OCTOBER 1999 THROUGH MARCH 2000

Report on Underwriting Practices Report on Underwriting Practices Report on Underwriting Underwriting Practices Practices

Federal Deposit Insurance Corporation Donna Tanoue, Chairman

HIGHLIGHTS

l The potential risk associated with institutions current underwriting practices for new lending remained low

during the six months ending March 31, 20003 percent were reported as having high risk, down from

4 percent previously.

l The potential credit risk of institutions overall loan portfolios also remained low during the six months ending March 31, 20003 percent were reported as having high risk, down from 4 percent previously.

l Examiners reported continued problems with agricultural loan carryover debt (loans not paid off at the

end of the growing season) during the six months ending March 31, 2000, but among a lower proportion of

banks than during the six months ending September 30, 1999.

l Examiners also reported slight increases in the frequency of two risky underwriting practices in construction lending during the six months ending March 31, 2000, compared with the six months ending September

30, 1999. Counterbalancing these concerns, however, were examiners reports of generally stable, and often

declining, frequencies of specific risky underwriting practices across the major loan categories. 

INTRODUCTION

At the end of each FDIC-supervised bank examination, the examiner-in-charge responds to a questionnaire

on the banks underwriting practices. This Report on

Underwriting Practices covers the responses submitted

during the six months beginning October 1, 1999, and

ending March 31, 2000. The number of responses

received during this six months was 1,158which represents approximately 20 percent of the number and 24

percent of the assets of all FDIC-supervised banks. The

results reported here refer to weighted responses and are

estimates of the underwriting practices of all FDICsupervised banks. An explanation of the use of weights

appears in Purpose and Design of the Report. All

weighted responses appear in the table at the end of this

Report.

GENERAL UNDERWRITING TRENDS

During the six months ending March 31, 2000, examiners indicated that 90 percent of FDIC-supervised banks

showed no material change in underwriting practices

since the previous examination. The proportion of banks

that had loosened their underwriting practices since the

previous examination was larger than the proportion that

had tightened them (6 percent and 4 percent). 

Examiners indicated that the main reasons for the

loosening of underwriting practices were competition

and/or a drive to meet growth goals; the reasons for the

tightening were a need to respond to regulatory observations and/or a change in management.

Examiners also reported that the potential risk associated with institutions current underwriting practices

decreased slightly during the six months ending March

31, 2000, compared with the six months ending

September 30, 1999. For example, the proportion of

banks with high risk associated with institutions

current underwriting practices fell to 3 percent from

the previous 4 percent.

Furthermore, the proportion of banks with an absolute

level of high potential credit in their loan portfolios

also droppedto 3 percent from 4 percent. 

The most noteworthy changes for FDIC-supervised

banks during the six months ending March 31, 2000,

compared with the previous six months ending

September 30, 1999, were a decrease in the proportion of

banks with high risk associated with loan growth

and/or with significant changes in lending activities

since the previous examination and a decrease in the risk

associated with loan administration.

Division of Research and Statistics

Virginia Olin (202) 898-8711

Internet address: World Wide Web, www.fdic.gov.

Division of Supervision

Robert W. Walsh (202) 898-6911 

3

4

3

3/31/99

Six months ending . . .

9/30/99 3/31/00

0

1

2

3

4

Proportion

Proportion of FDIC-Supervised Banks with “High” Risk

Associated with Current Underwriting Practices
Also noteworthy was the declining proportion of

FDIC-supervised banks that engaged in out-of-area

financing either frequently enough to warrant notice or

commonly or as standard procedure: the proportion

decreased to 12 percent from 13 percent. The proportion

that failed to adjust loan pricing on different-quality

loans to reflect differences in risk either frequently

enough to warrant notice or commonly or as standard

procedure also decreasedto 12 percent from 14 percent. The proportion of banks making loans in amounts

that resulted inor contributed toconcentrations of

credit to one borrower or industry either frequently

enough to warrant notice or commonly or as standard

procedure remained unchanged21 percent.

