419

March 28, 2017

The Meeting of the Advisory Committee on Community Banking

of the

Federal Deposit Insurance Corporation

Held in the Board Room

Federal Deposit Insurance Corporation Building

Washington, D.C.

Open to Public Observation

March 28, 2017 – 9:00 A.M.

The meeting of the FDIC Advisory Committee on Community Banking (“Committee”) 

was called to order by Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation 

(“FDIC”) Board of Directors.

The members of the Committee present at the meeting were: Tiffany Baer Paine, 

President and Chief Executive Officer (“CEO”), Security Bank USA, Bemidji, Minnesota; 

Richard T. Beard, President and CEO, People’s Utah Bancorp, American Fork, Utah; Adriana 

M. Boeka, President and CEO, Americas United Bank, Glendale, California; Roger Busse, 

President and CEO, Pacific Continental Bank, Eugene, Oregon; Asif Dakri, Vice Chairman and 

CEO, Wallis State Bank, Houston, Texas; David J. Hanrahan Sr., President and CEO, Capital 

Bank of New Jersey, Vineland, New Jersey; Jack A. Hartings, President and CEO, The Peoples 

Bank Co., Coldwater, Ohio; Chandler Howard, President and CEO, Liberty Bank, Middletown, 

Connecticut; Danny J. Kelly, President and CEO, Hometown Bank of Alabama, Oneonta, 

Alabama; Arvind A. Menon, President and CEO, Meadows Bank, Las Vegas, Nevada; Mary 

Ann Scully, President and CEO, Howard Bank, Ellicott City, Maryland; and John M. Tolomer, 

President and CEO, The Westchester Bank, White Plains, New York.

Christopher Emmons, President and CEO, Gorham Savings Bank, Gorham, Maine; Gwen 

M. Thompson, President and CEO, Clover Community Bank, Clover, South Carolina; and 

Joseph W. Turner, President and CEO, Great Southern Bank, Springfield, Missouri were absent 

from the meeting.

Corporation staff who attended the meeting included: Ruth R. Amberg, Steven O. App, 

Richard A. Brown, Kymberly A. Copa, Christine Davis, Alan Deaton, Patricia B. Devoti, Doreen 

R. Eberley, Diane Ellis, George E. French, Lisa A. Garcia, Samatha B. Gibson, Janet R. Gordon, 

Shannon N. Greco, Nathan Hinton, Nicholas Kazmerski, Matthew I. Kepniss, Christopher Lucas, 

Roberta K. McInerney, Jonathan N. Miller, Rae-Ann Miller, Emmanuel Monteau, Elizabeth 

Ortiz, Mark E. Pearce, Harrel M. Pettway, Sylvia H. Plunkett, Lee Price, Luke W. Reynolds, 
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March 28, 2017

Claude A. Rollin, Barbara A. Ryan, Kayce M. Seifert, Derek Thieme, Benjamin Vaughn, Angela 

N. Woodhead, and Angela A. Wu.

Chairman Gruenberg began by welcoming everyone to the meeting. The Chairman then 

provided a brief overview of the agenda. First, he explained that there would be a brief update on 

the FDIC’s Community Banking Initiative, including the de novo outreach events conducted 

around the country, as well as recent changes to the pre-exam planning process. The Chairman 

indicated that, as part of the presentation, the Division of Insurance and Research (“DIR”) would 

provide a preview of a paper they have been working on based on the 2016 Summary of 

Deposits survey. The Chairman stated that DIR’s paper analyzes recent deposit data and 

concludes that banks as a whole attracted more deposits last year while operating fewer offices in 

the aggregate, although the number of community bank offices around the country actually 

increased last year. The Chairman indicated the next presentation would address the recently 

issued Handbook for Organizers of De Novo Institutions. The Chairman explained that the

Handbook is designed to ensure that a new institution is positioned to succeed and addresses 

topics such as developing a sound business plan, raising financial resources, and recruiting 

competent leadership. Next, the Chairman stated that there would be a presentation on the 

Economic Growth and Regulatory Paperwork Reduction Act (“EGRPRA”) report that the three 

Federal banking agencies presented to Congress the week of March 20, 2017, including an 

overview of the report’s key recommendations. Following that, there would be a discussion of 

recent credit risk trends and supervisory expectations outlined in a recent article in the FDIC

Supervisory Insights Journal. The Chairman explained that the article focuses on three loan 

categories: commercial real estate, agriculture, and oil and gas-related lending.

Finally, the Chairman stated that there would be a session covering the FDIC Youth 

Savings Pilot Program and Symposium. The Chairman then introduced Barbara Ryan to 

moderate the meeting.

Barbara Ryan introduced members of the first panel—Doreen Eberley, Director, Division 

of Risk Management Supervision (“RMS”), and Mark Pearce, Director, Division of Depositor 

and Consumer Protection (“DCP”)—who would be providing an update on the Community 

Banking Initiative. Ms. Ryan stated that following this presentation, Diane Ellis, Director, DIR,

and Richard A. Brown, Deputy Director and Chief Economist, DIR, would then provide a 

preview of a paper analyzing the 2016 Summary of Deposits survey.

Ms. Eberley began the discussion by providing an update on the follow-up activities from 

the Community Banking Conference held in April 2016. The first update concerned the de novo

roundtable events. Ms. Eberley stated that since the last CBAC meeting there have been two 

additional events—one in Atlanta in late November 2016, and another in Dallas in early March,

2017. She stated that the final two events are scheduled in Kansas City and Chicago on May 

11th and 31st of 2017, respectively. Ms. Eberley extended special thanks to Members Tolomer

and Hanrahan for participating in the events. She remarked that the panels had the benefit of 

experienced bankers who had gone through the de novo process to share their experience and 

provide advice and guidance. Ms. Eberley stated that the process generated helpful information 

that was thereafter included in the Handbook for Organizers of De Novo Institutions. 
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Ms. Eberley next provided an update on the initiative for developing the next generation 

of bankers. She reported that in late October 2016, the FDIC hosted a discussion with 

universities and colleges that offered banking degrees to explore ways that the FDIC could 

partner such schools with the banking community and, in particular, community banks. Ms. 

Eberley stated that since October, the FDIC has held several follow-up meetings with national 

trade associations to explore next steps. Ms. Eberley reported that a national directory of all 

institutions of higher education which offer banking programs is currently in development. Ms. 

Eberley also mentioned that there have been discussions concerning how to identify additional 

schools for potential partnerships and facilitate internships that would provide beneficial 

experience for college students interested in banking careers and added that she hopes to provide 

more concrete information regarding such an initiative at the Committee’s next meeting. Ms. 

Eberley also commented that preparations are ongoing for the Interagency Minority Depository 

Institution Biennial Conference to be held in April 2017 in Los Angeles. 

Finally, Ms. Eberley mentioned two other activities that would be covered separately in 

later sessions. First, Ms. Eberley stated that in December 2016, the FDIC issued for comment the 

Handbook for Organizers of De Novo Banks. Second, Ms. Eberley mentioned that the FDIC 

recently finalized its EGRPRA report. Ms. Eberley then turned the presentation over to Mark 

Pearce. 

Mr. Pearce began by providing an update on efforts underway to improve the pre-exam 

planning process, with the goal of providing the FDIC with a better understanding of institutions 

during the pre-exam process in order to enhance the efficiency and effectiveness of the onsite 

portion of exams. Mr. Pearce explained that based on feedback received from bankers, the 

process is being further refined. Mr. Pearce reported that later in 2017 DCP would be moving 

forward with transitioning the pre-exam process into two separate phases. The first phase, he 

explained, will take an overall look at the bank’s compliance management to obtain a greater

understanding of the bank and its risk profile. The second phase will involve requests that target 

the specific items within the scope of the examination. Mr. Pearce explained that the aim of bifurcating the process is to achieve a reduction in the volume of data and information requests 

while still retaining the overall goals of the pre-exam planning process.

