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Earnings data from FCA
Afford participants
The Functional Cost Acchance for comparison counting (FCA) program was

established by the Federal Reserve System in 1957 as a management aid for member banks.
Through the program, Reserve Banks and participating
member banks, together, develop
uniform income and cost data.
The uniform data afford banks
an opportunity to compare their

Assets of small banks
yield higher earnings
Federal Reserve Bank of St. Louis

Although FCA was designed primarily as a service to
the individual banks that choose
to participate, and not as a research program, the annual FCA
ational Averages Report contains considerable data of general
Of all the data in the FCA
averages report, those of greatest
interest, perhaps, are the net
earnings figures. In the 197 6
report, average net current earnings before taxes, expressed as a
percent of available funds (total
assets less bank premises and
other real estate) for participating banks with deposits of less

own performance in various areas
with average data for participating banks of similar size and
with similar amounts of activity
in each function.
In recent years, about 50
Eighth District banks have participated in the program. Ninety district banks have said they intend
to participate next year.

than $50 million were 1.853 percent. The medium-size banks (de-.
posits between $50 and $200
million) did almost as well at
1.834 percent, while the average
for the over $ 200 million banks
was somewhat lower at 1.575
percent. The accompanying chart
illustrates the ten-year trend in
net current earnings for the three
size categories.
Salary and fringe benefit
expenses reported in the 197 6
report were somewhat lower for
the small banks than for the large
banks, but in all other areas, expenses were higher for the small
banks. However, the small banks


Net Current Earnings from All Sources Before Taxes
Expressed as a Percent of Available Funds (total
assets less bank premises and other real estate)













enjoyed a higher yield than did
the larger banks on virtually every
type of earning asset. Also, the
small banks held a larger percentage of their earning assets in
loans rather than in investments







and, of course, loans earned a
better rate of return than did investments.
Finally, a smaller portion
of the assets of the small banks
were non-earnin~. □

Flood insurance amendment
Affects communities
not in program

An amendment to the recently enacted Hou ing and Community Development Bill removes
the statutory prohibition against
making loans secured by real property located in flood hazard areas
in communities that have refusect

to participate in or failed to q ualify for the national flood insurance program.
However, few communities in the Eighth Federal Reserve
District have either refused to parti cinate or failed to qualify.

Acts established

The National Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of

1973 established the national
flood insurance program and created several requirements for fi-
Federal Reserve Bank of St. Louis



nancial institutions that provide
"federal or federally-related financial assistance." Federallyrelated financial assistance was
defined to include "conventional

construction and mortgage loans
from federally insured, regulated,
supervised or approved lending
institutions." Thus, nearly all
lenders are affected.

Two primary

Provisions of the National
Flood Insurance and Flood Disaster Protection Acts affect lenders making loans in comm unities
HUD has identified as floodprone. A flood-prone community
is a community that encompasses
a HUD-defined "area of special
flood hazard." When a loan is
to be secured by improved real
property located in an "area of
special flood hazard":
1. The lender must require flood insurance as a condition of making, extending, renewing or increasing the loan, if
flood insurance is available in the
community through the national
flood insurance program. An im-

portant exception occurs when
the property in question is residential property occupied prior
to March I, 1976, or occupied
before or during the first year in
which the area was identified as
a flood hazard area.
2. The lender has been
prohibited from making the loan
if flood insurance has not been
available through the program because the community chose not
to participate in or failed to
qualify for the program. The
amendment to the Housing and
Community Development Bill
mentioned above removes the
statutory basis for this second

Flood area maps

In either case, the lender's
primary problem is determining
whether the property in question
is located in a flood hazard area.
Maps showing flood hazard areas
are available through servicing
companies working under contract to HUD's Federal Insurance
Administration. Since an "identified" flood-prone community is
defined as a community for which
a map of flood hazard areas has
been published, if no map exists,
no obligation for lenders exists.
Early in the program,lenders encountered some delays in

obtaining maps.Federalinsurance
Administration officials say distribution procedures have been
improved and no such problems
should now be encountered when
maps are ordered through servicing companies. Also, once a
lender obtains a map of a given
community through a servicing
company, the lender should automatically receive updated editions
of the map as th~y are published.
All flood insurance requirements pertain also to loans
secured by mobile homes located
orto be located in flood areasb
Federal Reserve Bank of St. Louis

P O BOX 442

U S ,osf AGE




The Fed Letter is published by the Federal Reserve Bank of
St. Louis to help Eighth Federal Reserve District bankers keep
informed on topics of importance to the banking industry.
The Federal Reserve Bank of St. Louis is solely responsible
for the contents of this publication. The publication does not
necessarily represent the official or unofficial views of the Board
of Governors of the Federal Reserve System.

Tips on consumer regulations
Early withdrawal

In print ads mentioning
certificates of deposit, some
banks are not including a statement regarding the penalty for
early withdrawal that conforms
with Regulation Q.
Regulation Q (Section
217.6(e)) permits the use, in
broadcast ads, of a brief statement such as the following:
"Substantial interest penalty is required for early withdrawal."
However, for print ads, a

more detailed statement is required. The Regulation suggest
the following formulation:
"Federal law and regulation prohibit the payment of a
time deposit prior to maturity unless three months of the interest
thereon i forfeited and interest
on the amount withdrawn i reduced to the pa. book rate.''
Some banks are u ing, in
print ads, the shorter statement
intended for use in broadcast ads.

Dealer paper

Oealcr paper should be
carefully checked to insure that
Regulation Z disclosures have
been made properly. When a bank

acquire a note, it may become
liable for Regulation Z violations
that occurred in the credit transaction.

Corporate savings limit

Since ~he bal nee in a
corporate savings account may
not exceed $150,000, interest
payments that would cau c the
balance to exceed that amount

may not be credited to the aving
account. Instead, they ma. be
paid directly to the corporation
or deposited in some account
other than a savings account.
Federal Reserve Bank of St. Louis