FDIC: Nevada economy strong

Kevin Rademacher

Wednesday, July 7, 2004 | 10:38 a.m.

Federal banking regulators this morning became the latest source of positive reinforcement for the health of the Nevada economy.

In the summer version of the Nevada State Profile, the Federal Deposit Insurance Corp. said the state's 4.2 percent year-over-year rate of employment expansion was the fastest among the 50 states.

In a conference call this morning, FDIC officials repeatedly singled out Nevada in reviewing the performance of the 11-state Western region, painting the state as an overall leader amid vibrant company.

"The (Western) region continues to be our best-performing region," said Rae-Ann Miller, the FDIC's associate director for insurance and research.

The economy is being driven by expansion in the construction, retail and professional and business services sectors, the report said. The leisure and hospitality industry -- which accounts for 27 percent of Nevada's jobs -- grew by 1.8 percent during the first quarter of 2004, the report said. That total was driven largely by Clark County's 2.5 percent year-over-year increase in visitor volume for the fourth quarter of 2003.

In Washoe County, however, the FDIC said the rate grew at a nominal 0.5 percent rate during the same period.

The report also reported that the Las Vegas-area commercial real estate vacancy rate remains high, but stable. The report cited outside research that lists office vacancy rates at 15 percent for the first quarter of 2004, down 0.2 of a percentage point from a year earlier. Industrial vacancy rates fell from 12 percent to 11.5 percent.

The report also singled out the high commercial real estate lending levels among established Nevada community banks. For the quarter, the report said the group's concentration of construction and development loans -- cited as a high-risk component of real estate lending -- increased to 161 percent of their "Tier 1 capital." That level is more than triple the rate reported by similar institutions nationwide.

Tier 1 capital includes common stock and retained earnings, qualifying preferred stock and minority interest in consolidated subsidiaries, minus disallowed intangible assets such as goodwill.

Despite the rate, the report showed that foreclosure starts for the same period eased slightly to 0.44 percent -- just above the national average of 0.42 percent.

Catherine Phillips-Olsen, regional manager for insurance and research, said the high concentration of commercial real estate loans held by Nevada banks is a concern. But she did not characterize the note as a warning.

"The level of concentration, once it gets to that level, is something we want to monitor," he said. "If something happens in that industry ... particular institutions could be at more risk."

She likened the local real estate concentration to agricultural loans in the Midwest.

Still, bolstered by the strong economic figures, Nevada's banks are generally strong, the FDIC said.

The FDIC profile showed assets for Nevada's 36 banks jumping from $43.4 billion in March 2003 to $50.6 billion by the same month in 2004.

Of the statewide totals, Las Vegas dominates Nevada's market. Of the state's total banking assets, $45 billion is confined to Las Vegas with just $5.4 billion in Reno. That gives Las Vegas nearly 89 percent of the total Nevada banking assets.

Nevada banks also reported a median return on assets ratio of 1.2 percent, up from 0.91 percent a year earlier and significantly above the national median of 1.02 percent.

Also posting impressive results are the state banking industry's asset-quality figures. The median percentage for Nevada banks' past-due loans and loans no longer accruing income was 0.80 percent, down from 1.63 percent in 2003. The report also said Nevada had just two unprofitable institutions, down from five a year ago.

Bank executives have long touted the local results as particularly good in a market that is heavily influenced by credit card banks. Credit card operations typically have a higher appetite for bad loans, with a past-due or non-accrual rate of more than 2 percent, bank executives said.