[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE OFFICE
OF THRIFT SUPERVISION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
MAY 25, 2006
__________
Printed for the use of the Committee on Financial Services
Serial No. 109-96
U.S. GOVERNMENT PRINTING OFFICE
31-043 PDF WASHINGTON : 2006
------------------------------------------------------------------
For sale by Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2250. Mail: Stop SSOP,
Washington, DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair DARLENE HOOLEY, Oregon
RON PAUL, Texas JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio BRAD SHERMAN, California
JIM RYUN, Kansas GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio BARBARA LEE, California
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut JOSEPH CROWLEY, New York
VITO FOSSELLA, New York WM. LACY CLAY, Missouri
GARY G. MILLER, California STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota JOE BACA, California
TOM FEENEY, Florida JIM MATHESON, Utah
JEB HENSARLING, Texas STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida AL GREEN, Texas
RICK RENZI, Arizona EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin,
TOM PRICE, Georgia
MICHAEL G. FITZPATRICK, BERNARD SANDERS, Vermont
Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California
Robert U. Foster, III, Staff Director
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California DENNIS MOORE, Kansas
STEVEN C. LaTOURETTE, Ohio CAROLYN B. MALONEY, New York
MARK R. KENNEDY, Minnesota STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina EMANUEL CLEAVER, Missouri
TOM PRICE, Georgia DAVID SCOTT, Georgia
MICHAEL G. FITZPATRICK, DEBBIE WASSERMAN SCHULTZ, Florida
Pennsylvania GWEN MOORE, Wisconsin
GEOFF DAVIS, Kentucky BARNEY FRANK, Massachusetts
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio
C O N T E N T S
----------
Page
Hearing held on:
May 25, 2006................................................. 1
Appendix:
May 25, 2006................................................. 29
WITNESSES
Thursday, May 25, 2006
Gurzynski, Theodore, Vice President and Chief Credit Officer,
Pyramax Bank, on behalf of the Independent Community Bankers of
America........................................................ 20
Nolan, Michael E., Chairman, President & CEO, Fifth District
Savings Bank, on behalf of America's Community Bankers......... 18
Reich, Hon. John M., Director, Office of Thrift Supervision...... 5
Smith, Geoff, Project Director, Woodstock Institute.............. 22
APPENDIX
Prepared statements:
Gurzynski, Theodore.......................................... 30
Nolan, Michael E............................................. 37
Reich, Hon. John M........................................... 51
Smith, Geoff................................................. 96
OVERSIGHT OF THE OFFICE
OF THRIFT SUPERVISION
----------
Thursday, May 25, 2006
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:08 a.m., in
room 2128, Rayburn House Office Building, Hon. Scott Garrett
presiding.
Present: Representatives Garrett, McHenry, Gutierrez,
Moore, Maloney, Davis of Alabama, Cleaver, and Scott.
Mr. Garrett. [presiding] Good morning. This hearing of the
Subcommittee on Oversight and Investigations will now come to
order. Good morning to everyone. And as we await some late
arrivals, presumably people who are still partying after
watching American Idol last night, we will get things in order.
And I assume you realize that Sue Kelly is not with you
this morning. Instead, Mrs. Kelly had some pressing business
elsewhere, other legislative matters, and I am honored to fill
in, in her place, to handle things this morning.
This morning the subcommittee will take a look at the
Office of Thrift Supervision, a very important bureau,
obviously, within the Department of the Treasury. The OTS, as
it is referred to generally, was created by an act of Congress
in 1989 in response to the savings and loan crisis of the late
1980's.
The Financial Institutions Reform, Recovery, and
Enforcement Act, FIRREA, became law in August of 1989. This
legislation addressed the S&L crisis by abolishing the Federal
Home Loan Bank Board and creating the OTS to regulate thrift
institutions, and by giving the deposit insurance function to
the FDIC. It also created the RTC, the Resolution Trust
Corporation, to help resolve any of the difficulties that
existed with the insolvent S&L's.
In general, the new regulatory framework, as we can see,
has done an adequate and good job. We have no repetitions of
the crisis that shook the thrift industries back in the 1980's.
And the problems that have--there have been no significant
problems that have cropped up. Those that have come up have
been dealt with, most likely, efficiently.
This record of success, however, does not relieve our
obligation, as Members of Congress on both sides of the aisle,
to conduct periodic oversight and review of this--or, for that
matter, any other--Federal agency. It has been pointed out that
it's been a few years since this committee has looked into the
OTS in this context.
One of the broader issues that has occurred since the last
review has been September 11th. And since September 11th, we
have seen terrorists, as well as other criminals, use our
financial system to further their own goals. And so, therefore,
we are reminded of the importance of vigorous regulatory
oversight so that we may ensure the stability of our financial
systems, basically, to make sure that they are not used for
illicit purposes.
Regulatory compliance through the Bank Secrecy Act and the
Office of Foreign Assets Control is an essential bulwark of the
protections that we look to. We know that money is a fuel of
terror and crime, and the goal of most criminals.
So, therefore, this morning we will start by hearing from
Director John Reich of the OTS. The Director will be followed
by a panel of three witnesses, whom I will introduce as they
appear.
So, I thank Director Reich and all the other panelists we
will be hearing shortly. And at this point, I now recognize Mr.
Gutierrez, the subcommittee's ranking minority member.
Mr. Gutierrez. Good morning, and thank you, Mr. Garrett. I
am grateful to the chairwoman for calling this hearing. I am
sorry that she couldn't be here with us today. I am
particularly pleased that we are joined today by Geoff Smith,
from the Woodstock Institute in Chicago. Mr. Smith will talk
about the Community Reinvestment Act.
Last year, the OTS departed from a tradition of joint CRA
regulation, and established a separate but weaker standard for
CRA compliance than other regulatory agencies. There, ``small
institution exemption'' means that thrifts with $1 billion or
fewer in assets are no longer required to meet the service or
investment tests under CRA.
Moreover, the thrifts with assets in excess of $1 billion
can meet their CRA obligations without any service or
investment requirements.
One of the most vital services that a financial institution
can provide is low cost basic banking, bringing the
``unbanked'' out of the lightly regulated, high-cost world of
check cashers and payday lenders. This is particularly true for
senders of remittances, many of whom are not native English
speakers, or who come from a country where banks only serve the
wealthy.
Banks that offer low-cost remittance services often serve
as a gateway to getting those ``unbanked'' into regulated
financial institutions. Ever since I was elected to Congress I
have worked to increase disclosure and lower the cost of
remittance sending.
Last year, with Mr. Frank and other members of this
committee, I wrote to the regulators, all of whom agreed to
grant CRA credit to institutions that provide low-cost
remittance services. I am glad that the OTS joined with other
regulators on this point, and included low-cost remittance
services in its Q&A.
However, since the OTS CRA regulations eliminated the
service requirement for small thrifts, and permit large thrifts
to meet their obligations without a service requirement, the
potential for a real breakthrough was virtually wasted in the
world of thrifts, and that is a shame.
I truly hope that Director Reich will re-evaluate the OTS
CRA regulations, and that the thrifts will continue to fulfill
portions of their CRA obligations through service and
investment, despite their current ability to avoid these
valuable components of community re-investment all together.
Director Reich's testimony indicates concerns about certain
alternative mortgage products, particularly interest only and
pay option, adjustable rate mortgages that often contain
negative amortization features.
I am also troubled by the popularity of these products.
Some of these pay option mortgages are appropriate for a very
limited universe, possibly Donald Trump in his immediate pre-
bankruptcy days, but they are being marketed widely. And they
are so complex that it is difficult, if not impossible, for the
borrower to understand what he is getting into. I urge you to
keep this in mind as you work with other regulators on guidance
surrounding these products.
Finally, much of our time on the oversight subcommittee is
spent on issues surrounding terrorists, finance, and Bank
Secrecy Act, BSA, compliance. Your testimony indicates that
this is an area posing significant compliance challenges for
the OTS.
These are not new challenges. As the Inspector General
determined in September 2003, the report indicated that the OTS
examiners found substantive BSA violations at 180, or 18
percent, of the 986 thrifts examined during the audited period.
These substantive violations included the lack of a BSA policy
or systems to ensure compliance. OTS has issued written
enforcement actions against only 11 thrifts.
Some of these violations were not fully addressed, even
though they had been identified by OTS 6 years previously. At
the appropriate time, I will ask the Director to respond in
writing, if he prefers.
If BSA complies continues to be a challenge for the OTS,
did the Agency not make significant changes in response to the
Inspector General's report? Thank you, and I yield back the
balance of my time.
Mr. Garrett. The gentleman yields back. Mr. Scott?
Mr. Scott. Thank you, Mr. Chairman, and good morning,
Director. How are you this morning?
I want to thank Chairwoman Kelly and our ranking member,
Mr. Gutierrez, for holding this hearing to review the Office of
Thrift Supervision. It's very important.
Director Reich mentioned in his written testimony that he
was concerned about the increasing popularity of alternative
mortgage products, and the future shock many homeowners will
face when adjustable rate mortgages begin to climb.
I, too, am concerned with what may be the result of too lax
of underwriting standards in writing many of these loans. My
district is in Atlanta. I represent around 13 counties
surrounding the city of Atlanta, the fastest growing region in
this Nation. And of those, I represent 7 of the fastest growing
counties, 7 of the fastest growing counties in the top 50
counties in this country, especially when you recognize Cobb
County, Douglas County, Gwinnett County, and Rockdale and
Newton Counties. I am sure that everyone understands the
importance of foreclosure rates.
