INDUSTRY SYNOPSIS
SIC 6037 – State and Federal Savings Institutions
TABLE OF CONTENTS
1. SCOPE OF SYNOPSIS
A. Industry Definition
B. Contextual Overview
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2. INDUSTRY OVERVIEW
A. Number of Establishments and Companies
B. Size and Type of Production by- Size
C. Concentration and Major Service Providers
D. Stability of the Industry
E. Geographic Dispersion
F. Sample Information
G. Value of Shipments Per Employee Information
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3. PRODUCT INFORMATION
A. Service Delivery Process
B. Major Service Lines and Value of Receipts
C. Price Determining Characteristics
D. Custom Services
E. Seasonality
F. Service Substitution
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4. MARKET AND TRANSACTION INFORMATION
A. Interplant and Intraindustry Payments
B. Price Behavior
C. Unit of Measure
D. Types of Prices
E. Types of Buyers
F. Discounts
G. Additional Charges
H. Size of Purchase
I. Contracts
J. Other Variables Affecting Prices
5. INDUSTRY INFORMATION AND RELATIONS
A. Industry Relations
B. Currently Available Price Data
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C.
D.
E.
F.
G.
Litigation and Other Cooperation Problems
Service Identification Problems
Checklist Clarifications
Industry Specific Questions and Procedures
Presurvey and Pretest Contacts
6. PUBLICATION GOALS
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1. SCOPE OF SYNOPSIS
A. INDUSTRY DEFINITION
Savings Institutions, Federally Chartered (SIC 6035) and Savings Institutions, Not Federally
Chartered (SIC 6036) are being collected together as SIC 6037 Savings Institutions. Under the
1987 SIC definition, Savings Institutions can be defined as financial intermediaries that primarily
engage in accepting time deposits, making mortgage and real estate loans, and investing in highgrade securities. Savings Institutions, Federally Chartered operate under a federal charter, while
Savings Institutions, Not Federally Chartered operate under a state charter.
SIC 603 SAVINGS INSTITUTIONS
SIC 6035 Savings Institutions, Federally Chartered
Federal savings and loan associations
Savings banks, Federal
Savings and loan associations, federally chartered
SIC 6036 Savings Institutions, Not Federally Chartered
Savings and loans associations, not federally chartered
Savings banks, State: not federally chartered
The 1997 North American Industrial Classification System has the same definition as the 1987
Standard Industrial Classification manual, but it does not contrast federally and state-chartered
institutions.
Output
The primary output of savings institutions (SIC 6037) is financial intermediation. That is, savings
institutions—also known as thrifts—function to gather and allocate funds in the economy.
Financial intermediaries such as thrifts transform financial claims in ways that make them more
attractive to the ultimate investor. Thrifts purchase direct claims (IOUs) with one set of
characteristics (e.g., term to maturity) from a deficit spending unit (DSU) and transform them into
indirect claims (IOUs) with a different set of characteristics, which they then sell to a surplus
spending unit (SSU). This transformation process is called intermediation. Therefore,
households (SSUs) deposit excess cash balances in deposit accounts of a thrift, which in turn
makes loans to households and businesses (DSUs).
Output/Financial Intermediation Services Indirectly Measured (FISM)
Banks are able to provide services for which they do not charge explicitly by paying or charging
different rates of interest to borrowers and lenders. They pay lower rates of interest than would
otherwise be the case to those who lend them money and charge higher rates of interest to those
who borrow from them. The resulting net revenues of interest are used to defray their expenses
and provide an operating surplus. This scheme of interest rates avoids the need to charge their
customers individually for services provided and leads to the pattern of interest rates observed in
practice. Therefore, these unpriced services are referred to as financial intermediation services
indirectly measured. Interest is only indirectly relevant to measuring unpriced services.
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Due to FISIM there is difficulty in allocating the interest earned on loans between the two outputs,
loans and deposits. Deposits, besides being inputs (since without deposits banks could not make
loans), are also considered outputs since they provide surplus spending units (depositors) services
such as record-keeping, safekeeping, and insurance. Therefore, a reference rate methodology is
used to allocate the interest between loans and deposits.
The reference rate to be used represents the pure cost of borrowing funds- that is, a rate from
which the risk premium has been eliminated to the greatest extent possible and which does not
include any intermediation services. Reference rates and how they will be used to price the
output of the industry will be explained in detail in Price Determining Characteristics, Checklist
Clarifications and Industry Specific Questions and Procedures sections of this synopsis.
SIC 6037 consists of the following banking services:
Loans
Residential Real Estate (Residential mortgages)
Nonresidential Real Estate
Commercial and Industrial Loans (except real estate)
Consumer Loans
Deposits
Demand
Savings
Time Deposits
Fee Based Services:
Loan Servicing Fees
Service Charges on Deposit Accounts
Other Fees and Commissions
Industry Exclusions
SIC 602 Commercial Banks
--Institutions that engage in accepting deposits from the public for commercial, consumer, and
mortgage
loans, and US government securities and municipal bonds.
SIC 6021 National Commercial Banks
Commercial banks, National
National Trust companies (accepting deposits)
SIC 6022 State Commercial banks
Commercial Banks, State
Trust companies (accepting deposits)
SIC 606 Credit Unions
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--Cooperative thrift and loan associations (accepting deposits) organized for a particular group,
such as
union members, employees of a particular firm, and so forth.
-- SIC 6061 Credit Unions, Federally Chartered
-- SIC 6062 Credit Unions, Not Federally Charted
SIC 608 Foreign Banking Branches and Agencies of Foreign Banks
SIC 6081 Branches and Agencies of Foreign Banks
--Establishments operating as branches or agencies of foreign banks that specialize in
commercial loans, especially in trade finance.
--Agencies of foreign banks
--Branches of foreign banks
SIC 6082 Foreign Trade and International Banking Institutions
--Establishments of foreign trade companies operating in the United States under Federal or State
charter
for the purpose of aiding or financing foreign trade. Also included in this industry are Federal
and State
chartered banking institutions that only participate in banking outside of the United States.
--Agreement Corporations
--Edge Act Corporations
The following non-depository SICs should not be confused with SIC 6037.
SIC 6111 Federal and Federally Sponsored Credit Agencies
--Establishments of the Federal Government and federally sponsored credit agencies primarily
engaged in guaranteeing, insuring, or making loans.
SIC 6141 Personal Credit Institutions
--Establishments primarily engaged in providing loans to individuals.
SIC 6162 Mortgage Bankers and Loan Correspondents
--Establishments primarily engaged in originating mortgage loans, selling mortgage loans to
permanent investors, and servicing these loans. They may also provide real estate construction
loans.
SIC 6163 Loan Brokers
--Establishments primarily engaged in arranging loans for others and operate mostly on a
commission or fee basis.
B. CONTEXTUAL OVERVIEW
According to Standard and Poor’s, the thrift industry is the nation’s fourth-largest group of
financial institutions in terms of assets, after commercial banks, mutual funds, and insurance
companies. As of January 30, 1998, there are 1,179 savings and loan associations, and 549
savings banks in the United States. In that same year S&Ls held total assets of approximately
$787 billion, compared to $258 billion held by savings banks. Savings institutions thus total about
$1 trillion dollars in total assets.
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Historically, savings institutions were created to serve the banking needs of consumers who
needed to borrow or deposit small amounts of money. Commercial banks did not meet the needs
for long-term credit because their main focus was on short-term, primarily self-liquidating,
commercial loans. Therefore, savings institutions targeted the needs of savers who had small
amounts of funds to deposit and wanted to earn a respectable rate of interest on their deposits,
while also providing long-term credit such as home mortgages. Today, all thrifts depend on
savings and other types of deposits that appeal to thrifty consumers (Kidwell et al, 529).
However, the thrift industry has faced significant changes since their beginnings in the early
1800s, and especially since the savings and loan crisis of the early 1980s. Mergers and
acquisitions (M&As) continue to shrink the number of institutions, and severely troubled thrifts
have closed altogether due to market share erosion by commercial banks and credit unions, a
disappearing deposit base, and interest rate risk.
