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FEDERAL DEPOSIT INSURANCE CORPORATION

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ADVISORY COMMITTEE ON COMMUNITY BANKING

+ + + + +

MEETING

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WEDNESDAY,

OCTOBER 26, 2022

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The Advisory Committee convened at 9:00 

a.m. in the Federal Deposit Insurance Corporation

Board Room at 550 17th Street, NW, Washington,

D.C., Martin J. Gruenberg, Acting Chairman,

presiding.

PRESENT:

MIKE BOCK, CEO, Dairy State Bank, Rice Lake, 

Wisconsin

TROY CAMPBELL, President and CEO, Altoona First 

Savings Bank, Altoona, Pennsylvania

ANTHONY CAPOBIANCO, President and CEO, American 

Community Bank, Glen Cove, New York

HAROLD HORVAT, President, CEO and Chairman, 

Centreville Bank, West Warwick, Rhode Island

ROBERT JAMES II, Executive Vice President, Carver 

State Bank, Savannah, Georgia

BETSY JOHNSON, President and CEO, Solutions Bank, 

Forreston, Illinois

CINDY KITNER, President and CEO, Jefferson 

Security Bank, Shepherdstown, West Virginia

BRUCE LOWRY, President and CEO, Ireland Bank, 

Malad City, Idaho

TREY MAUST, Executive Chairman, Lewis & Clark 

Bank, Oregon City, Oregon
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NEIL MCCURRY, JR., Sarasota and Manatee County 

Market President, Seacoast National Bank, Stuart, 

Florida

DOMINIK MJARTAN, President and CEO, OPTUS Bank, 

Columbia, South Carolina

GILBERT NARVAEZ, JR., President and CEO, Falcon 

International Bank, Laredo, Texas

ARLEN OSTERBUHR, Chairman and CEO, Minden 

Exchange Bank and Trust Company, Minden, Nebraska

SHANE PILARSKI, President and CEO, Alliance Bank, 

Francesville, Indiana

KIM REIGELSBERGER, President, Preferred Bank, 

Rothville, Missouri

ANDREW WEST, President and CEO, Eagle Bank, 

Polson, Montana

JOHN WHARTON V, President and CEO, Yampa Valley 

Bank, Steamboat Springs, Colorado

ALSO PRESENT:

MARTIN J. GRUENBERG, Acting Chairman, Federal 

Deposit Insurance Corporation

MICHAEL J. HSU, Acting Comptroller of the 

Currency

DOREEN EBERLEY, Director, Division of Risk 

Management Supervision

G. CHRIS FINNEGAN, Senior Deputy Director,

Division of Depositor and Consumer Protection

DANIEL HOOPLE, Chief, Fund Analysis and Pricing

Section, Division of Insurance and Research

ANTHONY LOWE, FDIC Ombudsman

THOMAS LYONS, Associate Director, Division of

Risk Management Supervision

JONATHAN MILLER, Deputy Director, Division of

Depositor and Consumer Protection

SHAYNA OLESIUK, Deputy Director, Division of

Insurance and Research

BETTY RUDOLPH, Director, Office of Minority and

Community Development Banking

CAMILLE SCHMIDT, Section Chief, Division of Risk

Management Supervision

MICHAEL SPENCER, Associate Director, Division of

Insurance and Research
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C-O-N-T-E-N-T-S

Introductory Remarks .........................4 

Discussion of Banking Conditions ............. 7 

Update from the Minority Depository

Institutions Subcommittee .................... 93

Amended Restoration Plan and Deposit

Insurance Assessments....................... 110

Supervision and Policy Updates .............. 190

Office of the Ombudsman Update .............. 197

Closing Remarks............................. 213
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P-R-O-C-E-E-D-I-N-G-S

9:00 a.m.

ACTING CHAIRMAN GRUENBERG: Good 

morning, everyone. We've got a full agenda 

today, and I think people will be particularly 

interested to hear comments on the --

(Off-microphone comments.)

ACTING CHAIRMAN GRUENBERG: And the 

Fed has made a sharp turn in terms of the conduct 

of monetary policy, and we've had five increases 

in interest rates this year, declining GDP growth 

in the first and second quarter, and the Fed is 

signaling about as clearly as it can that they're 

going to pursue a tightening interest rate policy 

until they get inflationary pressures under 

control. 

So, I think it's fair to expect that 

we're going to be looking at a rising interest 

rate environment and a slowing economy, and as we 

indicated in the QVP, significant downside risks 

for the U.S. banking industry going forward.
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That's, you know, a broad perspective. 

I'd be most interested in hearing what you're 

seeing thus far at the local level and how you're 

thinking about, quite frankly, the next six to 12 

to 18 months. I think that would be, frankly, of 

great interest to us.

So, thank you all for being here. It 

should be an interesting discussion today. And 

if I may, let me turn the program over to Doreen 

Eberley who I'm sure many of you know. She's the 

Director of our Division of Risk Management 

Supervision. Doreen?

MS. EBERLEY: Thank you, Acting 

Chairman Gruenberg. Acting Comptroller Hsu, 

would you like to share any remarks before we 

begin? Okay.

ACTING CHAIRMAN GRUENBERG: Pardon, 

you know, it's the morning and really there's 

something -- 

(Laughter.)

DIRECTOR HSU: We see each other so 
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much.

ACTING CHAIRMAN GRUENBERG: Well, 

that's something to that, quite frankly. We are 

really, frankly, honored to have one of our Board 

members here today, Mike Hsu, who is the Acting 

Comptroller of the Currency. Mike, are you sure 

you don't have any --

ACTING COMPTROLLER HSU: You said it, 

Marty. I mean, we spend so much time together, 

we got a bit of a mind meld on this. It's a very 

interesting time right now. I think there are 

some interesting challenges and opportunities for 

community banks. 

So, we'd just really like to hear from 

you directly about this because we observe things 

from afar a bit, and so having meetings like this 

is just really, really valuable. Thanks.

MS. EBERLEY: Okay, thank you so much. 

We're changing things up just a little bit this 

time, and for those of you who this is your first 

meeting, you won't know that, but what we're 
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going to do this morning is start by turning to 

Shayna Olesiuk, Deputy Director of our Deposit 

Insurance and Risk Analysis in the Division of 

Insurance and Research, and Camille Schmidt, who 

is Chief of Risk Insights and Analytics Section 

in the Division of Risk Management Supervision.

And Shayna and Camille are going to 

provide an economic overview. They'll touch on 

market, liquidity, and credit risk. And 

throughout their presentation, we want to hear 

from the committee members regarding your 

thoughts on these risks, as well as others.

So, we do look forward to hearing from 

you as we work through the program about what 

you're seeing in your communities.

MS. OLESIUK: Thank you, Doreen, and 

it's so great to see all of you in person. I've 

seen many of you on the screen over the years and 

it's nice to be here in person.

So, I think in your packet, there's 

copies of the slides as well as the press release 
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about our release of the risk review publication.

So, Camille and I, our teams worked

together on our annual publication of the risk 

review, so we'll be using that publication and 

the topics that we talked about in that, in the 

most recent publication to sort of guide our 

discussion today.

As Doreen said, we'll be talking about 

three different topics, first starting with the 

economic overview, then market and liquidity 

risk, and finally credit risk. 

So, I think we have about an hour and 

a half, so plenty of time to hear from all of you 

on these topics. So, Mike, we can go to the next 

slide.

So, starting off with the economic 

overview, it's definitely been an interesting 

time over the last several years related to the 

economy. 

As the Acting Chairman said, you know, 

we're certainly seeing slowing on the output side 
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of things, on economic growth there, but the 

picture for the labor markets is quite different 

and actually much more positive.

So, this map was for data through the 

end of December 2021. It's shaded based on the 

share of jobs recovery for each of the states. 

So, the numbers on the states give the percent of 

jobs lost during the early days of the pandemic,

what percent of those have been regained.

So, the states that are shaded in gold 

are those that have recovered more than the 

nation. As you can see at the bottom of the 

legend there, the nation as of the end of last 

year had recovered 84 percent of the jobs lost 

during the early part of the pandemic.

So, the darkest gold are those that 

had fully recovered and more, those that are over 

100 percent recovery. Gold is above the nation 

and then the blue are those that have trailed the 

nation, with the darkest blue being those that 

have had the slowest recovery.
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Now, this map was as of the end of 

last year. If we update this to the most current 

data that we have, the number of states that have 

fully recovered goes up to 24. 

So, here we only had five states as of 

the end of last year that had recovered all of 

their jobs lost during the pandemic and now we're 

up to 24, so things have really accelerated just 

over the last several months.

And you certainly see regional 

patterns emerging in the Mountain West and in the 

South being those areas that, in some cases, lost 

the smallest number of jobs in the early part of 

the pandemic, but those are the areas that we've 

really seen growth emerging.

As far as the variance by industry, we 

still see some difference there. The 

transportation sector leads the way. We've seen 

lots of growth during the pandemic in various 

transportation areas. We were talking earlier 

this morning about how busy the ports are still 
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serving the different logistics and distribution 

there. 

And also, not shown on this map, but 

the unemployment rate is back down to prepandemic levels. It's at 3.5 percent as of 

September, so lots of -- well, and the labor force 

participation rate has also not reached its prepandemic level.

So, worker shortages are certainly an 

issue, as well as wages. Wages have increased in 

order to try to attract people to jobs, but wages 

are still trailing the pace of inflation. We can 

actually go to the next slide.

So, here, again this is the chart from 

the risk review showing data through the end of 

2021 for CPI and Core CPI. Even back on this 

chart, the number, the current numbers looked 

very high and they've only climbed if we were to 

update this chart to current.

So, certainly a concern from our point 

of view on inflation, we're seeing now the main 
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contributors to inflation being shelter costs, 

energy costs, and food costs. So, really across 

the board, inflation is hitting many parts of the 

economy.

And the outlook is really uncertain as 

far as, you know, all of the factors driving the 

high prices, things like supply chain issues. 

You know, that's not something that seems like 

it's going to be fixed quickly, so certainly a 

concern for many aspects, and so I think we can 

go to the next slide.

So, I will pause here, and we'll pause 

a couple of times during the discussion today to 

hear from all of you, so I'll open it up to anyone 

that wants to start the discussion, how your bank 

or how your area is being impacted by inflation, 

rising interest rates, and concerns about 

recession.

MEMBER JOHNSON: Thank you. Betsy 

Johnson from Northern Illinois. Of course, we 

have Chicago in our area which dictates a lot of 
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things and unemployment is not quite there. 

We're still one of the lag things around that, 

transportation. 

Even I noticed when I started 

traveling in early 2022, you know, we had to wait 

for bags for two hours because the Southwest 

workers left, and trying to replace them with 

expertise even in that level, it's very tough, 

the same thing when it comes to our banks and 

trying to retain them and so forth.

So, unemployment is -- Illinois always 

lags a little bit behind. Inflation, things, it 

hits us all. We know that. What we're kind of

worried about is just that, not only our sales, 

but all our small businesses. 

And banking, we're a business, so that 

affects us. You talked about our employees, 

trying to retain them and get new employees. 

That's when everybody makes more money, when they 

change jobs, right, so that's what we're trying 

to retain.
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But we think our savers, that 

generation is a little bit extinct. We talked 

about that a little bit last night with some of 

you. And those people that save great and took 

their retirements and their CD interest and lived 

on that, I think we've kind of seen almost the 

end of those. 

And what of our new generations of 

savers? They haven't felt the pain and I'm afraid 

they're going to feel the pain now, to feel that 

and maybe change their ways, but how do we help 

them do that because it affects all of us?

As far as our, I mean, agriculture is 

still good. Farmers always seem to sustain 

whether it's in the form of subsidiaries, 

subsidies, sorry, but it's still a very green 

area in our state there.

Manufacturing wise, there's some 

rumors that maybe a plant, Chrysler, in our area 

may be leaving, and that was experienced, the 

same experience -- we hope that's not the same 
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experience as Wisconsin experienced in Janesville 

when GM left. It was try to -- it was quite an 

effect on the community, but now today, they're 

still thriving. I think it was about ten, 15 

years ago. 

So, those are just rumors, so don't go 

around saying things about that, please, but 

those are things you have to keep your eye on.

 And there were some other things, so 

I'll give everybody else a chance, but I got it 

started.

PARTICIPANT: Thank you.

MEMBER JOHNSON: Thank you.

MEMBER HORVAT: Good morning. I'm Hal 

Horvat. I'm the CEO of Centreville Bank. We're 

based in Rhode Island. We're about $2 billion in 

assets. 

So, for us, it feels like the calm 

before the storm. Things are really good right 

now. We've had a record year in terms of our 

originations on our loan side. Our profitability 
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is up. Our margins increased. Our efficiency 

ratio is better than it's ever been. And our 

credit quality has been, knock on wood, really, 

really pristine at this point in time.

So, we feel like things -- you know, 

if you look at our third quarter numbers, things 

look really good. We are concerned about how, 

you know, what's going to happen with the 

increase in interest rates, et cetera, and the 

potential for a significant recession, but we do 

feel pretty optimistic because we think that 

community banks like ours can really actually 

make some hay if things go bad in terms of a 

recession. 

Oftentimes, you see some of the larger 

banks get out of the market and that's a time 

where you can pick up some good business, so we're 

well capitalized. We actually feel pretty good 

heading into this, what is going to be a pretty 

difficult time, so thank you.

MEMBER REIGELSBERGER: Hi, I'm -- I 
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think this is on? Kim Reigelsberger. I'm with 

Preferred Bank. We're in Rothville, Missouri. 

That's north central Missouri. We're basically 

an ag-related bank. 

Thinking about what he just said, we 

are diversified, and not only do we have our 

agriculture, but we have -- but agriculture 

drives our economy locally. So, whether you're 

going to the grocery store or whether you're 

going to buy a new car, it's going to be -- the 

agriculture industry really helps keep that 

going.

And more recently, even though 

commodity prices in our area -- we have corn, 

soybeans, and cattle. That's the main things. 

Missouri is like the third largest state in the 

nation that has we call them brood herds where 

you have the cows, the mamas, and the babies. 

So, we're very dependent on that and 

-- but our small towns seem to be moving along. 

We didn't see a lot of downturn in COVID other 
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than food service. Prices for crops like 

anhydrous fertilizer skyrocketed this year. It 

was tremendous.

On the other side, if they held grain 

over and sold grain this fall, excuse me, this 

spring, it was probably the best prices they've 

ever seen in their lives, probably the best 

prices I've ever seen in my life.

But you put the two together and it's 

still the same margin for them probably as it was 

when grain costs were lower and fertilizer prices 

were lower.

So, most of them by this point had had 

real estate either close to paid off or paid off. 

Some of them, it gives them a comfort level. We 

have been able to retain the more seasoned 

farmers, and so it -- I think that speaks well to 

how their ability to transition through.

In my experience, a farmer is very 

resilient. I always think about those, as little 

kids, those punching bags where they topple over 
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and they come right back up. That's kind of like 

what farmers are. 

Most of them that -- first of all, how 

they're independently minded and they can figure 

out a way to keep things going. Maybe they switch 

up their farming, their plan. Maybe they do 

something a little bit different. Maybe they 

step away from something.

Now, I kind of speak that from 

personal because my husband and I own a farm. We 

raise cattle, and so hay this summer has been 

quite something that -- it's been so dry in 

Missouri. 

I mean, we're right on the borderline 

of drought compared to having enough rain, so the 

price of hay is probably going to go up in our 

area because there is just little to -- there was 

no -- we only had one harvest. Usually a lot of 

time, you have a second cutting. There is no 

second cutting.

So, you know, will that affect cattle 
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prices? You know, will people be selling them? 

Maybe. But for the most part, I think they’re

kind of have in their minds a built-in rise in 

interest rates, so I think we'll be really good 

on -- when you think about operating notes coming 

up for the new year.

Grain prices are still high, so we 

should, they should come through it okay, and so 

again, we're trying to make sure we're monitoring 

that.

We are doing some rate shocking on 

some of our -- I don't know that we really have 

marginal credits, but the ones that we could 

potentially see a little bit of the interest 

rates going up affect their payments.

However, a lot of our, new loans that 

we've got, they haven't had time to cycle through 

a rising interest rate because, I mean, we adjust 

the rate every one, two years. Well, it's just 

been this year that they've not seen that change 

in rates. 
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We've had so many so fast that they've 

not quite seen whether it's going to affect their 

payments coming up next summer or whenever it is. 

Maybe they had a 24-month ARM or something. 

So, we're going to pay a little more 

attention to that, but right now, we're doing 

pretty good and we think we've got a pretty good 

handle on those that we need to keep an eye on.

MEMBER MAUST: Good morning, Trey Moss 

with Lewis & Clark Bank out in the state of 

Oregon. We've got a population of around 4.5 

million, so it might be a microcosm of the U.S., 

but the two headline issues that we're dealing 

with currently are persistent inflation and a 

very tight labor market.

On the inflation side, we still are 

seeing consumer spending that's very, very 

strong. I think that's overhang from the fiscal 

stimulus as well as very strong wage growth.

We saw statewide average wages 

increase 19 percent from pre-pandemic to today, 
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which is a pretty big jump, and that was real 

wage growth up until this past year. So, from 

that pre-pandemic to today, that outpaced 

inflation by about 5.5 percent, so definite real 

wage growth. 

However, over the last year, it was 

actually a negative 1.5 percent, so inflation 

outpaced wage growth during the past year, and so 

that's something we're certainly looking at and 

the impact of willingness to spend.

I think there is still a fair amount, 

because we're seeing consumer spending continue, 

so there's a fair amount of savings still in 

people's accounts and/or people are still use to 

spending.

And I think until there's that 

constraint of what's left in the savings accounts 

as well as availability of credit, because we've 

seen an increase in consumer credit statewide, 

once that kind of runs out, I think we'll see 

that impact there.
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On the labor market side, 

interestingly, layoffs in Oregon were at their 

lowest levels ever. 2018 was the last time that 

it was this low. And while the number of job 

openings that are out there in the state has 

fallen, they still outpace the amount of 

unemployed Oregonians by a factor of 1.6, so 

that's 1.6 jobs or job openings for every 

unemployed individual.

And part of that, we might see in an 

earlier chart that the state has now come close 

to recovering all of the pre-pandemic jobs in 

terms of total employment. The labor force 

participation rate is considerably less than it 

was prior to the pandemic, and so I think there's 

just a structural change there.

The last thing I wanted to touch on 

was housing affordability. The knock-on effects 

of fiscal tightening, I think, has really had an 

impact I know on capital markets, which it 

should, but it's also had an impact on consumers, 
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and unfortunately, that's one of those things 

that occurs every time rates elevate. 

It becomes more costly for everybody 

to do anything, and so housing is one of those. 

We're trying to address the availability and 

affordability of housing, and at the same time, 

it's now almost twice as expensive to carry that 

mortgage.

It makes it very difficult to achieve 

home ownership, and so what we're seeing is the 

higher end of the market is pretty much phased 

out in terms of affordability and there's a lot 

of competition now for lower-priced homes and the 

rental market.

And unfortunately, in Oregon, we had 

a lot of inbound migration that's exacerbating 

this and our housing stock is estimated to be 

about 111,000 units short of demand, and so that 

just makes it very difficult, I think, for most 

people.

MS. SCHMIDT: Anyone else? This might 
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be a good time to switch to our next topic on 

slide six. All right, thank you.

Today's interest rate risk and 

liquidity risk scenario has really evolved since 

the pandemic. You're all aware and we've been 

talking about how banks have been flush with 

deposits since the beginning of the pandemic 

where, you know, we had all of the economic 

stimulus. 

Consumers and businesses reduced 

their spending. We talked about agriculture. 

Farmers had good years. They were building 

working capital. So, we've really seen steady 

deposit growth at banks over the past few years 

as you can see in this chart.

In fact, it was just last quarter, 

second quarter of 2022, that deposits in the 

aggregate across the industry declined for the 

first time in four years. So, and even then, a 

little over half of all the banks, 51 percent of 

them, still reported higher deposit balances than 
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the previous quarter.

