Despite overall improvement in Utah's financial institutions industry, three banks and one credit union failed during fiscal year 1987-88, the state's Commissioner of Financial Institutions reports.

"All of these institutions were federally insured, and no depositors lost any funds when these institutions were closed," Commissioner George R. Sutton said in his department's annual report to Gov. Norm Bangerter.He said that generally the financial condition of the state's banks, savings and loans, credit unions and industrial loan companies has improved in response to Utah's stabilizing economy.

The four blemishes on the year were Rocky Mountain State Bank, Basin State Bank, Sandy State Bank and Utah Energy Credit Union. After the four institutions were declared insolvent and closed they were acquired by larger, healthier institutions in the state.

Rocky Mountain State Bank was acquired by Citibank; Basin State Bank and Sandy State Bank were purchased by Zions First National Bank; and deposits of Utah Energy Credit Union were assumed by Utah Central Credit Union.

1987-88 was a vast improvement over the previous fiscal period, however, which saw the collapse of Utah's privately insured industrial loan industry, accounting for eight of the 11 institution failures that year.

Overall, during the most recent fiscal year ended June 30 the number of financial institutions in Utah dropped slightly from 232 to 216.

Credit unions had the largest drop in participants as six institutions were dissolved and another was merged. Industrial loans dropped from 19 to 13 as the industry continues to reorganize after eight of its members failed the year before. Mergers and acquisitions accounted for the decrease from 45 to 42 banks in Utah. Savings and loans remained constant at 14.

Despite the decrease in total financial institutions, total assets grew from $19.03 billion to $19.92 billion, or 4.7 percent, the report said.

Industrial loans lead the growth with a 29.6 percent increase in assets, while slack loan demand accounted for banks experiencing a 1.9 percent drop in assets. Assets for savings and loans grew 13.6 percent, despite industry problems nationwide, and credit unions' portfolios increased their value by 4.6 percent.

Sutton attributed the growth in industrial loan assets to the health of institutions that survived the 1986 collapse and those that entered the industry after the dust had settled. He said many of the state's industrial loans have a national market for their products, so their asset base is larger than a strictly in-state institution.

Among those healthy industrial loans is USAA Financial Services Co. - the only new financial institution to open in Utah during the past fiscal year. USAA along with several other national financial services giants - such as GMAC, Fidelity Investments, Dreyfus Corp., American Express and Merrill Lynch - bought charters of failed industrial loans and are expected to open their doors in the near future.

"The establishment of these operations constitutes one of the more promising trends in the depository institution industry for the foreseeable future," Sutton said.

To sustain growth and improvement in the state's financial institutions, Sutton said, federal deposit insurance must receive an infusion of federal funding, banks must receive legislative approval to expand services and the state's economy must continue to improve.