According to Barbara Spain of Hoover’s Online, savings institutions numbered 3,600 in 1987.
Today, about 1,693 thrifts exist. The numbers have dwindled because of insolvency or huge
mergers and acquisitions (M&As), such as Washington Mutual and HF Ahmanson. This
acquisition in 1998 created the largest savings institution in the nation, with assets of $158.5
billion. (Standard and Poor’s: S&L Industry Survey, 1999).
Although M&As affect the size and efficiency of the savings industry, the bread and butter of
savings institutions is its ability to profitably hold a deposit base (public savings deposit--often
called shares--and time and checkable deposits). Savings institutions use these funds to offer
loans and services. S&Ls, for example, can pay customers 3% to 5% interest on savings deposits
(liabilities), and in turn charge 8% to 12% on home mortgage loans (assets). This spread (assets
minus liabilities) can give a sizable profit for savings institutions.
However, during the past decade and a half, the savings institutions’ deposit base has significantly
decreased. Investors and the general population have invested their disposable income into money
market mutual funds and individual retirement accounts (IRAs) instead of the traditional savings
and checking accounts. According to Frederic Mishkin, Professor of Economics at Columbia
University, “In 1977, money market mutual funds had assets under $4 billion. Currently they hold
around $900 billion. The general public has become more sophisticated and knowledgeable in
investments, and thus seeks higher yields than passbook savings.”(Mishkin, 285) Therefore,
savings institutions and banks now struggle to compete for depository public funds: they have
begun offering higher rates for liabilities while charging lower rates on assets. As a result, savings
institutions have gained smaller spreads.
Furthermore, as an example of increased pressure on competition and profitability, the following
table and graph demonstrate the savings institutions’ share of mortgage debt outstanding between
1990 and 1997. In 1990, savings institutions held 23.6% of residential mortgage outstanding.
Due to M&As, a disappearing deposit base and financial innovation, ten years later the savings
institutions’ share of residential mortgages dropped over ten percentage points to 13.3%, while
commercial banks’ share increased from 16.8% to 18.6% during the same period.
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Savings Institution Share of Residential Mortgage Debt
Outstanding
60.0%
50.0%
Savings Institutions
Commercial Banks
Federal Agencies
Mortgage Pools
Other
Share
40.0%
30.0%
20.0%
10.0%
0.0%
1990
1991
1992
1993
1994
1995
1996
1997
Year
Source: Standard and Poor’s from the Federal Reserve Board
2. INDUSTRY OVERVIEW
A. NUMBER OF ESTABLISHMENTS AND COMPANIES
As of April 19, 1999 there were 1674 savings institutions classified under SIC 6037, according to
the FDIC Institution Directory Database. The database includes information such as the
institution’s name, location, charter type, total assets, and revenue.
Furthermore, the total number of establishments (including branches) in SIC 6037 are 15,787 as of
early 1999.
Data on the savings institution industry is available from the Unemployment Insurance File (UI
File); however, size measurements based on revenue in the FDIC frame along with the
completeness of the FDIC frame were felt to be superior to the UI file based on employment size.
B. SIZE AND TYPE OF PRODUCTION BY SIZE
Size
The savings institution industry is highly fragmented. Most thrifts are small in size and local in
scope. As of December 31, 1998, there are 16 large thrifts with asset values over $10 billion
(Standard and Poor’s: S&L Industry Survey, 1999). Nevertheless, industry size is divided among
four categories: under $100 million, $100 million to $500 million, $500 million to $1 billion, and
over $1 billion.
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Distribution of S&L and Savings Banks (By asset size, as of 12-31-98)
Number of Institutions
Category
S&Ls
SAVING
BANKS
Over $1 billion
$500 million -- $1 billion
$100 million -- $500 million
Under $100 million
109
46
79
48
453 240
539 137
Source: Standard and Poor’s
Smaller thrifts generally offer fewer services than larger institutions. Smaller thrifts tend to
specialize in local community deposits and a limited amount of loan types. For example, smaller
thrifts may have smaller or zero percent income derived from off balance sheet activities,
securities investments, or ATM services. Larger thrifts more commonly offer these services, as
well as Internet banking, nationwide ATM accessibility, and a wider array of choices for home,
business or consumer loans.
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C. CONCENTRATION AND MAJOR SERVICE PROVIDERS
Leading Thrift Institutions (By Assets in Dollars as of 12-31-98)
Savings Institution
Total Assets ($)
1. Washington Mutual Bank, FA (California)
2. California Federal Bank, A FSB
3. Washington Mutual Bank (Seattle)
4. World Savings Bank, FSB
5. Bank of America, FSB
6. Charter One Bank, FSB
7. The Dime Savings Bank of New York, FSB
8. Sovereign Bank
9. Citibank, Federal Savings Bank
10. Astoria Federal Savings and Loan Association
11. Standard Federal Bank
12. Bank United
13. GreenPoint Bank
14. LaSalle Bank, FSB
15. Comercial Federal bank, FSB
16. Guaranty Federal Bank, FSB
17. People's Bank
18. Webster Bank
19. Hudson City Savings Bank
20. Chevy Chase Bank, FSB
129,628,906,000
54,636,855,000
32,466,191,000
31,958,984,000
25,526,618,000
24,167,047,000
22,294,733,000
22,136,919,000
20,797,512,000
20,513,669,000
19,331,825,000
14,791,526,000
13,885,686,000
12,732,582,000
12,178,339,000
12,058,326,000
9,933,123,000
8,866,355,000
7,752,260,000
7,303,621,000
Source: FDIC
A thrift’s size is determined by its assets: how much the company is worth in outstanding loans,
investment securities, and anything that will produce future revenues. Washington Mutual
(California), Cal Fed, and Washington Mutual (Seattle) constitute the top three savings institutions
in the US.
Using 1998 assets, the following are the concentration ratios for the top four, eight, twenty, and
fifty savings institutions:
Top 4:
$248,690,936,000
=
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22.85%
$1,088,255,182,000
Top 8:
$342,816,253,000
$1,088,255,182,000
=
31.50%
Top 20:
$502,961,077,000
$1,088,255,182,000
=
46.22%
Top 50:
$649,229,176,000
$1,088,255,182,000
=
59.66%
As shown from the concentration ratios, the top 50 of 1,676 savings institutions hold close to 60%
of assets in the entire industry. Once again, most savings institutions are small and local in scope,
while few savings institutions hold assets over $10 billion. This makes the industry very topheavy in terms of few thrifts holding a huge percentage of industry assets.
D. STABILITY OF THE INDUSTRY
National Interest Rates
Since thrifts follow the practice of borrowing short and lending long, thrifts depend largely on the
stability of national interest rates. For example, in the 1970s when interest rates rose in order to
stifle inflation, thrifts were pressured to pay higher interest rates on demand deposits, while at the
same time, consumers had locked in 30 year fixed rate mortgages at lower interest rates.
Therefore, rising costs of funds, stable revenues, and value depreciation of assets made thrifts very
susceptible to the interest rate.
The thrift industry, however, has adjusted significantly to decrease its exposure to interest rate
volatility: savings institutions introduced products such as Adjustable Rate Mortgages (ARMs), in
which mortgage interest rates change throughout the life of the loan according to changes in the
national interest rate. Nevertheless, thrifts always benefit from a lower, stable interest rate.
Currently, lower interest rates and a vibrant economy provide for short-term stability in the
industry. The housing market is doing extremely well, and in turn, maintaining high demand for
home mortgages, with 30 year fixed mortgage rates hovering around 8.00% (as of June 2000).
