Large Bank Supervision Forum 2023

Large Bank Supervision Forum

March 6- 8 , 202 3 Dallas, TX

@ www.csbs.org � @csbsnews

CONFERENCE OF STATE BANK SUPERVISORS 1 300 I Street NW / Suite 700 / Washington, DC 20 005 / (202) 296-2840

Large Bank Supervision Forum Dallas, TX March 6 ‐ 8, 2023

ATTENDEES Alabama State Banking Department Bonds, Alison

Alison.Bonds@banking.alabama.gov Curtis.Larsen@banking.alabama.gov John.Russell@banking.alabama.gov

Larsen, Curtis Russell, John

Arkansas State Bank Department Henry, Bob

bhenry@banking.state.ar.us jhouseholder@banking.state.ar.us kleavell@banking.state.ar.us bmoseley@banking.state.ar.us dpatel@banking.state.ar.us mrye@banking.state.ar.us dsims@banking.state.ar.us jsonnier@banking.state.ar.us

Householder, John

Leavell, Ken

Moseley, Baker Patel, Dharmin

Rye, Mark Sims, Daniel Sonnier, J.D.

Colorado Division of Banking Stanfield, Mary

mary.stanfield@state.co.us karen.stewart@state.co.us

Stewart, Karen

Florida Office of Financial Regulation Hughes, Terry

Terry.Hughes@flofr.gov jeremy.smith@flofr.gov

Smith, Jeremy

Georgia Department of Banking and Finance Bridges, Laura

lbridges@dbf.state.ga.us scaudell@dbf.state.ga.us rparker@dbf.state.ga.us msneed@dbf.state.ga.us

Caudell, Steven

Parker, Rich

Sneed, Melissa

Indiana Department of Financial Institutions Dietz, Christopher

cdietz@Dfi.in.gov tfite@dfi.IN.gov KrOrr@dfi.in.gov

Fite, Thomas

Orr, Kristy

Kansas Office of the State Bank Commissioner Barnes, Riley

riley.barnes@osbckansas.org jack.stout@osbckansas.org lucas.stucky@osbckansas.org

Stout, Jack

Stucky, Lucas

Louisiana Office of Financial Institutions Floyd, Chris

cfloyd@ofi.la.gov

Massachusetts Division of Banks Jewett, Martin

martin.jewett@mass.gov

Mississippi Department of Banking & Consumer Finance Adams, Ashley

ashley.adams@dbcf.ms.gov

Cox, Jeff

jeff.cox@dbcf.ms.gov

Hudson, Mark Jones, Reed

mark.hudson@dbcf.ms.gov reed.jones@dbcf.ms.gov rhoshunda.kelly@dbcf.ms.gov paul.lion@dbcf.ms.gov roger.sinclair@dbcf.ms.gov

Kelly, Rhoshunda

Lion, Paul

Sinclair, Roger

Smith, Erik

erik.smith@dbcf.ms.gov

Thames, Hannah

hannah.thames@dbcf.ms.gov perryanne.thimmes@dbcf.ms.gov

Thimmes, Perry Anne

Williams, Don

don.williams@dbcf.ms.gov

Missouri Division of Finance Kearns, Jeffrey

Jeffrey.Kearns@dof.mo.gov Cole.Meyer@dof.mo.gov Kayleaigh.Rigdon@dof.mo.gov

Meyer, Cole

Rigdon, Kayleigh

Montana Division of Banking and Financial Institutions Staudohar, Paul

pstaudohar@mt.gov

New York State Department of Financial Services Chen, Jack

jack.chen@dfs.ny.gov

Mathew, Reena

Reena.Mathew@dfs.ny.gov

North Carolina Office of Commissioner of Banks Manning, Bernadette

bmanning@nccob.gov jparker@nccob.gov

Parker, Joshua

Oregon Division of Financial Regulation Gordon, Stephen

stephen.gordon@dcbs.oregon.gov lacy.meierotto@dcbs.oregon.gov

Meierotto, Lacy

South Carolina Office of the Commissioner of Banking Fleming, Aaron

Aaron.Fleming@banking.sc.gov deidre.fulmer@banking.sc.gov

Fulmer, Deidre

Tennessee Department of Financial Institutions Casselberry, Grant

grant.casselberry@tn.gov alisse.fowler@tn.gov michael.glaser@tn.gov holly.ragan@tn.gov

Fowler, Alisse Glaser, Michael

Ragan, Holly

Texas Department of Banking Brundrett, Paul

paul.brundrett@dob.texas.gov

Davis, Bill Voigt, Jay

bill.davis@dob.texas.gov jay.voigt@dob.texas.gov

Utah Department of Financial Institutions Rude, Darryle

drude@utah.gov

Washington Department of Financial Institutions Feeney, James

james.feeney@dfi.wa.gov matthew.harvey@dfi.wa.gov

Harvey, Matthew

West Virginia Division of Financial Institutions Holstein, Dawn

dholstein@wvdob.org

SPEAKERS Comerica Bank Farmer, Curtis

ccfarmer@comerica.com vehays@comerica.com

Hayes, Von

Federal Bureau of Investigation Thompson, Chris

cwthompson@fbi.gov

Federal Deposit Insurance Corporation Rivera, Chris

chrivera@fdic.gov

Federal Reserve Bank of Dallas Garza, Lorenzo

lorenzo.garza@dal.frb.org

Fortress Trust Forkner, Albert

albert@fortresstrust.us

Red Shoe Economics Conway, KC

stacy@redshoeeconomics.com

Texas Department of Banking Cooper, Charles

charles.cooper@dob.texas.gov phillip.hinkle@dob.texas.gov

Hinkle, Phillip

US Treasury King, Jeffrey

Jeffrey.King3@treasury.gov

VOYA Cameron, Randy

Randy.Cameron@voya.com David.Wood@voya.com

Wood, David

CSBS STAFF Berkland, Dan Byers, Kevin Cooper, James Cordova, Carlos Monnet, Sebastien Quist, Mary Beth

