be American consumers. Not only will consumers not gain the advantage of lower prices in stores, but the Fed’s proposed changes to Regulation II will fundamentally affect the economics of what banks do — and that, in turn, affects the products and services they are able to offer their customers and communities. Banks use interchange revenue to fund free or low-cost checking accounts and other services that consumers value. Prior to the enactment of the Durbin amendment, for example, many banks offered debit card rewards programs — but those programs were eliminated when the revenue streams funding them dried up due to government price controls. These new proposed cuts to interchange revenue will have an even more dire consequence: They will undermine banks’ efforts to foster financial inclusion by providing access to the free and THE REAL LOSERS IN THE REG II FIGHT 8
low‑cost transaction accounts that help unbanked Americans get their foot in the door — a first but necessary step to true inclusion. Our colleagues at the CFE Fund, which oversees the Bank On initiative that ABA has proudly championed, recently wrote to the Fed to emphasize what makes the national account standards work: They were designed to address the needs of low- and moderate-income consumers (bill pay, debit card access, ATM access). They were designed to knock down the barriers that keep so many consumers outside the banking system (minimum balance, credit checks, overdraft fees). And, importantly, they were designed to be economically sustainable for banks offering the accounts. Interchange fees play an important role in that sustainability equation. If banks do not have the revenue streams to support these and other low-cost accounts, they have two options: Pass the costs on to consumers or stop offering and/or marketing the product altogether. Bank On accounts are currently offered by a growing list of banks across the country. And to ensure we can continue that momentum, ABA has been working hard on behalf of its members to elevate these concerns to policymakers. But we can’t do it alone — we need your help. With the Fed recently extending the comment deadline to May 12, ABA is calling on all If the Fed’s Reg II proposal moves ahead, the very largest retailers will pocket that surplus to pad their bottom line — and consumers won’t see a penny of it. bankers to share how this change in regulation will affect their bank and their customers. You can send a letter easily through ABA’s grassroots platform, SecureAmericanOpportunity.com. Banks put interchange to work funding lowcost banking services that help consumers find their way into the regulated banking system — enabling them to take advantage of deposit insurance protections, build credit and do so many other things that can only happen with a banking relationship. If the Fed’s Reg II proposal moves ahead, the very largest retailers will pocket that surplus to pad their bottom line — and consumers won’t see a penny of it. That’s a tradeoff that leaves our country poorer. Email Rob at nichols@aba.com. 9
NAVIGATING UNCERTAINTIES TOP SIX STRESS TESTING TIPS FOR COMMUNITY BANKS By Jay Kenney, SVP & Southwest Regional Manager, PCBB In the complex world of banking, scenario-based stress tests provide a familiar framework for risk assessment. However, amidst today’s higher interest rates and the ever-changing economy, pinpointing the scenario that encapsulates all uncertainties can be daunting. To aid in this endeavor, we offer our top six stress testing tips tailored to the needs of community banks. 1. Sensitivity Testing: Market downturns, interest rate fluctuations and liquidity issues underscore the importance of sensitivity testing alongside scenario testing. Rather than attempting to capture every stressor, focus on assessing your portfolio’s resilience against deviations from your typical baseline. Additionally, consider sensitivity back-testing to document past actions and their effectiveness in mitigating sudden market fluctuations. These insights are invaluable for future planning, board education and employee training. 2. Collateral Location: While major urban centers often dominate headlines, several secondary markets are witnessing increased vacancies in commercial real estate (CRE) and multifamily properties. Scrutinize the geographical distribution of your collateral and consider introducing additional loan groupings to address heightened risks in these markets. Tailoring stress assumptions to local economic conditions enhances risk assessment accuracy. 3. Rollover Risk: With interest rates surpassing recent historical averages, shorter-term borrowers face increased rollover risk. Assess loan structures, particularly balloons nearing maturity, to anticipate refinancing challenges. Understanding the proportion of loans reaching maturation and borrowers’ ability to qualify for refinancing is crucial for managing rollover risk and preserving portfolio stability. 10
