Safe and Sound

Bank of the Southwest

Roswell, NM
4
Star Rating
Roswell, NM-based Bank of the Southwest is an FDIC-insured bank founded in 1930. Regulatory filings show the bank having equity of $14.2 million on assets of $139.6 million, as of June 30, 2017.

Thanks to the efforts of 78 full-time employees in 13 offices in NM, the bank holds loans and leases worth $110.2 million, including $53.2 million worth of real estate loans. U.S. bank customers currently have $125.3 million in deposits with the bank.

Overall, Bankrate believes that, as of June 30, 2017, Bank of the Southwest exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Keep reading for a breakdown of how the bank did on the three major criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital is a crucial measurement of an institution's financial strength. It acts as a bulwark against losses and as protection for accountholders when a bank is experiencing financial trouble. When it comes to safety and soundness, more capital is preferred.
On our test to measure the adequacy of a bank's capital, Bank of the Southwest received a score of 12 out of a possible 30 points, coming in below the national average of 13.38.

One widely used measure of this buffer is a bank's Tier 1 capital ratio. Bank of the Southwest's Tier 1 capital ratio was 14.22 percent, exceeding the 6 percent level considered adequate by regulators, but under the national average of 25.16 percent. A higher capital ratio suggests the bank will be better able to stand up to economic challenges.

Overall, Bank of the Southwest held equity amounting to 10.13 percent of its assets, which was lower than the national average of 12.10 percent.

Asset Quality Score

Bankrate uses this test to estimate the effect of problem assets, such as past-due mortgages, on the bank's loan loss reserves and overall capitalization.

A bank with a large number of these types of assets could eventually be required to use capital to absorb losses, reducing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and thus aren't earning interest for the bank, resulting in diminished earnings and potentially more risk of a future failure.

Bank of the Southwest fell short of the national average of 37.62 on Bankrate's asset quality test, racking up 32 out of a possible 40 points .

The percentage of problem assets a bank holds compared to its total assets is a handy indicator of asset quality.As of June 30, 2017, 0.73 percent of Bank of the Southwest's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.04 percent.

Banks keep a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing the that reserve's size to the total amount of problematic loans can be a widely used indicator when evaluating a bank's ability to manage problem assets. Unfortunately, the FDIC did not provide information on Bank of the Southwest's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its long-term survivability. A bank can retain its earnings, boosting its capital cushion, or put them to work addressing problematic loans, likely making the bank more resilient in tough times. Conversely, losses reduce a bank's ability to do those things.

Bank of the Southwest scored 20 out of a possible 30 on Bankrate's test of earnings, better than the national average of 16.52.

Return on equity, calculated by dividing net income (essentially, profit) by the total amount of equity, is one important measure of a bank's earnings. Bank of the Southwest's most recent annualized quarterly return on equity was 11.15 percent, above the national average of 9.28 percent.

The bank reported net income of $785,000 on total equity of $14.2 million for the twelve months ended June 30, 2017. The bank had an annualized return on average assets, or ROA, of 1.13 percent, above the 1 percent deemed satisfactory in accordance with industry standards, but below the average for U.S. banks of 1.14 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.