Regional Outlook
 

FEDERAL DEPOSIT INSURANCE CORPORATION THIRD QUARTER 1997 

FDIC Atlanta
 

Region
 

Division of
 

Insurance
 

Jack M.W. Phelps,
 

Senior Regional
 

Analyst
 

Scott C. Hughes,
 

Regional Economist
 

Pamela R. Stallings,
 

Financial Analyst
 

In Focus This Quarter 

◆ Subprime Lending: A Time for Caution—The extent of subprime lending is increasing as strong competition for high-quality borrowers has 

some lenders moving down the credit quality spectrum. Subprime lending requires 

a commitment of resources and expertise beyond that required in more conservative lending, and the consequences of deficiencies in underwriting, servicing, and 

collection can be severe. See page 3. 

By Kathy R. Kalser, Debra L. Novak 

◆ Retail Shakeout: Causes and Implications for Lenders— 

Despite favorable economic conditions, the retail industry is experiencing slow revenue growth in a highly competitive environment. The confluence of rapid change 

in store formats and slow revenue growth has led to an ongoing shakeout among 

both large and small retail chains, and this shakeout may adversely affect credit 

quality at some insured institutions. See page 6. 

By Richard A. Brown, Diane Ellis 

Regular Features 

◆ Regional Economy—Job growth in North Carolina, Virginia, and 

Florida exceeds national average . . . rural-urban dichotomy in economic performance 

is widespread . . . the Region’s economy increases its ties with global markets . . . 

increasing trade and tourism could fuel demand for financial services. See page 11. 

By Scott C. Hughes, Jack M.W. Phelps, Pamela R. Stallings 

◆ Financial Markets—Securitization of home equity loans is growing 

rapidly . . . consumer debt consolidation loans may be driving this growth . . . signs 

of relaxed underwriting have appeared . . . the arrival of FASITs could increase the 

appetite of community banks to enter the ABS market. See page 15. 

By Allen Puwalski 

◆ Regional Banking—Profits rise at commercial banks . . . high overhead and interest expense and low fee income are a drag on some of the Region’s 

thrifts ...financial institutions in Florida have increased their international activities. See page 19. 

By Jack M.W. Phelps, Pamela R. Stallings, Scott C. Hughes 

A Publication of the Division of Insurance 
The Regional Outlook is published quarterly by the Division of Insurance of the Federal Deposit 

Insurance Corporation for the following eight geographic regions: 

Atlanta Region (AL, FL, GA, NC, SC, VA, WV)
 

Boston Region (CT, MA, ME, NH, RI, VT)
 

Chicago Region (IL, IN, MI, OH, WI)
 

Dallas Region (CO, NM, OK, TX)
 

Kansas City Region (IA, KS, MN, MO, ND, NE, SD)
 

Memphis Region (AR, KY, LA, MS, TN)
 

New York Region (DC, DE, MD, NJ, NY, PA, PR, VI)
 

San Francisco Region (AK, AZ, CA, HI, ID, MT, NV, OR, UT, WA, WY)
 

Single copy subscriptions of the Regional Outlook can be obtained by sending the subscription 

form found on the back cover to the FDIC Public Information Center. Contact the Public 

Information Center for current pricing on bulk orders. 

The Regional Outlook is available on-line by visiting the FDIC’s website at www.fdic.gov. For 

more information or to provide comments or suggestions about the Atlanta Region’s Regional 

Outlook, please call Jack Phelps at (404) 817-2590 or send an e-mail to jphelps@fdic.gov. 

The views expressed in the Regional Outlook are those of the authors and do not necessarily reflect 

official positions of the Federal Deposit Insurance Corporation. Some of the information used in 

the preparation of this publication was obtained from publicly available sources that are considered 

reliable. However, the use of this information does not constitute an endorsement of its accuracy by 

the Federal Deposit Insurance Corporation. 

Chairman Andrew C. Hove, Jr. 

Director, Division of Insurance Arthur J. Murton 

Editor George E. French 

Managing Editor Stephen Linehan 

Associate Editor Maureen E. Sweeney 

Assistant Editors Paul C. Bishop 

Richard A. Brown 

Steven K. Burton 

Diane Ellis 

Kathy R. Kalser 

Ronald L. Spieker 

Publications Manager Teresa J. Franks 
In Focus This Quarter
 

Subprime Lending: A Time for Caution
 

•	 Subprime lenders specialize in lending to borrowers with blemished or limited credit histories. 

•	 The consequences of deficiencies in underwriting, 

servicing, and collection can be severe with subprime lending. Lenders that fail to dedicate the 

necessary resources in these areas likely will have 

trouble succeeding in the increasingly competitive 

market for subprime loans. 

•	 Some institutions insured by the FDIC have failed 

to properly assess and control the risks associated 

with their subprime lending programs. 

What Are Subprime Loans? 

Faced with strong competition and shrinking margins 

on loans to high-quality borrowers, some lenders are 

moving down the credit quality spectrum. The strategy 

to extend loans to borrowers perceived as less creditworthy is referred to as “subprime” lending. Subprime 

lending is most commonly associated with auto, home 

equity, mortgage, and secured credit card loans to borrowers who have blemished or limited credit histories. 

Generally, the characteristics of a subprime borrower 

include a history of paying debts late, personal bankruptcy filings, or an insufficient credit record. 

Subprime loans also are referred to as marginal, nonprime, or below “A” quality loans. There are no established guidelines for determining the degree to which a 

borrower is considered subprime, so one lender’s “B” 

customer could be another lender’s “C” customer. 

Definitional variations aside, some general market 

parameters on ranking loans are presented in Table 1. 

TABLE 1 

Criteria for Loan Rankings 

GRADE PAYMENTS LATE BANKRUPTCY 

30 DAYS FILING
 

PRIME
 NONE NONE
 

A­ LESS THAN 2 NONE IN 5 YEARS 

B LESS THAN 4 NONE IN 3 YEARS 

LESS THAN 6 NONE IN 2 YEARS 

D CONSTANTLY LATE NONE IN 1 YEAR 

Sources: Duff & Phelps, Standard & Poor’s, Mortgage 

Market Information Services 

How Big Is the Market? 

The lack of a standard definition for a subprime loan 

makes it difficult to accurately determine the extent of 

the market. However, some industry experts estimated 

that during 1996, subprime loans secured by residences, 

including both home equity and mortgage loans, 

amounted to between $100 billion and $150 billion compared to the estimated $800 billion in originations of 

conventional mortgages. Subprime auto loans have been 

estimated to range between $75 billion and $100 billion, 

or about 20 percent of total auto loans outstanding. 

Who Makes Subprime Loans? 

In the past, subprime lending was primarily the domain 

of a limited number of finance companies. These firms 

specialized in making high-priced loans to borrowers 

with limited access to credit. 

The number of subprime lenders, however, has surged 

in recent years as more companies have been attracted 

by the significantly higher rates and fees earned on subprime loans. In some cases, yields on these higher risk 

assets have been as high as 15 percent to 30 percent. 

The new subprime participants include finance companies that traditionally served prime borrowers, new specialized subprime lenders, and banks. 

The increase in the number of subprime lenders has 

been fueled by strong demand from investors for assetbacked securities (ABS). This method of funding 

enables the lender to effectively raise cash at a lower 

rate to fund loan growth. In addition, the subprime ABS 

market has attracted lenders that previously refrained 

from making subprime loans because they did not want 

to maintain these high-risk loans or the associated 

reserves on their balance sheet. By issuing securities 

backed by subprime loans, lenders now have the ability 

to originate subprime loans and sell them to ABS 

investors. 

Favorable stock market conditions also helped to fund 

the growth of subprime lenders. Approximately 30 subprime lenders raised nearly $3 billion from stock offerings from January 1995 through April 1997, according 

to market watchers. This financing avenue may become 

less accessible, as investors’ concerns over financial 

Regional Outlook	 3 Third Quarter 1997 

C 
In Focus This Quarter
 

problems of several major market participants have 

caused stock prices of subprime lenders to decline significantly during the first part of 1997. 

Financial Difficulties of Some Subprime 

Lenders 

Market participants have observed that, as in credit card 

lending, increasing competition may be compelling some 

subprime lenders to compromise underwriting standards 

and lower pricing in order 

to protect market share. Financial 

difficulties reported by major subprime auto lenders Jayhawk 

Acceptance Corporation and 

Mercury Finance Company highlight these concerns. 

Problems in subprime lending are not limited to auto 

loans. Lenders that specialize in subprime home equity 

loans and mortgages also are showing signs of stress. In 

April 1997, Moody’s Investors Service lowered the rating on subordinated debt issued by a leading originator 

of subprime mortgage and home equity loans. The reason was concern over the increasing level of delinquencies in the issuer’s loan portfolio and the highly 

competitive environment for subprime home equity 

loans (see Financial Markets). 

Differences between Prime and Subprime 

Lending 

There are key differences between the underwriting, servicing, and collection methods used for prime and subprime lending programs. The goal of the subprime 

underwriting process is to differentiate those subprime 

borrowers whose past credit problems were due to such 

temporary events as illness or job loss from the habitually bad credits. Subprime lenders often supplement a 

prospective borrower’s credit bureau report with such 

additional information as income, employment history, 

and the nature of prior credit problems. This process 

allows the lender to better determine the credit risk or 

“grade” of the borrower. If this determination is successful, the lender can better establish the price at which 

the loan will be profitable. 

Servicing and collection of subprime loans tends to be 

more labor intensive and costly than in prime lending. 