And the community bank population that 

you're, you know, that you're working in, in the 

aggregate continued to report deposit growth even 

last quarter, albeit very small, just half a 

percent. So, we're still looking at record 

levels of deposits.

And if you move to slide six, or 

seven, you can see that high deposit growth 

combined with slow demand since the pandemic has 

resulted in significant liquid asset growth at 

banks, primarily securities, and that's the gold 

bar in this chart.

So, banks have a lot of -- have built 

their securities portfolio, and in the slow 

interest rate environment, they're searching for 

higher yields, and in doing so, they've extended 

the maturities of those securities.

Then along comes 2022. The Fed starts 

raising interest rates to combat inflation and 

fixed-rate assets, including bonds, have declined 
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in value.

So, we saw many banks reporting 

significant net unrealized losses in their long 

duration bond portfolios in both the first and 

second quarters of 2022, and we're poised to see 

that again in third quarter. In fact, looking at 

early call report filers through yesterday, 96 or 

97 percent of banks are reporting net unrealized 

losses.

And, of course, this position, you 

know, it can reduce on balance sheet liquidity, 

contingent liquidity. It reduces tangible 

equity. It restrains future earnings. So, this 

is something that we're really watching.

The FDIC, all of the regions hold 

regional risk committee meetings in the spring 

and the fall, and interest rate risk was a highrisk topic for five of our six regions. So, it's 

something that we're really mindful of right now.

I think the big issue, and I talked to 

some of you last night, is that this environment, 
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this inflation that we haven't seen for 40 years 

and combined with interest rates actually rising, 

we've been in such a low for long environment, we 

have both bankers and examiners that are new to 

this scenario, right? 

So, that's something that we're really 

mindful of, like I said, and we're addressing 

interest rate risk and liquidity risk exposure 

through our existing offsite review programs. 

Our case managers are calling on more banks 

talking about these issues.

We have an interest rate risk and 

liquidity monitoring tools and programs that we 

continue to use, and our Washington office has 

held calls with examiners and we're developing 

more training.

So, that was a very high level and 

short version of interest rate risk, so I'd like 

to open it up and hear -- and I heard some great 

stories last night, so I'm hoping that some of 

you will share some of those today.
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MEMBER BOCK: We heard part of that 

conversation last night. From pre-COVID to where 

we are today, we went through just phenomenal 

deposit growth and it was literally all across 

the board.

What we are experiencing right now in 

a pretty big way is I'm going to say the 

commercial and consumer world of deposits is 

starting to decline, and we're starting to see 

that somewhat in a rapid manner, but at the time 

same, we still are seeing an inflow of government 

deposits from multiple different sources.

You know, we talked about some of the 

stimulus programs that have been discontinued. 

They may not be in the headlines anymore, but the 

funds from those programs continue to hit the 

system.

And I think in visiting with some of 

our municipal governments and some of those other 

types of agencies, they expect funds to keep 

coming into the system probably through a lot of 
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2023 until we actually get to the end of what's 

being fed into the system liquidity-wise for 

those folks.

So, we're seeing a mixed bag, but we 

also, in those municipalities, the funds come 

with some caveats, and the caveat is these funds 

are meant to be used for X, Y, or Z. 

They won't sit on those funds forever, 

and so over the course of the next 18 to 24 

months, we are expecting that group of deposits 

also to start heading down. It's just a matter 

of how fast they get those projects done.

But for a time period, yeah, there's 

multiple grants. There's multiple programs. The 

funding is still coming for a couple of more years 

before it actually is going to dry up in the 

system.

MS. SCHMIDT: That's a very good point 

and I talked to Mike last night. I told him we 

monitor concentrations, asset concentrations, 

deposit concentrations.
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And, you know, it's been surprising 

over the last year. Municipal concentrations 

have been what we -- have been risen to the, you 

know, risen to the top in all of our trend 

analysis. So, others? Yeah, we talked about --

MEMBER MJARTAN: We covered some of 

those issues, so let me just, first of all, thank 

the Acting Chairman for giving us this time, and 

listening, and the rest of the team.

So, I’m going to put my comments in 

the context of our bank, which is a Black-owned, 

minority-owned, CDFI bank based in South 

Carolina. We're about $400 million in assets. 

So, we're a little bit unique.

So, everything I share is not 

necessarily countering what's been said, but it's 

through a unique lens of a bank that 

intentionally serves to close the gaps that exist 

and really channel opportunities, and hope, and 

capital to underserved people and places, so 

that's kind of my lens and what I focus on every 
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day.

So, our banks are -- I would say the 

biggest risks we have today is really of interest 

rate risk and liquidity risk. Those are the two 

that are facing us very clearly.

We are starting to be concerned 

somewhat about the credit risk because we're 

over-represented in the communities that are 

disproportionately impacted by systemic 

disparities but also by inflation.

So, if there are higher costs, those 

are going to be translated much more so in our 

credit quality than probably pure banks. Now, 

perversely, our asset quality is the best it's 

been since the bank was founded. So, we're not 

seeing that yet, but what we are starting to see 

is significant rate pressures. 

So, banks like ours, and my friend and 

Chairman of the National Bankers Association, 

Robert, and I talk about this a lot, is, you know, 

our banks are banking communities that are 
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capital starved. So, our ability to generate 

liquidity in deposits is subpar at best.

Now, we have a 52 percent liquidity 

ratio today, although as of my last loan 

committee yesterday, it's now 70 percent, right, 

so we're starting to burn through that liquidity. 

Simultaneously, we see a run off. 

Thankfully, that run off has been 

compensated by investments and support from some 

of the larger institutions that have stepped into 

this gap and have allowed us to do that.

So, I am very concerned about the 

short-term future in terms of liquidity and us 

meeting the needs of our communities because that 

liquidity is running off, and also repricing for 

some of us.

We generate deposits from larger 

institutional investors, CRA-motivated 

investors, public entities. Those are all 

repricing gradually now. Thankfully, our asset 

yields have repriced faster, so our NIM has 
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increased, but I think that song is going to stop 

pretty soon.

Long term, we are very concerned 

about, you know, what is the future of 

institutions that are smaller like ours that are 

in this environment? How do we meet the needs of 

our communities with this shift of liquidity to 

larger institutions? 

And unless that shift of these 

deposits is somewhat reversed, maybe through 

policy, and practice, and with CRA reform or 

whatever, into mission-driven institutions that 

are serving capital-starved communities, I think 

we could see a pretty challenging liquidity 

environment for smaller banks and also in terms 

of our interest income. 

MS. SCHMIDT: Others who would like to 

talk about some of these interest rate pressures 

and what you're expecting about your deposit 

base? 

MEMBER REIGELSBERGER: I might say 
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something. Our liquidity is very good. We --

after we saw the Fed starting increasing rates, 

we kind of took the bull by the horns. Now, I'm 

a $142 million family-owned bank, so that's our 

shareholders as one family. They are very 

involved in our bank.

So when early on like in March of 

April when we got to -- basically, reading the 

writing on the wall how much increases the Fed is 

going to take, they immediately redumped a bunch 

of long term mortgage backed securities. We took 

a loss, yes. It was strategic. We reinvesting 

in some treasuries now that are a little higher 

and trying to dollar-cost average that. But I 

think I think we were -- I feel like a big

advantage with a family-owned bank. 

Our shareholders knew the decision 

that management and them worked together to 

figure out if this is the kind of loss we wanted 

to create up front because, you know, it's right 

out there. You can't hide it. It's there. So 
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that's what we did and we're trying to recycle, 

kind of re-strategize any securities that we're 

purchasing right now.

Other thing that we're kind of dealing 

with too is our loan to deposit ratio is not real 

high. Now we've seen growth in our loans about 

30 percent, but that's a far cry from where our 

deposits have increased, but we do have in our 

markets, we do have a couple of more community 

banks that have a much higher loan to deposit 

ratio. So guess what they're doing? They've 

just jacked up their rates a lot.

So we haven't really moved ours at all 

and trying to build in a little bit of that net 

interest margin. Probably not, we're not going 

to get in that rate war with them. If we do lose 

a few deposits, evidently, they're a little bit 

more hot money is what we used to call it back 

years ago. We might come back, but we're trying 

to be smart about it. You know, this is looking 

at our bank, where we're at now. 
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Granted, if we start seeing much 

runoff, we want to be sure we're marketing and 

repricing appropriately. But that's kind of 

where we're at is some of our local banks, have,

looking for that money so they're upping their 

interest rates and we're just kind of like -- oh, 

going to wait and see how that plays out. We're 

not going to play that game.

MEMBER WHARTON: My name is P.J. 

Wharton, President of Yampa Valley Bank in 

Steamboat Springs, Colorado and Craig, Colorado. 

We are a little bit of a unique financial 

institution, two branches, but we're in the 

mountains in a resort community and the best way 

I can describe that is New Year's Eve and Fourth 

of July we're 25,000 to 30,000 people and then 

March and October we're about 12,500 people, so 

it actually literally doubles a couple times of 

the year. And this time of year, there's a lot 

of moose and bear and a number of us walking 

around town.
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I want to make a couple of comments 

back to inflation and a big surprise to all of 

us, but affordable housing has been absolutely 

exacerbated by inflation. In our communities, 

we're seeing rental rates of $1200 per room, so 

many of our employees are doubling and tripling 

up with friends and people they don't like to 

make it work.

Many of our hourly employees are 

making $20 to $30 per hour, but are being forced, 

as I said, to have roommates and commuting 25 to 

44 miles. And again, those of you guys who have 

been in the mountains before, winter driving can 

be pretty difficult and dangerous. So obviously, 

it's all about affordable housing. So that's 

translated for us again, probably similar to you, 

shortages of customer-facing employees are most 

important folks, frankly. So that has turned 

into complaints from our customer base. Nobody 

answers the phone. The reason I bank with you is 

that personal service and being able to talk to 
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Anna Maria or P.J. when you guys answer the phone 

personally.

So we need to do -- we're doing more 

to keep them. Just as an example, the median 

home listing in Steamboat Springs last month was 

$1.6 million. So that's kind of where we are at 

the moment. There are six active listings under 

$1 million in the city of Steamboat Springs.

We've incorporated from an inflation 

perspective just this year $1,000 signing bonus 

after 60 days. And this is for our tellers and 

customer service representatives. We've raised 

our starting rate from $20 now to $21 this week 

per hour. We've added production bonuses to 

tellers for our highest transactions with 

accuracy knockouts, so that's a quarterly bonus 

that we're paying. We've added notary bonuses to 

encourage customer service. We probably do more 

notaries than any other bank in town.

We've added new account bonuses for 

every account that's opened. We just paid a $500 
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stay bonus last week. We went from seven tellers 

in Steamboat to three over the course of six 

weeks, people moving out of state. And during 

everything, that is a thank you to keep them.

Going back to Trey's comment about 

year over year SG&A, our merit budget for 2021 

was a 6 percent increase. Year over year our 

SG&A is up 15 percent due to adds to staff. In 

health insurance, we're all experiencing that and 

then the 6 percent pay increase.

Kind of alternate from a lot of the 

comments here, our near term compression, our 

margin or NIM has actually decreased because we 

have seen kind of a slow increase in our interest 

rates on our loan side because so many of our 

folks have locked in on fixed rates and then we've 

proactively went after the deposit market really 

more as a loyalty and as a statement to our 

community on interest rates. So we think our 

margin is going to improve, but the volatility 

has been so fast and so steep we actually need 
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some time to catch up and that's probably one of 

my greatest concerns is we were joking about the 

yield curve -- I'd never heard this before -- as 

a tipi. And my greatest concern is it goes up 

super-fast, comes right back down, and we all 

know what happens. Our customers come in, I need 

to re-price my loan or I'm going to leave. So 

that's one of our greatest concerns.

Finally, just deposits, we've been 

proactive. I'm hearing from a lot of my peer 

group in the metro Denver area of liquidity 

leaving, but we actually had one month deposit 

growth in our market of 4 percent, 3 months of 6 

percent and year over year, we're up $73 million, 

16 percent. So it's been a little bit unique in 

our markets.

MEMBER JAMES: Robert James, Carver 

State Bank, Savannah, Georgia. We are a 95-yearold, African American-owned MDI and CDFI 

certified institution. And what that means is 

that we have a commitment to make at least 60 
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percent of our loans on a year over year basis in 

low-income communities around our market.

And so we are experiencing historic 

levels of capital and liquidity which is good 

going into this environment. I do echo my 

colleague Dom's points about concern about making 

sure that we're going to be able to access 

liquidity going forward, particularly as we're in 

this kind of growth mode. 

Historically, minority-owned banks 

usually at every kind of major negative economic 

inflection point in the history of the United 

States, you lose large numbers of minority-owned 

and particularly Black-owned banks. So at the 

Great Recession, we lost over half the Blackowned banks. And that was because there wasn't 

enough capital in the system. There was a lot of 

pressure on the assets that we were lending 

against. In terms of having a market to market, 

there's a lot of systemic and reasons that we can 

spend the entire day talking about that caused a 
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lot of those failures.

What's different in this environment 

is that in the last two years, many of our 

institutions have accessed Tier 1 capital in a 

way that we never have in the history of the 

United States. And so just to give you a sense 

of scale for that, our bank in 2019, I think we 

were at just around $50 million in total assets. 

Around 10, 12 percent Tier 1 capital, our capital 

has increased 400 percent. Tier 1 permanent 

capital has increased 400 percent in the last two 

years. So that's fantastic. And that gives us 

the ability to look forward into this really 

uncertain environment with some confidence that 

we can make some critical investments and build.

But P.J. made a great point. It's 

hard to hire people. We have more capital, more 

locations. We just completed an acquisition. We 

bought another institution in Alabama, so our 

first acquisition in 95 years, but we can't find 

people. And so we have fewer people now than we 
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did when we were $25 or $30 or $40 million in 

total assets. So it puts a lot of pressure on 

the staff.

We are experiencing, in the short 

term, we are experiencing strong net interest 

margins. Our income is up because we were able 

to take excess cash and invest in short-term 

Treasuries and so our income is up. But we do 

have concerns about the inflationary pressures on

our customer base that are just not going to be 

able to afford to continue to keep up their 

payments as we continue to adjust their pricing 

up to track prime or whatever index we're pricing 

their loans against. 

And we're particularly concerned 

about housing and small business lending going 

into the next couple of years because I do agree 

that in a recession when the big banks pull back, 

there's going to be opportunities for us to step 

in. In our communities on the small business 

side, we're going to have to use whatever 
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available credit enhancements we can find in 

order to continue to make loans and so we're 

finding that even for -- I was talking yesterday 

about a million dollar small business loan that 

we've been working on for almost a year and we've 

got every available credit enhancement tool, 

every state program, ever federal program that we 

can use to try to stack capital for this minorityowned business and we're going to have to kind of 

continue to turn over every rock in order to be 

able to continue to move capital out into the 

community, particularly in this inflationary 

environment and do it in a way that people can 

afford to make the payments.

The last point that I'll make is we 

are extremely concerned about housing costs in 

our market. You know, Savannah, Georgia, but 

also Atlanta, now Birmingham, places that we are 

operating, housing cost was high before, and now 

with rates raising, it's just putting 

affordability both from a rental and a purchase 
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standpoint just out of reach for in particular, 

a lot of the working class businesses and 

consumers that we serve in terms of being able to 

afford to build and afford to then be able to 

sell it or rent it.

So all of those are issues that we're 

continuing to monitor, but at least we're in a 

good capital position going into it, so that we 

hopefully will be able to invest and then be able 

to come back out of it stronger for the community. 

Thank you.

MEMBER CAMPBELL: I'm Troy Campbell 

with Altoona First Savings Bank in Altoona, 

Pennsylvania. 

We are a mutual savings bank, prior 

S&L. We do a lot of one-to-four family lending. 

We focus very heavily on small business, locallyowned business. And we've funded those over the 

last 96 years through deposits, local deposits. 

And we use the term hot deposits as well, but we 

found that with the low-rate environment, we have 
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an elderly population so they struggled. They 

struggled to afford the prescriptions and 

everything else. And now with inflation, we're 

seeing people who are loyal customers to the bank 

are shifting deposits. 

We have a local broker, a national 

broker who is actually offering 4.35 percent for 

a 12-month CD. And so we've seen a very rapid 

run on deposits because of -- and the broker is 

actually going -- it's minimum deposit of $1,000 

and it used to be $50,000 or $100,000, but they're 

actually coming right after our customers.

So one of the concerns that we have is 

we've seen a rapid decrease in deposits is 

looking at the borrowing window of FHLB and the 

issue with FHFA and the definition and the 

potential for limited borrowing capacity. As a 

community bank, FHLB is our primary contingency 

liquidity plan. And, so that's a real concern and 

I know that FDIC can't really address that. 

That's something that FHFA has to address, but 
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it's probably the one thing that keeps me up at 

night and I'd love to know the three percent of 

banks that don't have net unrealized losses on 

their portfolio.

That's pretty amazing. I'm thinking 

they don't have a portfolio. But that's kind of 

where we are as a community bank. And as we look 

forward, we want to continue serving our 

customers and so we've actually limited our 

participation levels with other community banks 

in our market where typically we're sharing on 

loans, but just from a liquidity planning 

perspective, we're not able to really partner 

with them because we want to make sure we have 

the liquidity in place to support our direct 

customers.

MEMBER LOWRY: I'm Bruce Lowry with 

Ireland Bank in Malad City, Idaho. I would echo 

those comments. I think that's our number one 

short-term concern is the strain or potential 

strain on liquidity. It's an accounting problem 
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that can turn into a real problem. So the 

tangible equity has come to the surface of 

something that we really look at closely now. 

We're looking at some different strategies with 

our portfolio to try to minimize going forward 

what can happen with unrealized loss.

For us, it's about a two-year window. 

If we can get through the next two years without 

any trouble liquidity-wise, then we've got a gob 

of it, you know, coming off the books. So that's 

the biggest concern, utilize the home loan link 

to supplement short term liquidity needs as 

probably everyone here does and if that access 

were limited or constrained, that's a big 

concern.

MEMBER NARVAEZ: I'm Gilbert Narvaez,

Jr. I'm president of Falcon Bank and we're 

located in Laredo, Texas, just south of San 

Antonio. We're in a very robust economic 

activity out there with the international trade 

business. We've seen our liquidity levels 
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actually continue to increase and get stronger. 

And consequently, we're also -- we've also --

we're not one of the three percent that don't 

have any type of unrealized losses in our 

portfolio. So we did invest in 2021 when you 

could buy mortgage backs at 1.5 and now those are 

severely under water right now.

What we're doing now is trying to with 

the additional cash flows coming in from the 

investors' portfolio, we're reinvesting them into 

the existing rates in the environment right now 

which are quite attractive and we hope that those 

will average in and when we hit that tipi going 

down, we'll start realizing or gaining some of 

our unrealized losses back into some gains.

The other thing, too, is our --

because our liquidity is so strong, there's been 

a level of competitors actually offering higher 

rates, so we've seen a little bit of deposits run 

off and we're not quite ready to match those high 

3.5, 4 percent rates that are being offered in 
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some of our markets. So we're kind of in a very 

good position at this point fortunately. Thank 

you.

MEMBER MAUST: I'd like to add just 

one final comment on -- as we're going around the 

table, it feels like downside risk and there's a 

tremendous amount when we think about the 

volatility, the uncertainty that we're facing 

over a hopefully short period of time. But let's 

assume it's protracted a little bit.

One of the things or activities or 

exercises that I know all of us have done over 

the past few years that have felt academic in 

nature has now become real and that is the 

scenario analysis with stress testing and various 

other scenarios that we're running on liquidity 

and interest rate risk. And I have to say for us 

it's been one of those environments that we 

didn't want to face, but it's become a great 

catalyst for the Board to be highly engaged in a 

much broader array of scenarios for us to 
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evaluate and determine what are those proactive 

measures we're going to take strategically and so 

it's actually to reengage those conversations and 

highlight the importance of those.

