1

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

FEDERAL DEPOSIT INSURANCE CORPORATION

+ + + + +

ADVISORY COMMITTEE ON COMMUNITY BANKING

+ + + + +

MEETING

+ + + + +

TUESDAY,

MAY 3, 2022

+ + + + +

The Advisory Committee convened at 

1:00 p.m. EDT via Video-Teleconference, Martin 

Gruenberg, Acting FDIC Chairman, presiding.
2

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

PRESENT:

MIKE BOCK, CEO, Dairy State Bank

TROY CAMPBELL, President & CEO, Altoona First 

Savings Bank

HAROLD HORVAT, Chairman & CEO, Centreville Bank

ROBERT JAMES II, Executive Vice President, 

Carver State Bank

BETSY JOHNSON, President & CEO, Solutions Bank

BRUCE LOWRY, President & CEO, Ireland Bank

TREY MAUST, Executive Chairman, Lewis & Clark 

Bank

NEIL McCURRY, Sarasota and Manatee County Market 

President, Seacoast National Bank

TERI MESSERSCHMITT, President & CEO, South 

Ottumwa Savings Bank

DOMINIK MJARTAN, President & CEO, OPTUS Bank

GILBERT NARVAEZ, JR., President & CEO, Falcon 

International Bank

MARGARET OLDNER, CEO & Director, Stone Bank

ARLEN OSTERBUHR, Chairman & CEO, Minden Exchange 

Bank & Trust

SHANE PILARSKI, President & CEO, Alliance Bank

KIM REIGELSBERGER, President, Preferred Bank

ANDREW WEST, President, Eagle Bank

ALSO PRESENT:

ROHIT CHOPRA, Director, Consumer Financial 

Protection Bureau

MICHAEL HSU, Acting Comptroller, Office of the 

Comptroller of the Currency
3

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

FDIC STAFF PRESENT:

MARTIN J. GRUENBERG, Acting Chairman

LISA ARQUETTE, Associate Director, Anti-Money 

Laundering and Cyber Fraud, Division of 

Risk Management Supervision

BOBBY BEAN, Deputy Director, Capital Markets & 

Accounting, Division of Risk Management 

Supervision

SHANNON BEATTIE, Chief Accountant, Division of 

Risk Management Supervision

DOREEN EBERLEY, Director, Division of Risk 

Management Supervision 

KRISTIE ELMQUIST, Regional Director, Dallas 

Region

G. CHRIS FINNEGAN, Senior Deputy Director, 

Compliance and CRA Examinations, Division 

of Depositor and Consumer Protection 

MARTIN HENNING, Deputy Director, Operational

Risk, Division of Risk Management

Supervision

JESSICA KAEMINGK, Acting Regional Director, New 

York Region

JAMES LaPIERRE, Regional Director, Kansas City 

Region

YAN LEE, Economist, Division of Insurance and 

Research

RAE-ANN MILLER, Senior Deputy Director, 

Supervisory Examinations, Division of Risk 

Management Supervision

SHAYNA OLESIUK, Associate Director, National and

Regional Risk Analysis, Division of

Insurance and Research

TARA OXLEY, Associate Director, Compliance and 

CRA Examinations, Division of Depositor 

and Consumer Protection 

PHILIP SHIVELY, Deputy Director, Research and 

Regulatory Analysis, Division of Insurance 

and Research 
4

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

C-O-N-T-E-N-T-S

Introductory Remarks .......................... 5

Discussion of Local Banking Conditions ....... 10

Small Business Lending Survey ............... 139

Supervision and Policy Update ............... 158

Closing Remarks ............................. 207
5

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

P-R-O-C-E-E-D-I-N-G-S

1:07 p.m.

CHAIRMAN GRUENBERG: Welcome to all 

the members of our FDIC Advisory Committee on 

Community Banking. Welcome to our spring meeting 

of this committee. It's a pleasure to have you 

all.

This meeting is being done virtually. 

We would hope going forward, to have the 

opportunity to actually hold these meetings in 

person. But, we will do our best today in this 

virtual format.

If you look at the agenda for today's 

meeting, it's really divided into two parts. The 

first part is we get to hear from you; and, the 

second part is, you get to hear from us.

And, that's a pretty fair exchange, 

and kind of sums up what this Advisory Committee 

is about.

I will say we really look forward to 

your presentations as an opportunity to hear 
6

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

directly from you, what you're seeing on the 

ground for your institutions, and in your local 

markets.

It seems to us we're dealing with a 

remarkably uncertain outlook for the economy, and 

the financial system right now.

We clearly have a shift in the conduct 

of monetary policy in the United States. We're 

going to be looking at a rising interest rate 

environment, for the remainder of this year.

And, that may have consequences for 

the economy and the banking system.

And, in addition, the tragic events in 

Ukraine, and the sanctions on Russia, have 

impacted energy and commodity markets, and supply 

chains, which adds further uncertainty to the 

economic outlook.

So, hearing from you all, what you're 

experiencing at the moment, is something we 

really welcome and value.

And, we also look forward to the 
7

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

opportunity to share with you our thoughts, and 

some of the key priorities that we've been 

working on.

We have a number of new members who 

are joining the committee for the first time, at 

today's meeting.

And, if I may, I'd like to introduce 

them and welcome them to the committee. Troy 

Campbell, the President and Chief Executive 

Officer of Altoona First Savings Bank, in 

Altoona, Pennsylvania.

Robert James the II, Executive Vice 

President of Carver State Bank in Savannah, 

Georgia.

And, Troy Maust, Executive Chairman of 

Lewis & Clark Bank in Oregon City, Oregon.

Dominik Mjartan, the President and 

Chief Executive Officer of Optus Bank, in 

Columbia, South Carolina.

Arlen Osterbuhr, Chairman and CEO of 

Minden Exchange Bank & Trust Company, in Minden, 
8

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Nebraska.

Shane Pilarski, President and CEO of 

Alliance Bank, in Francesville, Indiana.

And, Kim Reigelsberger, President of 

Preferred Bank in Rothville, Missouri.

On behalf of everyone at the FDIC, I'd 

like to thank you for agreeing to serve on this 

committee. We very much look forward to your 

participation, and getting to know you.

Before I turn over our discussion to 

Doreen Eberley, who is going to serve as the 

moderator for today's meeting, we are joined 

today by Rohit Chopra, the Director of the 

Consumer Financial Protection Bureau, and a 

member of the Board of the FDIC.

And, also if I may say, a strong 

supporter of community banks in the United 

States.

And, if I could ask Rohit to say a few 

words before we turn the program over, over to 

Doreen.
9

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

DIRECTOR CHOPRA: Well, thank you, 

Mr. Chairman, for allowing me to crash this 

meeting.

You're so right that we are navigating 

some unique economic times, both geopolitically 

and within our broader interest rate environment.

In terms of consumer credit, we're 

starting to see some changes. We, of course, are 

expecting that mortgage origination will fall, 

mostly driven by reductions in refinancing.

We're starting to see outstanding 

credit card balances go up, and we're 

particularly attuned to what we're seeing in the 

vehicle market, where the Asian chip supply 

shortage is really reverberating in terms of both 

new and used car sales. And, we're starting to 

see that in the auto loan market.

Of course, I know so many of you are 

thinking about how to use technology effectively, 

and we are also very attuned to how we can 

preserve relationship banking, while also 
10

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

leveraging technology.

So, I don't want to take too much 

time. I want to thank Doreen, and all the staff, 

for leading us today, and I'm definitely looking 

forward to the discussion.

Thanks again.

CHAIRMAN GRUENBERG: Thank you, 

Rohit, and thank you for being here today.

And, now, if I may, I'd like to turn 

the program over to Doreen Eberley, the Director 

of our Division of Risk Management Supervision, 

who will serve as the moderator for today's 

meeting.

Doreen?

MS. EBERLEY: Thank you, Chairman 

Gruenberg, and thank you Director Chopra, both of 

you for giving some opening remarks.

We're going to start this afternoon by 

turning to the committee members for a discussion 

about trends and issues, relating to the local 

banking environment and conditions.
11

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

And, then after we've heard from the 

committee members, we've also asked FDIC staff 

members to discuss their observations.

Shayna Olesiuk, Associate Director 

National and Regional Risk Analysis, from our 

Division of Insurance and Research, is going to 

cover some observations about the national 

economy and banking trends.

And, we also have today Kristie 

Elmquist, the FDIC's Regional Director from the 

Dallas Region, Jessica Kaemingk, the FDIC's 

Acting Regional Director from the New York 

Region, and Jim LaPierre, the FDIC's Regional 

Director for the Kansas City Region, with us.

And, they're going to discuss 

observations of local FDIC staff.

So, I'd like to kick off our committee 

member discussion with Betsy Johnson, President 

and CEO of Solutions Bank, who will be followed 

by the other committee members.

Betsy?
12

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

MEMBER JOHNSON: Good afternoon. 

Thank you, Director Gruenberg, for laying out our 

meeting today because it's a lot of gloom and 

doom, too, unfortunately.

I want to say it's an exciting time, 

but we haven't had these changes in quite some 

time.

What's happening in Ukraine is very 

sad, and sometimes to be from the State of 

Illinois, I feel like I've got gloom and doom 

here, but not nearly in the magnitude of that.

So, again, good afternoon, and it's a 

pleasure for me to start the meeting today. The 

subject matter is I said, very, matters to all of 

us. Maybe not in the same magnitude or mattering 

to all, but very extremely of importance.

A quick recall. I am Betsy Johnson, 

President and CEO of Solutions Bank, and from a 

$440 million dollar community bank with seven 

locations, in four counties in Northern Illinois.

At the end of this past January, 
13

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

completed a merger of our second acquisition 

within two years.

And, I've got to tell you, I have the 

utmost greatest respect for all the people that 

work on mergers and acquisitions, because if you 

haven't been through one, it's a lot of work. 

All worth it, but a lot of work.

We are now looking forward to more 

focus, and get back to business, hopefully as 

normal. And, then of course, there's always 

something happening in banking, like changing 

interest rates.

We're also looking forward to an 

upcoming exam in a few months, with the FDIC, for 

compliance and safety and soundness.

So, did I say we're excited about 

that? We're excited about that.

Of course, I always like to look at it 

and tell our staff, that it's an opportunity to 

show our efforts of our hard work, and what we 

put into our business, and what we provide to our 
14

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

customers, our communities, and employees.

So, yes, we're going to look very much 

forward to it.

Today in Northern Illinois, it's like 

many other days have been in the last couple of 

months. It's rainy, it's cool. April and May 

have been 45 degrees.

Even though our state covers 390 miles 

north and south, the temps vary. And, today I 

looked up, and even Southern Illinois is only up 

to the 60s.

So, what that has done for us is, 

we're a big agricultural state. And, only up to 

a few days ago, approximately five percent of our 

crops were planted. This time last year, it was 

90 percent.

Input prices continue to increase. 

Seed, fertilizer, fuel, as we well know from the 

economic outlay, as well as a demand for premium 

on rent due to anticipated high corn, soybean 

prices.
15

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

And, in some cases, input costs 

certain items even tripled.

As I've said, Illinois accounts for 

approximately five percent of U.S. agricultural 

sales. It's 80 percent crops, and 20 percent 

livestock.

And, Ag is also the number one 

industry in Illinois in terms of economic impact, 

contributing to just over $8 million to the 

state's economy. And, employs over 1.5 million 

in the fiber and food industry.

Now, noting these facts, it's no 

surprise that land values continue to increase, 

and it's also attributed to investors, and 

investing in farmland in Illinois, which makes 

competitive for our buyers who are typically, are 

generational farmers.

Last known sale in Northern Illinois 

was as much as $14,000 an acre, and it's for land 

that will most likely continue to be in Ag

production, and I note, not for commercial 
16

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

development.

The Ag industry in Illinois is, as in 

many other years, will most likely prove to be 

very interesting this year. Challenging for our 

farmers.

But, I have to say, they continue to 

prove that they can be smart and efficient 

operators.

So, it will be interesting and we'll 

have to wait to see.

Also, known in Illinois as of March 

unemployment, which is typically a little bit 

higher in Illinois than most states.

The rate was at 4.7, so that's down 

from last year at 6.7. 299,000 unemployment and 

90,000 unemployment claims. Last year like I 

said, 6.7. We had over 400,000 unemployed, and 

almost 300,000 in claims.

On the housing market, despite home 

construction costs, supply chain challenges, we 

still see the continued building of 1-to-4 family 
17

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

homes, condo, apartment complexes, particularly 

in the suburbs of Chicago.

In conversations I've had most 

recently with other Illinois bankers, even due to 

the shortage of supplies, home sales, homes that 

are for sale, it didn't appear that they think 

mortgage lending would come to a halt.

It will slow down even with an 

increase in rates. But, we anticipate it will 

slow down, but they can still continue to build 

besides all the obstacles.

PPP loans, all forgiven in our 

particular bank. Balances have decreased down 

to $800,000. We started only at $4.5 million, 

but all forgiven, and seems to be going well.

Loan demand has increased. 

Opportunities are rising more with society going 

back to in-person structure.

And, of course, lines of credits are 

increasing, due to product increases as well.

Deposit balances post-COVID have 
18

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

still hung in there and decreased only slightly. 

Most activity happening with that, are moving of 

funds before maturity, and deposits to nonmaturing, as customers are waiting for investment 

opportunities.

So, still with historical deposit, 

high deposit balances, leverage capital at ratios 

remain, you know, compliant, but still a little 

stressed.

But, as we come up in the next few 

months and next year, we see this may change. 

Higher cost of living, daily expenses continue to 

rise and consumers may go back to being forced to 

dig into our savings to make ends meet.

Though we would like to think COVID is 

a distant memory, it still is not. We personnel 

here expect some cases at the bank, of positive 

COVID, fortunately with very few complications.

But, it's still apparent that in all 

areas of business, employment remains to be an 

issue, from obtaining talented workers, to 
19

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

retaining, which has had an overall impact.

Some of our vendors who provide 

services to us and our customers, experienced an 

exiting of talent.

So, even though they're replaced, you 

know that expertise goes out the door and 

redevelopment takes time.

Results in, you know, service that 

isn't quite as satisfactory, and more effort is 

involved.

New development takes not only time, 

but it takes overhead expense, because we know 

those coming into those new positions, are making 

more demands.

The salary levels are going up, and so 

this kind of begs the notion of maybe are we

seeing new normals in overhead expense.

A $20 entry level per hour pay, is 

maybe $50,000 on average for an entry level 

universal banker.

So, as these costs rise for banks are 
20

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

cooperating and cybersecurity costs also rise.

So, it will be interesting to see the 

demands on all businesses throughout the State of 

Illinois.

So, this brings me to the subject of 

mergers and acquisitions. Illinois still number 

two in charters behind the state of Texas. I 

think we're both at somewhere around 380. And, 

we both continue to experience merger activity.

It slightly tapered off during the 

peak of the pandemic as you know, but, however, 

as costs mentioned, you know cybersecurity, 

regulative compliance, and demand. Sometimes 

this is the best option for mergers and 

consolidations.

There have been many changes in 

banking since the last merger applications we 

know. Some dated 1995. We do not exactly effect 

all the, reflect all the changes.

Online banking is a perfect example of 

enhanced market access, and, also for non-bank 
21

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

financial firms. Fintechs, credit unions, and 

farm credit.

So, we ask the question, as you're 

asking the question so how big is too big? Now, 

we realize the topic is being reviewed, and we 

would ask for continued pursuit of updating the 

process and the guidelines, to ensure all data is 

properly captured, and for accurate view of our 

competition.

In addition, we'd strongly support the 

update of the CRA regulatory framework, to 

support, accurately reflect digital services.

Hopefully, this would also help begin 

the modernization of CRA regulations; would 

assist in the analysis of bank mergers, 

identifying convenience, and the needs.

On the subject of climate and banking, 

we realize there are benefits to this, and, also 

it's kind of like I look at it as like a CECL, 

and probably we talk about overdraft fees.

It's not going away, and for good 
22

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

reasons. And, there's no argument there.

The State of Illinois has been on more 

than several occasions, used the banking system 

to be their own so-called record keeper, without 

consulting the channels involved, and up front.

So, I would ask that the bankers have 

a seat at the table in order to assist, and be 

part of this problem solving when we're talking 

about climate and banking.

I say this over and over again, we are 

a very regulated industry and that even though 

there's not always clear paths of how we comply, 

we just do it and we figure it out.

So, part of our jobs are to know our 

customers. So, who better to assist us in 

understanding those customers, which had an 

impact, or impacted by climate and environmental 

issues.

I know there are bankers on this call, 

within the group there are specific comments and 

have specific knowledge about this, so I'm going 
23

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

to leave the rest of that for them, and I 

encourage them speak more on their behalf.

We just ask that you provide bankers 

a seat at the table.

Last month, FDIC we all know, provided 

guidance on consumer compliance supervisory

highlights, addressing non-sufficient funds for 

transaction items that were presented multiple 

times, resulting in overdrawing account fees. 

They're charged for the same items, re-presented 

items.

So, it was discussed that this 

practice may fall under deceptive and unfairness, 

that's harmful to the consumer. Examinations are 

finding disclosures and definitions that may be 

unclear, and I would not disagree with that.

And, are charges for re-presented 

items, charges that, you know, we don't want to 

charge the customers and really probably it isn't 

our intention to do that.

Although it takes more time to review 
24

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

these items daily, Solutions Bank is trying to 

find the most effective method possible to do 

this, and still even though we do that, I can't 

guarantee you that we're accomplishing at 100 

percent.

And, I've heard from core processors 

that they are unable to accommodate providing 

necessary reporting to assist. Well, we've heard 

this from our same provider, Fiserv Precision 

Core.

But, we're continuing to press the 

matter, and our own operations staff is trying to 

find the best way possible.

What would greatly help is if the FDIC 

continued to pursue resolution of this practice, 

it would be greatly beneficial to bankers to have 

the FDIC support demand for processors to help us 

figure this out.

They have all the data. The data is 

there. So, I have no doubt that they can provide 

better methods than we currently have today.
25

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

If left to the bankers to progress the 

cores, I'm afraid it will not happen.

Continue the conversations regarding 

fees, banks have again become under fire from the

CFPB branding almost that fees associated with 

banking, even those who've regulated the CFPs as 

junk fees.

Now, national surveys I've read more 

in consulting lately, found that 83 percent of 

U.S. adults believe that their bank is 

transparent in disclosing fees, and 62 percent 

believe that account fees charged by their banks, 

are reasonable.

Of course, you know, fair, reasonable, 

are of opinion and perception.

I do not believe my community bank and 

others set out to intentionally take advantage of 

their customers and charge them excessive fees, 

just because we can.

More recently in Illinois, I speak to 

Illinois, our attorney general has signed a 
26

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

multi-state letter calling for elimination of 

overdraft fees. And, he specifically calls on 

the heads of Chase, it was BofA, US, and Wells, 

I believe, to eliminate overdraft fees.

So, we're getting this from both 

sides, fed and state levels. We'll probably 

continue discussion on this.

Our bank recently went through the 

list of fees and ironically, some of the fees, 

there's a lot of things we don't charge for, or 

we waive the fees. Some of them are there for 

behavioral things.

So, I did challenge our staff and say, 

you know, we had to publish and disclose our list 

of fees, but why don't we put a list together of 

things and services, for which we do not charge. 

I strongly believe that the list would be much 

longer.

Other topics we have up today, central 

digital, banking currency, and cryptocurrency. 

I'm really not very educated or understand, I 
27

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

believe to provide an educated opinion on this.

Now, it's my understanding though, the 

credit unions have been given kind of a green 

light to hold crypto, and if that's the case, I 

of course would approve of that fact because we 

always feel that banks should be entitled to have 

the same advantages and benefits of credit 

unions.

But, in this case, I'm a little bit on 

the outlier and lean towards the side of caution, 

when we're making decisions regarding these 

matters.

I'm always a follower, so and I'm not 

going to quote Warren Buffet and what things have 

been said about crypto in the last couple of days, 

but also do believe that the federal system is 

very important to our economic future.

However, technology is as well, and in 

our future and decisions, a decision needs to be 

made, it's understood.

There are a lot of good salesmen out 
28

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

there, so my message is, please proceed with 

extreme caution.

In this month of recognizing banks, 

community banking and financial literacy, we 

should remember how many people remain unbanked, 

do not use digital services, and have been 

scammed.