Subprime lenders tend to monitor payments more closely than prime lenders. Some purportedly call their borrowers regularly to remind them when a payment is due. 

In addition, while prime lenders may be willing to work 

with late borrowers by adjusting minimum amounts or 

payment schedules, subprime lenders generally pursue 

collections more aggressively and repossess collateral 

more quickly. 

Insured Institutions and the Subprime Market 

Bank involvement in subprime lending is difficult to 

quantify because subprime loans are not delineated in 

bank and thrift Call Reports. However, both large and 

small banks reportedly are participating in credit card, 

auto, home equity, and mortgage subprime lending. 

Insured institutions have used various strategies to 

establish a presence in the subprime market. Some 

have: 

•	 acquired or formed joint ventures with companies 

specializing in subprime lending; 

•	 built subprime lending programs internally, using 

existing resources; and 

•	 tapped a network of loan brokers with access to subprime borrowers. Smaller banks entering the market 

for subprime mortgages may use this method more 

commonly. 

Through these strategies, insured institutions have: 

•	 extended loans directly to subprime borrowers or 

purchased subprime loans from loan brokers; 

•	 lent to subprime specialty lenders in the form of loan 

participations, warehouse lines, liquidity facilities, 

or dealer lines; and 

•	 serviced subprime loans or invested in asset-backed 

securities secured by subprime loans. 

An informal survey of examiners in the FDIC’s Division 

of Supervision shows that insured institutions and their 

affiliates in the Atlanta Region appear to be involved in 

subprime lending to a greater extent than insured institutions and their affiliates in most other parts of the 

United States. Subprime activity by insured institutions 

or their affiliates in the Atlanta Region is concentrated 

mostly in automobile and home mortgage lending. 

Over the past two years, several regional and superregional banking companies headquartered in the 

Atlanta Region have acquired nonbanking companies 

that specialize in subprime lending. 

Regional Outlook	 4 Third Quarter 1997 
In Focus This Quarter
 

Risks Associated with Subprime Lending Need 

to Be Considered Carefully 

According to a Financial Institutions Letter (FIL), FIL 

44-97 issued by the FDIC’s Division of Supervision, 

recent examinations revealed that a number of financial 

institutions involved in subprime lending have failed to 

properly assess and control the risks associated with 

subprime lending. Because of the relatively high default 

rates on such loans, the FIL indicates that this type of 

lending warrants particular caution and management 

attention. 

Institutions need to be thoroughly aware of the 

increased risks and costs associated with lending to 

higher risk borrowers. Some of these risks include: 

•	 Delinquencies and defaults tend to be more frequent 

and occur sooner on lower quality loans (see Chart 1). 

•	 Loan loss reserves that would have been adequate for 

prime lending may not properly cover higher loss 

rates associated with subprime loans. 

•	 Strains on underwriting and collection resources 

may emerge. 

•	 Because selling collateral is more frequently the 

source of repayment on subprime loans, failure to 

accurately estimate recovery values could severely 

affect the profitability of subprime lenders. For 

example, several subprime auto lenders recently 

reported lower profits when the supply of better 

quality cars coming off leases depressed the prices 

they received on repossessed cars. 

CHART 1 

0% 

10% 

20% 

30% 

40% 

50% 

1 4 7 10 13 16 19 22 25 28 31 34 

Months since Origination 

"C" Auto Loans 

"A/B" Auto Loans 

"D" Auto Loans 

Source: Fitch Investors Service, L.P. 

Default Rate 

Defaults Are More Frequent and Occur 

Sooner on Lower Quality Auto Loans 

Insured institutions that rapidly increase subprime 

exposures also may need to reevaluate delinquency 

measurement methodologies. Rapid loan growth can 

make it more difficult to accurately track delinquency 

and default trends. Generally loans do not default 

immediately, but “season” or reach peak loss rates over 

a period of time. Delinquency and default rates can be 

deceptively low if the proportion of new loans exceeds 

the proportion of seasoned loans in a lender’s portfolio. 

Calculating default rates over time for loans originated 

in a particular period or lending program, instead of as 

a percentage of total outstanding loan balances, helps 

reduce the distortion caused by rapid loan growth. This 

method of computing delinquency and default rates, 

known as “static pool” or “vintage analysis,” is a common measurement tool among investment analysts. 

Banks involved in subprime lending also should realize 

that the recent increase in subprime lending has 

occurred during relatively healthy economic conditions. 

The repayment capacity of subprime borrowers may be 

more susceptible to downturns in the economy, which 

could further exacerbate the already high level of delinquencies and defaults typically recorded on subprime 

loans. 

In addition, banks that lend to subprime specialty 

lenders, who rely heavily on securitization, should evaluate the accounting treatment of securitization and the 

effect securitization may have on earnings (see 

Financial Markets). 

Conclusion 

The extent of involvement by insured institutions in 

subprime lending is difficult to quantify. To be successful in subprime lending requires a commitment of 

resources and expertise. Conversely, deficiencies in 

assessing and controlling the risks of subprime lending 

can have serious consequences. Such deficiencies have 

surfaced at a number of FDIC-insured institutions. 

Striking an appropriate balance between the risks and 

rewards of subprime lending is a challenge for bankers 

and merits the continued attention of bank supervisors. 

Kathy R. Kalser, Chief 

Financial Sector Analysis Section 

Debra L. Novak, 

Division of Resolutions and Receiverships 

Regional Outlook	 5 Third Quarter 1997 
In Focus This Quarter
 

Retail Shakeout: Causes and Implications for Lenders
 

•	 Changes in the marketplace, technology, and 

finance are transforming retailing. 

•	 These trends have given rise to rapid growth in 

the new “big box” store format. 

•	 Consolidation in retailing is evident in mergers, 

acquisitions, and bankruptcies. 

•	 The potential for overbuilding in retail real estate 

markets may pose a risk for insured depository 

institutions. 

For the past two decades, construction of retail space 

has outstripped many indicators of demand such as 

growth in retail sales, population, and income. The 

broadest measure of the industry’s health is sales per 

square foot, and, for shopping centers, it has fallen by 

around 35 percent in real terms since 1972. Chart 1 

shows how growth in leasable shopping center space 

has exceeded growth in shopping centers’ sales since 

1972. 

Based on signs of “overstoring,” a number of retail 

industry analysts have concluded that too many stores 

are chasing too few consumer dollars, indicating an 

emerging shakeout in the retail sector. To the extent that 

insured depository institutions provide financing to 

retailers or for retail real estate, they are exposed to 

heightened credit risk as the shakeout unfolds. 

New Forces Are Reshaping the Retail Landscape 

A combination of demographic and economic forces 

has reduced growth in demand for retail goods from the 

boom days of the 1970s and mid-1980s. Meanwhile, 

technology is reconfiguring the way retail goods are 

marketed and delivered, and a low cost of capital has 

stimulated investment in new retail space and new 

retailing concepts. 

A retail industry boom began roughly in 1970 when 

baby boomers and women began entering the work 

force in record numbers. At the same time, proliferation 

in general-purpose credit cards facilitated an extension 

in consumer borrowing power. As a result, there was a 

CHART 1 

100 

150 

200 

250 

300 

350 

’72 ’76 ’80 ’84 ’87 ’89 ’91 ’93 ’95 

Leasable 

Space* 

Inflation-adjusted 

Sales * 

* Does not include non-shopping center space. 

Source: International Council of Shopping Centers 

1972=100 

Construction of Shopping Center Space Has 

Outstripped Sales Growth 

98 percent increase in inflation-adjusted retail sales 

from 1967 to 1994. 

To meet this demand and serve expanding suburban 

communities, developers built shopping centers at a 

rapid pace. The number of shopping centers, from small 

neighborhood strip centers to huge regional malls, grew 

from about 13,000 in 1972 to over 41,000 in 1995. 

Despite economic conditions that seem favorable for 

the retail sector, revenue growth has been painfully 

slow in the 1990s. Payrolls have seen net growth of 13.4 

million jobs since mid-1991, while real disposable personal incomes and consumer confidence have risen 

commensurately. An optimistic household sector has 

shown a willingness to take on debt under these favorable conditions and has done so with the benefit of 

lower interest rates compared to the 1980s. 

Even with generally positive economic conditions, 

retail demand has grown slowly in the 1990s (see Chart 

2, next page). Annual rates of increase in real expenditures on many durable and, especially, nondurable goods 

have lagged behind rates of the previous two decades. 

Slow growth in retail revenues can be explained in part 

by the fact that retail goods overall have risen in price at 

only around two-thirds of the general rate of inflation 

during the 1990s, while the appliance, electronics, and 

personal computer sector has seen actual price deflation. 

Regional Outlook	 6 Third Quarter 1997 
In Focus This Quarter
 

An aging consumer base is another factor holding down 

retail sales growth. The total number of households 

headed by persons age 20 to 35—the age at which families are getting established and acquiring household 

durable goods—is the same now as it was in 1980. The 

lack of growth in this key demographic group has limited growth in retail demand and should continue to do 

so for the foreseeable future. The total population in the 

20 to 35 age bracket is projected to decline slightly by 

2007. 

Other broad trends have contributed to slower retail 

sales growth. Retail sales as a percentage of personal 

income fell from 46 percent to 38 percent between 1967 

to 1996 as consumers shifted more of their disposable 

income to the purchase of personal services, housing, 

education, travel, and entertainment. A Standard and 

Poor’s Industry Survey reports that consumers have 

reduced their number of trips to shopping malls by 35 

percent since 1980, while total shopping hours are down 

70 percent. 