Standard and Poor’s believes that over the next twelve months the industry will be characterized
by continued pressure on interest margins, reflecting lower loan yields and a large amount of
refinancing activity. However, the industry should realize a steady increase in non-interest
income, as companies look to increase fee-based revenues. (S&P, Industry Survey)
Regulation
The US government heavily regulates and monitors the savings institution industry, especially
since the S&L crisis of the 1980s. The Office of Thrift Supervision (OTS) is the main regulatory
institution that oversees federally chartered institutions. The OTS is a bureau within the US
Department of the Treasury that sets capital standards, initiates enforcement actions, and
administers various guidelines of the Qualified Thrift Lender Test (QTL Test). The QTL test is
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designed to ensure that a savings institution maintain 65% of their assets in housing-related
investments, on a monthly basis, for nine out of twelve months. (S&P)
State savings institutions could either choose to be regulated by the OTS or by state bank
commissioners. State banks not regulated by the OTS tend to be more commercial bank-like, since
they have more lenient regulations in the services they can provide.
E. GEOGRAPHIC DISPERSION
Most savings institutions are concentrated in the Northeast, with eight states having over 50
different savings institutions. In this region, Massachusetts has 189 savings institutions, more
than any other state in the US. In the West, California, being the most populous state in the US,
dominates as one of the most marketable savings markets.
Savings Institutions in the US
21
27
4
7
3
3
3
0
3
51
3
11
88
45
24
4
123 70 140
17
11
12
10
117
24
13
35
7
21
50
26
11
30
11
51
12
28
33
Guam 2
46
2
3
F. SAMPLE INFORMATION
11
NH 20
MA 189
RI 6
CT 49
NJ 76
DE 5
DC 1 MD 66
5
22
Total: 1,674
Virgin Is. 1
The frame for SIC 6037 was provided by the Federal Deposit Insurance Corporation (FDIC). The
frame was for calendar year 1999 and included 1640 saving institutions. The measure of size
provided was revenue.
The sample for this industry was drawn in two stages. For the first stage sample, 170 companies
were drawn from the FDIC frame. For the second stage sample, BLS-defined departments were
selected for the companies in the top half of the sample, where the companies were ordered from
largest to smallest. We are calling these companies the larger banks and multiple sample units
have been created for these companies where there is one sample unit for each selected
department. The companies in the bottom half of the sample are referred to as the smaller banks
and there is only one sample unit for each of these banks. The following table shows the BLSdefined departments that were sampled and the number of companies selected for these
departments.
SIC 6037 Number of Sample Units
Larger banks – BLS defined departments
Mortgage loans
85
Agricultural loans (certainty selections)
3
Commercial loans
60
Consumer and other loan services
55
Retail
85
Trust services (certainty selections)
2
Other banking services
30
Total number of sample units for larger banks
320
Total number of sample units for smaller banks
85
Total number of sample units
405
G. VOS PER EMPLOYEE INFORMATION
There will be no VOS per employment edit range provided for this industry. Therefore, the VOS
per employee calculation is not required.
3. PRODUCTION INFORMATION
A. SERVICE DELIVERY PROCESS
Saving institutions function similarly to commercial banks: thrifts agree to pay depositors for their
excess funds (usually with interest, sometimes with services) and then find individuals, businesses
or government entities who are willing to pay amounts in excess of the expenses of the
intermediaries for the use of funds. However, thrifts provide credit primarily for mortgage-related
services, as opposed to commercial banks, which primarily provide commercial and consumer
loans.
In general, customers go to the savings institution and request information on a specific desired
service. Depending on the size of the institution, the consumer is directed to department
specialists in the specific service category. In smaller savings institutions, one department or
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branch may handle most services. If a customer seeks a loan, the customer fills out an application
form which will detail his or her credit history, he or she pays an application fee (if applicable),
and upon approval, receives thrift loan services at certain prices or interest rates. If the customer
seeks retail-banking services, the customer speaks with a retail-banking representative to open an
account.
Customers may also seek to buy securities, commodities, or insurance. Thrifts offer these
products only through their affiliates. Affiliates may include thrift holding companies,
subsidiaries, or independent service companies. These services are currently out of scope for SIC
603.
There are several methods thrifts earn revenue from fostering affiliate business. Affiliates may
either A) pay the thrift under conditions of contract for business referral; B) make monthly lease
payments for office space on thrift premises; or C) pay thrifts by method of dividend earnings.
However, fees and commissions earned from insurance and commodity sales, as a percentage of
revenue, is very small compared to other service lines--approximately less than one percent of
total industry assets in 1992. (Census Sources of Revenue, 1992)
With the advent of information technology, thrifts have begun to offer services and loans over the
Internet. Current news articles have reported an increase in web-based mortgage loan applications
and online banking. This trend should continue long-term, and should become a viable new
service for savings institutions.
B. MAJOR SERVICE LINES AND VALUE OF RECEIPTS
Type of Production
According to the Bureau of the Census, savings institutions derive revenue from:
Interest income: residential real estate loans, nonresidential real estate loans, commercial and
industrial loans (except real estate), credit cards, overdraft credit and related plans, other loans to
individuals, lease financing receivables, new and used auto loans, home equity loans, and
miscellaneous revenue. This revenue captures the earnings for own-loan servicing. See Loan
Servicing.
Loan Servicing: This type of loan servicing is different from the revenue earned when thrifts
receive income from servicing their own loans. When thrifts pool loans together and sell them to
third parties, thrifts may choose to continue to service the loans, such as handling loan payments,
correspondence, and other services, while the third party collects interest payments.
Loan origination fees: Residential real estate loans, nonresidential real estate loans, and other
loans.
Other fees and commissions: Loan (and line of credit) servicing fees collected after placement;
underwriting fee income; commissions and fees from securities and commodities sales;
commissions and fees from insurance sales; other fees and commissions (including ATM charges,
etc.); service charges on deposit accounts; income from fiduciary (trust) activities; leasing revenue
(except from finance and capital leases); and other revenue.
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Thrifts also derive income from balances due from depository institutions and federal funds sold
and securities purchased under agreement to resell.
Off-balance sheet activities also generate income. These activities are known as contingent
liabilities that promise payment or services to a third party. These activities include standby
letters of credit assuring performance on contracts, bonds or commercial paper. These services are
primary, but viable mostly for larger thrifts.
Smaller thrifts generally offer fewer services than larger institutions. Smaller thrifts tend to
specialize in local community deposits and a limited amount of loan types. For example, smaller
thrifts may have smaller or zero percent income derived from off balance sheet activities,
securities investments, or ATM services. Larger thrifts more commonly offer these services, as
well as Internet banking, nationwide ATM accessibility, and a wider array of choices for home,
business or consumer loans.
Interest Income
Thrifts generate most of their revenue from interest income (loans). Loans include the following:
Residential Real Estate Loans—They include 1-4 family mortgage loans for home, apartment,
condominium, and other dwellings, offered at either fixed or variable interest rates. A definition
and the various types of mortgage loans are listed below.
Mortgage loans are advances of funds from a lender, called the mortgagee, to a borrower, called
the mortgagor, secured by real property and evidenced by a document called a mortgage. The
mortgage sets for the conditions of the loan, the manner and duration of repayment, and reserves
to the mortgagee the right to possess the pledged property if the mortgagor fails to repay any
portion of principal and interest.
Since mortgages are one of the primary service lines for SIC 6035 and 6036, below is a listing of
the most popular mortgage instruments.
Most Common Types of Fixed Rate Mortgage Loans
30-Year Conventional Fixed Rate Mortgage
Loan fixed for 30 years
15-Year Conventional Fixed Rate Mortgage
Loan fixed for 15 years
30-Year FHA Mortgage Loan
30 year fixed for first time buyers (lower
down pmt.)
15-Year FHA Mortgage Loan
15 year fixed for first time buyers (lower
down pmt.)
30-Year Jumbo Mortgage Loan
30 year fixed for larger loans
15-Year Jumbo Mortgage Loan
15 year fixed for larger loans
Most Common Types of Adjustable Rate Mortgage Loans
30-Year Adjustable
15-Year Adjustable
5-Year Adjustable
Adjusts monthly for the entire loan term
Adjusts monthly for the entire loan term
Adjusts monthly for the entire loan term
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30-Year VA Mortgage Loan
15-Year VA Mortgage Loan
1-Year Adjustable Rate Mortgage
6-Month Adjustable Rate Mortgage Loan
3/1 Year Adjustable Rate Mortgage Loan
30 year Veterans Loan
15 year Veterans Loan
Adjusts once a year
Adjusts every 6 months
Fixed for first 3 years, then starts to adjust
yearly
Fixed for first 7 years, then starts to adjust
yearly
Balance of loan due after 7 years
Balance of loan due after 5 years
7/1 Year Adjustable Rate Mortgage Loan
7/23 Balloon Mortgage Loan
5/25 Balloon Mortgage Loan
Fixed-rate Mortgage Loans: Loans in which the applicable interest rate remains unchanged for the
life of the loan.
