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Utah banks are healthy.

"I would not dispute the report coming out of the Federal Reserve that Utah and Idaho have the best health in terms of the banking industry. The banking industry in Utah is as good today as it's been in 20 years," states George Sutton, Utah's commissioner of financial institutions.

Sutton's confidence in Utah's banking industry is echoed by many observes. "The industry's in excellent condition - perhaps the best it has been in for the last two decades," concurs Roy Simmons, chairman of the board of Zions First National Bank.

"I can't think of a single state or region in the country right now that has a more stable banking environment than does this one," says Jeff K. Thredgold, senior vice president and chief economist at Key Bank.

It was not always so. Within easy memory, Utah's financial industry was reeling. Its thrifts were shuttered by the state, savings and loans here suffered losses and insolvency, and the bottom lines of just about every major local bank took a beating. All this happened during the early and mid 1980s.

This year, most if not all of the major banks report record earnings, the thrift crisis is a distant recollection, the surviving S&L are strong, the credit unions are doing well, and no one expresses any significant concerns about what the 1990s hold for Utah's banking industry. According to Gary Zimmerman, economist, Federal Reserve Bank of San Francisco, Utah's banks are enjoying a 0.91 percent return on assets. This compares with the Federal Reserve's district (nine Western states) average return of 0.54 percent and the nation's average of 0.59 percent. "Utah is doing significantly better than the district and the country," he notes.

Long-Term Effects of Problems

Despite the current health of the industry, the recent brush with disaster has left a permanent mark on it. Of the state's six major banks, only the two largest, First Security Bank and Zions, remain locally owned. Out-of-state ownership was one of the consequences of Utah's banking industry's problems during the 1980s. First Interstate, which years ago bought Walker Bank, is based in Los Angeles. Key Bank, which purchased Commercial Security a few years back, is headquartered in Albany, N.Y. Phoenix, Ariz.-based Valley National also made a local purchase in the late 1980s, Valley Bank & Trust. West One of Boise bought and merged two local institutions, Tracy-Collins and Continental Bank & Trust.

Another result of the industry's problems has been consolidation. There are fewer banks and S&Ls than in the past, which is also a trend nationwide. "During the rest of this decade, I see some consolidation [in Utah], with a number of the larger banks purchasing some of the good, smaller banks," comments Thredgold.

The cause of the industry's current good fortune is easy to see: Utah's economy, in the doldrums during the 1980s, is currently thriving. According to Lawry Alder, president of the Utah Banker's Association, local banks are strong because "our economy is good. Banking tends to be a mirror image of the economy, and we've got a lot of our problems behind us that developed in the early and middle 1980s."

This "cleansing" has given the local industry new-found strength and aggressiveness. First Security is again on the acquisition trail, having recently bought several community banks. The state's first new bank in years was recently started in Orem. All the banks have strong balance sheets.

Loans for Small Businesses

But for the small business owner who wants bank financing, there's some disagreement as to the willingness of the local banking industry to be supportive and the ability of businesses to get financing. Alan Rindlisbacher, vice president, business attractions, Economics Development Corp. of Utah, says that back in 1987, 1988, and even into early 1989, he kept hearing from entrepreneurs how banks were too conservative, how they weren't willing to loan to small businesses. "I don't hear that anymore," he says. "The climate is better today for small businesses."

Thredgold agrees, noting: "The market is better now for small business loans than if was five years ago, but I think the media constantly supports the idean that banks are not making loans."

"We've had pretty good success," says Bill Loucks, chief financial officer of Gazelle Systems, a software maker in Provo. "The banks are conservative, but they've been pretty cooperative." Gazelle is in its sixth year of business and has sales in excess of $3 million annually. It wasn't until last year that the firm first got a significant bank loan. The bank required three years of audited financial statements and collateral. It took a long time for Gazelle to accumulate enough assets and have a long enough track record of success to convince a bank it was a good credit risk, says Loucks.

One local businessperson, who doesn't want to be identified, says he has difficulty borrowing money. In fact, his advice for local small business owners: "Don't go into business if you really need credit." He dealt with one of Utah's major banks, but now says that bank is, "for all practical purposes, out of the banking business." He thinks its out-of-state parent is in some difficulty and, as a result, the bank's priorities, according to him, are: (1) take care of credits on their "watch list" $(loans in trouble$), (2) take care of getting their credits rated properly, (3) get their files up to date, (4) do their renewals, and finally, (5) get new business.

Randy Ovard is another small businessperson trying to get a loan. The owner of Grumps Gas and Groceries and Dairy Tank Co., in Hennefer, Utah, he's been trying to consolidate two loans to take advantage of lower interest rates plus borrow several thousand dollars more to increase the size of his grocery store by 50 percent. He says the SBA is willing to lend the money, but he's been turned down by banks just because of the paperwork involved. A state agency is willing to do the paperwork for $600, but he's wondering if it's worth it because he's not guaranteed the SBA will approve the loan until it sees his completed application. Ovard's experience is probably not unusual. Transaction expenses are making it hard for loans to be economically viable.