But my district and metro Atlanta is now second only to
Indianapolis in foreclosure rates. In the first quarter alone,
over 20,000 homes were in foreclosure in the Atlanta area. That
represents one out of every 70 homes in foreclosure. That is
astounding. In perhaps the fastest growing region in this
country, one out of every 70 homes is in foreclosure.
So, you can see how concerned I am about this. And I can
only imagine what will happen to many of my constituents when
their adjustable rate mortgages increase.
So, I would like to hear your thoughts on ensuring that
mortgage products are written in the best interest of the
consumer. In addition, I would like to hear from you about the
OTS Community Reinvestment Act rules, which are not uniform
with the other banking regulators.
And I would also like to learn more about the OTS's
relationship with the Federal home loan banking system, and if
there are any potential areas of conflicts with the home loan
bank regulators.
It's also important for me to hear from your Director on
the issue of are you concerned with the impact that rising
interest rates will have on consumers who have adjustable rate
mortgages, and what are you doing to ensure that lending and
underwriting standards are strong, and in the best interest of
the consumer?
I would also like to know if you've found problems with
thrifts giving out predatory loans, another huge issue in my
region that my constituents are facing. And are you concerned
that consolidation of the thrifts will decrease revenue for the
OTS? And do you expect any problems maintaining sufficient
staff levels?
So, you see, this is a very big issue for me, and I am very
interested in this testimony. My constituents are very
interested in this testimony. And also people all across the
country are interested in this testimony. I yield back the
balance of my time, and I thank you, Mr. Chairman.
Mr. Garrett. The gentleman yields back. Mr. Cleaver?
Mr. Cleaver. Thank you, Mr. Chairman. To Ranking Member
Gutierrez, I am going to have to leave. This is a very
important issue to me, as it is to my colleague. We have a
memorial service for Sonny Montgomery, which I am involved
with, but I desperately wanted to be here, and I will try to
get back as quickly as I can, because of the significance of
this issue. And I would like to thank Chairwoman Kelly and
Ranking Member Gutierrez for holding this meeting.
And it seems almost oxymoronic to hold a hearing on
oversight with a body that has the word supervision in its
name. But one of the top priorities of the Legislative Branch,
and perhaps my greatest disappointment, coming from municipal
government, having served as mayor before arriving here, was my
disappointment that the Legislative Branch has, for the most
part, abdicated its responsibilities as an oversight branch of
our government.
And one of the top priorities for this subcommittee is
oversight of institutions that serve the financial needs of our
citizenry, and to ensure that through the Federal level
supervisory organizations compliance with existing statutes and
laws is being enforced and adhered to.
When statutes and laws are ignored, or top level
supervisory agencies fail to perform their functions, it tends
to be the little guy who always gets hurt. And too, in a real
sense, the institution itself suffers some damage. My role, I
think, is, one, to protect the little guy. And in this
instance, we're trying to protect the little guy from predatory
lenders, financial shysters, greedy bankers, unscrupulous
captains of industry, and even people who, on the outside, look
like respectable business people.
And so, Mr. Reich, we appreciate you being here, and hope
that we can find out what the OTS has done to--over the course
of time--to improve or--the worsened financial situation for
the little guy.
If we fail to protect the little guy, and it seems to me
that we are violating the need for having government, or
violating the need to have the Office of Thrift Supervision,
the little guy tends to be the one who gets wounded the most,
people who are unable to stand up for themselves. And in the
long run, the institution itself is belittled if it does not
protect the little guy.
I appreciate you being here. I will leave and come back as
quickly as I can. Thank you.
Mr. Garrett. The gentleman yields back. Concluding opening
statements, we now turn to our first panel and our first
witness, Director Reich.
Director Reich has served as Director of the Office of
Thrift Supervision, the OTS, since August of last year. In that
capacity, Mr. Reich also continues to serve as a member of the
board of directors of the FDIC. Prior to joining the OTS, Mr.
Reich served as Vice Chairman of the Board of Directors of the
FDIC, starting in November of 2002, and has been a member of
the FDIC board since January 2001. He also served as Acting
Chairman of the FDIC from July to August of 2001.
Prior to coming to Washington, D.C., Mr. Reich spent 23
years as a community banker in Illinois and Florida, including
10 years as president and CEO of the National Bank of Sarasota
in Sarasota, Florida. Mr. Reich also served 12 years on the
staff of U.S. Senator Connie Mack of Florida before joining the
FDIC.
Director Reich holds a BS degree from Southern Illinois
University, and an MBA from the University of South Florida. He
is also a graduate of Louisiana State University School of
Banking of the South.
I thank the Director for being with us this morning, and it
was a pleasure meeting you earlier. We also have a copy of your
testimony delivered to us already. I appreciate the detail that
it goes into, and would appreciate your comments at this point.
STATEMENT OF THE HONORABLE JOHN M. REICH, DIRECTOR, OFFICE OF
THRIFT SUPERVISION
Mr. Reich. Thank you very much, Acting Chairman Garrett,
Ranking Member Gutierrez, and members of the committee. It's a
pleasure to be here today. It's my pleasure to report on an
agency that is strong, well-staffed, financially sound, and an
industry that is profitable, growing in asset size, and
evolving to meet the housing and the retail needs of America's
communities.
Since 1989, OTS has developed and continually improved its
supervision and oversight of the institutions and the holding
companies that we regulate. We work closely with the industry
to maintain the profitability, integrity, and vitality of the
thrift charter. And the industry continues to adapt to the
evolving financial service businesses and demands of its
customers.
While mortgage lending remains the dominant activity, it is
no longer the exclusive activity of the industry, nor should it
be. Over-exposure to one part of the economy without
diversification creates risks that can lead to safety and
soundness challenges. A favorable interest rate risk
environment, accompanied, by record mortgage originations and
sales has produced strong profitability for the industry over
the last 5 years.
Equally important to this sustained period of profitability
are good stewardship by our institutions' managers, earnings
diversification, and good asset quality.
We continually work to provide specialized training,
rigorous accreditation, professional development programs, and
other supervisory tools to our staff to ensure that we are
capably equipped to supervise a dynamic and growing industry.
Our employees are of long tenure, and they are well seasoned,
with an average of more than 15 years with the Office of Thrift
Supervision, and more than 23 years of overall bank regulatory
experience.
As of March 31st of this year, there were 856 OTS-regulated
thrifts, holding assets of $1.5 trillion. While consolidation
has reduced the number of savings institutions, industry asset
growth remains strong. OTS also regulates 481 holding company
structures with consolidated assets of approximately $7.5
trillion.
Thrifts provide substantial services that encourage home
ownership and affordable housing, and contribute to economic
growth. Thrifts hold over $1 trillion in housing-related loans
and securities, including $847 billion in whole single family
loans, which comprise 57 percent of thrift assets today.
Recent earnings and profitability of the industry have been
strong, with consecutive annual records from 2001 through 2005.
For 2005, the industry reported record earnings of $16.4
billion, eclipsing the $14.0 billion of 2004. And the industry
has posted quarterly earnings exceeding $4 billion in each of
the last 5 consecutive quarters, including a record $4.3
billion in the fourth quarter of 2005.
Asset quality also remains strong, with delinquency rates
and troubled asset ratios at or near historical lows. Though
asset quality is strong, OTS is closely monitoring thrift loan
performance, since recently originated or unseasoned loans now
comprise a significant portion of thrift loan portfolios.
Capital measures for the industry are strong, stable, and
well in excess of minimum requirements. As of March 30th of
this year, over 99 percent of the industry exceeded well-
capitalized standards, and no thrift was less than adequately
capitalized.
And problem thrifts remain low. Currently, out of 856,
there are 6 problem thrift institutions, with total assets of
$1.1 billion.
The thrift charter has unique characteristics that make it
well suited to retail banking. These include nationwide
branching under a single charter, a holding company structure
offering a single regulator for the holding company and its
institution, and a strong preemption authority. These features
enable savings associations to follow their customer base from
coast to coast, with minimal regulatory burden, and seamless
supervision at all levels of an organization ensures both a
comprehensive supervisory regime and minimal regulatory
overlap.
Notwithstanding these strengths and benefits, there are
some risks that we continue to monitor in the industry.
First and foremost is interest rate risk. Given the
industry's natural concentration in longer term mortgage loans
generally funded with shorter term deposits and borrowings,
monitoring interest rate risk is always critical. Clearly, the
current interest rate environment is extremely challenging for
all financial institutions. In the past 12 months, interest
rates have risen considerably, and the yield curve was
flattened. Despite this environment, OTS believes the thrift
industry is on sound footing, from an interest rate
perspective.
Credit quality is another risk that we carefully monitor.
The thrift industry's sound financial condition permits it to
address potential credit quality problems from a position of
strength. Thrift industry credit risk is primarily driven by
the performance of residential mortgage loans. As a result of
the strength of the housing market in most areas of the country
in recent years, single family residential loan delinquencies
and charge-offs have remained at low levels.
However, future deterioration in any of the fundamentals
that affect housing strength, such as worsening unemployment
rates, and rising interest rates, could adversely affect thrift
asset quality.
Compliance risk is another issue for the industry, and one
that OTS closely watches. The increased volume of consumer
transactions and consumer protection and other regulations
governing these transactions necessitates an active compliance
management function within institutions and in oversight
programs within the banking agencies.