Of the 1,158 banks examined, 215 used a credit scoring

model for credit decisions; the model was used most frequently (101 banks) for consumer installment lending.

INDIVIDUAL LOAN CATEGORIES

During the six months ending March 31, 2000, 966 of

the 1,158 banks examined were active business lenders;

925 were actively making consumer loans (excluding

credit cards); and 786 were actively making commercial

(nonresidential) real estate loans. Eighteen banks were

not active in any of the major loan categories covered.

The numbers for all of the major loan categories are

shown in the accompanying chart.

Examiners are also asked to report additional loan categories (those not listed in the chart) in which the institution may be active.1 Only 223 banks examined had

activity in additional loan categories, with the largest

number (108) having dealer paper loans.

During the six months ending March 31, 2000, examiners reported slight increases in the frequency of two

risky underwriting practices in construction lending,

compared with the six months ending September 30,

1999. Examiners also reported continued problems with

agricultural loan carryover debt (loans not paid off at

the end of the growing season), but among a lower proportion of banks than during the six months ending

September 30, 1999. Some examiners noted that government farm support programs were contributing heavily to farm income. For all loan categories, some

examiners expressed concern about the lack of proper

loan documentation and improper monitoring of loans.

Counterbalancing these concerns, however, were examiners reports of generally stable, and often declining,

frequencies of specific risky underwriting practices

across the major loan categories.

Agricultural Loans

For FDIC-supervised banks active in agricultural

lending, examiners reported a decrease in the proportion

having a moderate or a sharp increase in the banks

level of carryover debtthe first drop in the proportion

since the six months ending March 31, 1998. In both

1998 and 1999, Congress passed legislation specifically

directed to address low commodity prices and weather

problems affecting selected commodities. In 1999, total

direct government payments added approximately $22.7

billion in assistance to the agricultural sector. According

to the U.S. Department of Agriculture, the direct payments received by farmers in 1999 topped the previous

record set in 1987, both in nominal and real terms.

5 5

3

3/31/99 9/30/99 3/31/00

0

1

2

3

4

5

Proportion

Six months ending . . .

Report on Underwriting Practices 2 March 2000

966

925

786

621

522

444

180

18

1158

Business

Consumer

Nonresidential

Construction

Agricultural

Home Equity

Credit Card

None of the Above

TOTAL LOANS

0 200 400 600 800 1000 1200 1400

Number of Banks Actively Making Loans by Loan Type

Responses Received: 10/1/99–3/31/00

4 4

2

3/31/99 9/30/99 3/31/00

0

1

2

3

4

Proportion

Six months ending . . .

Proportion of FDIC-Supervised Banks with “High” Risk

Associated with Loan Growth and/or Changes in Lending

Activities Since the Previous Examination

Proportion of FDIC-Supervised Banks with “High” Risk

Associated with Loan Administration 

1 The section Purpose and Design of the Report lists additional loan categories.
March 2000 3 Report on Underwriting Practices

In general, examiners noted little change in the frequency of risky practices for agricultural lending at

FDIC-supervised banks that were actively making agricultural loans. For example, 14 percent made agricultural loans on the basis of land values that cannot be

supported by farm operations either frequently enough

to warrant notice or commonly or as standard procedure (unchanged from previously). Forty-six percent

had portfolios tied to crops affected by the Federal

Agricultural Improvement and Reform Act of 19962

either frequently enough to warrant notice or commonly or as standard procedure (up slightly from 45

percent previously). And 14 percent made agricultural

loans on the basis of unrealistic cash flow projections

either frequently enough to warrant notice or commonly or as standard procedure (down from 16 percent

previously).

Business Loans

The frequency of specific risky underwriting practices

in business lending changed only slightly compared with

the six months ending September 30, 1999. The proportion of FDIC-supervised banks making business loans

that did so without a clear and reasonably predictable

repayment source either frequently enough to warrant

notice or commonly or as standard procedure

decreased slightly (to 15 percent from 16 percent).