What a Bank Needs

Part of the problem is that banks are not appropriate sources of funding for many small businesses. Not recognizing this, entrepreneurs go to the banks, get turned down, and come away thinking the banks don't want to serve the small business community.

"There's big misperception that banks provide money for everything," says Brad Bertoch, staff consultant for the Small Business Development Center. "That's not the case. The bank says, |All I get from this loan is interest. There's no upside potential. I need collateral.'"

Bertoch goes on to note that banks are asset lenders first, then cash-flow lenders. Because the profits a bank makes on a loan are limited only to the interest, they demand collateral. Then they look at cash flow to see the feasibility of the business paying back the loan. This places small business owners in a difficulty position because many lack collateral. Gazelle Systems experienced this. It had to wait until it had built up sizable assets before it could get a loan. Entrepreneurs should go to non-bank sources, such as venture capitalists, for funding until they have something to offer as collateral. Only then does it make much sense to ask a bank for money.

Government regulations are also limiting the availability of bank money to small business. Because of the troubles in the industry in recent years, both locally and nationally, regulators are watching over the shoulders of banks more frequently and banks are being a lot stricter about their requirements when considering a loan application. "The requirements for obtaining loans are more stringent now than 12 to 18 months ago," says George Telford, senior vice president at West One. "That gives the impression that money is scarce. That's not correct."

This can be clearly seen with the quality of financial information banks now require. Telford says many small businesses traditionally applied for loans by using internally prepared financial statements. More sophisticated business owners might have CPA compiled or reviewed statements, with the highest quality statements, CPA audited, used mainly by larger businesses. What's happening now, he suggests, is that banks are moving up the ladder of quality. They no longer accept internally prepared statements for even loans as small as $20,000 or $30,000. They want statements a CPA has compiled or reviewed. "Small businesses need better record keeping than they used to," says Simmons of Zions Bank. "It's becoming quite commonplace for the small business to have a CPA audit."

Simmons considers this good not just for the bank, but for the small business owner as well. "A man who knows where he is has much less likelihood of going broke than one who doesn't and discovers it too late," he says.

Expensive Money

This change presents a problem for the entrepreneur. Financial reporting requirements are becoming increasingly expensive, so much so that some loans no longer make economic sense for the small business owner just because of all the fees.

Telford says wanting audited financials is sometimes just the first added expense small businesses now face. The banks send their own internal quality auditors to study a customer's books one to four times a year. These visits are paid for by the customer and run $250 to $500 per visit. Because of new government regulations, all loans in excess of $100,000 secured by real estate need an appraisal, which is also costly.

"We're finding with small borrowers that they're walking into a bank and the banker says, |This is what we need: we want a compiled financial statement, nothing less than quarterly financial information, maybe even monthly, plus monthly agings of accounts receivable, an appraisal, and we're going to charge you a loan fee and we're going to send in our internal auditors,'" says Telford. "The businessman looks at the transaction and says, |This doesn't make sense anymore, economically.'"

The irony, Telford notes, is that there's an appearance money isn't available when it really is. The problem: the money's expensive.

But the astute entrepreneur can use the situation to his or her advantage. Well thought out loan proposals and savvy dealings with bankers can get the businessperson his or her money. After all, the local banks definitely have money. Those with the ability to tap the well could find ample dollars available for their business needs.

How to tap the well is the hurdle that must be overcome. Bob Belanger, chief executive officer of Salt Lake City's First Professional Bank, says intangibles are important. You want a bank that will stand behind you. "You have to know they're going to be there when you need them. If you don't get that feeling from the bank, then you're at the wrong bank," he says. To assess this, he suggests asking if the bank has experience in your industry, with whom, and if the experience was positive. It helps if the bank knows your industry, is comfortable with it, and if its history with your industry has been beneficial and profitable.

Banks That Are Serious about Small Business

Telford of West One recommends looking for a bank with a small-business unit that specializes in lending to small businesses. Such a department signifies a bank is serious about catering to the needs of small businesses.

It's one thing to pick the right bank an another to have it pick you. As noted, good financial statements, prepared with the help of a CPA, have become practically a necessity in today's borrowing environment.

Belanger recommends inviting the loan officer to your facility. This gives you the opportunity to impress the banker with what you've built and to demonstrate your company's solvency.

Ultimately, the bank wants to know it has a real good chance of being repaid. Telford says this requires the loan request to specify a well-defined primary repayment source, a secondary repayment source and, if possible, a third one. The example he gives is this: Suppose you need money to finance a job that will generate a large receivable. The bank would get paid back when the project is completed and the receivable is collected. This is the primary repayment source. But that probably won't be enough. Cash flows from the rest of the business that re not attached to that particular job could be earmarked toward repaying the loan if the collectible doesn't work out. This would be a secondary repayment source. Then the loan request could single out a third repayment source -- perhaps equipment owned free and clear that would be collateral.