Member Tolomer commented that The Westchester Bank had a positive experience with 

the streamlined pre-exam process and complimented Mr. Pearce and Ms. Eberley for their efforts 

in that area. Member Hartings asked whether the revisions to the pre-exam process resulted in 

any changes to the examiner’s workbook regarding pre-exam questions relating to the

Community Reinvestment Act (“CRA”). Mr. Pearce responded that there have not been 

significant changes to the CRA portion of pre-exam planning process or the handbook as it 

relates to the CRA. Mr. Pearce did note, however, that he would go back to evaluate whether 

any of the CRA pre-exam questions have changed.

Member Busse commented that Pacific Continental Bank is a growing institution and, as 

such, has benefitted from the pre-exam and survey processes as the Bank expands. Members

Tolomer and Beard inquired as to whether it would be possible for the FDIC to coordinate with 

state regulatory agencies on scheduling CRA, safety and soundness, and compliance 

examinations in order to reduce the number of visits by the various regulators to banks 
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throughout the year. Mr. Pearce indicated his agreement that such coordination would be 

beneficial and that the FDIC seeks to achieve efficiency in that respect for both compliance and 

risk management matters. He noted that he would look into the issue further. 

Member Menon asked whether the pre-exam planning process would cut down on the 

time for the safety and soundness exam. Ms. Eberley responded that the process is currently 

being evaluated. For example, Ms. Eberley said, a bank examination for the median community 

bank from start to finish (including offsite time) takes about 30 days. She stated that on average, 

approximately 33% of such exams are offsite. Ms. Eberley further reported that RMS is currently 

working through the Federal Financial Institutions Examination Council (“FFIEC”) on a project 

with technology service providers to generate standardized downloads of imaged loan files for 

those banks which image their loan files in order to better enable examiners to review loan files 

offsite and reduce the burden of the onsite portion of examinations. Mr. Pearce stated that this is 

a process that could potentially also be utilized for certain consumer compliance matters.

Chairman Gruenberg then asked if any of the Committee members had experience with 

their banks offering internships to students and, if so, whether this was a useful vehicle. Member 

Howard responded in the affirmative, noting that Liberty Bank has found internships to be 

extremely valuable to both the Bank and students. Member Hanrahan and several other 

Members also indicated a positive experience with the use of student internships at their 

respective institutions.

Ms. Ryan then introduced Diane Ellis and Richard A. Brown of DIR to provide an update 

on the community bank research agenda.

Ms. Ellis began by reminding the Committee that they each received a summary of the

April 2016 Community Banking Conference and added that transcripts of the Conference are 

available on the FDIC’s website. Ms. Ellis then introduced Mr. Brown to provide an update on a 

recently completed paper concerning deposit data.

Mr. Brown stated that bank consolidation is an ongoing trend, with the number of 

charters declining by two-thirds since the mid-1980s. He added that while the definition of 

“community bank” has remained consistent over this time—generally referring to a bank that 

does lending, relies on core deposits, and has a limited geographic area—the median size of 

these banks have increased over time, rising from $40 million to $186 million.

Mr. Brown next mentioned that the FDIC has become increasingly reliant on the 

Summary of Deposits data to study the physical presence of branch offices. He stated that in 

2015, the FDIC released a paper titled “Brick and Mortar Banking Remains Prevalent in an 

Increasingly Virtual World” (“2015 Paper”), which showed a long-term increase in total banking 

offices over time. Mr. Brown stated that this increase was interrupted by two events: the banking 

crises of the late 1980s and early 1990s, and the financial crisis in 2008.

Mr. Brown then introduced to the Committee the authors of the latest paper, Angela 

Woodhead, Nate Hinton, and Derek Thieme. In summary, Mr. Brown stated that the most recent 
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paper shows that that decline in the number of brick and mortar offices has continued in 2016

during a post-crisis period in which deposit funding has generally been abundant.

Using a slide deck, Mr. Brown provided an overview of the paper. The first chart 

showed that the total number of banking offices operated by FDIC-insured institutions fell in the 

year ending in June 2016, marking the seventh consecutive annual decline. During the year 

ending in June 2016, the number of banking offices declined by 1.5% to 91,851—a rate of 

decline which has remained fairly constant since 2009, a year that marked a historic highpoint 

with a total of 99,450 offices. Despite the continued decline in physical offices in the most 

recent year, Mr. Brown noted that the growth in total deposits remained strong at 5.8 percent, 

though still slightly lower than the five-year average growth rate of 6.4 percent. Mr. Brown 

stated that this data explains the title of the new FDIC paper: “Banks Attract More Deposits 

While Operating Fewer Offices.”

Mr. Brown next discussed the density of banking offices per 10,000 persons, a topic first 

explored in the 2015 Paper. Referring to a chart tracking the total density of banking offices 

since 1994, he explained that until recently total density had remained fairly steady over time at 

around three offices per 10,000 persons, with a slight peak immediately prior to the 2008 crisis 

(then rising to 3.22 offices per 10,000 persons). Since the pre-crisis peak, density has decreased 

for eight consecutive years. Mr. Brown explained that by the middle of 2016, total density stood 

at 2.81 per 10,000 persons, the lowest of this metric in at least 30 years.

Mr. Brown pointed out that the total amount of deposits per banking office has roughly 

doubled since 2004, reaching just over $122 million by the middle of 2016. The trend of rising 

deposits per office has accelerated since 2010 at an approximate annual rate of 7.8 percent. Mr. 

Brown also highlighted the differences in the density of offices per 10,000 persons across county 

types, a topic first explored in the 2015 Paper. Mr. Brown noted that the 2016 Paper extends this 

analysis forward two years, reflecting persistent differences in density for rural, micropolitan 

(i.e., counties with populations of 10,000–50,000), and metropolitan counties. Density remains

substantially higher in rural and micropolitan counties than in metro counties, a difference that 

Mr. Brown stated could be attributed to greater distances and travel times between banking 

offices and the populations they serve. The 2016 Paper’s update of this analysis shows a recent 

decline in overall density that is most pronounced in metropolitan counties.

Next, Mr. Brown discussed how these trends have specifically affected community 

banks. A comparison of one-year growth rates in total deposits shows that deposits are growing 

faster overall in metropolitan counties than in micropolitan or rural counties. He cited previous 

research showing that between 1980 and 2010, total population grew in 88 percent of the 

metropolitan counties and 70 percent of the micropolitan counties, but grew in only 50 percent of 

the rural counties. By 2011, metropolitan counties accounted for 84 percent of the United States’ 

total population and 88 percent of our economic output. However, Mr. Brown added, the 

analysis of one-year growth rates shows that deposits during this time increased more quickly in

community banks than non-community banks in all three county types.

Mr. Brown next discussed the importance of merger adjustment in calculating growth 

rates for subgroups of institutions. By fixing the identification of group members at the end of 
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an analysis period, identifying any merger targets for those institutions, and ensuring that balance

sheet components of target institutions are fully reflected in prior period balances for their 

respective acquirers, merger adjustment provides for a more accurate comparison. Mr. Brown 

explained that without merger adjustment, growth calculations would show community bank 

offices declining during the year ending in June 2016 and community bank deposits growing 

much slower than non-community bank deposits. However, with merger adjustment, community 

bank offices are shown to increase slightly and community bank deposits are shown to increase 

at a rate (5.8 percent) that is only slightly lower than deposit growth at non-community banks 

(6.1 percent).

Mr. Brown concluded his presentation by stating that despite decreases in the total 

number and density of banking offices, total deposits continue to grow at both community and 

non-community banks which helps to support loan growth. Mr. Brown added that the FDIC 

Quarterly Banking Profile (“QBP”) now includes a community bank section, with the most 

recent QBP showing total loan growth of over eight percent at community banks in the previous 

three years, which he described as a “pretty healthy clip.”

Mr. Brown then welcomed the Committee to engage in a discussion on strategic 

viewpoints on physical versus virtual presence for community banks and how either may impact 

a bank’s deposit gathering and expense control.