Today, the importance of compliance management is elevated
by the need to ensure the privacy and security of consumer
information, as more information is shared and outsourced, and
the threat of identity theft persists. Also, the need to guard
against money laundering and terrorist financing activities.
And finally, the need to stem the tide of abusive lending
practices, and ensure fair and equal access to credit for all
Americans.
An area posing significant compliance challenges for our
institutions is the Bank Secrecy Act. During the 15 months from
January 1, 2005, through March 31, 2006, OTS conducted 900 BSA
examinations. During those reviews, 222 institutions were cited
for 500 BSA-related violations. Most of these violations were
remedied during the examination process, but we did initiate 27
formal and informal enforcement actions during this time.
The safety and confidentiality of personal information has
also taken on great importance in the regulatory environment.
Data security has long been a significant part of the
supervision and examination process that OTS has performed at
thrifts and their third-party technology service providers.
OTS regularly evaluates institution data security programs.
This includes supervision and examination work at industry
service providers. Business convergence and continued
consolidation in the financial services industry have created
an increasingly competitive environment. This stimulates thrift
managers to focus on strategies to improve efficiencies and the
delivery of financial products and services, customized product
offerings to meet their customers' needs, and ensure quality
customer service.
The thrift industry has grown and diversified over the past
several years, while reporting excellent financial results.
Mr. Garrett. If the gentleman can--your allotted time of 5
minutes has expired.
Mr. Reich. All right.
Mr. Garrett. And I am just watching your pages there, to
see if you were coming close to the last page.
Mr. Reich. I was--
Mr. Garrett. You can continue your last thought, and bring
it to a conclusion.
Mr. Reich. Thrifts continue to play a vital role in
providing mortgage funding and other retail products. At OTS,
we will continue to evaluate our policies, our staffing, and
our infrastructure, to ensure that the Agency is well prepared
to handle new and emerging risk.
I appreciate the opportunity to be here today, and I am
happy to address your questions.
[The prepared statement of Mr. Reich can be found on page
51 of the appendix.]
Mr. Garrett. Thank you, Director Reich. And as I begin, I
may take up somewhere near where you ended, and also along the
line that was raised by Mr. Scott, and that is the--along the
lines of the question of consolidation.
You gave the exact number, I think, of 856. I thought it
was just a little over 800, but 856 is where we're at, at this
point in time. If you can, give us a little bit more of the big
picture on--both the big picture and down into the weeds a
little bit on how that all affects you.
There has been a recent purchase by Wachovia of Golden West
Financial Corp., and its thrift, World Savings Bank. Things of
that sort and the overall consolidation, I would assume, would
eat into the financial base of the OTS. So when that occurs,
how are you able to maintain what you have, expand, if you need
to, for your past activities?
And another question I will get into in a moment, with
regard to terrorists and other crime aspects, as far as the
needs in those areas, as well. So, does that hamper or create
problems for you?
I realize your agency is also able to enact civil penalties
for when they are appropriate. Do those civil penalties then
turn around and, if there is a gap in funding--which is the
answer to the first question or not--if there is any gaps or
shortages to the funding now or in the future, do those civil
penalties work in a way to fill those gaps?
And then following that question, along those lines, is how
are you able to do a budgeting appropriately, now and in the
future, based upon, A, the continued consolidation, B, the use
of civil penalties, whatever, to fill those gaps for now and
into the future as well?
Mr. Reich. Well, let me first address the subject of
industry consolidation. The entire banking industry is
consolidating, which affects all charters: State charters,
national charters, and thrift charters. Twenty years ago, in
1977, there were over 18,000 financial institutions. Today, at
the end of December of last year, there were 8,860 financial
institutions. And the reduction in institutions has affected
the entire financial services industry.
With respect to the growth of the thrift industry, even
though there has been a decline in the number of institutions,
there has been an increase in overall thrift assets over the
years, which has had a positive impact on the budget of OTS.
Our budget 5 years ago was approximately $150 million. Today
it's approximately $215 million. So, in spite of a
consolidation and a reduction in the number of institutions, we
have been able to experience a moderate growth each year in our
revenue stream.
Budgeting is a very important activity at OTS. We spend
many months a year projecting what our needs are going to be
for the forthcoming year, taking into consideration the size of
the industry, the number of institutions that we regulate, and
our anticipated revenue stream.
With respect to the announcement of Wachovia's purchase of
Golden West, the owner of World Savings, it's a significant
customer of OTS. It represents about a little less than 5
percent of the revenue of OTS, but it is not a number that is
going to have a material effect on our operations. We don't
know, ultimately, whether or not Wachovia will retain the
thrift charter or not. Preliminary indications are that they
will. But in the long term, that will remain to be seen.
Mr. Garrett. I think the other question was along those
lines--
Mr. Reich. You asked about--
Mr. Garrett. Civil penalty.
Mr. Reich.--whether or not civil penalties were a source of
revenue for the OTS, and the answer to that question is no.
Those funds usually, I believe, go to either the Justice
Department or the Treasury Department. They do not go into the
coffers of the Office of Thrift Supervision.
Mr. Garrett. One final question, and then--with regard to
terrorism on the risk finance--terrorism financing and the
like, an issue that Sue Kelly has handled extensively in this
committee, I note that your bank examination procedures date
back to 1999, well before the terrorist attack of 2001.
Is there any need to readdress them, in light of the
changing circumstances since 9/11?
Mr. Reich. Well, last year, in July and August of last
year, after several months of collaboration, all of the Federal
banking agencies--the Fed, the FDIC, the OTS, and the OCC--
published a new examination guideline manual for Bank Secrecy
Act and anti-money laundering activities. All of the agencies
are now on the same page, following the same examination
procedures in each of our institutions.
We held a number of outreach sessions with the industry, to
let bankers know what they could expect in the examination
process. We got some feedback from them that assisted us before
we adopted final procedures. And I think that we have given
recent attention to the evolving landscape, with respect to BSA
and anti-money laundering activities.
And I really think that there is relatively good news to
report, in the sense that we have seen that financial
institutions of all charters have taken BSA seriously. They
have adopted programs. The number of violations are beginning
to decline that are being found in our institutions, as we see
that they have improved their programs and made them stronger.
Mr. Garrett. I thank you. Mr. Gutierrez?
Mr. Gutierrez. Thank you. Mr. Reich, would you consider
revising your predecessor's CRA regulations to reemphasize the
service component and investment component for banks in excess
of $1 billion? Will you consider conforming your regulations
for small thrifts with that of other regulators?
Mr. Reich. The short answer to that, Congressman, is yes. I
was a--I have been at OTS since last August. Prior to that, I
was with the FDIC in an active capacity for several years. And
I was, in a behind-the-scenes capacity, a participant in the
development of the CRA rule that was adopted by the other three
agencies.
When I came to OTS, I came to OTS with a predilection to
conforming OTS's CRA rule with that of the other agencies. I
have asked the staff of OTS to justify to me why OTS deserves
to have a different CRA rule than the other three agencies.
Essentially, there is a case. It would be up to one's own
opinion as to how strong the case is. OTS is required by law--
our institutions are required by law--to have--to abide by the
qualified thrift lender test, which requires that approximately
65 percent of their assets are invested in housing-related
assets. That restriction, or that stipulation, does not apply
to any other Federal banking agency. National bank charters,
State bank charters are totally unrestricted as to how their
assets may be apportioned.
Secondly, the capabilities of thrift institutions to invest
in commercial loans or small business loans or consumer loans
is rather limited. Again, there are no limits for the other
three Federal banking agencies. Most thrift institution
executives feel that they meet their community needs every day,
that that's why they're in business, they are retail banking
charters, they make housing loans and home loans in their
communities, and how they survive and how they thrive.
Having said that, philosophically it has been my view for
some time that on major policy issues, the four Federal
agencies ought to be on the same page. And so, although we have
not changed our rule, it is on the table for consideration, and
we may move in that direction.
Mr. Gutierrez. I thank you for that consideration. I have
always said that if this is what they do, it should be
relatively simple and easy, then, to pass any CRA test. I mean,
so it seems that the redundancy--we don't need you to ask us to
do it, because it's what we do--
Mr. Reich. Right.
Mr. Gutierrez. So it should be the easiest part of the
test. They should have the forms already filled out for you and
say, ``Here, we pass, give us an A-plus, it's what we do.''
And I can see the difference because of the housing rule.
And housing isn't the exclusive one, but it is one of the major
components that we see for it. Let me ask you--thank you very
much for that answer, and I look forward to--
Mr. Reich. Can I add one more comment?
Mr. Gutierrez. Sure, absolutely.
Mr. Reich. Twenty years ago, when CRA was adopted in 1977,
there were over 18,000 financial institutions, and there were
16,000 of which, approximately, had assets of under $1 billion.
They represented 46 percent, approximately, of the assets of
the entire industry. Banks under $1 billion 20 years ago, when
CRA was adopted, represented about 46 percent of total assets.
Today, there are about 1,000--1,200--institutions under $1
billion in assets--that's not the right number--there are 8,000
institutions under $1 billion, and they represent about 12.5
percent of the total assets in the industry.
So, I am concerned, I do have concerns that a shrinking
part of our banking population in the United States is bearing
a great deal of scrutiny about its CRA when it is representing
such a small percentage of banking assets in the country.
Mr. Gutierrez. Thank you. The other question I wanted to
ask you was do you believe that the exotic mortgage products
are too widely used? And would you support a ban on negative
amortization products? The more I see these products, it's so
easy, it seems. They're making it easier and easier.