Looking ahead, mail-order retailing through electronic media, 

including cable television and the 

Internet, may be poised to gain 

significant market share at the 

expense of shopping centers. 

“Virtual shopping malls” such as 

Amazon.com, an Internet bookseller, have made headlines with their initial successes,
 

although analysts caution that widespread adoption of
 

high-tech shopping may be some years down the road. 


Technology has become a key to distribution and marketing. Faced with slower revenue growth, retailers have 

been investing in technology to cut their expenses and 

boost their bottom lines. For example, point-of-sale 

scanning delivers a vast amount of information that can 

be used to target marketing efforts and manage and control inventories—providing a distinct competitive 

advantage for large retail chains with vast marketing 

and distribution networks. 

A low cost of capital has fueled investment. Low interest rates and a booming stock market have made market 

financing plentiful and cheap. This environment has 

allowed retailers to overhaul retail strategies and invest 

heavily in technology, inventory, and retail space— 

investments that might otherwise have been infeasible. 

Since 1991, around 1.13 billion square feet of new retail 

space has been added nationwide representing an 

increase of about 12 percent to the total stock of retail 

real estate over five years. Net additions to retail inventories since 1991 have totaled almost $33 billion in 

inflation-adjusted dollars, an increase of over 18 percent. No figures are available on investments made in 

information systems, although they are known to be 

sizeable. 

Growth of the “Big Box” Format 

Leading retailers have responded to these forces with 

aggressive expansion in the “big box” store format. Big 

box retailers are typically discount stores and superstores, such as Circuit City, PetSmart, and The Home 

Depot, Inc., which tend to cluster in large strip malls 

called “power centers.” In many towns and cities, the 

arrival of big box stores has left smaller, local retail 

establishments with only a small fraction of their former 

share of the local market. 

The big box format has a number of advantages. Among 

the most important is the ability to offer a large, diverse 

on-shelf selection. This approach enables a single location to dominate that retail category in the local market, 

which is why the big box chains are often referred to as 

“category killers.” Large retail chains also have more 

leverage over suppliers. They can negotiate more favorable prices and demand cooperative advertising from 

manufacturers. Large retailers typically have the financial resources to invest in the latest distribution methods 

and technology. Finally, unlike smaller traditional retailers, these large chains can obtain financing through the 

capital markets. 

CHART 2 

Inflation-Adjusted Retail Sales Have Grown 

Slowly in the 1990s 

Real Growth in Retail Sales*, 

Compound Annual Rate 

3.0% 

2.5% 

2.0% 

1.5% 

1.0% 

0.5% 

0.0% 

1970s 1980s 1990s 

* Retail sales excluding autos, deflated by the consumer price index. 

Source: Bureau of the Census and Bureau of Labor Statistics 

Regional Outlook 7 Third Quarter 1997 
In Focus This Quarter
 

Industry Consolidation to Continue 

Rapid expansion among the large retail chains has contributed to a highly competitive retail sector marked by 

intense battles for domination of the major retail categories. The result of this competition, analysts say, will 

be consolidation in the industry as weaker chains give 

way to market leaders. 

One sign of this consolidation is in multibillion dollar 

acquisitions, such as Federated Department Stores’ 

acquisition of R.H. Macy. The five largest department 

store chains (JC Penney, Federated, May, Dillard, and 

Nordstrom) now account for 87 percent of department 

store sales nationwide. The top three discount department store chains (Wal-Mart, K-Mart, and Target) 

account for 87 percent of full-line discount department 

store sales. 

Intensely competitive conditions also are reflected by 

retail bankruptcies and restructurings. Both Woolworth 

Corp. and K-Mart Corp. recently closed a number of 

stores in restructurings that reflect the loss of market 

share to Wal-Mart. Smaller companies that have fewer 

restructuring options are more likely to be forced into 

bankruptcy. Dun & Bradstreet reports that domestic 

business failures among retail establishments rose in 

1995 by 2.8 percent to 12,952. While most of these failures were individual stores and small chains, a number 

of larger chains also filed for bankruptcy during 1995, 

including Barney’s, Bradlees Inc., Caldor, The 

Clothestime Inc., Edison Brothers Stores, ElderBeerman, Herman’s Sporting Goods, Jamesway, and 

Today’s Man. 

As the retail shakeout moves forward, any credit losses 

on commercial and industrial loans to retailers are more 

likely to arise from bankruptcies and restructurings than 

from mergers and acquisitions. Unfortunately, it is difficult to say in advance exactly how consolidation in the 

industry is likely to take place. 

Overbuilding Is a Risk for Retail Real Estate 

Retail industry analysts are particularly concerned 

about the potential for overbuilding of retail space. 

Because of this concern, lenders and examiners should 

be alert to possible credit quality problems with commercial real estate loans secured by retail properties. 

CHART 3 

0 

20 

40 

60 

80 

100 

120 

140 

160 

’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 

0% 

2% 

4% 

6% 

8% 

10% 

12% 

New Supply Has Recently Outpaced 

Absorption of Retail Space 

Source: FDIC, The Real Estate Report (Summary for 58 major markets) 

Vacancy 

Rate 

Net New Supply Absorption 

Millions of 

Square Feet 

Although a vacancy rate of 7.7 percent does not suggest 

that the U.S. retail market is vastly overbuilt at present, 

there are warning signs. One is that the U.S. aggregate 

vacancy rate has begun to tick upward since 1995 as net 

completions of new retail space have caught up to and 

surpassed the absorption of that space by retailers (see 

Chart 3). Another frequently cited indicator of overbuilding is a falling ratio of sales per square foot in the 

industry, reflecting the fact that additions to retail space 

have outpaced sales growth for some time. In any case, 

local market conditions may be somewhat more volatile 

than the national figures would suggest, particularly in 

areas where a great deal of construction activity has 

recently taken place (see inset, Retail Vacancy Rates 

Reflect Different Trends in the Atlanta Region’s Retail 

Real Estate Markets). 

Besides market conditions, underwriting is the other 

major determinant of credit quality in retail real estate 

lending. Market analysts report that many of the problems resulting from local market downturns have been 

on loans with 1980s-vintage underwriting, particularly 

those with high loan-to-value ratios. Analysts also voice 

concern that the rapid expansion of space may be 

putting downward pressure on lease rates. In light of an 

ample supply of space and a number of large chains 

continuing to add space, any valuations that assume 

future growth in lease rates should be closely reviewed. 

The viability of rapid expansion on the part of the large 

retail chains would undergo a particularly severe test in 

the event of a recession. 

Richard A. Brown, Chief, Economic Analysis Section 

Diane Ellis, Senior Financial Analyst 

Regional Outlook 8 Third Quarter 1997 
In Focus This Quarter
 

Retail Vacancy Rates Reflect
 

Different Trends in the Atlanta
 

Region’s Retail Real Estate Markets
 

Retail real estate market conditions vary widely 

across the Atlanta Region. Outside of Florida and 

Northern Virginia, vacancy rates in most metropolitan 

areas have risen since 1994 (see Table 1). In fact, 

vacancy rates in several of these metropolitan areas 

are above the previous peak that occurred during the 

1990-1991 recession. Much of the increase appears to 

be the result of continued increases in net new supply 

while absorption of new space has declined. 

The Atlanta, Georgia, metropolitan area is displaying signs that it has the potential to become overbuilt 

(second quarter, Regional Outlook). Retail vacancy 

rates in both 1995 and 1996 exceeded the previous 

peak of 8.5 percent, which occurred during the 1991 

recession (see Chart 4). Since 1994, the absorption 

rate has steadily fallen, while net new supply in 1996 

was more than double absorption. Planned retail construction in the Atlanta area is for more than 18.6 million square feet of new space. 

TABLE 1 

CHART 4 

Absorption of Retail Space Slows in Atlanta 

Thousands of Sq. Ft. Percent (line) 

(bars) 

12000 10% 

10000 8% 

8000 

6000 6% 

4000 4% 

2000 

0 2% 

-2000 

’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 

0% 

’96 

Source: FDIC, The Real Estate Report, April 1997 

Net 

New 

Supply 

Vacancy Rate (right scale) 

Absorption 

Retail real estate conditions in Orlando, Florida, are 

similar to those in many of Florida’s other metropolitan areas, where retail vacancy rates have steadily 

declined since the early 1990s, when they were uniformly in the double digits. One possible explanation 

for the continued downward trend in retail space 

availability while the rest of the Atlanta Region has 

seen rising vacancy rates is that Florida is still recovering from the overbuilding of the 1980s. Even with 

the ongoing declines, Orlando’s vacancy rate of 8.5 

percent in 1996 (see Chart 5, next page) remained 

Vacancy Rates Rise in Most of the Atlanta Region’s Retail Real Estate Markets 

METROPOLITAN AREA 1993 1994 1995 1996 

ATLANTA, GA 7.3% 6.4% 8.7% 8.6% 

BIRMINGHAM, AL 7.3% 6.4% 8.7% 8.6% 

CHARLOTTE, NC-SC 6.4% 7.0% 7.3% 7.3% 

FT LAUDERDALE, FL 11.5% 9.9% 8.4% 8.5% 

GREENSBORO, NC 8.3% 9.0% 9.0% 10.5% 

GREENVILLE, SC 8.4% 9.0% 10.1% 10.9% 

JACKSONVILLE, FL 16.8% 14.2% 11.8% 11.3% 

MIAMI, FL 10.5% 8.4% 7.4% 8.1% 

NORFOLK, VA-NC 11.4% 13.0% 12.4% 13.4% 

ORLANDO, FL 16.2% 13.4% 8.8% 8.5% 

RALEIGH, NC 5.2% 5.3% 7.3% 6.7% 

RICHMOND, VA 6.6% 9.2% 7.7% 6.8% 

TAMPA, FL 10.8% 11.0% 9.2% 8.7% 

WASHINGTON, DC-MD-VA-WV PMSA* 7.9% 7.7% 7.2% 7.7% 

WEST PALM BEACH, FL 13.7% 13.1% 11.8% 10.2% 

*PMSA = Primary Metropolitan Statistical Area 

Source: FDIC, The Real Estate Report 

Regional Outlook 9 Third Quarter 1997 
Regional Outlook 10 Third Quarter 1997 

In Focus This Quarter 

above the national average (58 markets reporting 

nationally) of 7.7 percent. Although vacancy rates are 

above average, some areas of Orlando’s retail real 

estate market are tight. For example, according to 

Valuation International LTD, the mall vacancy rate in 

1996 was 1.6 percent, compared with 6.5 percent 

nationally. Orlando has 10.1 million square feet of 

retail space construction in the planning stages, which 

is five times the level of net new supply in 1996. About 

90 percent of the planned construction is only in the 

early stages, however, and thus is subject to cancellation. 