Member Scully asked how merger adjustments account for the total number of offices

and volume of deposits over time, and whether all offices and deposits from an acquired 

institution are excluded in the analysis. Mr. Brown responded that if, for example, one 

institution has acquired three others during the relevant analysis period, merger adjustment 

would compare the acquiring institution’s data from a prior period to the current one, taking into 

consideration the number and amount of offices and deposits obtained from the three acquired 

institutions to reach a figure that reflects organic growth. Mr. Brown explained that merger 

adjustment essentially removes structural change as a source of growth to provide a more 

accurate analysis.

Member Hartings asked if the research had a breakdown of growth in deposits by mix. 

Mr. Brown responded that a breakdown by mix is not part of the 2016 Paper, but, nonetheless 

can be found in the community bank section of the QBP. Ms. Ellis then asked Member Hartings 

and the Committee in general if there was a particular question they thought the FDIC should be 

exploring in terms of the composition of deposits. Member Hartings responded stating that if,

for example, all of the growth is in demand deposit accounts (“DDA”) and money market deposit 

accounts (“MMDA”) rather than in certificates of deposits (“CD”), the distinction could provide 

greater insight into liquidity.

Member Busse commented that Pacific Continental Bank has become more efficient with 

the same number of offices. Member Scully then commented that branches may serve different 

purposes today than they have historically—for example, as sales and service locations instead of

transaction hubs. Mr. Brown asked about the role of branch offices in lending overall and 

specifically in business lending. Member Busse responded that in his opinion they are an 

important element in lending. Member Tolomer commented that in his experience, generally 
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there is a positive impact from having a branch. He further commented that people respond 

positively to seeing a branch in their neighborhood and that he has received feedback from 

customers that they felt more comfortable banking with his institution because of the branch near 

their homes. Member Scully commented that branches are a way of branding by way of a 

“billboard” effect, with the physical location serving as a form of advertisement to the 

community that the bank is open and doing business in their area. Member Howard agreed that a 

branch can have this “billboard” effect, although it is a very expensive “billboard.” Member 

Baer Paine commented that in her view, the biggest challenge is determining whether a fullservice facility is the best way to service small communities of 400–1,000 people.

Ms. Eberley then asked Member Scully whether breaking down deposits by mix for the 

Summary of Deposits survey would be manageable for community banks. Member Scully 

responded that although it would involve more data fields, community banks have the data and it 

could be accomplished.

Ms. Ryan thanked the panel and introduced the next session by welcoming Ms. Eberley 

to provide a presentation on the Handbook for Organizers of De Novo Institutions (“Handbook”).

Ms. Eberley began by reminding the Committee that each Member was provided a copy 

of the Handbook and cautioned that it is still in draft form after being put out for comment in 

December 2016. Ms. Eberley stated that the Handbook represented the FDIC’s effort to fulfill a 

commitment made by the Chairman at the April 2016 Community Banking Conference to 

publish guidance for banks on applying for deposit insurance. Ms. Eberley added that the 

Handbook is designed to familiarize organizers with the deposit insurance application process 

through a plain-language overview of the various requirements and considerations.

Ms. Eberley explained that the Handbook is divided into three primary parts addressing 

(1) pre-filing activities, (2) the actual application process, and (3) pre-opening activities. Ms. 

Eberley then provided an overview of some of the topics from these areas that were discussed at 

the various de novo events held by the FDIC.

Regarding pre-filing activities, Ms. Eberley commented that the feedback from the de 

novo events stressed the importance of pre-filing meetings; particularly that of good 

communication from the outset. To this point, Ms. Eberley explained that pre-filing meetings 

provide an opportunity to establish a point of contact for an organizing group. She stated that at 

this stage, each institution is assigned a case manager to handle reports, examination reviews, 

regular correspondence, and any applications that are filed. Ms. Eberley explained that the 

relationship between the institution and a case manager starts at a pre-filing meeting; the case 

manager attends the meeting and is assigned to that bank long-term. Ms. Eberley also 

commented that pre-filing meetings help highlight any red flags in a proposal and allow for such 

issues to be addressed early on. Ms. Eberley also reminded the Committee that there can be 

multiple exploratory meetings prior to filing of an application for deposit insurance. Next, Ms. 

Eberley explained that a timeline is provided in the Handbook of what to expect in terms of 

communication throughout the process. Ms. Eberley then provided a detailed overview of the 

timeline.
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Ms. Eberley stated that the timeline is based on a four to six month horizon. She indicated that 

within three days of filing an application, the institution’s case manager will acknowledge 

receipt. Ms. Eberley commented that over the next 30–45 days, the case manager will review the 

application in detail. She explained that once an application has been accepted and is

substantially complete, the next step is a field investigation. Ms. Eberley then provided an 

overview of the field investigation process.

One of the points that Ms. Eberley stressed is that during the field investigation process, 

the institution’s board of directors has to “own the business plan.” In other words, she explained, 

there could be pressure from shareholders or a sense among board members that the bank may 

consider a different business plan at a later time, but that throughout the field investigation 

process, the board has to adhere to the business plan as submitted.

Ms. Eberley then discussed the amount of capital needed, which she stated is based on 

the business plan submitted and should take into account the institution’s proposed marketplace.

Ms. Eberley stated that the only constraint on capital is the $2 million minimum in the 1998 

statement of policy.

Ms. Eberley next emphasized the importance of the range of experience among an 

institution’s management team and the proposed governance structure and its related 

infrastructure. She explained that bank and board policies, internal controls, and the 

establishment of audit processes are all important elements of the startup activities.

Ms. Eberley next discussed information technology and the importance of the de novo

bank’s contracts with technology service providers (“TSPs”) and/or its core processor. Ms. 

Eberley stressed the importance of this issue, explaining that the focus should be to negotiate a 

contract with the core processor that will suit the institution for long-term. Ms. Eberley 

commented that the de novo bank should look to FFIEC guidance as part of contract negotiations

with a TSP and/or a core processor.

Ms. Eberley then welcomed any questions or comments from the Committee.

Member Tolomer asked whether the FDIC interviews board members as part of the de 

novo process. Ms. Eberley responded in the affirmative, noting that directors are interviewed

both individually and as a group. Member Hanrahan complimented Ms. Eberley and her staff on 

the Handbook and stated that it demonstrated the FDIC’s sincerity about having an open door for 

de novo institutions. Several other members of the Committee, including Members Busse and 

Scully, agreed with his statement. Member Hartings asked Ms. Eberley to provide an update on 

the number of de novo applications currently in process. Ms. Eberley responded that the FDIC 

has six currently in process and that since 2011 there have been five de novo applications 

approved, four of which have since opened. Ms. Eberley added that of the six active 

applications, most were received in the latter half of 2016. Member Hartings asked about the 

geographical location for these applications. Ms. Eberley stated that there are two in the San 

Francisco area, two in the Dallas area, and two in the Atlanta region. She further responded that 

there has been significant pre-filing de novo activity, with the FDIC seeing expressions of

interest in conducting exploratory meetings and other activities of a similar nature.
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Member Menon asked if Ms. Eberley could provide an idea of the capital levels for the 

de novo banks currently in process. Ms. Eberley responded that of the six current applicants, the 

highest has roughly $30 million in capital. Member Beard asked if Ms. Eberley could speak to

what form of capital was involved. She responded that it has been largely community-based, 

widely-held capital.

Ms. Ryan then thanked Ms. Eberley for her presentation and the Committee adjourned 

for a mid-morning break.

(Where upon, the above-entitled matter went off the record at 10:09 a.m. and resumed at 

10:29 a.m.)

Ms. Ryan welcomed everyone back and introduced the next panel to provide the 

Committee with an overview of the FFIEC’s EGRPRA Report to Congress. Ms. Ryan explained 

that the Report was issued in the week prior to the Committee’s meeting and summarizes the 

Federal banking regulators efforts to review regulations, as is required by EGRPRA to occur 

every ten years. Ms. Ryan then invited Roberta McInerney, Deputy General Counsel, Legal 

Division; Ruth Amberg, Assistant General Counsel, Legal Division; George French, Deputy 

Director, RMS; and Rae-Ann Miller, Associate Director, RMS to make their presentation.