I do remember years ago when banks 

were -- I don't mean just during the pandemic, 

but prior to that, where you used to have a 

liquidity and they felt that was enough and 

that's not now. So we really have to be 

proactively focused. And at least, I want to put

a bit of a silver lining, because I think all of 

us are doing that. We just are very much aware 

of the risks that are out there.

MS. SCHMIDT: Yes, I think that's a 

good summary. We're starting from a pretty strong 

position and we'll probably get into this, 

consumers have been in a strong position, but 

downside risk is probably a good summary.

So maybe let's move and start talking 

about some of the real estate and consumer 

lending risks.
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MS. OLESIUK: Great. So we'll 

transition to the last section of the prepared 

remarks and then kind of open it up for any other 

topics that you want to discuss.

So I'll be talking about -- well, the 

risk review report itself covered many aspects of 

credit risk. We'll be focusing on just a couple 

of those today that I think we're watching the 

most closely starting out with commercial real 

estate. 

So on this chart, we're showing the 

net absorption as a share of inventory for four 

major property types that we follow. So this is 

sort of an indicator of demand for each of these 

property types. 

As you can see, the red line at the 

bottom of the chart representing the office 

market, that's where we've had the most concerns. 

And these are national data. I know there's 

different variations depending on the most urban 

markets and other markets around the country, but 
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nationally we saw a net decline in absorption 

relative to inventory both in 2020 and 2021 as 

corporations, companies are sort of reconsidering 

how much office space do we need and that's 

showing up as a decline in demand.

We also saw a slight dip in retail in 

2020, but that has since recovered. And then on 

the other side of the spectrum, very strong 

demand in the industrial and multi-family 

segments, industrial, of course, being driven by 

the logistics and online shopping that emerged 

during the pandemic and facilities, warehouses to 

support that activity. And then I think some of 

the comments on affordability challenges have

driven the multi-family demand. So kind of a 

mixed bag in terms of market conditions for 

commercial real estate. So I'd be interested in 

any comments you have there.

On the commercial real estate as far 

as the size of the portfolio, this chart shows 

banks in aggregate loans outstanding to 
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commercial real estate in the four different 

categories that we look at, so we've seen a 

continued increase in loans outstanding. Of 

course, these numbers are shown in dollar volume, 

but if we look at concentration levels, I think 

those are down relative to the Great Recession, 

other peak times in history.

Other differences here, the red 

segment, the multi-family outstanding loans have 

been a source of growth. The darkest blue 

category at the bottom there construction lending 

still is important, but relatively speaking as a 

share of the total portfolio compared to 2008, 

ADC lending is much, much smaller. So that's 

probably a good thing as far as risk goes.

Moving on to the residential story, 

residential real estate. So this chart looks at 

the year over year house price index for the four 

major geographic areas of the country. So the 

main take away, probably no surprise to anyone 

here, we're starting to see a peak and some 
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decline in the pace of growth for the house price 

index across most of the categories -- most of 

the geographic areas.

We don't do our own forecast, but we 

use a lot of forecast information from the 

industry and looking ahead to what's expected for 

home prices, the forecasts are really kind of all 

across the board. I think the most common 

forecast that I've seen looking out at about a 

year or so shows this pace of home price 

appreciation decelerating, but not falling 

negative, at least for the major categories. If 

you look at individual markets, I think it's a 

very different story, but nationally, the pace of 

home price appreciation falling almost to zero, 

but not dipping negative is the latest forecast 

I saw.

One of the major metrics that we look 

at to gauge the strength of the housing market is 

shown on the dark blue line here which shows the 

supply of homes for sale based on the pace of 
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home sales. And the major take away here at least 

through the end of 2021, there was very little 

inventory available for sale. The supply of 

homes for sale had dropped down to, as you can 

see, about two months of inventory. Over the 

last six months or so it's climbed to about three 

to four months, but still not yet back to that 

level of six months which is considered to be 

sort of an indicator of a balanced market. 

So I think this is something that's 

keeping those house prices somewhat more stable 

than one might think when we look at mortgage 

rates because there's just limited inventory out 

there for sale.

Looking at the credit quality on the 

residential side of things, and this is using 

data from the call reports that we get on -- so 

this is bank held mortgage loans. The main take 

away here is mortgage credit is very strong now. 

So the shaded areas of these bars represent the 

share of banks in each of these buckets of past 
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due rate for the mortgage credit. So looking at 

the 2021 bar, we see about half of banks have a 

past due rate between zero and one percent. 

Compare that to just a couple of years ago, prepandemic, we're far better and certainly far 

better than 2010, 2011. So I think banks are 

entering this period of potential stress in a 

very strong position relative to the mortgage 

market.

And lastly, we had a section looking 

at the consumer sector. This is an area, as I've 

already heard this morning, that we're looking at 

as far as potential stress for consumers. So 

what's shown here on this chart is various 

sources of consumer income, so obviously, during 

the pandemic that gold line which represents the 

government transfers, consumers really 

benefitted from how much money they were getting 

from government transfers. Those have 

essentially all ended and so I think now 

consumers are being faced with varying levels of 
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stress from lower income consumers that these 

types of transfers really mattered a lot, maybe 

seeing some potential stress whereas higher 

income consumers maybe not feeling it quite as 

much.

The final slide looks at non-current 

loan rates for various consumer portfolios, so 

essentially the story here is the consumer 

portfolios at our banks as reported by the call 

report information looks fairly strong. You can 

see a slight uptick in that gold line 

representing the credit card non-current rates. 

And we saw the same thing we reported in the 

second quarter, quarterly banking profile that 

early delinquencies, past due loan rates were 

starting to tick up for consumer loans. So 

potentially indicators of some stress, but 

overall, relative to even pre-pandemic, banks 

looked to be in a strong position on the consumer 

side.

So I will pause there and again turn 
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it over to you, anything else that you'd like to 

share on your outlook for loan growth and credit 

quality, underwriting standards, anything else on 

the credit side.

MEMBER CAPOBIANCO: I'm Tony 

Capobianco. I'm from American Community Bank in 

Glen Cove, New York. 

I'll start this one off. The lion's 

share of the assets on our balance sheet is great. 

So we had a concentration of about 300 percent, 

so we're right within the guidelines, but if you 

add in owner-occupied commercial real estate 

which is by definition not in the concentration 

ratio, we're above 400 percent. But we 

constantly do stress testing on our portfolio. 

Even prior to the pandemic and we cut it up every 

which way by geography, by industry, by 

demographics.

We're not a big bank. We're $275 

million. So we're small enough now to keep up 

with all of our borrowers and all of our loans 
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and we pretty much know all the relationships in 

the portfolio. 

I don't think that we'll have an issue 

with credit quality. Their rates are fixed, so 

many of their loans are priced in a favorable 

environment in the low fours, sometimes under 

four. And they have that rate for five years, 

they're five-year ARMs whereas on the funding 

side, the rates re-price daily sometimes, other 

than CDs, obviously. So we all have that mismatch 

on our balance sheets for the most part.

The other thing is that many of our 

core account relationships are real estate 

businessmen and they use leverage and they 

refinance consistently, but I don't think that 

business is going to be -- will be continuing in 

the next year or so with the rates the way they 

are. 

So we anticipate a decline in the loan 

growth. Don't think we'll have many issues in 

our credit quality. We haven't changed our 
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underwriting standards due to the inflation or 

the rising interest rates because even before the 

pandemic we were very conservative and we 

stressed the rates on our underwriting.

When the pandemic happened, we were 

even more conservative and we haven't changed 

since then. So I think that hopefully, knock on 

wood, that we will have no issues with credit 

quality.

And I guess the other trends or 

concerns that I'd like to highlight are kind of 

echoing what everyone else says and knows is that 

the -- with inflation and with rising interest 

rates on the funding side, the compression on net 

interest margins will probably have an impact 

going forward, but we're well capitalized and 

well positioned enough to continue to serve our 

communities and that's our mission. That's all of 

our missions. And it's very rewarding when we're 

able to do that and I hope that we can continue 

to do that particularly with the customers that 
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we serve which are mainly small business 

customers.

MS. OLESIUK: Thank you.

MEMBER PILARSKI: Shane Pilarski, I'm 

from Northern Indiana. We're about a $400 

million bank. And prior to this year I would 

have said we're primarily an ag bank, but, for 

the first time since I've been at the bank, our 

CRE has outpaced our ag loans.

For a couple of reasons, primarily, as 

some people have already talked about, farmers 

have had really good couple years. And with the 

rising rates, they've looked at, I don't want to 

be sitting on this cash, let's pay down my lines 

of credit. So our ag loans have dropped.

Fortunately we've been able to pick up 

some CRE, primarily in participations. We're 

still sitting under 50 percent loan to deposit 

ratio, we've got a really good, stable core 

deposit base and we would love to loan more, 

especially in ag where we have our niche. But 
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we've got farm credit all around us and that makes 

it extremely difficult, so that's probably a big 

concern to us.

We have not adjusted our underwriting 

standards, we remain conservative. And so it'll 

be interesting, as we look to see what happens in 

the future, how farm credit continues to kind of 

play into what happens with our loan growth. 

Thank you.

MS. OLESIUK: Thanks.

MEMBER WEST: I'm Andrew West, 

president of Eagle Bank in Polson, Montana. We 

are one of the 18 tribally-owned banks in the 

country.

And just with regard to the outlook 

for loan growth, I'm not super optimistic, with 

the increase in interest rates. I do think credit 

quality will maintain, like Tony, we shock test 

the heck out of our -- I mean, everything that we 

underwrite gets a shock test for declining cash 

flow and increasing interest rates. So I feel 
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okay about that, but I see loan demand dropping 

off, particularly in mortgages but also in 

commercial real estate.

But one thing that I hear a lot, which 

is interesting, is with regard to the changing of 

the underwriting standards. In Lake County, 

where I live, we've seen in the last few years a 

54 percent increase in real estate values. We've 

done more home equity lines, people are tapping 

that like crazy, and a lot of construction and 

development.

So we have changed our underwriting 

guidelines, we went from 80 percent loan to value 

on home equity lines to 70 percent max loan value 

per policy. And then also, with construction 

loans, 75 percent loan to value. Because I 

believe there's going to be a precipitous decline 

in real estate values in the next couple years, 

and I don't want to be upside down on some of 

these houses.

And it greatly concerns me how -- we 
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did seven HELOCs, maybe, in 2019, we did 13 last 

quarter, it's nuts. So, concerning to me, 

wanting to keep the bank safe we've just lowered 

our LTV and we've been pretty consistent on not 

making policy exceptions with regard to debt-toincome.

But what concerns me the most, at 

least for where I live, is a massive influx of 

out-of-staters moving in and driving real estate 

values to a point where the people who live where 

I live cannot afford to buy a home anymore. And 

they're still -- even with the rising interest 

rates, we're seeing a ton of cash-buyers coming 

in.

So construction remains good but the 

locals are getting squeezed out, and I'm not sure 

where they're going to go. We are seeing an 

increase in some multi-family, but it's 

challenging where I live to get multi-family 

built. So, anyway, that's it.

MS. OLESIUK: Yeah, I think you make 
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a good point, that markets that have seen this 

rapid rise over the last couple of years in home 

prices, you know, Montana, Idaho, those are some 

of the markets that -- at least the forecasts 

show that, you know, they had such a rapid rise 

they might see weaker houses prices.

MEMBER OSTERBUHR: I'm Arlen 

Osterbuhr, I'm with Minden Exchange Bank in 

Minden, Nebraska. The Minden Exchange Bank is 

about $180 million bank.

We've had escalated liquidity, just 

due to a lot of stimulus money and about three 

years back-to-back of really good agriculture 

years, to the point where our loan to deposit 

ratio had gotten down to 50 percent or less.

And what I'm seeing now with our loan 

growth is it's continuing to grow this year, 

business and industry is buying more inventory 

and building up for -- as we've seen a shortage 

of product for their companies to grow and 

continue on. And their agriculture costs have 
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escalated, the cost of food, fuel, transportation 

cost has continued to grow as well.

And right now it's harvest time and 

commodity prices are good, we're seeing money 

coming in. Although the costs were high, harvest 

costs were high this year, and it's now time to 

buy product for 2023's crop year.

And so we've run a program for 

investing in the 2023 input loans, and so we've 

discounted interest rate for them to purchase 

product such as seed, and they generally buy for 

a percentage less by buying early but also 

locking in on a lower interest rate on a loan. 

We generally tie that to the New York Prime, and 

that's helped us with having loan growth.

We're also having a lot of stress 

testing going on, we're making sure credits are 

good, our liquidity has reduced and we have 

adequate loan value ratios and ratio analysis. 

Our loan committee meets twice a week and we're 

pretty transparent in our loan committee, we try 
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to discuss every loan that's over $100,000. And 

lines of credit are very popular where we're at, 

for operating expenses for both business 

industry, and also agriculture.

As far as underwriting standards, we 

have not changed those, we've been pretty strict 

on making sure that our underwriting standards 

are strong, and we stand by those.

We are a locally owned bank as well 

and a family-owned bank, and so we've tried to 

stand pretty firm in all of those rates and all 

of those standards for ratio analysis that we 

set.

I anticipate that we'll continue to 

see loan growth, we also are seeing a housing 

increase in construction. We have three housing 

developments going on in our community right now, 

we just finished up a 50 housing unit that, all 

the homes were sold -- prior to interest rates 

going up, of course -- were sold before they were 

finished.
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We have another 40-home development 

going on and we anticipate a little slower growth 

there, we've also increased the cost of the lots 

due to the infrastructure cost. And of course 

interest rates will be higher, so we anticipate 

that'll be a slower growing area of the town, of 

our community.

But I anticipate that loan growth will 

continue, it's just going to be a little slower, 

and we have to be very prudent in the loans we 

make. Thank you.

MEMBER KITNER: Hi, I'm Cindy Kitner. 

I am with Jefferson Security Bank in 

Shepherdstown, West Virginia -- for proximity, 

we're about 80 miles from where we're sitting 

today. With us, we are the oldest operating 

corporation in the state of West Virginia, so 

very focused on our local community, we've been 

there for a 153 years.

In addition to that, with our 

proximity to the northern Virginia market and 
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with some of the connections that our lenders 

have, it's not uncommon for us to look at some 

smaller construction projects in the northern 

Virginia area, even though our focus is more 

locally.

I would say I share in a lot of the 

concerns that we've heard here today, I think the 

inflation and the rising interest rates, we have 

a lot of concern with how are our customers going 

to handle as their payments adjust, it's a big 

concern.

In addition to that, from a deposit 

and loan growth area, from deposits we really 

haven't seen the decline that I know a lot of 

others have. I think in part, during the 

pandemic, and really just with our proximity, 

it's not uncommon for us to have a lot of 

commuters that commute into the northern Virginia 

area. And when everyone went virtual, it was 

certainly advantageous and interesting to come 

further out into some of our markets.
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So we've continued to see the deposit 

growth, as well as strong loan growth. We are a 

heavy real estate lender, so we certainly share 

in Andrew's concerns with the value of real 

estate, going forward.

Liquidity is something that we've had 

a lower loan to deposit ratio, we had worked 

really hard to improve that before the pandemic, 

and saw the effects that everyone else saw 

through that time. So we're closely watching our 

liquidity now, as we've seen our loan growth 

outpace our deposit growth through recent times. 

Do we think that that loan growth will decline? 

We do.

And as far as underwriting standards, 

we haven't officially changed anything today but 

we're looking very closely, and we're talking a 

lot more about stress testing in our loan 

committees and in our board. We've done -- I 

feel like we do very thorough analysis on our 

loans, and we have and we do stress test a lot 
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within the presentations that we prepare.

But the question, I think, for me and 

for others, what's enough in this market, how far 

can we go, how far can we stretch our thoughts to 

really think about how bad this could be, and how 

we can prepare ourselves and our borrowers, and 

our customers, for those potentially long-term 

rising rate environments?

And I agree with the comment that was 

made earlier that, if we do see the decline in 

rates then the amount of people coming in the 

door looking for those loans to be re-written is 

going to be pretty quick, as we've seen before as 

well. So I think those summarize some of the 

concerns that we have.

And lastly, I would just comment that, 

like so many others, we have a lot of competition 

in our market with increased deposit rates. We 

have not risen rates at this point on the deposit 

side, we are mindful, we consider specials and 

look at what is the right fit for us. But with 
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the liquidity position that we're in today, 

that's just not a step that we've taken quite 

yet. Thank you.

MEMBER MCCURRY: Hi, my name's Neil 

McCurry. I'm in Sarasota, Florida, which is 

southwest Florida, so all of my comments about 

what's happening with credit risk really are 

before the hurricane that we just dealt with. 

Because we don't know how that's still going to 

play out, it was a devastating situation that 

happened and to our communities and the whole 

southwest part of the state.

But prior to that, you know, we talked 

a lot about credit risk, and in Florida and in 

our community, we've really -- everyone's done 

well, the banks have done well, the businesses 

have done well. So it's been a great time to be 

in any type of business in Florida, but we've 

tried to be aware of what darker clouds are out 

there as well.

And certainly what's happened with the 
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interest rates like we've talked about, and 

housing problems as well. So we've looked to 

really challenge ourselves about how do we 

continue to be a source for our community and the

businesses, but at the same time prudently 

navigate through the economic climates that are 

ahead of us.

We, as was said by others, have always 

done stress tests, sensitivity analysis. One of 

the things that we've started doing is looking at 

the businesses because -- again, all of our 

clients are doing well -- but we look at the type 

of business they're in.

If you're in the air conditioning 

business in Florida, if someone's air 

conditioning breaks, they get it fixed. So those 

are ones that I think will continue to be in 

demand.

What about ones that are more 

discretionary, what if you're in the boating 

business or you serve something with boating? 
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And those are the type of things that you might 

see a softening, a quicker softening, so we're 

looking at our clients as well, and what type of 

products and services do they provide.

We're also talking to our clients 

about what type of concerns they're having about 

supply chains, getting whatever materials, 

products they need to continue to be successful.

And also their staffing, you know, 

we're having staffing challenges. I heard about 

employee cost and challenges to get people, to 

keep people, and the businesses are as well, and 

how are they doing it, and what impact it will 

have on them if they have to continue to raise 

their labor cost, or if they struggle to get labor 

as well.

So we're really trying to make sure 

that we're looking forward as well, we haven't so 

much changed our loan policy but we're trying to 

very much adhere to it. If there is a policy 

exception, well that's always important to 
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reflect on. You know, it needs to be really a 

real reason why are we okay with -- if we believe 

our policy is correct, why are we okay with a 

policy exception. So we're really pushing 

ourselves to question ourselves on those as well.

You know, the trends that are 

concerning in Florida is housing and mortgage 

rates, our mortgage production has dropped 

dramatically. And looking forward as well, is 

housing costs were high, we're not sure what's 

going to happen when all of the construction 

industry is going to be focused on re-building 

homes that were destroyed.

That will certainly have an impact on 

cost and ability to get people as well, so what 

you will have to pay to have a home constructed, 

which vis-a-vis will translate to existing home 

sales well. So how will that impact the people 

in our community?

So there's a lot of unknowns out there 

and I think, like everybody, I appreciate hearing 
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everybody else's comments about how they're 

thinking about it as well, because it's a really 

interesting and challenging times that we're 

navigating right now. Thank you.

(Simultaneous speaking.)

MS. OLESIUK: Thank you.

MEMBER HORVAT: I would just add, as 

I mentioned earlier, we had a record year this 

year in terms of our commercial loan 

originations, we will do over $400 million this 

year in originations. A lot of that is in the 

CRE space throughout New England, but we haven't 

changed our underwriting standards.

And one of the positive trends that 

we're seeing is our competition is not changing 

their standards either, so that's a real benefit. 

That's something that those of us that were 

around in the '90s saw some crazy things 

happening, and it led to some bad results, we're 

not seeing that right now.

What we are seeing are deals are 
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harder to underwrite because of the increasing 

interest rates, and as a result we're asking 

borrowers to come up with more money to the table, 

not changing how we would structure it. So, so 

far they don't like it but its worked.