Norfolk, Virginia, is the only metropolitan area in the 

Atlanta Region to have seen generally rising retail 

vacancy rates for one decade. In 1995, there was a 

slight decline in vacancy rates as absorption exceeded 

net new supply for the first time during the 1990s (see 

Chart 6). Nevertheless, absorption fell in 1996 simultaneously with a continued rise in net new supply, forcing vacancy rates up again. According to The FDIC 

Real Estate Report, 3.8 million square feet of construction is planned in the Norfolk area, over three 

times the amount of net new supply that came on-line 

in 1996. Even if only the final stage of planning (plans 

completed/bid) is considered, planned construction is 

for 0.85 million square feet—still in excess of the 0.68 

million square feet of new supply in 1996. 

Scott Hughes, Regional Economist 

0 

1000 

2000 

3000 

4000 

5000 

’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 

0% 

5% 

10% 

15% 

Net New 20%

Supply 

Orlando Retail Vacancy Rates Decline 

Thousands of Sq. Ft. 

(bars) 

Vacancy Rate (right) 

Percent (line) 

Absorption 

6000 

Source: FDIC, The Real Estate Report, April 1997 

CHART 5 

-500 

0 

500 

1000 

1500 

2000 

’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 

0% 

2% 

4% 

6% 

8% 

10% 

12% 

Net 14% New 

Supply 

Norfolk Vacancy Rates Continue to Rise 

Thousands of Sq. Ft. 

(bars) 

Vacancy Rate (right scale) 

Percent (line) 

Absorption 

16% 

Source: FDIC, The Real Estate Report, April 1997 

CHART 6 
Regular Features	 Regional Economy
 

Growth in the Atlanta Region, Though Slower,
 

Remains above the Nation
 

•	 Job growth in North Carolina, Virginia, and Florida continues to exceed the national average. 

•	 While state information indicates continued growth in Georgia, gains are restricted to a few metropolitan 

areas. 

•	 Like the nation, the Atlanta Region’s economy is becoming more closely connected with global markets. 

•	 Growth, fueled by rising tourism and trade, could help push demand for financial services. 

Regional Overview 

Growth in the Atlanta Region continues to slow despite 

a modest rebound at the beginning of the year. In March 

1997, year-over-year job growth in the Region had 

slowed to 2.6 percent from January’s pace of 3.4 percent. In January 1997, the Region’s economy strengthened temporarily, experiencing an increase in 

employment comparable to levels last seen during the 

Olympic-induced gains in summer 1996. In contrast to 

the Olympic period, however, Georgia did not lead the 

increase in growth. Rather, all other states in the Region 

saw a strong rise in job growth in January, led by gains 

in the construction and services industries. 

Subsequently, however, job growth has slowed in all 

states. Only employment growth in North Carolina, 

Virginia, and Florida continued to exceed the national 

average (see Chart 1). 

North Carolina Sees Fastest Growth 

North Carolina is the Atlanta Region’s fastest growing 

state, with year-over-year job growth in March 1997 

measuring 3.4 percent. With the exception of nondurable goods manufacturing, all areas of the economy 

are experiencing gains in employment. The fastest gains 

are occurring in the state’s construction industry, where 

residential permit issuance was up 12 percent in the first 

quarter of 1997 from one year earlier. Speculative construction activity also is emerging. According to a 

recent Dow Jones Real Estate Report, Carolina Power 

& Light Co. now has a program to stimulate speculative 

construction in the 59 counties that the utility serves. 

Growth in North Carolina also is widespread geographically, as reflected by tightening labor market conditions 

in several North Carolina counties. Labor shortages 

have emerged in the Raleigh-Durham-Chapel Hill and 

Charlotte-Gastonia-Rock Hill metropolitan areas, 

where first-quarter 1997 jobless rates in many component counties were below 3 percent (see Map 1, next 

page). In some rural areas, by contrast, unemployment 

rates remain in double digits. 

Job Gains in Virginia above Average 

Virginia also is witnessing above-average levels of 

growth. As in North Carolina, the fastest gains are in 

services and construction, though other areas of the 

economy are seeing growth as well. Growth remains 

concentrated along the I-95/I-64 corridor, commonly 

known as the “Golden Crescent.” Year-over-year job 

growth in the Norfolk metropolitan area and Northern 

Virginia is above 4 percent. Unemployment rates in 

Northern Virginia, as well as around the Richmond 

area, are below 3 percent. Economic development has 

CHART 1 

0.0% 1.0% 2.0% 3.0% 4.0% 

AL 

SC 

WV 

GA 

Region 

FL 

VA 

NC 

Year-Over-Year Job Growth, March 1997 

Growth in the Region Exceeds the Nation 

Source: Bureau of Labor Statistics 

U.S. = 2.2% 

Regional Outlook	 11 Third Quarter 1997 
Regular Features Regional Economy
 

radiated outward from Northern Virginia as businesses 

and residents seek more space. While the eastern half of 

the state generally has seen expansion, growth in western and south-central areas has been weaker as 

Virginia’s coal counties continue to see high levels of 

unemployment. 

Florida’s Economic Performance Slowing 

Florida’s economic growth, although slowing since 

1994, continues to exceed that of the nation. In March 

1997, year-over-year employment growth in the state 

was 2.9 percent, with the fastest gains occurring in the 

services industry. Orlando remains the fastest growing 

metropolitan area in the state, with March 1997 yearover-year job growth at 5.6 percent. The metropolitan 

area saw record levels of tourism last year, as reflected 

by the 14 percent increase in passenger traffic through 

Orlando International Airport. Tourism traditionally 

has been a key driver for the metropolitan area. 

According to the First Union’s Regional Economic 

Review, over the 20-year period ending July 1995, 

Orlando was the nation’s tenth fastest growing metropolitan area, with employment expanding at an annual 

rate of 3.6 percent. Tourism has the potential to continue to play a large role in Orlando, as Universal Studios 

plans a $2.6 billion expansion. Walt Disney World also 

is undergoing a multibillion-dollar expansion. 

Rural-Urban Dichotomy in Georgia 

Growth in the Atlanta Region’s other four states 

(Alabama, Georgia, South Carolina, and West 

Virginia) is below the average for both the Region and 

the nation. In Georgia, year-over-year employment 

growth was 2.1 percent in March 1997. This marked the 

first time since the end of 1991 that the state’s economic performance, in terms of job growth, was below the 

national average. Gains in the state have decelerated 

across all areas of the economy since the start of 1997. 

Georgia’s growth, however, appears to be partitioned 

generally along rural-urban lines. Of the state’s seven 

metropolitan areas, only Columbus experienced yearover-year job growth below the state average in March 

1997, while five of the state’s metropolitan areas, 

including Atlanta, witnessed job growth above 3 percent. In total, Georgia’s metro areas added 75,000 jobs 

over the year ending March 1997, while its rural areas 

lost jobs. (Note that two of Georgia’s metro areas, 

Columbus and Augusta, overlap with other states, so 

three non-Georgia counties are counted in the metropolitan area employment summation.) Indeed, in the 

first quarter of 1997, unemployment rates in several 

southwestern Georgia counties were up more than 1 full 

percentage point from one year earlier. In counties to 

the south and west of Augusta and west of Albany, jobless rates in the first quarter were generally in the double digits. This rate contrasts with counties within 

metropolitan areas such as Atlanta and Athens, where 

labor market conditions have been tight and jobless 

rates have been below 3 percent. 

MAP 1 

Economic Conditions Show
 

Rural-Urban Dichotomy
 

Unemployment Rates 

First Quarter 1997 

Below 3% (63) 

Above 10% (87) 

Source: Bureau of Labor Statistics 

Regional Outlook 12 Third Quarter 1997 
Regular Features Regional Economy
 

West Virginia’s Labor Market Mixed 

West Virginia’s economic performance remains mixed. 

Year-over-year job growth in the state has declined since 

January but remains above levels of growth seen in 

1996. Some metropolitan areas, such as Charleston and 

Wheeling, saw growth above the national average during the year ending March 1997, while employment levels in Parkersburg-Marietta and Huntington-Ashland 

remained virtually unchanged. In contrast, 

Steubenville-Wierton might be considered in a recession, as year-over-year job growth has been negative 

since September 1996. Several nonmetropolitan areas 

of West Virginia retain persistently high unemployment 

rates. However, labor markets in these areas have shown 

some signs of tightening for the year. 