Ms. McInerney began by reporting that the Federal banking agencies recently submitted 

the EGRPRA Report to Congress on March 21, 2017 and that it is expected to be published in 

the Federal Register soon. Ms. McInerney indicated that the Report outlines how the three-year 

EGRPRA review was conducted and what agencies have done to address regulatory burden. She 

also stated that the report outlines further measures to be taken to address issues identified 

through the EGRPRA process.

Ms. McInerney provided a brief background and overview of the EGRPRA review

process, explaining that the Federal banking agencies must conduct a review of regulations every 

ten years to identify outdated or unnecessary regulations. Ms. McInerney stated that consistent 

with EGRPRA, the agencies regrouped regulations into 12 regulatory categories and sought 

comment from bankers and other stakeholders through four Federal Register Notices, each 

addressing three broad categories of rules and providing a 90-day comment period. She also

stated that the agencies held six public outreach meetings across the country to provide an 

opportunity for bankers, consumer and community groups, and other interested persons to 

present their views directly to senior management and staff on any of the regulations subject to 

EGRPRA review.

Ms. McInerney then turned the presentation over to Ms. Miller to provide an update on 

the specifics of the Report as well as some highlights.

Ms. Miller began by stating that the Report describes several joint actions that the 

agencies have taken or plan to take. She explained that there are four main areas:

(1) simplification of regulatory capital rules for community banks and savings associations;

(2) streamlining call reports; (3) a potential increase of the appraisal threshold for commercial 

real estate loans as well as several other appraisal-related actions; and (4) consideration of 
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expanding the number of institutions eligible for less frequent examinations for safety and 

soundness and Bank Secrecy Act (“BSA”) reviews. Ms. Miller then turned the presentation over 

to Mr. French to discuss regulatory capital.

Mr. French began by stating that the Report indicates that the Federal banking agencies 

are developing a proposal to simplify the generally applicable capital framework for risk-based 

capital. He explained that the proposal in part focuses on replacing the current treatment of high 

volatility commercial real estate (“HVCRE”) with a more straightforward treatment. Mr. French 

next stated there is also a project aiming to simplify Call Reports through which a number of 

banks were visited to determine which areas of the Call Report required the most manual 

intervention. Mr. French commented that it was significant that the HVCRE was high on the list 

of areas that required manual intervention. Next, Mr. French stated that the Report highlights a 

focus on revisiting the current regulatory capital treatment for mortgage servicing assets, timing 

differences re: deferred tax assets, and holdings of regulatory capital instruments issued by 

financial institutions. He explained that because there is a deduction treatment in the Basel III 

rule (10% of capital for each of those assets and then a 15% aggregate), a certain amount of 

management complexity has arisen in dealing with the regulatory capital treatment of those 

assets. Mr. French stated that the ultimate goal is to reduce the complexity in this area.

Finally, Mr. French stated that the Report covers the current limits on NARDI interest 

and regulatory capital. He explained that these rules are extremely detailed, lengthy, and 

somewhat complex and the agencies intend is to find a way to simplify these rules.

Mr. French then turned the presentation back over to Ms. Miller.

Ms. Miller then went over the section of the Report dealing with Call Reports. She 

explained that there have been ongoing efforts to study issues related to the Call Report 

preparation process and associated burdens, as well as the streamlining of the Call Report itself. 

Ms. Miller explained efforts related to Call Reports involved a two-year process which included 

meetings with bankers and trade associations. Ms. Miler further explained that the intent was to 

accomplish goals on a “flow basis,” which has involved the FDIC’s issuance in July and August 

of 2016 of certain burden-reducing changes in two different releases, followed by the finalization 

in December 2016 of the new streamlined FFIEC 051 Call Report (“FFIEC 051”) for institutions 

with domestic offices only and assets of less than $1 billion dollars. Ms. Miller explained that 

FFIEC 051 was created from the O41 and removed certain existing schedules, eliminated certain 

other data items, and reduced the reporting frequency of a number of items. In particular, she 

stated, the reporting frequency was reduced for the schedule for small loans, loans of small 

businesses, and loans for agricultural operations. Ms. Miller stated that FFIEC 051 will take 

effect on March 31, 2017 and reduces the Call Report’s total length from 85 to 61 pages, 

removes approximately 40% of the data items that were in FFEIC O41, and includes a shorter 

instruction booklet. Finally, Ms. Miller pointed out that there is openness in the Report on the 

issue of expanding access to FFIEC 051 to institutions over the $1 billion threshold. She also 

stated that there is an appendix to the Federal Register notice publishing the Report for comment

that lists the reasons why certain items were kept in the new Call Report.
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Next, Ms. Miller discussed appraisals. She explained that the Report proposes to increase 

the threshold for required appraisals to transaction values of $400,000 or less (the current 

threshold is $250,000 or less). Ms. Miller also pointed out that the Report discusses issuing a 

statement to FDIC-regulated entities to inform them of the availability of the Appraisal 

Subcommittee of the FFIEC, which has the authority (with the approval of the FFIEC) to grant 

temporary waivers of appraisal requirements in rural areas. Ms. Miller also reported that in 

March of 2016, the FDIC issued a reminder on when an evaluation can be performed in lieu of 

an appraisal.

Ms. Miller next reported on updates on examination frequency. Ms. Miller stated that 

Congress enacted the Fixing America's Surface Transportation Act (“FAST Act”), which gave 

the FDIC discretion to raise the asset threshold for certain insured depository institutions 

(“IDIs”) that qualify for the 18-month exam cycle. She explained that the threshold rose from 

less than $500 million to less than $1 billion. Ms. Miller stated that after this increase, the FDIC 

in January of 2017 issued a joint interim final rule to raise the asset threshold; as a result,

approximately 600 more institutions may potentially qualify for the extended cycle, with the 

number of potentially qualifying institutions increasing to approximately 83% of all IDIs. Ms. 

Miller then stated that, in general, the Federal banking agencies review BSA compliance at the 

same time as safety and soundness. So, she explained, institutions that fit between those asset 

sizes are now potentially eligible for less frequent BSA reviews as well. 

Ms. Miller next discussed several FDIC-specific initiatives. She first discussed de novo

banks. Ms. Miller reported that de novo banks were a frequent topic of comment, both in the 

written comments and in EGRPRA outreach sessions and other forms of outreach. Ms. Miller 

explained that the FDIC rescinded Financial Institution Letter (“FIL”) 50-2009, “Enhanced 

Supervisory Procedures for Newly Insured FDIC Supervised Institutions.” Ms. Miller explained 

that the effect of rescinding this FIL was a reduction in the period for enhanced supervisory 

monitoring of newly-insured institutions from seven to three years.

Ms. Miller next provided an overview of changes to the deposit insurance application

process. Ms. Miller explained that the goal was to reduce burden in applications, examinations,

and supervisory processes. Ms. Miller commented that the FDIC eliminated requirements for 

institutions to file applications under Part 362 of the Federal Deposit Insurance Act to conduct 

activities permissible for National banks through certain bank subsidiaries that were organized as 

LLCs.

Ms. Miller next commented about outstanding Office of Thrift Supervision (“OTS”) rules 

and regulations which remained on the books, indicating that so far the FDIC has rescinded 16 

rules and incorporated them into rules for institutions that were transferred to the FDIC upon 

closing of the OTS.

Ms. Miller reported on the Director’s Resource Center, the FDIC’s updated website, and

the availability of technical assistance videos. She also pointed to the community bank QBP and 

the detailed picture presented therein that, she said, is hopefully helpful to community banks.
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Ms. Miller next commented on enhanced communication efforts. She stated that the 

FDIC issued updated guidance earlier in the year called “Reminder on FDIC Examination 

Findings” that re-emphasizes the importance of open communication regarding supervisory 

findings. She also commented that there was an additional informal review process at the 

division director level discussed in that Financial Institution Letter (“FIL”) for banker concerns 

that might not be eligible for another review process.

