INTRODUCTION

At the end of each FDIC-supervised bank examination,

the examiner in charge responds to a questionnaire on the

bank’s underwriting practices. This Report on Underwriting Practices covers the responses submitted during the

six months beginning April 1, 2001, and ending September

30, 2001. The number of responses received during this six

months was 1,221—which represents approximately 22

percent of the number and 28 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 FDIC-supervised 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. Throughout the Report, the response

rates have been rounded to the nearest 1 percent for ease of

exposition.

GENERAL UNDERWRITING TRENDS

During the six months ending September 30, 2001, risk

in banks’ loan portfolios and in loan administration

increased compared with the six months ending March 31,

2001. The proportion of banks with “high” potential credit risk in their loan portfolios increased from 4 percent to 6

percent. And, the proportions of banks with “medium” and

“high” risk associated with loan administration increased

from 37 percent to 40 percent. 

Among examiners’ concerns in banks with high risk in

their loan portfolios were consistently inadequate underwriting standards, lack of enforcement of underwriting

standards, inadequate management, and incomplete documentation. Concerns in banks with medium and high risk

in loan administration were lack of loan monitoring and

incomplete loan documentation and financial statements.

The occurrences of two general risky underwriting practices also increased. The proportion of banks that either

“frequently enough to warrant notice” (hereinafter, “frequently”) or “commonly or as standard procedure” (hereinafter, “commonly”) made loans in amounts that resulted

in—or contributed to—concentrations of credit to one borrower or to one industry increased from 21 percent to 23

percent. And the proportion of banks that either “frequently” or “commonly” failed to require a material principal

reduction before renewing term loans increased from 22

percent to 24 percent. 

Other differences for FDIC-supervised banks during the

six months ending September 30, 2001, compared with the

six months ending March 31, 2001, included changes in the

proportions of banks in the following categories:

l Those with “high” risk in current underwriting

practices (up from 4 percent to 5 percent).

APRIL THROUGH SEPTEMBER 2001

HIGHLIGHTS

For the six months ending September 30, 2001, the results showed the following changes in underwriting practices at FDIC-supervised banks, compared with the six months ending March 31, 2001:

l Increases in risks in banks’ loan portfolios and in loan administration.

l Very little change in occurrences of most risky underwriting practices for general underwriting

practices.

l In most major loan categories, the frequency of risky underwriting practices changed very little;

in agricultural lending, the frequency of risky underwriting practices increased.

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 

4

3

5

4

6

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

2

4

6

8

Proportion

Six months ending . . .

Proportion of FDIC-Supervised Banks with “High”

Credit Risk in Their Overall Loan Portfolios 

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

Federal Deposit Insurance Corporation Donald E. Powell, Chairman
l Those with “high” risk associated with loan

growth and/or significant changes in lending

activities since the previous examination (up

from 3 percent to 4 percent).

l Those with “high” risk associated with loan participations purchased by the institution (down

from 2 percent to 1 percent).

l Those that either “frequently” or “commonly”

made loans with actual lending practices that differed from written loan policies (up from 22 percent to 23 percent).

l Those that either “frequently” or “commonly”

failed to adjust loan pricing on different-quality

loans to reflect differences in risk (down from 12

percent to 10 percent).

During the six months ending September 30, 2001,

examiners indicated that 11 percent of FDIC-supervised

banks showed a material change in underwriting practices

since the previous examination—6 percent tightened their

underwriting practices and 5 percent loosened them.

During the previous six months, the proportions were 5 percent and 6 percent, respectively. 

The main reasons for the loosening of underwriting

practices (according to examiners) were competition and/or

growth goals; the main reasons for the tightening were a

need to respond to regulatory observations and/or a change

in management.

Of the 1,221 banks examined, 199 (20 percent) used a

credit scoring model for credit decisions; the model was

used most frequently (113 banks) for consumer installment

lending. During the six months ending March 31, 2001, 19

percent had used a credit scoring model. 

INDIVIDUAL LOAN CATEGORIES

During the six months ending September 30, 2001, of

the 1,221 banks examined, 1,062 were active in business

lending, 952 in consumer lending (excluding credit cards),

and 904 in commercial (nonresidential) real estate lending.

Eleven banks were not active in any of the major loan categories covered. The accompanying chart shows the number of banks for each major loan category.

Examiners are also asked to report activity in any loan

category that is not listed in the chart.1 Only 231 banks

examined had activity in additional loan categories, with

the largest number of banks (118) having dealer paper

loans. 