And so, I'm becoming concerned, especially about negative
amortization. How do you see this trend, and what do you see
the role of the OTS in this?
Mr. Reich. Well, we have institutions that have been making
adjustable rate mortgages for 30 years, payment option
mortgages for 20 years, payment option mortgages with negative
amortization for 20 to 25 years, and they have been successful,
and have been conservatively operated, and have done very well.
I am concerned about what has taken place in recent years,
with the proliferation of these types of instruments in
institutions that have just recently begun to offer them in the
past 2 or 3 years.
I am concerned about the quality of disclosures to
consumers. I am concerned that they may be being sold, offered
to consumers who don't have a full understanding of the
potential risks that take place when the interest rates are
reset.
So, I think that the activity that is taking place today
with the four Federal banking agencies, with the proposed
guidance on alternative mortgages, and on commercial real
estate guidance, is an activity that will hopefully result in
better disclosures in the industry and more selective offerings
of these products in the market.
I would not support an outright ban on negative
amortization. Most negative amortization products have caps as
to the amount of the negative amortization. So it's not as
though negative amortization can grow to an unlimited level.
Many institutions have a cap of 110 percent of the original
loan amount which, in a rising housing market environment, is
not an unreasonable policy to pursue.
Mr. Garrett. Thank you, thank you. Mr. Scott?
Mr. Scott. Thank you, Mr. Chairman. Let me--let's start out
with Atlanta. And if you can share with us, what is going on in
the Atlanta market that is making it a situation where 1 out of
every 70 homes are in foreclosure?
And I particularly raise that, because I believe that you
have an office in Atlanta. Is that correct?
Mr. Reich. We do.
Mr. Scott. Have you all taken a look at this? And what are
the factors involved? Now, from my experience and knowledge
about this, I know that unemployment plays a role in
foreclosures.
However, Atlanta has a relatively low unemployment rate.
We're very fortunate, because we have such a diversified
economy--one industry goes down, we're able to make up for it
in another area--so can we walk through for a moment, and share
with me what's going on with the Atlanta market that is making
it where 1 out of every 70 homes are in foreclosure?
Mr. Reich. Well, quite frankly, I'm surprised by that
statistic, Congressman. I was unaware that the foreclosure rate
in Atlanta was at the level that you quoted.
Mr. Scott. Let me just mention to you, so you will know
where this information comes from, one of our most highly
respected newspapers, the Atlanta Business Chronicle, stated
that Atlanta had the second highest foreclosure rate among the
Nation's largest metropolitan areas. And it goes on to say
that, let's see, that this high rate accounts for 1 out of
every 70 homes. And this appeared in, I believe, Tuesday's--2
days ago--Atlanta Business Chronicle.
Mr. Reich. Well, again, I was unaware of that number. I
have been aware for several years that the Atlanta market has
been an extremely hot market, in addition to other markets in
the Sunbelt States. The Atlanta region has been growing
tremendously; there has been a great deal of commercial real
estate activity in the Atlanta market.
And there have been concerns. The Atlanta market was, I
think, one of the reasons that precipitated studies of
commercial real estate activities, generally, around the
country, which led to the recently issued guidance on
commercial real estate by the four Federal banking agencies--
proposed guidance.
Congressman, I am at a loss to give you an informed answer
as to the explanation for the high--relatively high--level of
foreclosures in the Atlanta market. I will be happy to get back
to you and submit a written response to you on this subject.
Mr. Scott. I would appreciate that, and I look forward to
working with you. Maybe there are some things we can do in the
market, and maybe there are some activities that we can begin
to get engaged to. I would certainly like to address that.
I am the author of our Financial Literacy Act that we are
moving through this Congress. We are very much concerned with
that.
Also added to that, of course, Atlanta is a very prime
market for predatory lending. And some of this could be a lack
of financial education, but it would be very, very helpful to
me if you would--and maybe your operation in Atlanta could take
a concentrated look at that, and we could come out of this with
something that could benefit the rest of the country.
Let me ask you another question, if I may, in terms of the
adjustable rate mortgages and the rising interest rates with
those. How impactful would--do you think that--what impact do
you think that would have on consumers, adjustable rate
mortgage, and the impact that rising interest rates would have?
Mr. Reich. Well, it's conceivable, for certain types of
adjustable rate mortgages, that payments could double. It would
be a real payment shock, and that could have, depending on the
extent to which interest rates rise, it could have serious
ramifications for the thrift industry and for all mortgage
lenders.
Mr. Garrett. Thank you. The gentleman's time has concluded.
Mr. McHenry, do you have a--
Mr. McHenry. Thank you, Mr. Chairman. I certainly
appreciate and I thank you, Mr. Reich, for being here today and
representing OTS.
In your testimony you said thrifts compete effectively with
other financial service providers to deliver a wide range of
products and services to American consumers. A very positive
statement.
Some would say, or some have said before this committee,
that thrifts typically--thrift members typically--experience
higher loan rates, lower savings rates, and additional fees. Is
that a true statement, or a misrepresentation?
Mr. Reich. I would say it's an inaccurate statement. Higher
loan rates?
Mr. McHenry. ``Experience higher loan rates, lower savings
rates, and additional fees.''
Mr. Reich. I would say that's a misrepresentation, and that
is it not accurate.
Mr. McHenry. All right. Also, OTS I know, with this ongoing
executive compensation that the ranking Democrat of the full
committee has a large focus on these days--he doesn't talk
about the high compensation of supporters such as trial lawyers
of their side of the aisle, but nonetheless, I digress--could
you address with us today your policies, OTS's policies, on
executive compensation and/or stock option plans, and that
sort?
Mr. Reich. Are you speaking--
Mr. McHenry. During a conversion process, for instance, in
particular.
Mr. Reich. During a conversion process to a--from a credit
union to a mutual form of organization?
Mr. McHenry. Well, actually, the conversion process which
you regulate. I wouldn't ask--I would not subject you to that,
your Deputy Director did an admirable job before the committee.
But I wanted to ask that of you, to address executive
compensation and stock options, for instance, that you, OTS,
oversee, and the conversion process which you oversee.
Mr. Reich. Well, addressing stock options first, they are
not permitted until some period of time after a conversion has
been completed, a stock option plan cannot be implemented with
a conversion. There is a period of time that has to take place
before a stock option plan may be approved.
And in the case of a mutual--a stock institution, the
shareholders would have to approve such a plan before it could
be approved. It could not occur without shareholder approval.
Mr. McHenry. Okay. So, would it be--in the conversion
process which you oversee, would it be a fair characterization
to say, ``Executives of the institution profit by obtaining
stock far in excess of that available to the institution's
members?''
Mr. Reich. I think that is--again, that is an inaccurate
statement, and a misrepresentation. There are limits on the
stock that executives of an institution may receive, and there
are--there is a prohibition on executives gaining control of an
institution, or a group of executives gaining sufficient shares
to have control of an institution.
Mr. McHenry. So it would be a misrepresentation?
Mr. Reich. Yes.
Mr. McHenry. So does OTS have regulations on the books
dealing with executive benefits, compensation, and stock
options?
Mr. Reich. We make certain that executive compensation is
reasonable, compared with similar-sized institutions.
Mr. McHenry. So, it would be an unfair characterization to
say that executives profit by obtaining stock far in excess of
that available to the institution's members?
Mr. Reich. I think that's correct. Management can purchase
stock only to the same extent that any other member may
purchase it.
Mr. McHenry. Okay. In terms of regulations that you have on
the books, I know that OTS frequently reviews regulations that
you put in place, to ensure that they are doing what they are
intended to do. And I know that's an ongoing fashion.
In terms of the conversion process, which I think the
chairman mentioned earlier, in terms of the potential with
thrifts that are purchased and ongoing conversions in the
marketplace, how long have you had the regulations on the
books?
Mr. Reich. Since the late 1970's.
Mr. McHenry. And have they been changed recently?
Mr. Reich. Within the past 7 years.
Mr. McHenry. Thank you, Mr. Chairman. Thank you for your
testimony, Mr. Reich.
Mr. Garrett. Mrs. Maloney?
Mrs. Maloney. Welcome. And I am glad to see that you
support the committee action on CTR's. An amendment of mine had
been accepted in the regulatory relief, and yet it was cut out
in the Senate. And I support Chairman Bachus's efforts to
address this issue.
But I want to look at the OTS enforcement of the Bank
Secrecy Act, and to hear what you are doing to make sure that
we don't have another savings and loan scandal of
mismanagement. I would like to hear steps that you have taken
in that respect.
But I have here a report on--from FinCEN and others on the
BSA enforcement. And in it, it says that in some cases where
the OTS issued written enforcement actions in response to the
Bank Secrecy Act violations, the IG found--and I'm quoting--
``in five instances, Bank Secrecy violations continued for
years, or BSA compliance actually worsened.''
And it talks about the report from the Inspector General,
and it notes that they found BSA violations at 180 of the 986
thrifts examined during that period. And of the 180 thrifts
with substantive violations, OTS had issued written enforcement
actions against 11.
And the OIG reviewed a sample of 68 of the thrifts for
detailed review, and reported that, ``In all 68 cases, we found
OTS relied on moral persuasion and thrift management assurances
to comply with the BSA. And in 21 of the cases, thrift
management was not responsive, and did not correct its BSA
violations.'' So, what are your comments on that, if any?
Mr. Reich. Well, my first comment is a question. Was that a
2003 IG report?
Mrs. Maloney. Yes, it was. September 23, 2003.
