At Friday's Gila Economic Development Alliance Roundtable, two bankers spoke about the economy.
Sean Ormand, CEO and President of 1st New Mexico Bank said that although a community bank is not a public utility, but is a private business, in many ways such banks are treated as public utilities. Regulators have oversight of community banks, but the same rules apply to the banks as they have in the past—good liquidity, good management, assets and risk.
"We are a financial intermediary," Orman said. "We have a product—money—which is a way to get growth in a community. Banks were formed when people had money and other people needed to borrow that money."
He said 1st NM Bank has assets of about $100 million and employs 21 people.
"Banks are not complex as a product," Ormand said. "Where the complexity comes in is how to use that product. We have to decide whether an investment is solid over time and where the risk is. If I lend money, it has to be done in the best interests of the person and the bank. We have stakeholders behind me whose deposits are also at risk, although they have the safety net of the FDIC."
Although 1st NM Bank is state-chartered, it also has to adhere to federal rules. "We have to manage risk when the economy is up and when it's down. As a community bank, we have a harder time getting in trouble than the big banks. Common sense and examiners come into play. Big banks went too far with their lending."
He said the Dodd-Frank is a 2,300-page regulatory document passed by Congress. "It is aimed at big banks, but also regulates us," Ormand said. "It has 400 new regulations and 200 regulations yet to be defined all to protect the consumer. It becomes a challenge for us, because with new rules and regulations, we have to spend time studying and managing for them instead of being out in the community asking what you need. I, as a community bank, have to make it here. I would encourage you to look at community banks. Most of the employees have at least a share or two, and I, too, have skin in the game. Why risk that?"
Ormand said he stays in economic development because "that's what I do. We're economic developers every day. I'm a salesman trying to sell confidence in using a local product and the money stays here."
Mike Trujillo, AmBank president, said the country hit a recession in 2008, and "I'm not sure we have come out of it. Banks are flush with money, but we have a low loan demand." He alleged part of the problem was that housing comparables were a problem because values have depreciated. "The flip side is that people are scared of the stock market and have gotten out of the market and deposited their money because it's insured, even though interest is low. People think safety of their money is important."
He said a lot of people, who are able to, are taking advantage of refinancing at historically low interest rates. "They will reap the rewards when interest rates go up."
As for regulatory issues, some banks in Europe are failing because they got hit with a tidal wave of bad loans. Basel III is a global regulatory system set to go into effect this year. "It will dictate where a bank can loan, instead of a banker making the decision. All we can do is serve the community as best we can. It's good we have the copper mine at full employment and they will continue to mine in Fierro. That means revenue for us, which will also help car dealers, restaurants and everyone. I think the employment rate is holding us back. We need to put our money that we are flush with to work."
Trujillo pointed out the vacancies downtown. "It's part of our heritage to have a thriving downtown."
Arlene Schadel of the Gila EDA said, when she was interviewing businesses, they said they needed loans but couldn't get them.
Trujillo said part of the regulations has people "looking over our shoulders scrutinizing our loan portfolio. If a person has three bad years of low income on their tax returns, we can't loan to them."
Ormand said in 2009 or 2010, Diane Denish, former Lt. Governor, was in town and she said people were saying that banks were not lending. "I told her we've had to deal with regulations. She said businesses couldn't sustain their overhead. I said: 'we can't loan to a business to sustain its overhead. How will the business pay the loan back? We would have to classify such a loan as sub-standard.' It really depends on the situation. If the cash flow is there and the business can pay it back, then we can loan. There were 52 state-chartered banks; now there are 47. Almost 10 percent are gone. That's an alarming trend."
Earl Montoya, Silver City resident, said personal income is not that great in the area. "Savings are at an all-time low; Obamacare is having repercussions in the fast food industry, and full-time employees are becoming part-time employees. It looks like we're getting into a vicious cycle. People and banks are in a tough bind."
Trujillo said, if the minimum wage is increased to $9, it will cause inflation. "We have the highest price of gas in the state here, so the grocery store truck has to pay it, and it will increase food prices."
Montoya said the federal administration does not want inflation because it would increase the cost-of-living adjustment on expenditures.
Lynda Aiman-Smith said she supports local banks. "Most of the Dodd-Frank bill is pointed at rash banks. If you don't have derivative or offer stock, you won't be regulated. I do support the Dodd-Frank, and the inflation index doesn't include food and fuel. What can we do to help people locally and work together?"
Ormand said the problem with the regulations and if a bank is under a certain threshold it is excluded, is that an examiner comes in and says: "These are the best practices for the industry, so we will write you up because you are not following them." He continued: "Our examiner comes out of Dallas and he empathizes with us but can't do anything."
"We want you to deposit with us," Ormand said. "It's hard for us to loan to a new business that has no track record. If it's an existing business, which needs to buy new equipment, we ask if the business can pay overhead, make a living and pay employees. If yes, we can loan to the business."
Trujillo also encouraged people, as a community, to try to shop local.
Aiman-Smith asked how much of local government money is in local banks.
Trujillo said the governments have to spread the money out among banks.
Priscilla Lucero, Southwest New Mexico Council of Governments director, said one of the things the region is facing is getting government things done locally. "They have to go out to bid and often the services are in Las Cruces. One of my initiatives is to get local vendors state certified so that governments can buy from them instead of having to go out to bid."
"For instance, Lee Gruber of Syzygy Tileworks will be certified, so she can sell to local governments that are required to expend Arts in Local Places funding," Lucero said. "The list of things that governments have to go outside the area to purchase is ridiculous. We are developing a workshop to help local businesses be certified. We prefer they buy in Grant County, but at least if governments can remain in the region, it's good."
Gila EDA chairman Jeremiah Garcia said he didn't hear the bankers say anything about what they give back to the local communities. "That's why we support them. We all have to balance our checkbooks and these people are trying to keep people employed. The banks are asked every day for donations to youth athletics, events, and other community needs. Support them."
The rest of the meeting, consisting of reports from organizations and agencies, will be covered in a future article.