During the six months ending September 30, 2001, the

frequency of risky underwriting practices decreased slightly for most major loan categories. For business and consumer lending, however, slight increases were seen in a few

risky underwriting practices. For agricultural lending, the

increases were larger.

Agricultural Loans

For banks active in agricultural lending, the frequency of

three risky underwriting practices increased during the six

months ending September 30, 2001, compared with the

previous six-month period. The proportion of agricultural

lenders that either “frequently” or “commonly” made agricultural loans on the basis of land values that cannot be sup10 10

12

11 11

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

5

10

15

Proportion

Looser Tighter

Six months ending . . .

Note: May not add to the proportion that materially changed 

underwriting practices because of rounding.

Number of FDIC-Supervised Banks Actively Making

Loans, by Loan Type

Responses Received 4/1/01–9/30/01

Proportion of FDIC-Supervised Banks 

that Materially Changed Underwriting Practices

Since the Previous Examination, by Direction of Change

1 The section “Purpose and Design of the Report” lists additional loan categories.

37

34

38 37

40

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

15

30

Proportion

Medium High

Six months ending . . .

Proportion of FDIC-Supervised Banks with “Medium” or

“High” Risk Associated with Loan Administration

183

11

1,221

Business

Consumer

Nonresidential

Construction

Agricultural

Home Equity

Credit Card

None of the Above

Total

0 200 400 600 800 1000 1200

1,062

952

904

708

558

489

Report on Underwriting Practices 2 September 2001
ported by farm operations increased from 10 percent to 15

percent. In addition, fifteen percent (up from 11 percent) of

banks made agricultural loans on the basis of unrealistic

cash flow projections, and 23 percent (up from 21 percent)

showed a “moderate” or a “sharp” increase in the bank’s

level of carryover debt. Forty-four percent (unchanged)

either “frequently” or “commonly” had portfolios tied to

crops affected by the Federal Agricultural Improvement

and Reform Act of 1996.2

The main concerns among examiners in banks that lend

on the basis of land values that cannot be supported by farm

operations are inadequate cash flow analysis, collateralbased lending, and lack of financial statements.

Business Loans

The frequency of risky underwriting practices in business lending increased slightly during the six months ending September 30, 2001, compared with the six months

ending March 31, 2001. The proportion that either “frequently” or “commonly” made business loans without a

clear and reasonably predictable repayment source

increased from 14 percent to 16 percent, and the proportion

that either “frequently” or “commonly” failed to monitor

the collateral pledged on asset-based loans (a subset of

business lending) rose from 20 percent to 23 percent.

The proportion of FDIC-supervised banks that either

“frequently” or “commonly” made business loans to borrowers who lacked documented financial strength to support such lending remained the same: 22 percent.

Consumer Loans (Excluding Credit Card

Lending)

For FDIC-supervised banks active in consumer lending

(excluding credit card loans), the increases in the proportions of banks that “commonly” made loans with two risky

underwriting practices edged up. The proportions doing so

“frequently,” however, decreased an equal amount. The

proportion of banks that “commonly” made loans to borrowers who lacked demonstrable ability to repay increased

from 2 percent to 3 percent during the six months ending

September 30, 2001, but the proportion “frequently” doing

so decreased from 18 percent to 17 percent.

And the proportion of banks that “commonly” made

“secured” consumer loans without adequate collateral protection increased from 2 percent to 3 percent, but the proportion that did so “frequently” edged down from 13

percent to 12 percent. 

Commercial (Nonresidential) Real Estate

Loans

For commercial (nonresidential) real estate lending,

occurrences of specific risky underwriting practices were

essentially unchanged compared with the previous six

months. Of the FDIC-supervised banks actively making

such loans, 14 percent either “frequently” or “commonly”

made short-term commercial real estate loans with minimal

amortization terms and large “balloon” payments at maturity, down from 15 percent previously. 

September 2001 3 Report on Underwriting Practices

Business Loans

Loans Made without a Clear and

Reasonably Predictable Repayment Source

(Sum of the proportion of FDIC-supervised banks making such

loans either “frequently” or “commonly”)

16 15 15 16

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

5

10

15

20

Proportion

Six months ending . . .

14

13

10

15

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

5

10

15

20

Proportion

Six months ending . . .

14 14

Agricultural Loans

Loans Made on the Basis of Land Values

That Could Not Be Supported by Farm Operations

(Sum of the proportion of FDIC-supervised banks making such

loans either “frequently” or “commonly”) 

17 17 17

20 20

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

10

20

Proportion

Frequently Commonly

Six months ending . . .