dberkland@csbs.org kbyers@csbs.org jcooper@csbs.org ccordova@csbs.org smonnet@csbs.org mbquist@csbs.org tsiems@csbs.org bzubrick@csbs.org jjarmin@csbs.org

Siems, Tom

Zubrick, Brennan Jarmin, Jennifer

Large Bank Supervision Forum March 6-8, 2023 | All Times Central Time The Highlands Hotel, Dallas, TX Meeting Room: Opus I

Day 1 | Monday, March 6

Registration Opus Foyer

7:30AM

Breakfast Opus II

7:30AM

Welcome Remarks Sebastien Monnet

8:30AM

Vice President, Learning & Development Conference of State Bank Supervisors

Mary Beth Quist Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Welcome to Texas Charles Cooper Commissioner Texas Department of Banking Fireside Chat Charles Cooper Commissioner Texas Department of Banking

8:45AM

9:00AM

Curtis Farmer President & CEO Comerica Bank

Setting the Stage – CSBS Overview of Large Bank Space Mary Beth Quist

9:45AM

Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Break

10:15AM

U.S. Economic Outlook Tom Siems Chief Economist Conference of State Bank Supervisors

10:30AM

Lunch on own

11:30AM

Readout from District 3 Large Bank Pilot Dharmin Patel Deputy Commissioner Arkansas State Banking Department Melissa Sneed Deputy Commissioner for Supervision Georgia Department of Banking and Finance

1:00PM

Perry Anne Thimmes Director, Banking Division Mississippi Department of Banking and Consumer Finance

Dan Berkland (moderator) Senior Director, Supervisory Processes Conference of State Bank Supervisors

Break

2:00PM

The Leveraged Loan Market Randy S. Cameron Senior Vice President & Co-Head Voya Financial Dan Wood Senior Vice President & Co-Head Voya Financial

2:15PM

Break

3:15PM

Lessons Learned and Future Plans – Commissioner Panel Charles Cooper Commissioner Texas Department of Banking Rhoshunda Kelly Commissioner Mississippi Department of Banking and Consumer Finance

3:30PM

Darryle Rude Commissioner Utah Department of Financial Institutions Mary Beth Quist (moderator) Senior Vice President, Bank Supervision Conference of State Bank Supervisors

Adjourn

4:30PM

Networking Reception 5330

5:00PM

Day 2 | Tuesday, March 7

Breakfast Opus II

7:30AM

Fireside Chat on Digital Assets Albert Forkner CEO Fortress Trust

8:30AM

Rhoshunda Kelly Commissioner Mississippi Department of Banking and Consumer Finance

Shared National Credit Program – Overview and Trends Lorenzo Garza Assistant Vice President, Banking Supervision Federal Reserve Bank of Dallas

9:15AM

Break

10:00AM

Leveraging Data Analytics for Supervision Carlos Cordova

10:15AM

Data Scientist, Research & Analytics Conference of State Bank Supervisors

Brennan Zubrick Vice President, Research & Analytics Conference of State Bank Supervisors

Lunch on own

11:45AM

Model Risk Management and Interest Rate Risk Chris Rivera Section Chief Federal Deposit Insurance Corporation

1:00PM

Break

2:00PM

Mortgage Servicers and Current Mortgage Market Kevin Byers Senior Director, Non-Bank Supervision and Enforcement Conference of State Bank Supervisors

2:15 PM

Break

3:15PM

Large Bank Supervision Best Practices and Training Needs Facilitated Group Discussion

3:30PM

Adjourn

4:30PM

Day 3 | Wednesday, March 8

Breakfast Opus II

7:30AM

Fireside Chat: Cybersecurity – Threats to Financial Sector & Preparedness Phillip Hinkle Director of IT Security Examinations Texas Department of Banking

8:30AM

Jeffrey King Deputy Chief Information Officer U.S. Department of Treasury Chris Thompson Special Agent Federal Bureau of Investigation (FBI)

Break

9:30AM

Current and Emerging Issues in Commercial Real Estate KC Conway, CCIM, CRE, MAI Economist and Principal Red Shoe Economics

9:45AM

Roundtable Discussions and Open Forum Facilitated group discussion.