Pockets of Growth in Alabama and South 

Carolina 

South Carolina and Alabama are the slowest growing 

states in the Atlanta Region in terms of year-over-year 

employment growth. Nonetheless, some pockets in each 

state continue to gain. In South Carolina, Greenville’s 

and Columbia’s economic performance remains above 

the state average. Greenville’s economy has benefited 

from the presence of BMW’s automobile manufacturing 

facility, which has plans to 

expand. Gains in transportation equipment have helped 

offset the long-standing 

decline in the textile and 

apparel industry. Labor markets in both Greenville and 

Columbia have tightened 

over the past year ending in the first quarter of 1997. 

Jobless rates, likewise, have fallen throughout much of 

Alabama. Areas of economic weakness in Alabama do 

exist, however. Employment in the Anniston metropolitan area has been in decline for more than one year, and 

rural counties to the south and west of Montgomery continue to contend with double-digit jobless rates. 

Global Economic Trends: International 

Linkages in the Florida Economy 

Like the nation’s, the Atlanta Region’s economy is 

becoming more closely connected with global markets. 

Between 1993 and 1995, U.S. merchandise exports 

grew at a compound annual rate of 12 percent. During 

the same period, compound annual merchandise export 

growth (by point of export, not point of production) in 

the Atlanta Region was over 15 percent. 

While both the nation and the Region have seen strong 

growth over the past few years, the geographic focus of 

trade is somewhat different. At the national level, over 

half of all exports are destined for Canada, the 

European Union, and Japan (see Chart 2). The combination of Mexico and Latin America accounts for 17 

percent of total exports. In contrast, in the Atlanta 

Region, Mexico and Latin America account for nearly 

30 percent of total exports. 

CHART 2 

Top Merchandise Export Markets, 1995 

United States 

Rest of World 27% 

Canada 22% 

Mexico 8% 

European 

China 2% 

Latin Japan 11% Union 21% 

America 9% 

Atlanta Region 

Rest of World 22% 

Mexico 5% Canada 19%

China 2% 

Latin European America 24% Japan 7% Union 21% 

Florida 

Rest of 

World 11% Mexico 3% 

Canada 9% 

China 3% 

European 

Union 14% 

Latin Japan 3% America 57% 

Source: U.S. Bureau of the Census, Exporter Location Series 

Regional Outlook 13 Third Quarter 1997 
Regular Features Regional Economy
 

Florida is the Atlanta Region’s largest merchandise 

exporter, accounting for one-third of exports in 1996. 

Florida’s export markets have an even greater Latin 

American orientation than the rest of the Region. With 

six of its top ten export destinations in the Caribbean or 

South America, Latin American merchandise exports 

account for nearly 60 percent of Florida’s total exports. 

Miami is currently the nation’s ninth busiest port in dollar value. (Detroit and New York currently duel for first 

place.) The Miami Customs District accounted for nearly 70 percent of the state’s trade in 1995. Most shipments through Miami 

are bound for Latin 

American countries, 

although exports to 

China and East Asia’s 

newly industrialized 

countries have seen 

rapid growth as well. 

Over half of Florida’s exports to Latin America are 

industrial machinery and equipment, electric and electronic equipment, and transportation equipment. 

Industrial and electronic equipment are among the 

fastest growing areas for Florida exports. Total manufactured exports from Florida have risen by more than 

25 percent over the past three years. According to the 

U.S. Department of Commerce, transportation, aerospace, health care technology, environmental technology, infrastructure development, information technology, 

energy, and financial services are the key emerging 

markets in Latin America, particularly in Brazil. 

Trade linkages with Brazil are expected to grow in 

importance over the next several years. Brazil is the 

nation’s third largest trading partner in this hemisphere 

after Canada and Mexico and is the largest economy, 

after the United States, in the Western Hemisphere. 

Moreover, many analysts believe that Brazil is likely to 

be the fastest growing major economy in Latin America 

through the year 2000. Comparatively strong growth 

there could further fuel demand for U.S. exports. 

The benefits of international trade to the Florida economy extend beyond the jobs created by manufacturing 

and growing products for export. Products need to be 

shipped out of the country, providing employment in the 

wholesale trade and transportation services industries. 

Construction also benefits from Florida’s trade ties. As 

trade grows, according to the South Florida Business 

Journal, so does demand for new warehouse space. 

Moreover, both domestic and foreign companies have 

come to regard Florida, and the greater Miami metropolitan area in particular, as a gateway for trade with 

Latin America. As such, Canadian and European firms 

have been investing in the state to open regional headquarters or administrative offices. 

Implications: With growing trade links and international tourism comes greater exposure to international 

political and economic developments. Increases in 

tourism and international trade could help push demand 

for financial services. (For a more detailed discussion of 

Florida banking and its international ties, see Current 

Regional Banking Conditions.) Conversely, lenders 

should remain alert to the possibility that a sharp disruption in trade or tourism could have an adverse effect 

on credit quality across several sectors of the economy. 

Scott C. Hughes, Regional Economist 

Jack M. W. Phelps, Senior Regional Analyst 

Pamela R. Stallings, Financial Analyst 

Regional Outlook 14 Third Quarter 1997 
Regular Features	 Financial Markets
 

Financial Markets
 

•	 Deteriorating credit quality trends in the rapidly growing home-equity backed securities market could portend trends in bank residential mortgage lending. 

•	 Financial asset securitization investment trusts, known as FASITs, promise to change the asset-backed securities market significantly and could make securitization more accessible to community banks. 

•	 The Treasury yield curve is steeper and higher than it was at year-end 1996. 

•	 During the first quarter of 1997, the Atlanta Regional Bank Index outperformed the S&P Composite Bank 

Index. The Atlanta Region’s Community Bank Index moved ahead fairly steadily but gained less than the 

S&P 500 and the other bank indices. 

Trends in the Home-Equity Asset-Backed 

Market Are Important to Banks 

The home-equity loan (HEL) asset-backed securities 

(ABS) market has grown by over $20 billion or 251 percent since 1993, with total issuance of HEL ABS topping $27 billion in 1996 (see Chart 1). The rapid growth 

of the market, which has been driven largely by consumer debt consolidation lending, has been accompanied by abnormally early and high levels of 

delinquencies. Banks that are investing in HEL ABS, 

considering securitizing HELs, or lending significantly 

for debt consolidation should be aware of credit quality 

developments in the HEL ABS market. 

The distinction between HELs and first-lien residential 

mortgages is eroding in the HEL ABS market. The refinancing boom spurred by the decline in rates during 

1993 and early 1994 resulted in a change in the makeup 

of the HEL ABS market, causing much higher percentages of the securities to be backed by first-lien HELs 

than previously had been the case. First-lien home-equity lending, know as cash-out refinancing, grew substantially when home-equity borrowers were motivated by 

lower rates to refinance their first mortgages for 

amounts greater than the remaining principal balance 

instead of adding a second mortgage. 

Debt consolidation is the primary reason for homeequity borrowing. Nonbanks that expanded their mortgage lending capacity during 1993 have been 

aggressively marketing to an increasing number of borrowers who desire to consolidate their growing debt 

burdens. According to the Consumer Bankers 

Association 1997 Home-Equity Loan Study, debt consolidation accounted for 36 percent of home-equity 

lines of credit and 40 percent of closed-end loans. Prior 

to 1992, home improvement was the primary reason for 

home-equity borrowing. This trend toward debt consolidation as the reason for home-equity borrowing has 

significant risk implications because, unlike funds lent 

for home improvement, the proceeds of a debt consolidation loan do not enhance the lender’s collateral value. 

The rapid growth of the HEL securitization market has 

been attended by signs of relaxed underwriting. 

Adverse credit quality trends have been particularly 

prominent for loans that were originated in 1995. Chart 

2 (next page) shows the total delinquency rates for 

closed-end loan pools originated in 1995 versus 1994. 

The sharp upward path of delinquency rates for loan 

pools originated in 1995 raises concern that aggressive 

competition for volume, and apparently relaxed underwriting standards, could lead to unprecedented default 

levels. Furthermore, HEL originations in 1996 more 

CHART 1 

1993 1994 1995 1996

0 

5 

10 

15 

20 

25 

1993 1994 1995 1996

Securitization of Home Equity 

Loans Has Risen Substantially 

Lines of Credit 

Closed End 

Source: Moody’s Investors Service 

$ Billion 

Regional Outlook	 15 Third Quarter 1997 
Regular Features Financial Markets
 

than doubled 1995 levels, causing market observers to 

suspect that underwriting standards continued to lapse. 

The trends in the HEL ABS market may portend credit 

quality trends in nonsecuritized cash-out refinancing. If 

similar unfavorable trends exist in bank-originated 

cash-out refinancing, evidence of these trends would be 

obscured by banks’ larger and less risky portfolios of 

purchase mortgage loans. The trends would be obscured 

because banks report all first mortgage lending on 1 to 

4 family residential properties without distinguishing 

between purchase mortgages and cash-out refinancings. 

The unfavorable trends in the HEL ABS market suggest 

that banks that engage in significant cash-out refinancing and other forms of home-equity lending should be 

able to monitor trends in the credit quality of these loans 

separate from purchase mortgage loans. 