Consumer Loans

Loans Made to Borrowers Who Lack Demonstrable Ability to Repay

(Proportion of FDIC-supervised banks making such

loans either “frequently” or “commonly”) 

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.
Ten percent (unchanged from previously) either “frequently” or “commonly” made commercial real estate

loans without consideration of repayment sources other

than the project being funded; 9 percent (also unchanged)

either “frequently” or “commonly” made loans without

using realistic appraisal values relative to the current economic environment and/or to the performance observed on

similar credits; and 7 percent (up slightly from 6 percent)

either “frequently” or “commonly” made interest-only,

extended-amortization, or negative-amortization permanent commercial real estate loans.

Construction Loans

For banks active in making construction loans, the frequency of risky underwriting practices was about the same

during the six months ending September 30, 2001, compared with the previous six-month period, except for two

practices. The proportion of banks that either “frequently”

or “commonly” funded, or deferred, interest payments during the terms of their commercial construction loans fell

from 17 percent to 15 percent. And the proportion of banks

that made speculative construction loans (that is, projects

without meaningful pre-sale, pre-lease, or take-out commitments) dipped from 29 percent to 28 percent. 

In contrast, for banks that actively made construction

loans, the proportion of banks that either “frequently” or

“commonly” engaged in the following risky underwriting

practices remained the same: (1) making construction

loans without consideration of repayment sources other

than the project being funded—13 percent during both periods; (2) failing to take appropriate steps to verify the quality of alternative repayment sources when such sources are

required—also 13 percent during both periods; and (3) failing to use realistic appraisal values relative to the current

economic environment and/or to the performance observed

on similar credits—12 percent during both periods.

Home Equity Loans

Of the FDIC-supervised banks that were 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, 11 percent either “frequently” or “commonly” made such loans

compared with 10 percent previously.

Two percent of banks (up from 1 percent) “frequently”

qualified borrowers for home equity credit on the basis of

initially discounted (teaser) loan rates. None did so “commonly.”

Credit Card Loans

Few FDIC-supervised banks were making new credit

card loans. Of the banks active in new credit card lending,

1 percent (unchanged) had “high” risk in current underwriting practices for new credit card loans. One percent

(down from 3 percent) had “high” risk associated with the

bank’s credit card portfolio. Examiners were concerned

about the level of subprime credit card lending in those

banks with either “high” risk in current underwriting practices for new credit card loans or in banks with “high” risk

in their credit card portfolios.

13

15

17

15

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

5

10

15

20

Proportion

Six months ending . . .

14

Construction Loans

Loans Made in Which the Institution Funded, or

Deferred, Interest Payments During the Loan Term

(Sum of the proportion of FDIC-supervised banks making such

loans either “frequently” or “commonly”)

11 12 13

10 11

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

5

10

15

20

Proportion

Commercial (Nonresidential) Real Estate

Loans Made with Minimal Amortization Terms and Large

“Balloon” Payments at Maturity

(Sum of the proportion of FDIC-supervised banks making

such loans either “frequently” or “commonly”)

11 12 13

10 11

9/30/99 3/31/00 9/30/00 3/31/01 9/30/01

0

5

10

15

20

Proportion

Home Equity Loans

Loans Made with Greater than 90% Collateral Value

(Sum of the proportion of FDIC-supervised banks making

such loans either “frequently” or “commonly”)

Report on Underwriting Practices 4 September 2001
September 2001 5 Report on Underwriting Practices

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 bank’s

underwriting practices in relative terms: “above average,”

“average,” or “below average.” Beginning October 1,

1998, examiners began rating the risk associated with a

bank’s underwriting practices in absolute terms: “low,”

“medium,” or “high.”3 New questions about underwritingpractices 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 bank’s 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 report’s 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 advise 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 nation. 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 to

concentrations 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:2

To what extent does the institution fail to require a

material principal reduction before renewing term

loans:2

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: 

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

2 Prior to October 1998, responses were “rarely”, “to some degree”, or “commonly.” 

RESULTS FROM THE REPORT ON UNDERWRITING PRACTICES

Percent of Respondents

(Weighted)

Six-Month Period Ending:

9/99 3/00 9/00 3/01 9/01 

Yes 10.6 9.8 11.6 11.6 10.8

No 89.4 90.3 88.4 88.4 89.2

Substantially tighter 1.1 1.1 1.4 1.2 1.5

Moderately tighter 4.1 3.1 3.6 3.9 4.5

Moderately looser 4.3 4.4 4.7 5.2 3.3

Substantially looser 1.1 1.1 1.8 1.2 1.6

Low 54.3 55.4 52.5 51.3 49.8

Medium 28.9 28.6 29.3 31.2 31.8

High 4.1 2.3 4.8 3.3 4.4

Insignificant 12.7 13.8 13.4 14.2 14.1

Low 66.4 67.7 65.3 64.6 63.3

Medium 29.9 29.7 30.2 31.2 31.8

High 3.7 2.7 4.6 4.2 4.9

Low 66.7 68.3 66.1 65.6 62.6

Medium 29.0 29.0 29.1 30.1 31.8

High 4.3 2.7 4.7 4.3 5.6

Low 77.4 78.4 78.8 74.5 76.2

Medium 21.1 20.2 19.2 23.6 22.4

High 1.6 1.3 2.1 2.0 1.4

Never or infrequently 78.6 79.5 77.0 79.4 76.9

Frequently enough to warrant notice 13.9 14.1 16.3 14.2 15.5

Commonly or standard procedure 7.5 6.4 6.7 6.4 7.6

Never or infrequently 87.1 88.2 85.9 84.6 85.1

Frequently enough to warrant notice 9.8 9.5 11.3 12.7 13.0

Commonly or standard procedure 3.1 2.4 2.9 2.7 1.9

Low 63.1 65.5 62.1 63.4 60.0

Medium 31.6 31.2 32.3 31.0 34.0

High 5.3 3.4 5.6 5.6 6.0

Never or infrequently 86.2 87.8 87.6 87.6 89.6

Frequently enough to warrant notice 11.4 10.5 10.2 10.0 8.1

Commonly or standard procedure 2.5 1.8 2.3 2.4 2.3

Never or infrequently 75.7 76.7 77.4 78.5 76.2

Frequently enough to warrant notice 20.9 20.8 19.3 18.8 19.8

Commonly or standard procedure 3.4 2.5 3.3 2.7 4.0

Never or infrequently 77.5 78.1 74.1 77.6 77.0

Frequently enough to warrant notice 19.4 19.0 22.2 18.7 20.0

Commonly or standard procedure 3.1 2.9 3.7 3.7 2.9

Never or infrequently 84.1 85.1 85.1 86.4 84.5

Frequently enough to warrant notice 13.8 13.5 13.8 12.4 14.2

Commonly or standard procedure 2.0 1.4 1.1 1.2 1.4

Never or infrequently 80.4 79.9 77.9 78.4 77.9

Frequently enough to warrant notice 17.8 18.6 20.2 19.8 20.2

Commonly or standard procedure 1.8 1.6 1.9 1.8 1.9

Never or infrequently 78.6 80.6 79.2 80.0 77.1

Frequently enough to warrant notice 19.0 17.3 19.4 16.8 19.1

Commonly or standard procedure 2.4 2.2 1.4 3.2 3.8

Never or infrequently 76.1 75.2 73.6 70.7 72.2

Frequently enough to warrant notice 20.1 20.4 21.9 23.1 23.1

Commonly or standard procedure 3.9 4.4 4.5 6.2 4.8

Never or infrequently 88.1 88.0 87.4 86.7 87.4

Frequently enough to warrant notice 10.5 10.5 10.7 10.8 10.6

Commonly or standard procedure 1.5 1.4 2.0 2.5 2.0

Never or infrequently 87.9 87.7 87.5 87.4 86.9 

Frequently enough to warrant notice 9.5 11.1 10.6 10.5 10.8 

Commonly or standard procedure 2.5 1.1 1.9 2.1 2.3 

Never or infrequently 87.9 89.5 87.7 88.3 88.2 

Frequently enough to warrant notice 11.2 9.6 10.8 10.6 10.2

Commonly or standard procedure 0.9 0.9 1.5 1.1 1.6 

Never or infrequently 87.1 86.0 85.2 83.5 85.2 

Frequently enough to warrant notice 9.7 7.9 9.6 8.8 8.9 

Commonly or standard procedure 3.2 6.1 5.2 7.8 5.9 

Report on Underwriting Practices 6 September 2001
September 2001 7 Report on Underwriting Practices

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 institution’s 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 institution’s 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 institution’s 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 institution’s current underwriting

practices for new credit card loans: 

How would you characterize the level of risk associated with the institution’s credit card portfolio: 

For credit card loans in the institution’s portfolio

with risk characterized as high, to what degree does

the institution fail to adjust its loan pricing to

account for this risk: 