With adequate stress testing, you can prepare your bank for whatever potential risks may be in your portfolio and how they impact liquidity and capital. 4. Dig Deeper: Beyond surface-level analysis, delve into the intricacies of revenue sources, economic uncertainties and your customer base. Investigate how urban migration impacts residential landlords and associated cash flows, and assess the sensitivity of your customers’ business models to higher interest rates. Comprehensive analysis enables proactive risk mitigation and strategic decision-making. 5. Earnings Challenges: When assessing credit stress, keep earnings forecasts in perspective, considering the industry’s evolving landscape. Rising deposit costs coupled with softer commercial loan demand pose challenges to net interest margins. While interest income on loans may increase, higher costs on Federal Home Loan Bank (FHLB) advances and overnight borrowings offset these gains. Anticipating earnings challenges allows for proactive measures to maintain profitability. 6. Liquidity: Amidst credit risk considerations, liquidity management is paramount, particularly in turbulent market conditions. Many businesses face unexpectedly higher expenses, inflationary pressures and competition for workers. Developing a plan to protect liquidity against the potential movement of funds between institutions and market uncertainty will help increase financial stability during challenging times. In conclusion, proactive stress testing enables community banks to navigate market fluctuations and safeguard their capital and liquidity. With adequate stress testing, you can prepare your bank for whatever potential risks may be in your portfolio and how they impact liquidity and capital. To continue this discussion or for more information, please contact Jay Kenney at jkenney@pcbb.com or visit pcbb.com. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow Service, international services, lending solutions and risk management advisory services. 11
New Mexico Mortgage Finance Authority Unveils Its 2023 Top Metro and Rural Mortgage Lenders Who Are Fueling Affordable Housing By Kristie Garcia, New Mexico Mortgage Finance Authority The New Mexico Mortgage Finance Authority (MFA) announced its 2023 Top Mortgage Lender Award recipients as part of its annual lender recognition program. John Gabaldon with Waterstone Mortgage Corporation in Albuquerque received the first-ever Housing New Mexico Achievement Award, which is presented to mortgage originators that produce 100 or more MFA loans in a year. Tabitha Gallegos-Kahn with Directors Mortgage Inc. in Albuquerque was named Top Metro Lender, and Nikki Sandoval-Belt with Cornerstone Home Lending in Farmington was named Top Rural Lender. MFA is a self-supporting quasi-governmental entity that provides financing to make quality affordable housing and other related services available to low- and moderateincome New Mexicans. With a vision of all New Mexicans having quality affordable housing, MFA offers several mortgage programs, including loans, down payment assistance and closing cost assistance, and works closely with participating lenders who assist New Mexicans through the homebuying process. In fiscal year 2023, MFA provided $388,294,000 in combined first mortgage and down payment assistance in the amount of 3,352 loans to 1,845 New Mexico families, which included $12,301,805 for down payment assistance in the form of 1,807 loans and grants. “Research shows — what we know intuitively — that homeownership is one of the most impactful ways for people to build wealth,” said MFA Chief Lending Officer Jeff Payne. Metro Lender Awards are granted to those operating within the Albuquerque Metropolitan Statistical Area (MSA), while Rural Lender Awards recognize lenders outside of the Albuquerque MSA. Awards are based on the number of loans originated throughout the year, with top lenders recognized in platinum, gold and silver tiers. In addition to the Top Rural Lender Award, the 2023 Rural Lender Award recipients include: Rural Platinum (Lenders who originate 20 or more MFA loans) • Dani Alpers (Gateway First Bank) • Donice Barnes (PrimeLending, A Plains Capital Company) • Dustin Caroland (Primary Residential Mortgage) • *Jane DeRose-Bamman (AmCap Mortgage Ltd. dba Gold Financial Services) • *Kerri K. Howlett (AmCap Mortgage Ltd. dba Major Mortgage) • Patricia Lewis (Guild Mortgage Company) • Vicki Lucero (Waterstone Mortgage Corporation) • Eliot Rodriguez (loanDepot.com) • Lindsay Rollins (Bell Bank) • Martin Sanchez (Primary Residential Mortgage) • Brent L. Schreurs (Waterstone Mortgage Corporation) Rural Gold (Lenders who originate 15 or more MFA loans) • Ted Bishop (CMG Financial) • *Donna Cline (Academy Mortgage Corporation) • Chris Wood (Primary Residential Mortgage) Rural Silver (Lenders who originate 10 or more MFA loans) • Phil Chavez (Guild Mortgage Company) • *Kathi Giguere (AmCap Mortgage Ltd. dba Major Mortgage) • Priscilla Gonzalez (First American Bank) • Davin Jacquez (Guild Mortgage Company) • *Priscilla Lara (Academy Mortgage Corporation) • Nancy Neel-Black (PrimeLending, A Plains Capital Company) • Tina Valdez (First American Bank) *All the awards are based on 2023 numbers. The companies listed are the companies the lenders worked for in 2023. 12