A Combination of Several Factors Could Induce 

More Banks to Securitize HELs 

Although the present volume of bank-originated HEL 

securitizations is relatively small, banks have recently 

entered this finance company-dominated market, and a 

combination of several factors is likely to cause more to 

follow. First, home equity lines of credit are currently 

growing at rates exceeding total consumer lending, and, 

by and large, the deposit growth to fund this lending is 

less than robust. In addition, according to Moody’s 

Investors Service, investor demand is high for bankoriginated home-equity line of credit securitizations 

because bank-originated lines are perceived to have 

lower credit risk. The funding benefits and profitability 

of securitizing bank-originated home-equity lines of 

credit could entice more banks into the securitization 

CHART 2 

0 

2 

4 

6 

8 

10 

1 3 5 7 9 11 13 15 17 19 21 23 

Months since Origination 

1995-Originated Loans 

Source: Moody’s Investors Service 

Percent 

Higher Delinquency Rates Are Occurring 

Earlier in More Recently Originated Loan Pools 

1994-Originated Loans 

Closed-end Loans 

market. Finally, the combination of these factors with 

the potential cost savings provided by using the new 

financial asset securitization investment trust (FASIT) 

structure (see discussion below) could produce momentum that will result in banks, large and small, securitizing home equity loans in significantly increased 

amounts. 

Securitizing HELs can change the balance sheet and 

income statement of the securitizer significantly, resulting in significant servicing assets and gains on sale. 

Beginning in 1997, when a 

company sells loans, it 

must comply with the 

requirements of Financial 

Accounting Standard 

(FAS) 125. If the company 

retains servicing rights on 

the assets sold, FAS 125 

requires the seller to book 

an asset related to the gain on sale that represents the 

future income derived from servicing the loans. This 

asset is similar to mortgage servicing rights in that it 

represents the present value of future expected cash 

flows derived from loan servicing. One major homeequity securitizer, which indicated that FAS 125 would 

not materially affect its financial statements, reported 

servicing assets at almost 90 percent of equity, and 

gains associated with the sale of serviced assets at 71 

percent of total revenue. 

The value of servicing assets is based on management’s 

assumptions about the future cash flows to be generated by the assets. Because these assumptions are based 

largely on historical performance, unexpected deterioration, like that associated with 1995- and possibly 

1996-originated loans, that results in charge-offs or 

early repayment through foreclosure of serviced assets, 

could require the adjustment of the valuation assumptions and the write-down of the servicing assets. 

FASITs Promise to Change the ABS Market 

The Small Business Job Protection Act of 1996 created 

two new sections of the Internal Revenue Code that create and govern FASITs. The FASIT provisions, patterned in part on the real estate mortgage investment 

conduit (REMIC) rules issued in 1986, are intended to 

provide tax certainty for ABS issuers and purchasers 

and enhance the flexibility of asset securitizations. The 

FASIT provisions take effect on September 1, 1997. 

Regional Outlook 16 Third Quarter 1997 
Regular Features Financial Markets
 

The advent of the FASIT is likely to change the ABS 

market in important ways. First, the FASIT will clarify 

the tax treatment of securitizations. Because of the current tax ambiguity, designing ABS structures to avoid 

taxation is administratively costly, and it restricts the 

forms that securitizations can take. The higher administrative cost associated with current securitization techniques establishes a practical minimum size for asset 

pools that can be feasibly securitized. With FASITs and 

the reduced costs associated with tax clarity, the economically feasible pool size may be significantly smaller. The lowering of this threshold could result in more 

community banks entering the securitization market. 

ABS issuers believe that the market for their product 

has been hampered by the restrictive nature of current 

asset-backed tax ambiguity, which prevents them 

from responding to 

investor preferences for 

varying maturities, 

coupon types, and prepayment and credit risk profiles. FASITs allow 

sponsors the flexibility to 

create multiple-class securities that satisfy these preferences with the certainty that the securities will count as 

debt and that the FASIT will not be treated as a taxable 

corporation. This combination of flexibility and tax certainty could lead to the kind of innovations in ABS 

structures that followed the 1986 REMIC legislation, 

which brought analogous benefits to the mortgagebacked market. 

FASITs will bring to the ABS market the ability to add 

and remove assets throughout the life of a securitization. This feature could be applied by securitizing 

revolving construction loans and then replacing the 

revolving loans with permanent financing when construction is completed. A FASIT also will be able to 

contain a mixed pool of assets such as real estate, nonreal estate assets, and unsecured credit, allowing exposures to very different markets from the same security. 

Finally, a FASIT can hold swaps and other hedging 

instruments. Using this feature, an issuer could combine 

a mortgage passthrough security with a hedging instrument that is designed to offset mortgage prepayment 

risk, such as a reverse-index amortizing swap. 

The increased flexibility that the FASIT promises to 

bring the ABS market comes with the potential for 

greatly increased complexity and risk. Banks that invest 

in FASIT securities will need to understand fully not 

only the risk characteristics existing at the outset of 

security but also the risk that could arise throughout the 

security’s life if assets are to be removed and replaced. 

Changes in Interest Rates and Bond Values 

The Treasury yield curve (see Chart 3) rose following 

March 25, 1997, when the Federal Open Market 

Committee (FOMC) met and raised the target federal 

funds rate 25 basis points to 5.50 percent. The yield on 

the 30-year Treasury bond rose above 7 percent on the 

Thursday following the meeting and remained there for 

the next 23 days. The FOMC met again on May 20, 

1997, and left the target rate unchanged. 

The model portfolio responded to the rise in rates, but 

only modestly (see Table 1). The relatively short weighted average maturity of the portfolio served to moderate 

the effect of the 54 basis point rise in the five-year 

Treasury between December 31, 1996, and March 31, 

1997. As discussed in Regional Outlook, Second 

Quarter 1997, changes in the value of the model portfolio correlate more with changes in the five-year 

Treasury rate than with the 30-year bond rate. 

The yields along the April 30, 1997, yield curve imply 

that the market expects the curve to continue to flatten 

through the remainder of the year with short rates rising 

somewhat. In order to gauge what affect a 25 basis point 

rise in the yield curve could have on bank fixed-income 

portfolios, the model portfolio has been “shocked” to 

simulate the effect of an instantaneous 25 basis point 

shift in the yield curve on May 28, 1997. 

CHART 3 

The Treasury Yield Curve Is Steeper 

and Higher since Year-end 1996 

5.0 

5.5 

6.0 

6.5 

7.0 

7.5 

3­

month 

2­

year 

7­

year 

30­

year 

Source: Bloomberg 

Percent 

3/31/97 

4/30/97 

12/31/96 

Regional Outlook 17 Third Quarter 1997 
Regular Features Financial Markets
 

TABLE 1 

Type of Security Par Value Percent Maturity Percent Change Reof or Change sulting from 

Portfolio WAL from a 25 bp Rate 

as of 12/31/96 Increase on 

12/31/96 to 5/28/97 

3/31/97 

U.S. TREASURY 5.6% 2,000 20% 1 YR –0.30% –0.16% 

FNMA AGENCY 5.8% CALLABLE 1,200 12% 2 YR –0.50% –0.38% 

STATE COUNTY MUNICIPAL GO 4.8% 800 8% 11 YR –2.05% –2.03% 

FNMA MORTGAGE PASSTHROUGH 7.5% 3,000 30% 8 YR –1.78% –1.44% 

FNMA (REMIC) 8.0% PAC 2,000 20% 2.5 YR –1.27% –0.50% 

CREDIT CARD ASSET-BACKED SECURITY 1,000 10% 5 YR –0.09% 0.00% 

TOTAL 10,000 100% 4.85 YR –1.08% –0.77% 

Note: Portfolio composition based on estimates derived from aggregated Bank Call Report information. 

Again, the interest rate risk benefits of maintaining a 

portfolio of relatively short weighted average life are 

apparent. The U.S. Treasury and the agency, the shortest 

lived instruments, and the floating-rate ABS demonstrate the least price sensitivity. The municipal bond is 

the most sensitive to rate changes owing to its longer 

maturity. The mortgage passthrough security also is 

more sensitive to rising rates because its weighted-average life (WAL) extends as rising rates discourage the 

underlying mortgage holders from prepaying their 

loans. The decline in prepayment rates results in extending the maturity of the security while rates are rising, a 

combination unfavorable to the security’s value. 

CHART 4 

The Atlanta Region Community Bank Index Was 

Spared from Most First Quarter 1997 Market 

Downturns but Still Underperformed the Atlanta 

Regional Bank Index 

Both the S&P Composite Bank Index and the Atlanta 

Regional Bank Index have been subject to similar performance swings this year (Chart 4). The S&P 

Composite Bank Index, with a 12.77 percent gain by 

May 2, 1997, was still short of its year-to-date high on 

March 7, 1997, at which time it was up almost 20 percent on the year. The Atlanta Region’s Community Bank 

Index was spared much of the influence of a gyrating 

market, rising in value fairly steadily to an 8.35 percent 

gain through May 2, 1997. Its gain, however, fell short 

of the Atlanta Regional Bank Index’s 13.83 percent 

gain, which was sufficient to outperform the S&P 

Composite Bank Index’s gain by more than a full percentage point through May 2, 1997. 

