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98–013 PDF 2016

S. HRG. 114–133 

THE STATE OF RURAL BANKING: CHALLENGES 

AND CONSEQUENCES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

FINANCIAL INSTITUTIONS AND CONSUMER 

PROTECTION 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE REGULATORY BURDENS ON RURAL BANKS 

OCTOBER 28, 2015 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

RICHARD C. SHELBY, Alabama, Chairman 

MICHAEL CRAPO, Idaho 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

WILLIAM D. DUHNKE III, Staff Director and Counsel 

MARK POWDEN, Democratic Staff Director 

DAWN RATLIFF, Chief Clerk 

TROY CORNELL, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION

PATRICK J. TOOMEY, Pennsylvania, Chairman 

JEFF MERKLEY, Oregon, Ranking Democratic Member 

MIKE CRAPO, Idaho 

DEAN HELLER, Nevada 

MIKE ROUNDS, South Dakota 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MARK KIRK, Illinois 

TIM SCOTT, South Carolina 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

MARK R. WARNER, Virginia 

ELIZABETH WARREN, Massachusetts 

JOE DONNELLY, Indiana 

GEOFFREY OKAMOTO, Subcommittee Staff Director 

LAUREN OPPENHEIMER, Democratic Subcommittee Staff Director 

(II)

C O N T E N T S 

WEDNESDAY, OCTOBER 28, 2015 

Page 

Opening statement of Chairman Toomey .............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Merkley ............................................................................................... 3 

WITNESSES 

Terry Foster, Executive Vice President and Chief Executive Officer, Mifflin 

County Savings Bank, Lewistown, Pennsylvania, on behalf of the Pennsylvania Association of Community Bankers ......................................................... 5 

Prepared statement .......................................................................................... 24 

Responses to written questions of: 

Senator Warren ......................................................................................... 42 

Roger A. Porch, Vice President, First National Bank, Philip, South Dakota ..... 8 

Prepared statement .......................................................................................... 28 

Responses to written questions of: 

Senator Warren ......................................................................................... 42 

Carrie Wood, President and Chief Executive Officer, Timberland Federal 

Credit Union, DuBois, Pennsylvania .................................................................. 10 

Prepared statement .......................................................................................... 32 

Sarah Edelman, Director, Housing Policy, Center for American Progress ......... 12 

Prepared statement .......................................................................................... 34 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Charts submitted by Chairman Toomey ................................................................ 43 

Summary of the Democratic alternative to the ‘‘Financial Regulatory Improvement Act of 2015’’ submitted by Senator Merkley ............................................ 44 

Letter submitted by Jim Nussle, President and CEO, Credit Union National 

Association ............................................................................................................ 46 

(III)

(1) 

THE STATE OF RURAL BANKING: 

CHALLENGES AND CONSEQUENCES 

WEDNESDAY, OCTOBER 28, 2015 

U.S. SENATE, SUBCOMMITTEE ON FINANCIAL

INSTITUTIONS AND CONSUMER PROTECTION, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Subcommittee met at 10:04 a.m., in room SD–538, Dirksen 

Senate Office Building, Hon. Patrick J. Toomey, Chairman of the 

Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN PATRICK J. TOOMEY 

Chairman TOOMEY. The hearing will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the Committee at any time necessary. The Chair now—turns on his 

mic. The Chair now recognizes himself for the purpose of an opening statement. 

First, I want to thank the witnesses for joining us. We will go 

through the introductions in a moment, but I appreciate your taking the time to share your unique insights into the topic that we 

are examining this morning. And the topic, of course, is the regulatory burdens on rural banks, and these burdens are not a new 

matter, but the fact is our rural banks and financial institutions 

are among the smallest financial institutions in the country, and 

they are struggling in the current regulatory environment. 

I helped to start a small bank in the Lehigh Valley of Pennsylvania and the western part of New Jersey with the goal of lending 

to small businesses and local residents. And that was back in 2005, 

so I have some firsthand personal experience with the regulatory 

environment as it existed then. It has clearly gotten much worse 

in the meantime. 

What I think sometimes folks from urban and suburban areas 

may not appreciate is the extent to which in rural areas a town’s 

local bank is often a citizen’s first, sometimes only exposure to the 

financial system. And these banks survive by offering exceptional 

service to these customers, personalized products, and fostering an 

ongoing, long-term relationship. 

The fact is in small town across Pennsylvania and the United 

States, George at Bailey Building and Loan on Main Street still exists. Unfortunately, new regulations are straining the business of 

continuing to bank rural customers. 

Congress and the President attempted to deal with threats to our 

financial system, threats that were posed by a handful of the largest institutions in the world in 2010 through Dodd-Frank. But, unVerDate Nov 24 2008 09:49 Apr 01, 2016 Jkt 046629 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 L:\HEARINGS 2015\10-28 THE STATE OF RURAL BANKING - CHALLENGES AND CONSE
2 

fortunately, even the smallest institutions have been caught up in 

regulation that has resulted in more red tape. 

In fact, in some ways this burden has been disproportionately 

felt by banks that are small and rural. Even though some of them 

have some of the healthiest balance sheets, business models, and 

relationships in the entire financial sector, the fact is compliance 

costs, at least a portion of them, are often fixed costs, and small 

institutions have a smaller revenue source with which to absorb 

those costs. 

There’s a striking example of the harm that has been happening 

in the very small bank and the new bank sector, and that is, the 

absence of new bank charters that have been issued recently. We 

have a chart here that depicts what has been happening across 

America. Between 2000 and 2009, the vertical gray bars on the 

graph reflect the new bank charters each year. And what you can 

see is that that number completely collapses and goes to zero after 

Dodd-Frank is passed. In fact, since 2010, only two de novo banks 

have been formed. 

The red line is a measure of the amount of new regulations that 

have been imposed on financial institutions, and you can see the 

dramatic upward spike corresponds roughly but pretty well with 

the complete collapse of the formation of new banks. This I think 

is devastating. The fact that America no longer launches new community banks is devastating for Americans across the country. 

But I understand why it is happening. It is hard for me to imagine taking the risk of starting a new bank today, having had that 

experience in the past, given the combination of this avalanche of 

new regulations that one faces and the artificial interest rate environment where interest rates are basically at zero and margins are 

so compressed. 

Well, apparently I am not the only one that cannot imagine 

starting a new bank. Nobody is doing it anywhere in America. So 

we have destroyed de novo bank formations. That no longer happens in America. And we are forcing a stunning wave of consolidation among small banks. It started a long time ago, but it has been 

accelerating recently. And as we have this consolidation, we are not 

replacing these institutions with new startups. 

A Harvard Kennedy School paper in 2015 said, and I quote, 

‘‘Community banks’ vitality has been challenged more in the years 

after Dodd-Frank than in the years during the crisis.’’ And again 

I quote, ‘‘The rapid rate of consolidation away from community 

banks that has occurred since Dodd-Frank’s passage is striking 

given that this regulatory overhaul was billed as an effort to end 

‘too-big-to-fail’ .’’ 

The fact is in the absence of new community banks and the absence of a thriving small bank sector, we have less competition, 

less dynamism, and fewer financial services for men and women 

and small businesses who need these services. 

So this Subcommittee, we have been working for some time now 

to try to provide some regulatory relief for the smallest financial 

institutions. We have had five hearings focused on community 

banks and credit unions, two others on credit access for small businesses. We had the Financial Regulatory Improvement Act of 2015 

with dozens of measures designed to provide relief. I am proud to 

3 

have authored several of these provisions in separate bills that got 

rolled into one, and I am very disappointed that we have not been 

able to get bipartisan support so that we can move this on the Senate floor. 

I do want to also point out one particular industry that depends 

so much on the smallest of banks, and that is agriculture. It is very 

often the case in rural agricultural areas that there is only one financial institution—and it is often a very small community bank 

or credit union—that provides credit to the ag community to the ag 

community in that market. But these small institutions in the aggregate provide a huge percentage of all agricultural lending. This 

chart depicts that. 

The light-green area on the top represents the percentage of all 

loans, agricultural loans, that are made by banks that are less than 

$1 billion in total assets, and you can see that is about half of all 

the loans. The dark-green area are loans that are made by banks 

of $1 to $10 billion, still quite small. Combined, you can see this 

is over 70 percent of all the loans that are made to agricultural 

America are made by small and very small banks. This is an absolutely essential part of the financial services industry for rural and 

agricultural America. 

So the fact is while we have been unable to provide this regulatory relief, in my view, the burden is carried not just by financial 

institutions but the folks on Main Street and the folks in the rural 

communities who would otherwise be served by a more robust 

small banking market. 

Our witnesses today represent institutions that have been unduly burdened by Dodd-Frank and other regulatory creep. I hope 

their views and suggestions will be taken into account as we continue to pursue ways in which we can relief that burden. 

And, with that, I will recognize the Ranking Member, Senator 

Merkley, for his opening statement. 

STATEMENT OF SENATOR JEFF MERKLEY 

Senator MERKLEY. Thank you very much, Mr. Chairman, and 

thank you to all of you for bringing your frontline experience to 

this conversation. 

Seven years ago, our economy plunged into a free fall that took 

us deeper than any crisis since the Great Depression, impacting 

both consumers and financial institutions across the country. And 

Congress responded with the Wall Street Reform and Consumer 

Protection Act to protect consumers and our economy, to prevent 

or decrease the odds of a similar plunge off an economic cliff. 

Our economy has slowly bounced back, and the memory of the 

crisis is still fresh in the minds of many Americans, millions of 

whom lost their homes, they lost their jobs, they lost their retirement savings. And for this reason, there remains strong bipartisan 

support for reforming the activities of Wall Street, with nine in ten 

likely voters saying it is important to regulate financial services 

and products to ensure that they are safe for consumers. 

That said, we all know that community banks and small credit 

unions did not cause the financial crisis. As legislators, then, we 

need to strike a balance, provide appropriate consumer protection 

from predatory products, while ensuring that community banks 

4 

and credit unions can do their job providing credit in rural America. 

The Democrats on the Banking Committee recognized that some 

regulatory relief was needed and joined together to propose just 

such a bill. We offered a path forward to ensure that rural areas 

can continue to depend on community banks for mortgages and agricultural loans and small business loans. A Wall Street Journal article paints a positive picture saying that in some ways community 

banks are the picture of health with loans balances, profitability, 

and increased number of loans held on portfolio. But we have all 

heard from our community banks about the challenges that they 

have with, as the Chairman described, regulatory creep, and that 

needs to be addressed, and thus the Democratic initiative. 