Also down slightly (to 20 percent from 21 percent)

was the proportion of banks making business loans that

failed to monitor the collateral pledged on asset-based

loans either frequently enough to warrant notice or

commonly or as standard procedure. 

The proportion that made business loans to borrowers

who lacked documented financial strength to support

such lending either frequently enough to warrant

notice or commonly or as standard procedure

remained the same, 20 percent.

Consumer Loans (Excluding Credit Card Lending)

For FDIC-supervised banks active in consumer lending (excluding credit card loans), the frequency of specific risky underwriting practices changed only slightly

during the six months ending March 31, 2000, compared

with the six months ending September 30, 1999.

Fourteen percent made secured consumer loans without

adequate collateral protection either frequently enough to

warrant notice or commonly or as standard procedure

(down slightly, from 15 percent previously).

Seventeen percent made loans to borrowers who lack

a demonstrable ability to repay either frequently enough

to warrant notice or commonly or as standard procedure (unchanged from previously).

Commercial (Nonresidential) Real Estate Loans

The frequency of specific risky underwriting practices

was slightly lower compared with the six months ending

September 30, 1999. Of the FDIC-supervised banks

actively making commercial (nonresidential) real estate

loans, 11 percent made such loans without considering

sources of repayment other than the project being funded either frequently enough to warrant notice or commonly or as standard procedure (down slightly, from 12

percent previously).

Seventeen percent made short-term loans with minimal amortization and large balloon payments either fre26

32

42

33

9/30/98 3/31/99 9/30/99 3/31/00

0

10

20

30

40

Proportion

Six months ending . . .

Agricultural Loans

Proportion of FDIC-Supervised Banks Having a “Moderate”

or a “Sharp” Increase in Carryover Debt

2 In contrast to previous law, which allowed traditional subsidies tied to

prices and limits on production, this law allowed declining payments to farmers until the year 2002 for certain crops.

15

17 16 15

9/30/98 3/31/99 9/30/99 3/31/00

0

5

10

15

Proportion

Six months ending . . .

Business Loans

Loans Made without a Clear and Predictable Repayment Source

(Proportion of FDIC-supervised banks making such loans either “frequently

enough to warrant notice” or “commonly or as standard procedure”)

17

14 15 14

9/30/98 3/31/99 9/30/99 3/31/00

0

5

10

15

Proportion

Six months ending . . .

Consumer Loans

Loans Made without Adequate Collateral Protection

(Proportion of FDIC-supervised banks making such loans either “frequently

enough to warrant notice” or “commonly or as standard procedure”)
quently enough to warrant notice or commonly or as

standard procedure (down slightly, from 18 percent previously). And 7 percent made interest-only, extendedamortization, or negative-amortization permanent

commercial real estate loans either frequently enough to

warrant notice or commonly or as standard procedure

(unchanged from previously). 

Construction Loans

The frequency of specific risky underwriting practices

in construction lending increased slightly compared with

the six months ending September 30, 1999, for two specific risky underwriting practices. One of the practices

was funding, or deferring, interest payments during the

loan term. The proportion of banks doing so commonly or as standard procedure rose to 6 percent from 3 percent previously. Although this practice is not unusual in

construction lending, an increase in the frequency of

banks making such loans commonly or as standard procedure indicates that this practice should be watched.

When the proportion of banks doing so frequently

enough to warrant notice was added in, however, the

combined proportion increased only slightly, to 14 percent from 13 percent previously.

The other practice that increased in frequency was the

proportion of banks making speculative construction

loans (that is, projects unaccompanied by refinancing

commitments). The proportion of banks doing so either

frequently enough to warrant notice or commonly or

as standard procedure rose to 25 percent from 24 percent. 

Home Equity Loans

Of FDIC-supervised banks active in home equity

lending, a slightly larger proportion were making home

equity loans that pushed mortgage indebtedness above

90 percent of collateral value. Specifically, 12 percent

were making such loans either frequently enough to

warrant notice or commonly or as standard procedure

during the six months ending March 30, 2000, compared

with 11 percent during the six months ending September

30, 1999.