Adjustable Rate Mortgage (ARM) Loans: Loans in which the applicable interest rate fluctuates
according to another interest rate or index of interest rates. ARMs are also called variable-rate
loans.
Balloon Payment Loans: Loans that offer lower payments for the majority of the loan, but the
borrower will either pay a large or “balloon” payment at the end of the contract to payoff the loan,
or refinance the balance of the loan at prevailing interest rates.
First-time Home Buyer Loans: Some thrifts offer incentives and discounts for first time home
buyers, usually offering lower down payments or waiving origination fees. The conditions are
still very similar to fixed or variable rate mortgage loans.
Construction Mortgage Loans: These loans service customers wishing to build their own home.
Combination Loans: These loans cover the construction and long-term financing of the home after
completion with only one closing and one set of closing costs.
Lot Loans: These loans service customers who want to buy now but build later.
Nonresidential Real Estate Loans—These loans include commercial real estate loans, such as land,
offices, and buildings.
Commercial and Industrial Loans (except real estate)—Loans generally offered for business
capital and investment, and to meet business operating expenses. They exclude nonresidential real
estate loans.
Credit Cards, Overdraft Credit, and Related Plans—Credit cards are instantaneous bank loans,
electronically transferred by the use of a card or its account, and accepted by merchants as
electronic drafts (checks). Overdraft credit is a reserve of funds available to creditworthy
customers with demand deposits. This reserve of funds is an indirect line of credit to customers
when checks drawn on their account are not covered by the customer’s deposits. These and other
similar plans offer a constant supply of credit, but with various conditions or fees.
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Other Loans to Individuals—College loans and other personal borrowings, secured or unsecured,
fall under this category. These loans may include the following: personal loans, such as passbook
and certificate loans (loans that are secured by savings accounts and certificates of deposits),
collateral loans, and installment loans-- such as home improvements or repairs, education, travel,
emergencies, and any worthwhile purpose.
New and Used Auto Loans—Auto loans are offered to individuals or companies for the purchasing
or financing of vehicles.
Home Equity Loans-- Home equity loans are loans given to consumers for multiple purposes, such
as debt consolidation and home improvements, and are backed by the equity or value of the home.
Home equity loans can also be a source of revolving lines of credit.
Fee based services
Loan Origination Fees: Thrifts receive revenue from originating and administering the loan
process. Revenue from this service originates from residential real estate loans, non-residential
real estate loans, and other loans. Closing costs such as discount points, title insurance, escrow
fees, attorney fees, recording fees, appraisal fees, notary fees, and so forth, are included in this fee
based services category. Interest income is excluded.
Other Fees and Commissions: This category includes loan and line of service fees collected after
placement, underwriting fee income, commissions and fees from securities and commodity sales,
commissions and fees from insurance sales, other fees and commissions and miscellaneous fee
revenue.
Retail Banking Fees: Service charges on deposit accounts, such as checking account maintenance
fees, overdraft fees, and ATM charges.
Miscellaneous services rendered in this industry include, broker-dealer services, transfer agent
services, accounting/administrative services, and insurance brokerage services.
As part of a bundle, fee-based loan service charges attach to loan contracts. For example, when a
customer purchases a mortgage, the customer must also pay closing costs, origination fees, and
loan service fees.
Deposit Accounts
The principal source of funds for most thrifts is deposit accounts -demand, savings, and time
deposits.
Individuals may now choose from among a number of deposit products, including the traditional
demand deposit account on which the law prohibits payment of interest; regular savings account
on which interest is paid but withdrawals are sometimes limited; Negotiable Order of Withdrawal
(NOW) accounts or other negotiable withdrawal accounts upon which interest is paid and checks
are drawn; various kinds of time or certificate accounts which bear interest and which mature at a
specific time and on which, until maturity, withdrawals are limited or require the customer to
forfeit a penalty; and Individual Retirement Account (IRA) or Keogh accounts which are designed
for individual retirement purposes .
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Some accounts have been specifically established to serve consumers who need only a limited
number of checks a month, and whose account balances will not be large. Efforts to explain basic
banking services and requirements to consumers who have not had bank accounts are part of the
services provided to many of those customers.
Banks are creative, and are offering their individual customers a variety of interest rate options
coupled with these basic deposit products. Some, for example, have paid a varying rate of interest
on an account depending upon variation in the rate of money market instruments. Others will vary
the rate depending upon the length of time that the depositor leaves the deposit in the bank, or the
number of transactions which are permitted monthly. For the individual consumer, therefore, the
decision now is not whether he or she will deposit their funds in a bank, it is rather what deposit
instrument should he or she select. More recently, so as to accommodate the need of small
businesses, thrifts have developed 'sweep accounts', which is basically a deposit account with a
minimum balance. Amounts over the minimum balance are swept into investment accounts
overnight or for a certain period of time so as to earn interest.
Automatic Teller Machine Services (ATM)
ATM services are associated with deposit services in that they facilitate customers’ deposit
transactions. Shared remote terminals can accommodate cross transfers of funds between
institutions or withdrawals of funds from any of several institutions. Cross transfers of funds or
pooled use of joint terminals require communications networks to be established to verify that
customers have sufficient funds in their accounts so that they can be transferred according to
customers' request. Such operations are facilitated when institutions link their account balance
verification information through a single electronic switch.
Fees Associated with Deposit Accounts
The following is a list of the type of fees associated with deposits.
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Stop-payment orders
Insufficient Funds
Overdrafts
Deposit Items Returned
ƒ Third Party
Customer’s own item
PC Banking
ƒ Account Access
ƒ Bill Payment
Telephone Banking
ƒ Account Access
Bill Payment
Check Printing
Account Reconciliation
Levy, Garnishment or Attachment Fee
Stop Payment Request
Verification of Deposit Fee
Wire Transfer Fee
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Automated Teller Machines Fees
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Annual Fees
Card Fees
Fees for Customer Transactions On Us
ƒ Withdrawal Fee
ƒ Deposit Fee
ƒ Balance Inquiry Fee
Fees for Customer Transactions on Others
ƒ Withdrawal Fee
ƒ Deposit Fee
ƒ Balance Inquiry Fee
Surcharge
ƒ ATM Postage Stamp Postage Fee
ƒ ATM Statement Fee
C. PRICE DETERMINING CHARACTERISTICS
Loans
Mortgage Loans, Nonresidential Real Estate Loans, Commercial and
Industrial Loans (except real estate), and Consumer Loans:
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Type of loan (mortgage, commercial, consumer). Type of loan is price determining mainly
because of the collateral backing the loans or their inherent risk to the bank. For example, a
residential mortgage loan is backed by the property as collateral, while some consumer loans,
such as student loans, may not be backed by collateral.
Determined interest rate (i.e. 8.0%, 9.5%)
Type of interest rate (variable or fixed)
Maturity (length of loan amortization)
Credit history of the borrower (by tier ranking)
Payments (fixed, variable, periodic, on demand)
Collateral
Loan to value ratio
Loan Origination Fees
ƒ Type of loan
ƒ Types of fees and closing costs (discount points, title insurance, escrow fees, attorney fees,
recording fees, appraisal fees, notary fees, and so forth)
Other Loan Fees and Commissions
ƒ Type of Loan Fee (fees collected after closing mortgage loans, consumer loans, and
commercial loans)
ƒ Type of service (commissions and fees from security sales, commodity sales, insurance sales,
etc.)
