650

June 1, 2023

The Meeting of the Advisory Committee on Community Banking

of the

Federal Deposit Insurance Corporation

Held in the Board Room

Washington, D.C.

Open to Public Observation via Webcast

June 1, 2023 – 9:00 A.M.

The meeting of the Federal Deposit Insurance Corporation 

(FDIC) Advisory Committee on Community Banking (Committee) was 

called to order by Martin J. Gruenberg, Chairman, FDIC Board of 

Directors. 

Committee members in attendance: Thomas Bates, President 

and CEO, Legends Bank, Clarksville, Tennessee; Mike Bock, CEO, 

Dairy State Bank, Rice Lake, Wisconsin; Troy Campbell, President 

and CEO, Altoona First Savings Bank, Altoona, Pennsylvania; 

Michael Culhane, President and CEO, North Cambridge Co-operative 

Bank, Cambridge, Massachusetts; Anita Drentlaw, President and 

CEO, New Market Bank, New Market, Minnesota; Susan Horton, 

President, CEO, and Chairman of the Board, Wheatland Bank, 

Spokane, Washington; Harold (Hal) Horvat, President, CEO, and 

Chairman of the Board, Centreville Bank, West Warwick, Rhode 

Island; Warren Huang, General Counsel, Amerasia Bank, Flushing, 

New York; Robert James II, Executive Vice President-Director of 

Strategic Initiatives, Carver State Bank, Savannah, Georgia; 

Cynthia (Cindy) Kitner, President and CEO, Jefferson Security 

Bank, Shepherdstown, West Virginia; Trey Maust, Executive 

Chairman, Lewis and Clark Bank, Oregon City, Oregon; Dominik 

Mjartan, President and CEO, OPTUS Bank, Columbia, South 

Carolina; Arlen Osterbuhr, CEO and Chairman of the Board, Minden 

Exchange Bank and Trust Company, Minden, Nebraska; April Perry, 

CEO and Chairman of the Board, Kentucky Farmers Bank 

Corporation, Ashland, Kentucky; Shane Pilarski, President and 

CEO, Alliance Bank, Francesville, Indiana; Kim Reigelsberger, 

President, Preferred Bank, Rothville, Missouri; Troy Richards, 

President, Guaranty Bank & Trust Company, Delhi, Louisiana; 

Lillous Ann Shoemaker, President, Magnolia State Bank, Bay 

Springs, Mississippi; and Andrew West, President and CEO, Eagle 

Bank, Polson, Montana.
651

June 1, 2023

Vice Chairman Travis J. Hill, Director Jonathan P. 

McKernan, Director Michael J. Hsu (Acting Comptroller of the 

Currency), and Director Rohit Chopra (Director, Consumer 

Financial Protection Bureau) also attended the meeting.

Corporation staff in attendance: John M. Anderlik, James 

L. Anderson, Rosalind Bennett, Ryan Billingsley, Darren Boyce,

Renee Cash, Jermain Cunningham, Angela Dean, Debra A. Decker,

Robert M. DiChiara, Doreen R. Eberley, G. Chris Finnegan, George

French, Fasil Getachew, Shannon N. Greco, Mark L. Handzlik,

Martin D. Henning, Nicholas S. Kazmerski, M. Anthony Lowe,

Thomas F. Lyons, Kathryn J. Marks, Brandon Milhorn, Rae-Ann

Miller, Patrick M. Mitchell, Mark E. Pearce, Nikita Pearson,

Harrel M. Pettway, Jon Pogach, Ariana L. Rambuyan, Jamaal L.

Robinson, Betty J. Rudolph, Camille C. Schmidt, Michael E.

Shaheen, Kayla J. Shoemaker, Michael Spencer, and Katrice L.

Yokley.

Chairman Gruenberg opened the meeting and presided over the 

proceedings. Doreen R. Eberley, Director, Division of Risk 

Management Supervision (RMS) and the Committee’s Designated 

Federal Officer, moderated the proceedings. 

Introductory Remarks

Chairman Gruenberg welcomed the following new Committee 

members:

• Thomas Bates, Legends Bank, Clarksville, Tennessee;

• Michael Culhane, North Cambridge Co-Operative Bank,

Cambridge, Massachusetts;

• Anita Drentlaw, New Market Bank, New Market, Minnesota,

• Susan Horton, Wheatland Bank, Spokane, Washington;

• Warren Huang, Amerasia Bank, Flushing, New York;

• April Perry, Kentucky Farmers Bank Corporation, Ashland,

Kentucky;

• Troy Richards, Guaranty Bank and Trust Company, Delhi,

Louisiana; and

• Lillous Ann Shoemaker, Magnolia Bank, Bay Springs,

Mississippi.

Chairman Gruenberg then provided an overview of the

meeting’s agenda. He expressed interest in hearing the members’ 

perspectives on these topics.
652

June 1, 2023

Chairman Gruenberg acknowledged Vice Chairman Hill, 

Director McKernan, and Director Hsu. Vice Chairman Hill 

commented on the value of the Committee, noting he was looking 

forward to hearing member feedback on current banking and 

economic conditions.