We're also seeing something where some 

of our stronger borrowers have just said, I don't 

really want to borrow money at seven percent 

interest and I'm just going to pay cash. So that 

obviously doesn't help our origination, and those 

are the borrowers we'd like to have, but it's 

actually a good sign for the economy as a whole.

So some relatively positive trends, 

although we're expecting volume to be down about 

20 percent next year, that's our prediction.

MEMBER JOHNSON: I had the opportunity 

to be on a CEO forum with Illinois bankers, just 

in the last month, and one of the points were 

about, just kind of like this, what trends are 

more concerning to you. And one of the questions 

that I really wanted to hear about and I was 
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interested in what you had to say today was, what 

are you keeping your eye one? What is the next 

thing that's going to fall? Is it housing?

And so we're hearing some of that but, 

kind of at the end of this, I hear it's a little 

bit of everything. It doesn't matter, even if 

you have a business that's productive, you have 

air conditioning, they still have to get the 

workers to come in and do the job to get the 

revenue to complete the jobs, to get paid.

So I'm just taken back a little, it's 

just not one particular industry or sector, it's 

kind of -- this is affecting all of us and we 

have to keep an eye on everything that we're 

doing.

MEMBER KITNER: Just a comment on a 

couple of other things as well. I know I talked 

with some about staffing, and we talked about 

staffing from not only having trouble bringing in 

and finding that staff, but also -- if I look 

back at our bank, again with the history that 
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we've had, there was a point in time that I could 

easily say, in deposit operations, we had 

collectively 100 years' worth of experience. And 

when we look today, collectively we have less 

than 10 years.

So the amount of time that the 

management team is spending with training and 

monitoring, and ensuring that our younger staff 

-- and not only younger but newer staff, some of 

them are more seasoned in other businesses, but 

not specifically to banking. So making sure that 

they truly understand those regulations, and that 

we can share some of the hurdles that we've 

experienced over the years with them, to try to 

prevent any unseen circumstances is challenging 

for us.

And then just to your point, again, on 

construction, one of the things that we've seen 

is our contractors have just been incredibly 

busy. And with the combination of the volume 

that they're taking on, and with the supply chain 
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issues, a lot of our construction loans are 

running a lot longer than what we wish and would 

hope.

So monitoring those closely, 

monitoring and analyzing not just the draw 

schedules, but also doing periodic analysis 

throughout to make sure that we're not going to 

run into a problem and not be able to complete 

the project as the borrower anticipates, or just 

any other construction issues.

I just wanted to point that out that 

that's another area that we're spending a 

tremendous amount of time on, with watching those 

contractors, making sure that we know them and we 

know their work in a strong way. But knowing 

that there's risk there as well.

MEMBER BOCK: I think you make a great 

point on employee longevity, you know, there's a 

lot of different things experience fixes.

And I think the other thing in the 

concern area that I have, because of that young 
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staff, the cybersecurity issue gets even higher 

in my book. Because some many of them get emails, 

they get all the things that can start the ball 

in motion for bigger problems.

And when they don't have the 

experience that some of your staff have had for 

a lot of years, they're going to be more inclined 

to make that first mistake that can lead to other 

concerns and other problems for us.

And I think we've talked about a lot 

of things today that we are all facing, but I 

think that is one that could open the door to 

some big problems really quickly. And the 

inexperienced staff, as much as you keep 

training, testing, trying to keep them up to 

date, when we run literally our monthly tests on 

staff, it's always the newest people that get 

tricked on the internal testing.

And it only takes one, you can be good 

99 percent of the time, but if it just happens 

once, and I think that's one of the concerns I 
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think is elevating up as our staff gets younger.

And, you know, you got the cyber, and 

then how many of your staff are 40 years old in 

the lending department that have never been 

through an economic cycle before, like we're 

going through? You know, you can talk about 

credit standards, policies, etcetera, and 

sometimes until they've experienced it they don't 

really believe it.

And I think it's going to be 

interesting to keep them, I guess, on-task and 

start talking -- they look at an appraisal, the 

appraisal looks good, yes but that appraisal was 

done with a cap rate that was an environment from 

12 months ago. Our new environment needs a cap 

rate of this, and it suddenly impacts the value 

of the property significantly.

And I think it's the younger staff in 

multiple areas that are going to create new 

training challenges for all of us, to keep them 

up to date as we move forward.
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MEMBER JAMES: To your point about 

technology risk, Mike. Our institution has got 

a heightened concern around cyber risk 

particularly because, not just bringing 

inexperienced banking staff or employees, but 

also because in order for us to get work done 

we're having to, you know, hire people outside of 

our traditional market.

We're a traditional, very low tech, 

high touch bank. And we're having to move into 

being a much more high tech, high touch bank, 

which means that we've got, you know, in addition 

to the core team that's in Savannah we now have 

a handful of employees in the metro Atlanta area. 

Which means that they're having to remote in, 

which means that they're having to access systems 

in ways that our current, you know, our 

traditional staff is just not really used to.

And so making sure that we have the 

proper protocols in place from a cyber risk 

perspective, just to handle remote employees, is 
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a big risk. And also an additional cost because 

we've got to add, you know, we've got to add 

system controls with our network systems and 

security provider on top of what we're spending 

with the core processor, to make sure that we're, 

you know, maintaining integrity and protecting 

our customer data and our systems.

And so that's a big concern for us, 

going forward.

MEMBER MAUST: Just responding to the 

general discussion question.

I think about the long range prospects 

for community banks, we have I think a permanent 

foothold in relationship banking, I think we 

always will. I think we also need to augment 

that and really harness those strengths, so the 

ability to understand our clients, the ability to 

communicate with them directly to really think 

about risk on an individual transactional level, 

as well a portfolio level.

And deploy those in ways that the 
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market is currently, and I think in the future, 

demanding. And that's going to be more digital, 

it's going to be more integrated into the real 

economy, so whether that's commercial enterprises 

or other ways of us integrating banking products 

and services into.

I think all of those, whether we 

digitally go out to market or we utilize an 

integrated approach with the real economy are 

going to be utilizing third parties. And I think 

-- now I know we've talked a lot about third party 

risk management historically, and that's another 

example of what was probably more academic in 

discussion, is now real and will be as we move 

forward.

And I do want to thank the FDIC for a 

couple years ago issuing the ANPR, that was 

really helpful for those of us that are really 

looking at third parties as deployment partners. 

Whether that's channel partners or it's just 

using it in our back office, to think through in 
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a very detailed level what's needed and what we 

need to be thinking about, especially at the 

board level, so we can make sure we understand 

the risk and feel like we can manage it.

I think that's going to become a much 

bigger mechanism for us to go to market and really 

serve our local communities, as well as probably 

more broadly, a much greater geographic area.

So I'd love to have maybe an 

opportunity in the future to talk more about that 

as well. So thank you.

MEMBER MJARTAN: Maybe I could hit on 

a couple longer term trends that I'm thinking 

about.

I do think there's a lot of rise in 

various disruptive technologies out there, that 

right now are may be just on the outskirts, maybe 

they're a few years out. I'm not just talking 

about the cryptocurrencies or the blockchain 

technologies and all that, but I do think there's 

a -- the last number that I saw, there's 
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significant -- even with the current decline 

temporarily -- there is a significant shift. A 

huge chunk of the U.S. economy is now in this 

shadow crypto-space.

And so, I know that for some of our 

community banks that rely on core deposits, what 

are they going to do? Combine that with an aging 

customer base, and so banking customers, maybe 

there is a 10-year horizon, I don't know what 

you're seeing in your communities, but we tend to 

lose customers when they die. We don't intend to 

lose them, generally speaking, at least our core 

few thousand customers that we have.

So I do see those trends. And their 

kids are usually out of town or bank with a megabank, and they're not going to come back to us.

So that puts the pressure -- Robert, 

you talked about cyber risk technology, I think 

digital technologies keeping up with the large 

banks that have a huge budget, how do you compete? 

How does our mobile banking technology compete? 
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How does our loan origination system compete?

I know a lot of us are in the 

relationship banking space, but even those 

relationships now are demanding much more of a 

real-time access to tools and technologies. For 

smaller institutions that percentage of that cost 

is a huge chunk of your ROA, compared to the large 

institutions.

And then, you know, I think the 

staffing is -- I just want to reiterate that --

I think that's a huge challenge. How do our banks 

compete and recruit?

We have a really great minority 

recruitment program to recruit minorities into 

banking, most of them that we've had, some have 

been with us for three or four years now, but 

some have been picked off by larger banks.

We trained them up and then they went 

out and got a big salary at a large bank, which 

is a great success for them and their family, but 

then how do we build that pipeline of talent 
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coming into banking? Because, especially 

community banking, I think that's going to 

continue to be a challenge for us.

MEMBER WHARTON: Dominik, great 

points. In our breakfast, Robert asked a great 

question about the cores, and what do you do 

looking forward? I think that's a huge issue, 

for lack of a better word, I think we're held 

hostage by the major cores. And, you know, we 

need to reach out to third party but it's in many 

cases virtually impossible to do so, because, you 

know, they put restrictions, the fees, they make 

it, again, virtually impossible to interact with 

those third parties.

So, you know, what can we do to 

disrupt the big boys that, again, have so much 

control over us as community banks. Because I 

think one other thing we're seeing, the big boys 

-- not to name names, Wells Fargo and Bank of the 

West -- in our rural areas have abandoned 

community banking.
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In Steamboat Springs, when I moved to 

Steamboat Wells Fargo, had a 60 percent market 

share and 56 employees. Today they're now at 29 

percent, we're at 28 percent, and they're down to 

12 employees.

In Craig, Colorado, Bank of the West 

closed their branch. They had been number two 

and they've left western Colorado completely, so 

from our perspective it's a great time to be a 

community banker. But we also need the 

resources, and the cores are, frankly, a huge 

block to accomplishing that.

MS. OLESIUK: Thank you, everyone, for 

all of the comments. And I know I've learned a 

lot, so thank you very much.

MS. EBERLEY: Yeah, great discussion, 

thank you so much. So we're going to take a quick 

15 minutes break and be back, if we could, at a

quarter of -- I guess we're going to be just a 

little less than 15 minutes, but if we could come 

back a quarter of. Thank you.
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(Whereupon, the above-entitled matter 

went off the record at 10:32 a.m. and resumed at 

10:50 a.m.)

MS. EBERLEY: Okay, I think we're 

ready to pick back up. Welcome back. Yesterday, 

we had a meeting of our Minority Depository 

Institutions Subcommittee. And Gilbert Narvaez 

serves on both this Committee and the MDI 

Subcommittee. And Gilbert and Betty Rudolph, the 

director of our Minority and Community 

Development Banking Office, are going to provide 

us with an update on yesterday's meeting, and a 

few other matters. So I'll turn it over to 

Gilbert.

MS. RUDOLPH: Thank you, Doreen. Just 

a few introductory remarks before we turn it over 

to Gilbert.

This committee was established, the 

MDI Subcommittee, in 2019, under the Federal 

Advisory Committee Act, so there's certain rules 

that go with that and require that the MDI 
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Subcommittee provide any advice and 

recommendations to the FDIC through the Advisory 

Committee on Community Banking.

So they are not able to provide advice 

and recommendations directly to the FDIC, so they 

actually report, this subcommittee, to all of you 

and not to the FDIC.

And when we established the 

subcommittee, it has three goals. One is to serve 

as a source of feedback to us on our strategies 

to fulfill statutory goals that we have to 

preserve and promote minority depository 

institutions. There are about 144 MDIs that we 

insure and about 96 that we supervise directly.

The second goal is to provide a 

platform for MDIs to promote collaboration, 

partnerships, and best practices. And finally, 

to identify ways to highlight the role of MDIs 

that they play in their communities.

So our subcommittee is comprised of 

nine executives, representing all types of MDIs, 
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African American, Native American, Hispanic 

American, and Asian American, and a range of 

business models, size, and geographic mix.

In addition to those nine executives, 

we have four MDIs represented on this committee, 

so we have Dom and Andrew, and Robert, and 

Gilbert.

So, we've had two meetings of our 

subcommittee since we last briefed this committee 

last November, a year ago. And so we met earlier 

this year on May 23, and then again yesterday, as 

Doreen said. So I'm going to turn it over now to 

Gilbert who will provide kind of a recap.

MEMBER NARVAEZ: Thank you, Betty. At 

this time, the MDI Subcommittee does not have any 

recommendations to the FDIC, but the Subcommittee 

does want to share a brief recap of the past two 

meetings.

At our May 23 meeting we discussed 

current banking conditions and unique issues 

facing our institutions. Many of the themes 
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included a recovering economy, earnings 

improvements, hot real estate market, labor and 

supply chain issues, rising cost of materials, 

competing rates with the large banks, and growth 

of mobile and online banking services.

We reported that we were closely 

watching economic conditions related to the 

inflation, rising interest rates, and loan 

demands. During the MDI spotlight, one of our 

members, Angel Reyes, president and CEO of 

Centinel Bank of Taos, shared the processes the 

institution uses for strategic planning and 

succession management.

At the members' request, we also had 

a briefing of CECL methodology, available 

resources, and the current timeline.

We also had a briefing on the 

Community Reinvestment Act modernization, 

including comprehensive discussion with the 

federal banking agencies, joint notice of 

proposed rulemaking, released on May the 5 of 
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2022. The briefing included a spotlight of 

interest of MDIs as proposed in the rule.

We also received a demonstration of 

the new research tool that the FDIC has developed 

to highlight census tracts with significant 

minority populations and shows where existing MDI 

community banks and non-community bank branches 

are located.

The tool would enable organizing 

groups to identify potential communities for the 

de novo institution, or support existing MDIs, 

and identifying market opportunities.

Finally, we received an update on the 

creation of the new Office of Minority and 

Community Development Banking and current 

projects.

At our meeting yesterday, we again 

discussed our local banking conditions, some key 

themes, including record earnings in many banks 

over the past year and into this year as well, 

but challenges expected over the next two years, 
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strong asset quality, the pressure on deposits 

with rising rates, and also difficulties in 

recruiting and retaining talent, which was 

discussed by us this morning, as well.

During the MDI spotlight, we learned 

about the U.S. Treasury's mentor prodigy program 

that pairs up large institutions with MDIs to 

help build scale and capacity to potentially 

compete on numerous banking services provided by 

the Treasury.

Two of our members, Jim Sills and 

Alden McDonald, shared the benefits of their 

partnerships with JPMorgan Chase and Citibank.

We concluded our meeting with a round 

table discussion about some of the challenges and 

opportunities raised by the Emergency Capital 

Investment Program and the economic environment. 

We also provided feedback on FDIC MDI program 

opportunities.

This concludes my report from the MDI 

Subcommittee, and Betty and I welcome any 
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questions that you may have. Questions? 

MEMBER MJARTAN: I am curious what the 

biggest difference is between what this feedback 

was and what you heard from fellow MDI banks?

MEMBER NARVAEZ: I think we kind of 

mirrored -- maybe there were some more items that 

were brought up because, I guess, the number of 

participants. But Betty, I don't know if you 

have anything --

MS. RUDOLPH: No, I think it was very 

similar.

MEMBER MJARTAN: Were there any 

discussions about the CRA reform and how that 

could impact MDI/CDFIs?

MS. RUDOLPH: CRA did not come up in 

our discussion. I think when we had the briefing 

in May, we had a presentation. When was the last 

advisory committee here? Was it pre May 5 when 

CRA was issued, so you all didn't get a briefing 

on that? Is that right? You did?

MEMBER MJARTAN: Did not.
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MS. RUDOLPH: You did not? Yeah. So 

we got that briefing in May, and then now since 

we're in an open rulemaking timeframe, we sort of 

did not have a discussion on that, but none of 

the banks brought it up, either.

I think it is an opportunity for MDIs, 

and in particular I'll mention that one of the 

things that FDIC has been doing over the past 

couple months with OCC and the Fed is conducting 

some listening sessions of all -- we invited all 

280 FDIC insured MDIs and CDFIs, and trying to 

understand what the needs are now, and there has 

been significant capital flowing in, as I think 

you and Robert and others talked about earlier 

today.

But there are opportunities. There 

are still MDIs and CDFIs looking for capital, 

they're looking for partnerships with regional 

banks, with larger banks. And so one of the 

things that we took back from that is sort of the 

need to continue to facilitate partnerships 
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between MDIs and other institutions.

MEMBER JOHNSON: May I ask the range 

of size of those banks, the MDIs? 

MS. RUDOLPH: Yeah, I think the 

smallest one is about 15 million and it's the 

bank that -- Robert's bank --

MEMBER JAMES: That we just bought, 

yeah.

MS. RUDOLPH: The bank you just 

bought, yeah, and I think the largest is 

somewhere around close to $70 billion, in Los 

Angeles. So it's quite a range. 

You know, we conducted a needs 

assessment a little while ago and, you know, the 

saying that came out of that was if you met one 

MDI or one CDFI, you've met one MDI or one CDFI. 

There are many issues in common, but they're 

unique business models. Different populations 

serve different histories. So it's not a onesize-fits-all is sort of our takeaway from that.

MEMBER JAMES: Yeah. Betty, I'm so 
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sorry I missed the beginning of your 

presentation. And I want to thank you for all 

the work that you do on behalf of the sector, the 

mission-driven banking sector.

I don't know if Dom brought this up or 

if it's come up earlier, but just because of the 

influx of capital into a lot of our institutions, 

we're going to have rapid growth potentially. 

And a lot of times, rapid growth is met with, you 

know, growth and risk.

And so, I know that some of our 

members from the National Bankers Association 

have already started to request technical 

assistance on kind of, you know, preparing for 

that growth, preparing for risk, and how to 

manage the growth.

You know, are you thinking about doing 

some things, you know, for all of these banks to 

make sure that we're getting kind of coaching on 

how to add the assets, how to add the deposits, 

and how to manage risk at a different level?
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You know, our institution's going to 

be going from being, you know, two branches, $50 

million in total assets to now a multi-bank 

holding company with, you know, operations in 

multiple states, you know, probably quintupling 

in size over the next few years.

And so I wanted to make sure that we, 

you know, go flag that issue, and then make sure 

that we partner with the FDIC and the other 

regulators in order to kind of manage the growth 

prudently.

MS. RUDOLPH: Yeah, that's a great 

question. We have heard that from many of your 

members, and others.

So, for the benefit of the committee, 

the Treasury Department invested about 8.3 

billion dollars in 162 MDIs and CDFIs -- that 

includes some credit unions as well -- earlier 

this year.

And in addition, a number of MDIs and 

CDFIs have had substantial capital investments 
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from larger institutions as well, so we know 

there will be growth occurring, which is why the 

Congress appropriated that money and which is why 

the large banks sort of invested that in your 

institutions.

And so, we did a pilot with Doyle 

Mitchell from Industrial Bank a couple of weeks 

ago of some technical assistance, kind of walking 

through how we look at growth and sort of what 

you need to be doing to position your 

institution.

I will say it's mostly bread and 

butter supervision, so it's making sure you have 

the governance in place -- actually the first 

thing we talk about is reach out to your regulator 

early and often, making sure you have the 

governance in place, and the risk assessment 

framework for that growth, as well.

But there are actually no different 

rules, it's sort of our asset growth from our 

safety and soundness standards, and we walked 
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through some scenarios on that. So we're getting 

ready, we did the pilot, we got a little bit of 

feedback. We're going to roll that out and invite 

every FDIC supervised MDI and CDFI to join us for 

that.

And in addition, we've developed some 

training that we're preparing to launch for 

examiners in charge of MDIs that are coming up 

for exams, and a lot of the content we used for 

that technical assistance is based on the 

training that we will have for examiners.

ACTING CHAIRMAN GRUENBERG: I was just 

going to say: it's a tremendous opportunity, but 

not without risk. And managing the deployment of 

the dramatically expanded capital that's now 

available to a significant number of MDIs is 

really going to be, to me, the critical challenge 

going forward here. And I know we want to be as 

helpful to the MDIs in managing the risks 

associated with it, and to be sure that they 

understand any supervisory issues that may be 
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raised.

