Worried, but opportunistic

One word sums up bankers' feeling as they

tip-toe into 2009:Worry.

They're worried about the ability of their

borrowers and depositors to take much more

of the economic and financial pummeling that

left many of them reeling in 2008.

And they're worried that even some of

their most credit-worthy customers are so

spooked about the economy that they won't

begin borrowing again.

On the other hand, some financial executives

say the travails of the financial sector are

likely to create opportunities for them to grow

their share of the market, particularly if some

competitors remain overly cautious.

The challenges facing the financial industry

in the first months of 2009 are clear-cut.

"We're going to see some of the same

stress that we've seen since late 2007," says

Dallas Haun, president and chief executive

officer of Nevada State Bank.

Employment in Nevada remains anemic.

Homebuilding is on the ropes. The bank is

seeing some very early signs of stress in the

commercial real estate market.

And the macroeconomic news is translating

into trouble for a growing number of businesses,

says Stan Wilmoth, the president of

Reno-based Heritage Bank of Nevada.

"A lot of our good customers are eating

through their reserves now," says Wilmoth.

"How much staying power do they have?"

Businesses aren't alone in showing financial

stress as financial institutions also keep a

close eye on the condition of consumer customers.

Dean Altus, executive vice president and

chief operating officer of Greater Nevada

Credit Union, says job losses and pay cuts cast

a shadow over customers of the institution

headquartered in Carson City.

Consumers with shrinking or disappearing

paychecks obviously have more difficulty paying

off their loans.And worries about their

employment have made consumers jumpy

about applying for new loans.

"It's been hampering everyone for the past

year or so. I don't know that we've seen the

worst of it," says Altus.He expects consumer

confidence will return with the first glimmerings

of an economic turnaround, perhaps by

mid-year.

In the meantime, bankers are working

hard to make whatever loans they can.

A big problem, they say, is the widespread

perception that financial institutions aren't

lending after the financial crisis of last

autumn.

For instance, Nevada State Development

Corp., which makes SBA loans for purchases of

commercial real estate and equipment, has

been beating the drum loudly since early

autumn to tell potential borrowers that it still

is working with banks to provide business

funding.

In fact, the National Association of

Development Companies has been trying to

convince business borrowers that this is a particularly

good time to tap into the SBA program

because real estate prices are low and

the use of borrowed money for equipment

purchases helps conserve cash.

For banks, the program known as "504

loans" is attractive when money is tight, the

association says, because it allows lenders to

provide fixed-rate financing often with

only 10 percent down while an SBA guarantee

mitigates the risk for a bank.

Other lenders also are spreading the word

that money is available to good borrowers.

"We're open for business," says Nevada

State Bank's Haun."We're making loans."

The message appears to making some

headway. The number of loan applications at

Nevada State Bank has been steadily increasing

during the last couple of months,Haun

says.

Altus, meanwhile, says Greater Nevada

Credit Union has seen an uptick in mortgage

applications most of them for refinancings

rather than new loans as mortgage rates

fell in the final weeks of 2008.

If mortgage rates stay low and housing

prices don't rebound, Altus says potential buyers are likely to discover that a new home is

more affordable than it has been for several

years.

And if the housing market can reach a bottom,

it will go a long way toward restoring consumers'willingness

to open their pocket-books

and get the economy back on track, says

Wilmoth.

"The majority of consumers had most of

their net worth in their homes," the Heritage

Bank president says."Now, they feel broke."

But even before the recovery begins, bank

executives are positioning themselves to pick up

market share.

Chad Osorno, regional vice president for

Wells Fargo in Reno, says tough times provide

an opportunity for the bank's staff to become

more valuable to customers.

"We hope to help educate customers about

prudent financial management for themselves,"

he says.

And when bank customers worried about

the safety of their deposits during the darkest

days of the financial crisis in October, Osorno

says Wells Fargo aggressively sought to woo

depositors by spotlighting the bank's 156-year

history.

Wells Fargo also picked up deposits with its

acquisition of the business of Citibank in

northern Nevada in mid-2008, and it's picking

up another chunk of deposits through the purchase

ofWachovia, which operates a branch

office in Reno.

And deposits are important.

While most of the attention was focused on

banks' loans in late 2008, the year also saw

fierce competition for deposits in northern

Nevada.

The reason:As businesses and households

drew down their checking and savings

accounts, banks had fewer deposits to loan.

In Washoe County, deposits in commercial

banks on June 30, 2008, stood at $6.8 billion,

down by about $200 million from a year earlier.

In fact, deposits in Washoe County banks in

mid-2008 were essentially the same as they

were two years earlier.

But it's lending where bankers see the

greater opportunity to grow market share during

the downturn.

Wilmoth, for instance, says his bank's staff

visits regularly with business borrowers who

have been turned away by larger institutions

that are spooked about lending, even to longtime

customers.

Osorno,meanwhile, says Wells Fargo also

looks to strengthen its lending business in

northern Nevada early this year.

"We're doing business the same way we

have providing credit in a responsible way,"

he says.

And Haun says Nevada State Bank executives

continue to take comfort in the belief that

the current challenges facing the financial

industry and its customers in Nevada are only

temporary.

"We remain optimistic about the long-term

economic engine of this state,"he says.