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Camera-ready art of "Regional Outlook" (749Kb PDF file - PDF help or hard copy)
In Focus This Quarter
Gain-on-Sale Accounting Can Result in
Unstable Capital Ratios and Volatile Earnings -
The accounting for transferring and servicing financial assets
causes asset sellers, particularly high-growth lenders, to
recognize significant noncash income related to retained economic
interests in the sold assets. This is true whether a company
securitizes its own assets or sells its assets as a conduit to
another securitizer. Values are often driven by management
assumptions about future performance of the sold assets. Major
writedowns of gain-on-sale assets by some finance and mortgage
companies underscore the importance of careful scrutiny of these
assumptions by banks and their supervisors. By Allen
Puwalski
How
Will the Expansion End? - Analysts are now
focusing on when and how the current expansion will end. Although
no one can accurately predict when a recession will begin, two
possible scenarios have emerged. Each scenario has important
implications for lenders as they prepare for the possibility of
slower economic growth or recession. By Paul C.
Bishop
Trends
Affecting the Allowance for Loan and Lease
Losses - In today's environment, in which loan
availability is abundant, growth is strong, and competition is
fierce, some industry leaders and regulators have expressed concern
about the loosening of underwriting standards and greater risk in
bank loan portfolios. At the same time, the allowance for loan and
lease losses (ALLL) relative to total loans at many insured
institutions is declining. As the economic expansion reaches an
advanced age, an important question for insured institutions is
whether their ALLLs adequately reflect the risks associated with
changing industry practices. By Andrea Bazemore
Regular Features
Regional Economy - After
flattening throughout much of 1997, job growth in the Atlanta
Region rose to 3.3 percent in the fourth quarter. . . one area of
continuing vulnerability within the Region is its exposure to the
textile and apparel industries. . . the Regionžs insured
institutions have both direct and indirect exposure to these
industries. By Scott C. Hughes, Jack M.W. Phelps, Pamela R.
Stallings, W. Brian Bowling
Regional Banking - In the
fourth quarter, merger-related charges lowered bank profits while
thrifts experienced narrow net interest margins and higher
overhead. . . flattening of the yield curve could reduce net
interest income in 1998 . . . institutions located in areas where
textile and apparel employment is high are expanding their
commercial and industrial lending. By Jack M.W. Phelps, W.
Brian Bowling, Scott C. Hughes, Pamela R. Stallings
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