Ms. Miller next commented on efforts to improve transparency in developing guidance 

and supervisory recommendations. In this regard, she reported, that the FDIC Board has issued 

two statements to assist in the development of supervisory guidance and recommendations and in 

communicating those items to individual institutions.

Ms. Miller also reported on possible future improvements referenced in the Report and 

discussed the process of generating the Report. She summarized several areas where the use of 

technology can be used to minimize regulatory burden for bank management and discussed

potential improvements to the format of the examination report and certain supervisory tools.

Ms. Miller then welcomed questions and comments from the Committee.

Member Hartings asked if there were many comments on TDRs, specifically, the “life of 

the loan” label that is put on a TDR. Ms. Miller responded that the FDIC did not receive any 

comments on TDRs because it is a pronouncement from the Financial Accounting Standards 

Board and thus is not required under FDIC regulations. Member Scully asked if Ms. Miller 

could summarize the Financial Crimes Enforcement Network (“FinCEN”) response to some of 

the concerns about suspicious activity reports (“SARs”). Ms. Miller responded that FinCEN did 

provide a letter response to concerns about SARs which essentially states that while FinCEN is

aware that SAR compliance is burdensome, the data is very helpful and therefore necessary to 

FinCEN’s work.

Chairman Gruenberg commented that a review of the exam process has the potential to 

reduce regulatory burden for institutions and welcomed any thoughts from the Committee

members on how the exam process might be improved.

Member Hartings commented that time on-site is how he tends to judge the burden of

examinations; in his opinion, if it could be reduced from three weeks to two weeks, then that 

would be an improvement. Several other Committee members commented that the focus should 

be on the quality of the actual examination time through use of pre-exam planning, technology,

or other improvements.

Member Tolomer noted that he is in the practice of calling his local FDIC Division 

contact to schedule a meeting after every quarter to review the prior quarter’s events. Member 

Tolomer further commented that this practice has proven successful and encouraged other 

bankers to employ a similar approach.

Ms. Ryan then thanked the panel and the Committee adjourned for lunch.
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(Whereupon, the above-entitled matter went off the record at 11:18 a.m. and resumed at 

1:16 p.m.)

Ms. Ryan welcomed everyone back from lunch and introduced the next panel on credit 

risk trends and supervisory expectations, topics that were outlined in the Supervisory Insights 

Journal article from the 2016 winter edition (“SIJ”). Ms. Ryan introduced Ms. Eberley, Mr. 

French and Ms. Miller to lead the discussion.

Ms. Miller then began a discussion concerning trends identified in the SIJ and elicited 

feedback from the Committee members on the issues raised therein.

Ms. Miller utilized a slide deck to make her presentation. She explained that the slides 

were pulled from the SIJ article, the text of which was provided to the Committee. Ms. Miller 

stated that the article looks at three different loan segments: (1) commercial real estate (“CRE”);

(2) agricultural and (3) oil and gas. These were chosen, Ms. Miller explained, because of trends 

in those areas related to the actual lending, the underlying fundamentals, and the importance of 

such loans to institutions.

Ms. Miller noted that, as of September 16, 2016, year-over-year growth in total loan 

balances stood at about 6.8 percent. Ms. Miler commented that a large majority of banks

(approximately 80 percent) experienced growth in their loan portfolios.

Ms. Miller explained that the SIJ article used Call Report data to obtain information 

about the three loan categories. Ms. Miller pointed out that there has been growth in each 

category, noting that CRE lending has reached over $2 trillion—this exceeds the previous high 

of about $1.9 trillion in 2008. 

Ms. Miller next explained that more recent growth has been centered on the nonfarm/non-residential category, which represents the largest of the categories in general. Ms. 

Miller stated that there has been good growth in the acquisition, development and construction 

segment and that this growth is up from a previous low mark following a sharp decline after the 

2008 crisis. She stated that essentially growth in this category is being driven by demand.

Next, Ms. Miller discussed the trend in the number of banks that meet the supervisory

criteria in the 2006 guidance. She explained these are banks that have total acquisition, 

development, and construction (“ADC”) loans of 100 percent or more of total capital and those 

that have concentrations in non-owner-occupied CRE and a three-year growth rate of 50 percent 

or more. To illustrate her point, Ms. Miller read a quote from the guidance: “An institution that 

has experienced rapid growth in CRE lending has notable exposure to a specific type of CRE or 

is approaching or exceeds the following supervisory criteria may be identified for further 

supervisory analysis of the level and nature of its CRE concentration risk.” Ms. Miller explained 

that the SIJ article also goes into some depth about the consequences of concentrations are not 

prudently managed. Ms. Miller mentioned that there are several good studies cited in the article 

which show that aggressive growth in CRE lending alongside poor risk management practices, 

underwriting, and loan administration were the proximate cause of most of the bank failures 

during the 2008 crisis. Ms. Miller added that another element contributing to the likelihood of 
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failure was heavy reliance by banks on wholesale funding for growth. Ms. Miller pointed out 

that there was a separate study performed on the ADC lenders that survived the 2008 crisis and 

the factors which helped them survive included a well-informed and active board of directors,

strong risk management practices, adequate capital, and a tendency to heed auditor and examiner 

recommendations.

Ms. Miller then discussed how the institutions that meet the supervisory criteria are 

performing over time and how they compare to the general population. Using a slide deck, Ms. 

Miller explained that the median institutions that exceed the supervisory criteria have currently 

higher pre-tax return on assets (“ROA”) than other institutions, but operate with a generally 

higher risk profile. Specifically she explained, the institutions exceeding the criteria tend to have 

lower capital, leverage capital ratios, lower total risk-based capital ratios, and a higher reliance 

on wholesale funding. Ms. Miller pointed out that with respect to capital, since the publication 

of the 2006 guidance, median leverage ratios for banks that meet the supervisory criteria have 

been roughly just over half of a percentage point to about two percentage points lower than the 

median for the general population. So, she explained, institutions that exceed the criteria as a 

group are also exhibiting faster loan growth than other institutions. Ms. Miller further explained 

that sometimes when a bank is growing, its growth can mask increasing risk because the growth 

typically drives down the ratio of past due loans and charge-offs and can make the allowance for 

loan and lease losses appear lower. Ms. Miller also reported that loan delinquencies for 

institutions exceeding the supervisory criteria were much higher for a longer period of time than 

for other institutions.

Ms. Miller then moved to the sixth slide illustrating the performance of the institutions 

that meet the supervisory guidelines. Ms. Miller pointed out that the median pre-tax ROA for 

ADC lenders dropped very steeply and was then in or near negative territory for about three 

years in the aftermath of the 2008 crisis. She stated that earnings criteria for institutions that met 

the growth prong was worse than other institutions, but tended to be at the beginning of the 

period, the late 2000s and early 2010s.

Ms. Miller next discussed slide 7. She explained that slide 7 demonstrates an emerging 

trend regarding the use of wholesale funding by institutions which exceed the supervisory 

criteria. Ms. Miller explained that the use of wholesale funding by institutions with 

concentrations in ADC lending has trended downward, though still remains slightly higher than 

that of other institutions. However, the use of wholesale funding by institutions exceeding the 

CRE growth prong of the supervisory criteria remains quite a bit higher than that of other 

institutions.

Ms. Miller moved on to slide 8, noting that within the category of weakening 

underwriting practices, the FDIC is observing increasing (and in some cases excessive) use of 

cash-out financing and IO-type of lending, sometimes together, and particularly in certain highly 

competitive markets. Ms. Miller further stated that the FDIC is observing only lower

capitalization rates in various segments of CRE lending, particularly in the multi-family segment.

Ms. Eberley clarified that these issues are being observed primarily at those institutions where 

the FDIC is citing weakness. Ms. Eberley stressed that these observations do not apply to every 
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institution that is concentrated in the areas referenced. Ms. Miller agreed with Ms. Eberley and 

stated that these weaknesses are not widespread. 