Mr. Reich. Okay. I think we have addressed the issues that
were raised in that report. And as I mentioned a few minutes
ago, in July and August of last year we worked with the other
Federal banking agencies to produce a new BSA anti-money
laundering examination manual that all examiners of all the
agencies are following.
And I think that the procedures that we are using are
thorough; they are detailed. And I mentioned a few moments ago
that in the last 12, 14 months, we have done 900 BSA
examinations. We have found 500 violations, and issued a number
of formal and informal enforcement actions.
So, I think the quality of our program is strong, is good,
and the quality of the institution compliance is steadily
increasing.
Mrs. Maloney. How many formal actions have you initiated?
Mr. Reich. There were 27 formal and informal. I don't have
the exact number of formal actions.
Mrs. Maloney. If you could, get back to us and--
Mr. Reich. I would be happy to do that.
Mrs. Maloney. I look forward to the next IG's report, and
hope that it is better than the 2003 report. What steps have
you taken for safety and soundness?
Mr. Reich. Could you be more specific?
Mrs. Maloney. Safety and soundness, making sure they are
well-regulated, well-run, serving the communities like they
should. I think they perform a tremendous service of community
banking, but I am still troubled by the S&L scandals. What have
you done to make sure we don't have those again?
Mr. Reich. Safety and soundness is the most important part
of our mission, to make certain that thrift institutions remain
healthy.
The training and education of our examiners is a continuing
process, and we strive to keep our examiners up-to-date with
changes that are taking place in the financial services
environment, with continuing programs.
We have recently employed a new Assistant Managing Director
of Supervision for Compliance Consumer Protection. We had
previously disseminated that position, distributed that
position out to the field. We have centralized it, and we will
be giving increased importance to compliance, CRA, consumer
protection, as well as safety and soundness, which is our
highest priority.
Mr. Garrett. I thank you very much, and the gentlelady's
time has expired.
Mrs. Maloney. Thank you very much. It should be your
highest priority. I am glad to hear that it is. Thank you.
Mr. Garrett. Mr. Davis?
Mr. Davis. Thank you, Mr. Chairman. I may not take the 5
minutes. I wanted to explore one topic that apparently has not
come up today, and it deals with the question of preemption.
As you know, in the context of conventional banks, and in
the context of savings institutions that you regulate, this
committee has been extremely interested in the question of
whether or not State laws operate, and are allowed to operate,
in areas regarding alleged predatory lending.
Obviously, you are aware of the March 7th decision with the
chief counsel issue which has caused some consternation, and I
think you're aware of the parallel controversy involving the
OCC and a preemption order that it issued several years ago--or
preemption interpretation it issued several years ago.
I don't want to necessarily get bogged down with the
specifics of the Montgomery County, Maryland, code, but I do
want to raise a general question, and get your reaction to it.
A lot of us, obviously, in a theoretical world, would be
perfectly happy to have one regulator for mortgage lending, one
regulator for the banks, and savings and loans institutions. A
lot of us, in an ideal world, would be happy to see a strong
regulator take on that purpose. We don't live in an ideal
world. We live in a world where, obviously, States' attorneys
general have been very active and very vigilant, and are,
frankly, often taking on the brunt of the enforcement
structure.
So, let me ask you--and I don't want too long-winded an
answer--but can you give me some sense of what it is that OTS
does right now to detect and to police predatory lending
practices?
Mr. Reich. It's a part of every examination that we do,
Congressman, and every institution and every safety and
soundness examination.
We have consolidated our safety and soundness and
compliance function. It is one examination that takes place. We
have cross-trained our safety and soundness examiners in with
the compliance function. And ferreting out predatory loans is
part of every examination that we do.
Mr. Davis. How often do you find bad actors? How often do
you find savings institutions engaging in predatory practices?
Mr. Reich. Frankly, not very often. It is my view that most
of the predatory lending activity that takes place takes place
in an--by unregulated entities, rather than the Federal banking
agencies. It's a high priority for all of us. I think it's
important for me to say that we--
Mr. Davis. When you say--just to clarify, when you say
unregulated entities, you mean the mortgage industry, mortgage
brokers, that kind of thing?
Mr. Reich. Right, correct.
Mr. Davis. Let me actually draw on that for one second,
because you make an important point. And I know you don't mean
to wade into too many policy arguments here, but you make a
point.
We do have a species of entities who, obviously, engage in
selling homes and credit to individuals to buy homes that are
not terribly regulated. Does your experience, which I assume
you believe has been a successful one, lead you to think that
we should have stronger regulations in place, with respect to
those unregulated entities?
Mr. Reich. Absolutely. At the State level.
Mr. Davis. And I think I cut you off as you were making--
Mr. Reich. No, all I wanted to say was that we seek
opportunities, and are absolutely ready, willing, and able to
meet with State supervisors and local jurisdictions to address
consumer complaints.
Mr. Davis. Now, let me draw back to your previous
observation. You say that you think there is a strong case to
be made for greater regulation of the mortgage industry at the
State level, the conventional mortgage industry at the State
level. Is it your sense that States are often very well
equipped to do that kind of regulation, because of their
existing enforcement powers?
Mr. Reich. Well, I think that varies from State to State.
Some States have greater financial resources than others to
devote to that.
Mr. Davis. Is it possible that the two can co-exist, that
we could have a strong Federal regulatory structure, and a
strong State regulatory structure existing in tandem?
Mr. Reich. I believe it is.
Mr. Davis. And I would just simply close on that note, Mr.
Garrett, because I think it's an important point. A number of
us agree with Mr. Reich, that it is possible, in the context of
the conventional mortgage industry, to have a strong State
regulator, and to have a strong Federal regulator, that the two
can coexist; they can work in tandem.
Mr. Reich, I would just close with this observation. I have
not examined the statistics as closely in the context of what
you regulate, the savings institutions. I have looked at them
closely with respect to the conventional mortgage industry and
the banking industry, and I happen to represent a city that
ranks near the top of every category, in terms of disparities
in the subprime lending market, and the disparities across
income levels, racial disparities that still exist across
income levels.
I close by saying that it's a real and significant question
for this committee, and I look forward to continuing discussion
on the issue, and I thank you.
Mr. Garrett. And the gentleman yields back. And Director
Reich, again, I appreciate your complete testimony, I
appreciate also the testimony that you submitted, and coming to
the hearing today and answering the questions.
I noticed a couple of questions were submitted to you in
addition, as far as answers that they would like to receive
back, and we appreciate those, as well. Thank you, Director.
Mr. Reich. Thank you.
Mr. Garrett. I would note while we--as the second panel
finds its way here, we have been notified that we are looking
at approximately a 12:00 voting schedule on the Floor.
Thank you, gentlemen. We are joined, in this second panel,
by three gentlemen.
Michael ``Mike'' Nolan, serves as chairman, president, and
CEO of the Fifth District Savings Bank of New Orleans,
Louisiana. He is also a member of the board of America's
Community Bankers, and Louisiana Bankers Association. He is, by
the way, a native of New Orleans, and earned his JD degree from
Loyola University in 1969.
He is also joined by Ted Gurzynski, who is vice president
and chief credit officer for Pyramax Bank, FSB. He has been a
banker for 39 years, both in the international and commercial
fields. He is a graduate of the University of Wisconsin, with a
BA in languages, and also holds a graduate degree in
international finance from the Thunderbird Graduate School of
International Management in Glendale, Arizona.
Finally, we are joined by Geoff Smith. Mr. Smith is a
project director at Woodstock Institute. He has conducted
research and written policy of housing and community
development topics, including mortgage lending policy, bank
branching, housing market trends, small business finance,
financial institution regulation, access to banking services,
and general community reinvestment policy.
He has also authored and coauthored numerous publications,
and coauthored research publications published in numerous
academic journals, as well. Mr. Smith has a BA in geography
from the University of Illinois at Urbana-Champaign, and an MS
in geography from the University of Wisconsin, Madison.
Without objection, your written statements, what you have,
will be made part of the record.
And now, you will each be given--recognized for 5 minutes
for a summary of your testimony. Gentlemen? Mr. Nolan?
STATEMENT OF MICHAEL E. NOLAN, CHAIRMAN, PRESIDENT & CEO, FIFTH
DISTRICT SAVINGS BANK, ON BEHALF OF AMERICA'S COMMUNITY BANKERS
Mr. Nolan. Good morning, Chairman Garrett, Ranking Member
Gutierrez, and members of the committee. I am Michael Nolan,
chairman, president and CEO of Fifth District Savings Bank in
New Orleans. We are a mutual savings bank, with approximately
$400 million in assets and 6 offices in the New Orleans area.
We have been an OTS-regulated institution since 1989.
Last year, we converted our charter from a Louisiana
savings association to an OTS charter, because we believe the
OTS has a strong commitment to mutual institutions.
I am testifying today on behalf of America's Community
Bankers. I am a member of the board of directors of America's
Community Bankers. Two-thirds of ACB members are OTS-regulated
savings associations. ACB strongly supports the continued
operation of OTS as an independent regulator. The efficiency
and professional regulatory oversight that OTS provides is
critical to the continued vibrancy of financial institutions
that have a special focus on home lending, retail banking, and
a commitment to the communities.
In the years since its creation, OTS has undergone a
successful evolution that mirrors that changes in the industry
it regulates. The Agency supervises a wide range of
institutions with different operating strategies, business
needs, sizes, and charters. Over the years, the industry has
become more complex and diverse, and the OTS has kept pace with
the change.
