Banking.

• Author: Sutton, George
• Position: Industry Outlook - Interview

With Utah's economy finally showing signs of growth and recovery, banking officials and experts discuss the challenges of new federal regulations on the industry and give advice to business execs who are wondering if now is the right time to finance expansion. Capital is available, say the experts, and banks are eager to work with qualified borrowers.

[ILLUSTRATION OMITTED]

We'd like to give a special thank you to Hal Heaton, professor of fianance at Brigham Young University, for moderating the discussion and to Holland & Hart for hosting the event.

We are coming off of two very memorable, unforgettable years. By my count, five banks in Utah have been shut over the last 18-20 months. If I heard correctly, Zions just announced nine straight quarters of tosses. How are we doing? How is your company doing? How is your capital adequacy?

[ILLUSTRATION OMITTED]

LEARY: For Utah, it has been a very difficult last two years. Like the rest of the country, we've had stressed conditions in our economy, stressed conditions in our financial institutions. Unfortunately, it has resulted in a closing of a number of financial institutions in the state. Compared with our peers around the country, we're probably somewhere on the lower third as far as numbers of institutions within the state. Some of the larger-growth states have closed more of a number of institutions than we have.

With regard to that stress, it's safe to say it is centered predominantly in construction development loans. Real estate based lending had been very solid for 50 years, 80 years, and suddenly the values went south very quickly. So it was demanded of the regulators, demanded of the financial institutions, to quickly adapt.

At the same time, you have the political action that has caused additional concern and heartache, at a time when we're trying to repair our system. This has simply exacerbated what we currently have going on across the country. The magnitude of rules and regulations caused as a result of the Dodd-Frank Act is beyond belief for most people. For banking alone, in excess of 200 hundred rules have to be written within the next year.

So we're getting into the home stretch, which will be a massive tidal wave of additional rules. That's the uncertainty that I'm talking about at a time when we need certainty within the financial institutions and within the economy as a whole. The mortgage crisis, whether or not financial institutions appropriately are foreclosing, has simply been another factor in causing uncertainty at this time.

CAMARELLO: 2010 was a solid year for Key Bank. We had four straight quarters of profits, a solid year of profitability. The thing that we're most pleased with is the reduction in nonperforming loans. Obviously, that's impacted all of our profitability over the last couple of years. We've been acting prudently in terms of reserving properly for bad loans; and we're now seeing those monies that have to be set aside in loan loss reserves coming down.

In short, you're ready, willing and able to start making business loans?

CAMARELLO: Absolutely. We've been making them. We put out some numbers as far as fourth quarter: roughly $9 billion in lending. For the year, just under $30 billion on both consumer and commercial. Definitely doors were open for business and have been all throughout 2010. How we do business, who we're lending to, that's where some of the dynamics have changed.

HOFFMAN: A misnomer in banking is that banks haven't been willing to lend. Banks have probably put out more effort to find qualified borrowers in the last two years than at any time in recent history. But because of the uncertainty in the economy, you find borrowers unwilling or entrepreneurs unwilling to take risk and increased leverage.

BEARD: Whenever I see that the banks aren't lending, I just don't understand that. In our case, we've been profitable through this mess, we've had some asset problems that we've had to deal with. Ours were also declining. We seem to be hopefully working through those. But our problem is we had a lot of liquidity, and we don't have people who can repay the money who are wanting to take out loans.

Have you had to change your qualifying standard regarding what it takes to get a loan?

BEARD: We still are making construction loans to qualified borrowers. We want to make sure we're getting repaid. What's happened is a lot of the financial statements of developers deteriorated, and so in that sense it becomes harder for them to borrow. But there are still developers out there doing development work. And in cases where they're solid, then we're willing to make loans.

PIGNANELLI: Industry banks in Utah, in the West, are doing just fine. We are in good shape. As a matter of fact, we're looking forward to the government GAO study that's coming out that has been commissioned pursuant to the Dodd-Frank legislation. There is a moratorium that will be offered in 18 months, and we're looking forward to what we think is an opportunity with this new Congress and with a new enlightened mentality in the administration.

We talked about the ability of industrial banks to buy credit to a lot of different niche markets, small business, big business, whatever. It's morning in America for industry banks.

HEADLEE: I've been out visiting all the banks in the state, and I'm hearing very encouraging news in terms of the decline in the problem loans, signs of increased demands from qualified borrowers, and really the bankers just doing a fantastic job of managing their institutions through clearly what has been the most difficult time in my lifetime.

It takes two to tango: bankers willing to tend and businesses wanting to borrow. What is your view of Utah's economy, particularly relative to the rest of the United States? Is the loan demand going to be there?

[ILLUSTRATION OMITTED]

THREDGOLD: Utah in general is actually leading the West in terms of employment growth. What we now call The Great Recession took all 50 states into recession. We went into recession about a year later than the average state, so that's one reason we're near the top of some of the lists on foreclosures and bankruptcies.

But we've come out, we've added about 15 and a half thousand jobs the last 12 months, a growth rate of 1.3 percent. When compared to historic numbers, it's fairly poor. But you can step back about 15 or 16 months ago, and in the prior 12-month period we lost 74,000 jobs. So we've made the transition from our most painful recession since the Great Depression back to growth. It's modest growth. It'll be better this year; it'll be better next year.

Housing, we think, in terms of prices will probably in this market reach bottom, stabilize, about this summer, but we expect to see better performance in 2012, 2013.

The nightmare that happened last year in terms of the documentation on residential loans, particularly related to securitization of mortgages, delayed a lot of foreclosures, which may have...