Deposit Account Service Charges
ƒ Checking, Money Market Deposit Accounts, Sweep Accounts
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Type of Account (checking, NOW, MMDA)
Minimum Balance
Interest rate (if applicable)
Fees (if applicable)
Savings and Money Market Savings Accounts
ƒ Liquidity (measured by time and access to funds)
ƒ Maturity
ƒ Interest rate
ƒ Minimum balance
ƒ Fees (if applicable)
D. CUSTOM SERVICE
Most products in the thrift industry are standardized, but the pricing of the products vary by
customer. For example, Bank A offers 30-year fixed mortgage rate loans at all of their branches.
However, the actual mortgage interest rate may be 9.0% for an individual with poor credit history
while an individual with excellent credit purchasing a home in Des Moines, Iowa may be offered
the same loan product at 7.5% APR from the same bank.
The reader should note that the standardization of loan products serves a vital function for savings
institutions: it facilitates the sale of loans to secondary agencies, which pool similar mortgages and
market them as securities. Therefore, even though pricing may vary by customer, each customer
falls into a credit risk bracket, which is usually assigned a pricing range. In turn, this standardizes
loans among credit risk levels and types of loans.
Standardization is more pronounced for thrift liabilities. Primarily, rates and terms distinguish
savings accounts. (Standard and Poor’s)
E. SEASONALITY
Thrift industry services are not seasonal.
F. SERVICE SUBSTITUTION
There will be instances where thrift branches may close and clients withdraw the assets from an
account. In these cases, similar services and clients with similar accounts will be used as
substitutes for the previous bank product or service.
4. MARKET AND TRANSACTION INFORMATION
A. INTERPLANT AND INTRAINDUSTRY PAYMENTS
Thrifts participate in interplant and intraindustry sales. Thrifts offer the following interplant and
intraindustry services.
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Mortgage-backed Securities Sales and Mortgage Pools—Many wholesale thrifts engage in the
business of selling mortgage backed securities, which could be sold to other thrifts. They can also
be sold to commercial banks, as well as commercial businesses and individuals. Thrifts may pool
all of their originated loans and sell them as a package in the secondary market or among other
thrifts. For a wholesale thrift, mortgage backed securities represent more than 40% of total assets.
Correspondent Banking: Some small thrifts hold deposits in larger thrifts (also commercial
banks and holding banks) for a variety of services, including check collection and clearance,
foreign exchange transactions, and help with securities purchases. Officers and principal
shareholders go to larger thrifts and maintain one or more correspondent accounts. The accounts
in aggregate usually exceed an average daily balance during the reporting calendar year of
$100,000 or 0.5 percent of the officer’s or principal shareholder’s bank’s total deposits (Office of
Thrift Supervision, 12/23/96 Thrift Bulletin).
B. PRICE BEHAVIOR
Price behavior of thrifts’ primary service, mortgage lending, has always been dependent on
national interest rates and the thrifts’ costs of funds. The two most important interest rates for the
thrift industry are the six- month Treasury Bill (T-bill) and the 30 year fixed mortgage interest rate
(Federal Home Loan Mortgage Corporation money rate). The six-month T-bill rate is important
because it is a proxy for deposit costs; the average term for a certificate of deposit (CD) is about
six months. The 30-year fixed rate mortgage figure indicates the yield a given institution might
receive on its new loans. (Standard and Poor’s)
Since the industry’s practice is to borrow short and lend long, thrifts have very little opportunity to
change interest rates on fixed rate loans once loan contracts are signed. Adjustable rate mortgages
do offer variable mortgage interest rates in line with movements of national interest rates, but they
also stipulate an interest rate ceiling. The prices of checking and savings accounts, however, are
more volatile. Not only does the national interest rate affect the costs for the bank, market
competition also greatly influences the cost of thrifts to service the customer.
C. UNIT OF MEASURE
The unit of measure is either going to be per transaction for pricing fee based services or per
portfolio per month for pricing deposits and loans.
For deposit and loan services, individual account data is not acceptable. But rather, the pricing
will be for groups of loans or deposits with homogeneous characteristics. The records of the bank
or bank department will determine the level of each portfolio.
The data for the portfolio being priced must be on a per month basis. The reporter may have to
make some conversions to get the data to a per month basis.
D. TYPES OF PRICES
REFERENCE RATE
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A reference rate is used in calculating in order to allocate earned income on loans between loans
and implicit services on deposits
The reference rate to be used represents the pure cost of borrowing funds- that is, a rate from
which the risk premium has been eliminated to the greatest extent possible and which does not
include any intermediation services. This rate is calculated by the Washington office
TYPE OF PRICES FOR DEPOSITS
“Interest less fees”
All deposits will be priced at the portfolio level on a monthly basis. The following formula will
be used to determine the deposit price:
{Reference Rate - Interest payments - Earned deposit fees } * $1,000
Average deposit balance
The reference rate will be calculated by the Washington Office. A dummy value is preprinted on
the checklist because it is a different value every quarter and will be updated during collected data
review in the WO.
The respondent is to provide total interest payments made for the selected deposit portfolio for
the calendar month, deposit fees earned for the month, and the average deposit balance for the
month. The average deposit balance is to be calculated by dividing the sum of the ending daily
balances for the calendar month by the number of days in the month.
A worksheet to assist in this calculation is provided in the checklist.
LOANS
“Interest income plus fees”
All loans will be priced at the portfolio level on a monthly basis. The following formula will be
used to determine the loan price:
{Earned interest income + Fees - Reference Rate } * $1,000
Average loan balance
The reference rate will be calculated by the Washington Office. A dummy value is preprinted on
the checklist because it is a different value every quarter and will be updated during collected data
review in the WO.
The respondent is to provide total earned interest income for the selected loan portfolio for the
calendar month, fees earned for the month, and the average loan balance for the month. The
average deposit balance is to be calculated by dividing the sum of the ending daily balances for
the calendar month by the number of days in the month.
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A worksheet to assist in this calculation is provided in the checklist.
NOTE: The Annual Percentage Rate (APR) incorporates loan origination and loan servicing fees
that are associated with real estate, commercial, industrial, and home equity loans. Thus, for all
real estate, commercial, industrial, and home equity loans, the loan yield (effective interest rate)
will be used in the estimation of the loan price.
NOTE: If the bank does not separate loan servicing fees for loans that they do not hold from
those fees earned on loans they do hold, they should be included as part of the fee component of
this price. If fees for loans not held can be separated, price these services on fee basis as described
below.
TYPE OF PRICE FOR ALL OTHER SERVICES
“Fee”
The remaining services are price on a fee basis.
Loan Servicing for loans not held (if separate records) : Banks can pool loans together and sell
them to third parties. Banks may choose to continue to service the loans, such as handling loan
payments, correspondence, and other services, while the third party collects interest payments. For
this service, collect the percentage charged to third parties for loan servicing. When banks service
their own loans, this income is captured in their interest earnings.
Trust Operations: The fees that banks charge for trust operations are usually determined by a
percent of the market value of the assets in custody at the banks. For example, a mutual fund may
place in custody assets valuing $1,000,000, and the bank may charge .05% to safeguard the assets.
Therefore, the bank's fee is $1,000,000 times .05% or $5,000.
Standby Letter of Credit: The fee for this service is based on a flat fee. The flat fee is
determined in a contractual agreement between the bank and its customer. The price is calcalated
as a percentage of the value of the assets.
Cash management services: The service can be provided on a flat fee or cost per item basis.
E. TYPES OF BUYERS
Retail
Retail buyers usually seek services such as mortgage and consumer loans, checking and savings
accounts, and credit cards. Retail services are available to any individual, company, government
entity, or other financial intermediary. Retail buyers are the most important buyers, since thrift
business relies mainly on retail deposits and the selling of mortgage loans.
Wholesale
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Wholesale buyers include institutions that buy intraindustry and interplant services, mainly
mortgage backed securities sold in the secondary market. Mortgage backed securities represent
approximately 40% of total assets for the industry.
Commercial
Commercial buyers have access to retail, commercial, and wholesale services. Commercial buyers
include businesses seeking real estate and non-real estate commercial loans, commercial checking
accounts, and other services helpful to the running of business operations. Commercial buyers
may also seek correspondent banking services. Commercial buyers, however, constitute a small
percentage of thrift business.