Banks and credit unions in Oregon almost exclusively fall into 

the community and small financial institution categories, especially 

true of financial institutions that serve our rural communities, 

many of which have deep roots in small communities, from the 

Bank of Eastern Oregon—headquartered in Heppner with a population of 1,300; it has 13 branches and $325 million in assets—to 

Rogue Credit Union in southern Oregon—which has grown to have 

about $1 billion in assets, 15 branches, and is serving rural areas 

like Klamath County—and Mid Oregon Credit Union, which is 

headquartered in Bend, serving rural central Oregon, as well as 

Warm Springs Tribe. Mid Oregon has six branches and $213 million in assets. I think that these are representative of the types of 

institutions we would find all across America. And while I am familiar with the feedback from our Oregon community banks, I look 

forward to hearing feedback from all of you on the front line in 

South Dakota and Pennsylvania. 

I am not going to go through the details of the Democratic bill 

that was designed to address many of the issues that we have been 

hearing from rural banks. I can submit those for the record. 

Chairman TOOMEY. Without objection. 

Senator MERKLEY. I want to turn to your experience. The caution 

I would have is against trying to use the challenges of banks in 

rural America as a wedge to restore the New York Wall Street casino operations that brought down America. That has been a choice 

strategy that we have been witnessing here on Capitol Hill, and 

that would be a mistake. Enabling essentially taxpayer-subsidized 

hedge funds to operate with our deposits and put the entire banking system at great risk would be absolutely no service to Americans in urban or rural America. Meanwhile, we stand united in 

wanting to address the types of issues that you will be identifying. 

Thank you. 

Chairman TOOMEY. Thank you very much, Senator Merkley. 

I am now going to recognize the gentleman from South Dakota, 

Senator Rounds, for the purpose of introducing one of the witnesses 

who is a constituent of Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

Roger Porch grew up on a farm and ranch in West River, South 

Dakota, where both banks and towns are few and far between. For 

those who have never been there, West River is shortgrass country 

where cow-calf operations are the norm. It still takes a cowboy and 

a cow to raise a calf, and a banker needs to understand the land 

5 

in order to serve the needs of his or her customers. Roger understands the geography of West River. He knows the land, and he 

knows the people. 

I served with Roger in the South Dakota State Senate, and I 

found him not only reasonable but knowledgeable and a very concerned person with his constituents’ needs always firsthand. 

Roger graduated from Kadoka High School in 1969 and the University of South Dakota in 1974, and for those of us who graduated 

from South Dakota State, we put up with him anyway. 

He returned to his family’s ranch after college and operated it 

until 1995, when he started working at the First National Bank in 

Philip. He was elected to the South Dakota House of Representatives in 1984, served until 1990, and was Vice Chairman of the Ag 

Committee. He was elected to the South Dakota State Senate in 

1990, where I first met him, where he served for 6 years chairing 

the Committee on Education, and he later served on the State 

Board of Education for 5 years. 

Roger is currently the vice president and head of the loan department for the First National Bank in Philip. He sits on the Board 

of Directors of the Philip Health Services, which operates a clinic, 

a hospital, a nursing home, and is the secretary of the Philip Charities, which is the local economic development organization. He and 

his wife, Lois, have been married for 44 years, have three children 

and five grandchildren, last count. They still own and operate the 

family ranch which consists of about 3,500 acres of pasture and 

farmland. I know that our Committee can benefit from Roger’s long 

experience and use his testimony to help make it easier for rural 

bankers to effectively serve their customers. 

Thank you, Mr. Chairman. 

Chairman TOOMEY. Thank you, Senator Rounds. 

At this time I would like to extend a warm welcome to all of our 

witnesses, and let me proceed with a brief introduction for our 

other witnesses. 

We have with us Mr. Terry L. Foster, the executive vice president and chief executive officer of MCS Bank in Lewistown, Pennsylvania. And Senator Rounds just introduced Mr. Porch. Welcome 

to both of you. 

Ms. Carrie Wood is the president and chief executive officer of 

Timberland Federal Credit Union in DuBois, Pennsylvania. 

And Ms. Sarah Edelman is director of housing policy at the Center for American Progress. 

Thank you all for joining us today. I will recognize each of you 

for a 5-minute oral summary of the testimony that you have submitted. Your full testimony will appear in the record, and then we 

will proceed to questioning. So thank you again, and, Mr. Foster, 

please proceed. 

STATEMENT OF TERRY FOSTER, EXECUTIVE VICE PRESIDENT 

AND CHIEF EXECUTIVE OFFICER, MIFFLIN COUNTY SAVINGS BANK, LEWISTOWN, PENNSYLVANIA, ON BEHALF OF 

THE PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS 

Mr. FOSTER. Thank you, Chairman Toomey, Ranking Member 

Merkley, and Members of the Committee. My name is Terry Foster. 

6 

I serve as executive vice president and CEO of MCS Bank. We are 

a $137 million asset bank headquartered in Lewistown, Pennsylvania. We are a State-chartered mutual savings bank, and we were 

originally chartered in 1923. Our bank serves exclusively rural populations in the central part of the State. I have served in my current role at MCS Bank since 2009, but I have served the bank in 

other capacities for the past 20 years. 

I would like to add that I have also been a customer of this very 

bank since I was a young boy. 

I also serve as the current chairman of the Pennsylvania Association of Community Bankers and as a member of the Mutual Bank 

Council of the Independent Community Bankers of America. I wish 

to thank you for convening today’s hearing and providing me with 

the opportunity to testify. 

I want to state that my testimony is based upon my own experiences and observations as a rural community banker, as well as 

from the perspective of my fellow bank employees’ dealings with 

our customers and stakeholders. I also speak from the perspective 

of a $137 million institution trying to preserve our ability to survive and maintain a presence in communities where local banking 

and service is so very important. I refer you to my written testimony for greater details on our bank, its history, staff, and markets, but I do think it is important to mention that and stress the 

fact that within two of the communities in which we have 

branches, we are the only bank in town. 

By their nature, rural markets create unique efficiency challenges in terms of serving dispersed populations as compared to the 

more densely populated suburban and urban areas. The fact that 

MCS Bank, at just $137 million in assets, operates five full-service 

branches to reach our customer base illustrates this point. Every 

dollar of cost rural institutions must incur to maintain compliance 

with new or heightened regulatory requirements disproportionately 

impact institutions like mine. 

Unique population dynamics in the rural markets call for specialty servicing knowledge and are a critically important reason 

that community banks in rural markets do survive. In our market, 

we serve a unique population in the ‘‘plain sect’’ or the Amish community. 

Amish, for those of you who are not familiar, live simple agrarian 

existences, avoid the use of modern technologies, including electricity and automobiles. In place of automobiles, they travel by 

horse-drawn buggy. Because of their social and religious conventions and aversion to technology, serving this demographic takes a 

keen, local understanding of this community to meet its members’ 

needs, a community that will never be understood by banks 

headquartered in suburban or urban centers and whose needs are 

not a part of the equation when branch consolidation or closure decisions are being contemplated. 

I like to tell the story of how in the wake of a large regional bank 

abandoning a rural community with a high concentration of Amish 

residents we were able to figure out a way to restore local banking. 

The loss of this branch was devastating to the community’s residents and businesses, particularly to the Amish residents whose 

transportation limitations created an unusual hardship by forcing 

7 

them to travel long distances to another community to do their 

banking at a branch to which their account servicing was transferred. 

MCS Bank worked with community leaders and business owners, 

and eventually we partnered with a local businessman to build and 

open a 530-square-foot branch within his family’s building supply 

and hardware store. Today this branch is thriving, albeit much 

smaller, and supporting the community, and we have provided financing to the Amish community for such projects as the purchase 

of land for farm expansion and for the construction of a new retail 

store. 

The potential loss by this particular community is just one example of situations that are playing out in communities across the Nation. I believe very strongly that the community banking industry 

is experiencing consolidation, particularly in rural markets, at an 

accelerating rate, for a host of reasons, but one being escalating 

compliance-related cost and complexities. 

I argue that a great deal of time and resources we are devoting 

toward our efforts to comply with the letter of the laws and regulations, their complexities, and many inconsistencies have had a detrimental impact on our ability to serve our customers with both 

products and service delivery. 

Has Dodd-Frank, for instance, impacted the products our bank 

offers? Absolutely. Since the introduction of QM and Ability-ToRepay, MCS Bank has discontinued offering balloon-type loans. 

With the volume of rules to interpret and implement, we had to 

focus our efforts on the most utilized of our mortgage products. 

The required escalation of our compliance focus negatively impacts bank stakeholders such as community organizations, charities, et cetera, which have historically been the beneficiaries of our 

philanthropic efforts. The more time our people must devote to 

compliance is less time available for them to spend on volunteer 

and charitable endeavors. Increased regulatory costs also negatively impact the community by way of diverting financial resources away from community investment. As increased costs and 

other pressures work collectively to incentivize further consolidation, larger organizations with distant headquarters locations lack 

the appreciation and commitment to local needs in rural areas. 

Are the theories behind consumer-focused regulations well intended? Absolutely. The notion of ‘‘ability-to-repay,’’ as generally 

defined, has long been an underwriting practice of prudent community bankers and lenders, but the codification of such concepts into 

regulation is fraught with complexity, inconsistencies, and in some 

cases lacks logic. The unintended consequence is confusion, which 

ultimately leads to human error, additional costs, and potential examiner criticism. I refer the Committee Members to the detailed 

example in my written testimony for examples of human error situations that we have experienced. 

Because the timing of today’s hearing which coincides with the 

ongoing work to fully implement the rules of the new TRID requirements, I have also included some TRID examples in my written testimony. 

The complexity involved in implementing TRID is taxing all parties involved. In our case, our third-party loan origination software 

8 

provider’s applications were not ready to go on October 3rd. As a 

result, our testing protocols were delayed. At this point, we are still 

determining if the new rules will allow us to continue to offer certain types of single-closing construction loans that have ARM features, which have benefits to consumers from the standpoint of cost 

reductions as well as reduced time and efficiency. It also impacts 

our ability to reduce our interest rate risk. 

A final issue I wanted to share with the Committee is what I 

term ‘‘the flood map creep.’’ Flood zone expansion has exposed our 

bank to reputation damage and instances of a formal consumer 

complaint being lodged with the Pennsylvania Department of 

Banking and Securities and ultimately a lost customer. Again, in 

my written testimony, I have provided a detailed example of this 

very instance. 

In terms of recommendations, there are a number of bills that 

are in front of the Senate that we believe will provide some significant relief from many of the concerns that I raised, and I am sure 

other witnesses will also raise, and I cite a sampling of these specific bills and their favorable provisions within my written testimony. 

Last, I would just again like to thank you for the opportunity to 

testify today, and I do hope that my comments will be beneficial 

to the work of the Subcommittee. 

Thank you. 

Chairman TOOMEY. Thank you, Mr. Foster. 

Mr. Porch. 