You want the bank's comfort level to be high. And what makes a bank comfortable is the knowledge that barring a natural disaster, it will be repaid. Small businesspeople frequently ignore the bank's need to know it will be repaid. Instead, they ask for money for a business that isn't making any yet, and they have little notion of how the loan will be repaid. They think that if the business works out, there will not be a problem repaying the loan. That may be true, but the bank frequently isn't so sure the business will work out, and in situations like these has no fall-back collateral if the primary repayment source fails.

Though Utah's banking industry is doing well, it has learned its lessons from its recent past. More money is available today than at any time in recent years, but it's harder to get. The entrepreneur who shops around, finds the right bank, and knows how to push the banker's "buttons" will likely have little problem financing his business.

This situation will probably continue for the foreseeable future. Observers agree the local economy is likely to continue to prosper through the 1990s. Banks will be facing more competition from non-banks, such as brokerage firms and firms like Sears. But we'll also see banks moving into areas they traditionally had little presence in, such as insurance and brokerage/investment banking and real estate.

For the small businessperson, the future of Utah's banking industry has hurdles to overcome, but it presents plenty of opportunities. To tap into the local money well, the entrepreneur needs to be a bit more sophisticated and savvy than in the past. If he or she is, the industry's health will be a major benefit.

Roy Simmons, Patriarch of Zions

Roy Simmons, chairman of the board of Zions First National Bank, didn't intend to get into the banking industry. The year was 1939, not a propitious time to begin a career. "I didn't seek out banking, I just sought a job," he says. His first job was as a teller at the First National Bank of Layton. He certainly found his compatible industry quickly.

Within 10 years of entering the field, he was Utah's bank commissioner, a post he held from 1949 to 1951. He was president and principal stockholder of Lockhart Co., an industrial loan company in Salt Lake City from 1953 to 1960, when he led a group of investors who purchased Zions from the LDS church. "I had heard the bank was for sale, so I approached the church," he says matter-of-factly, describing his entrance into bank ownership. The church at the time issued a statement saying it had started Zions in the 1870s because church members had trouble getting financing. Over the years, this situation changed, so the church no longer felt it was necessary to continue running the bank.

Simmons took this opportunity and made the most of it. He describes the greatest satisfaction he's received in business coming from the growth of Zions. In 1960, the bank was the third largest in the state, with assets less than half the No. 2 bank, Walker Bank (now First Interstate). The No. 1 bank, First Security, had assets greater than Walker and Zions combined. Today, Zions is NO. 2 and its Utah assets are only about 20 percent less than First Security's Utah assets. Zion's assets are greater than the combined assets of Key Bank, First Interstate and Valley Bank and Trust, the state's third, fourth and fifth-largest banks, respectively. The bank's most recent financial statement reported record earnings, so the bank continues to perform well.

Simmon's accomplishments haven't gone unnoticed in the community. In 1986, he received the "Distinguished Bankers Award" from the Utah Bankers Association. Both Southern Utah State College (now Southern Utah University) in Cedar City, and his alma mater, the University of Utah, have awarded him honorary doctorate degrees.

He recently gave up the position of chief executive officer at Zions in favor of his son, Harris, who is now president and CEO. Another son, David, runs the Simmons family's broadcasting empire. It includes ownership of both FM and AM radio stations in Salt Lake City, St. George, and Idaho Falls and is the managing partner in Salt Lake City-based Keystone Communications Co. Simmons describes Keystone as the second largest satellite broadcasting company in the country, with branch offices in New York, Los Angeles, and Washington, D.C. The company buys the rights to use various satellites and then rents time on the satellites to others. About 85 percent of the National Basketball Association games go over Keystone's satellites. All the news that goes from the U.S. to Japan goes via Keystone, which has about 250 employees.

Simmons and his wife of 53 years, Elizabeth, have two other sons, who own Houston-based Simmons and Co. International which is in the financial end of the oil business, and two daughters. When not plotting strategy for Zions or other Simmons family holdings, Simmons likes to play golf and garden at the Simmons home in Kaysville.

Born in 1916, Simmons still is extraordinarily active. And like his bank, he shows no sign of slowing down. A patriarch of the Utah knows how to compete and succeed in a very challenging industry.

Alan Horowitz has written for many national publications including Business Week and is a regular contributor to Utah Business.
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Title Annotation:Federal Reserve reports excellent condition for Utah banking industry; see related article on Roy Simmons, patriarch of Zions First National Bank
Author:Horowitz, Alan
Publication:Utah Business
Article Type:Biography
Date:Apr 1, 1992
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