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

Never or infrequently 88.8 88.8 87.7 87.5 87.8 

Frequently enough to warrant notice 10.8 9.7 11.0 8.8 9.5 

Commonly or standard procedure 0.4 1.6 1.4 3.8 2.7 

Never or infrequently 87.7 88.7 87.7 90.3 89.9 

Frequently enough to warrant notice 10.5 10.2 10.6 8.2 8.8 

Commonly or standard procedure 1.8 1.1 1.7 1.5 1.3 

Never or infrequently 93.4 92.7 92.5 94.0 93.2 

Frequently enough to warrant notice 5.9 6.9 6.8 5.1 6.0 

Commonly or standard procedure 0.7 0.5 0.7 0.9 0.8 

Never or infrequently 81.8 83.0 82.2 84.8 86.4 

Frequently enough to warrant notice 15.3 13.9 15.0 11.4 11.2 

Commonly or standard procedure 2.9 3.1 2.9 3.8 2.4 

Never or infrequently 90.1 91.4 88.7 90.9 90.7 

Frequently enough to warrant notice 9.5 8.2 10.1 8.5 8.4 

Commonly or standard procedure 0.4 0.4 1.2 0.6 0.9 

Never or infrequently 89.3 88.3 86.6 90.5 88.8 

Frequently enough to warrant notice 9.3 9.2 9.9 7.7 10.3 

Commonly or standard procedure 1.4 2.5 3.5 1.8 0.9 

Never or infrequently 98.1 99.0 97.3 98.7 98.4 

Frequently enough to warrant notice 1.3 0.4 2.1 1.1 1.6 

Commonly or standard procedure 0.5 0.6 0.7 0.2 0.0 

Never or infrequently 86.0 85.7 87.3 90.1 85.5 

Frequently enough to warrant notice 11.9 13.1 11.6 8.0 13.2 

Commonly or standard procedure 2.1 1.2 1.1 2.0 1.3 

Never or infrequently 55.0 54.6 55.6 55.9 56.2 

Frequently enough to warrant notice 22.8 24.7 23.0 20.3 21.9 

Commonly or standard procedure 22.2 20.7 21.4 23.8 21.9 

Never or infrequently 84.5 86.3 89.5 88.8 84.8 

Frequently enough to warrant notice 14.3 12.2 9.8 9.8 13.6 

Commonly or standard procedure 1.2 1.5 0.7 1.4 1.6 

Sharp decline 2.0 3.1 1.9 1.6 1.5 

Moderate decline 7.0 11.3 13.7 14.0 11.9 

No change 48.7 52.7 58.4 63.5 63.2 

Moderate increase 37.2 31.0 25.1 19.7 21.9 

Sharp increase 5.1 2.0 1.0 1.3 1.5

Never or infrequently 85.0 85.7 86.3 85.4 85.5 

Frequently enough to warrant notice 13.1 12.1 11.9 13.1 12.0 

Commonly or standard procedure 1.9 2.2 1.8 1.6 2.6 

Never or infrequently 83.3 83.1 82.4 80.0 80.0 

Frequently enough to warrant notice 14.7 14.4 15.4 17.6 16.8 

Commonly or standard procedure 2.0 2.5 2.2 2.4 3.2 

Yes 6.4 2.1 2.1 2.5 5.2 

No 93.6 97.9 97.9 97.5 94.8 

Substantially tighter 0.8 0.7 1.2 1.4 1.1 

Moderately tighter 3.3 0.5 0.5 1.1 2.9 

Moderately looser 1.5 1.0 0.0 0.0 1.2

Substantially looser 0.9 0.0 0.3 0.0 0.0

Low 72.6 80.1 78.5 77.7 79.2 

Medium 24.2 18.5 20.0 21.5 20.3 

High 3.2 1.4 1.5 0.9 0.5 

Low 74.4 79.5 78.3 75.5 77.2 

Medium 22.5 19.7 19.8 21.9 21.9 

High 3.1 0.9 1.8 2.7 0.9 

Never or infrequently 84.4 100.0 60.0 74.8 50.0 

Frequently enough to warrant notice 15.6 0.0 40.0 0.0 50.0 

Commonly or standard procedure 0.0 0.0 0.0 25.2 0.0

RESULTS FROM THE REPORT ON UNDERWRITING PRACTICES

Percent of Respondents

Weighted

Six-Month Period Ending:

9/99 3/00 9/00 3/01 9/01
Federal Deposit Insurance Corporation

Washington, DC 20429-9990

OFFICIAL BUSINESS

PENALTY FOR PRIVATE USE, $300

Characteristics of Banks Examined in the Report on Underwriting Practices

l Coverage: 1,221 FDIC-supervised banks.

l Period: Reports filed between April 1, 2001, and September 30, 2001.

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, 5 percent; assets between $300 million and

$1 billion, 11 percent; assets between $25 million and $300 million, 71 percent; assets less than $25

million, 13 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.