In addition to the Top Metro Lender Award, the 2023 Metro Lender Award recipients include: Metro Platinum (Lenders who originate 25 or more MFA loans) • Mia Aguilar (Guild Mortgage Company) • Marty Padilla (Waterstone Mortgage Corporation) • Steven Sheldon (Guild Mortgage Company) Metro Gold (Lenders who originate 20 or more MFA loans) • Matthew Berg (PrimeLending, A Plains Capital Company) • Sarah Gmyr-Maez (One Trust Home Loans) • Iris Guzman (PrimeLending, A Plains Capital Company) • Renee Maestas (Guild Mortgage Company) Metro Silver (Lenders who originate 15 or more MFA loans) • Amber Bennett (Guild Mortgage Company) • Eleanor Hutt (Waterstone Mortgage Corporation) • Rosa Izzi (Guild Mortgage Company) • Oscar Medrano (Waterstone Mortgage Corporation) • Ammar Nesheiwat (Primary Residential Mortgage) • Paul Parsons (CMG Mortgage Inc.) • Jason Pike (Waterstone Mortgage Corporation) • Kristi Pofahl (Guild Mortgage Company) • Chris Russo (Waterstone Mortgage Corporation) • Lynette Turpen (Primary Residential Mortgage) As part of the recognition, lenders receive a commemorative certificate and year-long recognition by having a digital badge on their listing on the MFA website. MFA’s Executive Director/CEO Isidoro Hernandez said mortgage lenders are an integral part of MFA’s homeownership efforts. “Our goal at MFA is to get New Mexicans into homes, and this would not be possible without the work of our participating lenders,” said Hernandez. “The lenders are the first step for homebuyers when learning about our mortgage assistance programs, and we are fortunate to have so many dedicated mortgage lenders around the state to help New Mexicans navigate the homebuying process. I congratulate all of the 2023 Top Lender Award recipients and thank them for what they do to help New Mexicans get into homes.” To explore a comprehensive list of MFA-approved lenders, visit housingnm.org/homebuyers/mfa-participating-lenders. For more information about any of MFA’s Homeownership Programs, please visit housingnm.org/homebuyers. John Gabaldon with Waterstone Mortgage Corporation in Albuquerque received the firstever Housing New Mexico Achievement Award. Tabitha Gallegos-Kahn with Directors Mortgage Inc. in Albuquerque was named Top Metro Lender. Nikki Sandoval-Belt with Cornerstone Home Lending in Farmington was named Top Rural Lender. The New Mexico Mortgage Finance Authority announced its 2023 Top Mortgage Lender Award recipients as part of its annual lender recognition program. 13
BOEING’S DANCE WITH DESTRUCTION By Mark Anderson, Legal and Legislative Assistant, New Mexico Bankers Association 14
To begin, let’s do a quick thought exercise. Think about all of the services that you patronize — whether by choice or necessity — products that you purchase and industries you interact with on a yearly basis. It could be succinctly described as one’s consumer experience, even if we’re not always acting as consumers in every interaction. Off the top of your head, what are some of the industries or services that you patronize that you believe can least afford to cut corners and prioritize profit over quality control and safety? I’m sure a few come to mind — the quality of medical care, the structural soundness of your automobile, housing construction — where errors in quality control and safety can have devastating, even deadly, consequences. To take the point further, what is one industry in which cutting corners and ignoring quality control seems particularly foolish, given the ultimate point of its existence? Airline travel, and specifically the construction of airplanes, would be right at the top of the list, given how crucial safety is to the industry. That is why recent developments around airplane-manufacturing giant Boeing have been so shocking and disconcerting. Over the last six or seven years, Boeing has been enveloped in scandal, but it has reached a cascading crescendo in recent months, with a litany of incredibly serious accusations against the company accompanying near-daily issues with its troubled 737 MAX airplanes. How did a storied American company like Boeing get to a place where it’s operating and cutting corners like a fly-by-night enterprise, and what does it say about the structure and incentives of the American economy? Boeing’s most recent string of problems was set off on January 5, when an Alaska Airlines flight was forced to make an emergency landing back at Portland International Airport after a door panel fell off at 16,000 feet. The plane in question was a Boeing 737 MAX, and after further inspection, the cause was an absence of bolts on the door plug. Although passengers had to endure a terrifying experience, it is extremely fortunate for all involved that the incident wasn’t even more serious. The following day, the Federal Aviation Administration (FAA) ordered all Boeing 737 MAX 9 planes in U.S. territory to be temporarily grounded, But after announcing it would increase oversight on the 737 MAX 9, the FAA cleared the aircrafts to resume flights at the end of January. 15