STATEMENT OF ROGER A. PORCH, VICE PRESIDENT, FIRST 

NATIONAL BANK, PHILIP, SOUTH DAKOTA 

Mr. PORCH. Senator Rounds, thank you for that kind introduction. Chairman Toomey, Ranking Member Merkley, and Members 

of the Committee, my name is Roger Porch, and I am a vice president at First National Bank in Philip, South Dakota. I would like 

to thank you for affording me the opportunity to appear before you 

this morning to share some information about regulatory challenges faced by rural banks. My hope is that we can find some regulatory relief that will help community banks across the country. 

More importantly, however, we hope that we can, by making credit 

more readily available to those who live in rural areas, sustain our 

lifestyles and expand local economies. 

The area in which I live—western South Dakota—is highly reliant upon agriculture and tourism, and we are doing well. But we 

take nothing for granted and are pleased to be here this morning. 

My bank is headquartered in Philip, South Dakota, and we have 

one branch in Faith, South Dakota, located 85 miles to the north. 

We are a $250 million bank and serve a large area of western 

South Dakota. We have customers as far west as Wyoming and 

south to Nebraska. First National Bank is privately owned and has 

successfully served the needs of our trade area for over 100 years. 

We live by the motto, ‘‘Partners in Banking.’’ Our principal scope 

of business is the financing of farmers and ranchers with lines of 

credit and real estate and machinery loans. However, excessive, 

unfocused regulations are changing the way we do business. 

9 

The ability to meet local needs has not been easy with the increased regulatory costs and second-guessing by bank examiners. 

During the last decade, the regulatory burden for community banks 

has multiplied greatly. 

In my testimony today, I would like to make the following three 

points: unnecessary regulatory burden limits banks’ ability to serve 

their customers; these challenges have real costs for our banks and 

the communities they serve; and then some commonsense solutions 

which would help alleviate this burden. 

Rules and requirements surround every bank activity. When it 

works well, bank regulation helps ensure the safety and soundness 

of the overall banking system. When it does not, it constricts the 

natural cycle of facilitating growth, facilitating credit, and economic 

expansion. It has been noted by others that regulatory cost as a 

percentage of overhead has increased. Specifically for First National Bank, we spent $220,000 on regulatory expense, which is 19 

percent of overhead. Looked at differently, it is approximately 7.5 

percent of our bottom line, including salaries. 

Today First National Bank does not make home loans. The avalanche of new mortgage regulations is too complex and costly to 

comply with. The added cost and risk of making these loans is not 

something our bank can justify. The economic life of rural America 

depends upon financial products and services that only community 

banks provide. By forcing many banks out of mortgage lending, significant harm is done to the rural communities that bankers are 

trying to serve. 

In rural areas, an appraiser is difficult and sometimes impossible. For ag property up to $1 million, we can get by with an inhouse evaluation, which works quite well. For larger appraisals, we 

might find ourselves waiting several months for a certified appraiser to complete the appraisal. In certain cases involving homeownership, an appraisal might not be available. 

Our main scope of business is lending operating money to ranchers and farmers. Although we do use projected cash-flows in our 

annual credit analyses, we consider ourselves equity lenders. We 

measure equity for each customer once a year. If we are required 

to rely on cash-flow analysis, we could possibly find ourselves in 

the situation of not being able to loan operating money to ranchers 

and farmer with equity in the millions. 

The Consumer Financial Protection Bureau is inquiring into 

overdraft procedures to determine how those practices are impacting consumers. First National Bank considers itself an ‘‘ad hoc’’ 

bank, meaning we generally cover overdrafts rather than return 

checks. We know our customers and feel that they can best meet 

their needs. 

As an example of burdensome regulation, 25 years ago the call 

report that we submitted was less than 10 pages long. Today for 

our bank it is 86 pages. 

Competition from nonbank lenders is an ongoing problem. Farm 

Credit System and credit unions enjoy special tax treatments giving these institutions a competitive advantage. 

I believe my time in front of this Subcommittee would be wasted 

if some possible solutions were not offered, and so in that light 

10 

then, I believe that HMDA rules could be relaxed to allow rural 

community banks some flexibility before the rules apply. 

With respect to appraisers, there might be some relaxation of requirements in becoming certified. We would request that there be 

some directive given to bank examiners in the area of cash-flow 

lending versus equity and collateral-based lending. 

For rural community banks, we hope that account overdrafts can 

be managed internally. We know our customers. And we would ask 

that call reports be simplified to reflect a bank’s business model 

and size. And I understand that this is not the time nor place to 

take up the issue of Farm Credit and credit unions, but the issue 

does need to be noted. 

We ask for regulation and oversight that is truly beneficial to 

rural consumers who rely on local banks for credit. The focus 

should be on enforcing existing laws rather than creating new rules 

and regulations that threaten banks’ future existence. Rural banks 

can compete, but they cannot compete while burdened with red 

tape and unnecessary, unfocused regulations. It is not fair to local 

banks and the communities they rely on. 

At the end of the day, this is not about banks. It is not about 

First National Bank in Philip. It is about people. It is about the 

communities and lifestyles of those who populate rural America. 

We have a unique opportunity this morning to begin the process 

of effecting change which will truly help the residents of rural 

America. 

I look forward to your questions. Thank you. 

Chairman TOOMEY. Thank you, Mr. Porch. 

Ms. Wood, please proceed. 

STATEMENT OF CARRIE WOOD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, TIMBERLAND FEDERAL CREDIT UNION, 

DUBOIS, PENNSYLVANIA 

Ms. WOOD. Chairman Toomey, Ranking Member Merkley, and 

Committee, thank you for the opportunity to testify at today’s hearing. 

I am Carrie Wood, president and CEO of Timberland Federal Credit Union, a $60 million credit union located in DuBois, Pennsylvania. We serve 9,800 members, over three-quarters of which 

are low-income. My 15 full-time staff and I work hard every day 

to help meet their financial needs. 

As a small credit union in a rural area, we have to comply with 

many of the same regulations as the too-big-to-fail banks who 

caused the financial crisis. While my title is CEO, I am also the 

security administrator, the H.R. department, the compliance officer, the marketing department, the backup IT person, and the 

NMLS administrator. To keep up with the changes coming out of 

Washington, I have assigned a team of five staff, a full third of my 

total, from various departments across the credit union. 

When this team is working on compliance issues, they are not 

serving our members. They are not helping them get loans. They 

are not providing financial counseling. They are not helping to improve our services. Every time a rule is changed, my credit union 

and members incur costs. We must make the time to understand 

the new requirement, determine if it applies to us, modify our comVerDate Nov 24 2008 09:49 Apr 01, 2016 Jkt 046629 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 L:\HEARINGS 2015\10-28 THE STATE OF RURAL BANKING - CHALLENGES AND CONSE
11 

puter systems, update our internal processes, properly train our 

staff, design and print new forms, and produce materials to help 

our members understand the new requirement. 

Rules are often changed in the name of consumer protection, but 

when regulators make it harder for me or more expensive to serve 

my members, that is not consumer protection. 

This constant churn of new regulatory requirements takes a hit 

on our bottom line, which for a not-for-profit like us directly affects 

our members and our service. It has also kept us from entering 

new markets. 

Our members want us to offer small business loans, but we are 

hesitant because of the regulatory and statutory restrictions in 

place today. We have also delayed our entry into indirect auto lending for similar reasons. 

On top of all that, the CFPB has added an entire new level of 

regulatory anxiety for my credit union and others like us. A recent 

example is the TILA–RESPA Integrated Disclosure forms. 

We have known TRID is coming down the pipe for some time, 

and we worked to prepare for it. TRID is a complicated rule, and 

the CFPB provided absolutely no transition time. One day we did 

things in one way; the next day, it was completely different. No 

transition period. No enforcement delay. No legal protections. As a 

small institution, when we ran into an unanticipated problem after 

we flipped the switch on the TRID forms, we were forced to manually input information, slowing down our process for our members 

and potentially exposing us to errors. 

NCUA has said that their examiners are going to exercise tolerance for a reasonable amount of time. But I do not understand why 

Congress will not protect us from legal liability as we work the 

kinks out in our system. 

Despite the ever-growing regulatory burden, we continue to help 

our members. And, in closing, let me tell you how. 

When our members open an account, we offer a free credit review, and three members of our staff are trained to become Certified Financial Counselors to provide free credit counseling for our 

members. 

We participate in a program called ‘‘Better Choice’’, which is an 

alternative to payday lending. To participate in this program, we 

require our members to receive financial counseling, and we partner with our local Community Action to provide it. Timberland 

makes absolutely no money on this program. It is a member service. 

Small loans are pretty common for us. Members request them to 

buy fuel, settle payday loans, buy an Amish mattress, among other 

things. I once did a loan for a man whose five granddaughters 

moved back in with him because his daughter lost her job. He 

needed $200 in a loan because the girls had contracted lice at 

school. He could not afford the treatments until his next Social Security check, and the girls could not go back to school until he took 

care of the problem. I have written car loans for members who 

have totaled their cars due to deer damage and once for a member 

who hit a horse. Public transportation is a struggle in central 

Pennsylvania, so my members need a car, which makes these loans 

very vital for us. Like all credit unions, the work we do at 

12 

Timberland helps families stay in their homes, members to hold 

jobs, and children to stay in school. We are a lifeline for our members. 

My members need our credit union to be in a position to help 

them in these situations. Unfortunately, every rule makes it much 

more difficult for us to be there when they need it. 

There is a reason that we are losing a credit union a day, and 

it is coming out of Washington in the form of ever-changing and 

ever-increasing regulatory burden. Again, your focus on the crisis 

facing small community financial institutions is critical, and I applaud your efforts. 

Thank you for the opportunity to testify. 

Chairman TOOMEY. Thank you, Ms. Wood. 

Ms. Edelman, please proceed. 

STATEMENT OF SARAH EDELMAN, DIRECTOR, HOUSING 

POLICY, CENTER FOR AMERICAN PROGRESS 

Ms. EDELMAN. Thank you, Chairman Toomey, Ranking Member 

Merkley, and Members of the Subcommittee for the invitation to 

appear before you today. My name is Sarah Edelman, and I direct 

the housing program at the Center for American Progress. 

Consumers living in rural areas rely on community banks to 

meet their credit needs. These banks provide vital support to the 

small businesses, farmers, and homeowners that make rural economies run. However, for decades, the number of community banks 

serving these areas has been in decline. The number of community 

banks peaked in 1984 and has declined ever since at a rate of 

about 300 banks per year. 

There are many reasons for this trend, including changes in 

interstate banking rules that made it easier for banks to merge and 

consolidate, slower population growth in rural areas, and changes 

in the financial market. However, consolidation within the community banking sector has not been all bad news for banks or consumers. 

First, the majority of consolidation has been voluntary and has 

taken place between community banks as opposed to large noncommunity banks buying smaller ones. 