11:00AM

Closing Remarks Sebastien Monnet

11:45AM

Vice President, Learning & Development Conference of State Bank Supervisors

Adjourn

12:00PM

Internal Use Only

Setting the Stage Large Bank Supervision

March 6, 2023 Mary Beth Quist, CSBS

Internal Use Only

State of the States

CSBS Districts FDIC FED Total

CSBS Districts FDIC FED Total

CSBS Districts FDIC FED Total

District 1 Delaware Maryland

14 11 25 District 3

13 10 23 District 4

8 8 16

2

2 Alabama

1 1 2 1 3 4

Colorado

1 1

2 2 Arkansas

North Dakota Oklahoma

1 2

1 2

Massachusetts 3 1 4 Florida

1 1

New Jersey New York Pennsylvania Puerto Rico

2

2 Georgia

1 1 2

Texas

5 7 12 21 9 30 8 5 13 1 1 2 1 1 2 1 1

District 5 Arizona California Montana Nevada Oregon Hawaii

4 6 10 Mississippi

3

3

2 1 3 North Carolina 2 1 3 1 1 2 South Carolina 1 1

District 2 Illinois Indiana Missouri

5 5 10

Tennessee

2 1 3 1 2 3

2 1 3 Virginia

2

2 West Virginia 1

1

1 1

1 1

1 3 4

Ohio

1 1

Utah

5 1 6

Grand Total

61 43 104

Washington

4

4

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Large State Banks 2012 - 2017 - 2022

Internal Use Only

Large State Banks 2012 - 2017 - 2022

Number of State Banks Over $10 Billion

35

31

30

25

25

23

20

10 Number of Banks 15

17

16

15 16

14

14

10

10

8

5

4 5

4

0

District 1

District 2

District 3

District 4

District 5

2012 Number

2017 Number

2022 Number

Internal Use Only

Large State Banks 2012 - 2017 - 2022

Assets of State Banks Over $10 Billion

$2,500,000

$2,000,000

$1,500,000

Assets in Millions

$1,000,000

$500,000

$ ‐

District 1

District 2

District 3

District 4

District 5

2012 Total Assets

2017 Total Assets

2022 Total Assets

Internal Use Only

Large Banks 2012 - 2017 - 2022

Number of State Banks Over $10 Billion

Assets of State Banks Over $10 Billion

$2,500,000

35

31

30

$2,000,000

25

25

23

$1,500,000

20

10 Number of Banks 15

Assets in Millions

17

16

15 16

$1,000,000

14

14

10

10

8

$500,000

5

4 5

4

0

$ ‐

District 1 District 2 District 3 District 4 District 5

District 1 District 2 District 3 District 4 District 5

2012 Number

2017 Number

2022 Number

2012 Total Assets

2017 Total Assets

2022 Total Assets

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State Banks $5-10 Billion 2017 - 2022

State Banks $5 to 10 Billion

$250,000

35

30

$200,000

25

$150,000

20

Total Assets in Millions

15 Number of Banks

$100,000

10

$50,000

5

$ ‐

0

District 1

District 2

District 3

District 4

District 5

2017 Total Assets

2022 Total Assets

2017 Number

2022 Number

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Number of Large State Banks Q3 2022

Internal Use Only

Total Assets of Large State Banks Q3 2022

Internal Use Only

Assets Per State Bank Examiner

Billions of Assets Per State Examiner

6.0

5.0

4.0

3.0

5.6

4.7

2.0

3.5

3.3

2.7

1.0

1.7

‐

District 1

District 2

District 3

District 4

District 5

Nationwide

Internal Use Only

2023 – 2025 Strategic Plan Measures

3. Conduct assessment of large bank/complex topic training needs including current providers and courses, if any, by June 30, 2023.

2. Develop an initial list of best practices in large bank supervision by June 30, 2023.

1. Every state with one or more banks >$10 billion engaged in at least two large bank initiatives.

Internal Use Only

District Three Large Bank Meeting Pilot

• Held concurrently with the District meeting October 26 • Large bank examiners, points of contact, and state managers attended • Agenda to discuss all aspects of large bank supervision, federal interaction, and pain points for banks and examiners • Some of the District 3 representatives will give you an update later

Internal Use Only

State/Federal Coordination Local Examiners • All Supervisory Coordination & Planning

National – CSBS

• Data, horizontal view, FDIC/FRB high level coordination, quarterly calls • Let us know your concerns – there may be other ways CSBS can help

Internal Use Only

What Does Success Look Like? 1. One State voice vs individual state voices 2. Heightened attention to state supervisory concerns 3. Common Standards - training, processes, analytics - stronger and harmonized 4. Information Sharing - horizontal sharing - emerging Issues – trends

5. Meeting federal agency resource challenges 6. No large bank conversions to national charter

Internal Use Only

To follow up with me later:

mbquist@csbs.org

202-728-5722

Internal Use Only

2023 Economic Update: How to Spot a Recession By Thomas F. Siems, Ph.D. CSBS Chief Economist

CSBS Large Bank Supervision Forum March 6, 2023 Dallas, TX

Internal Use Only

What Does This Barcode Say?

Internal Use Only

Internal Use Only

The U.S. Business Cycle

Black = Months in Contraction (Recessions)

1855 1865 1875 1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015

Internal Use Only

How is a Recession Defined?