Fraud is still on the rise and it goes 

in streaks, but it remains an everyday event. An 

everyday event where we try protecting our 

customers from literally, themselves.

I have not seen lately too much in the 

media about this, so that's in our community,

we're trying to work with news media. Not 

everybody has internet banking like I said, so 

we're trying to get the message out there.

And, if there's anyone out there that 

feels that they have found something that works 

well, I'd love to hear more about it.

Because I think it is extremely 

important. People are still being taken 
29

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

advantage of.

I think with Illinois always seems,

like I said, to be a busy state. Proposed bills. 

Recently our banking lobbyists were able to help 

a retail theft bill be revised, which came in the 

last minutes of session ended.

And, I'm going to end at a high note, 

that Illinois did pass their budget before the 

general assembly adjourned for the spring 

session.

They approved a $46 billion surplus 

budget that invests an unprecedented $1 billion 

into an Illinois rainy day fund, and also pays an 

extra $500 million towards pension obligations, 

which have been of issue in Illinois, and 

increases funding for schools.

So, for this year and the next, it 

sounds better for the State of Illinois, and is 

good for all of Illinois.

So, that's what we have going on in my 

area. Again, I thank you for your time and 
30

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

attention to hear what is happening in my 

Illinois area.

I would like to turn it over now to 

Mr. Gilbert Narvaez, Jr., President and CEO of 

Falcon International Bank.

MEMBER NARVAEZ: Good afternoon 

everyone. I'm Gilbert Narvaez, Jr., and thank 

you, thank you again Betsy, for the introduction.

I am President and CEO of Falcon Bank. 

Our bank is headquartered in Laredo, Texas. 

We've been in operation for over 35 years, and 

currently stand at $1.9 billion in assets.

We conduct a significant part of our 

business along the Texas/Mexico border. The 

bank's 17-branch footprint also extends into the 

south-central region of the state, which includes 

the metropolitan areas of San Antonio and Austin.

We did have a small branch acquisition 

in late 2021, small town south of Laredo in 

Zapata, along the border still, to service that 

community of business that we had already for 
31

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

that area.

Our branches primarily service 

communities comprised of a predominantly Hispanic 

population, and also serve many customers in the 

low- to moderate-income areas.

Being that Laredo is one of the 

largest inland ports of entry between the U.S. 

and Mexico, international trade and

transportation sectors continue to be very 

active, and very important sectors of our 

operating environment.

In 2021, the Port of Laredo handled 

over 5 million cross-border truck shipments. 

Over 250,000 railcar shipments, and over 600 

million pounds of air freight.

Other ports along the border, such as 

the McAllen metro area and upstream and to the 

Eagle Pass market, are also major contributors of 

the transportation trade activity in our region.

Regarding local banking conditions, 

today all of the markets are experiencing 
32

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

positive economic and business activity, measured 

at or better than pre-pandemic times.

We don't have any, you know, no gloom 

and doom yet. We're cautiously awaiting for some 

slowdown.

We do, however, as I think most 

participants will probably be dealing with this. 

We do have some labor market challenges across 

the board in all our markets.

The market is very tight, and very 

competitive. It's been difficult task for 

recruiting and retaining certain positions. But 

we're navigating through those, through those 

times.

Loan demand has been robust in various 

CRE sectors in most of our markets. Anything 

from warehousing, hospitality, land development. 

The same is said for the housing market. We're 

experiencing some continued growth in the 1-to-4 

family, and multi-family construction.

We see our net interest margin 
33

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

improving as loans reprice, and pre-payments of 

mortgage-backed and CMO sectors of our investment 

portfolios have slowed, increasing the yields on 

those instruments.

As the Fed, as we see the Fed continue 

to raise rates in their efforts to contain 

inflation, we expect it to continue to enhance 

our net interest margin.

We've experienced no pressure on 

increase in deposit rates, as most banks continue 

to be flush with liquidity, and see no necessity 

to pay up for deposits.

Our bank’s low loan-to-deposit ratio 

is at 60 percent, indicative of the bank's strong 

liquidity position. Normally we've in previous 

years, we've run in the 75 to 80 percent range.

On loan performance, past dues, net 

charge-offs, and adversely classified asset 

levels are at all-time low.

We continue to see companies and 

investors from the West and East coast coming 
34

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

into Texas, to set up shop and invest in real 

estate ventures. Everything from income 

producing properties to ranch land.

So, if we do enter any type of 

recessionary period as it's been in the past, 

usually Texas is last in and first out. 

Hopefully, it will be short-lived for Texas.

There are some regulatory concerns 

that Betsy already spoke about, regarding 

overdrafts.

The CFPB's recent stance on junk fees,

on ODs and all that, but I know that this will 

probably be covered later in the program.

But we do just, I guess to keep in 

mind that community banks are primary providers 

of consumer access to diverse options of meeting 

liquidity shortfalls.

Finally, on the COVID front, COVID is 

pretty much in the rearview mirror for now, and 

we hope that we can continue to avoid any 

further business disruptions caused by this, any 
35

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

additional surges of new variants.

Going forward, we believe that we're 

going to have to just continue to live with it, 

learn to live with it, and like we've done so in 

dealing with other, other illnesses such as the 

flu.

This concludes my report, and I'll 

hand over the program now to Mr. Harold Horvat, 

which is our next speaker.

Thank you.

MEMBER HORVAT: Thank you, Gilbert. 

Thanks for the introduction.

My name's Hal Horvat. I am the CEO 

of Centreville Bank, and we're located in West 

Warwick, Rhode Island.

We were founded in 1828 and we were 

founded originally by, -- to service the needs of 

the industrial community here. Mostly 

millworkers in West Warwick, Rhode Island.

We currently are just under $2 billion 

in assets, and we have 17 locations, nine of which 
36

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

are in Rhode Island, and seven of which are in 

Eastern Connecticut. So, it's serving that Rhode 

Island/eastern Connecticut market.

What we're seeing today has really 

been, the last six months of significant recovery 

to our economy. Our employment rate is down, 

down below the national average, and that's 

improved things significantly.

We're also experiencing something 

that a lot of my colleagues across the country 

have talked about recently, and that is that our 

real estate prices continue to rise.

Our inventory of housing is very low, 

and it's caused significant increasing in prices, 

as well as we were having price wars and bidding 

wars for property. And, that has continued.

We expected that to sort of wane down 

a little bit after the first of the year, and it 

has just continued.

Our labor market as I think Betsy 

mentioned, is still very tight. Lots of 
37

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

industries including the banking industries, 

have, have problems filling positions.

And for us particularly, it's on the 

banker or the universal banker level. It's 

always difficult to recruit, and our competitors 

in this area have experienced that as well.

Beyond that, certainly we're very tied 

to hospitality. We have a lot of restaurants and 

hotels in this area, and they have had some 

difficulty filling those position as well.

So, it's kind of an interesting market 

right now, but by and large, it's been pretty 

strong from an economic standpoint.

In terms of the bank's condition, we 

had a record year last year. Record in terms of 

net income, and loan growth, and efficiency.

I think one silver lining of the 

pandemic, is the fact that we've been able to 

operate more efficiently both over the last 

couple of years, and I think we're better, better 

equipped to do so in the future.
38

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Our asset quality remains very strong, 

at record levels. And, we're particularly 

pleased by that fact, particularly in light of 

the fact that we have over $135 million in hotel 

loans, which we had at the beginning of the 

pandemic.

But I think it's a success story. A 

combination of the bank deferring payments on 

those loans, PPP money coming in from the 

government, and cooperation from the FDIC, quite 

frankly, allowed those companies to get through 

the worst of times.

And, they've come through pretty well. 

I would say without any exceptions, it's been 

through a lot of hard work on their part, but 

it's definitely a success story as far as I'm 

concerned.

Deposit growth has continued, but not 

at the same level it had over the last couple of 

years. We had expected it to come down a little 

bit in the first quarter, and that just hasn't 
39

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

happened, it's remained steady.

So, the first quarter's been also very 

good. It feels a little bit like the calm before 

the storm, with inflation issues and rising 

interest rates. But first quarter has been very 

good.

In terms of what we expect for the 

rest of 2022, we expect commercial real estate to 

continue to be strong.

And, we've had a lot of success in 

that arena, particularly in terms of apartment, 

warehousing, and also self-storage have been the 

three areas that have really kind of grown in 

this area, in the eastern New England.

We're cautiously optimistic. We feel 

like we survived a very long period of low 

interest rates, the pandemic, et cetera, and that 

we're in very good financial condition to handle 

what comes next, although it being uncertain.

We're also concerned about regulatory 

issues, as I think Betsy and Gilbert mentioned. 
40

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

We're very concerned about having a seat at the 

table when we start talking about climate change, 

and any legislation that comes into place, or any 

regulation that comes into place, that affects 

banking. We think it's important to have a voice 

at that table.

I would also echo some of Betsy's 

sentiments regarding the overdraft fees, et 

cetera. I think it's important to understand the 

role that community banks play with their 

customers, and how well they know their 

customers. And, really talk to consumers about 

that particular issue. So, enough of that.

With that, I will turn it over to 

Robert James II.

MEMBER JAMES: Good afternoon and 

thank you Hal. My name is Robert James II. I 

serve as Executive Vice-President of Carver State 

Bank, in Savannah, Georgia.

Thrilled to join this Advisory 

Committee, and my first meeting.
41

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Carver State Bank is a 95-year-old 

African-American-owned institution, located 

again in Savannah, Georgia.

We are also a certified CDFI, 

Community Development Financial Institution, 

with a mission to provide the building blocks to 

financial freedom.

Our bank is in excellent condition 

with our highest ever level of tier 1 capital, 

and excellent asset quality.

We recently closed on an acquisition 

of a controlling interest in another bank, a 

charter in Alabama, which will be the first 

acquisition in the history of our institution.

We are experiencing extremely high 

liquidity, which remains a holdover from the 

pandemic.

And, we are seeing an uptick in loan 

demand, but it's still softer than we would like, 

especially with regard to the quality of loan

requests.
42

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Inflation is continuing to put 

pressure on construction projects in our market, 

as well as the supply chain issues that continue 

to plague many of our customers that are 

contractors.

And, so we're seeing a great deal of 

growth in 1-to-4 family real estate, as well as 

in larger multi-family real estate projects.

We're seeing an uptick in other kinds 

of commercial real estate for community 

facilities, and distribution facilities, but we 

are seeing prices continue to increase, so it's 

hard for many of our customers to adhere to 

construction budgets.

Housing availability and 

affordability continues to worsen in both urban 

and rural markets in Georgia, for different 

reasons in the larger urban areas than in the 

rural areas.

But they both are, were both, both 

areas are experiencing some housing challenges, 
43

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

and housing affordability continues to be a 

challenge across the market.

We just wrapped up a state led joint 

safety and soundness examination, and so we were 

happy to have our friends from the FDIC in the 

bank for the first time since the pandemic.

We are currently undergoing CRA and 

compliance examinations. We also recently 

received some very excellent technical assistance 

support from the FDIC, on a couple of interesting 

topics for us.

One was around a planned partnership 

with a Fintech company around consumer lending. 

And, we wanted to get some real guidance on that 

from the FDIC, from a regulatory and compliance 

standpoint.

And, we also are looking at expanding 

our service territory, and so we wanted to get 

some advice around how we construct our CRA 

assessment area, so that we can maintain our 

outstanding CRA certifications.
44

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

We are in line to add new tier 1 

capital this year, as a result of the Treasury's 

Emergency Capital Investment Program, that was 

enacted in December of 2020, as part of one of 

the pandemic relief packages.

This new capital is still greatly 

needed, because the pandemic really exposed the 

continued systemic need for capital, particularly

in the minority and low- and moderate-income 

communities that Carver has historically served.

As well as the need for our 

institution to greatly accelerate the path 

towards digitization of our services, so that we 

can make our products and services available in 

a broader way, and more efficiently.

Our core processor agreements 

continue to be an impediment at times, to the 

rapid digitization of our products and services.

And, so we continue to engage with our 

core processors to try to get them to the table 

to be more of a partner, and less of a, less of 
45

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

an impediment to our ability to digitize our 

products and services.

We are, I agree with Hal and Betsy 

that spoke earlier about the nuanced position of 

overdraft fees.

Our customer base many times uses 

overdrafts as not, they're not being preyed upon, 

but often times we have many customers who use 

overdrafts as a tool for liquidity in their 

personal lives.

And, so we would hope that the 

regulators and Congress, will continue to 

evaluate overdraft fees a little bit more, in a 

little bit more nuanced way, and really look at 

how they're being used in communities across the 

country.

Finally, I agree with previous 

speakers who have talked about the challenge with 

regard to talent acquisition, especially in our 

institutions.

And, especially at those entry-level 
46

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

and customer-facing positions. We're finding it 

very challenging to acquire new talent to 

backfill our employee base that has been 

stressed, stretched, and stressed, in the past 

two years.

I want to thank you again for the 

opportunity to speak, and I'll turn it over to 

Arlen Osterbuhr, Chairman and CEO of Minden 

Exchange Bank & Trust Company.

MEMBER OSTERBUHR: Thank you, Robert.

Thank you, Robert, hopefully you can 

all hear me. I would like to thank you for asking 

me to be a part of this committee. I truly enjoy 

being a community banker.

I'm located in Nebraska. Minden 

Exchange Bank & Trust Company is 138 years old. 

It's owned by a family, and has been here since 

it started and it's still the same family.

We're located in south-central 

Nebraska, which is right in the middle of the 

United States. And, we are $200 million in 
47

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

assets.

Nebraska's economy is very strong 

right now. Our employment, unemployment rate is 

2 percent. Labor force is short. I think it 

seems like jobs are available everywhere.

The recruiting of employment and 

employees is highly competitive right now. And, 

we are certainly looking for people all the time 

for our local businesses, our retail, and also 

our commercial and industry businesses as well. 

The labor force is short in our area.

The Minden Exchange Bank has been very 

aggressive, and very conservative with our 

thoughts and our philosophies. And, we are 

active in agricultural, commercial, and 

industrial credits, as well as consumer and real 

estate.

Inflation here seems to be soaring, 

just like most everywhere. As Ms. Johnson 

mentioned earlier, the agricultural sector has 

been very strong, and we have seen input costs 
48

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

increase for our farm customers, and we are a 

strong agricultural bank.

Our 2021 operating year was very good. 

Our production level in our area was 20 percent 

higher than it's been in the past. And, 

commodity prices were very strong.

So, this has created a lot of 

liquidity in our bank, and in our region. So 

far, we have had land prices increase, as well as 

our residential real estate.

And, our land, irrigated farmland here 

is running about $11,000 to $12,000 an acre, and 

I assume that it will be increasing as time goes 

along.

There is also a high demand for 

expansion in the farm operations as well.

Residential properties and housing 

construction has been on the increase. Most of 

our communities have new developments going on 

for residential real estate.

And, we are pleased that there are 
49

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

actually increases in population in our smaller 

communities, and that there is demand for homes 

to be built.

Our loan demand here has been as high 

as 85 percent, maybe a little higher. But right 

now it's around 60 percent.

We have a high amount of liquidity. 

Our net interest margin is improving due to that, 

as well as our liquidity for the bank is also 

improving as well. Loan demand is on the 

increase, and our deposit growth has been very 

good.

Some of the issues and concerns that 

I, and we have had here in the bank is regulatory 

issues.

And, I was starting in banking in the 

1980s, and another concern that we have is the 

increase in interest rates at too fast of a pace.

I hope that the increase in interest 

rates is slow and stable, and there's a lot of 

rational thinking taking place during that time.
50

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

We have recently finished up an FDIC 

examination for safety and soundness. Our IT 

area, our trust area, and BSA, all of which turned 

out very well.

Unfortunately, the FDIC examination 

team was unable to come into our bank and conduct 

the exam.

However, they were very diligent and 

professional in their work, and they worked 

offsite and we provided a lot of the information 

by way of the technical IT area, and scanning 

documents. So, I'm very pleased with that.

And, that's really all I have with 

regards to our economy right now. I'll turn it 

over to Dominik Mjartan.

Thank you very much.

MEMBER MAUST: Thank you, Arlen. I 

believe I'm next, so I'll go ahead. If not, 

please let me know.

My name is Trey Maust. I'm the 

Executive Chairman and one of the co-founders of 
51

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Lewis & Clark Bank.

We are a, about a 16, almost 16 year 

old institution based out of the Portland 

metropolitan area, serving Oregon and southwest 

Washington.

$400 million in assets. Three 

branches. Actually have a couple on the coast, 

which provide a nice mix of consumer, as well as 

small business deposits. Particularly in the 

industries for individuals that are visiting the 

coast.

I did want to talk a little bit about 

the Oregon economy. It's one that we really 

haven't seen as tight in terms of labor market, 

as we have more recently.

And, it really has to do, at least 

what we've experienced is on the supply side of 

the economy. It's not that the supply chains are 

broken, but the consumer demand seems to be so 

great, that the supply chains are overloaded.

I know that the economy is producing, 
52

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

transporting, and selling record volumes. We're 

seeing that in collections at the state revenue 

department, but production just hasn't kept pace.

And, I think we know the labor 

markets, or labor itself runs through everything 

and really has been the single biggest constraint 

that's been holding back the real economy. Or 

at least the growth in our state.

We are seeing from a productivity or 

response standpoint that firms are investing in 

new plants, equipment, and software. Things that 

enhance productivity. But the labor market's 

pretty tight.

Two percent is incredible. Ours is 

at 3.8 percent. Interestingly, we are seeing a 

labor participation, labor force participation 

rate that is far less than it was 20 years ago.

As baby boomers are retiring, it was 

at one point 20 years ago, 69 percent. Today 

it's at 63 percent. It's slowly increasing but 

that's a pretty significant difference between 
53

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

2000 and 2022.

Oregon did add a record number of jobs 

last year, as workers returned to the labor 

market. But even so, it remains pretty tight 

given the strong demand from firms, and also the 

ongoing retirements from the baby boom 

generation.

I think it comes as no surprise that 

the biggest risk, and really outgrowth of the 

supply constraints, and the ability for people to 

actually purchase and consume goods and services, 

is the persistent risk of inflation.

A year ago, much of the inflationary 

pressure, I think in our area it could be tied to 

reopening of the economy. And, also in Oregon, 

the semiconductor shortages in the auto industry.

Since then though, the inflationary 

pressures have broadened, and remain more 

persistent than expected.

To date, households still have the 

ability and willingness to pay higher prices for 
54

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

goods and services, which isn't helping.

Early in the pandemic, I think we

could tie this to, directly to federal aid. And, 

an initial decline in spending during the shelter 

in place phase of the pandemic.

But since then, federal aid obviously 

has lapsed, but it seems to be the remaining 

surplus of liquidity that consumers have in 

addition to a booming labor income, has offset a 

lot of that impact that the federal aid had. 

And, there still is ongoing spending that's 

really driving inflation.

While consumer spending has returned 

to pre-pandemic levels overall, the income gains 

really mean that overall households have savings 

that remain elevated, and they seem to be willing 

to spend it.

Income and wealth though in Oregon, 

and this I think is an important consideration 

from a CFPB and also FDIC's perspective, income 

and wealth is not evenly distributed in Oregon.
55

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

There's a pretty considerable 

inequality. Fortunately, Oregon is a bit more 

equal and at least that was, I'll use that as a 

quote because that was actually the Oregon 

Economic Department was providing this as a 

quote, ranked 37th in highest in 2019.

So, it's not the worst, but it 

certainly has a long way to go.

And for this reason, we're seeing the 

accumulated savings and overall increase in 

wealth concentrated among higher income, and high 

net-worth households, particularly a high number 

of households.

They also tend to be the ones that 

have businesses and higher savings rates, and so 

that inequality does continue.

That said, a couple of surveys or 

research reports coming out of the Federal 

Reserve, and JPMorgan Chase, showed that savings 

and wealth gains were fairly evenly distributed 

in terms of percentages.
56

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

But it's encouraging to even as 

inequality remains pretty large, low- to 

moderate-income households in Oregon are in a 

stronger financial position today, than before 

the pandemic.

I think the tightening labor market 

certainly helps that.

A final factor for households is that 

credit usage and overall debt levels remain 

fairly low, historically speaking, which means 

there's capacity to utilize that.

I think Director Chopra's comments 

about what we're seeing in terms of credit card 

balances, is something to consider at least in 

our state, that as those start to become 

elevated, that will continue to drive a couple 

things.