Second, even though the number of locally owned community 

banks has declined, the number of bank branches in rural areas 

has remained relatively stable over the years. There are only 5 percent fewer branches operating in rural areas today than there were 

before the financial crisis, mirroring overall national trends. 

What is most important is that consumers and small businesses 

in rural areas have access to the credit they need in order to revitalize their economies. 

In the wake of the Great Recession, recovery in the unemployment rate, job growth, and wage growth in rural areas have all 

lagged behind urban centers. And even as many housing markets 

are recovering, some rural markets are seeing further deterioration. The percentage of mortgaged homes with negative equity in 

rural counties increased from an average of 11 percent in the second quarter of 2011 to 20 percent in the first quarter of 2015. 

13 

Community banks, which represent more than 70 percent of 

bank branches in rural areas, are vital partners to businesses and 

farmers that can revitalize rural economies. 

Unfortunately, much of the conversation in Washington about 

supporting community banks has focused on gutting the important 

financial reform laws put into place after the financial crisis. This 

approach is wrong-headed and overlooks the important fact that 

the challenges facing community banks have far more to do with 

shifting market dynamics rather than new regulation. 

The overwhelming majority of community banks are already provided a host of exemptions to the Dodd-Frank Act, providing them 

with a competitive advantage over large banks and the flexibility 

to continue the relationship lending that is at the core of their 

business model. 

Additionally, regulators have taken a number steps to make compliance easier for community banks and have worked closely with 

the industry throughout the rulemaking process. In fact, over the 

past 3 years, agencies have made changes to over 30 final rules 

based on feedback from community banks and credit unions. Regulators have done a good job of balancing the responsibility to protect consumers and the safety and soundness of the banking system while protecting access to credit. 

The truth is that strong financial regulation supports a stable financial market. Banks of all sizes are more likely to fail or consolidate during periods of financial and economic crisis. 

Right now, community banks appear to be getting stronger and 

healthier. Both smaller and larger community banks originated a 

larger share and number of home purchase mortgages today than 

they did in 2010. Last year, community banks increased their lending volume at almost twice the rate of larger banks. Data from the 

FDIC also show that the performance and financial health of community banks has experienced consistent improvement over the 

past 5 years. 

While we encourage regulators to continue working with small 

banks and credit unions to help them adjust to new regulation, neither regulators nor Congress should weaken standards at the expense of consumers or the economy. Rolling back important regulatory measures, as proposed by the Financial Regulatory Improvement Act of 2015, makes the financial system more vulnerable to 

another crisis and makes it more likely that community banks will 

suffer even if they are doing everything right. 

Thank you for your time, and I look forward to questions. 

Chairman TOOMEY. Thank you, Ms. Edelman. 

We have run over a little bit on the time with our witness presentations, so I am going to make sure to stick to my 5-minute limit 

and ask my colleagues to try to do likewise, if we could. 

Thank you for that testimony. Gosh, where to begin. 

For those who are actually involved in running financial institutions here, Mr. Foster, Mr. Porch, and Ms. Wood, you have talked 

about this new wave of regulation, this new burden, the new regulations that you have been hit with. In the absence of those new 

regulations, would you guys be risky institutions? Would you be in 

danger of failure? Are you much safer institutions now by virtue 

of these regulations? If each of you would briefly comment on that. 

14 

Mr. PORCH. No. We have been a strong, well-capitalized bank for 

nearly 100 years, and we would remain that. So it is not so much 

as our future survival as it is to be able to serve our consumers. 

We need to keep loan rates as best we can, deposit rates in the best 

light, and then we do not have much for fees. So that is more of 

it than financial strength, sir. 

Chairman TOOMEY. Mr. Foster. 

Mr. FOSTER. As a mutual bank, we have had historically very 

strong capital. You know, our concern—as they say, capital is king, 

and we have always been capitalized well above the minimums. 

In terms of creating risk, our risk at this point is more to risk 

of earnings over time. As we are increasing our cost structure, our 

overhead costs have increased. Therefore, current earnings, that is 

the only way that we can build capital, is through retained earnings. So that is where the pressure lies—or our greatest pressure 

is. 

Chairman TOOMEY. And compliance cost has been an increasing 

cost for you? 

Mr. FOSTER. Absolutely. Yes, we have seen—again, compliance 

cost is not the only cost pressure, but just from a broad statistic, 

we have seen a 25-percent increase year over year from 2010 forward in our overhead costs. 

Chairman TOOMEY. OK. Ms. Wood. 

Ms. WOOD. I cannot say that we are any more sound today than 

we were 20 years ago. We have been doing mortgage lending, for 

example, for about 20 years. We have only lost five mortgages over 

the entire life of the program, and we have over 300 mortgages on 

our books. So it just has created more paperwork for us. 

Chairman TOOMEY. Right. So prior to these regulations, it occurred to you to run a prudent institution that would be operating 

safely, it seems to me. 

Let me go to an issue that has been raised by—Ms. Edelman in 

her testimony observes, correctly, that there are a number of regulations, including in the mortgage space, from which small banks 

are exempted. And so if I am correct, Mr. Foster, your institution 

actually is legally permitted to do balloon loans, but you have chosen not to do them. First of all, am I correct in that understanding? 

And if so, could you share with us why you have chosen to exit and 

to discontinue products for which you have demand, for which your 

bank is capable of providing, and which you are legally allowed to 

do but you have chosen not to? Could you shed some light on that? 

Mr. FOSTER. Sure. In my testimony I mentioned that we did discontinue balloon loans. It was more so a factor—again, I rely on my 

compliance folks to guide me. But we opted—we looked at our product offerings and said, you know, we have this very complex rule 

and rules to implement. We needed to really dedicate resources to 

where—to the product lines that we had the most demand, and we 

just, frankly, said, ‘‘You know what? We are going to discontinue 

balloon loans.’’ And there are very—there are circumstances where 

that is the right choice for a consumer. We never pushed a balloon 

loan. We would offer them in situations where there was a unique 

need, maybe a borrower who was going to be in a transitory—in 

a home for a transitory period, they were going—you know, professors and so forth. 

15 

Chairman TOOMEY. All right. And, Mr. Porch, did you say in 

your testimony that you exited certain residential mortgage lending 

for regulatory reasons? 

Mr. PORCH. My bank actually exited mortgage lending a number 

of years ago, and believe it or not, the management of the bank at 

that time believed that regulations were excessive, and so they got 

out of the business. We have now, though, found that with TRID, 

we find it very difficult to even use bare ag land as security to finance the purchase and building of a home. So that has been an 

additional one for us. 

Chairman TOOMEY. Thank you very much. 

Senator Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chairman. 

One of the things that I found very interesting was the rebound 

that has occurred on assets for banks of various sizes. For those of 

less than $100 million in assets, they went from basically zero percent return on assets in 2011 first quarter to 0.95 percent of assets 

in 2015. A similar thing happened with the $100 million to $1 billion banks. Whereas, the big banks were doing quite well in 2011, 

and their increase was very small. So the small banks have essentially caught up with the big banks in terms of return on assets. 

The other thing that I found interesting was that the loan rates, 

the expansion in loans has been increasing at twice the rate for 

small banks as for big banks. And this general success of the small 

banks has occurred in a situation where there is a major problem— 

at least we keep hearing about it from people evaluating it—which 

is the very low interest spread that exists. 

And so I just thought I would try to get all of your perspectives 

on this rebound from 2010–11 to 2015, if you have seen it in terms 

of your own bank’s success or in general in your respective States, 

and especially how that has been managed to happen when the interest spread, which is so important for small banks, has been so 

compressed during this period. Anyone like to share your frontline 

experience? 

Mr. PORCH. Well, I will make my remarks brief, because we are 

perhaps the unique animal sitting here at the table this morning. 

Our main scope of business is lines of credit to farmers and ranchers, and they have been quite successful over the last 5 to 6 years. 

Inflation, though, has caused operating costs to balloon. Livestock 

costs have ballooned. When we finance those operations, our loan 

volume certainly does go up. And it is not a function of mortgage 

lending or anything such as that. It is simply the scope of business 

that we are in. 

Senator MERKLEY. Thank you. 

Mr. FOSTER. In our experience in our market, we have seen since 

2007 a continual decline in our outstanding mortgage loans. At this 

point in 2015, we are about flat in terms of mortgage growth for 

the year. So if we were to take today and go back to 2007–08, our 

portfolio is smaller. 

Senator MERKLEY. In terms of return on assets, have you seen 

that change in general in the community banking community from 

2010–11 until now? 

16 

Mr. FOSTER. If I reference the FDIC’s quarterly reports, I would 

agree—or I do see that. In my own experience, our return on assets 

is going the other direction. 

Senator MERKLEY. Thank you. 

Anything you want to add on that, Ms. Wood? 

Ms. WOOD. We are in the same position where our way has gone 

down. Our loan volume has gone down. We are seeing a lot of indirect in the market and a lot more squeezed margins. 

Senator MERKLEY. OK. And, in fact, it has been just absolutely 

historic lows in terms of the interest rate spread over an extended 

period, which it has been fascinating to see banks do as well as 

they have during that period. But we have heard a lot of interest 

in the Fed that maybe it would be very helpful to small banks if 

the Fed was to, in fact, raise interest rates. Is that a viewpoint that 

you all might share? Ms. Wood. 

Ms. WOOD. Yes. 

Senator MERKLEY. Yes. OK. 

Ms. WOOD. Absolutely. We have a lot of variable rate home equity loans, and they are market-driven. 

Senator MERKLEY. OK. I wanted to turn to the point that was 

made about the challenge of getting good appraisals under the 

rules. Certainly we went through a period where we did lose a lot 

of small banks. When you look back at the number of small banks 

we lost, a lot of them were ones that you look at the practices and 

you go, Well, that was not the wisest practice. They had a lot of 

concentration in a particular segment of the market that was hit 

hard during the 2008–09 recession; or they were deeply engage in 

loans that had no underwriting, if you will, no-document loans. 

And I do not think anyone wants to return to that era. 

But appraisals were part of the conversation about how we create this balance. How do we get good data, especially for loans that 

are going to be resold to the public? How can the public count on 

buying securities and make sure that the appraisals that went into 

establishing the collateral were accurate? And I am not sure—I 

think it was you, Mr. Porch, who mentioned the challenge you are 

having with getting appraisals on a timely basis. Do you want to 

expand on that a little bit or any specific suggestions on how do 

we address this in terms of timely appraisals but also for loans 

that might be being resold into the marketplace, accurate estimation of collateral? 

Mr. PORCH. First of all, I certainly agree with you that there 

were situations where appraisers probably positively influenced 

values and certainly did impact the subsequent collapse of the 

banking system. So that is indisputable, in my mind. 