Since then, the problems have been multiplying for Boeing to the point where it’s impossible to ignore for even the most casual news observers. Since the beginning of March, Boeing planes have veered off the runway, lost a tire, shot flames from the engine and taken an unexpected nosedive, injuring 50 people. The nosedive incident, caused by an undiagnosed “technical event” on a flight from Sydney, Australia, to Auckland, New Zealand, is the latest in a seemingly endless string of embarrassing and confidence-obliterating incidents for Boeing. The most significant fallout from these incidents is the March 25 announcement that CEO Dave Calhoun will step down, effective the end of the year. However, it is clear that Boeing’s problems extend far beyond one individual, and instead point to a culture of total impunity and corrosive greed. After all, following two major crashes involving Boeing 737 MAX planes in 2018 and 2019, Boeing’s then-CEO Dennis Muilenberg was dismissed, but the company’s culture clearly remained exactly the same. Muilenberg received a massive $62 million compensation package, went off to his retirement home and the cycle repeated. With true enforcement by the FAA and any fear of true consequences, it is difficult to imagine Boeing’s modus operandi changing dramatically, outside of public relations measures. To illustrate the extent of Boeing’s recent turmoil, a recent Politico article details how former Boeing Executive and Whistleblower Ed Pierson refuses to fly on a MAX plane, even going so far as to walk off a MAX plane. “Last year, I was flying from Seattle to New York, and I purposely scheduled myself on a non-MAX airplane. I went to the gate. I walked in, sat down and looked straight ahead, and lo and behold, there was a 737-8/737-9 (MAX) safety card,” said Pierson. “So I got up, and I walked off. The flight attendant didn’t want me to get off the plane. And I was not trying to cause a scene. I just wanted to get off the plane, and I just didn’t think it was safe. I said I purposely scheduled myself not to fly on a MAX.” You can’t find a more damning indictment than a former senior Boeing official refusing to fly on a MAX plane. However, the recent string of in-air mishaps is just the tip of the iceberg in Boeing’s recent controversies. On March 9, John Barnett, a former Boeing quality control manager who became a whistleblower against the company, was found dead in Charleston, South Carolina, where he formerly worked at Boeing’s large 787 plant. Barnett was found deceased in a vehicle in a motel parking lot, where the coroner’s office says the cause of death “appears to be a selfinflicted gunshot wound.” However, since his death, there has been rampant speculation that Barnett didn’t take his own life. Even though Barnett could have completed his testimony the previous day, Boeing’s attorneys reportedly requested Barnett stay an additional night and complete his testimony the next day, March 9. Also, Barnett was set to come into a large financial settlement, and friends and family have said that Barnett told them, “If anything happens to me, it’s not suicide.” It’s a mountain of circumstantial evidence that points to some wildly amoral, damaging actions on behalf of Boeing. The rising tide of the Barnett scandal, combined with the constant issues with the 737 MAX, has placed Boeing at a genuine crisis point. 16
We have clearly moved in a direction where profit is prioritized far above quality and safety in virtually every realm of society. This recent string of embarrassing and damaging incidents is the latest flareup in what has been a brutal five-plus years for Boeing. A pair of major plane crashes involving MAX planes in late 2018 and early 2019 caused major reputational damage and a series of investigations against the company, but it appears that Boeing didn’t change course. In October 2018, a Lion Air MAX plane crashed in Indonesia, killing all 189 people on board, followed by an Ethiopian Airlines MAX crash in March 2019 that killed all 157 people on board. Numerous countries, including the United States, decided to ground the MAX following the second major crash. It’s a fairly obvious point, but if those two major crashes had occurred in the United States, American media would be endlessly discussing them. However, because they occurred in India and Ethiopia, relatively little attention was paid to them stateside. Certainly Boeing did not receive the kind of reputational