In this city of big-and sometimes shattered-dreams, start-up banks have been a sure bet in recent years.

Seven start-up banks have opened here since 1994, financed by investors looking to cash in on the city's torrid growth. Breakneck development has brought with it a pressing need for construction financing and other lending.

"This market has been very good to us," said Edward Jamison, chief executive officer Community Bank of Nevada, which opened in July 1995 and turned a profit two months later. The day the bank opened, he said, "we had an $8 million loan portfolio."

But are fortunes about to change for Las Vegas' banks?

Even amid an unprecedented boom of new construction, hotel occupancy rates are falling, office vacancies are rising, and housing permits are running ahead of new household formations.

The slowdown has caught the attention of the Federal Deposit Insurance Corp., which has long been wary of Las Vegas' reliance on the tourism and construction industries. It is warning Las Vegas banks to pull back on real estate lending, noting that the level of construction loans at Las Vegas community banks is even higher than it was at California community banks before that state's recession in 1990.

Gary C. Zimmerman, regional economist at FDIC's San Francisco office, said the Las Vegas market is "interesting to watch with its lack of diversity."

Still, banks are undeterred. Reno-based Pioneer Citizens Bank opened three new branches here in 1998. Big banks such as Salt Lake City-based Zions Bancorp. continue to scout the market for acquisitions. And Lansing, Mich.-based Capitol Bancorp, which recently opened six new banks in Arizona, said it plans to start three in Las Vegas in the next two years.

Nationwide, 57% of the 402 new banks that have opened since 1994 are still unprofitable, according to the Federal Deposit Insurance Corp. In Las Vegas, however, the four banks launched between 1994 and 1997 all make money and have done so since their first months in business.

Spurring Las Vegas' growth, of course, is the gaming industry.

In the last five years some 24,000 hotel rooms have opened in sparkling new casinos such as the Excalibur and New York New York, and another 20,000 are under construction. And with a plethora of construction and casino jobs to offer, Las Vegas has attracted an average of 6,000 new residents a month for much of this decade and issued home building permits at a rate of 20,000 a year.

The area is growing so fast that the once-sleepy suburb of Henderson is poised to overtake Reno as Nevada's second-largest city.

"It's been fun," said Tod W. Little, chief executive officer at Silver State Bank, which opened in Henderson in July 1996.

Community Bank of Nevada's Mr. Jamison is so bullish in Vegas that he is on his second community bank. Though he barely knew a soul when he moved here from Utah 10 years ago, he opened Nevada Community Bank in 1990, built its assets to $60 million, then sold it to Salt Lake City-based First Security Corp. for $28 million, or 2.5 times book value, in 1993.

That raised some eyebrows. Since then, seven new banks have opened here.

"I think what we did intrigued a lot of people," said Mr. Jamison, who was an executive with First Security from 1983 to 1989.

The latest to join the crowd is Barry L. Hulin, CEO of Valley Bank, which opened in October. Born and raised in London, Mr. Hulin previously worked for Barclays Bank, and Alaskan Mutual in Anchorage. Mr. Hulin learned about Valley Bank's organization through a local newspaper advertisement while visiting Las Vegas to attend a wedding.

"In terms of stuff going on, things were exciting here," Mr. Hulin said.

So exciting that after Sun State Bank in Las Vegas was sold to Zions Bancorp. in 1997, two Sun State executives-Jacqueline K. Delaney and Dennis E. Guldin-stuck around and opened their own banks in 1998.

The new bankers in town generally steer clear of the glitz of the Strip, joking that they only venture there when the Chamber of Commerce holds a meeting at the Mirage. Besides, there's plenty of business in Henderson and other onetime desert outposts.

In fact, office, retail and residential construction is so brisk outside the Strip that lenders need extra capital to keep up.

Silver State Bank has tapped investors three times to raise a total of $15 million. BankWest and Community Bank have, at times. turned to their original shareholders for more money. And Las Vegas Business Bank, founded with $5 million in capital, went public in September 1997 to raise another $5 million.

The economy is humming so fast that Larry Woodrum, who started BankWest of Nevada in May 1994, said, "I can't even seem to make a one-year plan. We've busted all budget projections."

That pace of lending is precisely what has the FDIC concerned.

According to an FDIC report released last summer, high-risk real estate loans-defined as construction, commercial real estate, and multifamily loans - accounted for 33% of the total assets at Las Vegas banks. By comparison, those loans made-up 19% of total assets for other banks in the West and 11% for all U.S. banks formed since 1994.

"They're scared to death of us," said Mr. Woodrum, who early last year was told by the agency to hire a credit administrator and some loan quality control clerks.

The bankers argue that they are just a reflection of their market. In interviews, they sought to dispel the assumptions of wild, indiscriminate lending.

"Las Vegas is more conservative than people would assume," said Mr. Jamison of Community Bank of Nevada.

Moreover, they ask, what should they do? Stop lending?

"We haven't seen any softness in our market," said Mr. Little of Silver State.

Bankers may insist their underwriting practices are sound, but the state's banking commissioner, L. Scott Walshaw, is urging caution anyway. After all, he said, "If the market goes south, it will affect everybody, no matter how good the underwriting."

Economists point out that Las Vegas has never suffered a serious recession. In the last 12 months, in fact, Nevada's job growth rate was 6.1%, compared with the national average of 2.3%, according to the Bureau of Labor Statistics. But some economists wonder what will happen if tourism continues to level off, as it has for the last two years.

"There is still the question of whether tourism and gaming revenue will increase with these new casinos," said Dr. R. Keith Schwer, chief economist at the University of Nevada-Las Vegas Center of Business and Economic Research. "It is still to early to say decisively."

Some start-ups are beginning to feel the pinch. Profits at BankWest fell 4% in the third quarter, to $2.2 million. Community Bank posted an 8% drop, compared to the same period in 1997.

Facing increased competition for loans, Alfred Alvarez, CEO of Las Vegas Business Bank, said he intends to build the $110 million-asset bank's fee income by supplying ATMs to the Horseshoe Casino. The bank also aims to become a nationwide distributor for cash dispensers and hopes to generate revenues from point of sale transactions at mini-markets and fast-food restaurants.

Slowdown or no slowdown, bank companies continue to view Las Vegas as a hotbed. Two of the West's biggest, Zions and First Security, are both scouting the market for acquisitions, and Colonial BancGroup Inc. of Montgomery, Ala., entered Las Vegas last year when it bought Commercial Bank of Nevada.

At the moment, no new applications for state bank charters are pending, but bankers say there are constant rumblings about new organizing groups. For those groups, Mr. Little had these words:

"It is definitely harder to start up a new bank now," he said. "The days of doubling your money in three years are over."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.