Government
Government entities may seek thrift services, such as savings accounts, selling and buying of
treasury bills, or purchases of mortgage backed securities. Thrifts generate very little business
from government buyers.
F. DISCOUNTS
Loans
The amount of down payment may serve to directly benefit the borrower with discounted interest
rates on loans. Upon discretion of the lender, the larger the down payment, the lower the interest
rates the lender can offer. This is true since the lender reduces his or her loan-loss risk because
the borrower has established equity on the loan. For example, if a borrower seeks to purchase a
$10,000 car, but offers to place a $5,000 down payment, (thus seeking to borrow $5,000), the
lender can offer lower interest rates on the loan due to the established equity on the collateral (the
car). The opposite holds true. In order to entice customers further, thrifts may require lower down
payments or even zero percent down payments on loans, but usually require higher interest rates.
The Federal Housing Administration (FHA) and the Department of Veteran’s Affairs VA
mortgage loans usually offer this discount. Therefore, down payments or loan to value ratios shall
be used as constants to compare loan prices.
Other types of discounts may include introductory loan rates in order to draw a borrower to
borrow long term. Introductory rates are usually very low, but after a specified short term, interest
rates increase to market or above market rates. Lastly, discounts may also be offered to certain
groups of people, such as low-income families and United States veterans and their spouses, or
customers that hold other accounts in the thrift.
Loan origination fees
In order to increase interest revenue, thrifts may waive certain fees or charge fewer points on
loans. This type of discount occurs frequently due to the competitiveness of the industry.
Other fees and commissions
Current figures indicate that thrifts have significantly increased non-interest income due to these
types of service fees. Thrifts are usually reluctant to waive or discount these fees and
commissions, but it does occur.
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Service charges on deposit accounts
Discounts occur frequently in thrift deposit accounts, especially for those customers who hold
loans and other thrift income-generating accounts. Thrifts also typically reduce or waive checking
monthly maintenance fees for customers who agree to maintain a minimum balance on the deposit
accounts. Certain groups such as students, senior citizens, and high-volume commercial accounts
also benefit from deposit account discounts.
NOTE: The pricing formula for deposits and loans captures all discounts.
G. ADDITIONAL CHARGES
Loans
As previously mentioned, loans always attach loans service fees, such as loan origination fees,
attorney and appraisal fees, credit history research, and other administrative fees. Some loan
service fees are added to the list price of loans (quoted interest rates) to establish the Annual
Percentage Rate (APR), sometime referred as the true price of the loan to the consumer.
Points (loan discount points) are also an additional charge added to the price of loans. Points are
measured as one percent of the amount of the loan, and are defined as prepaid interest on a
mortgage that is usually paid at the time of closing. One point on an $80,000 mortgage is $800, or
1 percent of $80,000. Most lenders offer mortgages with several combinations of points and
interest rates; generally, the lower the interest rate, the more points the borrower will pay at
settlement.
Other fees and commissions
Most of the fees in this category are independent of additional charges. Other fees that fall in this
category are additional charges for separate services.
Service charges on deposit accounts
The fees described and included in this category are self-explanatory on how they may apply as
additional charges. The following is a list of the most common fees: overdraft fees, ATM fees,
check printing fees, transaction fees (per item processed), interest on overdraft protection,
bounced check fees, and various other customized styles and fee arrangements.
NOTE: The pricing formula for deposits and loans captures all discounts.
H.
SIZE OF PURCHASE
For service lines in the thrift industry, such as deposit accounts, sometimes there is no minimum
purchase or balance required. However, some thrifts may require some sort of account restrictions.
A savings account can be opened with very minimal dollar amounts, i.e. 5 dollars, at certain
banks.
Loans usually require a minimum down payment. For most mortgages, the minimum down
payment is usually 20% of the loan, unless they are FHA and VA loans that offer as incentives
lower down payments, which typically call for 10% down or less.
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Mortgage backed securities do have several minimum amount requirements. For example, the
Federal Home Loan Mortgage Company (FHLMC or Freddie Mac) requires a minimum
investment of $100,000 per participation certificate. The Government National Mortgage
Association (GNMA) issues securities at $25,000 denominations with $5,000 increments. Other
mortgage-backed securities follow similar restrictions.
I. CONTRACTS
Loans are contracts in which money is lent at interest. The borrower agrees to make payment(s)-including interest--in a timely manner, as specified under contract. A thrift’s primary “contract” is
the mortgage loan.
J. OTHER VARIABLES AFFECTING PRICE
Currently there are no other known variables that affect price.
5. INDUSTRY INFORMATION AND RELATIONS
A. INDUSTRY RELATIONS
America’s Community Bankers
900 19th St. NW, Ste. 400
Washington, DC 20006
(202) 857-3100
Contact: Kit Harahan, Manager, Information Resources
Members include savings and loan associations, savings banks, cooperative banks, and state and
local savings and loan association leagues in all US states and territories.
American Bankers Association
1120 Connecticut Avenue, NW
Washington, DC 20036
(202) 663-5350
Contact: Dr. Robert Strand and Dr. Keith Leggett
Office of Thrift Supervision
1700 G. Street, NW
Washington, DC 20552
(202) 906-6000
American Council of State Savings Supervisors
PO BOX 34175
Washington, DC 20043-4175
(202) 371-0666
Members include state savings and loans supervisors and are appointed by the governor of each
state.
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B. CURRENTLY AVAILABLE PRICE DATA
There is no comprehensive listing of price data for all the service lines in the savings institution
industry. There are to some degree published data on mortgage rates. They can be accessed over
the Internet for most thrifts, but thrifts only quote their annual percentage rates and not the quoted
interest rate. Deposit prices are very accessible for most thrifts on the Internet or by phone.
Thrift Reports provide financial information; however, their function is to state the operations,
services, and soundness of the banks. They do not break down the necessary information for a
PPI calculation.
Bysis Corporation: The Bysis corporation provides pricing data for all commercial banks and
thrifts, which include annual percentage rates on loans and deposits. This is for current daily rates
not including products in the portfolio of the institution.
It should be kept in mind that the sources mentioned above do not provide the necessary price
information for pricing thrift services because of methodological requirements.
The following lists the major advantages that a PPI SIC 603 price index would have over the
above data sources on thrift services:
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Index measures spreads, such as value added and liquidity at the producer level. The above
data sources only provide consumer prices.
Index measures price movements at the wholesale level on a monthly basis. No other resource
does this.
Other sources do not provide price data for all deposits in a bank portfolio—only currently
offered services, excluding previously contracted services that continually are sold.
Index is for all revenue generating services including those initiated in past periods for which
institutions continue to receive revenue. This contrasts with other sources that have pricing
data only on services currently initiated.
C. LITIGATION AND OTHER COOPERATION PROBLEMS
There is no known litigation at this time. Moreover, at this time there appears to be no anti-trust
actions taken against this industry.
However, because of heavy government regulation and overseeing, bankers may be hesitant to
provide prices to a government entity since banks may fear anti-trust issues. But, if the BLS seeks
trade association endorsement, cooperation among thrifts is expected to greatly improve.
A point worth noting is that pricing problems may arise from future deregulation of the industry.
Since the early 1980s, deregulation has changed the thrift industry dramatically. In 1980, in order
to help struggling thrifts compete more efficiently against banks, congress passed the Depository
Institutions Deregulation and Monetary Control Act (DIDMCA) which allowed thrifts to offer
other bank-like services such as negotiable order of withdrawal accounts (NOWs), which are
essentially interest-bearing checking accounts. In 1982, the Garn-St. Germain Act gave thrifts
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investment powers to expand their holdings of corporate bonds and corporate equities. The act
also allowed thrifts to convert from mutual to stock institutions, thus increasing their net worth. In
1989, the FIRRE Act allowed commercial banks to freely acquire thrifts across state borders while
setting stringent capital standards for thrifts. Lastly, the Reigle-Neil Interstate Banking Act of
1994 permits commercial banks to have interstate branches nationwide, thus greatly increasing
competition against thrifts.
