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.