For us, we have difficulty finding an appraiser. One of the gentlemen that does a lot of work for us is 80 years old, and he still 

works, but he is not going to last much longer. Another one that 

we have hired chooses really not to be very active in the field, so 

we are down to one and probably two. Keep in mind that typically 

these are ag land appraisers that we use. But the point that I 

would make with respect to the Committee today is that if we need 

to have an appraisal in the Philips of the world, finding 

comparables is virtually impossible. And then when that appraiser 

appraises a house in Philip and he cannot find comparables and 

17 

tries to sell it in the secondary market, the whole deal falls apart. 

And that is where the problem really lies. 

In South Dakota, we have, it seems to me at least, increased requirements to becoming an appraiser. It just becomes more and 

more difficult every year to become an appraiser. And whether 

those requirements need to be relaxed, whether some of the institutions need to offer appraisal classes or some such a thing as that, 

but it certainly seems to me that there would be a solution. 

Senator MERKLEY. OK. My time is up, but I will just note that 

that is one of the things that we have heard, is a real dilemma that 

we do not have a solution to, comparables in rural banking. Thank 

you. 

Chairman TOOMEY. Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

I would like to go back just a little bit where Mr. Porch has identified the fact that while TRID was being implemented, it was 

causing some challenges. The new TILA–RESPA Integrated Disclosure Rule, or TRID, was an attempt by CFPB to simplify mortgage 

disclosures. While it was a long overdue step to make disclosures 

easier for consumers, I am concerned that the new rules are making it harder for banks to make loans to consumers. 

Mr. Porch, could you just share with us a little bit about what 

you were talking about in terms of what TRID has done in terms 

of you capability to even use bare ag land in some cases to make 

a loan? Could you share a little bit about how that is working? 

Mr. PORCH. Previously, we could use bare ag land without any 

buildings, and as far as the purpose, we did not really care, and 

if that purpose was for the construction of a home, that was totally 

fine. We had to meet all the disclosures in terms of truth in lending, et cetera, but now with TRID, we have to meet all the HMDA 

reporting requirements and everything, and, frankly, we do not do 

enough of that line of business that—we are terribly fearful of 

making a mistake. And you have heard some of the other witnesses 

this morning talk about mistakes, and that has us very uneasy 

about that kind of a thing. 

And so we have seven loan officers in our bank, including the 

president. The other day we had a conversation about whether we 

even wanted to venture into that arena, and we said two of the 

guys maybe will undertake that issue, but for the majority of us, 

it is very difficult to be trained, it is very difficult to understand 

the program. And so we just virtually are almost out of that market. 

Senator ROUNDS. Thank you. Just as a follow-up, in terms of the 

need to look at the appraisal situation, Senator Thune and I had 

been working trying to figure out why we were having such a tough 

time getting appraisers, and through our questions from the Appraisal Foundation—and this is the industry’s regulator—it appears that they are making it harder for prospective appraisers to 

actually enter the profession, and that there had been a 19-percent 

decline in the total number of appraisers from 2007 to 2014. And 

when we started talking about on a day-to-day basis with one of 

the other banks in western South Dakota—and there are not that 

many of them, but one of them—and I will submit this for the 

record, Mr. Chairman. The note coming back in just yesterday was 

18 

from one of the loan officers saying—this is to her boss: ‘‘I just 

wanted to let you know an interesting situation I just had ordering 

an appraisal the other day. I received one order for an FHA home 

purchase in Eagle Butte, South Dakota. The appraiser I could get 

to go there was charging $1,500, and it was going to take a month 

before she could get us the report. On that same date, I received 

another order for a home purchase with Flagstar in The Villages, 

Florida. The appraiser I engaged in that appraisal was going to 

charge $350 and would have it done in 10 days. Isn’t the difference 

amazing?’’ 

Eagle Butte is on the reservation in western South Dakota. We 

have got challenges in rural areas in terms of getting appraisers 

set up, and I think we ought to be making it a little bit easier for 

these guys to get in and be involved with it. And most certainly I 

think your testimony here has identified the need in the Philip 

area as well. 

If I could, I would like to ask one question of the group, if you 

could. One of the biggest challenges we think that we have is trying to cut some of the red tape that is out there. The Federal Government is issuing an average of 3,500 more rules every single 

year. We have got over a million Federal regulations on the books 

today. The total cost of the regulatory burden to the American public is about $1.9 trillion per year compared to about $1.4 trillion in 

person income taxes, so it is a big deal. 

If there was one single regulation out there that we could look 

at eliminating that would help you provide service to your customers, can you tell us what it would be today? Is there a single 

regulation which stands out, maybe two that stand out, that you 

would like to see us try to address? 

Mr. PORCH. Well, I certainly do not mean to dominate the conversation this morning. Finding one would be terribly difficult. In 

my written testimony, we talk about the inability or the lack of 

knowledge for our examiners to understand the difference between 

commercial business and farm and ranch lending. And if there is 

one message that I could leave with the Committee today, it would 

be to understand that, perhaps give some directives to examiners 

and go forward from there. That really affects us. 

Ms. WOOD. I am not sure I could pick just one. But I will think 

about that, and I will get something to you. 

Senator ROUNDS. Thank you. 

Mr. FOSTER. I would concur. It would be hard to pick one. 

Senator ROUNDS. Thank you. 

Thank you, Mr. Chairman. 

Chairman TOOMEY. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. Thank you all for 

being here today. 

We have heard a lot about the regulatory burden on our smaller 

banks, and, look, I get it. There are certain rules that are either 

too broad or too burdensome given the risks that smaller banks 

pose. And that is why I have joined with all of my Democratic colleagues on the Banking Committee to introduce a bill that would 

provide targeted relief to small lenders without rolling back the 

rules on big banks that pose a real threat to our financial system. 

19 

But I do want to take a closer look at the idea that Dodd-Frank 

has dramatically increased costs for small banks and undermined 

their financial performance. So let us start with the costs part of 

this. 

Dodd-Frank Act changed the law on how FDIC calculated what 

banks owe in deposit insurance assessments. The Dodd-Frank 

change allowed community banks to pay far less in assessments, 

while bigger banks would pay far more. The Independent Community Bankers of America, the main lobbying group for community 

banks, said at the time of Dodd-Frank that the change would save 

community banks collectively about $4.5 billion in just a 3-year period. 

Now, Mr. Porch, do you know how much your bank has saved on 

FDIC assessments because of this change in Dodd-Frank? 

Mr. PORCH. I do not know the answer to that question, ma’am. 

Thank you. 

Senator WARREN. OK. Maybe you could get back to me later on 

that? 

Mr. PORCH. I certainly would. 

Senator WARREN. OK. Mr. Foster, do you know how much your 

bank saved? 

Mr. FOSTER. If I could answer that maybe in a little bit different 

way, when I joined the Bank 20 years ago, up until the late 1990s, 

we were only paying the FICO assessment, which to our bank—— 

Senator WARREN. I appreciate that, Mr. Foster, that there was 

a big change. 

Mr. FOSTER. OK. 

Senator WARREN. What I am asking is that Dodd-Frank, when 

it was passed in 2010, changed the way FDIC assessments are calculated. The estimate was that over a 3-year period it would save 

community banks about $4.5 billion, and I wondered how much 

your bank saved. 

Mr. FOSTER. I can give you the exact number. We have saved 

from that point forward. I can submit that. 

Senator WARREN. I would appreciate having that. 

Mr. FOSTER. Sure. 

Senator WARREN. And just for the sake of comparison, I think 

you said, Mr. Porch, that your bank spent $222,000 in total regulatory costs last year. That is all in, that is everything. The regulations you did before Dodd-Frank, after Dodd-Frank, everything. Is 

that right? 

Mr. PORCH. That is correct, but be mindful that of that $222,000, 

that does not include any salaries. 

Senator WARREN. I understand. 

Mr. PORCH. OK. 

Senator WARREN. This is what you identified in your testimony, 

because I am trying to do the math on this, because according to 

the ICBA, the average community bank saves about $250,000 every 

year because of the change in FDIC assessments. 

Now, I know that savings will vary depending on the size of the 

bank, but the point is Dodd-Frank included a tradeoff. It imposed 

new rules to protect consumers and our markets, necessary rules 

to stop the kind of behavior that led to the last crisis. And then, 

20 

to reduce the financial burden on community banks, it also significantly reduced the cost of insurance that those banks had to pay. 

To get the full picture of Dodd-Frank’s impact, it is necessary to 

add both the regulatory costs and the regulatory savings, and that 

brings me to the issue of financial performance, which, since I am 

running low on time, I will just try to hit this as quickly as I can. 

Ultimately, financial performance seems like a pretty good measure of the health of our community banks, and according to the latest quarterly report from the FDIC, year over year earnings for 

community banks in the first quarter of this year were up over 16 

percent, which was three times the growth of larger banks in that 

same time period. Only 5.8 percent of community banks were not 

profitable in this quarter. That is the lowest level since the second 

quarter of 2005, long before Dodd-Frank was passed. 

You know, community banks play a critical role in Massachusetts, all across this country, and Congress should look for ways to 

get rid of unnecessary rules for smaller banks and for credit 

unions. But as we consider legislation, we need to move past the 

idea that Dodd-Frank has crushed community banks. It is just not 

true. No matter how many times lobbyists say it in hearings or in 

the media or in our offices, when I look at the data, I see two big 

things: According to the banking lobby itself, Dodd-Frank was projected to save community banks billions of dollars in FDIC fees, 

and 5 years after the adoption of Dodd-Frank, the community 

banks collectively had their best quarter in a decade, and their 

profitability is increasing three times faster than the profitability 

of big banks. 

This Committee should legislate based on the facts, not on a 

make-believe narrative that is pushed by lobbyists looking for 

sweeping changes to our financial rules, changes that would mostly 

help the big banks. 

Thank you, Mr. Chairman. 

Chairman TOOMEY. Senator Scott. 

Senator SCOTT. Thank you, Mr. Chairman, and thank you for 

holding this important Subcommittee hearing, and certainly seeing 

the impact that the regulatory environment is having in Pennsylvania has been important for me to read the testimony of your 

Pennsylvania witnesses. I thank you for taking the time and having the courage to bring this issue to the forefront. 

Just to follow up on the Senator’s question, the three bankers at 

the table and the credit union, are you guys paid lobbyists? Paid 

lobbyists, no? OK. So my question is: Has the cost of complying 

with the regulatory burden increased or decreased since DoddFrank, the overall cost? 

Mr. FOSTER. I would say it has increased. 

Senator SCOTT. Mr. Porch. 

Mr. PORCH. I am going to argue that it increased as well. I did 

submit the data for the current year. It is my dereliction of duty 

perhaps that I did not submit it from the year before, but I believe 

that it has increased. 

Senator SCOTT. OK. 