Internal Use Only

How is a Recession Defined? • Two consecutive quarters of negative real GDP growth (two contracting quarters)? (Simplistic Rule of Thumb)

Internal Use Only

Internal Use Only

How is a Recession Defined? • Two consecutive quarters of negative real GDP growth (two contracting quarters)? (Simplistic Rule of Thumb) • A significant decline in economic activity that is spread across the economy and that lasts more than a few months? (NBER Definition)

Internal Use Only

Coincident Economic Indicators

650

Personal Income

150 Economic Indicators, Indexed (January 1959 = 100) 250 350 450 550

Manufacturing and Trade Sales

Coincident Economic Index

Industrial Production

Payroll Employment

Sources: The Conference Board; Bureau of Economic Analysis

50

Jan ‐ 59

Dec ‐ 60

Nov ‐ 62

Oct ‐ 64

Sep ‐ 66

Aug ‐ 68

Jul ‐ 70

Jun ‐ 72

May ‐ 74

Mar ‐ 78

Feb ‐ 80

Jan ‐ 82

Dec ‐ 83

Nov ‐ 85

Oct ‐ 87

Sep ‐ 89

Aug ‐ 91

Jul ‐ 93

Jun ‐ 95

May ‐ 97

Mar ‐ 01

Feb ‐ 03

Jan ‐ 05

Dec ‐ 06

Nov ‐ 08

Oct ‐ 10

Sep ‐ 12

Aug ‐ 14

Jul ‐ 16

Jun ‐ 18

May ‐ 20

Apr ‐ 76

Apr ‐ 99

Apr ‐ 22

Internal Use Only

Internal Use Only

Coincident Economic Indicators A Closer Look Since 2000

650

Personal Income

150 Economic Indicators, Indexed (January 1959 = 100) 250 350 450 550

Manufacturing and Trade Sales

Industrial Production

Coincident Economic Index

Payroll Employment

Sources: The Conference Board; Bureau of Economic Analysis

50

Jan ‐ 00

Oct ‐ 00

Jan ‐ 03

Oct ‐ 03

Jan ‐ 06

Oct ‐ 06

Jan ‐ 09

Oct ‐ 09

Jan ‐ 12

Oct ‐ 12

Jan ‐ 15

Oct ‐ 15

Jan ‐ 18

Oct ‐ 18

Jan ‐ 21

Oct ‐ 21

Jul ‐ 01

Apr ‐ 02

Jul ‐ 04

Apr ‐ 05

Jul ‐ 07

Apr ‐ 08

Jul ‐ 10

Apr ‐ 11

Jul ‐ 13

Apr ‐ 14

Jul ‐ 16

Apr ‐ 17

Jul ‐ 19

Apr ‐ 20

Jul ‐ 22

Internal Use Only

Internal Use Only

Total U.S. Nonfarm Payroll Employment Surpasses Former Peak (Feb 2020)

160,000

155,000

150,000

145,000

135,000 Thousands of Persons 140,000

130,000

Source: U.S. Bureau of Labor Statistics

125,000

Internal Use Only

Help Wanted! Over 11 Million Open Jobs Available in the U.S.

14000

12000

10000

8000

4000 Job Openings (in Thousands) 6000

2000

0

Dec ‐ 00

Sep ‐ 01

Jun ‐ 02

Mar ‐ 03

Dec ‐ 03

Sep ‐ 04

Jun ‐ 05

Mar ‐ 06

Dec ‐ 06

Sep ‐ 07

Jun ‐ 08

Mar ‐ 09

Dec ‐ 09

Sep ‐ 10

Jun ‐ 11

Mar ‐ 12

Dec ‐ 12

Sep ‐ 13

Jun ‐ 14

Mar ‐ 15

Dec ‐ 15

Sep ‐ 16

Jun ‐ 17

Mar ‐ 18

Dec ‐ 18

Sep ‐ 19

Jun ‐ 20

Mar ‐ 21

Dec ‐ 21

Sep ‐ 22

Internal Use Only

Leading Economic Index

120

100

20 Leading Economic Index (2016 = 100) 40 60 80

Source: The Conference Board

0

Jan ‐ 59

Dec ‐ 60

Nov ‐ 62

Oct ‐ 64

Sep ‐ 66

Jul ‐ 70

Jun ‐ 72

May ‐ 74

Mar ‐ 78

Feb ‐ 80

Jan ‐ 82

Dec ‐ 83

Nov ‐ 85

Oct ‐ 87

Sep ‐ 89

Jul ‐ 93

Jun ‐ 95

May ‐ 97

Mar ‐ 01

Feb ‐ 03

Jan ‐ 05

Dec ‐ 06

Nov ‐ 08

Oct ‐ 10

Sep ‐ 12

Jul ‐ 16

Jun ‐ 18

May ‐ 20

Aug ‐ 68

Apr ‐ 76

Aug ‐ 91

Apr ‐ 99

Aug ‐ 14

Apr ‐ 22

Internal Use Only

Internal Use Only

The CSBS Community Bank Sentiment Index (CBSI) • Provides an economic perspective and outlook on economic activity from those closest to the action at the local level: community bankers

https://www.csbs.org/cbindex

Internal Use Only

Community Bankers • Critical players in the success of local communities…they know and talk to everyone! • Understand small businesses, regional issues, and local conditions (including hiring/expansion plans for area employers, consumer confidence, etc.) • Inform markets and policymakers, especially regarding opportunities and risks • Know conditions/outlooks in real-time (contrary to backward-looking, subject-to-revision economic data)

Internal Use Only

Internal Use Only

CBSI Component Trends

100 120 140 160 180

132 137

128

‐ 20 0 CBSI (100=Neutral; <100=Negative Sentiment; >100=Positve Sentiment) 20 40 60 80

