January 15, 2014

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Banking and Finance

January 15, 2014

What areas of economic growth do you see in Utah?

BLEGGI: I’ve just started my 40th year of banking. What I have noticed is that the younger generation—those that are between maybe 20 to 35—don’t have the same misgivings about the economy that us old folks do. They don’t have that fear and trepidation.

I’ve got an SBA loan that I’m working with right now for a company that’s doing a manufacturing firm startup for metal precast—a very, very specialized business. They’ve got fabulous credit, they’ve done their homework; and she’s a controller for another company, and he’s had maybe 10 years experience. But they’re not afraid, and I think it’s because they haven’t gone through the great times that a lot of us went through, and then we’re just trying to swim to the surface.

But maybe we should take up a little bit of their viewpoint and think we can make this happen. I know that’s maybe an unrealistic point of view, but we are isolated in Utah. We have the No. 1 growth in business in the country right now.

BEARD: It’s a misnomer that we’re not in the lending business. That’s the guts of what we do. There are some real risks in this lending environment. We’re seeing that interest rate risk is a huge risk, as the competition is fierce for good loans. We’re not where we’d like to be in our loan growth.

When we look at loans, one of the big issues we’re always dealing with is other institutions that are willing to go out longer for the terms of the loans. Big banks have a different funding mechanism, so they tend to do that. But in the community banks, that’s a challenge, and it’s a hidden risk in the banking system.    

CAMARELLA: When you look at Utah, what you see is an example of when government and business and private and public sector work together, where you’ve got a government that’s pro-business, where you’ve got organizations like EDCUtah, the Governor’s Office of Economic Development, the Salt Lake Chamber. When you look at all that and put it together, there is a true concert of attracting business to our state. It has helped us sustain, for years, a very positive and vibrant economic status against other states across the country.

LUIKART: Another thing I would say relative to lending: the demand is just not there. The dollars are there. You’ve heard everyone say how much we have in deposits and money to lend. And I really don’t think we’ve changed our lending procedures all that much. I can speak more to the commercial side of it, that I know we haven’t changed dramatically there. So the dollars just sit there waiting to be used.

Historically, in a normal economy, if you lend a million dollars to a business, they would use 60 percent of that. After 2008, that number dropped to about 30 percent. And it wasn’t because they got shut off. All that money was still available, commitments were still there. But there’s no demand to draw down those lines.

Today we see that 45, 50 percent on its way back, but certainly not at a historical level. That tells us that over half the money that’s been committed to all of our clients—who could come in tomorrow and draw all that down without asking for any approval—it’s committed to them, but yet they don’t do that.

My first mortgage was at 10, 11 percent. And how many times did I refinance that thing over the next 25 years? We’re not going to see that activity any longer. Rates are not going to drop low enough. I’m never going to want to refinance again.

But I’ve never had a business owner come to me and say, “Rates are so low, I need to borrow money.” That’s never happened. It’s economic growth and development that makes a business want to borrow money. Certainly they want the best rate they can get. But the rate doesn’t determine for a business owner what he’s going to do, whether he’s expanding his business or not. Rates are at all-time lows, and you’d think people would be running in, “Man, I can get rates at sub-3 percent, sub-2 percent.” That’s just not the case. Businesses are not as driven to borrow just because rates are low as a consumer may be.

PACKARD: There’s one other component that really bodes well for Utah, and that’s our demographics. Look at our demographics as far as population growth, people having children, people getting married. That prompts people to want to buy a home, want to buy a car. It’s just the fundamentals. And that will continue to be strong.

BOWEN: Utah has positioned itself very well in the growing business climate. I hate to put a damper on this, but we’re still hitched to the national economy, and if we’ve learned anything from the last downturn, it was that we’re not insulated. We are to some degree, but we’re still lockstep with the national economy. And if that fails, we’ll follow along with it. So banks still are being a little bit cautious and can get caught up in the euphoria of all of the positive numbers that we hear.   

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