damage in America that they are currently suffering. In the months following the crash, Boeing posted its largest-ever quarterly loss, followed by a string of public relations moves designed to rehabilitate the company’s image. Boeing’s board of directors created a permanent safety committee to oversee its aircraft and then fired its CEO and top executive over the following months. After spending over a year redesigning the MAX, the U.S. FAA lifted the grounding order of the 737 MAX in November 2020. Then, in 2023, Boeing began delaying delivery of their 737 MAX 7 due to non-compliant fittings, followed by reports that their 737 MAX planes were having continual mishaps. Then, the Alaska Airlines incident happened in January, causing a spotlight to come back on the company and its practices. The Barnett death and subsequent speculation have only heightened the turmoil. After digesting all of this recent controversy, one wonders, “How did Boeing get to this place? How did they go from being a once-unassailable company to one with its reputation in the toilet?” It’s a universally applicable shift from being focused primarily on the quality of the product to being primarily concerned with massive quarterly profits above all else. In the last decade, Boeing has spent more than $40 billion on stock buybacks and distributed almost $22 billion in dividends to shareholders. Experts point to the 1990s as the period when Boeing’s corporate culture shifted. “In the early 90s, Boeing was really an engineering company run by engineers,” said Bill Lazonick, an economics professor at the University of Massachusetts Lowell. However, things changed dramatically in 1997 when Boeing acquired a rival plane manufacturer, McDonnell Douglas, in what was the 10th-largest merger in American history at the time. According to Lazonick, McDonnell Douglas was “shifting their company to shareholder values” and Boeing followed suit. To show their commitment to this new philosophy, Boeing named former McDonnell Douglas head Harry Stonecipher as CEO. Stonecipher was once quoted as saying, “You can make a lot of money going out of business.” That is not a philosophy you want to see injected into a company that needs to have such a high priority on safety. Stan Sorscher, a former Boeing engineer and union representative who worked there during the merger, said the company’s shift in strategy was obvious. He remembers a conversation with an executive who told him that the deal would redirect the company towards “cost-cutting and investor focus.” Pierson, mentioned earlier in the article, puts it more bluntly. “Why are we having all of these production quality defects?” he asked. “I think the simple answer is the company is continuing to rush production to get planes out the door.” Through all of their turmoil beginning in 2018, Boeing’s executives and shareholders raked in huge dividends and stock benefits. It illustrates the perverse incentive system when everything is so closely wedded to the stock price and shareholder returns. We often see this in industries where the consequences are less dire than when an aircraft crashes, but Boeing is an extreme example of how the constant chasing of profit can easily corrode a company’s foundational purpose. We have clearly moved in a direction where profit is prioritized far above quality and safety in virtually every realm of society. The severity of the consequences of this mentality may vary, but it is a wildly inhumane, extreme way of orienting an economy. Boeing has made conscious decisions that should have them facing serious consequences. However, in a system that prioritizes profit so far above everything else, there is a real question if they will face legitimate consequences. That should make anyone with a conscience question if it’s remotely sustainable to have our priorities so far out-of-whack. 17
AN ILL WIND THAT BLOWS NO GOOD ECONOMIC HEADWINDS AND ASSET AND LIABILITY MANAGEMENT By Elizabeth Madlem, Vice President of Compliance Operations and Deputy General Counsel, Compliance Alliance Financial institutions are facing headwinds on account of burgeoning non-performing assets, corporate malfeasance, a slowdown in the economy and a mismatch between the maturity profile of assets and liabilities. Severe liquidity strains caused the failure of Silicon Valley Bank, Signature Bank and First Republic Bank. Yet despite weaker economic conditions, sharply higher interest rates, high inflation, financial market stress and concerns over a potential recession, the banking industry demonstrated resilience. How? Asset and Liability Management (ALM) Asset and Liability Management (ALM) is a common phrase thrown around a board room when in discussions about the viability and future of a bank. It is the practice of mitigating financial risks resulting from a mismatch of assets and liabilities, a combination of risk management and financial planning. Not only is it vital for the sustainability and longevity of financial institutions within the financial landscape, but it solidifies the important roles that banks play in maintaining the stability and growth of economies. Liquidity risk has become an increasingly important parameter for the assessment of a financial institution. But with a new age of depositor behavior and the evolution of regulations, achieving a dynamic, integrated ALM program is challenging for banks of all sizes. 18