One obviously inflationary pressures, 

and two, is the potential for defaults and strain 

from a fiscal perspective, on individual 

households.
57

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

I did want to talk about a couple of 

banking matters. One of those is cyber. I 

noticed that was on our agenda for today, and 

it's an area that I'm very interested in being 

involved in a fair number of, of operation 

resilience and cyber initiatives for the 

industry.

We spent, actually I'm in Nashville 

today having spoken at the NACHA conference on 

operation resilience.

It's an area that I think, when we 

think about the ability for community banks to 

continue to serve their communities, and for us 

to be able to continue the relationship banking 

approach, we need alternate modes, and other ways 

of delivering services in the event that we are 

impacted by a destructive attack.

And, so I'm very interested in hearing 

the comments today, and those are areas that I 

think we have, we've made progress but we have a 

long way to go to be appropriately prepared.
58

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

I think community banks, I mean 

relatively non-complex business models, are able 

to mobilize alternate modes of serving customers 

much quicker than large, complex institutions, 

but should be at a forefront of our minds of how 

we do that in the event that we are impacted.

Two other areas that I'd like to talk 

about today. One is the community bank business 

model.

I liked, and I actually wrote down 

from Director Chopra the quote, “how do we 

preserve relationship banking while also 

leveraging technology?” And, I think that's 

critical.

The ability for us to take the culture 

of community banking, our approach coupled with 

our really from an industry prospect when I look 

at other industries.

We have an unparalleled, or unmatched 

ability to manage risk, to comply with 

regulations, rules, and statutes.
59

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

And, a willingness to do so. Which 

is really embedded within our industry, 

particularly at the community bank level.

How do we take that and at the same 

time, leverage technology through your thirdparty service providers, through channel 

partners, and through marketing partners, to 

reach demographics that we can't, and as I was 

referring to earlier, the income inequality, the 

ability to access financial products.

How do we take that relationship 

banking approach that we are really masters at, 

and leverage that at scale through technology?

The challenge that I've seen in, from 

an innovation perspective, is matching up that 

culture with the culture of financial technology 

founders and firms, which have a tendency to look 

at the market and say, how do we make the market 

more efficient, more effective, at scale.

How do we create an MVP, which is not 

compatible in my mind, with banking? Banking 
60

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

needs to be something that can run 24/7, 365, no 

matter what the stress is on a system.

So that consumers, businesses, any 

counter-party that we have, can rely on the 

ability for us to store money safely, to move it 

safely, and to continue to lend and provide 

capital to the economy.

And, that confidence can be broken if 

we are working with partners that do not respect 

that foundational safety and soundness and 

consumer protection is necessary to have that 

level of confidence.

I think we have a very important role 

to play in innovation. And, the coupling of 

relationship banking, and a healthy respect for 

risk management and compliance, I think is that 

foundational, really element that can drive 

innovation forward.

I don't think we can substitute for 

Fintech. I think financial technology is here 

to stay and will only continue to grow.
61

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

What we can be is the adults in the 

room, to ensure that furniture and other things 

aren't broken, when they're running around 

testing and breaking things.

But at the end of the day, I firmly 

believe that innovation has to move forward, but 

we can provide that guidance to those companies.

And, so I appreciate the FDIC's 

proactive approach to providing some initial 

guidance on third-party service providers, 

particularly in the technology arena.

And, jointly, across an inter-agency 

effort to give us some perspective on where 

agencies stand on this.

I'd also encourage the FDIC and the 

CFPB to help community banks see how we can 

actually provide that guidance to marketing 

partners, to channel partners, and to others as 

we move forward into the next decade.

Thank you.

I'd like to now turn it over to Shane 
62

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Pilarski, President and CEO of Alliance Bank.

MEMBER PILARSKI: Thank you, Trey. 

And, thank you for the opportunity to speak with 

all of you. There is nothing that I love more 

than talking about community banking.

I am President and CEO of Alliance 

Bank. We are about a $410 million bank. We have 

seven locations over four counties in Northwest 

Indiana.

So, in our part of Indiana, Ag and 

manufacturing really are the primary industries. 

And, half of our loan portfolio is with Ag, or Ag

related businesses. So Ag is what we know well, 

and we do well.

As some of my peers have already 

talked, I know Betsy mentioned in their area 

about their Ag conditions, and being the neighbor 

to Illinois, much of what she said is similar to 

what we're experiencing.

The last two years for our farmers 

have been great years. So, that has helped us 
63

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

from a credit quality standpoint. Our credit has 

been excellent; lowest delinquencies we've had in 

a very long time.

On the flip side, it means that their 

need to borrow has been less. So therefore, our 

loan-to-deposit ratio has continued to go down, 

as they've had less need to borrow, and our 

deposits continue to increase.

Not only those kind of flight to 

safety, park it here until investments go up, but 

also because those same farmers have excess cash 

to deposit.

I echo Betsy's comments about the Ag

industry. There are concerns about the input

costs. However, we've not seen that really have 

an impact yet on our farmers, but definitely 

something on our radar.

And, concerns on the spring weather 

and their impacts to them being able to get in 

the fields and plant.

Some people have already talked about 
64

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Ag land values, and we're seeing much of those 

increased values.

I will say we've actually seen sales 

go for even $15,000 to $16,000.00 an acre. And 

again, remaining as Ag, not going to be converted 

into housing development.

With that, talking about housing 

development, we are like many of you have talked 

about, experiencing a shortage of housing.

I live in a very small community. We 

say that there's 1,000 people in Francesville, 

but I think that might be counting some of the 

dogs and chickens.

And, we typically in a housing market, 

you know, there will be four or five houses for 

sale in Francesville, for several months. That's 

not unique.

Currently, there may be one house on 

the market, and it goes pretty quickly. So, 

that's a rare experience.

So, not only is there a shortage for 
65

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

just purchases, but also rentals. There's a big 

need for those as well.

But with Ag going well, nobody wants 

to give up any of their Ag ground to turn that 

into space for housing. So, that's kind of a 

dilemma there.

Being an Ag bank, of course a very 

concern for us is farm credit and the farm credit 

system.

I could talk for the rest of my time 

just about our concerns with farm credit, and the 

unfair playing field, uneven playing field that 

we have with farm credit.

Their source of funding is much 

different than ours, their structure is 

different. But yet, they're our main competitor.

So, we have to compete with someone 

that has different rules than we do, and that 

makes it extremely difficult.

I'll echo what a lot of people have 

already said regarding talent, and the shortage 
66

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

of talent.

We are experiencing several of our 

employees who are reaching retirement age. And 

finding people to replace them has been very 

challenging.

Again, that's had an impact on our 

overhead expenses and, you know, this hasn't just 

impacted the bank, it's also impacted all the 

businesses around us, especially manufacturing.

A lot of our local manufacturers tell 

us stories of employees that show up day one, and 

may not come back after a break, let alone the 

second day. So, definitely a continued concern 

there.

I would add to what most have already 

talked about, that a major concern of ours from

a regulatory standpoint, is the overdraft 

privilege, or overdrafts and NSF fee heightened 

scrutiny.

As a community bank, we know our 

clients and we're able to communicate with them, 
67

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

advise them, educate them, and hopefully, you 

know, be a partner.

And, I feel like our clients would be 

upset if some things changed. So, I would just 

add, I would like for, you know, the consumers 

and their needs to be weighed into that as well.

Last thing I wanted to touch on was 

just what we did just within the last several 

months, complete both an FDIC compliance, and an 

FDIC safety and soundness exam.

Both of those were fully virtual. 

Both exams went well. We still continue to be a 

solid performing bank, which I'm happy to report.

There were some technical issues with 

it being completely virtual, so we are very eager 

for there to at least be a hybrid approach 

perhaps, going forward with exams.

I feel especially when it comes to the 

loan portion of it, just being able to kind of be 

able to see the same documents, look at files 

together, and have those face-to-face 
68

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

conversations is very helpful there.

I want to thank you for this time to 

share with you, and I will turn it over to John 

Wharton.

MEMBER LOWRY: Thank you. I think 

Mr. Wharton is not with us, so I believe I'm next 

on the agenda. My name is Bruce Lowry and I am 

President and CEO of Ireland Bank, we are located 

in Southern Idaho, the bank is currently 

celebrating our 130th year of being in business 

in 2022

And we've been enjoying a good economy 

in Idaho, we have excellent credit quality at the 

bank, we have abundant liquidity, and we do have 

the good fortune of being able to accrete capital 

at the moment, which is a good thing.

However, it's not being accreted as 

quickly as we would like or as we've been able to 

do in the past, primarily just due to pressures 

on net interest margins. So that is one of the 

things that we are looking forward to here in the 
69

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

next several months, that we feel like we're 

positioned to enjoy and improve and in that 

interest margin as the Fed increases rates.

Southern Idaho, and Idaho in general, 

is a great place to be right now, we have a very 

robust economy, our state is growing, and growing 

quickly actually. Idaho obviously is a very 

robust agricultural state and a big portion of 

our bank deals with agriculture and agriculture 

related businesses.

So, our spring planting has been 

completed and the farmers are preparing for the 

irrigation season. Water is a concern for us. Our 

water year in Idaho starts in September and rolls 

through, you know, the end of August.

We started our water year for 2022 off 

very strong but about mid-winter things kind of, 

we stopped receiving moisture and snow, and so 

it's put us behind the curve a little bit on the 

water year for this year.

However, we are having some timely 
70

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

spring rains that are helping the situation and 

it sounds like our banking friends in Illinois 

and Indiana can send some of their moisture our 

way, and that would be fine. But we did have 

snow this morning, there was snow on my lawn this 

morning, so that's a good thing and we're happy 

to take whatever moisture we can get.

Housing is explosive in Idaho right 

now, the prices are -- remain very high, there's 

virtually no inventory of homes, when a home 

comes up for sale it is sold quickly and for 

asking price or above. So, it's not to say that 

we don't have a very robust construction sector, 

because there are homes being built everywhere, 

and they're just, we can't keep up with the 

demand.

Housing shortages are causing some 

problems into the overall economy, though, at the 

bank and with some of our customers, we're 

experiencing challenges of recruiting talent, 

just because of lack of housing. We can find 
71

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

people who are willing to accept employment and 

relocate to our areas but then we run into a road 

block with finding adequate housing for them.

Loan demand in our area is improving 

and it appears that our deposit totals are 

starting to stabilize after, really, at least 24 

months of very rapid growth but possibly even 

longer. But, like I had mentioned earlier, we're 

anxious for some improvement in net interest 

margin as rates begin to climb.

Inflation pressures are a big concern

for us, particularly in the construction industry 

and in the agricultural industry, this has been 

mentioned by several others, input costs have 

increased tremendously in our area, fuel and 

fertilizer probably topping the list of those, so 

we'll see how that works out for the year.

The farmers in our area have kind of 

shuffled their crop plans a bit from what they 

would normally do, just because of concerns on 

water constraints.
72

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

We're also a very large beef producer 

in Southern Idaho and so some of those challenges 

that we've experienced over the last couple of 

years in the beef industry, through the kill 

plants and the production facilities to getting 

beef to the retail markets are a concern for us.

Those seem to have kind of, are 

working their way out a little bit, however, the 

price increases that have been seen on the retail 

level of beef certainly is not finding its way 

back to the producer at this point.

But this time of year, you know, May 

and June are beautiful times of year in Idaho,

and we do have a seasonal boost in our economy 

due to tourism. It's a wonderful time to come to 

Idaho so I would invite you all to come and --

make some plans and come and visit us.

The best way to get to Yellowstone 

Park is to go through Idaho so come and see us, 

and I thank you for the opportunity to discuss a 

little bit about our bank and our region, and I 
73

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

will turn the time over to my colleague, Dominik.

MEMBER MJARTAN: Thank you very much. 

So it's a pleasure to share this time with you. 

Thank you, Chairman Gruenberg and Ms. Eberley, 

and other distinguished leaders from the FDIC, 

and also my colleagues across the country.

It's really an honor to be part of 

this group today, and help further the positive 

role that our community banks have on our great 

country, and our communities, and our people. 

So, I hope to be helpful in that effort and focus 

my remarks on things that may not have been said, 

so don't take my silence on some of these issues 

as lack of validation, but I really enjoyed the 

remarks and certainly concur with all of them, in 

terms of the key trends we're seeing in our 

markets as well.

Optus Bank is a unique institution, we 

are historically focused on underserved 

communities, particularly communities of color. 

We were founded over 100 years ago by a group of 
74

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

very courageous African-American leaders in 

Columbia, South Carolina.

Today, our bank is strong, ready to 

serve our communities with a little over $330 

million in assets, and we soon hope to close on 

a capital raise of a little over $100 million, 

which will then position us to really meet the 

needs of our communities, which have been 

primarily underserved.

So, with that I want to focus on a few 

key issues that we see in our communities that 

may be a little bit unique because of our mission 

to serve the underserved and the historically 

disenfranchised, disconnected communities, 

particularly communities of color. We know they 

face unprecedented difficulty in accessing credit 

and capital, which is particularly true in a 

rising rate environment and the inflationary 

environment that we've experienced.

We know that disproportionately hits 

people that have been excluded from some of the 
75

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

opportunities, rising cost of transportation, 

real estate costs, and other costs have really 

disadvantaged some of our communities from 

building wealth, and from accessing those 

opportunities to build wealth from home 

ownership, entrepreneurship, or access to other 

opportunities.

On a more positive side, you know, we 

are seeing very strong interest in small business 

growth, a lot of our communities and our 

customers in our communities have exited their 

traditional employment during COVID, have entered 

the entrepreneurship path, which has historically 

been the greatest way for, particularly AfricanAmericans, to build wealth in our great country.

So we are focused increasingly on 

making sure that we are a key part of the solution 

and allowing them to access those opportunities, 

even in a more challenging or uncertain economic 

environment.

The other challenges we see in our own 
76

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

desire to meet the needs of our communities have 

been mentioned some before but I want to maybe 

highlight a couple of key points. A lot of the 

communities and customers we serve, as a minority 

depository institution and a CDFI, we focus on 

the more unique borrowers that may have slightly 

unique needs which take more time to identify and 

then meet.

Which brings me to some of the 

opportunities we see in our communities, and a 

lot has been mentioned around financial 

technology and partnership, my friend and 

colleague, Chairman of the National Bankers 

Association, Robert James, who is sharing this 

time with us, you know, he's really led the group 

of National Bankers Association to innovate and 

to see technology as a way to close the gap with 

our customers, not as a way to remove us from 

serving customers.

So, we are increasingly seeing 

technology and innovation, and partnerships with 
77

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Fintechs as a way to deliver services that are 

more costly to deliver more efficiently, to meet 

the needs of our communities better, and then 

also hopefully bring us closer to our customer, 

not remove us from that relationship customer.

So, we see innovations and financial 

technology, also the great threat and possibility 

of various blockchain technologies, as an 

opportunity that we should explore to find a way 

to serve more people more efficiently, with 

better, more responsive, and responsible products 

and services, as our partners and colleagues at 

the CFBB look out for them as well.

So those are the key issues, some 

disruptions that we're seeing in our communities, 

looking ahead we do see some difficulty for, 

particularly the more historically underserved 

communities. We are anxiously monitoring the 

economic environment, we know that a lot of 

underserved rural communities, low-income 

communities that get hit disproportionately hard 
78

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

with economic downturns, and also take much 

longer than our Main Street counterparts in 

recovery.

So, we're trying to actively look out 

for that, both -- in a really wonderful position 

that we're in, both, in capital, liquidity, and 

the unprecedented asset quality that we've never 

experienced before.

So, we are looking out for that and I 

really want to close my remarks by, again, 

sharing my appreciation for being included in 

this great group of leaders and community bankers 

that are making a stronger country, and stronger 

communities, and stronger customers for all of 

us.

So, thank you for this opportunity, 

and with that I would like to pass it on to Kim 

Reigelsberger from Preferred Bank.

MEMBER REIGELSBERGER: Okay, this is 

Kim, I want to make sure everybody can hear me 

good. I'm Kim Reigelsberger, I'm with Preferred 
79

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Bank in Rothville, Missouri, and our bank is 

having about five locations, and in that we have 

four that are primarily rural, and one location 

that we have in the Kansas City metro area.

So, we kind of have a nice balance of 

what we've got to offer as far as, you know,

thinking about our shareholders. Our bank is a 

family-owned bank and we're relatively 

conservative, our state charter is 118 years old 

so, again, like everybody else, it seems like 

we've been around quite a while.

Right now we're just shy of a $150

million bank, so what has really been interesting 

is, I think, is not uncommon in this last couple 

of years is, we have seen 20 to 25 percent growth 

in deposits, and when you're kind of a relatively 

small bank and you get that kind of growth, you 

think, how long am I going to have it, is it going 

to be here for very long, and how do we best 

utilize those funds while we do have them?

Again, like I said, where we're a 
80

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

little bit conservative, you know, depending on 

whether or not we want to throw more into loans, 

investments, we were -- so that's kind of been a 

struggle for us with management anyway is 

thinking, how soon are those deposits might be 

leaving, you know, most of it was stimulus, PPP.

And so, anyway, we still have them so 

it's been very interesting but it's kind of 

created a challenge as far as our shareholders 

and kind of where our capital levels need to be, 

we monitor that regularly so that's been somewhat 

of a challenge for us.

In the State of Missouri, we have, 

unemployment of about 3.6 percent, so however, 

even seeing that, our labor market is still 

challenged also. We don't, you know, and 

agriculture, that's primarily the rural area in 

which they reside here, maybe north-central 

Missouri, and so even though we had the pandemic 

we didn't see a huge impact as far as closing 

businesses, unless it might've been a food 
81

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

service.

So having businesses being open, 

really, it might've been swings as opposed to how 

the staff was doing, but we, I think, are pretty 

much back to normal in that aspect.

One thing that our management has been 

really monitoring the last two or three weeks is, 

I know if you look at the futures market where 

they've already priced in the Fed hikes that are 

anticipated, you're seeing some unprecedented, 

unrealized losses within our investment 

portfolio.

While that in itself doesn't affect 

capital, one of the things we have as a family 

owned conservative bank is liquidity. I was just 

mentioning about the deposits that we have, of 

where to put those, so again, goes back to 

liquidity, and so if we would have chosen to throw 

some of that money in loans, if we needed to fund 

up any other opportunities that may arise when 

you've got high, unrealized losses, you sure 
82

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

can't tap into your investment portfolio.

So, what we're doing is we're kind of 

monitoring that closely, we're monitoring 

deposits closely, any lending opportunities that 

might be out there and then we're still 

considering, you know, at what point do we want 

to reposition our investment portfolio to make 

sure that we have additional liquidity. So 

that's some of the things we're thinking about, 

as far as management of the bank.

As I mentioned, we are agriculture in 

north-central Missouri. Missouri is probably 

one of the leading states when it comes to cattle, 

cattle herds, we don't have a lot of feed lots, 

and for those of you who aren't familiar with 

that, that's where they fatten the cattle and 

take care of them. But we do a lot of herd broods 

where they, you know, have the cows and have the 

baby calves, so we see a lot of that around there.

Actually, my husband and I have a farm 

and that's exactly what we have, we have cattle 
83

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

and we -- actually this spring time is when we're 

having baby calves, right now.

So, our cattle farmers are also seeing 

the impact of high fertilizer costs, for example, 

nitrates is one of the, part of the fertilizer 

that we use to spread and right now we're seeing 

that as three times what it was last year. And 

fertilizer is used for hay, it's also used for 

pasture grounds for grazing for the cattle.

We've heard a lot of our farmers say, 

I just don't know if we can afford that this year, 

do we just, you know, scale back on fertilizer, 

or maybe we just, you know, hay, whatever crop we 

can get, and we'll buy hay from our neighbor, if 

that's the case. So obviously everybody is kind 

of re-thinking how they want to spend their money 

this year.

So, on the other hand, our cattle 

prices have been stable but we, thinking about 

how high the cost is for, like we said, diesel 

fuel and fertilizer, potentially hay, depending 
84

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

on how that rolls out, it is probably going to 

take the equity maybe that they built up from the 

sale of grain to help them a little bit this year, 

but, you know, time will tell.

On our grain farmers, we primarily see 

corn, soybeans, and some wheat. In this year, 

in 2022, they've seen extraordinary prices, if 

our farmers were able to carry over grain for 

marketing for this year, it's been perfect for 

them. They've been able to sell and, as we've 

mentioned, that's also played a part in 

additional deposits in our bank.