Ms. WOOD. And I would concur. The forms, the staff time that 

we spend on compliance has been much greater. 

21 

Senator SCOTT. Right. And in your asset size, how many of your 

institutions of your asset size were involved in the economic crisis, 

causing the economic crisis in 2008? Short answers. 

Ms. WOOD. None. 

Mr. PORCH. None. 

Mr. FOSTER. I agree. 

Senator SCOTT. Thank you. So with 800 pages of legislative text 

and nearly 20,000 pages of regulatory text, Dodd-Frank, which is 

only 70 percent implemented—only 70 percent implemented—is increasing the compliance costs for institutions all around the country and certainly for institutions that are smaller. The pain is felt 

by the customers. I think you said, Mr. Porch, the negative impact 

is passed down to the customer, and that is a reality. How does 

that look? Restricted access to products, elimination of services, 

and negative impact includes areas like residential mortgages, 

mortgage servicing, home equity lines of credit, overdraft protection, and if I read it correctly, one out of four small banks are either merging or looking at being acquired. Is that about accurate 

as far as you know? 

Mr. FOSTER. I am not sure about the exact statistics as far as 

the one in four, but that is the trend. We see it in discussions in 

our market quite frequently. We have seen a number within Pennsylvania announcements this year already, and there are, I think, 

more in the offing before year end. 

Senator SCOTT. All right. And I have about 2 minutes left, so I 

am going to ask just a couple questions. Thank you for your answer 

to the first two questions. 

Mr. Foster, too often too many regulations are crafted from an 

urban, high-density paradigm. The economies of scale often work 

against smaller institutions like yours. Your mission to serve a dispersed population can be expensive. Therefore, any increase in regulatory burden makes profitability much harder to achieve. Is that 

accurate? 

Mr. FOSTER. It is. As I mentioned in my testimony, our number 

of branches in relation to size, by nature of the market, we do have 

to have more facilities in place to be able to reach out and provide 

those services to our customers. Again, the Amish community, as 

I mentioned, a very unique population dynamic. They do not use 

mobile banking. You know, if they need to go to the bank—and we 

have a lot of Amish who are small businessmen as well, they have 

cash needs, they need to be at the bank on a daily basis. And if 

they do not have a branch in their community or very close by, that 

is a big part of their day that is tied up with doing their basic 

banking. 

Senator SCOTT. Thank you. My final question, as my time is running out here, and the Chairman says he is keeping us on a very 

tight 5-minute timeline, and I want to respect the Chairman there. 

Mr. Foster and Ms. Wood or Mr. Porch, Senator Donnelly and I 

continue to work on fixing issues with TRID. All around the country, lenders are using the new TRID forms required by the CFPB 

for mortgage originations and refinancings. While I appreciate Director Cordray’s promise that the implementation phase will not be 

punitive, I think legislation is still the only way to achieve that 

sense of certainty. So I continue to work with my colleagues. 

22 

Are you able to share with us any firsthand accounts or data of 

how the risk of liability deriving from the new TRID forms is affecting lending or other loan variables in rural communities? We 

only have about 30 seconds. 

Ms. WOOD. I can take that one. One of the things that happened 

with us when we—and I put that in my testimony. When we 

flipped the switch to the new forms, we had a glitch in the system. 

So we had to use the new forms. October 2nd we used the old 

forms. October 3rd we used the new forms. We dusted off the 40- 

year-old typewriter that we had at the office and brought it out, 

and we are hand-inputting some of that information on the forms 

because the computer system just—it was a glitch. So that a lot 

more time is put into printing out a simple form than what it really should be. 

Senator SCOTT. Which only increases the likelihood of more 

human errors. 

Ms. WOOD. Right. 

Senator SCOTT. So by default, you are having a harder workload 

and, frankly, as the president and CEO of a small institution, realizing the number of jobs that you mentioned earlier, it is like you 

are a one-armed paper hanger. God bless your soul. 

Mr. FOSTER. If I could just add to that real quick, we are just 

basically backlogging mortgage applications at this point because 

there are a number of bugs that we are still trying to work out. 

And so we are being ultra conservative, and we are not going to 

write the loan until we are confident that the bugs are fixed out 

and there are not going to be any glitches in the final paperwork. 

Senator SCOTT. Remarkable impact. Thank you, Chairman. 

Chairman TOOMEY. Thank you. 

Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman. I want to follow 

up on what my colleague Senator Scott, who is our partner in this 

effort in the TRID rules that we are looking at, and, again, to Mr. 

Foster and to Ms. Wood, because you had cited this in your testimony. We have heard similar concerns in my home State of Indiana about the additional challenges that this has caused. And so 

what would a good-faith grace period do to help you in the mortgage process? Mr. Foster, if you could talk to that, if you had a 

grace period for getting to the point where this process, instead of 

just landing on you, that you kind of eased into it. 

Mr. FOSTER. If I can just maybe make sure I understand your 

question. In terms of good faith in terms of the liability issue, is 

that the crux of your question? 

Senator DONNELLY. Well, like a grace period where you look and 

you go, yeah, liability, everything else, 3 to 4 months you have a 

chance to learn this, to work with it, to get there without incurring 

any liability in the process. 

Mr. FOSTER. We are still relying on our vendors. That is our biggest fear right now, is in terms of the vendor applications. I mentioned in my testimony we are a couple weeks into this, and our 

vendor is on the fifth update trying to fix—and I looked at just the 

other day the litany of bugs in each update they are trying to fix. 

We are so dependent there. I hate to answer a question in the 

sense of—I mean, off the top of my head if we had, you know—— 

23 

Senator DONNELLY. Would it make your life easier? 

Mr. FOSTER. Yes. The answer is yes, and a 3- to 6-month delay 

would be phenomenal. 

Senator DONNELLY. Ms. Wood. 

Ms. WOOD. And I agree. The longer that we can delay, with the 

grace period of TRID, you know, the better off that we will be. Like 

I said, we are manually typing stuff into forms because we do not— 

you know, our members want to purchase the home. They want to 

get their home equity. They have the home repairs that they need 

to do, college tuition, whatever it may be that they are doing their 

equity for. So we have to do that loan or, you know, we are not 

backlogging them. We want to be compliant. We want to do the 

right things. But we need some grace. 

Senator DONNELLY. As part of your experience, when you look at 

this now, do you have a lot of homeowners who are not homeowners yet who are kind of in the queue, as you mentioned, that 

they want to get into the house, they want to buy the house, they 

want to complete everything, and you are just hung up right now? 

Ms. WOOD. I think there have been a few cases of that. I cannot 

think of any specific examples right now. 

Senator DONNELLY. OK. 

Mr. FOSTER. I would say we have just a few at this point. 

Senator DONNELLY. OK. Going to a longer exam cycle, Mr. Porch, 

I have joined with our Chair, Senator Toomey, in legislation so that 

highly rated small financial institutions qualify for an 18-month 

onsite examination cycle instead of the usual 12-month cycle. This 

bill allows an increase from $500 million to $1 billion for the asset 

threshold, and what I am wondering, Mr. Porch, is: If this is enacted, will that regulatory relief to your organization, would that 

make things simple for you? Would that make your operations easier? And would it also be able to save you money that you should 

not be wasting? 

Mr. PORCH. Actually, it would not affect our bank because I 

think the—we are $250 million, and we are CAMELS 2. And so we 

are on an 18-month exam cycle. 

Senator DONNELLY. OK. Is anybody here between that $500 million to $1 billion? 

Mr. FOSTER. We are as well on an 18-month cycle currently. 

Senator DONNELLY. OK. Well, if they had 500, they would need 

it. 

With that, Mr. Chairman, I will kick it back. 

Chairman TOOMEY. And we hope for a booming economy so they 

grow into that threshold. 

Well, I want to thank all of our witnesses for their testimony and 

for answering the questions we had. All Members will be able to 

submit additional written questions to each of the witnesses. 

Thank you very much for being here today. 

The hearing is adjourned. 

[Whereupon, at 11:17 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

24 

PREPARED STATEMENT OF TERRY FOSTER 

EXECUTIVE VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER, MIFFLIN COUNTY SAVINGS BANK, LEWISTOWN, PENNSYLVANIA, ON BEHALF OF THE PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS

OCTOBER 28, 2015 

Chairman Toomey, Ranking Member Merkley, and Members of the Subcommittee, 

my name is Terry Foster. I serve as Executive Vice President and CEO of MCS 

Bank (Mifflin County Savings Bank), a $137 million dollar asset bank 

headquartered in Lewistown, Pennsylvania. We are a State-chartered mutual savings bank, which was originally chartered in 1923 as Mifflin County Building and 

Loan Association. Our bank serves exclusively rural populations in the central part 

of the State, with a market area primarily defined as Mifflin, Snyder, and Huntingdon Counties. I have served in my current role at MCS Bank since 2009, but 

I have served the bank in other capacities for the past twenty (20) years. I am a 

locally raised banker who grew up in a community long served by MCS Bank and 

my connection to the bank started many years earlier when I opened my first savings account in order to save monies I earned from a newspaper route and mowing 

lawns. In addition to my role at MCS Bank I also serve as the current Chairman 

of the Pennsylvania Association of Community Bankers (PACB) as well as serve on 

the Mutual Bank Council of the Independent Community Bankers of America 

(ICBA). I wish to thank you for convening today’s hearing on ‘‘The State of Rural 

Banking: Challenges and Consequences’’ and providing me with the opportunity to 

testify. 

I wish to state that my testimony is based upon my own experiences and observations as a rural community banker, as well as from the perspectives of my fellow 

bank employees’ dealings with our customers and stakeholders. Further, my testimony is from the perspective of a $137 million institution trying to preserve its ability to survive and maintain a presence in communities where local banking and 

service is so very important; I hope to be able to illustrate this last point with an 

example in my testimony. 

MCS Bank is headquartered in Lewistown, PA, the county seat of Mifflin County. 

The bank was originally formed as Mifflin County Building & Loan Association in 

1923. In 1956, Mifflin County Building & Loan Association converted to Mifflin 

County Savings & Loan Association. In 1992 a final conversion occurred, creating 

Mifflin County Savings Bank (AKA MCS Bank). MCS Bank now operates five (5) 

full-service branches and one (1) loan operations office within the three-county market. Exclusive of our headquarters branch, the average size of our branch network 

is $12 million in assets. Within two (2) communities in which MCS Bank maintains 

branches, no other banking outlets exist. The Bank operates with a staff of fortytwo (42) full and part-time employees, or 37 full-time-equivalent employees (FTEs). 

The bank’s market is comprised of an approximate 1,600 square-miles area with 

a population density of eighty-one (81) residents/square mile. Median household income across the market is $43.7 thousand, which is lower than both our State and 

the national figures. The percentage of persons below the poverty level is in line 

with the State average and below the national average. Population growth in our 

market is historically low, and has been nearly flat in more recent years. 