OTS has developed a strong expertise in the business
conducted by savings associations, mutual institutions, and
their holding companies. OTS has developed a more risk-focused
way of looking at supervision, rather than the prescriptive
regulations of the past.
For example, OTS uses its examination force efficiently to
examine savings associations simultaneously for safety and
soundness and compliance. Although every institution is unique
and every examination is different, many institutions
appreciate having examiners in-house at one time, rather than
having multiple examinations.
In addition to implementing stringent safety and soundness
operational flexibility and relief for community banks from our
increasing regulatory burden--and the Agency has taken a
leadership role in that regard--we commend Director Reich for
his efforts in this area, and we urge Congress to pass
meaningful regulatory relief legislation this year.
Finally, let me add a brief personal note. As a New Orleans
banker, I want to acknowledge the OTS's response and assistance
to the industry after Hurricanes Katrina and Rita. Both
Washington and in our region, the OTS provided valuable
assistance to me and to my colleagues and our competitors.
My written testimony provides the details, but it's
important to note that within 24 to 36 hours after the flooding
began in New Orleans, the OTS Midwest regional office in Dallas
was in touch with me, personally. For a period of time after
that, I was in almost daily contact with the OTS officials in
Dallas and in Washington. OTS Director Reich has journeyed to
New Orleans several times since Katrina, to speak with bankers,
and to gain firsthand knowledge of the destruction.
One of the biggest challenges facing financial institutions
in the hurricane zone was a quality of the pre-hurricane
assets. OTS worked with each institution, allowing us to use
our own judgement in helping to determine the quality of these
assets.
OTS also recognized that compliance with many regulations,
when our institutions were under severe stress, would be almost
impossible. And without flexibility, we would not have been
able to help our customers when they needed our help the most.
The lesson that we take away from this disaster is simply this.
When banks are relieved of unnecessary regulatory burdens, they
are better able to serve the needs of their customers.
Mr. Garrett. You just want to briefly close?
Mr. Nolan. Sure. ACB commends the OTS for balancing strong
safety and soundness oversight with an understanding and
appreciation of the businesses and the institution it
supervises.
Thank you, sir, and I will be happy to try to answer your
questions.
[The prepared statement of Mr. Nolan can be found on page
37 of the appendix.]
Mr. Garrett. Thank you, Mr. Nolan. And I realize I failed
to do something that Ms. Kelly always does when she is here
running the meetings, and that is for the witnesses to always
indicate that they are to push the little button for speaking,
that the little green light comes on when you're okay to speak,
the yellow is a 1-minute warning, and then the red light is the
conclusion.
She always does that; I apologize for not leading off with
that. Thank you, Mr. Nolan. Mr. Gurzynski?
STATEMENT OF THEODORE GURZYNSKI, VICE PRESIDENT AND CHIEF
CREDIT OFFICER, PYRAMAX BANK, ON BEHALF OF THE INDEPENDENT
COMMUNITY BANKERS OF AMERICA
Mr. Gurzynski. Mr. Chairman, Ranking Member Gutierrez, and
members of the subcommittee, my name is Ted Gurzynski, and I am
vice president and chief credit officer of Pyramax Bank, a
Federal savings bank located in Greenfield, Wisconsin. It is my
pleasure to speak to you today about the OTS on behalf of the
Independent Community Bankers of America, which represent
approximately 5,000 community banks across the Nation, many of
whom, like Pyramax, are Federal or State savings associations
or thrifts, regulated by the OTS.
Established by Congress as a bureau of the Department of
the Treasury in August of 1989, the OTS charters, examines,
supervises, and regulates Federal savings associations, thrifts
insured by the FDIC.
With a skilled staff of 900 employees, most of whom work in
4 regional offices, the OTS has done an excellent job of
supervising and examining thrifts under HOLA. The ICBA notes
that, just recently, the OTS announced plans to hire 60 new
examiners, bolstering its exam staff by 11.5 percent. In
addition, OTS has stated that it will reestablish at its
Washington headquarters a centralized direction for compliance,
Community Reinvestment Act, and consumer protection, a function
that was formerly delegated to the regional offices.
ICBA commends the OTS for taking these actions to improve
its ability to supervise the Nation's savings associations.
The thrift industry has never been healthier. You have
already heard the statistics from Director Reich; I need not
repeat them. ICBA believes that the excellent health of the
thrift industry and its remarkable recovery since the enactment
of FIRREA can be attributed to the supervision and regulation
of the OTS, as well as to the vitality of the thrift charter.
OTS has fulfilled its mission well, as the Nation's primary
regulator of thrift institutions, and has the expertise in
supervising institutions whose business focus is housing
finance.
The ICBA opposes eliminating the OTS and merging or
shifting its duties to another agency. The OTS has done an
excellent job in supervising the industry and assisting it
through some very difficult times. As long as the institutions
it regulates prefer a separate regulator, and support the OTS
through assessments, the OTS should remain a separate
regulator.
Furthermore, having a separate regulator for thrifts can
help focus that industry on the Nation's housing market and
housing finance. The ICBA commends OTS Director Reich for his
efforts to reduce unnecessary regulatory burden on banks and
thrifts, and the leadership that he has assumed under the
Economic Growth and Regulatory Paperwork Reduction Act.
Director Reich's competent leadership of the project, and
his passionate belief that unnecessary regulation must be
reduced were critical to achieving the goals of EGRPRA project
of identifying outdated, unnecessary, or unduly burdensome
regulatory requirements. The ICBA recommends the OTS, and
commends them and that--the other banking industries, for their
support of a comprehensive regulatory relief bill.
Agency support for H.R. 3505, the Financial Services
Regulatory Relief Act of 2005, was critical to successful
passage of that legislation in the House by an overwhelming
majority. Similarly, Agency support for the Financial Service
Regulatory Relief Act of 2006, Senate Bill 2856, will be
critical for the success of that bill in the Senate. Both bills
include provisions from the ICBA-backed communities bank
serving their communities first, or Communities First Act.
ICBA supports the savings association provisions in the
regulatory relief bills, H.R. 3505 and title 4, Senate Bill
2856. These include updating the statutory limits on the
ability of Federal savings associations to make small business
and other commercial loans, and two, providing parity for
thrifts with banks under the Securities Exchange Act of 1934,
and the Investment Advisors Act.
All of these provisions would provide thrifts with greater
flexibility to promote safety and soundness through
diversification, more opportunities to counter the cyclical
nature of the mortgage market, and additional resources to
manage their operations safely and soundly.
ICBA recommends the leadership role taken by the OTS in
helping to reduce examination burden under the Community
Reinvestment Act rules. Prior to the OTS taking action on the
CRA rules, extended discussions among the agencies about
increasing the asset size limit, for eligibility, for
streamlined small banks, CRA examinations did not result in
consensus. With the OTS's action--in part due to their
definitive action, the other Federal banking agencies were able
to reach consensus, and also increase the asset limit for
streamlined examination.
Recently, the OTS has been asked to support a proposal to
amend statutory and regulatory requirements applicable to
mutual holding companies, or MHC's. We understand that a
request was made of the OTS to alter the corporate governance
rules for MHC's, in order to promote minority shareholders of
savings associations to override the interest of a controlling
majority. This would provide minority shareholders in an MHC
structure greater control over the underlying depository
institution, more than the majority and the controlling MHC.
Mr. Garrett. I'm sorry, sir, if you can just come to a
conclusion?
Mr. Gurzynski. Contrary to prevailing law regarding the
rights of minority shareholders, vis a vis majority
shareholders in public companies.
When it comes to--we also applaud the OTS for recent
testimony as it relates to credit union conversions.
And at this point, I would just like to say that we believe
and support the Deputy Director's comments when he said,
``Minimize regulatory obstacles, reduce burden, and facilitate
legitimate business decisions regarding charter choice made by
institutions we regulate.''
And the credit unions should not be allowed to allow their
members not to switch. Thank you for the opportunity to
testify.
[The prepared statement of Mr. Gurzynski can be found on
page 30 of the appendix.]
Mr. Garrett. And I thank you, sir, for your testimony.
Mr. Smith?
STATEMENT OF GEOFF SMITH, PROJECT DIRECTOR, WOODSTOCK INSTITUTE
Mr. Smith. Good morning, and thank you for the invitation
to testify at today's hearing. My name is Geoff Smith, and I am
project director at the Woodstock Institute. The Woodstock
Institute is a Chicago-based nonprofit research and policy
organization that, for over 30 years, has worked locally and
nationally to promote reinvestment and economic development in
lower income and minority communities.
Woodstock Institute also convenes the Chicago CRA
Coalition, a group of nearly 70 community organizations with a
mutual interest in increasing access to bank and thrift
lending, investments, and services in underserved areas in the
Chicago region and across the State of Illinois. The Woodstock
Institute is also a member of the National Community
Reinvestment Coalition.
My testimony today largely echoes Congressman Gutierrez's
pointed and very insightful questions on the Office of Thrift
Supervision, and the Agency's recent actions to potentially
weaken its regulation of the Community Reinvestment Act.
CRA was born in 1977 out of grass roots organizing efforts
that brought to light the devastating impact of redlining on
inner city urban neighborhoods, and it requires the depository
financial institutions, monitored for their ability to meet the
credit needs of the communities in which they do business,
including low and moderate-income neighborhoods and households.
In its early years, CRA had limited effectiveness, despite
some significant advocacy efforts. And it wasn't until the CRA
regulation was made more rigorous in the late 1980's,
particularly in the 1990's, that CRA became truly effective in
meeting its legislative intent.