But, the other side of that, they've 

got big inputs coming in for 2022 crop year, and 

then just the cost of iron, and, I mean, used 

equipment, right now, we had a farmer that sold 

his tractor, front-wheel assist with loader, he 

got more than he did when he bought it new, about 

eight years ago.

So, even though I see these prices of 

grain where they're at, very fortunate that the 
85

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

farmer is able to take advantage of that, but the 

inflation, I see, like I said, iron prices, I see 

fertilizer prices, I see diesel prices, I see 

corn, they'll be able to help fund that, they 

probably won't need quite as much money this year 

but it's going to be hard for them to be able to 

hang onto that for a very long time, as far as 

that piece of it goes.

A couple things I was wanting to 

mention too, I do appreciate that the FDIC is 

looking into modernizing CRA, you know, we are a 

small bank and it seems like, as our customers 

grow up with us and they move away, they've got 

access to online banking, mobile banking, maybe, 

remote deposit, mobile deposit, and they still 

bank with us.

So, we think about CRA, whether 

they've got their own small business or whether 

they want their home loan, the geography has kind 

of changed and obviously that's been very 

prevalent the last three or four years for us, 
86

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

and so I think keeping some of those ideas in 

consideration as we modernize CRA, I think that 

will be very, very beneficial.

I think another comment I would like 

to say is, you know, just kind of reiterate some 

of the others about the overdraft programs and 

the NSF, or overdraft fees.

I do want to mention that our Kansas 

City Regional Office does a great job, they have 

a compliance newsletter and when I got the one 

for March, and they had very, I thought, detailed 

-- because my problem was, you know, are my 

disclosures detailed enough and is our bank doing 

everything we can do to make sure we're running 

an adequate program, and do we need to make 

tweaks?

So, I just want to say, kudos to 

Kansas City office for their compliance 

newsletter that they released in March, I'm going 

to use that as my training tool, or at least a 

tool for discussion for our staff here the next 
87

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

couple of weeks.

So, if anybody wanted to go out and 

pull that down, and you're thinking about the NSF 

and kind of maybe, exactly, kind of hone in 

exactly other areas besides just disclosure, kind 

of how that works and what might be discussing, 

I think it's going to be very helpful to do that.

Because that's what -- I'm kind of a 

nuts and bolts, give me the details kind of 

person, and I felt like that's what that did, so 

I thought that was a great tool and I just kind 

of wanted to share that with everyone.

I think one last thing, this is my 

first meeting, so I appreciate being -- I feel 

very honored to be here, but out here in rural 

Missouri we do not have high speed internet, so 

even though I was able to get the app downloaded 

by May 1st, I was trying to get logged in to be 

able to be part of the Webex meeting, it completed 

a little bit ago but I thought, well at this point 

I'll just let it stay the way I've got it going 
88

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

by calling in.

It took me 85 minutes to be able to 

get that initial meeting just going so, as we 

speak about online banking, we still have a big 

variety of customers that, we don't have high 

speed out here, even though we're a bank, we 

don't, we've got to be very careful about that.

So hopefully in the future that will 

be coming but it is something that is kind of 

foremost, and I think this is a prime example, 

that I couldn't get logged in as promptly as I 

thought I would, but if we're able to meet in 

person next time maybe I won't have to worry about 

that part again.

So, I think that kind of summarizes 

what I have to say for today, and it looks like 

next on the list is Andrew West.

MEMBER WEST: Good afternoon, 

everyone, appreciate the opportunity to be here 

today. I am Andrew West, I'm the President and 

CEO of Eagle Bank in Polson, Montana, and we have 
89

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

assets of around $100 million on-balance sheet 

with about another $70 million in off-balance 

sheet deposits.

We are one of 18 Native American-owned 

banks in the United States, the reason I have so 

many off-balance sheet deposits is because the 

tribes that own us, they keep a lot of money here 

and in order to keep our capital where it needs 

to be we move it off-balance sheet with IntraFi, 

I'm sure many of you are familiar with that.

Our market consists of the exterior 

boundaries of the Flathead Indian Reservation 

which encompasses about 1,900 square miles and 

1.2 million acres. There's around 30 to 35,000 

people living on the reservation, approximately 

5,000 of those are Native Americans, or tribal 

members, actually. There's many more 

descendants, but 5,000. There's 8,000 members 

of the Confederated, Salish, and Kootenai Tribes.

Our bank's mandate, we came into 

business in 2006, our mandate was to help the 
90

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

under-banked and un-banked. The tribes 

determined that there was a real need for that 

because there was a tremendous amount of people 

that were under-banked or un-banked. We still 

work every day to try to fulfill that mandate, to 

the extent that we can.

Regarding banking and economic 

conditions in our market, a lot has happened in 

Montana. You know, Montana hasn't changed very 

much in the last 50 years, up until the COVID 

pandemic started and the advent of remote work, 

it has significantly changed particularly western 

Montana.

We have seen a ridiculous influx of 

people moving here over the last two years, and 

frankly, it's had an exceptionally adverse impact 

to our housing prices and our housing 

availability. There's many people that have 

moved here from the west coast who realized 

tremendous gains on their primary residence, you 

know, in California, and they come here and they 
91

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

can buy twice the house for half the price.

And this is driving real estate prices 

up so much that the locals are truly being priced 

out of the market right now, which is really a 

little bit of a problem. And, you know, it's not 

quite as simple here as other places where, okay, 

if the houses get too expensive you just go 

somewhere else, you know, a lot of these people, 

this is their ancestral homeland, so they don't 

have anywhere else to go, or they really don't 

want to.

So, it's a little bit of a problem 

we're dealing with here, the tribes are working 

on this in conjunction with the local 

municipalities, the county and the cities, you 

know, there's -- like I said, it hasn't changed 

much in the last 50 years but now it's changed 

significantly and very rapidly.

We don't have the infrastructure to 

handle all of the growth and it's creating a lot 

problems, the water and sewer systems cannot 
92

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

handle all of the new people, there is not enough 

pumps being built, our inventory is exceptionally 

low. Our jails are over full, there is what 

amounts to an essentially, a catch-and-release 

situation here for everyone who's not an 

exceptionally violent felon, they just get booked 

and let go.

So, there's a lot going on here that 

is new that hasn't been happening here in 

Montana, and it's changing the economy in many 

ways. For those people who own real estate and 

are willing to sell it, I guess it's been a good 

change because a lot of people are cashing out 

and making some money, but for the people who 

live here and who are not exceptionally wealthy 

it's been challenging.

In 2020 and '21 we saw exceptional 

real estate lending activity, like I'm sure 

everyone did, interest rates were very low, 

however, in the first quarter of 2022 we've seen 

significant declines, primarily from a lack of 
93

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

inventory as well as the rising interest rate 

environment, it's just kind of shutting down 

mortgage lending.

Commercial loan demand has been good, 

it's been above expectations, and it was a little 

slow for us during COVID, not counting PPP, but 

right now it seems to be going great guns. I 

think there's a lot of people that just want to 

get their funding locked down before rates climb 

too much, so my anticipation is that this 

commercial loan demand will soften as we go into 

the third and fourth quarters.

Many Montana businesses are in the 

service industry, medical, and construction, 

manufacturings virtually non-existent here 

except for some small operations. Agricultural 

business has been particularly hard-hit by the 

numerous changes in the local economy, the price 

of hay right now is at an all-time high and the 

cost of the inputs to bring cattle to market, not 

only hay, you know, feed, but also vet supplies, 
94

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

fertilizers, everything, diesel fuel, it's all 

exceptionally high, it's making it really hard.

In Western Montana particularly, the 

price of real estate has gone up so much that 

there's no way, it is a 100 percent barrier to 

entry into agriculture at this point. The only 

way you can even remotely successfully ranch here 

is that you own your ranch and it's paid off, 

and, you know, that's generally the minority.

So, it's really interesting because 

the agricultural, rural nature of western Montana 

is slipping away rapidly, and it's kind of 

heartbreaking for some of us who've lived here 

for a long time. Our lifestyle's changing and 

it's sort of against our will. We're doing our 

best to work with it and accommodate the new 

people and everything, but it's definitely a 

little bit grim at this point.

Except for the hay producers, the 

people who are growing hay they are selling their 

hay for three times what it was before, part of 
95

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

that's drought related, but they're doing okay, 

but the ranchers are struggling.

In Eastern Montana there are drought 

conditions still, the exceptionally high cost of 

the inputs is driving grain prices up, grain 

farmers are doing okay, but wheat is, you know, 

it's $12 a bushel and it's historically been down 

around $4. So, they're still getting by but 

they're still dealing with some drought 

conditions, really severe drought last year.

Equipment's exceptionally expensive, 

I think, you know, Kim talked about that. 

There's literally tractors that sell for $1 

million and that's -- it's kind of hard to make 

a buck when you have to pay $1 million just for 

your tractor, but they are getting by.

Some notes on the consumer lending 

space, here we see a dwindling in consumer 

lending, as many banks are, I think we're being 

out-competed in many channels of delivery. 

Credit unions, for one, because they're tax-
96

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

exempt and then also, you know, auto retailers 

have on-site financing.

Consumer goods retailers, like Best 

Buy, same thing. People aren't going to go to 

the bank and get a loan when they can get one 

right where they're sitting.

And also the Fintechs have to be 

mentioned, they are making serious headway into 

the consumer lending space because they offer 

technologically superior solutions, and I think 

some of the big banks are getting on board with 

that, but it's challenging for us small banks to 

be able to have the money to invest in the IT 

infrastructure to compete, so that's interesting.

I think, the way I look at conditions 

right there, they're fair, moderate, I'm 

cautiously optimistic, I don't -- you know, net 

interest margins remain compressed.

Non-interest income has declined 

sharply and I think some of that's being offset 

by an increase in commercial loan demand, 
97

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

although I do think that with the high levels of 

liquidity that most banks are sitting on, that it 

is artificially suppressing commercial loan rates 

a little bit because people are just wanting to 

get that money out the door.

And even though indices would dictate 

we should be charging X, we're charging X minus 

because if we don't, someone else will. So, it's 

been a little bit, I think we've seen a little 

bit of improvement to our net interest margin, 

but until some of this liquidity runs off and 

everybody tightens up a little it's probably 

going to still be some lower interest rate loans 

than what we wish they were, at least here in 

Montana.

So, you know, while I don't want to be 

a doom-and-gloomer, I think everything's okay now 

but on the horizon I'm a little bit concerned, 

not grave concerned, but I do think that there's 

a little bit of storm and, you know, our bank has 

been, we're well positioned, we have the four and 
98

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

half times the ALLL accrual of our peer group and 

our asset quality is ahead of the peer group in 

seven out of seven categories.

So, we're well positioned but it 

definitely has me on the edge of my seat at the 

moment, so that's all I have to report, I'd like 

to turn it over to Margaret Oldner, please. 

Thank you.

MEMBER OLDNER: Thank you very much. 

It's been so fascinating to hear people so far 

and their discussions, and there's so many of it 

I agree with and some of it that's a little 

different here. I think a very interesting thing 

is how across the country, some of the same things 

impact us regardless of our local demographics 

and economy.

But anyway, my nickname is Marnie, so 

Marnie Oldner, and I'm the CEO of Stone Bank. 

We're a $585 million business and Ag land bank in 

Arkansas. And about a year ago, about half of 

our C&I loans were in PPP loans. And now those 
99

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

have all been forgiven. So, we got through all 

of that. Glad to say no fraud or anything like 

some of the Fintechs had.

But anyway, despite the decline in the 

PPP loans that were forgiven, our overall loans 

year-over-year as of March are up seven and a 

half percent, and assets are up ten percent. So, 

we're still seeing growth and happy about that.

Our earnings are very strong. We had 

a super ROA in the first quarter this year of 

278, and that was up over last year. That was 

at 170-something. So that was good. Earnings 

are very strong and asset quality numbers are 

good. So, from that standpoint, we're very --

can you hear me?

MS. EBERLEY: Yes.

MEMBER OLDNER: Okay. Great. I was 

hearing something else, so I wasn't sure. So, 

we could be very optimistic just on the face of 

it, but there are a lot of concerns of some of 

the same things others have mentioned.
100

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Arkansas banks as a whole grew 7.27 

percent in March over the prior year, and 

earnings as a percent of assets are slightly 

above, I think, the national average. They're 

at 1.01 percent right now.

But, that's down 21 basis points from 

the same quarter a year ago, and that is due to 

margin compression and non-interest income. And 

I would think that the non-interest income 

decline is for those banks that have a large 

amount of mortgage banking-related income that 

has softened a bit this year.

Farming in Arkansas is very important. 

And, if we look at just rice alone, Arkansas 

produces about 48 percent of the U.S. rice 

production. And right now, due to weather 

problems, unlike some of our others that 

mentioned -- the Idaho gentleman that didn't have 

water, we've had plenty of water.

So, right now, normally 48 percent of 

our rice crops have been planted. And instead, 
101

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

as of April 25th, anyway, 14 percent had been 

planted. So, that's a big change. We can catch 

up rather quickly if it gets dry, but it isn't 

getting dry in the next week or so according to 

the weather.

Looking at farming in general, though, 

I think that I have a little different take than 

one of our previous speakers. In that last year, 

we did see lower loans outstanding for production 

-- crop loans -- because our customers had a lot 

of cash. But this year, we are seeing the need 

for them to go ahead and finance their 

production, and the input costs are so much 

higher.

Looking at some of those fertilizer 

alone, it was $325 to $425 a ton a year ago. And 

now it has been as high as $1,000 a ton. So 

that's a huge increase year over year. That is 

impacting our farmers' margins, but it's also 

impacting what they are choosing to plant.

So, we have a lot of shift from corn 
102

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

to soybeans. And so, I know that at a national 

level, we're seeing an awful lot more 

anticipation in soybean production as opposed to 

corn. So how that impacts our overall food 

supply and the economy I just don't know.

But other costs such as fuel and seed, 

chemicals -- everything is up 20, 30, 40 percent 

or more. And although commodity prices are up 

20 and 30 percent, it's not near enough to keep 

up with the increase in pricing.

So, farmers always have a lot to deal 

with, with regard to weather concerns and that 

sort of thing, but market volatility is something 

very difficult to plan when you have this kind of 

escalation in cost. So, I very much am concerned 

about our farm community and their margins coming 

out of this year.

In addition to looking at some of 

those input costs, equipment -- if you can find 

it -- is very high. Recently, I was driving 

through to one of our branches in a very rural 
103

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

part of the state and passed a very tiny 

community, and yet there was about two miles of

cars pulled over to the side. I shouldn't say 

cars; it was a lot of trucks pulled over to the 

side of the road.

And, so I pulled over and talked to 

someone, and it actually was an auction of some 

used equipment. And there was that much interest 

in that used equipment. So, availability of 

equipment and parts and the costs, labor 

availability, and costs are things that are 

driving down the margins for our farmers.

Getting off of that a bit and looking 

at FDIC examinations, we've talked about that. 

I think a number of people have referenced that. 

We, too, just finished an FDIC examination. It 

was all remote this time. So, I think we do feel 

that loan file reviews can be very efficient offsite, and other things can be efficient and less

disruptive.

At the same time, I think most of the 
104

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Arkansas bankers I spoke with -- and recently had 

a chance to talk to bankers throughout the 

country on this topic, and almost everyone 

believed a hybrid approach to examination is 

probably ideal because we do want our examiners 

to get to know us, and we'd like to have that 

face-to-face relationship where you can 

understand our culture and communications are 

improved. So, I think that is important.

We had a safety and soundness, IT / 

cyber, trust, and BSA exams. And I felt like our 

examination team worked very hard to be efficient 

in this kind of environment and turned our report 

around rather quickly, and we're very grateful 

for that.

At the same time, I think our IT 

people believe that the manner in which we could 

provide information could be improved. The team 

we had chose Teams as an approach, but it's much 

more cumbersome and less cyber secure than other 

alternatives. So, our IT people had made that 
105

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

suggestion or recommendation. But otherwise, I 

feel like the FDIC has done a good job in trying 

to embrace this new world that we live in.

Concerns I think that many bankers 

have in Arkansas, some of which have already been 

addressed here today -- but I think when Chairman 

Gruenberg started his comments and used the word 

uncertainty, uncertainty just does color 

everything right now.

And so, with regard to uncertainty, I 

think bankers remain cautiously optimistic. We 

do, in a way, keep waiting for what's the real 

downfall from two years of almost complete 

shutdown from COVID. And now you have supply 

chain issues and unusual things that impact 

inflation, and we're curious as to whether the 

Fed’s approach to raising interest rates will 

really fix that problem.

I think in addition to the impact that 

inflation has and rising interest rates together 

with that have is much to the concept that we've 
106

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

talked to as well, which is the underserved and 

the unbanked and the disadvantaged, because I 

think in times like this, they're the ones hurt 

the most harshly by inflation and by borrowing 

costs, particularly credit card costs and that 

sort of thing, or even access to credit.

So, all of these things that are 

centered around the uncertainty in the world we 

live in is just this unknown. And for me and for 

many bankers, we just are very cautious about 

that. And we watch the health of our borrowers, 

and right now I think most bankers are reporting 

that their asset quality indicators are all still 

very good, or rather flat right now, but good.

And we're looking to see what happens 

over the next several months in a post-COVID 

world, and we're also very curious about how many 

of our customers that had a lot of stimulus are 

going to get through it on their own as we get 

back into a post-COVID world. So, uncertainty 

is a biggie.
107

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

We're also concerned about the 

mounting competitive disadvantages. That's been 

spoken/addressed by a few people. But we're 

accustomed to non-bank lenders. We're 

accustomed to other non-bank competition in the 

way of deposit competition.

However, right now, with 

cryptocurrencies, it's taken on a whole new 

world. And technology moves at such a fast pace 

that it's very hard for someone like me who's not 

very high-tech-oriented to understand how we 

protect the privacy of our customer information 

and how we protect against bad actors and fraud 

and hacks in a world that moves so quickly within 

technology -- also our dependency upon 

technology, and what do we do when something is 

hacked or taken down?

Cryptocurrency now taking the place of 

more traditional payment systems is a concern. 

That the Federal Reserve would offer a 

cryptocurrency is a question on exactly how that 
108

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

gets rolled out and how it competes with other 

currencies. But I think anything that takes 

deposits off the balance sheet of banks takes 

away a lot of opportunity for local communities 

to have their lending needs met. So that's a big 

concern.

Lastly, regulators and policymaker 

views the role that community banking plays and 

the value of community banks as very important. 

And so, as we watch changes in that arena where 

we often wonder how it filters down from big 

public companies to smaller banks, one of the 

things that I don't believe has been mentioned 

yet that is a concern is on climate and climate 

disclosures.

That started with public companies, 

and I don't know how that really fits with the 

SEC's mission to protect investors when we have 

to report so much with regard to climate. But 

we feel like it can filter down and have 

unintended consequences.
109

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

So, do we start not just talking about 

those that are in the direct oil and gas 

industries, but we talk about car washes, 

convenience stores, and little gas pumps and that 

sort of thing? It just sort of grows and grows 

and grows. So, compliance with those types of 

things is very important.

So, I really do, again, thank you all 

for including all of us to talk with you at the 

FDIC. We do appreciate this partnership. And 

with that, I will pass it on to Mike Bock, CEO of 

Dairy State Bank. Thank you.

MEMBER BOCK: Thank you, Marnie.

Yes. Mike Bock here, Dairy State 

Bank, headquartered in Rice Lake, Wisconsin. We 

are roughly a $700 million bank in total assets 

-- serve 11 relatively small communities. And 

when I say relatively small, our largestpopulation community is about 10,000 people. And 

then we have a number of them down in the 5, 6, 

700 people community size. So, we serve a lot 
110

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

of small communities up here.

We really have a mixed customer base. 

We're largely a business-oriented bank, but a 

very mixed customer base. If we go to the 

southern end of our region, we have some 

significant Ag producers in various different 

areas of Ag. It can be dairy. It can be crops. 

We have turkey operations. We have potato 

operations.

So, it's a very diverse Ag community 

up here, and some of those Ag areas are facing 

some unprecedented challenges. I'm going to 

touch on that a little bit later, but some very 

unusual things that are touching some of these Ag

businesses right now up here. Professional 

education to the south and up in our north three 

are manufacturing. Recreation -- we are 

literally right on the edge of the prime

recreation area in Northern Wisconsin, so we get 

a lot of wood production out of that as well.

