Fourth Financial Corp.'s fate has always been tied to the fate of the aviation pioneers that settled in Wichita, Kan.
"Going back many years, our bank was instrumental in providing these entrepreneurs with the capital they needed to get started," said Marilyn Pauly, president of Bank IV Wichita, the lead bank of the $7.55 billion-asset company. "We were making loans that today would be construed as a huge risk in financing an industry that was new and unproven."
Today, the city's four largest aviation companies -- Boeing, Cessna, Raytheon, and Lear Jet -- may look elsewhere for much of their financial needs. But their presence has spawned not only 30,000 jobs in the local market but scores of credit-hungry suppliers.
"When you've got one industry accounting for this much of your earnings, it's very significant," said Carlene Hill, director of the Center for Economic Development and Business Research at Wichita State University. "But we're not as dependent as we used to be. Some of these companies are becoming more diversified."
Still, she estimates that nearly 29% of all income comes from the aircraft industry. That includes smaller firms with sales ranging from $1 million to $45 million a year and payrolls totaling 2,200.
For Bank IV, as Fourth Financial is known it is local markets, the dominance of one industry presents an interesting dilemma: How to serve such a vital part of the local economy without taking on too much risk from an overconcentration of loans.
Bank IV's Ms. Pauly says the answer is close monitoring. Most of the aircraft-related subcontractors served by the bank have sales of less than $5 million. Instead of venture capital, the companies are looking for loans and leases.
In many cases, the companies need funding for machines that cost $250,000 to $1 million. Ms. Pauly said the bank sticks to fundamentals by matching financing with the asset's cash flow. That often means a term of seven years or more.
Another critical need is working capital. According to Robert Morris Associates' 1994 Annual Statement Studies, the typical small manufacturer of nonengine aircraft parts has more than 50% of its assets tied up in inventory and receivables.
"Because manufacturing by its very nature is capital intensive, these companies usually need some kind of working capital line to build up inventory and finance receivables," Ms. Pauly said.
About 25% of the small business group's $35 million in loans to companies with less than $2 million in sales is to aviation subcontractors.
Other parts of the bank also serve a large number of companies with more than $2 million in sales.
With so much money tied up in a cyclical industry, the bank closely monitors the market. It is a strategy that has paid off. For instance, when Fourth Financial ran into bad loan troubles in the late 1990s, aviation credit was not on the problem list.
Indeed, one of the riskiest areas for the companies comes when they bid for large contracts that can make or break the business.
"There is no doubt that financial management in these businesses has to be good to be able to bid on projects," she said. "If done wrong, it can cause some real problems."
To avoid problems, the bank offers financial advice. Since many of the smaller companies are owner operated, Fourth Financial has tailored its products to fit the needs of business owners.
As the largest player in the market, it has been natural for Bank IV to also dominate the aviation lending business. That may be changing, despite Fourth's 37% share of Wichita's deposits, as competitors like Missouri-based Boatmen's Bancshares and Commerce Bancshares enter the state.
"Fourth Financial hasn't had many outside competitors with that kind of force," said Steven Schroll, senior banking analyst at Minneapolis-based Piper, Jaffray Inc. "You may start to see more heated competition in that market with these new entrants."
Don't expect the bank to do anything silly, though. "I think Bank IV has pretty much known their costs and know what they want and stick to their policies," said Jerry Swords, president of Swords & Associates, a Kansas City, Mo.-based consultancy. "They won't try to compete on costs."
Besides, Bank IV's Ms. Pauly expects that the history the industry and her bank share will make it tough for outsiders to beat.
"I think there has been a lot of loyalty to our bank from these companies, and from our bank to these companies," she said.
Fourth Financial Corp. At a GlanceHeadquarters Wichita, Kan.Chairman Darrell G. Knud- sonTotal assets $7.55 billionLoans to com-panies withless than $2million in sales $35 millionLoans tosmall aviationcontractors $8 million