And Doyle Mitchell, I really give him 

credit, from the Industrial Bank of Washington, 

raised it with us, and asked for assistance. We 

were in some sense welcomed the opportunity to 

sit down with him to walk through the issues and 

sort of use it as an opportunity for us to develop 

a template of the sort for engaging with MDIs 

that have received the capital investment.

And I know Betty is now putting 

together a webinar that we'll make widely 

available, and certainly if the MBA would like us 

to do something specific for your members, we'd 

certainly be open to it. And I think we can also 

use our regular examination program to engage 

with individual institutions.

And then I would say any individual 

institution that has a particular issue or 

concern should just let us know and this will be 

a key priority for us.

MEMBER JAMES: Great, thank you. Can 
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you talk a little bit about the training that's 

taking place?

Because, I mean, you know, from -- and 

Marty, you know this, too -- there's oftentimes 

such a disconnect between, you know, what's said 

in these rooms in Washington and what happens in 

the field in terms of the supervisory exam.

And, you know, kind of making sure 

that there's some, we're so excited to hear about 

this kind of training that's going to be taking 

place for examiners to make sure that there's 

some more connective tissue I think between the 

FIRREA, preserve and promote obligation, and what 

happens at the actual exam.

And what I mean by FIRREA, preserve 

and promote obligation for the rest of the board, 

so FIRREA Section 308, which is the actual 

federal statute that defines what an MDI is, it 

gives an obligation to the regulators, so the 

FDIC, the OCC, the Treasury, and the Federal 

Reserve, to actually preserve and promote 
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minority depository institutions, and the unique 

character, the unique mission and role that they 

serve in all of our different communities.

And oftentimes there's a disconnect 

between that preserve and promote federal 

mandate, and what happens in the exam process. 

And that's not different than any other community 

bank, right? But it's particularly acute I think 

in MDIs, and so we're excited to hear about this 

training, and so I'd just love to hear more about 

how it's going to be rolled out and implemented.

MS. RUDOLPH: Yeah, so this training 

kind of stems from our update of -- our board 

approved our statement of policy regarding 

minority depository institutions last year. And 

incorporated into that policy, you know, 

regarding the examination program is what's 

already in the UFIRS standards and the compliance 

examination standards, which is to look at every 

institution relative to its unique business 

model, risk, and size and complexity.
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And so we reiterated that in the 

policy statement, and so this training is 

designed to sort of refresh examiner 

understanding of how to look at the business 

model. We've also developed a new tool this year 

to show the communities that are served by 

minority depository institutions a lot of census 

tract data and income levels, home ownership 

rates, demographics like that.

So looking at the unique business 

models. And then we have a couple of case studies 

that look at the inflow of capital, and sort of, 

you know, reminders about the safety and 

soundness standards and how to look at that.

And so, our examination materials are 

still in the final stages of review right now, 

but I like the way we're thinking about rolling 

them out, which is just in time training for the 

examiner in charge that's getting ready to go 

into that institution.

Did you want to add anything, Doreen?
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MS. EBERLEY: No, nothing to add, I 

think you covered it well. 

Okay. All right, well, thank you. 

Thank you, Gilbert and Betty, for the update.

Next up we have Mike Spencer, who is 

Associate Director of Financial Risk Management, 

the Division of Insurance and Research, and Dan 

Hoople, who's the Chief of Fund Analysis and 

Pricing. And they're going to talk about the 

amended restoration plan and deposit insurance 

assessments.

MR. SPENCER: Thank you, Doreen.

MS. EBERLEY: Thank you.

MR. SPENCER: Thank you. Sure, thank 

you. Yeah, today, Dan and I are going to speak 

to you about the statutorily mandated restoration 

plan, why we amended it last June, and the related 

increase that was just approved by the FDIC 

Board.

Last week on Tuesday, October 18, we 

presented to the Board a final rule to increase 
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deposit insurance assessment rate schedules by 2 

basis points. The increase is meant to achieve 

two policy objectives, two complementary policy 

objectives: most immediately, to restore the 

reserve ratio to the statutory minimum of 1.35 

percent by the statutory deadline of September 

30, 2028.

Additionally, the rule supports 

growth in the Deposit Insurance Fund, or DIF, to 

progress towards the long-term fund management 

goal of a two percent designated reserve ratio.

Absent any further Board action, the 

increase will remain in effect until this goal is 

met. Importantly, not only will this action by 

the Board accelerate the timeline to meet these 

objectives, it reduces the likelihood that the 

FDIC would need to consider a procyclical 

assessment rate increase, especially when banking 

and economic conditions may be less favorable 

potentially at some point in the future, given 

the uncertainties and the downside risks facing 
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the industry.

It should also increase the likelihood 

that DIF will remain positive through any 

potential future period of significant losses due 

to bank failures.

In the next few minutes I'll cover our 

underlying analysis, the scenario projections 

that we used to inform the Board in finalizing 

the rule and the expected effects on the 

industry, but I think first it makes sense to 

cover a little bit of the background and what led 

up to this point in the restoration plan.

I'm not sure of the last time we spoke 

to you about the restoration plan, I think it was 

probably when we first established it. It was 

first established during the height of the 

pandemic. On June 30, 2020, the reserve ratio 

fell below the statutory minimum of 1.35 percent 

and it stood at 1.30 percent. This was due solely 

to extraordinary growth in insured deposits in 

the first half of 2020.
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Our reserve ratio is our DIF balance 

relative to total estimated insured deposits in 

the system, so that's how you get the ratio. I 

think right now the reserve ratio stands at 1.26 

percent today, and we have 124 and a half billion 

dollars, and the DIF relative to about 9.9 

trillion dollars in insured deposits.

In that first half of 2020 we 

experienced about three years' worth of what we 

would generally expect for insured deposit growth 

in just two quarters. It really was really in a 

manner of about 16 weeks or so. And before the 

pandemic, as a reminder, the reserve ratio was at 

a high of 1.41 percent.

On September 15, 2020, the Board 

adopted a restoration plan to restore the ratio 

to the statutory minimum of 1.35 percent, and it 

was to -- within the statutory deadline. It's an 

eight year statutory deadline, and again that 

ends on September 30, 2028.

At that time the restoration plan was 
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established, the Board believed it was premature 

to modify assessment rates, so the plan to 

maintain the assessment rates schedule, that was 

in place, and required staff to monitor the 

factors that could affect the DIF, reserve ratio, 

and update analysis and projections on a semiannual basis, at least semi-annually.

Given the broad pandemic support and 

its duration, including two more subsequent --

not limited to, but including two more direct 

fiscal stimulus injections, the industry 

continued to experience strong insured deposit 

growth through 2021, and in the first half of 

2022, insured deposit balances remain 

significantly elevated.

As of the last semi-annual update we 

provided to the Board in June 2022, almost two 

years after we first established the plan, 

insured deposit growth continued to outpace 

growth in the DIF.

And our projections for the reserve 
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ratio at that time indicated that it was at risk 

of not meeting the statutory minimum by the 

deadline.

In eight quarters since the 

restoration plan has been in place, the reserve 

ratio has actually regressed, and as I said 

earlier, it's measuring 1.26 percent as of June 

30, 2022. Because of all of this, the Board 

agreed to amend the restoration plan to 

incorporate a 2 basis point increase to deposit 

insurance assessment rate schedules and 

concurrently approved a notice of proposed 

rulemaking to implement this increase.

The proposal had a 60 day comment 

period. We received 171 comments from the 

public, which we carefully considered.

Commenters mainly covered our 

analysis and projections, and a key focus was on 

assumptions that we used for insured deposit 

growth and our investment portfolio.

And I'll say a few words about these 
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two factors before going into a little bit of 

detail about our analysis and scenarios, and 

first I'll start by discussing insured deposit 

growth, which after all is the primary reason 

that the reserve ratio has declined so 

significantly over the last two years.

Now, as of the second quarter of 2022, 

while insured deposit growth has shown some signs 

of possibly normalizing, aggregate insured 

deposit balances, as I've stated, remain 

significantly elevated, especially compared to 

pre-pandemic levels.

To be clear, we estimate insured 

deposits to measure about $1 trillion or more 

than what we would have otherwise expected, if 

not for the pandemic and the pandemic response. 

Insured deposits did decline in the second 

quarter. That's not unusual, insured deposits on 

a quarterly basis can be seasonal. Insured 

deposits have declined in the second quarter for 

six out of the last nine years.
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One of the quarters that it didn't 

decline was in the second quarter of 2020, when 

the CARES Act stimulus had direct injections of 

fiscal stimulus.

Additionally, year over year insured 

deposit growth remains strong at 4.3 percent, and 

this annual growth rate is higher than either of 

the growth rates we use in our two scenarios 

underlying the final rule.

While it's possible that insured 

deposit growth may slow in the future, it's 

uncertain. Insured deposit growth can be very 

difficult to predict given the many factors that 

can affect it.

Regarding investment portfolio 

performance, commenters did assert that its 

contribution would be stronger than what we 

assumed in our projections, especially given the 

rising rate environment.

However, growth in the DIF has been 

limited by a prolonged period of low returns, and 
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recently by unrealized losses on available for 

sale securities, especially given the rapidly

rising interest rate environment.

While we agree that a higher interest 

rate environment should eventually benefit the 

DIF, the timing of that is also uncertain when 

that would materialize, and since establishment 

of the plan a net investment portfolio 

contributions to growth in the DIF has been flat 

or negative.

I should add, though, that our longer 

term projection, so that's the 2 percent 

designated reserve ratio, it does assume a 

favorable level of positive net investment 

contributions after the reserve ratio reaches 

1.35 percent.

Turning our attention to our scenarios 

briefly in support of finalizing the rule, we 

developed two scenarios that assume different 

levels of insured deposit growth, and average 

assessment rates to project when the reserve 
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ratio would meet the statutory minimum of 1.35 

percent, and then our longer term goal of 2 

percent.

The two scenarios assume insured 

deposit growth rates of 4 percent and 3.5 

percent, and assessment rates of 3.5 basis points 

and 4 basis points. And under these scenarios, 

without an increase to assessment rates, the 

statutory minimum wouldn't be met until the 

second quarter of 2034 or the fourth quarter of 

2026, respectively. So either very well beyond 

the statutory deadline, or very late within the 

eight year period.

Each scenario is based on current and 

historical data, and to reiterate, the annual 

growth rate of 4.3 percent in insured deposits is 

below the annual -- the growth rates we assume in 

these scenarios is below what we're actually 

experiencing in the insured deposit growth rate 

of 4.3 percent right now.

So, even under the more favorable 
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outcome, which is the fourth quarter of 2026, 

this assessment rate increase in the event 

timing would provide very little flexibility to 

prevent a larger procyclical assessment rate 

increase in the event there's an industry 

downturn between now and then.

Future economic and banking 

conditions could be challenged by high inflation, 

rapidly rising interest rates, slower growth, 

geopolitical uncertainty, just to name a few.

So given this timing and the 

uncertainties, when we applied a 2 basis point 

increase, it really demonstrated that this modest 

increase significantly accelerated the timeline. 

In fact, getting us there in about two years under 

each scenario, by or before the end of 2024. And 

we could possibly achieve the 2 percent goal by 

2031 rather than 2042.

Regarding the estimated effects of the 

rule on the industry, our analysis indicates that 

an annual increase of 2 basis points in the 
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assessment rate schedule would reduce tier 1 

capital by .1 percent, and would reduce annual 

industry income by an average of 1.2 percent.

For small banks, the impact is less, 

averaging about 1 percent of their annual income. 

The industry as a whole continues to report 

favorable credit quality, earnings and capital 

levels, and is well positioned to absorb this 

modest increase of 2 basis points.

And in the end, the final rule, we 

believe attempted and has successfully balanced 

several considerations, and to reiterate, 

including really the goal of reaching the 

statutory minimum sooner rather than later, and 

it should help to strengthen the fund and reduce 

the risk.

Then we would need to consider a 

potentially procyclical assessment rate increase 

in the event of a future downturn or industry 

stress before the deadline.

And that would be at a time, if we had 
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to do that when the industry would least be able 

to afford a raise in assessment rates, and it 

also improves the timeline greatly for achieving 

a 2 percent designated reserve ratio to 

strengthen the fund to withstand potential future 

banking crises.

So when does all this take effect? 

The final rule will be effective in the first 

quarterly assessment period of 2023, so that's 

January 1 to March 31, and the first payment would 

be under the new rate schedule June 30, since we 

assess in arrears and should leave enough time 

for the industry to plan for the change.

That concludes my prepared remarks. 

Thank you, and we're happy to answer any 

questions you may have.

MEMBER JOHNSON: I don't know if I 

have any questions, but we were -- last week, 

Wisconsin bankers and Illinois bankers met with 

some of your colleagues and they provided that 

information. So, thank you for being here and 
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delivering the message to us. I think we, at the 

end, we all agreed that we'd rather, you know, 

pay out now than have to pay later and in a higher 

amount when it's more painful.

I did have one question that came up 

afterwards in our discussions, and not sure it's 

really relevant, but it's a question. I'll still 

do my duties in asking it. It's about the 

insurance level.

You know, we were all glad when it 

went from 100 to 250. I mean, it was time. So, 

we're very glad to have seen that. I don't know 

if it's been of any question now or 

consideration, of course, I'd say, it probably 

will -- would be higher assessment fees, but has 

there been any talk about that anywhere about 

raising that limit?

MR. SPENCER: I don't know.

MEMBER JOHNSON: Okay.

MR. SPENCER: Not that I'm aware of, 

no.
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ACTING CHAIRMAN GRUENBERG: And that 

would require a statutory change in Congress.

MEMBER JOHNSON: Correct, correct. 

But I was just curious to see if that was in any 

discussion at all.

But, okay.

ACTING CHAIRMAN GRUENBERG: One 

additional point, if I may, on the assessment 

issue.

By an additional virtue, and there is 

a virtue to it, by reaching the minimum reserve 

ratio earlier, it then restarts the -- you know, 

there's an eight-year clock.

So, when the reserve ratio falls below 

the statutory minimum, we're required by law to 

establish a restoration plan and we have eight 

years from that point to bring the reserve ratio 

back up to the statutory minimum.

When we restore the reserve ratio to 

the statutory minimum, it restarts the clock. 

So, we get a new eight-year period to restore the 
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ratio, if necessary. 

What that means is, if we bring it 

back up to the statutory minimum of 135, we get 

a new eight-year period which, effectively, puts 

us beyond the current economic cycle for having 

to deal with the issue.

So, and, you know, the two basis 

points increase, it's a little more than one 

percent of income which, frankly, we don't think 

should have much consequence for lending or 

credit availability.

But it really gives us a much higher 

assurance of getting to the minimum ratio, 

extends the cycle, a new eight years to put us 

out of this economic cycle, and strengthens the 

fund ahead of what could be, let's call it an 

uncertain economic environment going forward.

So, on balance, there's never -- I'm 

pretty confident talking to any banker group 

that's never particularly good time to raise 

insurance premiums. But thinking about the pros 
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and cons, it made some sense to do a modest 

increase early when the industry and the economy 

is in relatively good shape and really sets us up 

so we're not going to have to impose a really 

procyclical increase, which is what happened in 

2008.

I mean, if you all recall, and Mike 

you -- I think we did an assessment increase then 

a special assessment. And then, we had to have 

a prepayment of assessments. And we really want 

it -- that's really the scenario you want to 

avoid. And I think this gives us a pretty high 

probability of doing that.

So, on balance, it seems like the 

sensible thing to do.

MR. SPENCER: And it was at a time 

when the industry I think, on balance, had a 

negative net income.

MEMBER MJARTAN: Could you talk some 

about the percentage of that growth of the 

balance sheet that's in uninsured accounts? It's 
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above 250 and how's that factored in? How does 

that play into the --

MR. SPENCER: And so --

MEMBER MJARTAN: -- and so forth, your 

outlook?

MR. SPENCER: Well, so, this is about 

insured deposits, which is a derivation of -- or 

a subset of total deposits. And that's what we 

measure the reserve ratio on. So, it's not taken

into consideration.

However, from this fund management 

perspective, from a pricing perspective, banks 

are priced on the base, so their total base.

So, if they experience a lot of growth 

in all types of deposits, we determine a rate 

based on a risk-based pricing system. And we 

have two distinct systems for small and large 

banks.

And after we get that rate, we 

multiply it by the base and that gets your initial 

base assessment rate.
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Total, we have seen a decline, 

probably a bigger outflow, right, Dan, of sort of 

wholesale deposits. I think chasing the yield, 

you know, a little bit different than a retail 

deposit. 

They have, you know, maybe a mandate, 

if I think of like a corporate treasurer or 

something like that, that's managing a wholesale 

deposit, they'll look for some yield or move 

money into a money market.

So, we have seen probably -- if we've 

seen some deposit outflow like we saw in the 

second quarter, those types of deposits have 

really been what has moved a little more quickly 

than what we've seen in insured deposits. 

They're much more sticky.

MR. HOOPLE: I would only add maybe a 

little bit of numbers to that, what Mike said is 

right. We do look at accounts above 250 uninsured 

deposits because it does give us a sense of the 

trend or deposits overall.
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Insured deposits is what drives our 

reserve ratio. But to put a couple of numbers to 

things, in the last quarter, we did see a 

quarterly deposit outflow of about 369 billion 

which was sizeable.

Most of that 282 billion was in 

accounts above 250. So, there is a lot of deposit 

outflow that's occurring, but we haven't seen as 

much of a decline in insured deposits because 

much of that has been in the larger accounts.

But it is something that we look at 

because we are interested in the trends of all 

deposits. Because it can be a signal for insured 

deposits as well.

MEMBER MJARTAN: Thank you.

MR. SPENCER: Sure.

ACTING CHAIRMAN GRUENBERG: Thanks, 

Mike. Thank you, that was very helpful.

MR. SPENCER: Thank you.

MS. EBERLEY: Okay, thank you.

We're going to now break for lunch. 
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But before we go to the seventh floor, we're going 

to go down to the lobby and take pictures. So, 

I'll ask everybody to take the elevators down to 

the lobby level. We'll take our pictures and 

then we'll go up to the seventh floor. And we'll 

come back at 1:00.

(Whereupon, the above-entitled matter 

went off the record at 11:29 a.m. and resumed at 

1:06 p.m.)

MS. EBERLEY: All right, well, welcome 

back, everybody. I hope everybody had a nice 

lunch.

Next up, we're going to spend some 

time, about an hour and ten minutes or so, talking 

about some supervisory and policy matters.

So, first up, joining me is Chris 

Finnegan from the Division of Depositor and 

Consumer Protection.

Chris is Senior Deputy Director in 

that division. And he and I are going to give 

you an update on our return to banks.
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And I'm going to kick us off. So, you 

know, as I reflect on this, I think back to March 

of 2020 and that Friday when we all learned we 

were going to be leaving the office and going on 

mandatory telework. And, you know, thinking we'd 

be out for a couple of weeks.

You know, two and a half years later, 

who would have thought, right? It was really 

just something.

But I think it's really fortunate that 

we had laid the groundwork for offsite operations 

through efforts that we really started at FDIC in 

2016. And we undertook those efforts for 

examiner retention, you know, examiner travel is 

one of the biggest reasons that we lost people 

pre-pandemic.

And so, we wanted to -- we had the 

ability to do work offsite. We wanted to expand 

that. We talked to examiners to understand what 

were some of the hurdles. Some of them are just, 

you know, really not believing that we meant it 
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when we said they could it.

And so, we updated our policies and 

procedures and talked about the types of work 

that were appropriate to be done offsite.

And we started working on some tools 

that would help us be able to work offsite more 

effectively. And through this process, by the 

end of 2019, we had really increased the 

percentage of safety and soundness exam work that 

we were completing off site.

We go back to 2016, it was about 32 

percent of our exam hours. And by year end '19, 

it was 47 percent. So, fast forward to March of 

2020, it was a 100.