By their nature, rural markets create unique efficiency challenges in terms of 

serving dispersed populations as compared to the more densely populated suburban 

and urban areas. The fact that MCS Bank, at just $137 million in assets, operates 

five (5) full-service branches to serve thinly served communities illustrates my point. 

Every dollar of cost rural institutions must incur to maintain compliance with new 

or heightened regulatory requirements disproportionately impact institution like 

mine. 

A unique population dynamic in our market, although not exclusive to us in the 

central part of Pennsylvania, but one that I feel is a perfect example of why it is 

critically important that independent community banks in rural markets survive, is 

the existence the unique populations that require unique servicing, in our case, the 

‘‘plain sect’’ or Amish community. 

For those Subcommittee Members not familiar with the Amish and their unique 

traditions, they are a group of traditional Christian church fellowships of Anabaptist 

origins. The Amish live simple, agrarian existences, dress very plainly, avoid the use 

of most modern technologies, including electricity, telephones, automobiles, and 

modern banking conveniences, such as web banking, and more recently, mobile 

banking. In place of traveling by automobile, Amish travel by horse-drawn ‘‘buggy’’. 

Because of their social and religious conventions and aversion to technology, serving 

this demographic is difficult and it takes a keen, local understanding of this ‘‘comVerDate Nov 24 2008 09:49 Apr 01, 2016 Jkt 046629 PO 00000 Frm 00028 Fmt 6621 Sfmt 6621 L:\HEARINGS 2015\10-28 THE STATE OF RURAL BANKING - CHALLENGES AND CONSE
25 

munity’’ to meet its members’ needs; a community that will never be understood by 

banks headquartered in suburban or urban centers and whose needs are not a part 

of the equation when branch consolidation or closure decisions are being contemplated. 

Proof positive: in 2011, a large regional bank, serving a rural community in our 

market with a high concentration of Amish residents, shuttered a branch that long 

served that community. Over the years the branch had changed ownership through 

acquisitions by successively larger organizations. Ultimately, the branch, along with 

other branches in other rural communities, were closed as a result of the current 

bank’s internal ‘‘branch rationalization’’ process that concluded that the subject 

branches would not be retained due to size and other factors. What we learned at 

the time, anecdotally, was that the bank was closing rural branches that were under 

$15 million in size. In comparison, MCS Bank’s branch network averages $12 million in size. The loss of this branch was devastating to the community’s residents 

and businesses, particularly to the Amish residents whose transportation limitations 

created an unusual hardship by forcing them to travel long distances to another 

community to do their banking at a branch to which their account servicing was 

transferred. 

In response to this community’s loss, MCS Bank worked with community leaders 

and business owners to try to find a workable solution to allow the community to 

retain its banking outlet. After a lengthy process, numerous fact-finding community 

meetings and mail surveys, the Bank partnered with a member of the business community to build and open a 530 square-foot branch within a building supply/hardware store. Four years later, this branch, albeit very small, is thriving and supporting the community. To date, the bank has provided financing to the Amish community for such projects as the purchase of land for farm expansion and for the construction of a new retail store. 

The potential loss by this particular community is just one example of situations 

that are playing out in communities across the Nation. I believe very strongly that 

the community banking industry is experiencing consolidation, particularly in rural 

markets, at an accelerating rate, for a host of reasons, but one being escalating compliance-related cost and complexity. Yet another occurrence of branch consolidation 

is taking place this very month within our market, which will force customers of 

that bank to travel more than twenty (20) miles to the next closest bank branch. 

At MCS Bank, we now have six (6) of forty-two (42) employees who devote significant amounts of their routine workdays to compliance; from our Compliance Officer 

down to lenders and loan processors. 

I argue that a great deal of time and resources we are devoting toward our efforts 

to comply with the letter of the laws and regulations, their complexities and many 

inconsistencies, have had a detrimental impact on our ability to serve our customers 

with both products and service delivery. 

Has Dodd-Frank impacted the products our bank offers? Yes. Since the introduction of QM and Ability-To-Repay, MCS Bank has discontinued offering balloon 

loans. For us, the decision wasn’t a matter of whether or not we have the latitude 

within the new rules to continue to offer this product, but rather it boiled down to 

a matter of resource allocation. With the volume of rules to interpret and implement, we simply had to decide on which products we were going to focus our attention. Because we historically originate fewer balloon loans in comparison to our 

other mortgage products, we opted to not create a new note and disclosures, under 

the new rules. Secondarily, we were concerned about the potential higher level of 

examination scrutiny. 

The required escalation of our compliance focus negatively impacts bank stakeholders such as community organizations, charities, etc., which have historically 

been the beneficiaries of our philanthropic efforts, both monetarily and otherwise. 

The more time our people must devote to compliance matters is less time available 

for them to spend on volunteer and charitable endeavors. Increased regulatory costs 

also negatively impact the community by way of diverting financial resources away 

from community investment. As increased costs and other pressures work collectively to incentivize further consolidation, larger organizations with distant headquarters locations lack the appreciation and commitment to local needs in rural 

areas. I know from personal experience of such situations in our market. In a community into which we are contributing thousands of dollars annually in charitable 

donations and other types of community giving, a large regional bank, by comparison, is contributing very little. We have a branch manager in our community office 

who previously worked in the same capacity for the regional bank, whose office was 

allocated only $100.00 annually for community support. 

Are theories behind the consumer-focused regulations well intended? Absolutely! 

The notion of ‘‘ability-to-repay’’, as generally defined, has long been an underwriting 

26 

1 ‘‘ICBA Opposes CFPB Overdraft Data Request’’ (2015, October). ICBA Independent Banker, 

p.11. 

practice of prudent community lenders, but the codification of such concepts into 

regulation is fraught with complexity, inconsistencies, and in some cases lacks logic. 

The unintended consequence is confusion for our people as they attempt to implement and administer new rules, which ultimately leads to human error, additional 

cost and potential examiner criticism, despite best efforts to do the right thing. I 

argue there are elements that have no meaningful benefit to consumers, and in fact 

create greater consumer confusion. 

To the issue of human error, consider the following example we experienced in 

a purchase-mortgage transaction: 

• In the sale negotiation, the buyer agreed to pay the full transfer tax to the 

county authority. The loan processor, when preparing the early disclosures, 

overlooked this detail when reviewing the Sales Contract. As a result, the early 

disclosure was prepared, as is customary, with the buyer and seller paying onehalf each of the transfer tax. This error, when discovered, was not a 

redisclosable event under (RESPA Reform of 2010); therefore we could not reissue a revised early disclose to correct the error. Consequently, we absorbed 

the cost of one-half of the transfer tax by compensating the buyer for an expense he fully intended pay as a part of the negotiated transaction. Under the 

new TILA–RESPA Integrated Disclosure (TRID) rules, there remains no latitude for us to rectify this type of mistake, thus forcing cost onto the bank as 

a result of simple human error. 

Because the timing of today’s hearing coincides with our ongoing work to fully implement the rules promulgated by the TILA–RESPA Integrated Disclosure (TRID), 

which had an effective date of October 3, 2015, I have included a TRID related example in my testimony: 

• One (1) of two (2) definitions of a Business Day apply for disclosure purposes 

depending upon the nature of the disclosure (Initial or Revised Loan Estimate, 

or Closing Disclosure). 

• Formatting differences exist between the Loan Estimate and Closing Disclosure 

documents. 

• Estimated fees costs are required to be truncated on the Loan Estimate while 

they are required to be taken out to two (2) decimals on the Closing Disclosure (i.e., Estimated Taxes and Insurance must be disclosed as $xxx. on the 

Loan Estimate and as $xxx.xx on the Closing Disclosure, even when the estimates do not change from the time the Loan Estimate and Closing Disclosures are prepared and provided to the customer). 

The complexity involved in implementing TRID is taxing all parties involved. In 

our case, our third-party Loan Origination Software (LOS) provider’s applications 

were not ready to go on October 3rd; therefore our testing protocols were delayed. 

If fact, as of Friday of last week, our loan origination software is on its fifth (5th) 

update, post October 3rd, to correct a host of technical issues. Despite the amount 

of training our lending and compliance staff has attended to be ready for the 

changes, we were still not fully prepared to go on day one, which in my estimation 

is a function of over complexity of, and inconsistencies within, the rules. Director 

Cordray acknowledged the delays some of the vendors are experiencing in readying 

their platforms to handle the new TRID rules. 1

As things stand now, in terms of product delivery, we are wrestling with whether 

or not the new rules will allow us to continue to offer single-closing construction 

loans when the customer chooses and adjustable-rate mortgage (ARM). Our compliance consultant with thirty (30) years of experience is of the opinion that the new 

disclosure rules do not accommodate a single-close construction loan that has a variable-rate during the construction period then converts to an ARM loan when the 

loan enters the postconstruction repayment phase. Single-close construction loans 

benefit consumers in terms of both time and cost. This inability to originate an ARM 

loan in this situation also reduces our ability to manage interest rate risk. In today’s 

low-rate environment, this is most critical. 

As a small institution, not only do we rely on software vendors, but we also must 

rely on consultants for guidance and interpretations of the application of the rules. 

While working through TRID implementation and training, our compliance consultant cited instances in which requests to the CFPB staff for clarification have been 

met by being pointed back to the guidance. An example of this instance being the 

construction loan disclosure illustration previously cited. 

27 

2Swanson, J. (2015, October 20). ‘‘CFPB Warning: Cordray ‘Disturbed by Reports’ of TRID 

Implementation’’, (mortgagenewsdaily.com). 

The CFPB order, issued in 2014, to financial institution data processors to provide 

client bank overdraft program system settings and overdraft activity, for analytical 

purposes, imposes a real cost to community banks. Our data processor, Fiserv Inc., 

responded to this order by stating, ‘‘The request will impose significant expenses 

that will have to be passed to its bank clients.’’ 2 The financial institution themselves, not CFPB, bear the cost of the data processors efforts to comply with the 

CFPB request in order that the Bureau may ferret out practices tied to ‘‘overdraft 

privilege programs’’ that it perceives as wholly bad for consumers. 

At MCS Bank we’ve long held to a traditional approach to consumer overdrafts. 

Long ago our board and management team took a philosophical stance against 

‘‘overdraft privilege programs’’ because we didn’t want to create the perception with 

either regulators or customers that we encourage overdraft behavior for the sole 

sake of generating overdraft revenues. Our approach is simple: we work one-on-one 

with customers exhibiting overdraft behavior. We counsel those experiencing financial difficulty and attempt to provide assistance to redress the underlying issue. 

When we believe circumstances warrant closing an account and moving a customer 

to a more suitable account, we will do so. 