Allen Puwalski, Banking Analyst 

-1% 

4% 

9% 

14% 

19% 

S&P 500 

Atlanta Regional Bank Index 

S&P Bank Index 

Source: Bloomberg, American Banker 

Change from 12/31/96 

Region’s Community Bank Index 

The Atlanta Region’s Community Bank Index Performs Relatively Smoothly 

through a Rough Market 

31-Dec

10-Jan

24-Jan

2-May 

7-Feb

7-Mar

4-Apr

11-Apr

3-Jan

17-Jan31-Jan

14-Feb21-Feb28-Feb

14-Mar

21-Mar

28-Mar

18-Apr

25-Apr 

Regional Outlook 18 Third Quarter 1997 
Regular Features	 Regional Banking
 

Current Regional Banking Conditions
 

•	 Most commercial banks in the Atlanta Region reported strong performance during the first quarter of 

1997. 

•	 Even after adjusting for the one-time Savings Association Insurance Fund (SAIF) assessment in 1996, the 

Region is host to a disproportionate share of unprofitable thrifts. 

•	 Florida-based banks and special-purpose entities increase their international banking activities. 

Profits Rise at Commercial Banks 

Commercial banks in the Region posted strong earnings 

gains during the first quarter of 1997. The average 

return on assets (ROA) increased to 1.25 percent from 

1.15 percent in the year-earlier period. As a comparison, 

the ROA at the national level for the first quarter was 

1.26 percent this year and 1.12 percent last year. As 

shown in Chart 1, banks in Georgia, North Carolina, 

and Virginia had the largest year-over-year improvement in ROA, while modest declines were recorded in 

Alabama and West Virginia. 

Average loan growth was a very strong 11.6 percent, but 

“top line” revenue growth did not keep pace, as interest 

income grew only 7.1 percent. Hence, the average net 

interest margin slipped 6 basis points from last year, to 

4.11 percent. Robust fee income growth, up 19.7 percent, in conjunction with overhead expense growth of 

only 5.5 percent, was the main driver in the ROA expansion. The positive trends in fee income and overhead 

expense led to a significant improvement in the average 

efficiency ratio—59.8 percent versus 62.9 percent one 

year ago. The efficiency ratio, which derives from 

dividing overhead expense by revenue, simply measures 

CHART 1 

0.00 

% 

0.25 

% 

0.50 

% 

0.75 

% 

1.00 

% 

1.25 

% 

1.50 

% 

1.75 

% 

2.00 

% 

WV 

VA 

SC 

NC 

GA 

FL 

AL 

First Quarter 1997 First Quarter 1996 

Commercial Bank Return on Assets Comparison 

Source: Bank Call Reports 

1Q 97 Region 

Average=1.25% 

1Q 96 Region 

Average=1.15% 

how much it costs a bank to generate each dollar of revenue. A lower efficiency ratio generally implies more 

efficient operations. 

Capital ratios remain very strong with an average equity-to-asset ratio of 8.12 percent, despite many stock 

repurchase programs and higher dividend payout ratios. 

The dividend payout ratio of 74 percent in the first quarter of 1997 is almost twice as high as the 48 percent 

ratio a year earlier. Asset quality measures remained 

strong, as the ratio of noncurrent loans improved to 0.79 

percent from 0.87 percent and net charge-offs remained 

stable at 0.43 percent compared with 0.44 percent last 

year. Overall, most commercial banks in the Region 

reported superb results in the first quarter. 

Unprofitable Thrifts in Region Well above 

National Average 

The Atlanta Region has had a disproportionately large 

and growing share of unprofitable thrifts1 since 1990. 

As depicted in Chart 2, next page, the Region’s share of 

all thrifts in the nation has been declining since 1990, 

while its share of unprofitable thrifts has been increasing. In 1996, 46 thrifts in the Atlanta Region had negative earnings, up from 24 in 1995. The current total is 

the highest since 1991, when 78 thrifts had negative 

yearly earnings. 

The primary driver in the rise in unprofitable thrifts in 

1996 was the one-time Savings Association Insurance 

Fund (SAIF) assessment in the third quarter. After 

adjusting for the SAIF assessment, however, 27 thrifts 

still had negative earnings. The core group of unprofitable thrifts, the 27 thrifts with negative earnings after 

adjusting for the SAIF assessment, have a median asset 

1 Thrifts are defined as institutions regulated by the Office of Thrift 

Supervision and state savings banks supervised by the FDIC. 

Regional Outlook	 19 Third Quarter 1997 
Regular Features Regional Banking
 

10% 

12% 

14% 

16% 

18% 

20% 

22% 

1990 1991 1992 1993 1994 1995 1996 

Region’s Share 

of All Thrifts 

Region’s Share of 

Unprofitable Thrifts 

Source: Bank and Thrift Call Reports, FDIC Structure Data 

The Atlanta Region’s Share of 

Unprofitable Thrifts Is Growing 

% of Nation 

CHART 2 

TABLE 1 

size of $43.8 million compared with $101 million for 

all thrifts in the Region. Geographically, most of the 

core unprofitable thrifts are located in metropolitan statistical areas (MSAs). Moreover, 13, or nearly half of 

the 27 unprofitable thrifts in the core group, are located 

in Florida. This is not surprising, as Florida has been 

home to most of the unprofitable thrifts in the Region 

for some time. 

The returns on equity of all thrifts were further analyzed using a modified Dupont Formula. Traditionally, 

the Dupont Formula is used to analyze the return on 

equity (ROE) of a nonfinancial firm. Although many 

variations exist, its basic form for nonfinancial firms is 

shown in Table 1. Insight can be gained about the preDupont Model for Nonfinancial and Financial Firms 

BASIC DUPONT MODEL FOR NONFINANCIAL FIRMS 

ROE = PROFIT MARGIN ✕ ASSET UTILIZATION ✕ LEVERAGE ✕ INTEREST 

BURDEN ✕ TAX BURDEN 

NET INCOME EBIT* SALES ASSETS PRETAX NET INCOME NET INCOME = ✕ ✕ ✕ ✕ 

EQUITY SALES ASSETS EQUITY EBIT* PRETAX NET INCOME 

BASIC DUPONT MODEL FOR FINANCIAL FIRMS 

ROE = LEVERAGE (EQUITY MULTIPLIER) ✕ ASSET UTILIZATION ✕ PROFIT MARGIN 

NET INCOME 1 GOI** NET INCOME = ✕ ✕ 

AVERAGE EQUITY AVERAGE EQUITY / AVERAGE ASSETS AVERAGE ASSETS GOI** 

EXPANDED ASSET UTILIZATION FOR FINANCIAL FIRMS 

GOI** INTEREST INCOME NONINTEREST INCOME SECURITIES GAINS (LOSSES) = + + 

AVERAGE ASSETS AVERAGE ASSETS AVERAGE ASSETS AVERAGE ASSETS 

EXPANDED PROFIT MARGIN FOR FINANCIAL FIRMS 

NET INCOME INTEREST EXPENSE NONINTEREST EXPENSE LOAN LOSS PROVISION TAX EXPENSE 

= 1 – – – – 

GOI** GOI** GOI** GOI** GOI** 

GROSS OPERATING INCOME COMPONENTS FOR FINANCIAL FIRMS 

GOI** = INTEREST INCOME + NONINTEREST INCOME + SECURITIES GAINS (LOSSES) 

*EBIT = Earnings Before Interest and Taxes 

**GOI = Gross Operating Income 

Regional Outlook 20 Third Quarter 1997 
Regular Features Regional Banking
 

dominant forces that drive a firm’s ROE by analyzing 

the level and trend of the formula’s underlying ratios. As 

further displayed in Table 1, a simple Dupont Formula 

for financial firms can be created by using three components or ratios. For further explanatory value, the 

simple Dupont Formula for financial firms can be 

expanded by exploding asset utilization into three parts 

and profit margin into four parts. 

After adjusting for the one-time SAIF assessment, the 

modified Dupont Formula was applied separately to all 

thrifts and to the core group of unprofitable thrifts in the 

Region. Results are shown in Table 2. Three thrifts in 

operation less than two years were removed from the 

core group, as de novo institutions typically need several years before they become profitable. After removal, 

TABLE 2 

Dupont Formula Components for 

1996 Adjusted for SAIF Assessment 

ALL UNPROFITABLE 

COMPONENT THRIFTS THRIFTS* 

RETURN ON EQUITY 6.02% (12.22%) 

= (A X B X C) 

A. EQUITY MULTIPLIER 1 ÷ 9.59% 1 ÷ 10.69% 

B. ASSET UTILIZATION 9.06% 8.48% 

= INTEREST INCOME 

÷ AVG ASSETS 7.49% 7.31% 

+ NONINTEREST INCOME 

÷ AVG ASSETS 1.37% 0.70% 

+ SEC GAINS (LOSSES) 

÷ AVG ASSETS 0.20% 0.47% 

C. PROFIT MARGIN 6.37% (15.41%) 

= 100% 

– INTEREST EXPENSE 

÷ GOI 46.08% 50.20% 

– NONINTEREST EXPENSE 

÷ GOI 38.51% 62.74% 

– PROVISION EXPENSE 

÷ GOI 4.87% 5.50% 

– TAX EXPENSE ÷ GOI 4.17% (3.03%) 

*Core group includes 24 thrifts; 3 de novo thrifts 

are excluded. 

Adjusted by using a 36% tax rate—net income and 

average equity were increased by 64% of the SAIF 

assessment paid. 

GOI = Gross Operating Income; see Table 1 for definition. 

Source: Thrift Call Reports and FDIC Division of 

Insurance 

the 24 thrifts remaining in the core group had a negative ROE of 12.22 percent, while all thrifts had a positive ROE of 6.02 percent. Generally, both groups had 

about the same amount of leverage, yield on assets, and 

loan loss provisions. The core group of unprofitable 

thrifts had about half as much noninterest income, higher funding costs, and significantly higher overhead. 

