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Comment

I am Chairman of Points West Community Bank and of Bank of Estes Park. We have 25 locations located in Colorado, Nebraska and Wyoming. Both banks have been continual users of services from FHLB Topeka. We are currently not heavy users, as we are very liquid. While we do not need borrowings from FHLB to fund loans at this time, we do take down longer term borrowings to extend the weighted average life of our liabilities, allowing us to book longer term loans. Our bank is heavily involved in 1-4 family construction. We also originate mortgages that are sold to the secondary market. On occasion, we elect to originate long term mortgages and keep them on the books for various reasons. Our bank also competes against Farm Credit on long term real estate loans. Both of these products extend the average life of our assets, necessitating us to either extend our liabilities or enter into swap agreements. Our bank does not originate a large enough volume of long-term loans in a short enough time frame to utilize swap agreements, which is where FHLB becomes a valuable partner.

More importantly, however, we need FHLB as a source of liquidity should the need arise. While we are flush with deposits today, following the large amount of stimulus funding, we were not always. There have been times over the past during our expansion phases where loan demand grew faster than deposits. During those times we relied on FHLB to bridge the gap. In today's environment, liquidity is dissipating rapidly. Many of my peer banks, who saw a large increase in liquidity over the past few years, invested those funds longer term as the Fed Funds rate was 9 basis points. Those investments have large losses in AOCI as interest rates have risen sharply. This has prompted my peer banks to recently borrow from FHLB for liquidity to avoid having to sell those securities at a large loss. Today's environment is a perfect example of how critical it is that we have the Federal Home Loan Banks. If financial institutions were forced to sell investments at a substantial loss, a loss that would not be realized if those investments were held to maturity in a few short years, the banking system would be in dire straits. If failure was avoided, higher loan rates and lower deposit rates would occur to combat the losses, further exacerbating inflation.

As for the future, it is likely that FHLB's role will only increase. With the increasing competition for deposits outside of the system, most forecast continued decline. A community bank's options are the FHLB system or brokered deposits. Brokered deposits in a market with very little deposits would become cost prohibitive.

I am glad there is a focus on FHLB's future. FHLB is very relevant to community banks. Even to banks like ours that are not the largest originators of mortgages. We are, however, an integral part of the housing industry in our financing of the construction of housing. Community banks are the only source of funding for small businesses in most areas, a necessary component of the economic engine.