100

85

38

33

26

CBSI

Business Conditions

Monetary Policy

Regulatory Burden

Operations Expansion

Capital Spending

Profitability Franchise Value

Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022

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Business Conditions

90

70

50

30

10

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

‐ 10

‐ 30

‐ 50

‐ 70

‐ 90

BC Better

BC Worse BC Index

Internal Use Only

Yield Curve and the CBSI Business Conditions Indicator

160

1.50

140

Yield Curve

Yield Curve (10 ‐ year Treasury Minus 2 ‐ year Treasury)

120

1.00

Business Conditions Index

40 CBSI Business Conditions Index 60 80 100

0.50

0.00

‐ 0.50

20

0

‐ 1.00

2019 ‐ 04 ‐ 01

2019 ‐ 06 ‐ 01

2019 ‐ 08 ‐ 01

2019 ‐ 10 ‐ 01

2019 ‐ 12 ‐ 01

2020 ‐ 02 ‐ 01

2020 ‐ 04 ‐ 01

2020 ‐ 06 ‐ 01

2020 ‐ 08 ‐ 01

2020 ‐ 10 ‐ 01

2020 ‐ 12 ‐ 01

2021 ‐ 02 ‐ 01

2021 ‐ 04 ‐ 01

2021 ‐ 06 ‐ 01

2021 ‐ 08 ‐ 01

2021 ‐ 10 ‐ 01

2021 ‐ 12 ‐ 01

2022 ‐ 02 ‐ 01

2022 ‐ 04 ‐ 01

2022 ‐ 06 ‐ 01

2022 ‐ 08 ‐ 01

2022 ‐ 10 ‐ 01

2022 ‐ 12 ‐ 01

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Monetary Policy

90

70

50

30

10

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

‐ 10

‐ 30

‐ 50

‐ 70

‐ 90

MP Better

MP Worse MP Index

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Profitability

90

70

50

30

10

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

‐ 10

‐ 30

‐ 50

‐ 70

‐ 90

PR Higher

PR Lower

PR Index

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Does Overall Community Banker Sentiment (CBSI) and Profitability Expectations Move Together?

100 110 120 130

40 50 60 70 80 90

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

CBSI

Profitability

Internal Use Only

Does Overall Community Banker Sentiment (CBSI) and Profitability Expectations Move Together?

100 110 120 130

40 50 60 70 80 90

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

CBSI

Profitability

Internal Use Only

Internal Use Only

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Other Unique Economic Indicators • Daily Consumer Confidence (Morning Consult) • Restaurant Reservations (OpenTable) • Air Travelers (TSA)

Internal Use Only

Daily Consumer Confidence Index (Morning Consult)

Internal Use Only

U.S. Restaurant Reservations Running Slightly Higher Than 2019 Levels

150%

100%

50%

0%

‐ 50%

‐ 100%

Source: OpenTable

‐ 150%

Internal Use Only

Daily Domestic Air Travel Back to 2019 Levels?

3,000,000

2019

2,500,000

Number of Daily Domestic Travelers Through TSA Checkpoints

2023

2022

2,000,000

2021

1,500,000

1,000,000

2020

500,000

Source: Transportation Security Administration (TSA)

0

1/1

2/1 3/1

4/1 5/1

6/1 7/1

8/1

9/1 10/1 11/1 12/1

2021 Traveler Throughput 2020 Traveler Throughput 2019 Traveler Throughput 2022 Traveler Throughput 2023 Traveler Throughput

Internal Use Only

State-Level Economic Indicators

See https://www.csbs.org/state ‐ economic ‐ dashboards

Internal Use Only

Internal Use Only

Internal Use Only

Lessons Learned. To Spot Recessions, Pay Attention to: • Fed policy decisions and external shocks that impact consumer pocketbooks (1991 recession)

Internal Use Only

Lessons Learned. To Spot Recessions, Pay Attention to: • Fed policy decisions and external shocks that impact consumer pocketbooks (1991 recession) • Distracted consumers who are potentially sidelined from normal economic pursuits (2001 recession)

Internal Use Only

Lessons Learned. To Spot Recessions, Pay Attention to: • Fed policy decisions and external shocks that impact consumer pocketbooks (1991 recession) • Distracted consumers who are potentially sidelined from normal economic pursuits (2001 recession) • Concerns raised by informed consumers that NINJAs and free enterprise cannot coexist forever (2008-09 financial crisis)

Internal Use Only

Lessons Learned. To Spot Recessions, Pay Attention to: • Fed policy decisions and external shocks that impact consumer pocketbooks (1991 recession) • Distracted consumers who are potentially sidelined from normal economic pursuits (2001 recession) • Concerns raised by informed consumers that NINJAs and free enterprise cannot coexist forever (2008-09 financial crisis) • Global forces and their impact on high-frequency consumer and business information (2020 pandemic/lockdown recession)

Internal Use Only

Lessons Learned. To Spot Recessions, Pay Attention to: • Fed policy decisions and external shocks that impact consumer pocketbooks (1991 recession) • Distracted consumers who are potentially sidelined from normal economic pursuits (2001 recession) • Concerns raised by informed consumers that NINJAs and free enterprise cannot coexist forever (2008-09 financial crisis) • Global forces and their impact on high-frequency consumer and business information (2020 pandemic/lockdown recession)

Internal Use Only

Conclusions • Are we in a recession?

