After subprime lending woes hounded the national mortgage market and hamstrung the U.S. housing industry in 2007, some uncertainty hangs over the finance sector as 2008 nears.


Its really hard to tell, frankly, from my perspective whats going to happen, says Pete Stanton, chairman and CEO of Washington Trust Bank. The last couple of years have been robust, and we think 2008 is going to be a growth year. Yet, the Spokane-based bank expects percentage loan growth in the mid to high single digits, rather than the 12 percent to 18 percent in annual gains it had been enjoying in recent years, Stanton says.


It could be better, but we could have some surprises, he says. There are a lot of things swirling about in the U.S. economy.


In the Spokane area, the banks commercial customers are growing, its credit quality is as good as its ever been, and unemployment is low, he says. Anecdotally, its hard to find much weakness out there, Stanton says. Across much of the Pacific Northwest, including in the Portland, Seattle, and Boise areas, where Washington Trust also does business, if theres any sector at all thats slowing down, its residential real estate, he says.


Because of the problems with mortgages and housing, including some softening here, lenders dont expect their residential mortgage operations to do as well in 2008 as they did this year, says Randall L. Fewel, president and CEO of Spokane-based Inland Northwest Bank.


Some of it is self-fulfilling, Fewel says. Theres so much negative talk about residential mortgages, a lot of people are pulling back on their plans to buy homes. Yet, he says, The rates are still terrific.


Interest rates are an especially compelling subject right now, with the Federal Reserve having chopped last week by a quarter of a percentage point both its federal funds rate, which is an overnight bank lending rate, and its discount rate, which banks pay for loans from the Fed.


When rates are lowered, that typically reduces a banks interest income faster than the bank can cut its interest expense, Fewel says.


We have millions of dollars of loans at rates tied to prime, he says. When the Fed cuts its rates, banks have little choice but to trim their prime ratesin effect reducing immediately the income they receive from interest payments on loans, he says. It takes more time for banks to reduce their interest expense by dropping the rates they pay customers for deposits.


Still, Fewel is bullish on the commercial lending market here. With Inland Northwest Bank opening branches in Hayden and Spirit Lake, Idaho, recently, and working to open in March a branch at 518 W. Francis, in Spokane, its important for the bank to grow, he says.


How banks fare in the changing climate depends to some degree on their business plans.


Every bank has a little bit different mix and a little bit different recipe, says Sue Horton, chairwoman, president, and CEO of Wheatland Bank.


Wheatland, for example, has shied away from subprime lending and has remained true to its roots as an agricultural lender, which has paid off as ag markets have mushroomed, Horton says.


While Wheatland, too, is watching interest rate trends and how they affect its balance sheet, its projecting 35 percent growth in loans in 2008, asset growth of 27 percent, and deposit growth of 18 percent, Horton says.


We think the commercial sector is still strong, she says. Borrowers are still very profitable, asset quality is at record levels, and delinquency rates are the lowest in years, Horton says.