One percent of banks qualified borrowers for home

equity credit on the basis of initially discounted loan

(teaser) rates either frequently enough to warrant

notice or commonly or as standard procedure (down

slightly from 2 percent previously).

Report on Underwriting Practices 4 March 2000

15

11 12 11

9/30/98 3/31/99 9/30/99 3/31/00

0

5

10

15

Proportion

Six months ending . . .

Commercial (Nonresidential) Real Estate

Loans Made with No Consideration of Repayment Sources

Other than the Project Being Funded

(Proportion of FDIC-supervised banks making such loans either “frequently

enough to warrant notice” or “commonly or as standard procedure”)

20

16

13 14

9/30/98 3/31/99 9/30/99 3/31/00

0

5

10

15

20

Proportion

Six months ending . . .

Construction Loans

Loans Made in Which the Institution Funds, or Defers, Interest

Payments During the Loan Term

(Proportion of FDIC-supervised banks making such loans either “frequently

enough to warrant notice” or “commonly or as standard procedure”)

37

25 24 25

9/30/98 3/31/99 9/30/99 3/31/00

0

10

20

30

40

Proportion

Six months ending . . .

13

9

11

12

9/30/98 3/31/99 9/30/99 3/31/00

0

5

10

Proportion

Six months ending . . .

Home Equity Loans

Loans Made With Greater Than 90% Collateral Value

(Proportion of FDIC-supervised banks making such loans either “frequently

enough to warrant notice” or “commonly or as standard procedure”)

Construction Loans

Loans Made on a Speculative Basis

(Proportion of FDIC-supervised banks making such loans either “frequently

enough to warrant notice” or “commonly or as standard procedure”)
March 2000 5 Report on Underwriting Practices

Credit Card Loans

Few FDIC-supervised banks were making new credit

card loans. Only 1 percent of banks active in new credit

card lending had high risk in current underwriting

practices for new credit card loans (down from 3 percent

previously). And only 1 percent had high risk associated with the banks credit card portfolio (down from 3

percent previously).

Purpose and Design of the Report

In early 1995, the FDIC began to require that a supplementary examination questionnaire on current underwriting practices at FDIC-supervised banks be filled out

at the end of each FDIC-supervised bank examination.

The questionnaire focuses on three topics: material

changes in underwriting practices for new loans, the

overall degree of risk in underwriting practices for new

loans, and the frequency of specific risks in underwriting

practices within major categories of loans (business,

consumer, commercial [nonresidential] real estate, agricultural, construction, home equity, and credit card

loans). Examiners are also asked to report whether the

institution is active in additional loan categories (unguaranteed portions of Small Business Administration [SBA]

loans, subprime loans [automobiles, mortgages], dealer

paper loans, low- /no-document business loans, high

loan-to-value ratio home equity loans [up to 125%], or

any category of loan not mentioned). The systematic

collection and analysis of questionnaire responses provides an early-warning mechanism for identifying potential lending problems.

Examiners evaluate underwriting practices in terms of

FDIC supervisory practices. Until October 1, 1998,

examiners were asked to rate the risk associated with a

banks underwriting practices in relative terms: above

average, average, or below average. Beginning

October 1, 1998, examiners began rating the risk associated with a banks underwriting practices in absolute

terms: low, medium, or high.3 New questions

about underwriting practices were also added to the

questionnaire. Examiners continue to classify the frequency of specific risky underwriting practices as never

or infrequently, frequently enough to warrant notice,

or, if the risky practice is used more often, commonly or

as standard procedure.4

The questionnaire is completed at the end of each

bank examination the FDIC conducts. Which banks are

included during a reporting period, therefore, depends on

how the FDIC schedules bank examinations. Examination schedules are heavily influenced by the financial

condition of a bank, with the examinations generally

becoming more frequent the poorer a banks financial

condition. In addition, the FDIC shares examination

authority of state-chartered nonmember banks (those

that are not members of the Federal Reserve System)

with state bank regulators. To avoid excessive regulatory burden, the FDIC generally alternates examinations

with state regulators, and the latter do not fill out questionnaires. Finally, examination schedules are affected

by the availability of examination staff. For these reasons the group of banks included in any given report is

not randomly selected and therefore may not be representative of the population of FDIC-supervised banks.