Chairman Gruenberg then recognized Ms. Eberley as the 

meeting’s moderator. 

Discussion of Banking Conditions

Ms. Eberley introduced John Anderlik, Assistant Director, 

Division of Insurance and Research (DIR), Robert DiChiara, 

Regional Manager, DIR, and Camille Schmidt, Section Chief, RMS,

to provide an overview of banking conditions with particular 

emphasis on economic conditions, community bank performance, and 

credit risk. Ms. Eberley invited the members to provide their 

thoughts on these topics as well as any other areas of concern. 

Economic Conditions

Members commented that the labor market shortages continue 

to be prevalent across all markets and industries. Members also 

noted that employers are having a difficult time filling 

vacancies, particularly for experienced roles. Some members 

indicated that they have increased staff wages or provided onetime bonuses to retain employees.

Member Bock expressed concern about the ability of serviceoriented businesses to meet their full potential if they cannot 

fully staff. As an example, he related that certain newly 

constructed nursing homes and assisted living facilities have 

been forced to keep entire wings closed due to an inability to 

hire staff. 

Community Bank Performance

Members were generally in consensus about community banks 

experiencing net interest margin (NIM) compression due to higher 

deposit costs, although most members noted that deposit levels 

remained relatively stable. Higher deposit costs were 

attributed to increased competition from online banks and 

depositors seeking higher-yielding alternatives such as US 

Treasury securities. 
653

June 1, 2023

Member Mjartan noted that community banks are facing a 

“perfect storm” as it relates to interest costs. He highlighted 

that, after the recent bank failures, some customers have become 

concerned about placing their deposits at small banks. As a 

result, some clients are opting to place funds in lower-yielding

deposit products at large “Wall Street” banks. 

Credit Risk

Members noted that overall asset quality remains stable. 

Credit risk concerns centered on borrowers’ ability to service 

debt under rising interest rates. Member Maust commented that 

the office building sector is a source of concern. However, he

acknowledged that the impact of potential delinquencies on 

downtown office building loans is limited as community banks do 

not generally finance these types of loans. Member Richards 

also expressed concern about the rapidly rising cost of flood 

and property insurance and its adverse impact on borrower 

income. 

Several members noted that their banks were experiencing 

increased loan demand. Member Horvat attributed the high loan 

demand to regional banks currently limiting activity in the

market, partly due to high loan-to-deposit issues. This has 

given community banks the ability to be selective on loan terms, 

including interest rates.

Members Reigelsberger and Pilarski provided a contrasting 

view with respect to loan demand, noting that demand for 

agricultural loans has declined. Some farmers are opting to 

self-fund operations due to increased cash reserves. Similarly, 

other members noted decreased loan demand in single-family 

residential loans and small business loans due to the higher 

interest rate environment.

Members expressed that underwriting standards largely 

remained unchanged. Nonetheless, Member Horton noted lending 

standards for some industries have tightened. Member James

highlighted the importance of testing borrowers’ debt service 

capacity under higher interest rates at origination. 
654

June 1, 2023

CONTROLLED//FDIC INTERNAL ONLY

Update from the Minority Depository Institutions (MDI) 

Subcommittee

Ms. Eberley introduced Committee Member Huang, a member of 

the MDI Subcommittee and Betty Rudolph, Director, Office of 

Minority and Community Development Banking, to provide an update 

from the MDI Subcommittee. Ms. Rudolph began by providing 

background information about the purpose, goals, and composition 

of the MDI Subcommittee. 

Member Huang announced that the MDI Subcommittee had no 

current recommendations for the FDIC. He then provided a 

summary of the discussion topics from the MDI Subcommittee 

meeting. 

Member Huang also mentioned that the FDIC is providing 

just-in-time training to risk management staff regarding the 

application of examination ratings to the unique business models 

of MDIs and that state examiners will be invited to the training 

as well. 

At the conclusion of this discussion, the meeting stood in 

recess from 10:24 a.m. to 10:47 a.m.

Deposit Insurance Fund Update

The proceedings resumed with Ms. Eberley introducing 

Patrick Mitchell, Director, DIR, Michael Spencer, Associate 

Director, DIR, and Kayla Shoemaker, Acting Section Chief, DIR, 

to present an update on the Deposit Insurance Fund (DIF). 

Mr. Spencer led the presentation, centering his update on 

the level and trend of the DIF reserve ratio. He also discussed 

the recent issuance of a notice of proposed rulemaking that 

would create a special assessment to recover the losses to the 

DIF from recent bank failures. Mr. Spencer emphasized that, 

under the proposed rule, banking organizations with over $50 

billion in total assets would contribute 95 percent of the 

special assessment. 

Members expressed appreciation that the proposed special 

assessment will not apply to community banks, but voiced concern 

about the potential risk to their institutions created by 

protecting uninsured depositors in the recent bank failures. In 

particular, some members noted there is a risk that uninsured 
655

June 1, 2023

deposits at the largest banks are perceived as being safe, whil

uninsured deposits at community banks are perceived to not have

the same protection. One member expressed concern that special

assessment costs will be passed down to community banks via 

correspondent banking services or other indirect methods. 