Internal Use Only

Conclusions • Are we in a recession? • Well, it depends…

Internal Use Only

Conclusions • Are we in a recession? • Well, it depends… • Community Bankers have keen insights into economic, business and consumer financial decisions

Internal Use Only

Conclusions • Are we in a recession? • Well, it depends… • Community Bankers have keen insights into economic, business and consumer financial decisions • Other economic indicators provide unique economic perspectives

Internal Use Only

Conclusions • Are we in a recession? • Well, it depends… • Community Bankers have keen insights into economic, business and consumer financial decisions • Other economic indicators provide unique economic perspectives • Keep in mind the “lessons learned” from past experiences…know your customer

Internal Use Only

Questions?

The Leveraged Loan Market

PRESENTED TO : Conference of State Bank Supervisors | CSBS Large Bank Supervision Forum, Dallas, TX

PRESENTED BY: Voya Investment Management

Randy Cameron, SVP & Co-Head Voya Bank Advisory Group David Wood, SVP & Co-Head Voya Bank Advisory Group

March 6, 2023

For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.

2742511

Regulator Coverage Profiles

Data as of 12/31/2022

All US Banks

All US Banks over $10B

Pct. by Count

Total Assets ($B)

Pct. by Count

Total Assets ($b)

Regulator No Inst's

Pct. by TA No. Inst’s

Pct. By TA

States (FDIC)

3,032 64.4% $4,532.90 19.2% 61

38.6% $2,514.7 12.4%

FED

701 14.9% $3,997.00 16.9% 43

27.2% $3,399.8 16.8%

OCC

972 20.6% $15,069.70 63.8% 54

34.2% $14,263.4 70.6%

Total

4,705 100.00% $23,599.60 100.00% 158

100.00% $20,177.90 100.00%

Source: BankRegData.com, 12/31/22

For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.

2

Table of Contents

01. 02. 03. 04. 05.

The Senior Loan Market and Performance Regulatory Oversight and History Disciplined Risk Management Summary and Q&A Appendix

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01. The Senior Secured (aka Leveraged or Syndicated) Loan Market and its Performance

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Origination Process and Participants

 Hires arranger/agent/professionals to assist in raising capital  Capital raising may include secured loans and junior capital  May be simultaneously raising equity capital  Structures the facilities  Negotiates documents  Information disclosure (book)  Administrative tasks  Invites/solicits lenders (book running)

2022 US Leveraged Loans Top Lead Arrangers by Market Share 1  BofA Securities  JP Morgan  Wells Fargo  Citi  Truist Securities  Barclays  Goldman Sachs  PNC Financial Services Group  Morgan Stanley  RBC Capital Markets  Mitsubishi UFJ Financial Group  BMO Capital Markets  Citizens Financial Group  US Bancorp  Deutsche Bank

Borrower (Issuer)

Bank (Agent or Arranger)

 Asset managers and IBs  CLOs  Institutions  Retail mutual funds  Banks

Lenders (aka Assignees or Investors)

1 Source: Bloomberg; data sorted by total volume. Data as of December 31, 2022

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Key Features, Types and Structures of Credit

Term Loans

 Senior secured loans with five to seven-year maturities  Floating Rate  Average Life 3-4 years due to refinance or other event  Generally have Excess Cash Flow recapture provisions



Term Loan A



 Fully amortizing – amortization may be back-ended

Term Loan B

 

Minimal amortization

 Cross collateralized, cross defaulted, same public debt rating as Term Loan A

Revolving Lines of Credit

May be asset based





 Provides ability to draw, repay, draw over multi-year period  Multiple structures and options, including terming-out  Uncommitted credit facilities (can be term loans or revolvers)  Access subject to covenant compliance and market demand for additional loans  Rights of second lien lenders are subordinated to rights of 1st lien lenders – generally inappropriate for commercial banks

Guidance Line for Acquisition (aka “Greenshoe”)



Second Lien Loans



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Characteristics of Senior Secured Corporate Loans

Mid to Large Sized Borrowers

All Loans Completely Re-Underwritten

Floating Rate Loans

Senior Secured Corporate Loans

Originated by Money Center Banks

Traded in the Secondary Market

64 Industry Sectors

Shared National Credits

Senior Debt First Priority Lien

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Par Amount of Outstanding Senior Secured Loans

 Large, mature market primarily used by borrowers to raise funds for M&A, capital growth and recapitalizations  Broad investor/lender base including traditional commercial banks, retail mutual funds, credit funds, pension plans and insurance companies

7.85% CAGR since Great Recession

Morningstar LSTA Index January 1, 1997 to December 31, 2022

1 : Par Amount Outstanding ($ Billions)

1,413

1,341

1,193 1,193

1,147

955

872 881

831

682

557 596 529 504 516 552

400

191 248

101 104 112 135

29 55 90

1 - The Morningstar ® LSTA ® Leveraged Index is an unmanaged total return index that captures accrued interest, repayments, and market value changes. Investors cannot invest directly in an index. Source: LCD.