Dairy, what's going on here -- it's 
111

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

been mentioned many times. Labor shortages, 

labor challenges -- it trickles down to literally 

everyone. There's a lot of openings. Pay rates 

are going up. People are shifting between jobs 

very quickly because there's a lot of 

opportunities. Hopefully people stay on a job 

long enough they kind of get a sense of what the 

job is all about and kind of settle in.

It's quick turnover. So, a lot of 

businesses are not only raising rates, but 

they're trying to do other things to keep people 

in their markets, keep people in their 

businesses. And, while there's a labor shortage, 

we also know we have a major real estate shortage. 

The affordable housing buzzword is almost 

nonexistent, while there's new houses being 

built; there's new multifamily units being built.

With the price of new construction, 

the cost that goes with those for rentals, 

purchases, et cetera, has gone up quite 

significantly. And, now, we're going to compound 
112

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

that with what appears to be the start of some 

fairly significant interest rate increases. I 

think we're going to have even greater challenges 

finding the people we need, the housing we need 

in our area, to keep things going into the future.

The housing that is here is still 

continuing to escalate in price if you're selling 

it. It turns very quickly. We don't know if the 

realtors are just getting better at marketing the 

prices initially or setting the prices initially 

because we seem to be seeing less premiums being 

paid, but they're just certainly still going at 

full-price offers, and houses are turning very, 

very quickly.

We will see where this summer brings. 

We are in a neck of the woods, and we have a lot 

of second homes. We are in a lake area. Last 

time interest rates started moving up and 

relatively quickly moving up, we saw a definite 

softening in the turnover of those second homes 

that are on the lakes. They tend to be higher 
113

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

in price in the first place, and if families are 

not using them as much as they think, plus the 

interest costs go up to purchase them, we see 

those go back on the market and turn relatively 

quickly.

It has been a cold, wet spring --

getting back to our agricultural producers here 

-- a cold, wet spring. We have virtually nothing 

in the ground at this point in time. Normally 

by the 1st of May, we've got at least a good 

start. But, there's literally nothing in the 

ground at this point in time.

So, while general Ag people are very 

optimistic with the prices, there are some new 

challenges that are starting to come down the 

pike at them that they just don't quite know how 

they're going to deal with. Obviously, getting 

crops in the ground is a huge one. That's across 

the board.

But, I mentioned earlier we have some 

turkey producers in the area, and in our 
114

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

particular county, we've had a number of farms 

that have contracted the avian flu, or bird flu, 

as some people would call it. When that gets in 

a flock, that whole flock has to be euthanized. 

And, that is kind of becoming a cruel, but common 

story throughout Wisconsin.

As I came in to work this morning, I 

heard another news report that two more counties 

have been detected with the bird flu. And 

whenever you have poultry scenarios and if they 

get into the barns, pretty much the whole barn of 

poultry has to be euthanized and put to death, 

which is going to put the ultimate pressure on 

the poultry business.

But, the other thing that has happened 

-- we also have some very big dairy farms in the 

area. Because of the labor shortages, the cheese 

plants and the milk producers cannot get the 

labor they need to keep their plants running 

seven days a week.

We know of a case about two weeks ago 
115

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

that some of the dairy producers received a 

notification from the production plant that 

starting two weeks from now, we are going to take 

eight percent less of your milk production 

because we cannot run seven days a week anymore.

Well, Mr. Farmer can't call the cattle 

herd up and just say, dial it back eight percent 

next week. That's not how it works. So, all of 

a sudden, we have excess milk that can't find a 

home, even though there's a need; there seems to 

be a shortage. But we can't get enough people 

to get into the production facilities to get that 

processed, turned to cheese, and put out on the 

market.

So, there's some really unusual 

challenges that are coming to the Ag group right 

now, whether it's the dairy promoters or dairy 

producers or the poultry producers. There's a 

lot of different unique things. And while we 

don't do a lot of direct Ag lending to the farmers 

themselves, we do a lot of lending to Ag support 
116

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

businesses. And, ultimately, this will trickle 

down to the customers we serve.

Thankfully, coming on PPP and a lot of 

assistance, they are in very good spots starting 

this process. But if this goes on through a long 

period of time, if we can't get the avian flu 

taken care of, this could be a prolonged 

situation.

And what was released this morning 

that makes it even more uncertain is recent 

scientific suggestions are this is not 

transmitted from person to person or property to 

property or vehicle to vehicle. They're starting 

to believe that this may be transmitted via the 

airways. So, when you have windy days, if you 

have it in one barn, it may transmit through the 

winds to another barn not too far away.

So, kind of a scary time for a number 

of the agriculture businesses in the area. They 

are a very resilient group. They will figure out 

how to get through it. They've done this before. 
117

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

But there is kind of a buildup of challenges for 

the Ag industry up here which makes us, while 

optimistic, somewhat cautious of where this may 

take us over the next six to nine months.

Bank-specific current credit 

indicators remain very, very good. 

Delinquencies are almost at all-time lows. Past 

dues don't exist. Non-accruals don't exist. 

When we do have a freak foreclosure and it 

actually goes to a sheriff's sale, the bidding at 

those is almost unbelievable.

In the old days, you couldn't find a 

person to come and put in a bid. We had one a 

couple weeks ago that we had eight different 

parties at the sheriff's sale bidding on the 

property that ended up driving the price way up.

So, while current credit quality 

standards are very good for us, we also see the 

challenges that are being faced by some of our 

business customers. I mentioned the Ag

challenges already, but that trickles down to 
118

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

some of our other commercial customers as well -

- labor shortages, supply chain issues, inventory 

availability, and cost.

Heading into the spring season, we 

very honestly expect a higher utilization of 

lines of credit for our commercial businesses 

than we've seen in the last couple of years. And 

part of that is coming from two different 

sources.

Obviously, prices are up, but the 

other thing that is changing for a number of our 

customers is the payment terms that they receive 

when they order from their suppliers has changed. 

There's a number of them that have gone from net 

30 to net delivery. And if you don't have the 

check ready when the truck drives into your yard, 

they will move it on down the road to the next 

business that has a check waiting and ready.

So, the businesses are having a little 

cash flow challenge, starting to use their lines 

of credit, which -- after two years of not having 
119

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

much line of credit usage, we are very happy to 

see that coming through the bank.

It's a new environment and new world 

that a lot of businesses are having to figure 

their way through. After a couple years of just 

unbelievable deposit growth, we have seen that 

taper. In fact, in the first quarter, we've 

actually seen some of it reverse.

The reversals we've seen really have 

been anticipated. They were some unusually large 

increases a couple years ago that we knew the day 

was going to come where that was going to reverse. 

So, a few of those are not surprising, but some 

of the other commercial businesses that were 

sitting on so much cash, again, due to change in 

payment terms, inventory costs, et cetera, are 

starting to draw down their cash reserves to move 

forward going into the future. Still very 

optimistic if they can get the labor that they 

need to get the stuff done, but it is a change of 

time.
120

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

For us, as we move on through the 

first quarter, we did not have a lot of loan 

demand. We had some margin compression -- let 

me rephrase. We did not have a lot of loan 

funding. We have a lot of loan demand that when 

the weather finally gets good and construction 

can take off and get going and those loans start 

to fund, we will have some nice loan growth as we 

had through the second half of the year. But it 

was very slow first quarter and a slow start to 

the second quarter.

So, once that loan demand gets going, 

we're expecting the interest margin to kind of 

rebound a little bit. But it has been a bit of 

compression in the first quarter. Now that we 

see interest rates moving up, exactly how fast 

that moves through will also be interesting to 

see.

We think we're in a relatively good 

spot, but until you actually go through this and 

rates start changing as quickly as they're being 
121

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

predicted, we'll never see how this is going to 

go until it actually plays out. We do think 

there might be a little compression time, but we 

do think within a year, to year and a half, that 

will all play out as we get loans to re-price, 

investments to roll off and re-price, et cetera, 

et cetera.

So short-term margin compression, but 

we're thinking that we'll recover as the year 

goes on. How quickly that comes back time will 

only tell.

It was mentioned a little bit earlier 

by some other folks -- scams. Generally, it's 

the holiday season that these always ramp up. 

There's no end to this year's holiday season's of 

scams. And as much as you try to get the word 

out to customers, whether it's through law 

enforcement, whether it's news releases, whether 

it's radio ads, whatever, there always seems to 

be a new twist, a new term, a new way that keeps 

our customers a little bit off balance and get 
122

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

tricked into these things.

Multiple people today have talked 

about cyber-related issues related to us as 

banks. Obviously, that's extremely important 

and something that keeps all of us awake at night. 

But some of the scam issues that we are seeing 

are kind of coming backdoor into our customers' 

scenarios through less than strong IT systems.

So, while they don't often come 

through the business in our door, they're able to 

get into emails, text messages, and things of 

that nature that are kind of perpetrating the 

problem of the scams being -- I guess rising to 

a higher level.

So, certainly an area of concern. We 

continue to try to educate customers constantly. 

Again, being a business-oriented bank, we are 

sometimes surprised at the casual nature, that 

some of the businesses still run bare IT systems 

that are open to the outside world, which 

ultimately can lead to issues down the road for 
123

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

them.

I think as the word gets out -- I think 

law enforcement has done a better job recently of 

getting the word out when certain of these things 

happen. I think the level of concern and 

reaction to this vital area of our business has 

gotten better, so hopefully people tighten things 

up as they go forward.

But, off to an interesting start to 

2022 in a lot of ways up here in Northwest 

Wisconsin. We are still very optimistic for 

what's to come through the rest of the year. 

Labor is a challenge. As we get the resorts 

open, the bars, the lakes, et cetera, everything 

that goes with our summer recreation up here, 

labor is something that people have all been 

talking about.

But somehow, some way, the resilient 

nature of these industries will survive. They'll 

figure it out. It may not be as smooth sailing 

as they'd like, but it will move forward, and 
124

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Northwest Wisconsin will survive.

So those are my final comments. With 

that, I'm going to turn it over to Neil McCurry.

MEMBER McCURRY: Well, thank you. 

Thank you.

This is Neil McCurry from Florida. In 

the spirit of time -- we're a little over 3:00 -

- I'm going to keep my comments short, coupled 

with many of the things I would say have been 

shared with by some of the other speakers as well.

I will say that it's really 

interesting for me to listen to my fellow bankers 

from across the country, hearing the different 

approaches of banking, how you do banking, the 

different types of communities you serve.

In particular, I want to point out or 

salute Robert at Carver State Bank and Dominik at 

Optus Bank. I think the work you're doing is 

amazing, and please keep it up. And I think we 

can all learn from what you are trying to 

accomplish serving the markets you serve.
125

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

So, again, I'm in Florida, and I want 

to share some comments about Florida, the 

southeast in general. I would say, from a 

positive standpoint, we continue to have just 

steady population growth. Every day, we see new 

moving trucks coming down with families with 

mouse ears on their heads.

Tourism is strong, mostly national, 

not as much international, although that's 

picking up as well. Unemployment's low, and 

we're fortunate we have a very supportive 

business environment in terms of both our local 

government and state government.

I heard Bruce Lowry from Ireland Bank 

saying earlier that he had snow on his ground. 

And, I would tell you that we continue -- we have 

blue skies. It's sunny outside. So, Bruce, next 

time you want to open a branch, give me a call if 

you want to put one in a place that has a warmer 

operating environment.

From a banking perspective, loan 
126

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

demand continues to be consistent, and that's 

just a reflection of the macro trends I talked 

about in the state earlier. We have strong 

credit quality; I think all the banks do.

Just as important as the strong credit 

quality we're having today, we're not seeing any 

negative trends as far as creeping up of past 

dues or any other issues at this point that would 

cause us concerns for what might happen later in 

the year and in the next couple of years.

And, like everybody, no liquidity 

issues. Liquidity is abundant. Not to say there 

isn't some challenges; there certainly is. Like 

many areas of the country, housing is a big issue. 

Ownership is tough. Construction costs are way 

up. And at this point, we don't see any relief 

in sight on that.

Existing home prices are extremely 

high. I heard one of the other banks talk about 

that land cost had gotten up to about $15,000 an 

acre high. We've just reached a milestone that 
127

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

we have homes that are selling for over $1,000 a 

foot, so just exorbitant prices here.

And, from lower priced -- I don't know 

if you can say the word lower priced homes. From 

the entry-level-priced homes are significantly -

- they probably represent what the middle-level 

market prices were several years ago, and minimal 

inventory. Our rental costs are -- we've 

increased our rental rates. We've seen them 

about 50 percent.

So where all that's happening is that

it's making an affordability issue. And, we --

needless to say, that's going to have some 

negative ramifications, certainly to some degree. 

We're still collectively trying to decide, one, 

how bad -- what impact that will have on our 

economy, as our businesses, quality of life, and 

how we address that. And, they aren't easy 

answers, and we're as a community, as an 

industry, trying to come up with solutions to 

make sure those challenges that we face right now 
128

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

-- that there's a solution in the future for them.

From looking forward from the banking 

standpoint, there was a lot of great comments 

about issues that we face today. And so maybe 

I'll just tailor mine a little bit differently 

and take a little bit of a longer view.

Most of the bankers on this call have 

spent many decades, their career, in this 

industry. And, I think back to what risk we 

thought about years ago, and they were really, I 

think, other bank competitors and bank robbers. 

And, we don't really talk about that so much 

anymore.

While they might exist, I think we've 

learned to operate within those challenges. And 

they've really expanded in scope so much, and 

we've talked about cybersecurity. That's been a 

topic for a while. Cybersecurity was initially 

-- we were worried about people taking our 

customers' money. Then it's taking our 

customers' information. And, now it's morphing 
129

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

into literally you have other countries 

weaponizing cybersecurity with the attempt of 

taking down industries, including our industries.

I think the cyber-hacker of years ago 

was a 14-year-old kid typing away in their 

parents' basement in another country, and now 

we're trying to defend ourselves from other 

countries as a whole. So it's a very scary 

prospect as well.

Other challenges, I think, is what as 

an industry are we going to look like in the 

future? We haven't changed dramatically that 

much over the decades. And I remember when I got 

into banking in the '80s out of college, 

everybody wanted to work for banks, and banks 

were doing things. They were growing.

And, now I have two kids in college, 

and they have no interest in banking and none of 

their peers have interests in banking. And so I 

kind of -- why is that the case? Why are we not 

the industry of choice? I think if we look at 
130

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

some of the things that are part of our life now, 

the cryptocurrencies, ESG matters, we have to be 

at the forefront of those. Those topics/subjects 

are here. They're not going away.

And, many bankers, including myself, 

we didn't grow up in the industry knowing about 

those. They're foreign words to us. So we're 

really all of a sudden -- it's come up around us, 

and we are in leadership roles now, but we don't 

have the decades of experience in these new areas 

like we do in traditional banking roles.

I think we have to all challenge 

ourselves -- and when I say us, I think that's 

all the bankers, the industry, I think the 

regulators, everybody associated with our 

industry -- how do we work together to make sure 

that we're leaders, not followers, in these 

areas? Because if we're not, it's going to --

there's FinTech. There's other players that 

would love to make the traditional bankers the 

dinosaurs of the future and make us go extinct.
131

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Partly why that happens is that we 

don't take leadership roles in understanding 

these new changes that are here and, in my 

opinion, won't go away. How do we make sure 

they're safe for the customers, for the 

communities, safe for industries, but recognizing 

that they are going to be here and we need to be 

a leader in crafting the way that we respond to 

these and understanding them as well? And, I 

think we can use these advantages for industries 

as opposed to running scared from -- I think we 

have to become leaders in them.

And, I think, again, going back to the 

relationship between bankers and regulators --

and I understand and recognize the roles that we 

have between each other. But I think it's 

important for all of us to also say, what can 

that relationship look like in the future, and

how do we work together to make sure that we're 

looked at as leaders in these areas as well?

And, there certainly are some banks 
132

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

that have already taken leadership roles in these 

specific areas, but I think all of us as an 

industry have to make sure that we're taking a 

seat at the table. And, maybe it's more for --

instead of a seat at the table, we need to be 

standing in the front of the table, talking and 

teaching and being leaders in the future.

So, I think those are some of the 

challenges we have to think about, and I think 

that those will be some topics we talk about 

today. But at the end of the day, I think every 

day, we need to think about how we will continue 

to focus on those areas and how we'll play a part 

in our industry.

And, with that said, I'd be happy to 

turn it over to Troy from Altoona First Savings 

Bank. Thank you.

MS. EBERLEY: And, so Troy had to 

drop, so let's move to Teri, please.

Thanks, Teri.

MEMBER MESSERSCHMITT: Hello, 
133

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

everyone. Good afternoon, Director Gruenberg, 

all the FDIC staff, and all of our fellow bankers. 

I'm Teri Messerschmitt, and I'm the President/CEO 

of South Ottumwa Savings Bank.

We're located in southeastern Iowa. 

We're about a $600 million bank, and quite 

honestly, with all our liquidity, that made us 

that amount, but we thought we'd be around $525 

million today. So, we do have an extreme amount 

of liquidity like many of you.

The State of Iowa does continue to be 

on a rebound. We have been opened up for 

business, and actually today, I heard that the 

hotel occupancy rate is back where it was to the 

pre-pandemic levels, which -- to me, that is very 

exciting news.

Unfortunately, that good news is 

hindered a little bit because of our labor 

shortage that we have in Iowa as well. That 

seems to be a common theme throughout the day 

today that many of you have that same issue.
134

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Our unemployment rate in Iowa is about 

3.3 percent. We do have one of the highest 

participation rates. And so most of our people 

are already working. And so, with people 

retiring and people leaving the workforce with 

COVID, we are really seeing a shrinking 

workforce.

Businesses in general, they continue 

to experience labor shortages throughout the 

state. And, we see tremendous competition 

between businesses for hiring those individuals 

that are out there. Even current, and sometimes 

long-term employees are being recruited to other 

businesses just because there are so many 

opportunities out there for them.

Attracting and retaining people in 

Iowa is a concern for our state. And in fact, 

the Iowa Legislature recently approved a bill 

that actually cuts our unemployment down from 26 

weeks to 16 weeks to help get more people into 

that workforce maybe a little sooner.
135

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Employment issues aside, our bank

continues to be performing very well. Our loan 

quality overall is very, very strong. We have 

very little delinquencies. In general, our 

commercial loan growth in our area really remains 

subdued with businesses really remaining 

cautious.

Gross revenues for the businesses have 

rebounded. I think that they are near their 

pandemic levels. However, I think the higher 

costs and the supply chain issues and the reduced 

net margins -- it's really causing problems for 

them. And, really, a lot of them are reluctant 

to spend additional capital for capital 

expenditures that they would like to make.

On the other hand, though, the 

commercial real estate loan growth in Iowa has 

rebounded, as investors are out there with excess 

cash. And really, there seems to kind of be an 

urgency with those investors to invest that cash 

before the interest rates continue to go up 
136

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

further. And, also before the prices go up 

further, because prices have tended to increase 

as well.

The owner-occupied real estate has 

also shown some small increases as owners are 

eager to complete their improvements or their 

upgrades, and they're trying to get those done 

also before further rate hikes come into play.

We do have a concentration of Ag

credits within our loan portfolio, and I have 

some of the same type of comments that my 

colleagues have already shared today. Planting

is currently behind schedule. We've got the wet 

conditions, and we've got the ground temperatures 

that have caused that.

However, we're not too concerned yet. 

Farmers can really get the crop in the field 

quickly. So, we keep holding out and hope that 

things are going to turn around and change for us 

relatively quickly for that.

Commodity prices on the old crops are 
137

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

strong, and the new crop production prices have 

remained good as well. They have seen 

significant increases in the Ag production costs 

that have been mentioned earlier. We've seen 

some higher interest rates with the interest rate 

hikes that we've seen.

And, because of that, we could 

potentially see an offset in that increased 

profit margin that the farmers would have seen 

with the higher commodity pricing. The average 

cash rent in Iowa, or at least in our Wapella 

County, is about $200 an acre. We do have some 

very good ground that's running for about $300 an 

acre -- some a little higher, but the average is 

probably around $200.