Ms. Miller next discussed agriculture lending. She pointed out that roughly one in four 

banks in the United States is characterized as an agricultural (“AG”) lending or “AG bank.” She 

explained that the historical definition of an AG bank is a bank where AG loans comprise 25 

percent or more of the bank’s total lending. Ms. Miller explained that the SIJ article centers on a 

more focused group of banks that had a 300 percent concentration or more of their respective 

total capital in AG loans. Ms. Miller stated that as of September 2016, there were 500 banks that 

had such a concentration. She explained that slide 9 shows AG loans are growing in general 

after being flat during and immediately after the crisis. Ms. Miller explained that this rise in AG

lending is due to a number of factors, including a number of farmers who elected to self-finance 

prior to the 2008 crisis (at a time when they were flush with cash due to higher prices during the

early 2000s) but now are seeking external financing after having exhausted those reserves and 

are experiencing diminishing working capital positions.

Ms. Miller next discussed a chart of median ratios (referring to page 10). Ms. Miller 

indicated that the chart shows AG banks that have 25 percent of their loans in AG and also 300 

percent concentrations. Ms. Miller pointed out that similar to the CRE concentrated institutions, 

those banks with AG concentrations have higher earnings than the general population, but are

also operating with somewhat lower capital ratios and employing greater levels of wholesale 

funding. Ms. Miller further pointed out that unlike CRE, AG loan growth rates are slower than 

other institutions. She further explained that institutions with AG concentrations have slightly 

lower ratios of past due loans and slightly lower allowances relative to other institutions.

Ms. Miller next mentioned that the SIJ article contains time series charts that show 

performance of AG banks over time. She pointed out that AG banks that are concentrated 

generally weathered the 2008 crisis much better than other types of institutions. Ms. Miller 

explained that their financial performance as a whole remained very good heading into 2016. 

Ms. Miller stressed that none of these institutions—neither those with 25 percent of total loans in 

AG nor the AG concentration institutions—experienced the pronounced decline in pre-tax ROA 

that other institutions experienced during and after the 2008 crisis.

Ms. Miller next pointed out another emerging trend for AG banks and AG-concentrated 

banks: A recent increase in reliance on wholesale funding over the last few years. Ms. Miller 

explained that this may be due to the institutions’ needs to meet increasing loan demand from 

farmers in response to stressed farm income.

Ms. Miller next discussed oil and gas lending. She explained that unlike CRE and AG, 

the FDIC does not have a Call Report item that tracks oil and gas lending. Ms. Miller stated, 

however, that some of the larger banks have issued public pronouncements about their exposures

regarding publicly-available shared national credit results which talk about disproportionate 

impact from oil and gas lending.

Ms. Miller explained that the FDIC looks at overall commercial and industrial (“C&I”)

lending; delinquencies in this area have gone up over the last few quarters, which may be driven 
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at least in part by oil and gas lending. She explained that it is easier for the FDIC to analyze 

direct lending to oil and gas producers through C&I loans, while it is harder to analyze other 

more indirect forms of oil and gas related lending. Ms. Miller explained that slide 12 of her 

presentation attempts to capture the performance of such indirect lending. She explained that

slide 12 therefore shows the median, non-current, and past due rates for banks domiciled in three 

energy-dependent states (Texas, Louisiana, and Oklahoma) and compares those rates to other 

institutions. Ms. Miller further explained that feedback from examiners indicated that very few 

banks have direct exposure to oil and gas lending, but that some banks do have downstream 

exposure through lending to industries that support the oil and gas industry.

Ms. Miller next explained that slide 13 contains a chronological list of pronouncements 

that the FDIC has issued on lending, both in general and in relation to the particular issues

addressed by the SIJ article. She stated that the FDIC has longstanding expectations for prudent 

risk management and that FDIC guidance centers around adopting and implementing lending 

policies, practices, and underwriting which are appropriate for the size and complexity of the 

bank’s business model; maintaining strong administration and oversight of lending activities and 

related funding strategies, including the emerging trend of increased wholesale funding; and

ensuring adequate allowances and capital levels. Ms. Miller stressed that risk management 

around loans is critically important. She commented that loans are usually the biggest asset class 

at most institutions. Ms. Miller discussed the conclusion of the SIJ article addressing the serious 

consequences of a failure to appropriately manage risk and emphasizing that now is the time to 

focus on strengthening the risk management practices as portfolios and concentrations are 

building and before problems impact a bank’s bottom line. Ms. Miller also emphasized the 

importance of good underwriting when loan demand is strong. She explained that competition 

can sometimes tempt institutions to do something they might not normally do (e.g., underwriting 

standards get loosened and loan administration practices can weaken) and cautioned against this.

Mr. French commented on the use of wholesale funding by banks with CRE and AG 

concentrations. He stated that the SIJ article points out that as a group banks with CRE and AG

concentrations are making greater use of wholesale funds including broker deposits and listing 

services. Mr. French pointed out that there is nothing inherently wrong with the use of wholesale 

funds, as they can help match imbalances between prudent lending opportunities and core 

deposit availability in local markets. He further stated that wholesale funds can also help banks 

that are trying to match maturities between assets and liabilities. So, Mr. French stated, there is 

certainly room for prudent use of wholesale funding. He explained that part of the difficulty of 

assessing the risk offsite is that examiners need to understand the risks the banks are taking on 

the asset side—examiners need to know more about what the banks are doing with these funds. 

Mr. French stated that another important aspect of what examiners need to see when onsite is the

bank’s overall funding strategy. This, Mr. French explained, can be difficult to assess once 

offsite.

Mr. French indicated that a confluence of concentrated and risky or rapidly growing loan 

portfolios with reliance on wholesale funding is a risky mix. In this regard, he explained, it is 

advisable to practice prudent and sound underwriting (particularly in light of the changing 

interest rate environment) and the other practices that Ms. Miller previously discussed and that 

are reviewed in the SIJ article.
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Mr. French then welcomed any questions or comments and asked specifically if the 

Committee members could comment on market concentrations and what the members have 

observed on the funding side in terms of deposit pricing and depositor behavior.

Member Howard commented that in his market area (his bank is headquartered in 

Connecticut), he has not seen any increases on the funding side. He further stated that the larger 

institutions and even the smaller institutions in his area appear to be holding stable on the 

funding side. Member Howard further commented that those institutions have a lot of variable 

rate loans and, as a result, are obviously beginning to enjoy a wider spread there.

Member Busse commented that his bank has not experienced noticeable change with 

increased interest rate activity on the deposit side. He further commented that with regard to 

core deposits, Pacific Continental Bank is primarily funded with such deposits. Member Busse 

further commented that he anticipated pressure in the event of further interest rate increases.

Member Busse then opined that if a bank largely utilizes fixed rates, it may soon experience a 

squeeze as a result of this business approach. He commented that there is also pressure now on 

the competitive front with customers trying to lock in rates, which he opined may create an 

increase in loan activity that could create an additional future squeeze. However, Member Busse 

stated that there has not yet been a noticeable change.

Member Scully commented that Howard Bank has not yet experienced pressure on 

deposit pricing. She further commented that her institution has witnessed a slight increase in 

fixed rate loans, but has found it interesting that there still appears to be a large appetite on the 

part of her competitors in doing 10-year fixed rates and, in some cases, 15-year fixed rates loans. 

Member Scully stated that this could, however, be viewed as reflective of the yield curve for the 

10-year rate which has not changed as much as the short-term rate. Member Scully explained 

that her institution is usually less concerned about rates and their yields because it employs a 

similar funding strategy to that used by Member Busse.

Member Scully next commented on the Commercial Mortgage-Backed Security 

(“CMBS”) market and that she did not know how much of what is happening now in that market 

is an increase in CRE activity as opposed to more of a shift in market share as customers shy 

away from the CMBS market for refinancing, resulting in banks getting a bigger share. Ms. 

Miller responded that this market share trend was definitely evident, especially in the larger 

institutions.

Member Dakri commented that he has seen something a little bit unusual, in depositor

behavior at Wallis State Bank due to its presence in both metropolitan and rural areas. He 

explained that in the metropolitan areas, (specifically, Houston and Dallas) there has not been 

much movement in rates, but that in the rural areas he has witnessed many banks (in the last year

or so) increasing their CD rates.