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An Efficient and Liquid Secondary Market

Secondary Trading Volume, Average Size and Turnover Data as of December 31, 2022

100%

1,600

90%

1,400

80%

1,200

70%

1,000

60%

800

50%

$ Billions

Turnover %

40%

600

30%

400

20%

200

10%

0

0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Trade Volume

Avg. Size of the S&P/LSTA LLI

Loan Turnover Ratio (%)

Source: Loan Syndication and Trading Association (LSTA)

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The Senior Secured Loan Market Par Amount of Outstanding Senior Secured Loans by Industry Data as of December 31, 2022

Other (44 industries) Health Care Equipment & Supplies Pharmaceuticals Entertainment Aerospace & Defense Health Care Technology Containers & Packaging Trading Companies & Distributors Professional Services Insurance Chemicals Machinery Commercial Services & Supplies Diversified Telecommunication Services IT Services Media Hotels, Restaurants & Leisure Health Care Providers & Services Software Specialty Retail Capital Markets

12.01%

5.65%

5.36%

4.77%

4.20%

 Broadly diversified by industry and geography  $1.4+ trillion market by par amount  64 industry sectors  Over 1170 issuers  Rated below investment grade

3.65% 3.72%

3.33% 3.43%

3.13%

2.80% 2.82% 2.92%

2.56%

2.31%

1.96% 1.99% 1.99%

1.78%

1.63%

28.00%

0%

5%

10%

15%

20%

25%

30%

Source: LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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Par Amount of Outstanding Senior Secured Loans by S&P Rating

30%

Less Suitable

Not Suitable

Bank Suitable

25.3%

24.4%

25%

Cautionary selection in Single B issuers

Approximately 41.05% of market considered bank suitable

20%

15%

11.8% 12.1%

10%

6.5%

4.9%

5.5%

4.0%

5%

1.8%

2.0%

0.6%

0.5% 0.3% 0.0%

0.0% 0.3%

0%

As of December 31, 2022 Includes all loans including those not included in the LSTA/LPC mark-to-market service Vast majority are institutional tranches Source: LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index.

Source: LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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The Current Default Rate Remains Well Below Historical Avg.

12%

A year-end 2022 survey by LCD projects expected default to peak at 2.0-2.49% on 12/31/2023.

10%

Energy Future Holdings Corp. (EFH) filed for bankruptcy and added over $19 billion to the default volume

8%

6%

Historical default rate average of 2.73%

4.17%

4%

2%

0.72%

0.18%

0%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 All Loans Default rate is LTM total default amount over par outstanding at the beginning of the 12 month period. Includes all loans including those not included in the LSTA/TRLPC mark-to-market service. Primarily institutional tranches.

Source: LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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Downgrades/Defaults Ratios and LTM #Defaults/Total Issuers

Versus pandemic-onset peak, downgrades/defaults remain light

Source: PitchBook | LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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Defaults: Percent of Outstanding Loans in Payment Default or Bankruptcy

Based on Morningstar LSTA US Leveraged Loan Index

12%

10.7%

9.9%10.0%

10%

8%

7.4%

7.0%

6%

5.0%

4.0%

3.7%

4%

3.6%

3.5%

2.9%

2.6%

2.4% 2.4%

2.2%

1.9%

2%

1.6%

1.2%

1.1% 1.3%

1.0% 1.0%

0.6%

0.6%

0.5% 0.6% 0.7%

0%

Includes all loans including those not included in the LSTA/TRLPC mark-to-market service. Primarily institutional tranches.

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Defaults: Percent of Issuers in Payment Default or Bankruptcy

Based on Morningstar LSTA US Leveraged Loan Index

10%

9.6%

8.9% 8.6%

8%

7.3%

6.3%

6%

5.3%

4.3%

4%

3.1%

2.4%

2.3%

1.9% 1.7%

1.9%

1.8%

2%

1.5%

1.3% 1.5% 1.2% 1.3%

1.3%

1.2%

1.0%

0.8%

0.6% 0.6% 0.7%

0.6%

0%

Includes all loans including those not included in the LSTA/TRLPC mark-to-market service. Primarily institutional tranches.

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Defaults: Par Amount Outstanding in Payment Default or Bankruptcy

Based on Morningstar LSTA US Leveraged Loan Index

$60B

56.7

$50B

$40B

30.7

$30B

26.1

25.4

23.7

22.1

$20B

15.0

13.8

12.8 13.2

12.1 13.0

11.0

10.2

8.8 7.7

8.6 9.5

8.4

8.3

$10B

7.1

6.5

4.9

4.0

3.5

0.3 0.7

$0B

Includes all loans including those not included in the LSTA/TRLPC mark-to-market service. Primarily institutional tranches.

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U.S. Loan Market Default Experience

Defaults by Issuer Count January 1, 2000 to December 31, 2022

80

70

60

50

40

30

20

10

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Originally BB-Rated Originally B-Rated Broad Loan Market

Source: PitchBook | LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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Credit Stats: Average Debt Multiples of Highly Leveraged Loans In 1991, there were insufficient deals to form a meaningful sample. Media and telecom deals are excluded prior to 2011. For 1987-1996, breakouts of first-lien debt & second-lien debt were not available; therefore the lower portion of the column reflects Bank Debt/EBITDA and top reflects all Non Bank Debt/EBITDA

8x

6x

5.2 5.2 5.1 5.3 5.3

5.0 5.0

4.9

4.7 4.9 4.7

4.4 4.5

4.3

4.2 4.3 4.4

3.8 4.0 3.9

4x

2x

0x

FLD/EBITDA SLD/EBITDA Other Sr Debt/EBITDA Sub Debt/EBITDA

Pre-1996: L+250 and Higher; 1996 to 2021: L+225 and higher; 2022 to date: SOFR+225 and higher Source: PitchBook | LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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Credit Stats: Average Cash Flow Multiples of Highly Leveraged Loans

Pre-1996: L+250 and Higher; 1996 to 2021: L+225 and higher; 2022 to date: SOFR+225 and higher In 1991, there were insufficient deals to form a meaningful sample. Media and telecom deals are excluded prior to 2011.