The market value of our farmland in 

Iowa did raise quite a bit in 2021. It went up 

29 percent, and that's the highest that it's been 

in 80 years. Our state average is about $9,750 

per acre. That's a lot lower than the acre 

prices that I've heard today, but that doesn't 
138

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

mean that we don't have farm prices all over the 

board, because we do have a lot of farmland that 

sells for a lot more, and we have some that sell 

for less than that. But that's the average.

From a lending standpoint, though, 

with the increased farm values, we have been 

requiring our farmers to have more equity in 

their purchases because we really want to remain 

at about a 60, 65 percent loan-to-value position 

in that ground. And, that's just to be cautious.

In general, most of our farmers that 

have been in farming very long, they're really 

holding their own right now, and they do remain 

cautious since many of them have not forgotten 

what it was like in the '80s. So having that 

experience behind them is a good factor for them.

Residential real estate lending, that 

slowed significantly, primarily due to rate 

increases, the lack of housing inventory, 

inflated cost of new construction, the overly 

high selling prices of the inventory that's out 
139

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

there, and lack of loan refinancing.

So, we've really seen that market 

slow. The combined effect of that higher home 

prices and the interest rate increases that we've 

seen, that significantly has increased some of 

our consumers' monthly loan payments. And, when 

people are looking at that loan payment, it has 

actually even taken some home buyers out of the 

market as well.

From a capital standpoint, our capital 

continues to be very strong, which allows our 

bank an opportunity to grow both organically or 

through acquisitions. We do continue to have 

several challenges at the bank, and most of these 

have been mentioned today also.

We have the net interest margin 

compression that we're seeing. We have limited 

loan demand in our area. We have 40 percent of 

our assets in the investment portfolio, and 

that's a challenge. There's just not a lot of 

development and opportunities for new loan growth 
140

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

in our area.

With interest rates increasing as 

well, we haven't really been able to increase the 

lending rate. And the reason for that is because 

of all of the liquidity that's out there and the 

competitors that we're dealing with. They're 

keeping the rates low. So, so far, we haven't 

been able to take advantage of the interest rate 

hikes.

In addition to that, the same 

competitors with their liquidity, they're still 

going after existing loan portfolios. So, people 

are trying to look for places to put that excess 

liquidity and get the best yield that they can 

get on that. On the deposit side, we are 

actually seeing some of our competitors start to 

increase their rates on the deposits as well.

Another challenge that we have are 

regulations. Those can be a big issue. 

Recently, we did become a FDICIA bank. We have 

over $500 million in assets. So, we are 
141

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

responsible for a lot more of our own internal 

financial reporting. We're currently working on 

our CECL model. We've been working on that 

implementation, but it kind of has been a strain 

on resources. We've had a lot going on.

We have a very strong efficiency 

ratio, and we just really have a limited number 

of employees that really have analytical type 

skills to work on that CECL model with us as well.

In addition to that, it sounds like 

the examiners have been very busy this past year. 

We had a compliance CRA exam in January, and we're 

now gathering preliminary information for an FDIC 

exam that's scheduled to begin in June. So, a 

couple exams this year. And then another issue 

with regulations is what's been brought up today 

about future regulations and the unknown related 

to what is planned for that in the future as well.

While on the topic of regulation, 

though, Director Chopra -- I was glad to hear him 

say today that the Consumer -- or actually, he 
142

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

didn't say it, but I saw that the Consumer 

Financial Protection Bureau stated that they're 

going to invoke their authority to examine nonbank financial service providers to determine 

activities that result in UDAAP, the unfair, 

deceptive, abusive acts and practices, that could 

cause a risk to our consumers out there. So, I 

think it's really great that they're going to 

take a look at those non-bank financial service 

providers as well.

Fraud is an increasing challenge for 

us. Protecting our customers from fraud is a 

daily issue with our staff. We have an elderly 

customer base, and with our increased online 

services that we have, it's made our elderly 

customers even more vulnerable out there.

As a result, fraud is continuing to 

take up more and more of our staff time. And 

we're actually seeing more fraud losses out 

there. As of the end of April, we have taken as 

many fraud losses this year as we did our entire 
143

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

year 2021. So, we're spending a lot of time on 

fraud.

The increased fraud cases have also 

resulted in increased government reporting too, 

which is another one of those regulation 

challenges that we have out there. We continue 

to concentrate on educating our customers and our 

employees as to giving them the skills and the 

awareness that they need to limit our exposures 

in this area. But it is a constant issue that 

we are dealing with.

And, I guess last but not least is the 

cyber threats that are -- it's just a constant 

concern, I think, of all banks out there. We do 

continue to concentrate on training and educating 

our staff and customers in that area as well.

So, in closing, I just want to extend 

a continued thank you to the FDIC and Iowa 

Department of Banking for all their assistance 

and support throughout the year. And, I want to 

thank you very much for your time.
144

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

DIRECTOR COPRA: Teri, if I could just 

say one thing in response. The non-bank 

supervision program is actually going to be an 

increased focus for us. There several sets of 

them, including larger participants in certain 

markets like consumer reporting agencies, the big 

three credit bureaus, very large non-bank debt 

collectors, the mortgage industry including 

mortgage servicing, parts at student lending, 

payday lending.

So, it's a key priority for us. I 

appreciate you mentioning the importance of nonbank oversight to ensure there's a level playing 

field.

MEMBER MESSERSCHMITT: Thank you.

MS. EBERLEY: Okay. Well, thank you, 

everybody, so much. We have run a little long. 

We're going to take a break, a ten-minute break. 

Come back, please, at 20 minutes to 4:00, and 

we'll pick back up with the small business 

survey, Small Business Lending Survey.
145

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

We're going to skip our presentation 

from our Division of Insurance and Research and 

the regions about conditions from our point of 

view. I think we really -- we had a very robust 

discussion and have covered well the topics and 

really what we would have said.

So, thank you very, very much for the 

great report outs, and we'll see you back at 20 

till. Thank you.

(Whereupon, the above-entitled matter 

went off the record at 3:28 p.m. and resumed at 

3:40 p.m.)

MS. EBERLEY: All right. Well, 

welcome back. For our next item, Phil Shively, 

the Deputy Director of Research and Regulatory 

Analysis, in the Division of Insurance and 

Research, along with Yan Lee, an Economist in the 

Division of Insurance and Research, are going to 

discuss the Small Business Lending Survey. Phil, 

I'll turn it over to you.

MR. SHIVELY: Very good. Thank you, 
146

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Doreen. Good afternoon. It is good to be here 

with everyone today. As Doreen mentioned, I'm 

Phillip Shively, Deputy Director for Research and 

Regulatory Analysis, in the Division of Insurance 

and Research.

I'm here today with Yan Lee, who is a 

Senior Financial Economist at the FDIC, and she 

is the Team Lead for the FDIC's Small Business 

Lending Survey.

Yan joined the FDIC after receiving 

her Ph.D. in Economics from UCLA. And, before 

her graduate work, she was an Examiner at the 

Federal Reserve Bank of New York and received her 

B.A. in Economics from Columbia University.

Yan is here today, to talk to us about 

the Small Business Lending Survey, and with that, 

I will turn it over to you, Yan.

MS. LEE: Great. Thanks so much, 

Phillip. So again, as Phil was saying, my name 

is Yan Lee and I am the SBLS Team Lead for the 

SBLS, which is the FDIC Small Business Lending 
147

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Survey, and we call it SBLS 2022, because it will 

be launching in June, of 2022.

So, what is the SBLS? This is a 

nationally-represented survey of banks and their 

small business lending practices and activities. 

So again, as I was saying, it will launch in June, 

of this year, and our last survey collection was 

in 2016.

So, it takes about five years to 

implement this project. It takes a lot of work 

and the questions changed, so we're basically 

asking new questions that really represent the 

industry.

So, we've contracted out with the U.S. 

Census. So, we contract out with the Census 

because we want to make sure that we can make 

sure that the -- the respondent identities of the 

banks are protected and that the project follows 

the rules of Census and -that agency.

So, approximately 2,000 FDIC-insured 

institutions will be asked to participate. Next 
148

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

slide please. Okay. So why are we talking about 

the Census today and why is the SBLS of interest 

to community bankers?

First of all, small businesses are 

very important to the U.S. economy. According 

to the SBA, they are 99 percent of all U.S. firms, 

small businesses are very important.

And, after their own equity, banks are 

the most important source of external financing

for these small businesses. So, U.S. small 

businesses are important and banks are important 

to U.S. small businesses.

However, there's a lot of gaps in our 

knowledge, so that, you know, I think, Neil was 

saying earlier today, on the community bankers, 

the industry is constantly evolving. There's a 

lot of emerging topics, so we want to be on top 

of that, in relation to small business lending.

And, a lot of small business lending 

that banks undertake were not actually captured 

in regulatory reports. So, we try our best to -
149

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

- tto collect data that, you know, is clean, but 

it's not always entirely in line with what banks 

are actually doing themselves, and I'll talk a 

little bit more about that, later today.

So, our goal with the survey is to 

first close gaps in our knowledge and do -- do 

our best in doing that, and second, with the 

collected data, to be able to document the 

contributions of banks to the U.S. economy, 

through their small business lending activities.

Next slide, please. Okay. So what 

topics are going to be in SBLS 2022? There's 

basically four sections, so three qualitative 

sections. By qualitative, we mean like yes/no 

answers, multiple choice, basically, pretty 

simple -- easy to answer questions that cover a 

lot of -- a lot ground.

So, for example, we'll have a section 

on your general small business lending, loan 

approval, how are loans made, the hierarchy, who 

makes the decisions, the underwriting processes, 
150

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

what gets into that decision-making process, the 

use of FinTech, which is a new topic.

We'll also have a section on markets 

in competition. So, you know, where do you lend, 

you know, and this is more than just the CRA 

assessment area, and, also, who are your 

competitors, who do you think of as your own 

competitors in your market?

And, then, lastly, we'll have a 

section with -- with some small topic areas on 

the coronavirus pandemic response, SBA lending, 

the selling of small business loans, and those 

are all new topics.

And, then our last and final section 

is the quantitative section that asks questions 

on your bank's volume of small business loan 

dollars that may not be captured on -- on the 

Call Report, and again, I'll talk about that in 

a -- in a little bit more. Next slide, please.

So, what is unique about the SBLS? 

So, in the SBLS, as I said, it's a nationally-
151

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

represented survey. That means we can make 

definitive statements that -- that we are 

confident about, about banks and their small 

business lending activities.

So, in the SBLS, questions evolve from 

each collection, so we can change things up to 

reflect the questions of interest today, and 

because it's nationally-representative, then 

it's more authoritative.

So, we have confidence in -- in what 

we're saying, so it's not a convenient sample. 

It’s not like the ones that I review in the -- in 

Amazon ratings. So -- which is informative, but 

not necessarily definitive. So, this is a 

nationally-representative survey.

It's more comprehensive than, maybe, 

other surveys that your bank might participate in 

that might say, ask about your terms or rates 

that you charge, you know, that standard set of 

questions, and is helpful, but is not very 

comprehensive.
152

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

So, the SBLS is, both, more 

authoritative and more comprehensive. And, one 

other unique feature is that banks self-define 

their small business lending.

So, unlike mortgage lending, where, 

you know, you got the inputs in and you got the 

mortgage out, small business lending really is 

very different from small business to small 

business.

And the banks in this space, both, 

community banks and large banks, serve a lot of 

different very diverse small businesses. So 

bigger ones, smaller ones, and that's not 

captured, if we just use standard regulatory 

thresholds.

So, for example, you can think, you 

know, you can use $1 million , as a loan size, as 

a threshold to say it's a small business loan, 

but a loan that's $1.1 million is also a small -

- could be a small business loan.

In our qualitative questions we let 
153

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

the banks kind of say, you know, this is our 

definition of small business lending and this is 

what we do.

Another aspect that's different is 

that, in our quantitative questions we are going 

to do more than what's covered in the Call Report. 

So, for -- for example, we're going to betterdistinguish what is lending to businesses and 

what's lending to small businesses.

So, you can have small loans that are 

going to larger businesses, but you could have 

larger loans that are going to small businesses 

that maybe were not captured in what we can see 

from the Call Report.

And there's also other lending, for 

example, lending for business purposes that are 

collateralized by your primary residence. So,

on the Call Report that would be under 

residential lending, but really, it's actually 

small business lending that banks might be 

conducting.
154

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

So, there are a lot of ways that we 

can fill in gaps with this survey. Next slide, 

please. Okay. So, a lot of times, when I speak 

to bankers, they have questions about, hey, can 

you just give me an example of a question?

So here is an example of a qualitative 

question, and this one's actually much more 

complex than questions that you might see in the 

survey and, which might be yes or no or multiple 

choice.

This is a matrix, but I think if --

if you have a person in a bank, who's really 

knowledgeable in this area, they can answer it 

pretty quickly.

So, for example, the question here is, 

okay, in what stages of the small business loan 

process does your bank use, or plan to use 

FinTech?

Include usage, or planned usage, of 

both in-house technology, or through interactions 

with outside FinTech providers, and select all 
155

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

that apply, per small business loan stage.

So, you see, on the left-hand side, 

these are all -- that column, here on the lefthand side, these are all stages in the small 

business loan process that we worked out with 

banks.

So last year, in 2021, we met up with 

46 banks of all different sizes, all across the 

U.S., and we went through every single question, 

every single question options, with bankers, to 

make sure it was really comprehensive to what 

they understood what their process to be.

So, for example, here, we're asking, 

okay, in the small business loan process, you 

know, do you use FinTech to identify potential 

borrowers, to intake the loan application, to 

process the application, like collect documents, 

to make underwriting decisions, all the way to 

like loan funding, closing, and lastly that 

repayment or portfolio analytics. Right? So 

those are the kind of things that some banks are 
156

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

using FinTech for.

A lot of banks are interested in 

FinTech, whether they have the FinTech in place, 

or not, people are talking about this, so when -

- when it's time to replace their legacy 

infrastructure, they kind of know what they want.

They -- they will know what others in 

the industry -- industry are doing, so people 

have a lot of interest, during testing, in this 

question.

So, if you go across the columns, then 

you would say, hey my bank is -- we're just 

talking about it, we're actually testing 

something we're actually using, we're not talking 

about it.

Wherever you're at, there's no right 

or wrong answer, this is just where your bank is 

at and it just will help us understand, okay, 

where are banks now, at this moment in time, in 

their FinTech usage? So, this is an example of 

a qualitative question, which I think, would be 
157

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

helpful to -- to have some knowledge on.

Next slide, please. Okay. So what 

is an example of a quantitative question? So 

I'll start by giving an example from SBLS 2016, 

a question that we asked there in our resulting 

analysis and how that question's being updated 

for 2022.

So, in 2016, we asked banks that had 

$1 billion or more in assets, basically, larger 

community banks all the way up to large banks, 

hey, could you break down for us your C&I loans, 

by both loan size and firm size?

So basically, for C&I loans that are 

less than $1 million , or greater than $1 million 

, then we're asking -- we asked the banks to now 

break that up by the firm that received these 

loan dollars. So, were the firms more or less 

than $10 million in gross annual revenue?

And we used that $1 million cutoff, 

because that's what's collected in Call Reports

and that's what's commonly used, as a measure for 
158

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

small business lending, C&I loans of less than $1 

million at origination.

And, because we're able to get 

information on the firm size, you can say -- we 

could say, make the statement that, for banks of 

$1 billion to $10 billion in assets, basically, 

larger community banks that, on net, that, if we 

rely on the Call Report proxy, of loans of $1 

million at origination, as a small business 

lending measure, then there will be a 23 percent 

net understatement of these banks' small business 

lending dollars.

So, there's some overstatement with 

this proxy, so for example, some small loans are 

going to larger businesses, but there's a lot of 

loans greater than $1 million that are also going 

to small businesses.

So, on net, about a quarter of these 

size banks, small business lending could be 

understated, if you relied on this proxy. So, 

we thought that was useful to document.
159

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

And then, in 2022, we're going to 

refine this question even more, so we'll have 

finer buckets for loan size, not just $1 million 

, or over $1 million , but also, $1 to $5 million 

-- $5 to $10 million – and $10 million and 

above.

You can think that a loan of $2 

million could also become a small business, 

right? And then, we'll have finer buckets for 

gross annual revenue.

So not just what is $10 million or 

less, but $1 to $5 million and $5 to $10 million. 

So, you know, because different banks are 

probably serving the businesses of different 

sizes.

Okay. Next slide, please. Okay. 

So, when is the survey going to happen? The 

survey, actually, the ball is starting to roll 

today, so May 3rd, a joint letter is coming out 

from the Acting Chairman of FDIC and the 

Director of the U.S. Census Bureau to about 2,000 
160

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

banks announcing their selection into the survey.

So, a letter is coming out, via snail 

mail, and also, an associated email from the 

address that you see on the slide. This is just 

to let banks know, hey, we are asking you to 

participate.

And, then, on June 14th, the survey 

officially launches. So, you'll receive -- if 

you're at -- select -- if your bank was selected, 

you'll receive another letter and that letter, 

again, will be from the Chairman and the Census 

Director that includes a web portal link.

So, a Census web portal link and a 

unique authentication code for your bank, so to 

get access into the survey and, also, to share 

survey access with bank staff.

And, so the due date for the survey 

census, we'll say it's July 19, but really, you 

can request extensions all the way up until the 

end of the year, so there's about six-and-a-half 

months that your banks have to answer this 
161

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

survey.

So next slide, please. Okay. Just a 

sampling notes. So which banks are -- is Census 

going to be drawing this 2,000 -- these 2,000 

banks or more, and have drawn these 2,000 banks 

from?

So basically, there's 4,800 banks that 

are FDIC-insured, with actual domestic offices, 

branches, loan production offices, in the 

domestic U.S. that actually make loans and this 

is banks that are also supervised by the -- the 

FRB and OCC, in addition to the -- to the FDIC.

And so there's going to be, of these 

2,000, over 300 banks that have $3 billion in 

assets and all those banks will be asked to 

participate. So, if you're a large community 

banker, your bank will definitely be asked to 

participate.

And then there's going to be a random 

sample of 1,600 banks that have assets of $3 

billion or less, so that's about 4,500 banks, 
162

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

more than one out of six -- oh, I'm sorry, one 

out of three will be asked to participate. So, 

1,600 banks that are $3 billion or less in assets, 

will be asked to participate.

Census chooses those banks. The 

identity of those banks are not shared with the 

FDIC, but you're free to share with others, if 

your bank was selected. So just a sampling note.

Next slide, please. Okay. So what 

does the FDIC want bankers to do? Basically, we 

would very, very much appreciate your response to 

the survey. So, if your bank was selected, we 

really want to make sure that community banks are 

represented -- represented.

So, this survey is nationallyrepresentative, it's going to all sized banks, 

but we want to make sure that, whatever size bank 

it is that we want to make sure that perspective 

is represented.

And, the only way to do that is to get 

as many answers, as possible, then we can say --
163

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

that way, we can say with confidence, this is how 

community banks do -- do small business lending, 

and this -- these are the processes that they do 

-- and we can say that with confidence. Okay?

And the bankers here, today, they're 

leaders in their community, but they're also 

leaders amongst community banks, so if other 

bankers ask you, hey, what is this, please say 

it's a legitimate FDIC project and just be, you 

know, if you're willing to encourage other banks 

to respond, as well, just so that we can have as 

best responses, as possible, to say something 

about what community banks do for the sector.

And, lastly, if you could designate a 

staff person to coordinate survey response, it 

would probably be super -- it would be super, 

super helpful and just figure out who should 

answer what questions. That'll make it a lot 

easier for your bank. Okay.

Next slide, please. And that's --

this is going to be my last slide. So, if your 
164

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

bank has any questions, we really encourage you 

to register for our meeting for bankers. So 

basically, starting next week and the following 

week, we have four different one-hour sessions 

that bankers can sign up for to ask their 

questions directly.

A lot of times it's a lot easier to 

just verbalize your questions than have to Email 

it out, so this is an opportunity for you to do 

that, and you can sign up for as many, as 

possible, you can send multiple staff members. 

So please, R.S.V.P. for this. It will be in this 

-- this is hyperlinked in this slide deck.

You can't make that, we have an FDIC 

website dedicated to the SBLS, you can find the 

survey there, the FAQs and, also, if you want to 

ask -- ask a question to me, directly, you can 

send it to this mailbox, right here, 

sbls@fdic.gov, and I would love to answer your 

question.