And so, we operated under this 

mandatory telework until this past April. And 

that's when we moved into the second phase of our 

return to office plan. We call it RTO. And that 

was maximum telework. So, under that scenario, 

staff were permitted but not required to return 

to the office.
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And we did return to banks during that 

whole period of time when we had to. If we needed 

to go to a bank, we went. But they were pretty 

few and far between.

And I would say that, you know, 

although the mode of operations was functional 

and we were able to carry out our examination 

program through that whole period of time, it was 

not optimal.

Efficiency, we lost a tremendous 

amount of efficiency during that period of time. 

And it really was noticeable within the first 

couple of weeks of transitioning.

And it took us a lot longer to do our 

work. I noticed that when, very early on, I read 

some reports of examination. I was just curious 

to see what examiners were saying about how 

bankers were responding to the national emergency 

and how they were adjusting their operations.

And I was surprised, in every single 

report, I read about 20, it might have been 40 
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actually, but in every single one, the examiner 

said it took them much longer to complete the 

examination than they had anticipated or 

scheduled.

And so, after the first couple of 

months, that number bounced around a bit but it 

settled at about 40 percent. And so, it's taken 

us 40 percent longer to do our work throughout 

this entire period.

Anecdotally, I've heard as examiners 

have gotten back into financial institutions in 

the last, you know, what, six, seven weeks, they 

are experiencing some efficiencies and picking 

back up some of the time that we lost operating 

offsite.

I don't have any numbers to attach to 

that yet, but looking forward to seeing that.

And they certainly have been happy to 

be back in institutions and talking face to face 

with bank management. And I hope you're feeling 

the same way those of you that have had exams 
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since September 6th.

And that was when we moved to our new 

hybrid work environment which is phase three of 

our return to office plan.

So, as of that date, every safety and 

soundness exam will have an onsite component.

The new hybrid work environment 

expanded flexibilities to all FDIC staff that we 

had offered to our exam staff pre-pandemic, which 

allows folks to work from home when they didn't 

need to be at a financial institution or in the 

office.

We conducted, I mentioned, a limited 

number of in person exam activities after those 

last two and a half years. And as we've moved 

into this hybrid environment, the one thing that 

you're going to see that's really different from 

what it looked like before the pandemic, is not 

every examination team member will be at the 

bank.

So, when we think of the hybrid, we 
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will have an onsite component for every 

examination, but maybe not the whole team. The 

folks that need to be there will be there.

And as we thought about this, we 

really drew lessons learned from our work during 

the mandatory telework period through internal 

reviews that we conducted and focus groups.

And then, we also considered the 

responses that you shared with us pursuant to the 

request for information that we issued.

So, a few things that we learned and 

be eager to hear from you how they're working and 

what your thoughts are, but cameras on for 

virtual meetings, right? That was a big one. 

That was an adjustment for folks moving to 

Microsoft Teams and having to deal in that kind 

of environment and getting comfortable with it.

Developing and agreeing upon 

communication plans up front, super important 

when we're not all together. Not just between 

bank management and the exam team, but amongst 
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the exam team when they are all not working in 

the same place.

And then, adding some new technology 

to help us. And so, we're still working on some 

tweaks to how we use Microsoft Teams to make 

collaboration easier with banks.

And it's actually using Team Sites. 

Our counterparts in DCP actually were the ones 

that kicked off this project. And so, we're 

following behind and joining them.

But we do think that we can use 

Microsoft Teams more effectively for those 

examiners that are not part of the onsite 

examination team.

And also, just for collaboration and 

making sure we're keeping track of requests, not 

asking for things twice, having good 

communication, and also, working more closely 

with our state counterparts.

So, that's just a little overview of 

where we are from the safety and soundness side.
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And I'll ask Chris to give an update 

from the compliance side.

MR. FINNEGAN: Absolutely.

And good afternoon, everybody. I 

agree with the Chairman, it is nice to be back 

and see everybody. This is great.

And not only during the pandemic over 

the last two and a half, three years ago, I 

actually accepted a new position with the FDIC. 

So, I had a big change. I took this role about 

a little over a year ago. So, and I oversee the 

consumer compliance and fair lending and CRA 

issue exams.

And, you know, I can echo a lot what 

Doreen said on return to bank, you know, we've 

been going for about a month now where, after 

Labor Day, pretty much all of our exams will have 

some type of onsite presence going forward.

But, you know, what we had done --

I'll go over a little history of what we had.

We had looked at this for several 
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years, even before the pandemic about what we 

could do onsite versus offsite for a variety of 

reasons. One, being less onsite and still being 

effective, and then, from retention and a variety 

of other issues that we were looking at.

So, we, over the five years, we had 

about a 36 percent of exam hours were offsite in 

2016. And by the end of 2019, even before the 

pandemic, we were about 65 percent offsite.

So, you know, that's averages. So, 

you know, some banks would be more, some would be 

less. But we were trying to do as much as we 

could effectively and still being efficient and 

doing, you know, a solid exam with doing onsite 

versus the offsite.

So, but then, we went to a 100 percent 

offsite, as Doreen said, you know. And that was 

a challenge and we definitely appreciated the 

relationships we had with the bankers during this 

period to make this work. Because it was a 

challenging time for everybody.
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But we did learn a lot over this 

period of time, even though we were already doing 

a lot of activities offsite. But when you go to 

a 100 percent, you've got to be flexible and try 

that. Because you still had a bank to run and 

all of those kind of things.

And we needed to make sure that we 

were doing our exams the way, you know, we needed 

to do it. But at the same time, understanding 

what y'all were going through during that period 

of time.

So, we have learned a lot. What 

Doreen talked about, you know, we actually had a 

project where we put together all the lessons 

learned, similar to the cameras.

What can we do, you know, effectively 

offsite? What can we do? What needs to be 

onsite?

We got a lot of feedback during this 

period time that, it was interesting, a lot of 

bankers would tell me about, we are looking 
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forward to you coming back onsite. Now, not a 

100 percent, we don't need you there all the time, 

but, you know, come onsite because we, you know, 

we developed the relationship.

There is certain things that we need 

to do onsite, whether it be certain discussions, 

certain reviews, you know, for CRA. And we do 

CRAs, so actually being in the community and 

seeing what's going on.

So, going forward, though, was so 

after, we called it phase three, after Labor Day, 

all of our exams that start after that date will 

have some type of onsite activity. And it's going 

to depend on a variety of things.

So, we're going to look at your 

business model, risk profile, complexity, your 

ability on loan file imaging, technology 

capabilities. The, you know, whether there's 

other exams that have been going on. The ability 

to collaborate on joint activities.

So, we're going to look at a variety 
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of things to determine how much onsite we're 

going to do versus offsite. So, I think it's 

just going to depend on the risk and what we've 

seen there.

But we have learned. So, several 

things as we go through, but we're always open to 

whatever feedback, you know, to make our exams, 

you know, as effective and efficient as possible, 

but very similar to what Doreen's team is doing 

on the safety -- on the consumer compliance side.

MS. EBERLEY: So, we'd be happy to 

have any feedback you want to share or answer any 

questions.

I should add, we accept feedback at 

the very beginning of each examination, too, 

through the examination planning process.

So, you should expect your examiner in 

charge to have a conversation with you on both 

sides of the house about what's the communication 

plan for the examination, who's going to be 

onsite? When are they going to be onsite? What 
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are we going to do onsite? What are we going to 

offsite?

So, you'll have an opportunity to talk 

to them about that.

MEMBER CAMPBELL: Yes, we just 

finished an exam probably about six months ago 

and it was a safety and soundness.

And the exam, you all became very 

efficient with your process. The communication 

plan up front establishing set meeting times, 

incorporating, you know, key personnel and making 

sure, you know, that even within IT was part of 

it.

So, they had their set meeting times. 

We had our overall executive management set 

meeting times, loan review times, and I couldn't 

have been happier.

MR. FINNEGAN: Good.

MEMBER CAMPBELL: You know, I like the 

face to face, I like the camera on. You know, 

because I think that's, to me, that's the key is 
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making the personal connection. I mean, that's 

what we do as community bankers.

And so, being able to be face to face, 

I think if these were done by audio only, it would 

not have been a successful thing for us.

That being said, we're looking forward 

to, you know, having examiners -- wow, I never 

thought I'd say this -- examiners back.

(Laughter.)

MEMBER CAMPBELL: Examiners back in 

the office, because we do enjoy like building 

relationship. And I think whenever, you know, 

whenever you have that give and take, there's 

learning opportunities on both sides.

So, we've found in our most recent 

exams, we found examiners who ask questions, who 

try to understand, and I think, overall, the tone 

of the examination process is probably the best 

that I've experienced. I've been at the bank for 

31 years. But I think you all did a great job 

with the virtual.
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MS. EBERLEY: Thank you.

MEMBER REIGELSBERGER: I might add, 

too, we just had a FDIC exam this summer. I 

thought it went really well. Like you said, the 

communication decisions up front and how we're 

going to get to, you know, how we're going to get 

2R scanned, and imaged credit files, such as 

that.

I really appreciate the amount of time 

that's given us to get these documents uploaded. 

It was at least six weeks and we needed every 

single bit of that. Because there's only five or 

six of us that work on that and you worked that 

in when you got a little spare time.

Now, there was a lot of information, 

page after page after page, but we got it done. 

And I think that was probably helpful on the exam 

side. We really had very little times where 

somebody said, well did you --

Because sometimes the same document 

might be needed for a couple of different views. 
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And I don't -- I mean, we might have had that 

once, but I mean, I feel like some point that's 

to be expected.

But I think what I looked for, that 

little bit of hybrid that you're talking about, 

sometimes when they're sitting in your office and 

you have conversations about something which can 

lead to another conversation that you wanted to 

have, and you push leads. And you kind of have 

a good round about different topics, not just the 

one.

Whereas, on a phone call or even the 

Teams meetings, you address what is on the 

agenda, what's the list. I want to get back to 

work now. You don't swing around and talk about 

other things that kind of is in the back of your 

mind, but maybe isn't a priority.

But if you're sitting right here and 

you're having a discussion, I always felt like we 

kind of missed out on that.

So, and the connection, like you said 
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with your local examiners, I have a lot of respect 

for them. They've always been very common 

sensed, you know, very sound. And so, I always 

respect their opinions.

And I feel like having that little bit 

of a hybrid where we can get stuff and shoot it 

to them so we're not invaded. But on the other 

hand, have a little bit of face to face, just for 

those conversations. It's kind of what I've 

seen.

MR. FINNEGAN: Yes, agree. Agree 

completely.

MEMBER LOWRY: I'd like to mention 

also, I really am in favor of the hybrid model.

We are always a training bank, pretty 

simple operation and all that. So, we end up 

being a training bank.

And there's been times in the past 

where physically, we're strained to have the 

number of examiners. I mean, we're $350 million 

bank and we'd have 16 examiners onsite, which is 
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difficult to accommodate physically and IT 

resources and all those kinds of things. So, I 

think the hybrid is great.

We had our -- we had an exam right 

after this stay at home, work at home thing came 

in to about. And it worked out, but it was a 

little bit of a rough start. We were trying to 

figure out the communication piece and all that.

And we've had, I don't know, three 

since and that's been fantastic. But those premeetings that you had talked about where we get 

together and establish just expectations, I mean, 

we just set calendar meeting times every day 

here’s the people that are going to be in it.

And sometimes, it was very quick and 

sometimes, you had to, you know, delve into 

things a little bit.

But so, I think the hybrid is really 

where we need to be.

MR. FINNEGAN: Yes, that's good 

feedback. We had heard that, the feedback on 
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setting up those meetings. Because, you know, 

calling out of the blue, you know, and all that. 

And then, actually having a good communication 

strategy, it seemed to work out well.

We, over a period of time, we learned 

that for sure.

MEMBER LOWRY: I would also add, 

though, there's a huge benefit to, like Kim 

talked about, of having an examiner there. 

Because the piece that you missed was the aside 

conversations, you know, that the discussion in 

the break room when you're talking about just 

life or, you know, current events or whatever.

And then, it would lead into something 

that's not necessarily specific to the exam, but 

got really good discussion feedback.

And that's where those relationships 

get built. And we had talked about that at lunch 

a little bit today with Chairman Gruenberg of --

I feel like the last four or five 

years, the FDIC has been much more interested in 
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developing relationships with bankers than prior 

to that time. And I think it's huge to do that.

MEMBER MJARTAN: Doreen, if I can add 

just a couple points.

I want to commend you and your team 

during the pandemic, too, not just the 

examination process and how supportive you were, 

but also recognizing the work we're doing in the 

community.

So, everything from doing initial 

deferrals then the PPP loans. So, you know, we 

did 1,300 PPP loans out of our bank at 500 loans 

on our books when the pandemic started. So, we 

were really stressed.

And I think your team did a fantastic 

job just recognizing that. I don't think they 

cut any corners. I felt the pain, but they were 

very helpful and understanding and so that was 

one point.

And so, you know, we're on a -- that 

18-month cycle, so we had two experiences.
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And I also want to make sure that I 

share some of the feedback, the technology piece 

was really critical. So, we had laptops with VPN 

ready. We ordered a bunch of them in advance. 

So, having that advanced conversation, that 

allowed us to staff up, too, in terms of 

technology.

The cadence, having regular meetings, 

but also, I don't think it would have changed the 

outcome of our exam in any material way, but the 

one that we were much more sort of distant, there 

was a lot more friction because those examiners 

were not onsite.

We missed a lot of communication. And 

we eventually caught it up, but it was a lot of 

unnecessary friction, in my observation.

So, I do appreciate you bringing the 

team back onsite and I think that should be more 

so than less so, in observation.

Because it -- actually, on a smaller 

bank, when I started, at my current bank, we had 
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12 employees and we had 17 examiners onsite on 

one exam. But it still was a lot smoother than 

if we had done it remotely fully. It just -- the 

communications was much better.

So, I just want to encourage you and 

appreciate what you've done in making those 

transitions, but also, I want to make sure that 

the hybrid, in our experience, it should be more 

so onsite and in person than just kind of shifting 

it off to the Zoom or Teams meetings.

MS. EBERLEY: We're going to try to 

strike the right balance.

MEMBER JOHNSON: It sounds like you do 

have a good balance, though, on your plan. That 

sounds very good because I would be the outlier 

all the time saying, you know, offsite, that's 

fine with me as long as we communication, right, 

in circumstances.

But hybrid would be welcome, very 

welcomed. So, I agree with what's been said.

A couple things I'd want to put out 
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just talk about, is exchange of information and 

how we handle that.

I'm all for the efficiency and 

effectiveness for both of us and how that works. 

So, we've talked a little bit about five, we were 

a beta right away. I signed us up and then I 

asked my staff later for permission. Is that 

okay? We'll figure it out?

It needs some work if it's going to go 

forward. So, I encourage anybody involvement and 

getting some other people involved in this. So, 

if you would correspond back with any of us about 

how that's working, I think it's great.

And FDIC connect, it's come a long 

ways and we're so glad. I think it works great. 

Anything -- I haven't filled ombudsman report 

out, but I will because it's positive things and 

they need to put that in there.

Even when we file things in there, I 

do ask examiners a follow up. But, you know, 

it's over and they need to move on to other 
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things. So, it's kind of things maybe get 

shuffled, maybe, yes, yes, that works well, it's 

fine.

How do you use more detail, want to 

put them in folders? We don't get any description 

of that. But if they want to, anymore detail of 

instructions of how to file some things easier 

for you to find and vice versa.

So, I'm all in favor of working 

together on that.

And the State of Illinois tried to 

find their, you know, own system, unsuccessful. 

So, obviously, I don't know if all the states are 

using FDIC Connect, but thank you. I don't know 

how -- who said what and agreed, but thank you 

because they scrambled.

They were going to come back to this 

in onsite. I hope that's not all true because I 

know there's a huge savings as well. And 

retaining people. And we've lost a lot of 

expertise in there.
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We've had a lot of good examiners that 

I've known. We've had some come back and 

consultants, so, I was glad to see some of those, 

very welcome to that.

But, you know, a savings and somehow, 

the State of Illinois I think needs some monies, 

so, we're hoping they form some type of hybrid 

and maybe suggest they reach out to you to find 

out what they're doing. I'm sure you'd be in 

communication with them.

But so, thank you.

MS. EBERLEY: Thank you. We do 

continue to work on five making it more scalable. 

It's still about 50 percent of banks that image 

loan files, so it's not the whole industry.

MEMBER JOHNSON: Right.

MS. EBERLEY: And what we've learned 

through our work over the last five years as we 

went down this path is that the imaged -- the 

industry that does loan imaging is pretty 

fragmented. 
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And so, for us to scale, we've got to 

work with a lot of parties.

MEMBER JOHNSON: Which a core could 

come out of this.

MS. EBERLEY: We're still heading down 

that path and I appreciate that and we've got 

some automation to help make it a little easier 

as well.

MEMBER JOHNSON: Anything we can do.

MS. EBERLEY: Thank you.

MEMBER WHARTON: Mr. Finnegan, for the 

consumer compliance exam, speaking from personal 

experience, ours was May of 2020, so very early 

into the COVID response. And two things that 

happened with us, first, being, scoping became a 

word that everyone of us lived and breathed.

And from our perspective, the 

challenge was our exam was to be I believe June 

3rd, but under the auspice of scoping, we were 

basically going to an exam for four weeks prior 

to June 3rd. And I had three people that tracked 
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their hours, and it was in excess of 120 hours 

that they devoted.

So, just going back to best practices, 

my first question is, has that been addressed and 

how will we approach that in the future?

MR. FINNEGAN: Yeah, it's a great 

question. Thanks, John.

Yeah, that, the pre-exam process is 

something that we've evolved over the years with 

the idea that we could -- I mean, we'll look at 

the risk of the institution. So we gather that 

information so that our exams are totally focused 

on what we think is the highest risk, you know, 

at that institution.

And that's why, that's how it was

designed, to gather information up front, look at 

it. And then the scope that you're talking about 

is where the examiner will look at it and say 

these are the highest risks, this is what this 

exam is going to focus in on for consumer 

protection, whether it be, you know, mortgage 
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loans or car loans or whatever it is, you know, 

fair lending, you know, what are we going to look 

at.

But we have heard the feedback on the 

amount of time it takes during the, we call it 

the pre-exam planning, PEP process is what we 

call it, and about the amount of materials that 

we request during the PEP or PEP system, and then 

using that information and making sure that we're 

not asking for more than what we need in order 

to, you know, evaluate the risk of the bank.

We do, you know, after every exam, 

there is that feedback. And we do get feedback 

that our examiners are asking for a lot of 

information, and, you know, is there a way to, 

you know, to cut it back, and are you really 

needing all of this information.

So this is something that we're 

regularly looking at, you know, our process where 

it's always going to be risk scoped, because 

we're just not going to go in and look at 
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everything. You don't want us to do that. So 

it's going to be a risk scoped process. But we

were regularly looking at the questions that we 

ask, that process, and is there a way that we can 

make that more efficient.

So your point is well taken. This is 

something that we discuss with our examiners, 

look, you get the information you need, but 

don't, you know, don't just ask, you shouldn't be 

asking for everything. It's supposed to be risk 

scoped based on -- we do an interview up front. 

And then that is supposed to dictate what we ask 

for from the banks.

So it's a regular training issue that 

we do. But we're also looking at that process, 

too, of the questions that we have, because 

there's a bank of questions that we have and do 

we need to be, you know, asking all these type of 

questions and all that.

So your, yeah, to answer your 

question, this is something we regularly look at 
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to try to make it as efficient as possible. But 

the whole point is to look at that so that the 

onsite is really only focusing on the highest 

risk. That's why we do it.

But we are looking at that PEP process 

just to make sure that it's as efficient as they 

can, while still doing what we need to do as far 

as the exam goes.

MEMBER WHARTON: Got you. Second 

question was --

MR. FINNEGAN: Yeah, sure.

MEMBER WHARTON: -- it sounds like 

you've addressed this. But with the FDICconnect, 

same situation, we had downloaded, you know, 

immeasurable amounts of information, and then we 

started getting calls and said, hey, can you just 

send that to me directly --

MR. FINNEGAN: Yeah.

