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. As of December 31, 2017, the bank had equity of $14.1 million on $147.9 million in assets.

Thanks to the efforts of 79 full-time employees in 13 offices in NM, the bank has amassed loans and leases worth $122.7 million, including real estate loans of $70.5 million. The bank currently holds $128.8 million in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Bank of the Southwest exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank fared on the three key criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

Capital acts as a cushion against losses and as protection for account holders when a bank is experiencing economic instability. Therefore, a bank's level of capital is a key measurement of a bank's financial resilience. When looking at safety and soundness, the more capital, the better.

Bank of the Southwest fell short of the national average of 13.13 on our test to measure capital adequacy, scoring 10 out of a possible 30 points.

A bank's Tier 1 capital ratio is a widely followed measure of this buffer. Bank of the Southwest's Tier 1 capital ratio was 12.99 percent, above the 6 percent level regulators consider adequate, but lower than the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather financial headwinds.

Overall, Bank of the Southwest held equity amounting to 9.51 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

In this test, Bankrate tries to determine the impact of troubled assets, such as unpaid mortgages, on the bank's capitalization and allocated loan loss reserves.

Having large numbers of these kinds of assets may eventually force a bank 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 no longer earning interest for the bank, decreasing earnings and increasing the risk of a future failure.

Bank of the Southwest scored 32 out of a possible 40 points on Bankrate's asset quality test, coming in below the national average of 37.49.

The percentage of problem assets a bank holds compared to its total assets is a widely used indicator of asset quality.As of December 31, 2017, 0.61 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 1.01 percent.

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

Earnings score

How profitable a bank is affects its long-term survivability. Earnings may be retained by the bank, boosting its capital cushion, or be used to address problematic loans, potentially making the bank better able to withstand economic shocks. Obviously, banks that are losing money have less ability to do those things.

On Bankrate's earnings test, Bank of the Southwest scored 20 out of a possible 30, beating out the national average of 15.12.

One important measure of a bank's earnings is return on equity, calculated by dividing net income (essentially profit) by total equity. Bank of the Southwest's most recent annualized quarterly return on equity was 10.52 percent, above the national average of 8.10 percent.

The bank reported net income of $1.5 million on total equity of $14.1 million for the twelve months ended December 31, 2017. The bank reported an annualized return on average assets, or ROA, of 1.04 percent, above the 1 percent deemed satisfactory in accordance with industry standards, and above the average for U.S. banks of 1.00 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.