Target: regaining vitality - New Mexico's banking industry and credit unions - Finance Industry - Industry Overview

New Mexico Business Journal, June, 1992 by Arlene Cinelli Odenwald

Most of New Mexico's banks apparently are on their way to regaining their health, far better than the nationwide average.

Overall, banks in the Land of Enchantment posted a 54.5 percent increase in profits in 1991 over 1990, compared to an 11 percent profit increase nationwide.

Even though 12 of New Mexico's 83 banks did not make a profit in 1991, the state ranked fifth in profitability among all other states.

Seventy-one of New Mexico's 83 banks were profitable in 1991, or 85.5 percent.

"Higher profits have to do with more than lower interest rates," says John Jennings, senior vice president of Sunwest Bank of Albuquerque.

Sunwest and United New Mexico Financial Corp., the state's two largest bank holding companies, both reported sharply higher earnings even for the first three months of this year.

"We went through a period of over-building that created loan problems," says Jennings. Sunwest Bank of Albuquerque, incidentally, posted a .34 percent profit for 1991.

Though Sunwest's profits in Albuquerque were up in 1991, it still had to suspend dividends, which it did about the first quarter of 1991.

Sunwest, as New Mexico's largest financial institution, has 12 banks in the state and a bank in El Paso.

United New Mexico, with 12 banks and total assets of more than $1.7 billion, is the second largest multi-bank holding company in the state.

Sheshunoff Information Services Inc., a leading information and consulting firm for the banking industry, attributes higher profitability among banks to declining interest rates, which contributed to higher net interest income and higher gains from the sale of fixed income securities.

If Sunwest's merger with Boatmen's Bancshares is approved at the next shareholders' meeting June 8, Jennings says the new shareholders of Boatmen's Bancshares would probably be receiving a dividend sometime in the fall.

"Rapidly falling interest rates have contributed to a rise in profits," said Bruce Thomas, senior vice president and cashier of First National Bank in Tucumcari. First National Bank's profitability rose 0.23 percent.

Jennings contends the higher profit margins indicate the economy is regaining its health.

Since 1985, 11 New Mexico banks have closed. Three closed last year. Southwest National Bank in Albuquerque, American Bank in Rio Rancho and Liberty National Bank in Lovington closed in '91.

So far this year, no banks in the state have shut their doors.

Although New Mexico ranks 43rd in total assets, New Mexico's bank assets grew 9.8 percent, ranking New Mexico third among states in asset growth from 1990 to 1991.

New Mexico's largest banks, according to assets, are: Sunwest with $1.9 billion; First National Bank in Albuquerque with $1.3 billion; Bank of America with $957 million; United New Mexico Bank (Albuquerque only) with $893 million; and First National Bank of Farmington with $376 million.

Three of the five posted profits in 1991: Sunwest with 0.34 percent; United New Mexico with .4 percent; and, First National Bank in Farmington, with 1.03 percent.

Since a loan to a bank is an asset, banks making a lot of loans have a way of looking very good, which is why they probably looked so good through the 1980s, until 1987 when loans began turning into nonperforming assets.

In 1991, New Mexico's nonperforming loan portfolio dropped 9.9 percent from 1990, ranking it 37th in the nation; 2.8 percent of New Mexico's total loans are nonperforming, ranking it 18th in the country in that category.

Sunwest and First National Bank in Albuquerque had the dubious distinction of posting the largest percentage of nonperforming loans as a percent of total loans.

Sunwest's nonperforming loans comprised 5.84 percent of its total loans; First National Bank in Albuquerque's nonperforming loans comprised 5.77 percent of its total outstanding loans.

Next was United New Mexico with 1.63 percent, then First National Bank of Farmington with .60 percent. Bank of America's non-performing loans comprised .06 percent of its total loans.

Loan demand is still low nationwide although in New Mexico, loans were up by 9.5 percent last year over 1990.

Although New Mexico posted more loans in 1991 than in 1990, many banks -- even those whose loan portfolios had risen -- indicated that loan demand was on the low side.

Edward O'Leary, president of First National Bank in Albuquerque, reports that their loan demand was down, reflecting what he called the current malaise in the overall economy.

Jim Rose, executive vice president of First National Bank of Farmington, says that his bank's loan to deposit ratio has declined as its deposits continued to grow.

"But we generally are not experiencing the loan demand to match our deposits," Rose says. He indicates that for loan demand to rise the economy would have to improve.

"In our area the price of oil and gas is still really low," Rose says.

To a great extent, New Mexico's large banks have paralleled the country's traditional money center banks that have either had to lay off employees, sell assets, or eliminate dividends in order to survive.