MEMBER WHARTON: -- via encrypted. 

And again, it was May of 2020. A lot has changed 

since then. So we're like, well, wait a minute, 
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it was in FDICconnect. Well, can you just send 

it to me?

MR. FINNEGAN: Yeah.

MEMBER WHARTON: And that happened 

over and over and over. Has that been addressed?

MR. FINNEGAN: Yeah, we got that 

feedback too. And the answer is yes. I can't 

promise you that that won't happen.

But we do remind our examiners 

regularly that we have an official process that 

we go through to get the documents, and again, 

don't ask for more than what you need to do the 

risk scoping of the exam, but use the documents 

that you get.

And now, sometimes they may, you know, 

something may, they may not find it or whatever, 

and they'll ask. But --

MEMBER WHARTON: Sure.

MR. FINNEGAN: -- they are supposed to 

be going through that system versus trying, 

because, one, security. We want to make sure 
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that that information is secure. But this --

what I've learned in this role is this is a 

nationwide organization. We've got examiners all 

over. But we regularly talk about that very 

thing, so yes.

MEMBER WHARTON: Thank you.

MR. FINNEGAN: Yeah.

MS. EBERLEY: It is EFX now, yeah.

MR. FINNEGAN: Yeah, EFX. But FDIC 

could -- it goes way back, so yes.

MEMBER JAMES: Doreen, Chris, thank 

you. Thank you for the presentation and the 

information.

I want to echo the encouragement of 

going with the hybrid model, because it -- and it 

is a balance that you've got to strike, because 

we've got, you know, a very small staff at our 

local bank in Savannah, you know, less than 20 

people. And we have had times when we've had 

examiners fill up the whole parking lot, you 

know, and customers can't get in. And so having 
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that hybrid approach is I think going to be 

helpful.

And, you know, to the degree that we 

can focus the in-person examiners on the highest 

risk items, I think that makes sense, because 

there is that sort of natural conversation that 

can be beneficial. But then there's also that 

conversation that can start going down a rabbit 

hole. And, you know, the conversation can start

in one point, and then you go down a rabbit hole 

and it starts opening up cans of worms that --

you know, I'm mixing metaphors here. But you get 

my point.

(Laughter.)

MEMBER JAMES: I do wonder -- and I 

also want to just thank both of your teams for 

being very flexible with our team. We had a joint 

safety and soundness with the State of Georgia 

and a compliance, a consumer compliance and CRA 

that were all overlapping in the first quarter.

And so I know that there were some 
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patience that was shown on the CRA portion 

because we were so busy doing consumer compliance 

and doing safety and soundness. So we got some 

extra time to respond, which was really, really 

helpful and allowed us to be more, you know, 

complete in our responses on the CRA than we might 

have had we had to rush and do everything all at 

the same time.

How do you decide what elements of the 

exam are going to be in-person versus hybrid? 

And how are you all making those determinations?

MS. EBERLEY: The examiner in charge 

is going to make that determination working with 

their supervisor. And that's in the pre-exam 

planning process.

And so the first thing that the EIC 

will do is consider where's the information, you 

know. So a key question is does the institution 

image or not. If an institution doesn't image, 

we're going to do loan review onsite. If they do 

image, we can do the loan review piece where we're 
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not interacting and we're just reading files 

offsite.

But we do have in our manual of 

examination policies, which is on fdic.gov, 

listings of the types of activities that we would 

expect examiners to do offsite. And that's 

basically when they're reading, right, when 

they're not interacting with you.

When they're interacting with you, 

where they're transaction testing against 

systems, that will be onsite. Management 

discussions will be onsite. Those are the 

important things.

So they'll develop their plan. And 

it's based on the business model, risk profile, 

and complexity of the institution. So those are 

the things that they're considering.

They'll be having conversations with 

you before they ever step foot in the bank. 

They'll develop their plan for what procedures 

need to be completed in order to evaluate the 
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risk profile, business model, and complexity of 

the institution.

And they'll also have to take into 

account training. So they start with the risk 

focused process. There may be things we have to 

add on for training purposes.

And then we'll decide, they'll make 

the decision with their supervisor who's going to 

be onsite, who's going to be offsite based on the 

functions that those folks will be working on, 

the procedures they'll be working on.

MEMBER JAMES: Thank you.

MS. EBERLEY: Okay. Well, we can move 

on to our next topic, which Chris is going to 

stay up here and handle. So he's going to talk 

about our supervisory guidance on multiple representment NSF fees that was issued in August of 

2022. And then he is also going to discuss fees 

associated with authorize positive/settle 

negative transactions.

MR. FINNEGAN: Okay. I think we have 
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a couple of slides that we brought up. And I 

think when I met with you all last time, you know, 

through Teams we talked a little bit about representments and, you know, where we were with 

that.

So I thought I would update you, you 

know, on some things that have happened since we 

met last. And, you know, this issue has been out 

there for a while and some things that we've 

adjusted on, as far as our exams.

But, you know, we've talked about --

you know, I think everybody is aware of what a 

re-presented transaction is, is where, you know, 

it's an item that comes in, and, you know, the 

customer, you know, doesn't have enough funds to 

cover it. And they'll get charged an NSF fee, 

which, you know, we've seen that where it's being 

disclosed where they get charged the NSF fee.

But what would happen is is that item 

will get re-presented by the merchant, right. 

And so that's what we're talking about here when 
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I talk about re-presented transactions.

And what had come up was, you know, it 

was coming up from our exams. I had noticed that 

in several instances where the disclosure we did 

not think was adequate to disclose to the 

customer, that re-presented fee would have been 

disclosed to the customer. So that's the fee. 

We're not talking about that first fee. It's on 

that re-presented transaction where a fee was 

being charged.

And, you know, this is kind of 

blanketing, but we saw a lot of disclosures where 

it was not being disclosed adequately. And we 

had a conclusion that in certain instances that 

it would be considered deceptive, because 

basically it was not being disclosed adequately 

to the customer.

So we started seeing this. And it 

was, you know, at several institutions where we 

saw it. And we were hearing, you know, from our 

examiners, as well as from the banks, about this 
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being brought up at a lot of exams and, you know, 

a lot of concern about us doing this. And, you 

know, and the process that we were going through 

in order to, you know, to cite, one, you know, 

citing the violation, you know, unfair or 

deceptive act of practices, you know, is a 

difficult, you know, violation to hear. And we 

recognize that.

But, you know, we did think there was 

consumer harm going on. And we did, you know, we 

have had instances where we have found it to be 

deceptive. We have not had any instances where 

it's unfair. But we have had where it's 

deceptive.

But based on the feedback that we were 

getting, we had mentioned this originally in our 

supervisory highlights journal from earlier this 

year, in March of this year, because we started 

seeing this in 2021. And so our supervisory 

highlights basically highlights what we saw in 

2021. So we mentioned it there.
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But we were getting feedback that, you 

know, a lot of banks didn't realize this was an 

issue. And we need to do something more.

So we issued our FIL, you know, our 

Financial Institution Letter, back in August 

where we put more information in there about, you 

know, the concern that we had with the, with this 

fee and not being disclosed and then some 

mitigation factors that, you know, banks could do 

in order to address that. So that's why, you 

know, we issued this FIL back in August.

So there's a lot of good information 

in there, which we think about, you know, how to 

mitigate the issue where, you know, you can

decline the charge when there's more than one NSF 

fee for the same transaction, eliminating the NSF 

fees, and then making sure you're providing the 

clear and conspicuous disclosure that explains 

the amount of the NSF fee.

We also put in there, though -- you 

know, we've had a longstanding process here. You 
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know, it's in our compliance examiner manual, 

that self-identifying, you know, banks that selfidentify and self-correct issues, you know, we, 

as long as it's, you know, you self-identified, 

you fixed it, we will not, you know, it's not 

part of something that we would cite as part of 

an exam. So we did a reminder in this FIL about 

doing that.

You know, so we've also heard, you 

know, about some of the difficulty of identifying 

the transactions, because when we talk about full 

corrective action when we believe that there's a 

deceptive practice, it's not only correcting the 

disclosure, but it's also making restitution to 

the harmed individuals, which we did think there 

was consumer harm here.

You know, we've met with a lot of 

different trade associations. We've met with a 

lot of different groups to getting feedback, you 

know, on the process that we've got going.

So we did, you know, put in here some 
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flexibility on the restitution. It's in this FIL 

about how banks can go about correcting this 

issue so that hopefully when the exam comes up 

this would not be a violation going forward. I 

mean, that's the idea of one of the reasons why 

we put the FIL out.

You know, there's a few other 

processes that we're doing. You know, we're 

meeting with different groups. We do understand 

the difficulty with the core providers of 

identifying these transactions. So we've had 

meetings with some of the core providers. And 

we're planning on doing some more meetings with 

that to help the institutions be able to identify 

these transactions as part of this process.

So there's been a lot of kind of 

activity with this since we were here last on it. 

But the big was I wanted to point out was that we 

had the FIL that came out.

There's a lot of different -- we 

talked about the risk. We talked about some of 
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the risk, the mitigating practices and a good 

reminder about that we won't cite the violation 

if it's self-identified and corrected, which 

includes that restitution piece in there.

So that's the highlights of the representments. Any questions?

MEMBER WHARTON: It's really helpful. 

Thank you.

MR. FINNEGAN: All right. Thanks, 

John. All right. And so the next thing then I 

will mention is the, as Doreen mentioned, said 

that I was going to talk about was on the issue 

called the authorize positive/settle negative.

And this is an overdraft issue that, 

you know, that's been around a while. So we're 

going to just highlight it again today that you'd 

want to go back and see how your bank is 

processing these transactions.

But basically what that is is a 

transaction, which a bank assesses an overdraft 

fee based on insufficient funds at the time of 
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settlement even though the customer has 

sufficient funds available when the consumer 

entered into the transaction. This is elevated 

when the bank utilizes an available balance 

method to assess overdraft fees as opposed to the 

ledger balance.

And we found it difficult for 

consumers to understand the balance in their 

account, especially when there were pending 

transactions and authorization holds.

And I mentioned this has been around 

a little bit. We put this in that supervisory 

highlights that I mentioned from March of 2022 

where we talked about re-presentments. This was 

in our June 2019 supervisory highlights. So I 

wanted to bring that up today. You know, the 

CFPB had a recent case of a large institution 

where this issue had come up.

So, again, we wanted to make sure our 

banks are aware of the risk associated with this 

and make sure you understand, you know, how your 
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system is set up to do these type of transactions, 

because this could be potentially a UDAP 

violation as well. So okay. So any -- all right.

MS. EBERLEY: Okay. Well, thank you, 

Chris.

So next up we're going to be joined by 

a senior attorney, Rhonda Campbell, from our 

Legal Division and Jonathan Miller, who is Deputy 

Director for Policy in our Division of Depositor 

and Consumer Protection.

Rhonda is going to share with you 

about a final rule we issued in May relating to 

misrepresentations about insured status. And 

she'll also cover the FDIC portal for submitting 

complaints about suspected misrepresentations 

regarding deposit insurance. And then Jonathan 

will talk to our, talk about our request for 

information relating to advertising and FDIC 

logos. Thanks, Rhonda.

MS. CAMPBELL: Hi. My glasses are 

fogging up. I might as well take that off.
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Good afternoon. Again, I'm Rhonda 

Campbell. I'm in the Consumer Enforcement Unit 

of the Legal Division of the FDIC.

This is slide 9. The FDIA Act 

prohibits, one, the use of the FDIC name or logo 

or any terms or symbols that imply that an 

uninsured product is insured and, two, knowingly 

making misrepresentations with respect to the 

extent or manner of deposit insurance. Next 

slide.

In recent years and actually in this 

year alone, the misuse of the FDIC logo and 

misrepresentations of deposit insurance by thirdparty financial services providers or other 

entities or individuals has increased 

dramatically. And this increase has highlighted

the need for further clarification and of further 

clarification of the statutory and regulatory 

prohibitions against misuse and 

misrepresentations under Section 18 of the FDIA.

And to address this issue, in May of 
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this year, the FDIC issued a new rule, which 

became effective I believe July of this year, 

July 5th of this year. And the final rule 

provides transparency into FDIC's procedures and 

standards for identifying, investigating, and 

evaluating misuse and misreps, and if 

appropriate, allows the FDIC to take action to 

address misuse and misrepresentation of deposit 

insurance.

Of note, the final rule does require 

non-insured entities that advertise deposit 

insurance to identify the insured depository 

institution, meaning the bank, that will provide 

deposit insurance. Next slide.

Types of deposit insurance 

misrepresentations that we have seen, we've seen 

fraud or hopes websites that are generally used 

to garner consumer information. Then there are 

the non-banks that are stating or implying that 

the non-bank entity is FDIC insured or that their 

product that they're promoting or advertising is 
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insured. We've also seen entities implying DI, 

deposit insurance, will apply if the non-DI 

fails. And that's not so.

Other types that we've seen are 

entities that advertise insured products 

alongside non-insured products on the same 

consumer facing website pages. This causes 

confusion. And it also elevates consumer risk 

and may call into question the safety of deposit 

insurance. Next slide, please.

As part of the new final rule, the 

FDIC launched a new consumer portal that the, 

that's on the FDIC, I think it's called the 

support and information website. And I think 

it's up, yes, it's up there.

This portal allows consumers to report 

potential deposit insurance misreps. They can do 

it anonymously or they can give us their 

information, and that will garner a response from 

us.

Since launching this portal, we have 
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submissions of over 300. And indeed, as of last 

week, in a meeting I was told that the submissions 

are about ten a day. We have also sent six public 

cease and desist letters related to potential 

misrepresentations. And we continue to evaluate 

the submissions daily. Next slide, please.

And this is just the screen of 

additional resources of information about deposit 

insurance that are quite useful. Thank you. If 

you have any questions, I'm happy to answer.

MR. MILLER: My name is Jonathan 

Miller. Excuse me. I work in the Division of 

Depositor and Consumer Protection in Policy and 

Research. And I'm going to -- is this on? And 

I'm going to talk a little bit about some work 

we're doing on official, our official sign and 

advertising rules and what we're thinking about 

in terms of updating.

So, and this really follows directly 

from the misrepresentation discussion that you 

just heard from Rhonda. I just have to say, by 
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the way, you've got us surrounded up --

(Laughter.)

MR. MILLER: So, on February 26, 2020, 

we published our initial request for information, 

or RFI, on, requesting comment on modernization 

of our signage and advertising rules. I think, 

of course, in March 2020 we had some other events, 

and people got a little distracted, including us. 

So we reissued that RFI on April 9, 2021.

Our goal is to gather feedback or was 

to gather feedback regarding how we might reform 

our rules to keep pace with how today's banks 

offer deposit products and services and how 

consumers connect with banks, including through 

evolving channels, such as online and, in 

particular, mobile apps. I'll talk a little bit 

more about that in a second.

We received 20 comments from trade 

associations, insured depositories, and others. 

We also reached out and conducted nine 

stakeholder meetings with banks, with technology 
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service providers, with consumer groups, and 

others through informal discussions just to 

gather additional information.

I would say commenters, all the 

stakeholders that we spoke to universally 

recognized the need for updating the sign and 

advertising requirements for the FDIC in response 

to the changes and industry practices and the 

increasingly significant role played by digital 

and mobile banking.

Commenters also indicated that 

consumers assume that products that are offered 

through banks are insured and emphasize the role 

of third parties in offering uninsured products 

and the importance of enabling consumers to 

identify and distinguish uninsured from insured 

products.

This is an important point worth 

underscoring. We want to help ensure that 

customers are not confused about what products 

are insured and what products are not insured. 
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And we see customer confusion as a serious 

potential risk. As you can imagine, this is a 

problem, the solution to which is becoming more 

challenging.

Just yesterday we released our 2021 

national survey of unbanked and underbanked 

households, which I commend to you. It's got --

I mean, we do it with the Census -- it's a huge 

survey, and there's a lot of terrific data in 

there.

One of the data points particularly 

worth underscoring in this context is that it 

shows now that mobile banking is the primary 

method of account access for the largest number 

of people. And I'll just give you a sense of 

that.

In our 2017 survey, 15.1 percent of 

banked individuals, individuals with bank 

accounts, said their primary way of accessing 

their account was mobile. That's 15.1 percent, 

2017. It more than doubled to 34 percent in 2019. 
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And in the data we released yesterday from 2021, 

it's now 43.5 percent. So almost half of all 

banked customers use mobile as their primary 

access point.

Now, I would be remiss if I didn't 

also say that even people who use mobile as a 

primary access point continue to use branches. 

And that is regardless of race, ethnicity, and 

even age actually.

I was surprised as a, as somebody in 

the 65 years or more category, I was surprised to 

see that even folks in the 24 years old category, 

almost 60 percent will visit a bank branch at 

least once a year. So branches still play an 

important role.

But the really huge jump in mobile as 

a primary access point really is why we're paying 

so much attention to how we can take and update 

our advertising, our official sign and 

advertising regulations to just a completely new 

environment.
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The last time we updated these rules 

was 2006. And, you know, this data for just the 

four past years indicates what a different world 

we're living in and why this is so important. So 

we're considering next steps. And we look 

forward to a lot more public engagement on this 

issue. Thank you.

MS. EBERLEY: Questions or comments 

for Rhonda or Jonathan?

MEMBER JAMES: Thank you very much for 

the information.

So there's obviously been a 

proliferation over the last five years or so of 

neobanks, these fintech companies that are 

advertising, you know, basically full scale 

banking services to consumers and even small 

businesses. Some of them, many of them actually, 

you know, purport to pursue the unbanked or the 

underbanked and to use these apps as a way of 

getting, you know, deepening access.

What's the approach of the FDIC when 
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one of those companies comes out and says that 

they're a bank but they're not really? I mean, 

you know, is there sort of a bright line, or are 

you looking to see if someplace buried on their 

website is some disclosure about the bank that, 

where the deposits really sit, or, you know, 

what's the process for those companies that 

purport to be a bank but aren't?

MS. CAMPBELL: Well, I don't think 

that there's a process. But I do say that we 

have resources, and we hope to get out that 

information to consumers. One of the sources is 

BankFind, where you can go, any consumer can go 

and determine whether that is actually an FDIC 

insured depository institution or whether it's a 

fintech or whatever it might be. But I don't 

know if there's an approach.

We get the information about whether 

a misrepresentation is being made unfortunately. 

And then at that time, that's when we act, if 

that helps.
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MEMBER JAMES: It does help. Thank 

you.

MS. EBERLEY: I might just add that 

many state chartering authorities have rules 

about the use of the term bank. And so that will, 

you'll see that happen first where the state 

authorities will say you're not licensed as a 

bank in this state, you may not use that in your 

name or advertising. But that's separate from 

the deposit insurance piece.

ACTING CHAIRMAN GRUENBERG: Just to 

make the point, it is against the law to 

misrepresent that you're providing FDIC insured 

deposits if you are not. And if you do, we will 

take action as we have in a number of cases. 

In those instances thus far this year, 

we've sent letters demanding that the company 

cease and desist and indicating that if they 

don't comply with the request, we have additional 

authority so we can utilize in that regard. 

So it is something. We care about 
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everything but misrepresentation of FDIC 

insurance, the FDIC logo, is something we take 

particularly personally because it goes to the 

core credibility and confidence in the FDIC which 

is really the foundation of what we do. When a 

company engages in misrepresentation, it really 

undermines the public's confidence in the banking 

system. And that’s really a core fundamental 

issue for us.

MR. MILLER: Just to address the 

premise of the question a little bit as well, so 

you do see a lot of these third-party think tank 

types talking about service to the unbanked or 

under-served and so forth.

I think skepticism is the best 

approach to that. Again, I would commend the 

survey that was just released yesterday. One of 

the main reasons that the unbanked rate dropped, 

and it dropped pretty well and pretty 

significantly in the last two years from 2019 to 

2021 from 5.4 to 4.5 percent -- that's almost two 
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million more people with bank accounts. One of 

the reasons that it did is the emergency payments 

that they got from the government.