So next -- next and last slide. So, 
165

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

we really appreciate so much your time today and 

would love if you would participate, so we can 

get the community bank responses and perspectives 

into our survey. Thank you so much.

MS. EBERLEY: Okay. Thank you so 

much, Phil and Yan. Next, we're going to provide 

the Committee with an update on a few supervision 

and policy matters.

We have a number of individuals from 

the Division of Risk Management Supervision. 

Rae-Ann Miller, Senior Deputy Director of 

Supervisory Examinations, will discuss Crypto 

Assets.

Bobby Bean, Deputy Director of Capital 

Markets and Accounting Policy, will discuss the 

FDIC's climate change initiative. Martin 

Henning, Deputy Director of Operational Risk, 

will provide an update on Cyber Security.

And, Shannon Beattie, Chief 

Accountant, will provide an update on the current 

expected credit losses model, or CECL, 
166

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

implementation. Also, from our Division of 

Depositor and Consumer Protection, we have Chris 

Finnegan, Senior Deputy Director of Compliance 

and CRA Examinations, and Tara Oxley, Associate 

Director of Compliance and CRA Examinations.

And Chris and Tara are going to talk 

about the spring 2022 Consumer Compliance 

Supervisory Highlights publication that several 

of you mentioned this morning.

So, I think we've got a nice group of 

topics here that were all things that were 

mentioned in the earlier discussion this morning, 

so we'll go ahead and jump right in. I'll go 

ahead and turn it over to Rae-Ann.

MS. MILLER: Thanks very much, 

Doreen. And, I'm here today to talk a little bit 

about our activities, at the FDIC, related to 

crypto activities and, more specifically -- oh, 

can you advance the slide, please?

More significantly, we issued on April 

7th, a Financial Institution Letter to our 
167

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

supervised institutions that is intended to 

address our supervised institutions engagement in 

crypto-related activities.

And, as you know, there's no standard 

way for us to know about these types of 

activities, so we felt that this was important to 

reach out to our institutions, so that we can 

engage in a dialogue with them.

And the reason why we did that is we 

were seeing some interest and some active cases, 

and we are concerned about crypto-related 

activities and the safety and soundness issues 

related to them, as well as, consumer protection 

concerns and, ultimately, risks to the 

financially stability, itself.

And, some of you, I -- I listened to 

most of the remarks today, and some of you have 

raised some of these same concerns. Another 

thing that we point out in our financial 

institution letter is that, these areas evolve 

very rapidly the structure of the activities, 
168

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

just even the definitions and what's -- what we 

think certain things mean, will -- sometimes 

changes on us.

And what we have found in this -- in 

this area and in other emerging areas, as well, 

is that the best way to get a handle on it is 

really sort of a grassroots' effort, if you will, 

a bottom-up approach where we look at each 

activity individually.

So please, advance the slide for me. 

So, the Financial Institution Letter applies to 

those institutions that we supervise and it's 

asking the supervised entities to let us know of 

any current, or planned, activity related to 

crypto -- the crypto space.

And, we identify -- we define it in a 

-- in a footnote pretty broadly, based on a bank's 

activities and we would, once the bank notifies 

us, we would ask the institution to provide us 

information that would allow us to engage with 

the institution, regarding risks and -- and other
169

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

issues, related to those activities.

And, we will be providing feedback, as 

appropriate, to those individual institutions, 

and we've already engaged in discussions with, I 

would call, you know, a handful, two handfuls, 

maybe, of the -- of institutions.

Another thing that the FIL talks about 

is, you know, general legal implications. You 

know, we -- we’ve always looked at activities, at 

least, our starting point, the lens that we look 

through is the Safety and Soundness Standards.

And that's, for us, at the FDIC, is -

- is in Appendix A and B, of Part 364, and -- and 

that was promulgated, pursuant to Section 39 of 

the FDI Act.

So please, advance the slide. So, we 

talk a little bit in the Financial Institution 

Letter, tried to tell the public what our 

concerns are, and they're listed here, at least 

for the Safety and Soundness aspect.

There are some ownership issues, 
170

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

clearly, crypto assets and maintenance of keys 

and changes in status of these assets. You've 

heard of so-called forks and drops and things 

like that, are certainly a new issue that we 

really want to understand.

And, then, anti-money laundering, 

countering of financial terrorism, this is sort 

of the use of these types of activities for elicit 

purposes, certainly we've heard a number of -- of 

those stories. And, then, the next item is 

information technology and information security 

implications.

And, I heard Marnie talking about her 

concerns, about privacy and with new 

technologies, you know, how do we ensure privacy 

and security of our customers, and certainly, 

you've seen operational risk related to these 

activities outside of the banking system, of

course, with major heists of crypto assets.

I can't say it's every week, but 

certainly, frequently I've been reading about 
171

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

these heists and they often happen, given the 

operational risks, between the different crypto 

assets, the so-called bridges between these 

blockchains.

And then, we are concerned about 

credit risk exposure and county -- counterparty 

risks, there are settlement mismatches in these 

activities that trade 24/7 internationally, 

certainly, with the traditional financial system.

So, we're certainly concerned about -

- about that and, as well as, some of these --

some of these assets are backed by certain other 

assets and understanding what the credit risk is 

-- is more than just a simple, you know, looking 

at what's -- what the value is, today.

And, then, finally, market and 

liquidity risk, we -- we, you know, we see these 

prices are certainly very volatile and there's no 

identified separate liquidity support for many of 

these assets, unlike some of the asset classes or 

traditional financial players in our financial 
172

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

system.

So, we can move to the next slide and 

we're just talking very briefly, here, about our 

concerns about financial stability, in general, 

systemic risks that could occur.

We have, in our financial system, an 

interconnected structure and, certainly, items 

touch the traditional banking system and, as you 

know, these -- many of these activities are very 

popular with retail consumers and, you know, we 

are concerned that disruptions could result in 

things like runs on the assets backing these --

these assets. And then, you know, the 

traditional run cycle is runs, contagions, and 

then, you know, ultimately, fire sales and we 

certainly had things like this happen in our 

history, before, so that would be a concern.

And then, I talked a little bit about 

some IT risks, but operational failures could 

also be a vector of transmission to traditional 

financial institutions.
173

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Ultimately, people have cash backing 

a lot of crypto wallets and things like that, and 

should there be an operational hiccup in those, 

we are certainly concerned.

Please, advance the slide. And, so 

another area, it's certainly my -- my friend, 

Christopher Finnegan's expertise, but in Consumer 

Protection, we are very concerned about consumer 

confusion, particularly, with how would a 

customer know the difference between crypto 

assets at a -- at -- if they engage with their 

bank with crypto assets versus more traditional 

bank assets, say deposits, so that is certainly 

a concern about understanding the role of the 

bank, in these activities and what is or is not 

a traditional banking product.

And then, also, the management of 

consumer protection requirements. These are 

very fast-moving technologies. You know,

they're -- they're meant to be international.

They're meant to be quick, they're 
174

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

meant to be anonymous in many instances, and how 

will institutions that choose to get involved in 

this, how will they ensure that consumers are 

protected, along these new rails.

So, finally, let's just go to the next 

slide. This is just some -- some links for you 

to our FIL itself, and to the sort of underpinning 

regulation I mentioned before, which is Part 364 

and Section 39 of the Federal Deposit Insurance 

Act.

So, with that, I'm done. Doreen, are 

we pausing for questions, or are we just going 

straight through?

MS. EBERLEY: Oh, let's see if there 

-- I don't see any hands raised, at the moment, 

but let's give folks a chance, just in case there 

is a question.

(Pause.)

MS. EBERLEY: Okay. Not seeing any, 

Rae-Ann, so we will go ahead and move over to 

Bobby.
175

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

MR. BEAN: Thank you. This -- this 

afternoon, I'd like to speak briefly about the 

FDIC's initiatives, with respect to the financial 

risk associated with climate change.

The financial risk associated with 

climate change may pose safe -- significant 

safety and soundness risk to banking 

organizations, as well, as financial stability 

risk.

Understanding and addressing these 

risks is a top priority for the FDIC. To that 

end, the FDIC is working to develop a fuller, 

more formal and dedicated corporate -- corporatewide understanding of climate-related financial 

risks.

We will continue to expand these 

efforts through our thoughtful and measured 

approach that emphasizes risk-based assessments 

and collaboration with our fellow banking 

agencies and industry. As initial steps, the 

FDIC has established an inter-divisional, 
176

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

interdisciplinary working group on climaterelated financial risks.

In addition, we have joined the 

Network of Central Banks and Supervisors for 

Greening the Financial System, the NGFS, which 

will foster collaboration and share best 

practices in addressing climate-related 

financial risk on a global basis.

Further, the FDIC is actively 

participating in the FSOC's climate-related 

Financial Risk Committee and we are working 

closely with the Office of the Comptroller of the 

Currency and the Federal Reserve Board, to 

develop a consistent approach, with respect to 

climate-related financial risks.

At the end of March, the FDIC issued 

a request for comment on a proposed statement of 

principles for climate-related financial risk 

management for large financial institutions.

These principles are designed to 

provide a high-level framework for the safe and 
177

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

sound management of exposures to climate-related 

financial risk.

The request for comment was published 

in the Federal Registrar, on April 4th, with a 

60-day comment period, closing on June 3rd, 2022. 

The proposed principles are substantively similar 

to those issued by the OCC, in December, of 2021.

We hope that this request for comment 

will start a meaningful conversation with the 

Industry and, if the OCC's response is any 

indication, we think, we will get a -- a 

meaningful conversation.

While the FDIC's comment period will 

not end for some time, it -- I -- it is important 

to note that the OCC has received over 12,000 

comments from more than 29,000 individuals and 

organizations, including 98 comment letters, 

that -- that -- or unique comment letters, each 

that were represented by several thousand 

individuals, or organizations. So, we expect a 

similar magnitude of comments.
178

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

While the FDIC views climate-related 

financial risk as potentially-impacting all 

financial institutions, regardless of asset size, 

the draft principles are primarily intended for 

large financial institutions with over $100 

billion -- excuse me -- in total consolidated 

assets.

Notwithstanding, we believe that 

these principles can also support the efforts of 

community banks to address climate-related 

financial risk.

The principles take a risk-based 

approach and are consistent with existing risk 

management framework, as described in our FDIC 

Rules and Regulations. We will take the 

commenter feedback into consideration, when 

finalizing the proposed principles.

In addition to finalizing proposed 

principles, we anticipate in issuing additional 

guidance in the near term, especially guidance 

related to the governance of climate-related 
179

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

financial risk; that is expectations of boards 

and directors -- of boards and directors and 

senior management.

We are mindful that the one-size-fitsall mantra does not work in this respect and we 

believe that the effective risk management 

practices should be appropriate -- should be 

appropriately tailored to the size of the 

institution and the nature, scope and risk of an 

institution's activities.

The FDIC will appropriately-tailor 

any future supervisory expectation to reflect 

differences in financial institutions' 

circumstances, such as complexity of operations 

and business models.

While it is important to consider 

climate-related financial risks, as with all risk 

assessments, the FDIC encourages financial 

institutions to do so, in a matters that -- in a 

manner that allows banks to continue to prudently 

manage the financial needs of their communities.
180

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

With that, Doreen, I -- I will -- I'll 

turn it over to you.

MS. EBERLEY: Okay. Thank you. We 

will pause just a moment and see if there are any 

questions or comments?

(Pause.)

MS. EBERLEY: Okay. I'm not seeing 

any and I, also, did want to recognize the Acting 

Comptroller, Michael Hsu, has joined the call. 

Welcome, sir. And we will --

COMPTROLLER HSU: Thanks for your --

MS. EBERLEY: -- take --

(Simultaneous speaking.)

COMPTROLLER HSU: -- sorry for being 

late.

MS. EBERLEY: Oh. No, thank you for 

joining. Thank you for joining. And, I'll turn 

it over to Martin Henning, for cybersecurity.

MR. HENNING: Great. Thank you, 

Doreen, and good afternoon, everybody. It's good 

to -- to see some old faces. And welcome, to the 
181

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

new members to the Committee. I wanted to brief 

you on three things this afternoon, with regard 

to cybersecurity.

Significant cybersecurity threats, as 

we see them, a couple of them, they won't be 

surprising to you. Incident reporting changes 

that are -- are relatively new.

We talked about them at the last 

meeting, but now our Board has acted and we've

implemented those -- those incident reporting --

that incident reporting rule.

And then, lastly, talk to you about 

controls that we're observing, as effective in 

defending against ransomware and many other 

threats. So, why don't we move to the next 

slide?

Identifying threats is usually a 

useful place to start, when I speak about 

cybersecurity, and the two top threats are 

geopolitical, relative to the war in Ukraine, and 

ransomware, at least -- at least from my 
182

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

advantage point.

The -- the two sites I've got up here, 

are really great sources of information and --

and are getting, you know, better and better. 

They're both run by the Cybersecurity and 

Infrastructure Security Agency, CISA.

CISA's published significant 

information about the threat related to the 

events in Ukraine and kept that information 

updated.

There's new material out there all the 

time and not just about the threats, but about 

the areas of an environment, an IT environment 

that are most at-risk relevant, related to those 

threats and what actions companies can take to -

- to mitigate those risks.

They've also held conference calls 

throughout, since -- since really December and 

maybe even late-November, on the geopolitical 

threats.

And that -- that -- so those -- those 
183

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

two Websites and, again, on the geopolitical, 

Shield's Up, is -- is the name that they've come 

up with.

With ransomware, if you can remember, 

stopramsomware.gov, just again, really good 

sources. That's where we're putting everything 

that we think will be useful.

The -- the only other entity I would 

mention is FS-ISAC, continues to be an excellent 

source of threat information, every time we 

wonder, whether information is getting out to 

community banks and cyber security threats.

We ask the team to look to see, 

whether FS-ISAC is published and they sure have. 

So, you -- you can sign up directly to the CISA 

websites to get information, you can also join 

FS-ISAC, if you're not members already, but most 

of our banks are.

Relative to them, and I'm going to 

talk about ransomware, in a second, but relative 

to the geopolitical threat, we have not seen 
184

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

material attacks on U.S. -- U.S.-based companies, 

as a result.

But, the most recent thing I did see 

was a summarization by Microsoft, a report they 

put out last week, on April 27th, that talks about 

what's been observed in Eastern Europe.

Microsoft saw at least six separate 

Russia-aligned nations state actors launched more 

than 237 operations against Ukraine, including 

destructive attacks that are ongoing and threaten 

civilian welfare.

The destructive attacks Microsoft 

observed numbered close to 40, targeting --

targeting hundreds of systems. So, I -- I think, 

you know, that CISA and -- and others are really 

looking at what's happening in Ukraine, to be 

as prepared, as we can, for what might happen 

here.

Other attacks that aren't as 

destructive certainly seem to be motivated by 

espionage and intelligence goals. So 
185

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

thankfully, again, we have not seen a similar 

scale of attacks on U.S. entities.

We understand that there have been 

lower-level cyber activities, such as a lot of 

scanning of U.S. entities, for vulnerabilities, 

but the best advice I think in this case, is to 

not let our shields down, continuing to be 

vigilant, as we give our cyber employees a rest, 

if we can.

That's something I've certainly heard 

is that people are -- are tired from, sort of, 

being on the -- on -- on the walls looking for -

- for bad things happening in IT environments.

Regarding the second threat, again, I 

think CISA's website is the best and, why don't 

we flip to the next slide and I'll talk about the 

-- the second topic, which is incident 

notification.

We -- our Board did act and approve a 

-- a -- a notification rule. In fact, so did the 

OCC and the Federal Reserve, and we just 
186

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

published a Financial Institutional Letter that 

describes how banks can comply with that rule, 

and it's -- it's a very simple rule and it's just 

a -- enotification rule, it's not reporting.

And, at the -- the FDIC's Financial 

Institution Letter essentially said that, you can 

contact your case manager. We communicate 

through the case manager, as to each bank we 

supervised.

If you're being examined at the 

moment, you can tell your examination team if you 

experience an incident that's really significant 

and rises to the level of this rule, or you can 

email, incidents@FDIC.gov.

So very simple, very straightforward, 

and again, I emphasized this at the last meeting, 

but the design of the rule is to only ensure that 

we're notified of the most severe incidents, like 

a ransomware attack that effects the services you 

provide to your customers.

We held an ask the regulator session last week, 
187

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

or a couple of weeks ago, with our colleagues at 

the OCC and the Federal Reserve and we had over 

4,000 participants in that, so I'm glad to see 

folks just learning about the new rule and -- and 

so that they can let us know,in the rare case, 

frankly, that you suffer and -- and knock on wood, 

I hope nobody in this group suffers an incident 

that -- that high of threshold.

Secondly, I just wanted to mention, in 

the top incident notification there is -- has 

been -- a Strengthening American Cyber Security 

Act of 2022 that the -- the Senate passed.

But, a piece of that Act, called the 

Cyber Incident Reporting for Critical 

Infrastructure Act of 2022, was passed in a broad 

appropriations act by the President -- and --

and signed by the President on March 15th.

It requires, among other things that, 

entities that own or operate critical 

infrastructure report cyber incidents and ransom 

payments within specified time frames.
188

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

The Cyber Security and Critical 

Infrastructure Security Agency identifies 

financial services, as a -- a critical sector, as 

you'd imagine.

But, there's time that's needed for 

CISA, as it's known to write the regulations that 

will specify the law's applicability, within 

sectors, so that may not be something that has a 

direct bearing on your companies, but something 

that's certainly talked about, with regard to --

to incident notification.

And, it's a great place for this 

information to go, because CISA has analysts that 

can look at the -- what happened and turns out, 

as I said at the beginning, really good 

information to help you defend, and the people 

that -- that help you maintain your cybersecurity 

defend against these -- these kinds of threats.

If we can, move to the fourth slide. 

I wanted to tell you about a material effort we've 

undertaken. Not surprising. In -- in the 
189

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

ransomware area, the horizontal review, a review 

where we go deeper on a particular topic and 

across a -- a -- a -- a set of institutions. We 

searched in our records, over a two-year time 

frame, for and -- and some records at other 

agencies, for any ransomware attacks, at FDICsupervised institutions.

We identified 36 ransomware attacks of 

interest, very small set, thankfully, and we just 

dug down in and talked to the bankers, looked at 

the forensic reports, really to learn what we 

might be able to learn, further, about how these 

attacks occur.

But, particularly to learn, when 

companies were successful, defending against 

ransomware attacks, what controls made the 

difference?

You can go out to sites and contract 

with folks that will give you lots of advice about 

a lot of controls, but what made the difference?

Why don't we go to the next slide? We 
190

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

rated the -- the incidents, 36, in one of three 

categories, high, moderate, and low, and just a 

quick readout.

Thirty-three percent of the incidents 

were in the moderate and low category, where, you 

know, you might say the -- the -- the bank was 

able to defend, or even the service provider in 

a few cases that effected the bank was able to 

defend.

Why don't we go to the next slide? 

And this is my final slide, the next one after 

this. We found some controls in the cases, in 

those 33 percent, where companies were really 

successful, didn't -- the -- the -- the attack 

really didn't affect their customers.

There were key controls, you can see 

on the left-hand side that seem to be the pivotal 

control and -- in -- in -- in defending -- in --

in -- in the remaining 66 percent the controls on 

the right, probably would've been effective, 

given the way the perpetrator got in, but -- but 
191

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

-- but weren't there, didn't exist.

And, I think, you know, you read 

through these, a lot of this is technical, you 

might notice multi-factorauthentication on the 

right-hand column that might resonate with you.

What we're going to do next is really 

see if we can adjust our examination procedures 

and dig into the -- the I -- in the IT exams, in 

these areas.

And, see if we can give, through our 

examinations, better feedback, if and when we see 

controls that are -- are lacking or 

unsatisfactory in -- in these areas.

And, have the basis of -- of this 

horizontal review to -- to -- to root and -- and 

-- and provide a foundation for any advice, any 

-- any recommendations we'll give to banks. So 

that's a -- that's a quick overview of 

cybersecurity from -- from my seat.

MS. EBERLEY: Thank you, Martin, and 

we'll pause again, here, just for a second and 
192

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

see if we've got any questions?

(Pause.)

MS. EBERLEY: Okay. I'm not seeing 

any. Thank you, and we will move on to Shannon.

MS. BEATTIE: Thank you, Doreen. 

Good afternoon. I'm Shannon Beattie, Chief 

Accountant at the FDIC, and my focus today is to 

briefly provide an update on the current expected 

credit losses or CECL methodology, to discuss 

implementation, and to share available resources.

