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A Lull in Lending?

Representatives from Utah banks say the financial institutions are still lending, just more cautiously. Photo Courtesy iStockphoto.

Many Utah banks continue to lend, despite turning down government assistance

Careful lending practices were a key component in keeping some Utah banks buoyant during the economic crisis and in allowing them to continue lending in a financially-burdened environment without monetary assistance from the Federal Reserve.

The Capital Purchase Program under the Troubled Asset Relief Program was utilized by only a handful of Utah-based banks: Zions Bancorporation, Cache Valley Banking Company and Medallion Bank. In all, $1.4 billion was distributed to Utah banks.
The Capital Purchase Program was established by the Treasury in October 2008 to “stabilize and strengthen the U.S. financial system by increasing the capital base of an array of healthy, viable institutions, enabling them to lend to consumers and businesses,” according to a fact sheet released by the U.S. Department of the Treasury.
Many local banks were able to forgo participation in TARP because they didn’t need the money, said Tom Bay, supervisor of banks for the Utah Department of Financial Institutions. Those banks were “still making loans and had plenty of capital,” he said.
“It is just really a business decision on the banks part,” Bay said. “If they felt they could use it, then they would take it.”
Bank of Utah abstained from participating in the program because, according to Scott Parkinson, senior vice president of retail banking for the Bank of Utah, the institution did not need the funds and shareholders felt it was too expensive and too heavily regulated.
Administrators at Lewiston Bank, Barnes Bank and Brighton Bank voiced similar reasons for declining participation in the Capital Purchase Program.
Abstaining from the program hasn’t hindered these banks’ ability to lend.
“Banks are lending, but they are lending very cautiously,” Bay said. “Obviously everyone wants loans to be made, but they have to be good loans. We want to make sure the borrowers can pay back the loans.”
Bank of Utah, for example, continues to offer competitive loans and maintains its same level of underwriting as it followed prior to the recession.
“We have received calls from the community asking if we are still lending, and the answer is emphatically yes,” said Parkinson.
At Barnes Bank, loans are still a significant part of its financial portfolio. In fact, mortgage lending is up 40 percent over this same time last year at the Utah bank, Barnes Bank Senior Vice President and Branch Administrator Tom Aston said.
“We are lending out, (but) we are only lending to our good customer base because we are trying to conserve capital a little bit,” Aston said.
At Bank of Utah, mortgage lending has increased by more than 100 percent in the first quarter of 2009 compared to the same time period a year ago, Bank of Utah Senior Vice President of residential lending Branden Hansen said. The overall loan portfolio for the bank has grown 5 percent in the same time period.
“We are definitely still lending. That is how we make money — by lending out money,” Hansen said. “If we stop making loans, then we are going to struggle to be profitable.”
This does not mean that just anyone can get a loan. Banks are lending, but only to those people and businesses that meet underwriting guidelines, said Kelly Matthews, executive vice president and economist for Wells Fargo in Salt Lake City, at a recent Lunch 'N' Learn put on by the Utah Manufacturers Assocation. The trend of more cautious lending, Matthews said, has made it harder for some people to obtain funding.
“We all know that there are a lot of people that can’t get financing right now,” Matthews said. “That’s just the reality of the situation … You just can’t snap your fingers. You have to accept that we are in an entirely different environment than there was before.”
Matthews said many banks are making changes to their underwriting guidelines, making it harder for applicants to qualify for loans.
The Bank of Utah has maintained its same standard of underwriting but lenders are being more careful, especially with the expectation that home values will continue to slide before the end of the year, said Branden Hansen, senior vice president of residential lending for the Bank of Utah.
“We were underwriting loans correctly all along,” Hansen said. “That is why we are not in trouble today.”
Brighton Bank President and CEO Howard Holt said Brighton Bank is making sure, like its lenders have always done, that borrowers have the ability to repay their debts. Lenders at Brighton Bank continue to determine if the available collateral is worth the risk of lending
“Nobody wins if there are great prospects of failing,” Holt said. “We are careful to make sure it is a win, win, win for everybody.”
At Lewiston State Bank clients are encouraged to apply for loans as long as they qualify under current market standards, Lewiston State Bank Loan Administrator Ronald Mumford said.
“The examiners and others who are interested want to make sure that the new loans are safe and sound,” Mumford said. “So there is carefulness that is followed in the standards.”
Although banks are seeing an increase in the number of mortgage loans processed, construction loans are down substantially — not entirely because of lending practices, per se, but more so because of market demand. Many Utah institutions are seeing fewer loan applications — especially from the construction industry.
“All of the sudden you have this drop in demand,” Parkinson said. “It is not so much that guidelines have changed, as much as the opportunities have changed.”
Holt said he has definitely seen a slowdown in lending at Brighton Bank this year over last, a result of fewer loan requests. Individuals, companies and investors are waiting for a turnaround in the market before applying for financing, Holt said.
Aston would agree.
“A lot of industries are having tough times, so lending has gone down,” Aston said. “It doesn’t make much sense to loan to a contractor, but they’re not even coming in for those types of loans.”
Hopes are high that this scenario will soon be different.
By Kelly Lux