Financial institutions need to recognize that change is necessary for how they tackle managing liquidity and interest rate risks. Low interest rates lasted years, resulting in complacency among financial institutions regarding deposit balance behavior. Then, during the past two rising rate cycles, deposit balances grew, coupled with an unusual systemic deposit inflow from 20202021 as a result of COVID-19 pandemic-related government fiscal stimulus. But those early 2023 bank failures proved that depository behavior is changing. One of the more important lessons surrounded concentration risk. Prior, deposits were considered one of the safest products in the liability structure of a bank. But, as the industry quickly learned, some types of depositors are more sensitive than others. Large concentrations of a particular type of client create a higher risk of deposit flight, as was the case with SVB. As a result, banks are needing to diversify their funding basis. An Agile ALM Framework The ALM function covers a prudential component and an optimization role within the limits of compliance. Prudential meaning the management of all possible risks and rules and regulations, with optimization covering the management of funding costs, generating results on balance sheet position. But the industry is riddled with change: business cycles becoming aggressive, global ecosystems and third-party risks becoming more complex, regulations rapidly changing, more stringent compliance enforcement — financial institutions are going to be forced to adopt an agile ALM framework with a broader perspective scoping out broad objectives of the bank’s asset/liability portfolio, as dictated by the Board in order to address new situations where a policy does not yet exist. With the adverse interest rate environments, it has been found that most ALM systems and processes are not providing accurate and explainable outcomes scaled to meet transaction processing requirements. They lack flexibility to support interest rate risk reporting, scenario modeling requirements and “what if” analysis and are unable to scale to account for a bank’s contract and account volume of deposits and loans. There exists a lack of transparency in the underlying calculation logic, resulting in unexplainable and independently unverified data. The Three Pillars It is important for banks to assess the three pillars within an ALM program to include: ALM Information Systems, ALM Organization and ALM Processes. These pillars address the four key components examiners test on: board and senior management oversight policies; procedures and risk limits; management information systems; and internal controls and audit. ALM Information Systems addresses Management Information Systems and information availability, accuracy, adequacy and expediency. Information is the key to ALM strength. ALM organization requires a strong commitment from the board and senior management to integrate basic operations and strategic decision making within risk management. The ALCO decision-making unit monitors market risk levels compared 19
to board-set risk limits, articulates the current interest rate view and view on the future direction of interest rate movements to strategize for future business opportunities, and reviews the results of and progress in implementation of the decisions made. Lastly, the ALM process encompasses a scope of liquidity risk management, management of market risks, trading risk management, funding and capital planning, and profitplanning and growth projection. Stress Testing While the above is not all-encompassing, it does assist financial institutions in knowing that their ALM foundation is robust and agile to respond to evolving needs, and that it is modeling the balance sheet, projecting net interest income and economic value of equity, all while performing scenario analysis and stress testing to assess the impact of key performance indicators. This means also hiring a quality ALM professional who understands the need to replicate the portfolio from a sensitivity point of view when modeling a balance sheet or replicating cash flow, including complex structured products and embedded optionality. It requires accuracy and reliability to demonstrate what is happening right now within a portfolio. As stress testing and scenario analysis demands continue, banks need to be able to respond consistently to multiple scenarios via their credit stress models. It should account for evolving