More significantly, Congress approved landmark legislation in November 1999 that repealed the
Glass-Steagall Act of 1933. The Glass-Steagall Act of 1933 separated bankers and brokers in
order to reduce the potential conflicts of interest that were thought to have contributed to the
speculative stock frenzy before the Depression. (Source: New York Times)This new legislation
will transform the financial industry dramatically. Commercial banks, thrifts, securities houses,
and insurers will find it easier and cheaper to enter in each other’s businesses. Therefore, we will
see thrifts offer one-stop shopping for financial services, such as the selling of insurance or mutual
fund management.
D. SERVICE IDENTIFICATION PROBLEMS
It is anticipated that services in the banking sector will continuously be changing, especially as
Internet banking and electronic commerce become more popular.
Several banking services are considered investment activities by the PPI, and therefore, will not be
collected. These services include trading in Federal Funds, derivatives, repurchase agreements,
and loan brokerage.
E. CHECKLIST CLARIFICATIONS
A6037A DEPOSIT SERVICES
Type of Deposit Service (group 01) –For code 020 (other deposit service), describe any deposit
service that is not specified in the checklist, or any portfolio which crosses two or more ISDWS
categories (e.g. a portfolio that includes both time deposits and demand deposits).
Service Identification (group 2) – For codes 001- 002, specify the name or identification of the
portfolio of deposit service, such as 1-year retail CD bucket, if applicable.
Type of Checking Account (group 3) – Only complete the group if the selected portfolio is
further defined. If the portfolio includes more than one type of account, it is unnecessary to
indicate all types included.
Type of Deposit Fees (group 5)—Record up to 5 of the top fees that are included as revenue for
the deposit service portfolio, even though the portfolio may actually include more than 5. Should
the respondent wish to see more than 5, then specify all applicable fees.
Deposit Characteristics (group 6) – For code 001 Number of Accounts, record an estimate of the
number of accounts included in the selected portfolio. This number does not have to be exact.
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For code 002 Average number of transactions per loan, record an estimate of the average number
of transactions for each deposit included in the portfolio. This number does not have to be exact.
A6037B LOAN AND LEASING SERVICES
Type of Service (Group 1) – Code 013 (other loan services) refers to boat loans, passbook loans,
installment loans, student loans and overdraft protection loans. Also select this code if the loan
service includes portfolios that cross two or more ISWDS categories (e.g. a portfolio that includes
both residential and non-residential real estate loans).
Service Identification (group 2) – For codes 001- 002, specify the name or identification of the
portfolio of loans or leases, such as “All Real Estate Loans”, if applicable.
Type of Loan (group 4) - If the portfolio has both fixed and adjustable rate loans, specify this in
this code 003 Other Type of Loan..
Term of Loan (group 5) – For code 001, express the portfolio in terms of months or years,
whichever the bank prefers.
Fees Required by Lender (group 13) This group is NOT limited to 5 fees like deposits. Indicate
all fees that apply.
Loan Characteristics (group 16) – For code 001, record an estimate of the number of loan
accounts in the portfolio. This number does not have to be exact.
For code 002, record an estimate of the average number of transactions incurred for each loan in
the selected portfolio (e.g. one late payment fee). This number does not have to be exact.
A6037C TRUST SERVICES
Rate of Return Excluding fees and distributions (group 5) - For code 001, indicate the return
earned on the selected trust. This rate should not reflect changes due to new money being added
to and removed from the trust account.
For code 002, indicate if the bank calculates this rate monthly or quarterly.
F. INDUSTRY SPECIFIC QUESTIONS AND PROCEDURES
Related SICS
SIC 6023 Commercial Banking and SIC 6037 Savings Institutions are related SICs.
Sample Unit Identification
The sample unit is the bank's headquarters. It may be the case that a sample unit operates both as
the bank's headquarters as well as the bank's branch. This may be the case for small rural banks.
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There will also be instances where the bank's holding company may be located in the same
building as the bank's headquarters. If this is the case, pay particularly close attention to the name
of the contact person.
The sample is divided into two tiers: small banks and large banks.
(1) Small Banks
The sample unit is the bank's headquarters. It may be the case that a sample unit operates both as
the bank's headquarters as well as the bank's branch. This may be the case for small rural banks.
There will also be instances where the bank's holding company may be located in the same
building as the bank's headquarters. If this is the case, pay particularly close attention to the name
of the contact person.
The “small” banks are sampled as the “whole” bank. That is, all output of the banks is to be given
a chance of selection. The sample unit is identified by its unique certificate number that is
provided on the facesheet. The absence of a secondary name on the facesheet will indicate that
the sample unit is a small bank. In this case, the most appropriate contact is the cashier or CFO.
Either of these bank officials can identify the single person who can provide the data for the
sample unit. This person should be the best “match” for the sample unit. If a single person cannot
provide all data for the sample unit, subsample to a single person/record center based on rank or
equal probability.
(2) Large Banks
The “large” banks are sampled by department. Keep in mind that these are BLS-created
departments. That is they may not match the actual department structure of the sample unit.
There are seven department designations:
1.
2.
3.
4.
5.
6.
7.
Mortgage Loans: ISDWS #1-3
Agricultural Loans: ISDWS #4
Commercial Loans: ISDWS #5
Consumer and Other Loan Serivces: ISDWS #6-8
Retail: ISDWS #9-11
Trust services: ISDWS #12
Other banking services: ISDWS #13
The retail department refers to “deposits.” Only the output of the sampled department (defined by
the ISDWS categories included) is eligible for selection. Again, the sampled bank can be
identified by its unique certificate number. The most appropriate contact is the head of the
department.
Facesheet Procedures
1)
Leave all S&R information blank in the collection system.
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2)
The measure of size indicated on the facesheet is revenue rather than employment. Leave
“RU revenue” blank in the collection system.
3)
There are no counties provided on the facesheet. Therefore, it is unnecessary to obtain this
information.
4)
No VOS per employee edit range is provided for this industry. Therefore, the VOS per
employee calculation in not required.
Contact person
For small banks (not sampled by department), the most appropriate contact for obtaining data is
the cashier. For large banks (sampled by department), it is the head of each department.
Other Receipts
Services such as insurance, investment advice and brokerage services should be collected as other
receipts. It is unlikely that you will encounter these services. They are provided by a separate
subsidiary of the bank as required by law. If these services are provided by a department and
comprise 5% or more of the bank’s revenue, give them a chance of selection. Use the checklists
for the Investment Advice, Stockbrokers and Dealers, and Insurance.
Special Disaggregation Procedures
Disaggregation procedures for small banks
All small banks have been assigned 8 items:
Loans
Deposits
Other banking
services
Other receipts
4 items (2 items must be residential real estate)
3 items
1 item
Assign 1 add’l item if 5% or more of revenue
If the bank does not provide other banking services, assign that quote to deposits (collecting 4
deposit quotes).
The most appropriate contact is the cashier. If the cashier cannot provide the data, then find out if
there is one person who can. If one person cannot provide the data for all services, subsample to a
single person/department head using the assigned quotes as a size measure. All output within the
subsampled department should be given a chance of selection.
Disaggregation procedures for large banks
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All items have been pre-assigned for large banks by department. The departments are bolded:
Mortgage loans
Residential, except home equity
Nonresidential
Home equity
Agricultural loans
Commercial/agricultural loans
Commercial
Agricultural
Consumer and other loan services
New auto/truck
Used auto/truck
Credit cards and related plans
Leasing
Loan servicing
Other loan services
Retail
Demand deposits
Time deposits
Other deposits
Trust services
Other banking services
Trusts
Other services
2 items
1 item
1 item
4 items
3 items
1 item
1 item
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2 items
2 items
4 items
1 item
3 items
Disaggregation procedures for all banks
Once you have determined the services provided by the sample unit (whole bank or department
within a bank), ask about recordkeeping procedures. All prices for loans and deposits are
determined by the level at which the banks keep records on interest payments. These records will
determine the portfolio to be priced. If any portfolio level crosses over two or more ISDWS
categories, it should be considered “other loan services” or “other deposit services”. Keep in mind
that the portfolio should be chosen at a level which will produce a meaningful price. That is, the
portfolio should include more than a handful of accounts.