Member Boeka commented that, in her view, many of Americas United Bank’s clients 

are desensitized and fatigued and because of that she has not yet witnessed flight to other 

sources. But, she cautioned, it is still early in the game. Member Hartings commented that
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while The Peoples Bank Co. is not considered an AG bank, it still does a fair amount of 

agricultural lending. He observed that he has continued to see funds being used out of their 

accounts, with farmers drawing from their DDA balances rather than pursuing financing. Ms. 

Eberley commented that this is consistent with what the data showed in the SIJ article; in the 

Kansas City region, most farmers have gone from being depositors to borrowers.

Member Beard asked if there is a study that has looked at non-interest bearing deposits 

and how they have reacted historically. He explained that his bank, People’s Utah Bancorp, has 

about 31 percent of deposits that are non-interest bearing. He further explained that when there is 

over a one percent move in rates, there might be a reaction and people may suddenly pay 

attention. Ms. Miller responded that she was not aware of any study on the behavior of deposits, 

but did find it interesting. Ms. Miller further commented that there has not yet been a cycle with 

conditions like those that currently exist with the shift in account opening procedures from inperson to online.

Member Menon then asked a general question on capitalization rates, inquiring whether 

anyone was experiencing changes in that area. Member Howard responded that he thought that 

at the end of the day, his institution (Liberty Bank) was having trouble competing with the larger 

lenders. Member Busse agreed and commented that in his view, it is the larger institutions rather 

than the smaller community banks that they are competing against. He explained further that if 

there is a relaxing of standards or waiving of some kind of guarantee or recourse, it is being seen 

more in the larger institutions. Member Busse continued to comment that rates are more 

competitive and the larger institutions extend their terms.

The Chairman then asked for the Committee member’s view on whether the lending 

activities discussed in the presentation are continuing in that fashion or whether there has been a 

change.

Member Scully responded in the affirmative, stating her opinion that the industry has 

reached (or is reaching) an inflection point. Member Howard opined that in his institution, an 

inflection point has been reached. He continued that whenever his institution has had the 

opportunity for a refinance with an existing customer, they would do it, but in most cases to a

variable product. So, he continued, his institution now has a significant amount of variable 

paper. Member Hartings commented that his institution has about a 60 percent loan-to-deposit 

ratio, so it has investments to “burn off” if necessary. He explained that this might be another 

reason why there is not competition for rates as of yet. Liquidity, he said, is another issue.

Member Scully commented that she thought it was possibly an example of the banks being more 

disciplined. Member Howard agreed and emphasized increased discipline on the deposit pricing 

side.

Member Howard commented that he has thus far not heard about plans to raise deposit 

rates at the Safe Banking Association meetings.

Member Beard then asked whether there has been a study of the credit unions, because, 

he explained, in Utah there is aggressive pricing on deposits from credit unions. Ms. Miller 
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responded that the FDIC currently does not have any projects underway, but that going forward, 

the FDIC will be very active observers along with the banking community.

Member Beard asked if the FDIC was coordinating with the National Credit Union 

Administration (“NCUA”) in terms of regulations or concerns that the FDIC or NCUA might 

have. Ms. Miller responded that the NCUA is on the FFIEC and, as such, the FDIC does have 

regular conversations with the NCUA.

Member Dakri then stated that in the Texas market, they are running counter-cyclical to 

the rest of the national economy. He commented that his institution was high when everyone 

else was low and now they have dropped down a little bit in the last couple of years with the oil 

prices coming down. Member Dakri commented that based on this and other data in the local 

area, he felt that they have reached an inflection point in the local Houston economy.

Ms. Ryan thanked Ms. Eberley, Mr. French, and Ms. Miller and then introduced the last 

panel concerning the Youth Savings Pilot Program and Symposium. Ms. Ryan reintroduced Mr. 

Pearce, Director, DCP; Janet Gordon, Associate Director, DCP; and Luke Reynolds, Chief of the 

Outreach and Program Development Section, to give the presentation.

Mr. Pearce began by referring to the report being released later today on the FDIC Youth 

Savings Pilot Program. Mr. Pearce commented that this report reflects the culmination of two 

years of research and study into the intersection between financial education and opening 

accounts for young people. Mr. Pearce commented that the FDIC has had a long-standing 

commitment to financial education and increasing access to the banking system. Mr. Pearce then 

introduced Ms. Gordon to make the initial presentation.

Ms. Gordon commented that the Youth Savings Pilot Program (“Program”) is part of a 

long-standing commitment to financial education by the FDIC. Ms. Gordon stated that the report 

is available online at fdic.gov/youthsavings. Ms. Gordon explained that the Program was a twoyear initiative, involving 21 banks of all sizes, and that it was designed to link financial 

education to savings. She emphasized that the Program is part of the FDIC’s initiative to 

promote broad economic inclusion. She explained that schools are central to communities and 

the focus of the Program is on schools that have a significant proportion of low and moderateincome students with the aim of bringing these students into the financial system at a young age. 

Ms. Gordon commented that so far, the work of the banks in the Program has been very 

effective. Additionally, she stated, the Program coalesced parents, teachers, and other

community members around the impetus to improve the lives of their children. This, Ms. Gordon 

stated, operated as a significant motivator for everyone involved.

Ms. Gordon explained that the Program began with the objective of identifying and 

highlighting approaches to experiential financial education that combined the financial education 

with the opportunity for a savings account. She explained that the FDIC asked for expressions of 

interest from institutions around the country and from the replies selected 21 banks, both those 

that had been engaging in similar initiatives for a number of years as well as institutions that 

were doing it for the first time. She explained that the FDIC had a significant number of 

individual and group interviews during the course of the two years. Ms. Gordon also said that 
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the FDIC held the Symposium and both banks and schools sent representatives. She stated that 

the Symposium was very informative and provided a great deal of positive feedback for the 

Program going forward.

Ms. Gordon then discussed the findings from the forthcoming report on the Program.

She explained that the report contained more detail about the three basic program types that 

banks adopted. She further explained that the approaches used focused on the community, the

bank, or the age of the children.

Ms. Gordon reported that the first program type involved the establishment of full-scale 

bank branches in schools, often through, a permanent branch on school premises which usually

targeted and benefitted older students who might be working and have incomes. She explained 

that some banks used experienced bankers in the school, but also generally employed students in 

the branch as well. For student employees, the banks usually offered an extensive training 

program through a learning activity and career development approach. She also said that some 

banks used volunteer students. Ms. Gordon commented that the on-site bank branch allowed for 

financial education that was very hands-on, helped people save throughout the school year, and 

built a robust understanding of banks.

Ms. Gordon explained that the second model was in-school banking, which she described 

as having a banking day and showing up at the cafeteria, the library, or another location at the 

school to meet with a banker. This model ordinarily linked very closely to the teachers and their 

existing curriculum and also employed volunteer students (similar to some banks using the first 

model). She commented that this model was used more often with younger students (e.g.,

kindergarteners, or first and second grade students).

Ms. Gordon explained the third model involved banks simply performing financial 

education in the school. She explained that the banks using this model often took students to 

their local branch and sometimes had family days combined with a tour of the branch.

Ms. Gordon stated that one of the takeaways from the Program for bankers was the 

realization that a partnership with the school requires an investment and that it does not happen 

overnight. Another takeaway was the need to involve the students closely in the process. One of 

the more effective methods to achieve this, Ms. Gordon explained, was to have older students 

teaching their younger peers, thereby engendering a sort of leadership from the older students. 

The final takeaway for all involved in the Program was that there was a definite impact on the 

broader community. Ms. Gordon stated that three-quarters of the banks reported that they 

generated new accounts and new relationships as a result of Program involvement, which 

affected in a positive manner the banks’ visibility in their respective communities and brought in 

potential long-term deposits. Ms. Gordon then turned the presentation over to Mr. Reynolds for a 

discussion about the characteristics of the accounts.