requirements, meaning the bank should be able to run a scenario analysis, including stress testing non-interest-bearing checking accounts if there is a move to a higher interest rate. Be Proactive Financial institutions need to recognize that change is necessary for how they tackle managing liquidity and interest rate risks. ALM and liquidity are two essential parts of the bank’s overall model risk management structure. In addition, ensure the board has at least one director with a solid understanding of balance-sheet management concepts; be proactive in identifying risks and updating policies and procedures before implementing new products or activities; and reevaluate and communicate guidance and risk tolerances to bank personnel. With the economic landscape, particularly that of community banks changing significantly, it directly correlates to a heightened need for attention to ALM risk management strategies and processes. Elizabeth is the Vice President of Compliance Operations and Deputy General Counsel at Compliance Alliance. As the Vice President of Compliance Operations, Elizabeth oversees C/A’s Products and Services and plays an important part in all operational areas of C/A. 20
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American Bankers Mutual Insurance Ltd., the reinsurer for the insurance program co-endorsed by the American Bankers Association (ABA) and the New Mexico Bankers Association (NMBA), declared a $3.5 million distribution to be shared by qualified ABA member banks insured through ABA Insurance Services, a member of Great American Insurance Group. This is the 34th consecutive year that the industry’s leading professional liability and bond insurance provider has declared distributions to eligible ABA member banks, bringing the total to $100.8 million since the program’s inception. ABA member banks that purchase their directors and officers (D&O), bond, cyber, property and casualty, and related insurance from this program are eligible to receive a distribution. “We are proud of this program and its major milestone achievement of more than $100 million distributed to participating member banks,” said Rob Nichols, ABA president and CEO. “Between the reliable, annual distributions and the high-quality insurance products available, we believe this to be a valuable member benefit and hope others will consider participating.” “Year after year, for more than three decades, this program has provided eligible ABA members with meaningful distributions and a long-term, stable source of quality insurance and risk services,” said Gary Hemmer, chairman of American Bankers Mutual Insurance Ltd. and chairman of the board of First National Bank of Waterloo in Waterloo, Illinois. “We hope members will look closely at the ABMI offerings as they evaluate their insurance needs going forward.” To receive a distribution, a bank had to be a member of ABA with qualifying D&O, financial institution bond, property and casualty, and/or cyber insurance with ABA Insurance Services on Tuesday, January 16, 2024. Distributions took place in February 2024. BANK NEWS Kansas City Fed President Diane Raley Retires Diane Raley, senior vice president, chief of staff and corporate secretary, retired from the Kansas City Fed in November 2023 after 25 years of service. Raley’s career included pivotal leadership roles in communications, programming and district-wide relationshipbuilding that increased the public’s connection to the bank and the Federal Reserve System. Raley joined the Bank’s Public Affairs Department in 1998 after working in media and public relations roles for organizations in Cincinnati, Ohio, and Memphis, Tennessee. She was appointed to the position of assistant vice president in 2001, to vice president in 2004, and to senior vice president to the Regional, Public, and Community Affairs Division and corporate secretary in 2009, also serving as a member of the bank’s Management Committee. In 2005, Raley founded TEN magazine to highlight the bank’s research and public engagement work and share stories about how economic trends are affecting people, communities and businesses across the district. In her time at the bank, Raley helped establish the branch executive roles in Denver, Oklahoma City and Omaha, further promoting regional outreach and connection with communities and industries. For 23 years, she also led strategy, planning, development and communications for the bank’s annual Economic Policy Symposium in Jackson Hole, Wyoming. In addition to her leadership duties, Raley directly supported media relations for Bank Presidents Thomas Hoenig and Esther George and oversaw the bank’s recruitment of directors across the district, resulting in an increasingly diverse representation of the communities that the bank serves. New Mexico Banks Receive $19,926 in Distributions from American Bankers Mutual Insurance Ltd. 22
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