Chairman Gruenberg remarked that the systemic risk 

exception determination benefited the industry as a whole by 

limiting contagion risk. He acknowledged it was a consequentia

decision and that additional communication needs to take place 

to convey that community bank deposits are at no greater risk 

currently than in the past. 

Director Chopra noted that he shared concerns about this 

perception risk and the potential funding advantage it can 

provide for the largest banks. 

e 

l 

Options for Deposit Insurance Reform

Ms. Eberley introduced Jon Pogach, Senior Economic 

Researcher, DIR, and noted that he and Mr. Mitchell would 

discuss options for deposit insurance reform. They were joined 

by Rosalind Bennett, Center for Financial Research Executive 

Program Director, DIR. The panel detailed the three options to 

reform the deposit insurance system as outlined in the FDIC’s 

Options for Deposit Insurance Reform Report.

Members were complimentary of the report and commended the 

FDIC for compiling the information. Members suggested that any 

reforms should provide for a system that is simple for 

depositors to understand. 

Member Richards expressed his concerns about the 

methodologies banks would need to use to identify business 

accounts under one of the insurance reform options. Member 

Mjartan inquired about the deposit insurance assessment 

calculation, and Mr. Mitchell noted that the definition of the 

assessment base would have to be changed by Congress. Several 

members commented on actions they are taking to help their 

customers and bank employees to better understand deposit 

insurance.

Chairman Gruenberg reiterated the purpose of the report is 

to inform public discussion about the options for deposit 

insurance reform. Chairman Gruenberg further noted that the 
656

June 1, 2023

option regarding coverage for business payment accounts has the 

most bipartisan appeal. 

At the conclusion of the discussion, the meeting stood in 

recess from 11:56 a.m. to 1:22 p.m.

Supervision and Policy Updates

The meeting resumed with Ms. Eberley leading a discussion 

of various supervision and policy-related matters. First, Ryan 

Billingsley, Deputy Director, RMS, discussed asset-liability

management considerations given the rapid interest rate

increases experienced over the past 14 months. 

Members expressed interest in receiving additional guidance 

on how to update contingency funding plans and liquidity stress 

tests given the uncertain economic environment. 

Rae-Ann Miller, Senior Deputy Director, RMS, and Thomas 

Lyons, Associate Director, RMS, then provided an overview of 

commercial real estate (CRE) priorities and an update regarding

the proposed Interagency Policy Statement on Prudent CRE Loan 

Accommodations and Workouts. Note: the proposed statement was 

finalized subsequent to the meeting, and published in the 

Federal Register on July 6, 2023. 

A number of members expressed interest in seeing the 

proposed statement finalized. Member Bates highlighted that 

there appears to be a disconnect between CRE borrowers’ debt 

servicing capacity, which has been impacted by higher interest 

rates, and appraised property values. 

Mr. Lyons followed with brief remarks about an update to 

the Risk Management Manual of Examination Policies instructions 

regarding “special mention” designations.

 Next, Martin Henning, Deputy Director, RMS, provided an 

update on ransomware controls and cybersecurity resources. 

Ms. Eberley then introduced Chris Finnegan, Senior Deputy 

Director, Division of Depositor and Consumer Protection (DCP). 

Mr. Finnegan provided an overview of the Supervisory Guidance on

Charging Overdraft Fees for Authorize Positive, Settle Negative

(APSN) Transactions. 
657

June 1, 2023

Members expressed concern about the inability to charge

nonsufficient fund (NSF) fees associated with APSN transactions.

Member Richards observed that account overdrafts are avoidable

on the customer’s part. He further noted that NSF fees serve as

a deterrent from excessive customer overdrafts and help to

offset some of the risk the bank incurs in paying the overdraft. 

Member Shoemaker asked the FDIC to encourage core processors to

assist community banks with system updates that would limit

APSNs. 

Member Horton also noted that a large banking organization

in her area recently eliminated overdraft fees and raised

concerns about NSF fee income disappearing for community banks. 

She highlighted that this is a source of non-interest income and

that customers value account overdraft protection and opt-in for

the service. Lastly, Member West commented that his bank

recently eliminated overdraft fees in part due to market

pressures. 

Closing Remarks

Chairman Gruenberg thanked the presenters and Committee 

members for the discussion and feedback. He expressed gratitude 

to Anthony Capobianco, President and CEO, American Community 

Bank, Glen Cove, New York, whose term as a member of the 

Committee expired in April of 2023. He concluded by stating he 

was looking forward to meeting again in the fall. 

There being no further business to discuss, Chairman 

Gruenberg adjourned the meeting at 2:57 p.m.

________________________________________

Debra A. Decker

Federal Deposit Insurance Corporation

Executive Secretary

and Committee Management Officer

FDIC Advisory Committee on Community Banking
The Meeting of the Advisory Committee on Community Banking

of the 

Federal Deposit Insurance Corporation 

Held in the Board Room 

Washington, D.C. 

Open to Public Observation via Webcast 

June 1, 2023 - 9:00 A.M. 

I hereby certify that, to the best of my knowledge, the attached 

minutes are accurate and complete. 

Martin J. Grushberg 

Chairman 

Board of Directors 

Federal Deposit Insurance Corporation