When people have money, they want to 

go to a bank and put it in a bank because they 

understand that's where it's the safest and 

they've got deposit insurance there. And so I 

still think -- and we at the FDIC take the view 

that is the very first step on a ladder of 

economic opportunity so we work very hard to get 

people into bank accounts, into insured 

depository institutions. That, to us, is the key 

to economic inclusion.

ACTING CHAIRMAN GRUENBERG: And it's 

probably worth that we talked about the thirdparty relationships, but it's probably worth 

mentioning that if a bank has a relationship with 

a third party, the bank does have an obligation 

to exercise due diligence in regard to that 

relationship. And if the third party is engaging 

in some kind of misrepresentation, the bank does 
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have an affirmative obligation to monitor that 

and make us aware of that if it comes to their 

attention. 

That is part of what goes along with 

having a third-party relationship, particularly 

if that third party is in some way providing 

services for the bank and may be in a position to 

make representations that may or may not be 

accurate. And it’s something we all, I think, 

have to be very careful about.

MEMBER MAUST: I just wanted to thank 

the FDIC for taking a pretty active stance in 

enforcement. I think it's really important to 

the public confidence comment and objective to 

make sure that those that do not provide FDIC 

insurance cannot say that they do. 

Particularly, they tend to be the 

firms that are most at risk of bankruptcy, 

failure, and those individuals become unsecured 

creditors to those organizations. And that’s 

completely untenable whether it's consumer 
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protection or it's just confidence in the 

financial system itself which, of course, by 

extension, it impacts the economy. So, thank you

for taking that active stance this year.

MS. EBERLEY: Okay. Thank you Rhonda 

and Jonathan.

MS. CAMPBELL: Thank you all.

MS. EBERLEY: We will move onto our 

final segment in this section which is Tom Lyons, 

Associate Director of Risk Management Policy in 

the Division of Risk Management Supervision. And 

Tom is going to discuss the proposed policy 

statement on prudent commercial real estate loan 

accommodations and workouts.

Thanks, Tom.

MR. LYONS: Thanks, Doreen.

Thank you everybody. It's good to be 

here to speak with you today. Appreciate you 

being here. 

As a little bit of background, the 

banking agencies along with the NCUA and the OTS 
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in consultation with the state liaison committee 

back in 2009 had issued the policy statement on 

CRE loan workouts. It's provided as a useful 

resource for both the institutions as well as our 

examiners when we are understanding risk 

management and the accounting practices for CRE 

workouts.

As we were thinking about that from 

that time to now, there is currently about 98 

percent of all institutions have CRE lending and 

engage in this. It's the largest portfolio type 

for roughly almost half of those institutions.

In 2020 the pandemic led to stress 

across a variety of CRE types including 

hospitality, office, retail, and entertainment 

sectors. These other sectors -- these and other 

CRE sectors may be more vulnerable to pressure 

from rising rates and inflationary pressures. 

So a bunch of challenges have arisen 

during the pandemic including inflation, supply 

chain imbalances, labor challenges, 
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vulnerability to rates, rate increases. These 

adversely impact the financial condition and 

repayment capacity for these borrowers.

On August 2nd the FDIC, along with the 

OCC, the NCUA in consultation with the state 

regulators for banks and credit unions, published 

for comment the proposed CRE workout and 

accommodations statements to address these issues 

and to update a lot of things since then. 

The Federal Reserve wasn't able to 

join us at that time. They had some challenges 

because their vice chair was in the process of 

getting confirmed so they published on September 

15th. 

The comment period for the FDIC's 

issuance did expire, or ended, on October 3rd but 

the Federal Reserve is open until November 14th 

so still an opportunity to provide comments if 

you'd like to do so.

So the statement updates and expanse 

on the 2009 policy statements on CRE workouts 
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particularly included a new section on short-term 

loan accommodations as financial institutions may 

benefit from a proposed statements inclusion of 

discussion on the short-term accommodations and 

workout arrangements that may be applicable to 

CRE. 

There's a lot of statements at the 

beginning of the pandemic that we had issued to 

help institutions with understanding and enacting

accommodations and modifications in a prudent and 

safe and sound manner so we brought those 

principles into this document.

There's also a lot of accounting 

changes that have happened since 2009 so the 

document was to update for all those accounting 

changes and to reflect the changes that are 

coming along with CECL enactment so those things 

have also been built into the proposal.

Revisions and additions to the 

examples. There's a whole host of examples of 

how examiners will be looking at various 
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scenarios and different products, CRE types when 

it comes to accounting treatment, classification 

treatment, reporting treatment.

We added three new examples; one for 

multi-family and how we would be looking at that; 

for residential construction as well; and incomeproducing hotels, hospitality. So those are 

three areas that we built into the examples that 

were already existing.

So on a new slide there are some key 

principles that were retained in the 2009. The 

financial institutions that implement prudent CRE 

accommodations and workout arrangements after 

performing a comprehensive review of the

borrower's financial condition will not be 

subject to criticism for engaging in these 

efforts, even if these arrangements result in 

modified loans that have weaknesses that they may 

still meet the adverse classification 

definitions.

Also, that modified loans to borrowers 
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who have the ability to repay their debts 

according to reasonable terms will not be subject 

to adverse classification solely because the 

value of collateral decreases.

In response to the request for 

comment, we'll go the next slide. Agencies 

received 19 unique letters and they came from 

trade associations, from bankers, from state 

banking associations, from individuals, so across 

the gamut. 

They offer some general observations 

and general feedback, some very specific feedback 

for us to include in the examples, and elsewhere 

within the documents. We really appreciate those 

kinds of comments. They are very, very helpful 

for us, very constructive as we move forward.

So a few of the themes that we had 

identified were related to clarifying the 

definitions or terms such as comprehensive review 

and reasonable terms to provide some more 

granularity and clarity about what we meant in 
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the document so we are looking at those.

Also, that examiners should focus more 

on local market conditions than they do national 

market conditions when we're looking at these 

various workouts because most of these that we're 

looking at are really more on a local level so we 

are looking at that as well.

Also, there were some concerns about 

, we talked about in the guidance how examiners 

may make some adjustments when looking at 

collateral evaluations based on information that 

they may have and other conclusions. 

The commenters were asking for more 

transparency and explainability, you know,

support when and if that happen so there's a full 

understanding as conveyed to the institutions 

when we do that.

So the agencies are gathering back 

together and reviewing the comments that we've 

received so far. There is still an opportunity 

for comments to be placed on the Federal 
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Reserve's proposal that's out there which is 

identical to the banking agencies and we'll be 

considering all those as we move forward with 

figuring out exactly what we're going to do in 

finalizing the guidance.

With that, I'm happy to take any 

questions that you may have.

MS. EBERLEY: Okay, thank you. 

Another tool just to help be prepared should the 

worst come. Thank you, Tom. Appreciate that.

For our last item I'll invite up 

Anthony Lowe, the FDIC's Ombudsman, to provide an 

update from his organizational area.

ACTING CHAIRMAN GRUENBERG: Anthony, 

congratulations on making it to Washington. Glad 

to see you.

MR. LOWE: It was a journey.

Good afternoon everyone. I want to 

take a few minutes today just to talk a little 

bit about the Office of the Ombudsman. Three 

areas I wanted to address specifically talk a 
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little bit about our activity report for 2021. 

I also have some comments about the 

post-examine survey that hopefully you do 

complete at the end of examinations. And then 

provide a high-level synopsis of some of the 

issues and concerns that have been raised by you, 

by the industry, so far in 2022. Definitely --

hopefully we'll have a few minutes maybe for a 

couple or so questions.

We can go to the next slide. So back 

early this spring we did issue -- this is our 

fourth year of issuing an annual report with 

regard to the activities of the office. Again, 

for 2021 it was a very busy year. The majority 

of our work was done virtually with our regional 

ombudsman contacting industry representatives 

using the Teams aspect for the most part.

I will tell you that this year in 2022 

we have started with the phase 3 that we're in 

now. We have started moving back into doing more 

of our visits onsite, you know, visiting with 
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bankers. I think a few of you may be as old as 

I am and you might remember the original Karate 

Kid movie where Mr. Miyagi says to Daniel-san, 

"Look eye. Look eye." 

He makes the statement that it's 

important, I think, sometimes to always be across 

the table or right in the same room so you can 

look at other people and try to interpret are

there some nuance things that they maybe aren't 

saying that they want you to be aware of so we 

have tried to get back to that process.

Go to the next slide, please. So just 

to give a capsule for 2021, we completed 

approximately close to 700 meetings for external 

stakeholders, that being bankers, trade 

association representatives, other regulators, 

and even some bank counsel that requested to meet 

with us.

Again, I did mention that we have 

began to move back into doing most of our visits 

onsite. One other thing I think is important to 
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mention is that we're trying to grow awareness of 

the Office of the Ombudsman so that, you know, 

more institutions are aware of the office and the 

resources that we do provide because the majority 

of our staff has tenure with the organization. 

They've been examiners. They've been 

here 25/30 years and they can really offer, I 

think, some really good advice to institutions if 

they have questions about examinations, about 

primary points of contact, decision makers, 

comments or questions regarding how the dispute 

process or the appeals process works. 

We have been working to make sure the 

majority of our visits and our contacts with 

banks are original. There are institutions that 

we have never visited, or have not had an 

engagement with, in the last five years. 

Those few institutions that we do have 

repeats it's usually because there has been a 

disagreement during the course of an examination, 

or a bank does request that we come and have a 
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visit and have a discussion about, you know, some 

issue that may have come up.

We also had last year close to 200 

consultations, info requests, follow-up calls 

from industry. Some of them were rather routine. 

Can you tell me who is the assistant regional 

director or regional director that makes X, Y, Z 

decision? Again, some of them were somewhat 

complex asking specifically to walk through the 

process for considering an appeal of a material 

supervisory finding.

Go to the next slide. So the postexam survey, I just want to talk a little bit 

about this. We hopefully are going to get the 

survey response rate up a little bit higher than 

it has been. We have made some progress. 

I looked and compared the first 

quarter of 2021 to the recently completed quarter 

of June and there's usually differences with 

regard to the return rates. This is the bankers 

that do return the post-exam surveys for the 
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compliance discipline. 

It increased from the first quarter of 

last year to June of this year from 48 percent to 

67 percent return rate. For the risk management, 

it increased from 41 percent to 52 percent so 

definitely headed in the right direction. 

I always stress, and I know my staff 

does when we do visitations with institutions, 

it's extremely important the feedback we get from 

these post-examinations and surveys. It helps to 

inform us of issues that there may be a need for 

more clarity or explanation, or maybe even some 

training that needs to be done by the driver 

divisions. 

We do report that to Doreen for the 

risk management and to Mark Pierce and Chris 

Finnegan for other compliance, and also report to 

the chairman. It is extremely important that 

feedback that we do receive from the industry. 

Again, we hope that we can get those numbers, the 

response rates, up.
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Just a little bit of recall, the postexamination surveys do include a number of 

questions that ask about the conduct of the 

examination. Did you find the information that 

was provided useful when you received the report 

back? Was it professional? Is it going to help 

the institution with regard to identifying 

specific areas of risk? Again, very important to 

get that information.

We are -- my office is in the process 

now of doing some updates and minor changes to 

some of the questions, to add some questions, or 

solicit some responses regarding the virtual 

aspects of the examinations and also to address 

specifically a couple of the specialty areas that 

have been embedded in some of the examinations. 

Sometime early 2023 we'll launch the 

new survey and we'll definitely have some 

information that we'll get out to the industry 

before that does get launched.

Next slide. So just to touch on some 
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of the items, some of the areas, that have been 

coming up so far in 2022, probably no surprise,

from the industry, the reg burden, one of the 

items I heard mentioned earlier, that I heard 

mentioned earlier in regard to pre-examination 

planning. I don't think a day goes by that we 

have some type of a visitation or conversation 

with a banker that there isn't, you know, some 

mention about the pre-examination process and the 

pre-examination questionnaires that we use. 

Again, we do provide that information 

to risk and to compliance. We get the generic 

"there's too many regulations for community 

banks." That comes up every time that we do have 

a visitation. And the re-presentments issue has 

been a constant probably for the last six/seven 

months. I know Chris Finnegan talked about that 

a little bit earlier so those are some of the 

areas that do come up from a reg burden.

For the virtual examination in that 

regard, we have heard fairly consistently, and I 
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think this meshes with the comments that Doreen 

mentioned earlier, that the majority of bankers 

when we ask that question, they definitely do 

want us to have a hybrid approach on risk and 

compliance, but they do also indicate for those 

certain areas.

BSA, or if you have a material 

violation, if you're going to cite a fair lending 

or any major MRBA, those conversations need to 

be held in person onsite so there can be that 

back and forth and that engagement. That's what 

we've been hearing with regard to the virtual 

examinations.

For training, communication, one

thing we've been hearing especially in the last 

couple of months is a lot of institutions that 

indicated they are definitely in favor and 

pleased to see that we have started doing the 

director colleges again. 

You know, having that opportunity at 

the regional level where we had decision makers, 
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senior staff from the regions, that are there to 

answer questions directly, and to give 

information about expectations, regulatory 

expectations, something that may be coming up 

down the line or if we take a new approach to the 

way that we review certain items.

Under reg modernization, there's been 

a lot of comments with regard to CRA, about flood, 

about cannabis asking us can we do something to 

endorse the SAFE Act and those type of things. 

Of course, those things are definitely out of our 

purview.

Next slide, please. So, again, if you 

did not get an opportunity to view the report, 

you can access it through this QR code here, or 

you can just write me and I can get it back to 

you. I would definitely like to get feedback 

from you as to what you liked, what you didn't 

like. 

This report that we just issued back 

this spring is somewhat more streamlined versus 
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the previous reports and it was based on feedback 

that we got from the industry, that you did want 

more data points, more high level, so that's what 

we tried to do. If you do have some additional 

suggestions, we definitely would like to hear 

those.

I'll stop there and see if you've got 

any questions, comments, anything I can try to 

answer.

MEMBER OSTERBUHR: Anthony, thank you 

for the work. Thank you for your office and your 

staff. I've been contacted by the Federal Home 

Loan Bank of Topeka, a gentleman by the name of 

Dan Hess. 

I was provided a copy of a letter that 

was provided by several banking associations and 

the Independent Bankers Association. I'm not 

familiar with this but they've asked me if I would 

just ask a question with regards to capital for 

Federal Home Loan Bank. 

It seemed that the Federal Housing 
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Finance Agency is using the most up-to-date 

capital definition, but they want to ensure that 

it’s changed, it hasn't been enhanced in the last 

10 years. They are recommending that 

the agency modify Section 1266.4 so it looks to 

Tier 1 capital as defined by the FDIC in Part 

324.2 in order to help them meet capital issues 

that may be pending where commercial banks will 

be with investments and securities. Are you 

familiar with any of that?

MR. LOWE: I'm quite familiar with it. 

I know there's some nuance differences between 

regulatory capital and Federal Home Loan.

Doreen, you may be a little bit better 

to answer that question.

MEMBER OSTERBUHR: Thank you.

MS. EBERLEY: Sure. So the issue that 

has been raised is that the Federal Home Loan 

Bank is prohibited from extending new money by 

rule. It's prohibited from extending new money 

to an institution that has negative tangible 
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equity capital on a gap basis. 

They can continue to extend existing 

borrowings in 30-day increments but they can't go 

further unless a federal regulator requests that 

they do so. So that is the bottom line issue. 

We have seen the letter that you're referencing 

that requests that the Federal Housing Finance 

Agency amend the rule to change the capital 

requirement. 

So I think we're talking -- the 

approach we're taking is that we're talking to 

institutions that either have negative tangible 

equity capital or are on a path to that based on 

not unrealized losses unavailable for sale 

securities. 

Our conversations with institutions 

are about what are their strategies for working 

through this issue. How long do they think this 

issue is going to last. We had some conversations 

about that this morning, you know, that folks are 

looking probably a good year, maybe a couple 
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years, to get through this economic cycle, this 

interest rate cycle.

So what is the institution 

management's plan and strategy for working 

through that? You know, we have asked 

institutions for years, and we talked about this 

this morning as well, and I appreciated Trey's 

comments, you know, what may have seemed like an 

academic exercise when we asked institutions to 

stress test their balance sheet for 300 or 400 

basis-point rate shock, we've been asking 

institutions to do that for a long time and 

examiners will always look at it during the 

examination. 

That's why, right? That's why we ask 

institutions to do that and think about that and 

think about what does it mean for your 

contingency funding plan for your liquidity

plans. You know, if you're Plan B and your 

contingency funding plan was a federal home loan 

bank line that may no longer be available, what 
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is your Plan C, right? 

What funds are available to the 

institution, what are you strategies, what are 

your other funding options? So, we're engaging 

in those conversations with institutions but the 

matter you raised is not within our purview.

MEMBER OSTERBUHR: Very good. I 

literally received this telephone call and letter 

just before I got out of the bank yesterday so I 

appreciate that.

MS. EBERLEY: Sure.

MEMBER JOHNSON: And Doreen, I think 

there's been maybe some misconception about the 

rules. Maybe not the rules but who can do what. 

I think a lot of banks were thinking maybe some 

of the first asks were, well, FHLB, FHFA, was 

going and telling them, well, go back to your 

regulator and if you do go negative, you ask them 

for a letter of approval to continue borrowing 

from FHLB.

I don't see in any world if I were a 
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regulator I wouldn't do that. I think the ask in 

that letter is to get the two agencies together 

and find a way to, one thing, the rule 

consistency, that's one of the ways, or make a 

waiver during this period of time. We came out 

of our meeting the other day and that's what I 

really got out of that.

If you have not been contacted by FHLB 

if you're a member, you really need to. Most of 

them have already been contacted, especially in 

other banks. There's one bank in Illinois that 

is negative right now. It doesn't sound like 

there will be any as of the third quarter but we 

don't know that. 

We really need to come up with those 

plans because there's ways around it. Your 

bankers will figure it out but you need to know 

what it is and I really strongly suggest if you 

haven't already been in contact with them, do 

that.

MS. EBERLEY: Thank you.
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MR. LOWE: Thank you. Appreciate it.

MS. EBERLEY: Okay. All right. 

Well, thank you very much.

I will turn it back to you, Acting 

Chairman Gruenberg, for our closing remarks.

ACTING CHAIRMAN GRUENBERG: Thank you, 

Doreen. I have to say right on schedule. That's 

pretty good. I was going to say I feel like I've 

met you all for the first time today and, the 

fact is, I have met you all for the first time 

today. 

It was a pleasure. I think it is selfevident the value of holding these meetings in 

person and we will endeavor to continue to do so 

because it really does add value, I think.

As I mentioned, I particularly thought 

this morning's round table discussion with you 

all was very productive and I want to thank the 

staff really for skillfully setting up a 

framework of leading us through a set of 

questions that really elicited a set of 
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thoughtful comments that were really informative 

to us and perhaps informative to you as well.

As we acknowledged at lunch, but I 

want to put it on the public record here, we want 

to express our gratitude to a number of the 

members of this committee whose terms are 

expiring and will be leaving the committee but I 

would like to acknowledge their service: 

Betsy Johnson, President and CEO of 

Solutions Bank, Forreston, Illinois. Bruce 

Lowry, President and CEO of Ireland Bank in Malad 

City, Idaho. Neil McCurry, President of Seacoast 

National Bank in Sarasota, Florida. Gilbert 

Narvaez, President and Chief Executive Officer of 

Falcon International Bank in Laredo, Texas.

B. J. Wharton, President and CEO of Yampa Valley 

Bank, Steamboat Springs, Colorado. And one 

member of our Committee who could not be here 

today but I would like to acknowledge her as well, 

Margaret Oldner, the CEO of Stone Bank in 

Mountain View, Arkansas. 
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Thank you all. We really are very 

appreciative. The value of this Committee is 

self-evident, I think. Wonderful to see you all. 

And for those of you who are going to remain on 

the Committee, we'll see you next time. Thank 

you.

(Whereupon, the above-entitled matter 

went off the record at 2:29 p.m.)