6.0x

5.0x

4.1

3.9 3.8 4.1 4.1 4.2

4.0 4.1 3.9 3.9

4.0

3.8 4.0

3.8 3.9

4.0x

3.6

3.5

3.4

3.0 2.9

3.0x

2.0x

1.0x

0.0x

EBITDA-Capex/Cash Interest

EBITDA/Cash Interest

Source: PitchBook | LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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Pricing: Weighted Average Absolute Institutional Rate - BB/BB

Three month LIBOR (prior to 2022) or SOFR (2022 or later) plus weighted average institutional spread. X-axis reflects period (observations). Base rate reflects the average during the quarter

10%

8%

6%

4%

2%

0%

2Q12 (27)

1Q13 (48)

4Q13 (40)

3Q14 (25)

2Q15 (45)

1Q16 (19)

4Q16 (46)

3Q17 (46)

2Q18 (65)

1Q19 (21)

4Q19 (51)

3Q20 (10)

2Q21 (43)

1Q22 (12)

4Q22 (18)

3-Month Base Rate

Institutional Spread

Source: PitchBook | LCD. Data represented by the Morningstar ® LSTA ® Leveraged Loan Index, December 31, 2022

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02. Regulatory Oversight and History

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Regulatory Milestones and Consequential Bank Regulation

1980’s High Yield Bond volume peaked to support LBO activity. Syndicated Loan Market Emerges. First retail Mutual Fund

2010 – Today. Mature Asset Class. Evolution and Growth of Primary and Secondary Markets  Efficiency and Liquidity, Transparency and Reporting. Enhanced Portfolio Management. Disruption from pandemic and monetary policy moves. Market has adjusted to elements of the Dodd Frank Act

2000’s “Loan Traders”

1990’s Loan Syndication and Trading Association (LSTA) formed. Ratings and coverage begin. “B” or Institutional Term Loans popularized. Secondary market, CLOs, 2 nd lien loans and securitization emerge.

emerge and LSTA S&P Index supports efficient trading of higher volumes . Growth of Enterprise Value in bankruptcy. Global growth

1977 Interagency Shared National Credit (SNC) Program Established. REGULATION INNOVATION

2001 OCC Bulletin 2001-18 “Leveraged Financing– Sound Risk Management Practices”

2010 The Dodd Frank Wall Street Reform and Consumer Protection Act and revisions

1981* OCC Bankng Circular 181, Purchase of Loans in Whole or In Part Participations.

2008 OCC

1988 Examining Circular 245, “Highly Leveraged Transactions” published.

2013-14 2013

2020 OCC Bulletin 2020-81 Credit Risk Management of Loan

Publishes Leveraged Lending – Comptrollers Handbook

Interagency Guidance on Leveraged Lending and 2014 FAQ for Implementing the Guidance.

Purchase Activities

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*Revised 10-30-2013

The 2013 Interagency Guidance on Leveraged Lending

KEY ELEMENTS OF THE 2013-14 GUIDANCE FOR COMMUNITY / REGIONAL BANKS

 Leveraged lending definition  Credit policy expectations  Underwriting standards and credit analysis  Enterprise valuations  Reporting and analytics  Risk rating expectations  Ongoing portfolio management processes  Independent credit review  Stress testing

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Interagency Guidance | A Review of Key Guidelines

Leveraged Loans (excluding ABL tranches) will generally have two sources of repayment – Cash Flow and Enterprise Value (refinance/recap; sale; offering ) Leveraged Cash Flow  Senior Debt to EBITDA –Max of 4X*  Total Debt to EBITDA – Guideline max of 6X  EBIDTA Adjustments, Pro-Forma Analyses, Sensitivity Analyses Amortization (from cash flow or pro-forma analyses)  Companies must amortize or demonstrate amortization capability of 50% of total funded debt and 100% of senior debt in 5-7 years Enterprise Value – Tested quarterly to assure safety net  Public companies -- Enterprise value is generally calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents  Private companies -- EV for private companies is a subjective discipline that may involve multiple methodologies (e.g., discounted cash flows / capitalized cash flows, asset valuation and market-based valuation) depending on the quality of data, industries, available peer comparisons and transparency of transaction operating assumptions. *4X Senior Leverage is not specifically mentioned in the Guidance, but has emerged as a de facto guidepost among lenders

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Portfolio Management Minimum Components

 Quarterly borrower performance review (vs plan)  Quarterly review of risk grades  Quarterly ALLL assessment  Quarterly enterprise valuation update  Quarterly reporting: Exec Mgt, BOD, Regulators  Annual portfolio review  Annual independent loan review  Ongoing borrower news review  Bank should have a separate weak/problem credit process

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Underwriting Standards

 Repayment Capacity • Free Cash Flow Calculation and Justification • Debt Leverage Levels (Senior and Total)

 Transaction Structure (Jr Debt, Cov Lite, Greenshoe, R/C, TLA, TLB)  Diversification: Individual Borrower and Industry Concentrations  Enterprise Valuation  Problem Credits: Flags and Procedures  Use of Third Parties  Documenting the Analysis – The Credit File, Approval Documents and Written Analyses

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