One of the most critical changes was instituting a three-
part exam for banks and thrifts with assets over $250 billion.
This examination evaluated large institutions' CRA performance
through separate tests that systematically assessed an
institution's lending, services, and investments to low- and
moderate-income markets. These changes served to standardize
the way large banks were examined under CRA, and added
transparency that made both financial institutions and
regulators publicly accountable for community reinvestment
performance.
Evidence of the effectiveness of CRA can be seen in
increased mortgage loan levels and CRA-regulated institutions
to low and moderate-income mortgage markets; the development of
flexible and affordable deposit accounts for underbanked
markets; and increased investments in affordable housing, small
business development, and financial literacy training.
Despite the effectiveness of CRA in encouraging banks and
thrifts to have a presence in lower income communities, there
recently have been a number of regulatory actions that have
weakened CRA, put forward under the banner of reducing
regulatory burden for financial institutions.
The Office of Thrift Supervision was the lead agency in
enacting the most extreme of these proposals. In many
instances, the OTS acted unilaterally, breaking away from the
traditional unity of the bank regulatory agencies, and making
decisions in the face of very strong public opposition. In the
summer of 2004, the Office of Thrift Supervision broke away
from other regulatory agencies, and unilaterally raised the
asset limit for institutions it considered small under CRA to
$1 billion.
This action created an uneven regulatory playing field, and
significantly reduced the number of thrifts covered by a
comprehensive, large institution CRA exams who were, therefore,
subject to review of their provision of community development
lending, services, and investments, and threatened significant
development resources in low and moderate income markets
everywhere, but most significantly in rural communities and
small cities, who are predominantly served by mid-sized
institutions.
The three other regulatory agencies, after extensive review
and public comment, adopted a more modest revision of the CRA
regulation, which created an intermediate small bank category
for institutions between $250 million and $1 billion in assets.
Unlike thrifts of similar size, intermediate small banks are
examined under a streamlined two-part CRA exam, which includes
a community development test that continues to assess an
institution's provision of community development lending,
services, and investments.
In 2005, OTS acted unilaterally again, and against
overwhelming public opposition, by adopting a proposal that
dramatically weakened CRA by changing the way that large
thrifts' CRA ratings are assessed. Other bank regulatory
agencies continue to require large banks are regularly reviewed
for their provision of lending, investments, and services. The
OTS altered this framework by allowing large thrifts to opt out
of providing services and investments to low and moderate-
income markets.
The OTS regulations set up a circumstance where a large
thrift could have a large branch network with few or no
branches in low and moderate-income communities, offer no
flexible or affordable services or products, make no investment
in affordable housing or business development, or refuse to
make grants or investments to organizations who promote
economic development in lower-income communities. The thrift
could make few or no direct loans to low and moderate-income
communities or borrowers, but purchase these loans from third
parties.
Yet, a thrift could still receive an outstanding rating or
satisfactory rating on a CRA evaluation with virtually no
direct presence in a low or moderate-income community. In fact,
an analysis of results of recent OTS large bank exams show
examples of institutions receiving outstanding CRA ratings with
no consideration of their provision of services to low and
moderate-income consumers.
It was good to hear from Director Reich that the OTS is
considering changing its CRA regulation to conform with other
regulatory agencies, and we look forward to working with the
OTS in this regard. Thank you.
[The prepared statement of Mr. Smith can be found on page
96 of the appendix.]
Mr. Garrett. Thank you very much. And again, I appreciate
all of your testimony. I just have initial opening questions
for anyone who wishes to address them.
It would appear that the general consensus from the
industry perspective is that OTS is--has performed in an
admiral fashion, an adequate fashion. And taking into
consideration the comments that you have made in the testimony
today, are there any other weak areas that we should be, as a
committee, looking at OTS and its overall structure?
One of the comments was made as to how it responds from
works here, and then back out into the region, and I guess it's
something of a hub and spoke sort of arrangement. Your
testimony seems to be that it seems to be working, but is that
hub and spoke regional aspect with the four regions that it
has, is that the best mechanization or methodology for setting
it up? And if there is any changes in that structure, should we
be looking at it?
And just one last question, and then you can go into these,
is would it be helpful to establish an advisory--an OTS
advisory group, similar to the financial crimes enforcement
network, for the OTS?
Mr. Nolan. The experience of our institution is that the
existing structure of the OTS is effective. And I use, again,
the example of Hurricane Katrina to point that out most
emphatically.
Institutions deal directly with their regional offices, and
very indirectly with the Washington office. In a circumstance
that we found ourselves in, in an unprecedented disaster such
as that, the communication level was open, and positive, and
swift, and responsive from not only the regional but also the
national, the Washington, level.
So, my estimation is that the structure works. The lines of
communication are accurate and are open. And I see no
difficulty with its current structure.
Mr. Gurzynski. I would concur with that. I live by the
principle that if it isn't broke, don't fix it. And our
experience with the OTS, management-wise, has been excellent.
As far as weaknesses, I wouldn't call this a weakness, but
certainly--and they are working at this--and that is that as
the thrift industry moves more towards other types of lending,
commercial lending in particular--and they are doing that,
strengthening their staff as it relates to commercial lending,
and they have already done that.
Mr. Nolan. If I may, just to add an additional comment,
that the OTS does establish outreach meetings regularly in
their regions, and so we feel the communication issue and the
connectivity is very positive.
I don't think any banker enjoys dealing with regulators.
But we have a very open and honest dialogue, and they are very
interested in what is happening with us, and are open to the
realities that we deal with, and we appreciate that.
Mr. Garrett. Mr. Smith?
Mr. Smith. I don't know that I can really add anything on
that.
Mr. Garrett. Then I will start with you on the next
question in the minute I have left--and you have commented on
this a little bit--with regard to the changing of the--
through--without formal rulemaking, changing from the $250
million to $1 billion for capitalization that was done in that
matter--I think I know--if you want to elaborate on that, and
your opinion on that, and then I would like also the industry's
perspective, if that is the best procedure to be going through.
Is it good public policy to move in that direction, or is
it better to have these changes be made in a formal rulemaking
process so outside voices can be heard?
Mr. Smith. In that particular instance, and in many of the
actions around--at least around CRA that the OTS has taken--or
has been limited consideration of public comments, during
public comment periods, the action to raise--to change the way
large institutions are assessed under the OTS's CRA exam
received overwhelming public opposition, in fact. Yet the
action was taken, regardless.
So, I think the formal rulemaking perhaps would be a more
effective way to vet that.
Mr. Garrett. Thank you. Mr. Gurzynski?
Mr. Gurzynski. We have two branches in areas that heavily
serve this area, both of them Hispanic areas. And I am going to
tell you, from my perspective, who determines whether we are
doing the job as it relates to meeting the needs of our
community in those areas, and that is the customer.
And if we're not providing the services that they want, and
the mortgages, and at the pricing they can afford, then they
don't bank with us. And that's our main market there, and we
try to do the best job we can.
So, I think that structure as proposed, from our
standpoint, makes a lot of sense. We are already doing that.
Now, I realize that there was a comment made by one of the
members here that, ``Well, if you are meeting those rules, then
you wouldn't mind the regulations.'' If we are following the
rules, then why do we need to be regulated to the extent that
we have been?
So, I think we're doing the job. If we're doing the job, I
think these new proposed size limitations should not affect
negatively the markets we serve.
Mr. Garrett. And if you could just briefly answer that, Mr.
Nolan.
Mr. Nolan. Thank you for that. I think ACB's position, and
certainly that of our own institution, would be to recognize
and support the existing structure of $1 billion and below
having a small bank test to be the appropriate level.
I think the real issue here is that CRA recognizes that
there is some exemption level, if you will, and I don't mean
that in the sense that you don't abide by CRA; you do, you're
subject to it. But at certain asset levels, there are different
tests for a reason. And the reason is the amount of assets and
the amount of resources that institutions have to devote to the
activity.
The three areas of testing, which are lending, service, and
development, are all very valid and important areas. However,
if an institution can focus its resources and pick one of those
areas--perhaps they're very strong in lending--then it seems
unreasonable for a smaller institution to divert resources away
from that which they are very good at meeting the community
needs into other areas where they don't have any expertise at
that moment in meeting those needs.
So, it's really a concentration of the resources, and
having regulation recognize that if the resources and the
business plan of the institution is good in certain areas, that
should be sufficient enough for CRA evaluation.
Mr. Garrett. Thank you. Mr. Cleaver?
Mr. Cleaver. Thank you, Mr. Chairman. Mr. Gurzynski, can we
go back to the regulation issue that you touched on just a
moment ago?
Do you think that the thrifts are adequately regulated? Do
you think that the--or do you think they are under-regulated?
Mr. Gurzynski. We certainly are not under-regulated.
Mr. Cleaver. Yes, I didn't think you were going to go
there.
[Laughter]
Mr. Cleaver. Well, do you think that you are over-
regulated?
Mr. Gurzynski. I actually believe that we are over-
regulated, because our business is to be in, to be active in,
and to provide services to the community. If we weren't doing
what the community needs are, we wouldn't be in that community,
and our customers would tell us that we weren't meeting their
needs by walking away.
Mr. Cleaver. The--with all of the issues that poor people
face, and you're suggesting, I think, that you would do those
things even if you were not regulated.
Mr. Gurzynski. We would certainly do them--to the extent, I
don't know what we would--but we certainly would, because, in
reality, a community bank exists to provide services that the
local community that it serves is in.
