El Paso is booming, and its banks are reaping the benefits.
About 20,000 soldiers are expected to move to El Paso's Fort Bliss over the next six years; the first four-year medical school to be built in this country in 25 years is under construction there; and the border town is adding lucrative high-technology and automotive jobs.
Though El Paso's economic expansion is still in its early stages, bankers say they are already seeing significant demand for construction and small-business loans.
"It's a great time to be in banking in El Paso," said Rodrigo Flores, the president and chief executive officer of the $62 million-asset Capital Savings Bank, which is on pace to earn $1 million this year, four times what it made two years ago.
"I bet construction is up over 100%," he said. "When I file my call reports, I have to put how much I have in unfunded commitments to build homes. We used to have $3 million. Now it's $6 million."
It's the same story at the $75 million-asset United Bank of El Paso del Norte, which opened in 2001, became profitable in 2004, and earned $153,000 in 2005. "For the first six months of this year we have quadrupled what we did in all of 2005," said its president, Lester Parker.
Out-of-town banks are taking notice.
Of the 76 banking offices in El Paso, 10 have opened since January 2004. Among the new entrants are the $1 billion-asset City Bank of Lubbock and the $1.1 billion-asset Inter National Bank of McAllen, Tex.
City Bank is funding torrid loan growth in El Paso with deposits gathered in its other markets, said Bob Kotarski, its president for the El Paso market. City Bank's two El Paso branches have about $30 million of deposits and $140 million of loans.
"Other City Bank branches have more deposits than loans," he said. "We have a number of branches in rural locations with more mature deposit bases and not enough growth for loans. It balances out."
City Bank plans to continue opening about one branch every two years in El Paso.
And more competitors are rumored to be on their way.
"This year, for the first time in our 16-year existence, we've seen a real slowing in deposit growth," said Larry Patton, the president of the $620 million-asset Bank of West, the main subsidiary of West Financial Inc. "El Paso is becoming overbanked. A lot of people look at the market and see opportunity, and they get here and it is slower than they anticipated."
To protect its turf in Texas' sixth-largest city, where it has all five of its branches and its headquarters, Bank of the West is opening two more branches, one near the expanding military base.
Fort Bliss, which abuts El Paso, has about 17,000 troops stationed at the base. Last year the Army announced that the number would reach 37,000 by 2011. (El Paso's population is just under 600,000.) The additional troops will bring families with them and increase demand for housing, infrastructure, schools - and banking services. About 60% of the troops are expected to live off base in the city.
The troops being moved to El Paso are some of the military's most specialized.
One brigade of 3,800 is responsible for testing technologies, and that has piqued the interest of some of the world's top technology companies. Boeing Co. and SAIC (Science Applications International Corp.) have partnered as the military's lead systems integrator and have announced they will move 200 engineers and other high-paid support jobs to the area.
To pay for the added infrastructure and schools, and to improve the quality of life by adding more parks and museums, the city has issued $900 million of bonds, said Bob Cook, the president of Regional Economic Development Corp., a nonprofit whose mission is to attract new business and industry to the area. For instance, El Paso is building the world's largest in-land water desalinization plant.
The new medical school, which just completed its first building, will be both a training ground for new doctors and a research facility.
A third source of strength for the El Paso economy are the maquiladoras over the border in Juarez, Mexico. Under the maquiladora system, raw materials or parts are transported tariff-free across the border to Mexico, assembled, and brought back across the border with taxes charged only on improvements.
Before Sept. 11, 2001, the maquiladora industry employed about 270,000 people in factories in Juarez. That number dropped to about 180,000 but has resurged to about 240,000, Mr. Cook said.
El Paso's relationship with the maquiladoras benefits the city in two ways: U.S. companies maintain offices and warehouses in El Paso, and Mexicans spend nearly $1.5 billion in El Paso, or roughly 12.5% of the city's retail sales, Mr. Cook said.
For banks working with small-business owners, like Bank of the West, the maquiladoras also mean opportunities to work with auxiliary companies.
"The companies working across the river, large national industries, those aren't going to be looking for a banking relationship in El Paso, but the collateral support we have an opportunity with," Mr. Patton said, referring to small companies that provide parts and services for larger manufacturers. "It's translated to an increase in earnings."
Four years ago his shareholders could expect about an 18% annual return on their investment, he said. These days they are getting a return of about 28%.