Collecting Prices for Loans and Deposits
Loan Pricing
The loan pricing formula shown below is to be applied to a portfolio of loans, whether the
portfolio is composed of all fixed mortgages, all adjustable mortgages, all commercial, or all
consumer loans. Portfolios should be comprised of loans specified to the lowest level of similar
characteristics. For example, it would be ideal to price a portfolio of 15-year fixed rate mortgages.
However, if fixed rate loans cannot be separated from adjustable rate loans, it will be acceptable to
price a portfolio of all 15-year mortgages.
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{ Earned interest income
+ fees - Reference rate } * 1000
Average loan balance
The following steps should be followed to calculate a price for loans:
1. Obtain the dollar value of interest income for the selected portfolio. This should be the income
earned for the calendar month. Keep in mind that interest income determines the level of the
portfolio.
2. Add the dollar of value of the fees earned for that loan portfolio for that same month.
3. Divide the resulting amount by the average loan balance for the month. This average balance
is to be calculated as the sum of daily ending balances for the calendar month divided by the
number of days in the month.
4. Subtract the reference rate from resulting interest income plus fees.
5. Multiply this resulting value by $1,000 to establish workable placement values for database
calculations. This does not affect price movement calculations.
6. The result of this calculation is the ITEM PRICE.
If the respondent is unable to provide the dollar value of interest income, he should be able to
provide a monthly weighted average effective interest rate for the selected portfolio. Multiply this
rate by the average loan balance to obtain the dollar value of the interest income. If the
respondent is unable to provide an effective interest rate, obtain a monthly weighted average
quoted interest rate.
NOTE: Do not use “annual percentage rate” (APR) in this calculation. APR includes loan fees
which are included in the “fees” component of the price calculation
It is possible that the respondent will be unable to provide the fees for the exact portfolio selected.
He may not be able to separate these fees from a higher aggregation of the portfolio. For example,
you select residential mortgage portfolio, but the respondent can only provide fees for all
mortgages. In this case, obtain the value of the selected portfolio’s average balance (e.g.
residential mortgages) as a percentage of the larger portfolio’s average balance (e.g. all
mortgages). This percentage should be multiplied by the fees for the larger portfolio.
Example: Selected portfolio is residential mortgage loans. The average loan balance for this
portfolio is $100,000. Respondent can only provide fee totaling $5,000 for all mortgage loans
with an average balance of $1,000,000.
Fees = ($100,000/$1,000,000) * $5,000
= 0.10 * $5,000
= $500
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Deposit Pricing
The deposit pricing formula shown below is to be applied to a portfolio of deposits, whether the
portfolio is composed of all interest bearing accounts, all certificates of deposits, all money market
deposit accounts, etc.
{ Reference Rate
– Interest payments - Earned fees
Average deposit balance
} * $1000
The following steps should be followed to calculate a price for deposits:
1. Obtain the dollar value of interest payments for the selected portfolio. This should be the
income earned for the calendar month. Keep in mind that interest payments determine the level
of the portfolio.
2. Subtract the dollar of value of the fees earned on the deposit portfolio for that same month.
3. Divide the resulting amount by the average loan balance for the month. This average balance
is to be calculated as the sum of daily ending balances for the calendar month divided by the
number of days in the month.
4. Subtract the resulting net interest payments from the reference rate.
5. Multiply this value by $1,000 to establish workable placement values for database
calculations. This does not affect price movement calculations.
6. The result of this calculation is the ITEM PRICE.
If the respondent is unable to provide the dollar value of interest payments, he should be able to
provide a monthly weighted average percentage yield for the selected portfolio. Multiply this rate
by the average loan balance to obtain the dollar value of the interest income.
It is possible that the respondent will be unable to provide the fees for the exact portfolio selected.
He may not be able to separate these feess from a higher aggregation of the portfolio. For
example, you select 1-year CD portfolio, but the respondent can only provide fees for all CDs. In
this case, obtain the value of the selected portfolio’s average balance (e.g. 1-year CDs) as a
percentage of the larger portfolio’s average balance (e.g. all CDs). This percentage should be
multiplied by the fees for the larger portfolio.
Example: Selected portfolio is 1-year CDs. The average deposit balance for this portfolio is
$100,000. Respondent can only provide fees totaling $2,000 for all CDs with an average balance
of $1,000,000.
Fees = ($100,000/$1,000,000) * $2,000
= 0.10 * $2,000
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= $200
Completing the Worksheets for Deposits and Loans
There are four worksheets provided for deposit and loan services. Only ONE worksheet is to
completed as described below.
Option 1: Complete this worksheet if respondent can provide the dollar value of interest
payments/income and the fees for the selected portfolio.
Option 2: Complete this worksheet if the respondent can only provide the interest rate necessary
to calculate the interest payment/income AND can only provide fees for a more highly aggregated
portfolio.
Option 3: Complete this worksheet if the respondent can provide the dollar value of interest
payments/income, BUT he can only provide fees for a more highly aggregated portfolio.
Option 4: Complete this worksheet if the respondent can only provide the interest rate necessary
to calculate the interest payment/income BUT he can provide fees for the selected portfolio.
Procedures for Repricing
Respondents will be asked to reprice on a monthly basis. All fee components should be updated
as they change. The reference rate will be updated periodically by the Washington Office and will
be provided on the repricing form.
The Washington Office will also “escalate” certain dollar values on an annual basis to account for
the time value of money. For loans and deposits, it is the $1000 multiplier that will be escalated.
For all other services, the value upon which the price is based will be adjusted.
G.
PRE-SURVEY CONTACTS
Presurvey Contacts
GreenPoint Bank
1981 Marcus Ave.
Lake Success, NY 11042-1038
Phone: 203 965-1980
Stephen Morfeld, Vice President
Telebank
1111 N. Highland Street
Arlington, VA 22201-2807
Phone: 703 247-3705
Aileen Pugh, Vice President, CFO
34
Chevy Chase FSB
8401 Connecticut Ave.
Chevy Chase, MD 20815
Phone: 301 986-7427
Rich Handloff, Vice President, Senior Product Manager
Pretest Contacts
Dennis L. Parente, President
Foxboro Federal Savings
One Central Street
Foxboro, MA 02035
(508) 543-5321
Dennis L. Parente, President
Middlesex Federal Savings, FA
One College Avenue
Somerville, MA 02144
(617) 66-4700
Joseph Smalarz, President
Peoples Federal Savings Bank
435 Market Street
Brighton, MA 02135
(617) 254-0707
Charles L. Gaffney, Operations Officer & Assistant Vice President
Colonial FSB
15 Beach Street
Quincy, MA 02170
First Indiana Bank
First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46024
(317) 269-1346
David L. Gray, Senior Vice President
Lincoln Federal Savings Bank
Andy LoCascio, Financial Analyst
1121 East Main St.
PO Box 510
Plainfield, IN 46168
(317) 839-6539
John M. Baer, CFO
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Landmark Savings Bank
54 Monument Circle
Indianapolis, IN 46204
(317) 633-0900
Larry Delpha, CFO
Union Federal Savings Bank of Indianapolis
45 North Pennsylvania Street
Indianapolis, IN 46204
(317) 269-4834
Mr. Dana Dillard, CFO
6. PUBLICATION GOALS
6037
Savings institutions
6037P
Primary services
60371
Loan services
6037101
Residential real estate loans, except home equity
6037102
Nonresidential real estate loans
6037103
Home equity loans
6037104
Agricultural loans, except real estate
6037105
Commercial and industrial loans, except real estate
6037106
New and used auto and truck loans
6037107
Credit cards, overdraft credit, and related plans
6037108
Other loan services
60372
Deposit services
6037201
Demand deposits
6037202
Time deposits
6037203
Other deposit services
60373
Other banking services
6037SM
Other receipts
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