We're not a multi-national bank. We are there to meet the
needs of its community, just as have--for example, if I might
digress--in our two branches in the Hispanic area, we offer
products there that we don't offer in other markets, because
the needs were brought forth by the community, and we provided
those products to meet those needs.
Mr. Cleaver. Is there a particular segment of the
population to whom thrifts direct their service, or from which
population do you hope to get the greatest response?
Mr. Gurzynski. We try to get, in our marketplace, and I can
only speak for ours, we try to really relate to the customers
who live locally around where our branches are, and who wants
to build a relationship with an organization that gets to know
them, and then provides the products to meet their needs.
We don't mass market, we only go to our local community
needs. Because, in all honesty, the larger organizations really
don't meet those needs on a very selective basis. We have
developed programs in mortgage lending that go way beyond what
even the CRA would ask us to do, to meet the particular needs
in a particular location.
Mr. Cleaver. Of course, you know, the large banks would
disagree with you. They come into my office, and I'm sure in
all of our offices, to express their disagreement.
Mr. Gurzynski. And I can only tell you, sir, what we do in
our organization.
Mr. Cleaver. Well, and I tend to be a little closer to
where you are. But I am just, you know, it--you're dealing with
people in reality that most of the big banks would turn down,
anyway.
Mr. Gurzynski. In many cases, that is correct.
Mr. Cleaver. And so--but I am--I mean, how do you market?
Who do you go after?
Mr. Gurzynski. Well, it depends on our marketplace. But
let's say, for example--what we go after is we go after the
local individuals--on a lesser extent, the small businesses--
but basically the individuals, the homeowners, those who want
to be homeowners, those who want to get loans for their
children to go to school, via home equity loans, or what have
you it is.
And what we do is we hold meetings locally and ask the
people in the community, ``What kind of products do you want
from a financial institution? How do you want things
structured?'' And then, based on the regulations, we try to
meet those needs as best we can, and at the same time, not to
get the OTS's wrath, because maybe we have done some things
that are beyond policy.
Mr. Cleaver. One final question, and I will go to Mr.
Nolan. But being down in New Orleans, you are, I mean, at the
epicenter, I think, for the needs.
First of all, can you share--if you can do it briefly--the
problems that you see right now? I don't want to get into
insurance, but what are the major problems right now in New
Orleans, with regard to what--I mean, I'm not speaking about
the universe, I'm speaking more specifically about thrifts.
Mr. Nolan. Thank you for that. We--that's a topic we could
speak a lot about. In narrowing it perhaps to our bank and
thrifts, some of the major issues we are dealing with is a
community that is anxious about its future, people who are
uncertain about the stability of the levee system that is under
the supervision of the United States Corps of Engineers.
They are uncertain about the speed with which the city can
recover--70 percent of it was flooded. And as far as banks, I
think banks are--simply reflect the vision of the community. We
can do no greater and no less than the citizens wish to do.
And while our asset quality is fine, I know the insurance
issues are very important issues in the future, as to whether
we will have adequate insurance availability for homeowners, as
well as businesses. So our challenges are bringing our small
businesses up and running, and keeping our citizens housed and
employed, so that the recovery can take place in a reasonable
way.
Mr. Cleaver. One final--if--I don't think anybody knows it
at this moment, exactly what kind of insurance will be put in
place for people who live actually in the flood plain. Do you
foresee difficulty financing or refinancing any of the families
in those areas, if we cannot come up with a level of coverage
that would make lenders at least somewhat comfortable?
Mr. Nolan. I think you are speaking, Congressman, I
believe, about the Federal Flood Insurance Program.
Mr. Cleaver. Yes.
Mr. Nolan. Yes, the level of insurance is important. It's
capped at $250,000, is my understanding, at the moment.
Certainly, many homes exceed that. Even though New Orleans is
not a very wealthy community, many homes exceed that.
That's a very important issue for flood insurance. Equally
as important, it has to be affordable homeowners and casualty
coverage for businesses, as well as homes. And the current
circumstance seems to indicate the premiums will be extremely
high, the coverage will be limited, and I do anticipate that
will have a negative effect on the ability of people to finance
the type of mortgage that they would like to have for the type
of home they would like to live in, because it's simply a
matter of economics. How much can you afford, then, if the
insurance has increased to a significant amount?
Mr. Cleaver. You gave the answer I was hoping you would
give, but unfortunately I would like for the world to have
heard your response. Thank you.
Mr. Nolan. Thank you, sir.
Mr. Garrett. And of course, his response is in the record,
so you can disseminate.
Again, I would like to thank the members of the panel--Mr.
Nolan, Mr. Gurzynski, and Mr. Smith--for your testimony and
your time today. The record will remain open for another 30
days, for members to submit questions to the panels and place
their response on the record.
Again, I thank you, and the meeting is adjourned.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
A P P E N D I X
May 25, 2006
[GRAPHIC] [TIFF OMITTED] 31043.001
[GRAPHIC] [TIFF OMITTED] 31043.002
[GRAPHIC] [TIFF OMITTED] 31043.003
[GRAPHIC] [TIFF OMITTED] 31043.004
[GRAPHIC] [TIFF OMITTED] 31043.005
[GRAPHIC] [TIFF OMITTED] 31043.006
[GRAPHIC] [TIFF OMITTED] 31043.007
[GRAPHIC] [TIFF OMITTED] 31043.008
[GRAPHIC] [TIFF OMITTED] 31043.009
[GRAPHIC] [TIFF OMITTED] 31043.010
[GRAPHIC] [TIFF OMITTED] 31043.011
[GRAPHIC] [TIFF OMITTED] 31043.012
[GRAPHIC] [TIFF OMITTED] 31043.013
[GRAPHIC] [TIFF OMITTED] 31043.014
[GRAPHIC] [TIFF OMITTED] 31043.015
[GRAPHIC] [TIFF OMITTED] 31043.016
[GRAPHIC] [TIFF OMITTED] 31043.017
[GRAPHIC] [TIFF OMITTED] 31043.018
[GRAPHIC] [TIFF OMITTED] 31043.019
[GRAPHIC] [TIFF OMITTED] 31043.020
[GRAPHIC] [TIFF OMITTED] 31043.021
[GRAPHIC] [TIFF OMITTED] 31043.022
[GRAPHIC] [TIFF OMITTED] 31043.023
[GRAPHIC] [TIFF OMITTED] 31043.024
[GRAPHIC] [TIFF OMITTED] 31043.025
[GRAPHIC] [TIFF OMITTED] 31043.026
[GRAPHIC] [TIFF OMITTED] 31043.027
[GRAPHIC] [TIFF OMITTED] 31043.028
[GRAPHIC] [TIFF OMITTED] 31043.029
[GRAPHIC] [TIFF OMITTED] 31043.030
[GRAPHIC] [TIFF OMITTED] 31043.031
[GRAPHIC] [TIFF OMITTED] 31043.032
[GRAPHIC] [TIFF OMITTED] 31043.033
[GRAPHIC] [TIFF OMITTED] 31043.034
[GRAPHIC] [TIFF OMITTED] 31043.035
[GRAPHIC] [TIFF OMITTED] 31043.036
[GRAPHIC] [TIFF OMITTED] 31043.037
[GRAPHIC] [TIFF OMITTED] 31043.038
[GRAPHIC] [TIFF OMITTED] 31043.039
[GRAPHIC] [TIFF OMITTED] 31043.040
[GRAPHIC] [TIFF OMITTED] 31043.041
[GRAPHIC] [TIFF OMITTED] 31043.042
[GRAPHIC] [TIFF OMITTED] 31043.043
[GRAPHIC] [TIFF OMITTED] 31043.044
[GRAPHIC] [TIFF OMITTED] 31043.045
[GRAPHIC] [TIFF OMITTED] 31043.046
[GRAPHIC] [TIFF OMITTED] 31043.047
[GRAPHIC] [TIFF OMITTED] 31043.048
[GRAPHIC] [TIFF OMITTED] 31043.049
[GRAPHIC] [TIFF OMITTED] 31043.050
[GRAPHIC] [TIFF OMITTED] 31043.051
[GRAPHIC] [TIFF OMITTED] 31043.052
[GRAPHIC] [TIFF OMITTED] 31043.053
[GRAPHIC] [TIFF OMITTED] 31043.054
[GRAPHIC] [TIFF OMITTED] 31043.055
[GRAPHIC] [TIFF OMITTED] 31043.056
[GRAPHIC] [TIFF OMITTED] 31043.057
[GRAPHIC] [TIFF OMITTED] 31043.058
[GRAPHIC] [TIFF OMITTED] 31043.059
[GRAPHIC] [TIFF OMITTED] 31043.060
[GRAPHIC] [TIFF OMITTED] 31043.061
[GRAPHIC] [TIFF OMITTED] 31043.062
[GRAPHIC] [TIFF OMITTED] 31043.063
[GRAPHIC] [TIFF OMITTED] 31043.064
[GRAPHIC] [TIFF OMITTED] 31043.065
[GRAPHIC] [TIFF OMITTED] 31043.066
[GRAPHIC] [TIFF OMITTED] 31043.067
[GRAPHIC] [TIFF OMITTED] 31043.068
[GRAPHIC] [TIFF OMITTED] 31043.069
[GRAPHIC] [TIFF OMITTED] 31043.070
[GRAPHIC] [TIFF OMITTED] 31043.071
[GRAPHIC] [TIFF OMITTED] 31043.072