We are preparing for the full CECL 

implementation, in accordance with FASB's 

Accounting Standards Codification, or ASC Topic 

326.

As you know, we've been discussing 

CECL implementation for several years. I thought 

it would be helpful to provide an overview and 

contrast the incurred loss methodology with the 

CECL Methodology.

So, let's move on to the overview 

slide and address allocating for credit losses 
193

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

under the two methodologies. It is important to 

remember that the timing of when an estimate of 

a credit loss is recognized changes under CECL.

Allowances under the incurred loss 

methodology are recognized when a loss is 

probable. Under CECL, an estimate of the total 

expected lifetime credit losses is recognized at 

the time of origination, and then adjusted over 

the life of the asset, as fast as circumstances 

change.

For example, in the period when a 

group of loans is originated, an institution will 

record an amount for the expected lifetime credit 

losses on those originated loans.

Conceptually, this means that the 

total amount of net charge-offs on the loans 

should not change under the incurred and CECL 

Methodologies, instead, it's the timing of the 

adjustments to the allowance to absorb the net 

charge-off that changes.

The timing of the actual charge-off of 
194

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

an asset is the same under, both, the incurred 

loss and CECL Methodologies. That is, the 

charge-off is recognized when an amount is deemed 

uncollectible.

Another change with CECL is, how much 

credit loss is recognized to the allocation to 

the allowance. Under the incurred loss 

methodology, the amount allocated to the 

allowance represents an establishment of the 

credit loss that is probable and incurred.

Under CECL, the allocation for 

lifetime expected credit losses results in the 

net amount expected to be collected, which is 

presented on the balance sheet.

In other words, the net amounts on the 

balance sheet will reflect the amortized costs 

after expected credit losses. This is in 

contrast to the incurred loss methodology, where 

credit loss recognized has already been incurred.

Finally, CECL changes how credit loss 

amount is determined. The rincurred loss 
195

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

methodology incorporates past events and current 

conditions.

In contrast, the CECL methodology not 

only requires that past events and current 

conditions be considered, but also has the added 

requirement, estimated expected credit losses, 

under CECL, also include reasonable and 

supportable forecasts.

On the next slide, you will notice the 

current effective dates for CECL. Approximately 

330 institutions have implemented CECL, at this 

point.

Most institutions currently using the 

incurred loss methodology will adopt CECL, in 

2023. This means that 2022 will be a busy year 

for the over-4,000 institutions that have not, 

yet, implemented CECL.

On February 2nd, 2022, the FASB Board 

voted to retain the existing effect date of CECL, 

for non-public business entities, therefore, the 

effective dates on this slide remain unchanged.
196

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Advancing to the next slide, we'll see 

that resources are available on the FDIC's Banker 

Resource Center, and this includes a 2019 

Interagency Webinar, regarding CECL and focused 

on the Weighted-Average Remaining Maturity, or 

WARM Method.

Bankers may access this recording, by 

registering to view the webcast. This resource 

is particularly helpful for institutions with 

less-complex asset pools.

The last slide contains additional 

CECL resources available on FDIC's Banker 

Resource Center, at fdic.gov, with links to 

supervisory resources, webcasts, and 

teleconferences, including the Interagency 

Policy Statement on Allowance and Interagency 

Frequently Asked Questions.

Other Interagency documents that may 

be useful when implementing CECL, includes 

supervisory guidance on model risk management and 

guidance for managing third-party risks.
197

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Finally, I would like to take a moment 

to acknowledge that FASB issued an Accounting 

Standards Update, or ASU, that corresponds with 

CECL implementation.

The ASU amended ASC Topic 326, the 

CECL Standard. This ASU will eliminate the 

recognition and measurement accounting guidance 

for trouble debt restructuring, or TDRs, while 

enhancing disclosure requirements for certain 

loan refinancings and restructurings, by 

creditors, when a borrower is experiencing 

financial difficulty.

For all institutions that have 

implemented CECL, the ASU is effective for fiscal 

years, beginning after December 15, 2022. For 

institutions that have not yet adopted CECL, the 

effective date for the ASU would be the same as 

the CECL effective date.

The recent Financial Institution 

Letter on first quarter Call Reports, which is 

FIL 17-2022, includes more information on this 
198

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

ASU and the elimination of TDRs.

That concludes my prepared remarks. 

Thank you for your attention.

MS. EBERLEY: Thank you, Shannon. 

We'll pause, again, here for a minute and see if 

we've got any questions?

(Pause.)

MS. EBERLEY: Okay. I'm not seeing 

any, Shannon. Thank you. And we'll move on now 

to Chris and Tara.

MR. FINNEGAN: Okay. Thanks, Doreen. 

And, good afternoon, everybody. I just want to 

start out by saying -- I just want to say, thanks 

for the -- the great dialogue today.

It was -- it was really great to hear 

from -- from all -- from -- from all the members 

today, particularly, about some of the consumer 

compliance issues that you brought up, you know, 

given that that -- that is what -- what I do for 

a living and -- and it's very important for us to 

hear that feedback, directly.
199

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

So, I just want to, again, say thank 

you for -- for sharing your insights on that, and 

several of the items, or -- or the issues that 

you brought up today and maybe a couple of other 

ones, we're going to -- we're going to cover in 

our 10 to 15 minutes that we're going to cover 

some consumer compliance issues with you.

If we can, go to the next slide, 

please? One of the -- the -- our main point of 

the -- of the presentation today is to talk about 

our compliance supervisory highlights that we 

published, back at the end of March.

It was -- it was -- I was really happy 

to hear several of you mention this publication 

earlier. Because, you know, one of the main 

reasons we put that out, is to -- to let the 

industry know some of the issues that we're 

identifying from the consumer protection space 

and this, in particular, is for 2021.

And, you know, I -- I was glad to hear 

that -- that many of you had to -- had -- had 
200

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

seen this publication and was actually using 

what's in there.

Because, I'm going to go over all the 

different things that -- that we include, but it 

-- but it's -- it's not just to identify that --

the areas that we -- we have violations, or 

something like that, but we also want to provide 

some, maybe, some ideas on ways to mitigate some 

of the -- the risks that we see, from a consumer 

protection.

So -- and it -- this -- this is a 

publication that we've been doing, since 2019, so 

this is our fourth version of it, fourth 

publication, and they're all available on our 

website, FDIC.gov.

So, if you -- you can -- or -- or --

or you Google it or -- or -- or, you know, it'll 

come up, if you go right to our website there's 

-- there's -- there's space for it and it includes 

all the previous editions and, you know, this 

particular one -- oh -- well, like I said, was 
201

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

issued at the end of -- of March and then, all 

the previous editions are out there, as well.

So, if you haven't had a chance to --

to look at it, please do, because there's a lot 

of -- a lot of good information in there and we're 

going to go over a -- a -- a few of the things 

that were in there, today.

So, if you go over to the next slide, 

please? And, this is -- these are the things 

that are in there. We -- we include overall, you 

know, what our, as far as what the -- the ratings 

are, how's our -- how our bank's doing with 

consumer compliance, you know, for -- for 2021.

As I mentioned, we include the -- the 

violations, you know, the most frequently-sited 

violations, and I'm going to go over those here 

in a second, and you know any other kind of, you 

know, more of this -- the more significant 

consumer compliance observations that we had, 

during the year.

But, it, also, it's not just that, 
202

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

like I mentioned earlier, we -- we also include 

some areas that are updates on -- on regulatory 

and other developments that -- that we think 

bankers might be interested in, from the consumer 

protection perspective and we put in resources in 

there that we think that also might be helpful 

for you, as you -- as you run your institution.

All right. In 2021, we added a -- a 

section on consumer complaints trends and it's -

- it's towards the back of the document, but I 

think it has a lot of good information on a 

summary of all the -- the complaints we get from 

consumers, you know, what the issues are -- you 

-- you -- you know.

But, I -- I think, if we break it down 

by the different regulations what -- what the

maybe the product and services was that -- that 

-- that we had identified as -- as -- as far as 

an analysis of our complaints for 2021.

And, you know, again, I think that's 

a good thing for -- for people to -- to look at 
203

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

to -- to see what -- what consumers may have 

concerns over, you know, just like we recommend 

to our examiners when -- when they are looking at 

the -- doing compliance exams to look at the 

consumer complaints to see if there might be some 

issues there.

And we also recommend our bankers to 

-- to be aware of whatever consumer complaints 

that you're getting, because that may -- may show 

you an indication of something that may be going 

on with a product or service that you have and 

that you may want to address. So, we added that 

this year, so you may want to take a look at that.

Next slide, please. As I mentioned, 

we do provide an overall summary of, you know,

the -- how our -- our banks are -- are doing with 

consumer compliance and CRA.

As you can see on this slide, here, 

the vast majority of our institutions that we 

regulate, as the primary federal regulator, are 

doing, a satisfactory or better for compliance, 
204

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

99 percent and, as well as for CRA, so we're doing 

a good job with -- with -- with compliance.

We -- we do identify violations, and 

so in this part of this publication we -- we put 

in what the most frequently cited violations are. 

They're very similar to what we've seen in 

previous years, Truth in Lending, the Flood 

Disaster Protection Act, Electronic Funds 

Transfer, Truth in Savings and RESPA, were the 

primarily ones that -- that we cited, about 80 

percent of our violations were in one of those 

regulations there.

We did issue -- there's some 

information in there about enforcement actions 

that we had, in 2021, formal. Most of those were 

civil money penalties, or with the informal 

actions with -- with MOU's, dealing with maybe 

some institutions that needed to improve their 

compliance management systems, so that -- that's 

a summary of those.

And – and, we -- we also put in there 
205

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

the amount of restitution that we had identified, 

as -- as part of our exam process, and it was 

around 49,000 to 50,000 consumers were -- were 

identified that -- that had harm, due to 

violations for restitution for about $4.5 million 

in -- in 2021, as part of our exam function, so 

that's all just -- but, no -- that's all included 

in that -- in that document.

And so now what we're going to do, 

what Tara and I thought we would -- would cover, 

and several of these issues were -- were some 

that that you all -- that several bankers brought 

up today that were part of this -- this document, 

so some of them are going to deal with some of 

the fraud issues in -- in Regulation E, 

Electronic Funds Transfer, we're going to go over 

a little bit about overdrafts and represent that 

issue that the -- that several of you mentioned 

today.

But I -- I just want to point out 

that's not all the issues that -- that we talk 
206

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

about in this -- in this publication, there are 

-- there are other things in there, such as Fair 

Lending that we're not going to go over today.

So again, I encourage you to take a 

look at this document, or this publication, when 

you get a chance, because it does have some good 

insights on not all the issues we're going to 

talk about today, but -- but others, as well, 

including Fair Lending that I encourage you to 

take a look at.

So, with that, I'm going to turn it 

over to Tara, who's going to go over some of the 

specific issues that -- that we covered in our 

Supervisory Highlights. So, Tara, all yours.

MS. OXLEY: Great. Thank you, Chris. 

And I look forward to discussing some of the 

consumer compliance issues the FDIC saw in 2021. 

I'm first going to start with the Electronic Fund 

Transfers Act.

In 2021, the FDIC noted issues 

involving consumers being targeted for fraud, and 
207

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

in one instance, a third-party service provider 

managed a financial institution's deposit 

accounts.

Consumers stated someone posing as a 

representative of the financial institution’s 

fraud department contacted them seeking account 

verification codes and believing that they were 

communicating with the third-party service 

provider, the consumers provided the two-factor 

authentication code.

It turned out, the person to whom they 

gave the code to was a scammer and the scammer 

used the account credentials to steal money from 

the consumers' accounts.

So in an attempt to limit its 

liability, the financial institution had 

disclosed in various account agreements that,

neither, the institution, nor the third-party 

service provider would ever request the twofactor authentication code.

Thus, it was the institution's 
208

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

understanding that they did not have any 

obligations to comply with Regulation E's 

liability protections.

The FDIC, however, did find that the 

financial institution's disclosures did not limit 

the institution's responsibilities, under 

Regulation E.

The FDIC also noted instances where 

deceived consumers provided their account 

credentials for fraudulent EFTs conducted through 

a money payment platform, such as Zelle or Venmo.

In these situations, the FDIC 

concluded that, both, the financial institution 

and the money payment platform were both held to 

have investigative and error resolution 

obligations, under Regulation E.

Next slide, please. We have found 

that several actions have been successful in 

mitigating the risk of not complying with 

Regulation E, as set forth on this slide.

So, for example, an institution should 
209

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

consider reviewing their account agreements and 

disclosures to ensure they do not attempt to 

diminish or limit a consumer's rights under 

Regulation E, conduct thorough investigations of 

any fraud-related EFT disputes, and documenting 

the findings.

Educating consumers about scams. 

Reminding consumers to notify their financial 

institution, as soon as they are aware of being 

victim to a scam. Implementing effecting fraud 

detection and prevention measures, and then 

finally, training staff on Regulation E's 

requirements and assisting consumers alleging 

unauthorized transactions.

Next slide, please. The second issue 

I'm going to discuss today relates to a bank's 

overdraft program. Last year, the FDIC 

identified several financial institutions that 

converted their programs, from a static limit to 

a dynamic limit, but failed to disclose 

sufficient information about the change to 
210

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

consumers.

This practice resulted in a violation 

of Section 5 of the Federal Trade Commission Act, 

or FTC Act. Specifically, the institutions 

failed to disclose sufficient information about 

the change from a static limit to a dynamic limit.

And, in fact, some institutions did 

not provide any information to customers, about 

the change, or failed to disclose key changes, 

such as the replacement of the fixed amount with 

an overdraft limit that may change and could 

change as frequently as daily, use of a new 

overdraft limit that may be lower or higher at 

times than the fixed amount to which the customer 

had been accustomed, and suspension of the 

overdraft limit when it falls to zero and how 

such a change may result in transactions being 

returned unpaid.

The FDIC deemed these omissions 

material, as customers did not have sufficient 

information about the new -- new program, to 
211

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

understand how to avoid fees associated with an 

overdraft, or for transactions declined for 

payment.

Next slide, please. So, similar to 

what we provided for EFTs, we also provided a 

list of actions that may mitigate the risks, when 

implementing automated overdraft programs with 

dynamic -- I can't speak today -- for -- with 

dynamic limits.

As you can see on the slide that 

includes providing clear and conspicuous 

information to existing customers, so they have 

advanced notice of how the change from a fixed 

overdraft limit to a dynamic limit will affect 

them. And, this is especially important when the 

bank previously disclosed the amount of the fixed 

overdraft limit to customers.

Also, disclosing changes to overdraft 

limits in real-time to consumers as these vary 

with the opportunity for consumers to adjust 

their behavior.
212

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Reviewing and revising account 

opening disclosures, or other communications used 

to inform new customers about the automated 

overdraft program to avoid engaging in deceptive 

practices.

Explaining that the dynamic limit is 

established based on algorithms or a set of rules 

that weigh various -- the numerous variables and 

customers behaviors.

And then, finally, training customer 

service and complaint processing staff to explain 

the features in terms of the automated overdraft 

program's dynamic features.

Next slide, please. And the last 

issue I'm going to briefly discuss today relates 

to the re-presentment of transactions. I know 

this was briefly referenced earlier today, but 

wanted to quickly provide some information on 

what specifically we have seen, relating to this 

issue, at the FDIC.

In 2021, the FDIC identified consumer 
213

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

harm when financial institutions charged multiple 

NSF fees for the re-presentment of unpaid 

transactions.

Some disclosures and account 

agreements explained that one NSF fee would be 

charged quote “per item”, or quote “per 

transaction”, but these terms were not clearly 

defined and disclosure forms did explain that the 

same transaction could result in multiple NSF 

fees, if represented.

In several instances, we found that an 

institution's failure to disclose material 

information to customers, about re-presentment 

practices and fees, was deceptive.

As noted in a publication, this 

practice also has a risk of unfairness, if there 

is the likelihood of substantial injury for 

customers, if the injury is not reasonably 

avoidable and if there is no countervailing 

benefit to customers.

Next slide, please. The FDIC has 
214

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

observed various risk-mitigating activities that 

financial institutions have taken to reduce 

potential risk of consumer harm and avoid 

potential violations of Section 5 of the FTC Act, 

these include eliminating NSF fees; declining to 

charge more than one NSF fee, for the same 

transaction; ensuring that the amount of NSF fees 

is disclosed and consumers understand how such 

fees will be imposed; reviewing customer 

notification practices, related to NSF 

transactions and the timing of fees, to provide 

the customer with an ability to avoid multiple 

fees for re-presented items;conducting a 

comprehensive review of policy, practice and 

disclosures, related to re-presentments; and 

then, finally, working with service providers to 

retain comprehensive records, so that represented items can be identified.

And with respect to the last bullet 

point, I will note that, the FDIC has been working 

with the core service providers on this issue, as 
215

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

well, as we've heard that identifying that represented items has been challenging in some 

circumstances.

So, I just wanted to note that, since 

I know that was something that was mentioned 

earlier today, as well. That is our last slide 

and, actually, we are perfectly on time, now, but 

I'll see if there's any questions?

(Pause.)

MEMBER OLDNER: Could I say 

something?

MS. EBERLEY: Certainly.

MEMBER OLDNER: This is Marnie. I 

know we didn't ask questions, as you all went 

along. I think if everyone is like me, we did 

take some notes, we did have some things we'll 

follow up later and look into, because all of 

this stuff was very relevant and I very much 

appreciate it. So don't think, by our silence, 

we weren't interested, because we're very 

interested in these topics. Thank you.
216

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

MS. EBERLEY: Thank you –very much.

MS. OXLEY: And honestly, I 

appreciated all the comments throughout the past 

few hours about consumer production issues. 

Because, I mean, every time somebody noticed this 

publication, or referenced the publication, I was 

very, very happy, so thank you.

MS. EBERLEY: All right. I don't see 

any other questions, so thank you very much, 

Chris and Tara, for that presentation. And --

and thank you to everybody, to all of our 

presenters and to the Committee members, for all 

of the insight shared today, it's really been a 

-- a terrific meeting.

Before we close, Acting Comptroller 

Hsu, would you like to make any comments?

COMPTROLLER HSU: No, other than to 

apologize for being late, I had some other 

commitments. But, I -- this -- this has been 

great and I look forward to -- to the next 

meeting.
217

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

MS. EBERLEY: Thank you so much. 

Okay. I will turn it over to Acting Chairman 

Gruenberg for some closing remarks.

CHAIRMAN GRUENBERG: Thank you, 

Doreen, and -- and my thanks for taking the time 

to -- to take part in the meeting. And, let me 

thank all the members of the Committee, for their 

participation and for hanging in there.

It's a long afternoon to do this 

virtually, and we are hoping to do our next 

meeting in the fall, in person, and I think that 

really does help the engagement and the -- and 

the -- the back and forth, so I -- I really hope 

circumstances permit us to do that.

And, you know, I have to say it, I 

don't know that I've met any of you, in person, 

or visa-versa, so it would be really great to get 

together and say hi to everybody.

Before we adjourn, I'd like to 

acknowledge a member of the Committee, who's term 

is expiring in July, of this year, Teri 
218

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

Messerschmitt, the President and CEO of South 

Ottumwa Savings Bank, in Ottumwa, Iowa.

Teri, I would like to thank you for 

your willingness to serve on the Committee. We 

really place enormous value on it and we will be 

sharing with you a Letter of Appreciation and a 

small token of thanks, in addition, for your 

service and, perhaps, a memento to remember us 

by.

But, it just -- just to recall this, 

you may leave the Committee, but you're not 

leaving the FDIC, and we will continue to stay in 

touch and -- and look forward to -- to engaging 

with you.

So, if there are no further comments 

or questions from anybody, let me thank our staff 

for their terrific presentations today. Thank 

all of you, for your comments.

This -- this roundtable is the most 

efficient way I know of to get a -- a meaningful 

snapshot of what's happening to community banks 
219

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1716 14th STREET, N.W., SUITE 200

(202) 234-4433 WASHINGTON, D.C. 20009-4309 www.nealrgross.com

across the country.

So really enormously helpful and 

valuable input from -- from our standpoint, and 

I hope we can see you, all, in person later this 

year.

So, thank you, all, thanks a lot. 

Take care. Bye-bye.

(Whereupon, the above-entitled matter 

went off the record at 4:50 p.m.)