Mr. Reynolds began by stating that all banks in the Program offered savings accounts and 

some also offered transactional accounts, particularly for high school students. He stated that the 

accounts being offered generally were low-cost, consistent with the FDIC Safe Account 

templates. Mr. Reynolds stated that there were three common ownership structures: (1) non-
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custodial accounts, allowing for minors to open these accounts in the school without needing a 

guardian to complete paperwork, resulting in a maximized learning opportunity for the students; 

(2) custodial accounts, where a parent or guardian was the custodian, which provided

opportunities to involve parents in the program and were a preferred form of account for banks in 

the Program operating in a state where the state law was unclear about whether an institution 

can offer an account to a minor; and (3) trust or other administrative accounts held by a school or 

non-profit partner for the benefit of the student-depositor, which required the school or partner to 

take a leadership role and essentially function as the students’ bankers. In other instances for this 

third account type, Mr. Reynolds stated a non-profit or community foundation wanted to 

facilitate a community-wide college savings program and open a custodial account at the bank.

Mr. Reynolds mentioned that in February of 2015 the Federal banking agencies issued 

guidance to encourage financial institutions to engage in youth savings programs and to answer 

related frequently asked questions. He indicated that this guidance is complemented by a tool the 

Conference of State Bank Supervisors released last year, which helps banks identify state laws 

pertaining to youth banking programs. Mr. Reynolds explained that this tool can assist in finding

out if a state has a law specifically allowing minors to open accounts and/or allow for a state 

bank to operate a school program.

Next, Mr. Reynolds discussed financial education. Mr. Reynolds reported that banks in 

the Program found it was important to emphasize financial education in a way that connected to 

students’ lives, such as saving for prom. He stated that in addition to peer-based financial 

education, banks found value in working with teachers to make in-class lessons relevant. Mr. 

Reynolds mentioned that banks did not always teach financial education in a formal way—it was 

not always classroom-delivered. He explained that banks occasionally viewed themselves as 

providing financial education during the life cycle of an account, one-on-one by the banker or via 

peer-based education with a student providing education to their colleagues.

Mr. Reynolds reported that during the Program, banks valued learning from one another. 

Mr. Reynolds stated that for FDIC-supervised institutions that desire involvement in a program 

that combines financial education with the opportunity for children to open a savings account,

the FDIC is welcoming those institutions to express their interest in joining the Youth Banking 

Network. Mr. Reynolds stated that the Youth Banking Network is an opportunity for the FDIC 

to facilitate conversations and dialogue between banks on how to promote youth savings. 

Further, Mr. Reynolds indicated that the FDIC is open to receiving ideas on what it can do to 

build financial education resources so that they are more useful for schools, banks, and other 

youth-based financial education programs. Mr. Reynolds stated that information on the Youth 

Banking Network can be found at fdic.gov/youthsavings. Mr. Reynolds then turned the 

presentation back to Ms. Gordon.

Ms. Gordon stated that all of the existing Program-participating banks and those that 

were runners-up in selection for the Program will be invited to join the Youth Banking Network. 

Ms. Gordon welcomed any feedback and comments on the program.

Mr. Pearce commented that after participating in the Symposium, he was struck by three 

things. One, he said, is how hard the process is to put together; finding opportunities for an 
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institution to get involved in a school and teach financial education is in and of itself challenging

and putting that together with also offering savings account opportunities takes a champion both 

at the bank and at the school. Second, Mr. Pearce stated that it was interesting to observe how 

much the banks that are involved in the Program wanted to talk to each other and their 

enthusiasm to share stories of how they were approaching the challenges and opportunities 

differently. In this way, Mr. Pearce stated, there was a significant amount of learning amongst 

the Program participants. Third and finally, Mr. Pearce stated that if the education is paired with 

the opening of an account, it really builds on both components and makes each of greater value 

than if one is done in isolation. He explained that it forms better long-term relationships with 

institutions, generates a more favorable view of banks among participants and the community, 

and fosters better savings behavior. Mr. Pearce observed that the program really changed the 

lives of some of the kids, especially those that participated in managing branches as many began 

to view banking as a potential career path.

Mr. Pearce then welcomed questions and comments from the Committee members.

Member Hanrahan asked if Mr. Pearce or Ms. Gordon could elaborate on how a bank 

would have to document the delivery to a certain audience in order to have a firm hook for CRA 

service credit. Ms. Gordon responded that the bank would probably have to select a school with 

a majority of students on reduced lunch. This, she said, would be the simplest way. Ms. Gordon 

stated that another way would be to get other information from the school or a letter from the 

school indicating the relevant metrics or even to go to neighborhood schools that are in 

overwhelming low and moderate-income places.

Ms. Gordon also commented that it was often the case that the students who actually 

performed best as bankers were not always the best students. In this way, she emphasized that 

giving a wide range of students the opportunity to do something hands-on, tactile, and engaging 

may benefit less academically-inclined students.

 Member Busse complimented Mr. Pearce and Ms. Gordon on the program. Member 

Busse asked about mobile banking at the schools and whether it helped the Program. Mr. 

Reynolds responded that several banks in the Program offered mobile accounts and reported that 

it helped retain students after they graduated from high school. He also stated that they reported 

students appreciate having some of the options, so it helped them sell and retain accounts. 

Member Busse asked for direction on who a bank should contact at a school if the bank 

wanted to start up a program such as this. Ms. Gordon responded that it would be important for 

them to talk to somebody they know in the community or school first, noting that the more senior 

the leadership, the better. She explained that even though one teacher can be a champion on 

campus for the future program, it is best to start with the principal or even at the superintendent 

or county-wide basis. Ms. Gordon also directed the bank to utilize the Youth Banking Network 

cited by Mr. Reynolds.

Member Hartings asked, with reference to a non-custodial account, how a Customer 

Information Program (“CIP”) is handled. Mr. Reynolds responded that the forthcoming 

Program report answers this question and he explained that for CIP purposes, the depositor is the 
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bank's customer-if a bank is offering an account to a minor, the minor is the bank's customer.

Mr. Pearce then reminded everyone that one of the other things to note is obviously the age in

which you can open a non-custodial account is a matter of state law.

Member Beard asked whether the bank leases space from the school or through some

other arrangement. Mr. Reynolds responded that in some cases, a bank would enter into a

memorandum of understanding or other form of agreement with the school and essentially lease

space in the school for the branch. Mr. Reynolds continued by noting that in some branches the

banks used a full-time employee, in others a part time employee, and some branches kept limited

hours of operation.

Chairman Gruenberg asked how a bank that might be interested in initiating a project

similar to the Program, in addition to referencing the materials online, should proceed in

contacting someone at the FDIC (either in Washington or in the regions) for assistance or advice

or how to contact another bank that has gone through the process. Ms. Gordon responded the

FDIC can facilitate matching banks with schools as well as banks with other experienced banks.

She further responded that there have been discussions about having informative seminars where

the bankers that have participated in the Program can talk to new groups of bankers. Ms. Gordon

invited anyone interested in the Program to send her an e-mail.

Ms. Ryan thanked the panelists for their presentation. Ms. Ryan then turned the meeting

over to the Chairman to make closing remarks.

In bringing the meeting to a close, Chairman Gruenberg commented that he found the

various panel presentations and discussions to be instructive and informative. The Chairman

stated that this being the seventh year of a recovery period, the FDIC will continue to work

closely with institutions going forward. The Chairman thanked everyone and then brought the

meeting to a close.

***

There being no further business, the meeting was adjourned at 2:38 p.m.

Robert

~--

E. Feldman

Executive Secretary

Federal Deposit Insurance Corporation

And Committee Management Officer

FDIC Advisory Committee on Community Banking

March 28, 2017
Minutes

ofthe

Meeting of the FDIC Advisory Committee on Community Banking

of the

Federal Deposit Insurance Corporation

Held in the Board Room

Federal Deposit Insurance Corporation Building

.Washington, D.C.

Open to Public Observation

March 28,2017 - 9:00 A.M.

I hereby certify that, to the best of my knowledge, the attached minutes are accurate and

complete.

Martin J. Gruenbe

Chairman

Board of Directors

Federal Deposit Insurance Corporation