To address the potential bias that examination

scheduling might introduce into the reports results, we

statistically weight the responses. The weights are

designed to make questionnaire responses in the aggregate more reflective of the population of FDIC-supervised banks. Simply put, when we compute aggregate

questionnaire responses, we give greater weight to

FDIC-supervised banks that are underrepresented in

the questionnaire (when compared with the population

of FDIC-supervised banks) and less weight to overrepresented groups.5 Although these weightings cannot

remove all potential bias, they do allow for more meaningful comparisons of results over time. Nevertheless,

we adv1ise readers to interpret trends cautiously, for two

reasons: (1) the lack of random selection of banks for

examination, as noted above, and (2) the small number

of responses for some loan categories.

Throughout this report, the proportions presented

refer to these weighted responses and are estimates of the

underwriting practices of all FDIC-supervised banks in

the region. In addition, the data used to weight responses in this report are subject to slight revisions, so some of

the weighted proportions might be revised in subsequent

reports. We expect no substantive changes, however.

3 Low: The level of risk imposed on the institution does not warrant

notice by bank supervisors even when factors that might offset the risk are

ignored. Medium: The level of risk should be brought to the attention of

bank supervisors. There may or may not be factors that offset the risk imposed

on the institution; however, the level of risk raises concerns when considered

apart from these offsetting factors. High: The level of risk is high and therefore should be brought to the immediate attention of bank supervisors. There

may or may not be factors that offset the risk imposed on the institution; however, the level of risk is high when viewed in isolation.

4 Never or infrequently: The institution does not engage in the practice,

or does so only to an extent that does not warrant notice by bank supervisors.

Frequently enough to warrant notice: The institution engages in the practice often enough for it to be brought to the attention of bank supervisors.

There may or may not be factors that offset the risks the practice imposes on

the institution. Commonly or as standard procedure: The practice is either

common or standard at the institution and therefore should be brought to the

attention of bank supervisors. There may or may not be factors that offset the

risks the practice imposes on the institution.

5 Anyone who wishes more information about the weights should contact

Virginia Olin, DRS, 202/898-8711.
GENERAL UNDERWRITING PRACTICES

Have the institutions underwriting practices materially changed since the last examination:

If practices have materially changed, are they:1

How would you characterize the risk associated with

loan growth and/or significant changes in lending

activities since the last examination:

RISK IN CURRENT PRACTICES

How would you characterize the potential risk associated with the institutions current UW practices:

How would you characterize the potential credit risk

of the institutions overall loan portfolio:

How would you characterize the potential risk in

underwriting practices associated with loan participations purchased by the institution:

To what extent has recent lending been made in

amounts that resulted inor contributed toconcentrations of credit to one borrower or industry:

To what extent is the institution currently engaged in

out-of-area financing:

How would you characterize the risk associated with

loan administration:

To what degree does the institution fail to adjust its

loan pricing on different quality loans to reflect differences in risk:

To what extent does the institution fail to require a

material principal reduction before renewing term

loans:

To what extent do the institutions written lending

policies differ from actual practices:

BUSINESS LOANS

To what extent does the institution make business

loans without a clear and reasonably predictable

repayment source:

To what extent does the institution make business

loans to borrowers who lack documented financial

strength to support such lending:

With respect to asset-based business loans, to what

extent does the institution fail to monitor collateral:

CONSTRUCTION LOANS

To what extent is the institution funding construction projects on a speculative basis (i.e., without

meaningful pre-sale, pre-lease or take-out commitments):

To what extent are construction loans made without

consideration of repayment sources other than the

project being funded:

When alternative repayment sources are required,

to what extent does the institution fail to take appropriate steps to verify the quality of these sources:

To what extent does the institution fail to use realistic appraisal values relative to the current economic

environment and/or to the performance observed on

similar credits:

To what extent does the institution fund, or defer,

interest payments during the term of its commercial

construction loans:

Report on Underwriting Practices 6 March 2000

1 Prior to October 1, 1998, responses were either tighter or looser.

RESULTS FROM THE REPORT ON UNDERWRITING PRACTICES

Percent of Respondents

(Weighted)

Six-Month Period Ending:

3/98 9/98 3/99 9/99 3/00

Yes 10.7% 11.7% 9.3% 10.6% 9.7%

No 89.3 88.3 90.7 89.4 90.3

Substantially tighter NA NA 0.9 1.1 1.1

Moderately tighter 4.4 5.4 4.3 4.1 3.1

Moderately looser 6.4 6.3 3.1 4.3 4.4

Substantially looser NA NA 1.0 1.1 1.1

Low NA NA 55.1 54.3 55.4

Medium NA NA 28.8 28.9 28.6

High NA NA 3.9 4.1 2.3

Insignificant NA NA 12.2 12.7 13.8

Low NA NA 65.0 66.4 67.7

Medium NA NA 31.8 29.9 29.7

High NA NA 3.3 3.7 2.7

Low NA NA 66.5 66.7 68.3

Medium NA NA 30.4 29.0 29.0

High NA NA 3.1 4.3 2.7

Low NA NA 79.7 77.4 78.5

Medium NA NA 19.4 21.0 20.2

High NA NA 0.8 1.6 1.3

Never or infrequently 79.1 77.7 80.0 78.6 79.5

Frequently enough to warrant notice 13.9 14.5 12.9 13.9 14.1

Commonly or standard procedure 7.0 7.8 7.1 7.5 6.4

Never or infrequently NA NA 89.2 87.1 88.2

Frequently enough to warrant notice NA NA 8.3 9.8 9.5

Commonly or standard procedure NA NA 2.5 3.1 2.4

Low NA NA 64.5 63.1 65.5

Medium NA NA 30.8 31.6 31.1

High NA NA 4.7 5.3 3.4

Never or infrequently 72.1 73.0 89.4 86.2 87.7

Frequently enough to warrant notice 23.4 22.3 8.0 11.4 10.5

Commonly or standard procedure 4.6 4.7 2.6 2.5 1.8

Never or infrequently 63.1 62.5 76.2 75.7 76.8

Frequently enough to warrant notice 31.3 32.7 20.2 20.9 20.8

Commonly or standard procedure 5.6 4.8 3.6 3.4 2.5

Never or infrequently 72.5 71.5 79.8 77.5 78.2

Frequently enough to warrant notice 23.1 22.7 17.1 19.4 19.0

Commonly or standard procedure 4.4 5.8 3.1 3.1 2.9

Never or infrequently 82.6 85.2 82.9 84.1 85.1

Frequently enough to warrant notice 15.6 12.6 13.8 13.8 13.5

Commonly or standard procedure 1.8 2.3 3.3 2.0 1.4

Never or infrequently 76.7 78.6 81.0 80.4 79.9

Frequently enough to warrant notice 20.6 18.9 16.6 17.8 18.5

Commonly or standard procedure 2.7 2.5 2.3 1.8 1.6

Never or infrequently 79.0 83.6 77.7 78.6 80.6

Frequently enough to warrant notice 18.0 14.4 19.5 19.0 17.3

Commonly or standard procedure 3.0 2.0 2.7 2.4 2.2

Never or infrequently 62.2 63.2 75.2 76.1 75.3

Frequently enough to warrant notice 30.6 29.7 19.4 20.1 20.4

Commonly or standard procedure 7.2 7.2 5.4 3.9 4.4

Never or infrequently 76.4 74.3 87.3 88.1 88.1

Frequently enough to warrant notice 18.7 22.6 11.6 10.5 10.5

Commonly or standard procedure 5.0 3.1 1.1 1.5 1.4

Never or infrequently 79.1 83.6 88.0 87.9 87.7