Interest expense absorbed 50 percent of gross operating 

income for the core group, compared with 46 percent 

for all thrifts. Most of the unprofitable thrifts in the core 

group are small in asset size and are operating in MSAs 

where competition is very intense. In these markets, 

asset and deposit pricing is frequently tight. For that reason, offered rates on intermediated products must be 

attractive to maintain or gain market share. This situation is particularly evident in Florida, where four large 

superregional banking companies have dominant market shares. The core group generated substantially less 

noninterest income, at 0.70 percent of average assets 

compared with 1.37 percent for all thrifts. Generally, 

most of the small thrifts in the core unprofitable group 

do not have a product array or delivery system as extensive as their larger competitors. Moreover, given their 

small asset size, expanding their product line or delivery system may be costly. Finally, overhead expenses 

absorbed 63 percent of gross operating income for the 

core group versus only 39 percent for all thrifts. The 

small asset size of most thrifts in the core group may be 

a factor driving high overhead expense, as product, 

delivery, and customer service costs are spread over a 

smaller base, and a larger portion of expenses are fixed. 

International Banking Trends in Florida 

Over the past decade, the Florida economy has witnessed strong growth in global trade, particularly with 

Latin America. (For an analysis of the economic impact 

of global trade on Florida’s economy, see Growth in the 

Atlanta Region, Though Slower, Remains above the 

Nation.) Concurrently, financial intermediaries in 

Florida, as would be expected, have increased their international activities. International financial services in 

Florida are delivered through a variety of legal entities 

such as insured commercial institutions, Edge Act and 

Agreement corporations, Agencies, and International 

Banking Facilities (IBFs). Also, a number of Florida 

commercial banks operate representative offices overseas. Although representative offices cannot function as 

financial intermediaries, they are a business development and information source. With a few exceptions, an 

Regional Outlook 21 Third Quarter 1997 
Regular Features Regional Banking
 

Why Analyze Return on Equity? 

ROA has traditionally been the primary benchmark 

for assessing financial performance for banks and 

thrifts. However, ROE is becoming an increasingly 

relevant measure as many institutions have entered 

into a wide variety of nontraditional business lines. 

Some of these new activities have lower profit margins than traditional intermediation, but they also 

require less capital. Hence, institutions can still 

generate high ROEs even with a large number of 

low-spread businesses. 

ROE is closely followed by investors and analysts, 

which tends to add pressure on management to 

deliver a competitive return. While robust profitability since the last recession has bolstered equity accounts, this greater capital has made future 

earnings per share growth and higher returns on 

equity more difficult to attain. In response, many 

institutions are actively managing their equity 

accounts to improve shareholder return. Frequently, 

excess capital is being redistributed to shareholders 

through stock repurchase programs. This is in contrast with prior eras, when institutions would often 

redeploy excess capital in investments with returns 

below the institution’s hurdle rate of return. All 

stakeholders need to monitor ROE performance, 

because the value of an institution cannot appreciate over the long term if it is unable to earn a riskadjusted return in excess of its cost of capital. 

IBF, Edge Act, Agreement corporations, or Agency can 

transact business only with nonresidents. 

The trends in the number of IBFs, Edge Act and 

Agreement corporations, and Agencies are shown in 

Table 3. Commercial bank IBFs have generally fallen 

out of favor as their primary benefits—no deposit insurance assessment and reserve requirement—have lessened relative to holding a deposit in the general bank. 

Recently, several large New York money center banks 

have “rolled up” their Edge Act corporations into their 

parents in an effort to allocate capital more efficiently. 

Volume and trend data on international product offerings by these various entities are sparse and difficult to 

obtain. However, the trends in the limited data sources 

that are available suggest that these entities are strongly 

participating in the international arena. According to the 

Florida International Bankers Association, Inc. 

(FIBA), new highs were reached in assets and deposits 

at Agencies and Edges in 1996. At international entities, the aggregate assets exceeded the $20 billion 

threshold for the first time at $21.5 billion, and deposits 

finished the year at $14.3 billion, up from $13.7 billion. 

FIBA further reports that loans grew by a record 46.9 

percent in 1996 at Florida international banks. Much of 

the loan growth is attributable to a consolidation in 

Latin American lending by traditional commercial 

banks located in Miami and the transfer of lending operations by one Agency. In the 1990s, FIBA estimates that 

loans at Agencies have grown by 261 percent and that 

the loan-to-deposit ratio has moved from 29 percent to 

94 percent. 

Financial services most commonly being provided by 

these entities include loans, deposits, letters of credit, 

bankers acceptances, international clearing, risk management products, and private banking. Another innovative product being offered by some entities is a 

“payable through” account (PTA). A PTA is generally a 

checking account marketed to a foreign bank, which in 

turn solicits customers outside the United States. The 

customers or subaccount holders then become signatories on the foreign bank’s account with the ability to 

write checks and make deposits at the U.S. entity. 

Usually, the domestic bank issuing the PTA does not 

know the customers or subaccount holders. Regulatory 

agencies are concerned that PTAs may facilitate unsafe 

and unsound banking practices and other misconduct, 

including money laundering and related criminal activities. Supervisory guidance was issued by the FDIC in 

Financial Institution Letter #30-95 entitled Warning, 

Guidelines Issued to Protect Against Improper or Illegal 

Use of “Payable Through” Accounts on April 7, 1995. 

TABLE 3 

Trends in the Number of Special 

Purpose Entities Headquartered in 

Florida that Deliver International 

Banking Services 

ENTITY 1992 1993 1994 1995 1996 

INT’L BANKING 

FACILITY 32 31 31 29 27 

EDGE ACT/ 

AGREEMENT 16 14 15 13 13 

AGENCY 47 49 48 47 43 

Source: Federal Reserve Bank of Atlanta, Florida 

Division of Banking 

Regional Outlook 22 Third Quarter 1997 
Regular Features Regional Banking
 

Special-Purpose Entities That
 

Deliver International Banking
 

Services
 

Edge Act Corporation. Issued a permit by the 

Federal Reserve. Deposits are not FDIC-insured. 

Requires separate capitalization and can be owned 

by a domestic or foreign banking company. 

Agreement Corporation. Similar to an Edge Act, 

except that it is incorporated by the state and enters 

into agreements with the Federal Reserve. Deposits 

are not FDIC-insured. Requires separate capitalization and can be owned by a domestic or foreign 

banking company. 

Agency. Licensed by the state. Deposits are not 

FDIC-insured. Does not require separate capitalization. Essentially a branch of a foreign banking company. 

International Banking Facility. A subset for 

accounting books. Can be operated by a domestic 

or foreign banking company or any of the special 

purpose entities. Deposits are not FDIC-insured. 

Does not require separate capitalization. 

Another recent development in the international area in 

Florida is an increase in “parallel banking,” which is the 

cross-border common ownership or control of two or 

more banks by nonresidents. Specifically, parallel banking occurs when a nonresident investor(s) owns or controls a bank in their native country and a bank in the 

United States. Domestically, this type of banking structure is more commonly known as “chain banking.” 

Supervisory concerns about parallel banking primarily 

revolve around the shifting of assets and other funds 

between the foreign and domestic banks. Low-quality 

assets may be moved among the banks to avoid detection by regulators and auditors. Identification of assetshifting by domestic regulators is hindered by the 

inability to conduct concurrent examinations of all 

members of the parallel banking organization. Finally, 

adverse developments in the foreign bank’s home country could trigger a rapid inflow or outflow of deposits at 

the domestic bank or prevent the foreign bank from providing capital and other support to the domestic bank. 

Competition among international financial services 

providers has intensified, leading to a tightening in 

pricing. Also, the dramatic improvement in the sovereign debt ratings of many Latin American countries 

over the past decade has put downward pressure on 

pricing. The compression in spreads has shifted lending 

away from low-margin government-backed (domestic 

or foreign) loans, letters of credit, and short-term trade 

financing receivables to short-term correspondent bank 

and direct asset-based loans. Some providers are starting to lend to smaller asset-size foreign banks. The correspondent banks are seeking longer term debt 

structures, but so far, lenders have not acquiesced to the 

demand. Moreover, providers are attempting to carve 

out niches to sustain profitability. The most popular 

niche at the moment is global private banking, offering 

customized services to high net worth customers. 

International transactions can 

add a new layer of risks that are 

not normally embedded in 

domestic transactions. One of 

these risks is commonly 

referred to as country risk. 

Developments in a foreign 

country could lead to foreign 

exchange controls, confiscation, nationalization, rapid 

inflation, and currency devaluation. Any of these developments could influence the behavior and financial 

condition of a nonresident customer. Hence, entities 

involved in international transactions must have a 

strong internal risk identification system that evaluates 

the extra layer of risks arising from foreign transactions. 

Risks on the liability side of the balance sheet should 

not be ignored. Developments in a foreign country 

could lead to the repatriation of deposits or other funds 

on very short notice. Also, negative events surrounding 

the credit standing of the financial service entity could 

trigger a run by foreign depositors. The most recent and 

prominent example is the nearly $1 billion of foreign 

deposits that fled Miami-based Southeast Bank in the 

year preceding its failure in 1991. Hence, liquidity risk 

may be heightened when nonresident funding is used. 

Jack M.W. Phelps, Senior Regional Analyst 

Pamela R. Stallings, Financial Analyst 

Scott C. Hughes, Regional Economist 

Regional Outlook 23 Third Quarter 1997 
✁
 

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