Frequently enough to warrant notice 16.7 14.1 11.3 9.5 11.1

Commonly or standard procedure 4.1 2.2 0.8 2.5 1.1

Never or infrequently 86.0 86.0 89.8 87.9 89.5

Frequently enough to warrant notice 12.2 11.8 9.9 11.2 9.6

Commonly or standard procedure 1.8 2.2 0.3 0.9 0.9

Never or infrequently 80.3 79.8 83.9 87.1 86.0

Frequently enough to warrant notice 13.9 14.4 10.0 9.7 7.9

Commonly or standard procedure 5.8 5.9 5.9 3.2 6.1
March 2000 7 Report on Underwriting Practices

1 Prior to October 1, 1998, responses were either tighter or looser.

CONSTRUCTION LOANS (cont.)

To what extent does the institution fund 100% of the

cost of construction and land, with no cash equity on

the part of the borrower/developer:

NONRESIDENTIAL LOANS

To what extent are commercial real estate loans

made without consideration of repayment sources

other than the project being funded:

To what extent does the institution make interestonly, extended amortization, or negative amortization permanent commercial real estate loans:

To what extent does the institution make short-term

commercial real estate loans (Mini-perms) with

minimal amortization terms and large balloon

payments at maturity:

To what extent does the institution fail to use realistic appraisal values relative to the current economic

environment and/or to the performance observed on

similar credits:

HOME EQUITY LOANS

To what extent does the institution make home equity loans that push mortgage indebtedness above 90

percent of collateral value:

To what extent does the institution qualify borrowers for home equity credit based on initially-discounted loan rates:

AGRICULTURAL LOANS

To what extent does the institution make agricultural loans on the basis of land values that cannot be

supported by farm operations:

To what extent is the institutions agricultural loan

portfolio tied to major crops affected by the phase

out of farm subsidies:

To what extent are agricultural loans being made

based on unrealistic cash flow projections:

How would you characterize the change in the level

of the institutions agricultural related carryover

debt since the last examination:

CONSUMER LOANS

To what extent does the institution make secured

consumer loans without adequate collateral protection:

To what extent does the institution make consumer

loans to borrowers who lack demonstrable ability to

repay:

CREDIT CARD LOANS

Have the institutions underwriting practices for

new credit card loans materially changed since the

last examination:

Are underwriting practices for new credit cards:1

How would you characterize the level of risk associated with the institutions current underwriting

practices for new credit card loans:

How would you characterize the level of risk associated with the institutions credit card portfolio:

For credit card loans in the institutions portfolio

with risk characterized as high, to what degree does

the institution fail to adjust its loan pricing to

account for this risk:

Never or infrequently NA NA 88.4% 88.8% 88.8%

Frequently enough to warrant notice NA NA 9.7 10.8 9.7

Commonly or standard procedure NA NA 1.9 0.4 1.6

Never or infrequently 86.1 85.1 88.9 87.7 88.7

Frequently enough to warrant notice 12.5 12.3 8.9 10.5 10.2

Commonly or standard procedure 1.4 2.6 2.2 1.8 1.1

Never or infrequently 93.0 92.8 93.4 93.4 92.7

Frequently enough to warrant notice 6.3 7.2 6.5 5.9 6.9

Commonly or standard procedure 0.7 0.0 0.1 0.7 0.5

Never or infrequently 80.6 84.7 83.9 81.8 83.1

Frequently enough to warrant notice 15.0 12.7 12.9 15.3 13.8

Commonly or standard procedure 4.4 2.7 3.2 2.9 3.1

Never or infrequently 90.0 89.6 92.1 90.1 91.4

Frequently enough to warrant notice 9.2 9.9 7.7 9.5 8.2

Commonly or standard procedure 0.8 0.6 0.1 0.4 0.4

Never or infrequently 88.1 86.8 91.0 89.3 88.3

Frequently enough to warrant notice 9.9 11.5 5.5 9.3 9.2

Commonly or standard procedure 2.0 1.7 3.5 1.4 2.5

Never or infrequently 99.0 98.3 98.0 98.1 99.0

Frequently enough to warrant notice 1.0 1.7 1.8 1.3 0.4

Commonly or standard procedure 0.0 0.0 0.2 0.5 0.6

Never or infrequently NA NA 87.8 86.0 85.8

Frequently enough to warrant notice NA NA 10.6 11.9 13.1

Commonly or standard procedure NA NA 1.7 2.1 1.2

Never or infrequently 59.2 51.2 58.6 55.0 54.5

Frequently enough to warrant notice 27.1 27.7 23.0 22.8 24.8

Commonly or standard procedure 13.7 21.1 18.4 22.2 20.7

Never or infrequently 88.1 84.3 85.7 84.5 86.3

Frequently enough to warrant notice 9.4 12.6 13.0 14.3 12.2

Commonly or standard procedure 2.5 3.1 1.3 1.2 1.5

Sharp decline 2.4 0.8 1.6 2.0 3.1

Moderate decline 25.5 17.6 9.6 7.0 11.3

No change 60.5 55.8 56.4 48.7 52.7

Moderate increase 10.4 23.5 29.0 37.2 31.0

Sharp increase 1.2 2.4 3.4 5.1 2.0

Never or infrequently 83.0 82.6 86.5 85.0 85.7

Frequently enough to warrant notice 14.2 13.5 10.9 13.1 12.1

Commonly or standard procedure 2.8 3.9 2.6 1.9 2.2

Never or infrequently 78.9 79.5 83.7 83.3 83.1

Frequently enough to warrant notice 18.0 16.0 13.9 14.7 14.4

Commonly or standard procedure 3.1 4.5 2.5 2.0 2.5

Yes 15.7 10.9 9.2 6.4 2.1

No 84.3 89.1 90.9 93.6 97.9

Substantially tighter NA NA 1.3 0.8 0.7

Moderately tighter 13.7 9.4 7.2 3.3 0.5

Moderately looser 2.0 1.5 0.0 1.5 0.9

Substantially looser NA NA 0.7 0.9 0.0

Low NA NA 74.4 72.6 80.2

Medium NA NA 24.7 24.2 18.5

High NA NA 0.9 3.2 1.4

Low NA NA 76.5 74.4 79.6

Medium NA NA 23.5 22.5 19.6

High NA NA 0.0 3.1 0.9

Never or infrequently NA NA 0.0 84.3 100.0

Frequently enough to warrant notice NA NA 0.0 15.6 0.0

Commonly or standard procedure NA NA 0.0 0.0 0.0

RESULTS FROM THE REPORT ON UNDERWRITING PRACTICES

Percent of Respondents

Weighted

Six-Month Period Ending:

3/98 9/98 3/99 9/99 3/00
Federal Deposit Insurance Corporation

Washington, DC 20429-9990

OFFICIAL BUSINESS

PENALTY FOR PRIVATE USE, $300

BULK RATE

MAIL

Postage &

Fees Paid

FDIC

Permit No. G-36

Attention:

Chief Executive Officer

Characteristics of Banks Examined in the

Report on Underwriting Practices

l Coverage: 1,158 FDIC-supervised banks.

l Period: Reports filed between October 1, 1999, and March 31, 2000.

l Charter types: 100 percent of the examined banks during this period were state-chartered commercial

banks.

l Size distribution of banks: assets of $1 billion or greater, 4 percent; assets between $300 million and $1

billion, 8 percent; assets between $25 million and $300 million, 74 percent; assets less than $25 million,

14 percent.

The Report on Underwriting Practices Seeks

l To identify (1) material changes in underwriting practices, (2) overall risk in new lending practices, and

(3) specific risks in underwriting practices for major loan categories.

l To track emerging issues in underwriting practices of new loans.

l To provide an early-warning mechanism for identifying potential problems.