There are several important issues related to the CFPB’s order to the financial 

services third-party core processors to provide the requested data, such issues as authority and due process under §1022 of Dodd-Frank. For our bank, the more basic 

issue is who ultimately bears the cost of compliance. Our data processor clearly has 

signaled it will pass the cost onto us; a cost that we will be forced to absorb. Unfortunately, we as an institution, and few other community bank institutions I know 

of, have never engaged in the type of behavior that gives the CFPB such concern. 

Flood map ‘‘creep’’ in recent years has exposed MCS Bank to reputation damage, 

an instance of a formal consumer complaint being lodged with the Pennsylvania Department of Banking and Securities and ultimately a lost customer. 

In 2013, a customer disputed a Flood Redetermination and refused to purchase 

flood insurance. The bank advised the customer of their need to obtain an elevation 

determination in order to potentially avoid the need for flood insurance. In the interim, the bank forced placed insurance on the property to ensure coverage is inplace within 45-days of our receipt of the redetermination notice. The subsequent 

elevation determination concluded that the customer’s home was not in a flood zone 

and thus flood insurance was not required. The bank promptly canceled the forceplaced flood insurance and refunded the unearned premiums returned by the insurer. The customer then demanded a refund of the entire premium because of the 

elevation-determination results. Not being satisfied with the reason for a partial refund, the customer filed a complaint against the bank with the Pennsylvania Department of Banking and Securities. A review by the Department concluded that the 

bank acted properly. As you might imagine, this borrower no longer does business 

with MCS Bank. 

Recommendations 

A number of bills have been introduced in the House and Senate that would provide significant relief from many of the concerns noted above: 

• S.1711, introduced by Senators Tim Scott and Joe Donnelly, would provide a 

critical safe harbor from enforcement actions and private law suits for compliance errors arising from the implementation of the TRID rule, provided the 

lender has acted in good faith to implement and comply with the new rule. As 

with any new rule of this magnitude and complexity, before it went ‘‘live’’ on 

October 3, it was impossible for community banks and other stake holders to 

begin to identify problems and develop and implement solutions. This is particularly true because there was no opportunity under the new rule to comply 

early, testing systems in real time and under real circumstances. A safe harbor 

will allow mortgage closings to proceed apace without fear of enforcement and 

liability for minor errors. 

• The Financial Regulatory Improvement Act (S.1484), introduced by Chairman 

Richard Shelby and marked up by this Committee in May, contains a number 

of provisions that would help community banks like mine better focus our resources on the communities we serve. For example, S.1484 would provide that 

any mortgage held in portfolio, including the balloon loans that play an important role in our local market, would be a ‘‘qualified mortgage’’ (QM), under the 

CFPB’s ability-to-repay rule. The bill would also create an 18-month exam cycle 

and streamlined call reports for well-rated community banks with assets of less 

28 

than $1 billion. These provisions would better reflect the significantly lower risk 

profile of community banks. S.1484 would require the Federal Housing Finance 

Agency to withdraw a proposed rule that would impose a mortgage lending test 

on Federal Home Loan Bank (FHLB) members. The FHFA proposal cuts 

against the grain of Congress’ clearly expressed intention of expanding the mission and role of FHLBs beyond residential housing finance to supporting small 

and medium-sized businesses and other critical community needs. These are 

just a few of the more significant regulatory relief provisions of S.1848. 

• S.970, introduced by Chairman Pat Toomey and Senator Joe Donnelly, would allow a highly rated bank (CAMELS 1 or 2) with assets of less than $1 billion 

to be examined on an 18-month rather than a 12-month cycle. S.970, which is 

identical to a provision of S.1484 noted above, would allow examiners to better 

target their resources at the true sources of systemic risk. 

• The Community Lending Enhancement and Regulatory Relief Act of 2015 (the 

‘‘CLEAR Act’’, S.812), introduced by Senators Jerry Moran and Jon Tester, 

would provide QM status for any mortgage held in portfolio and an exemption 

for loans held in portfolio from new escrow requirements for higher priced mortgages for any lender with less than $10 billion in assets. S.812 would also provide an exemption from internal control attestation requirements for community 

banks with assets of less than $1 billion. 

• The Privacy Notice Modernization Act (S.423), introduced by Senators Jerry 

Moran and Heidi Heitkamp, would eliminate annual privacy notice mailings 

when an institution has not changed its privacy policies. These notices are costly, redundant, and a source of confusion to many customers. 

This is just a sampling of the legislation before this Committee that would provide 

meaningful regulatory relief for community banks, help stave off further industry 

consolidation, and ultimately benefit consumers, particularly in rural communities 

such as the ones that I serve. 

I thank you again for the opportunity to testify today and I hope that my comments are beneficial to the work of the Subcommittee. 

I am happy to answer any questions you may have. 

PREPARED STATEMENT OF ROGER A. PORCH 

VICE PRESIDENT, FIRST NATIONAL BANK, PHILIP, SOUTH DAKOTA

OCTOBER 28, 2015 

Chairman Toomey, Ranking Member Merkley, and Members of the Subcommittee, 

my name is Roger Porch and I am a Vice President at First National Bank in Philip, 

South Dakota. I would like to thank you for affording me the opportunity to appear 

before you to share some information about regulatory challenges faced by rural 

banks. My hope is we can find some regulatory relief that will help community 

banks across the country. More importantly, however, we hope we can—by making 

credit more readily available to those who live in rural areas—sustain our lifestyles 

and expand local economies. The area in which I live—western South Dakota—is 

highly reliant on agriculture and tourism, and we are doing well for the time being 

with some notable exceptions which I will touch upon later. But, we take nothing 

for granted and are pleased to be here this morning. 

My bank is headquartered in Philip, South Dakota, and we have one branch in 

Faith, South Dakota, located 85 miles to the north. You can see by that distance 

that our environment is one of sprawling prairies with miles between towns. We are 

a $250 million bank, and serve a large area of western South Dakota. We have customers as far west as Wyoming and south to Nebraska. First National Bank is privately owned, and has successfully served the needs of our trade area for over 100 

years. We live by our motto, ‘‘Partners in Banking’’. Our principal scope of business 

is the financing of farmers and ranchers with lines of credit and real estate and machinery loans. Our bank is, and has been, well-managed. Perhaps this is presumptuous of me to say, but we like to think we know what we are doing. However, excessive, unfocused regulations are changing the way we do business. 

Each and every bank in this country helps fuel our economic system. Each has 

a direct impact on job creation, economic growth and prosperity. The credit cycle 

that banks facilitate is simple: customer deposits provide funding to make loans. 

These loans allow customers of all kinds—businesses, individuals, Governments, 

and nonprofits—to invest in their hometown and across the globe. The profits generated by this investment flow back into banks as deposits and the cycle repeats— 

creating jobs, wealth for individuals and capital to expand businesses. As those busiVerDate Nov 24 2008 09:49 Apr 01, 2016 Jkt 046629 PO 00000 Frm 00032 Fmt 6621 Sfmt 6621 L:\HEARINGS 2015\10-28 THE STATE OF RURAL BANKING - CHALLENGES AND CONSE
29 

nesses grow, they, their employees, and their customers come to banks for a variety 

of other key financial services such as cash management, liquidity, wealth management, trust and custodial services. For individuals, bank loans and services can significantly increase their purchasing power and improve their quality of life, helping 

them attain their goals and realize their dreams. 

This credit cycle does not exist in a vacuum. Regulation shapes the way banks 

do business and can help or hinder the smooth functioning of the credit cycle. Bank 

regulatory changes—through each and every law and regulation, court case and 

legal settlement—directly affect the cost of providing banking products and services 

to customers. Even small changes can have a big impact on bank customers by reducing credit availability, raising costs and driving consolidation in the industry. 

Everyone who uses banking products or services is touched by changes in bank regulation. 

The ability to meet local needs has not been easy with the increased regulatory 

costs and second-guessing by bank examiners. During the last decade, the regulatory burden for community banks has increased dramatically and it is no surprise 

that nearly 18 percent of community banks disappeared in that period. 

It is imperative that Congress take steps to ensure and enhance the banking industry’s ability to facilitate job creation and economic growth through the credit 

cycle. The time to address these issues is now before it becomes impossible to reverse the negative impacts. When a bank disappears everyone is affected. We urge 

Congress to work together—Senate and House—to pass bipartisan legislation that 

will enhance the ability of community banks to serve our customers. 

In my testimony today I would like to make the following three points: 

• Unnecessary regulatory burden limits banks’ ability to serve their customers, 

• These challenges have real costs for our banks and the communities they serve, 

and 

• Commonsense solutions would help alleviate this burden. 

Unnecessary Regulatory Burden Limits Banks’ Ability To Serve Their Communities 

Rules and requirements surround every bank activity. When it works well, bank 

regulation helps ensure the safety and soundness of the overall banking system. 

When it does not, it constricts the natural cycle of facilitating credit, job growth, 

and economic expansion. Finding the right balance is key to encouraging growth 

and prosperity as unnecessary regulatory requirements lead to inefficiencies and 

higher expenses which reduce resources devoted to lending and investment. 

Make no mistake about it, this burden is keenly felt by all banks, but particularly 

small banks that do not have as many resources to manage all the new regulations 

and the changes in existing ones. The role of community banks serving their rural 

communities has been placed in jeopardy by the broad array of new regulations. The 

Dodd-Frank Act alone has charged Federal financial regulators with writing and enforcing 398 new rules, resulting in at least 22,534 pages of proposed and final regulations, and that’s with regulators only two-thirds of the way through the rulemaking process. Community banks are disproportionately affected by regulatory 

overkill since there is a small asset base over which to spread the costs. First National Bank spent $222,000 on regulatory expense which is 19 percent of overhead. 

Importantly, that doesn’t include salaries. One could argue our total financial burden is 30 percent of overhead. We epitomize the rural community bank and our burden is noticeable. Regulation comes at a cost, most often to local economic growth, 

job creation, and community well-being. 

Overly Burdensome Mortgage Regulations Leave Customers Unserved 

National Bank does not make home loans. The avalanche of mortgage regulations 

is too complex and costly to comply with. The added cost and risk of making these 

loans is not something our bank can justify changing our long-standing policy. The 

economic life of rural America depends upon financial products and services only 

community banks provide. By forcing many community banks out of mortgage lending, there will be significant harm to the rural communities bankers are trying to 

serve. 

Examiner Understanding of Farm Lending Is Limited 

Our main scope of business is lending operating money to ranchers and farmers. 

Although we do use projected cash flows in our annual credit analyses, we consider 

ourselves equity lenders. We measure equity for each customer once a year. The 

problem is our examiners are accustomed to analyzing commercial businesses which 

are more reliant upon cash flow. Agriculture income is projected to fall by 36 percent this year, and we are already seeing livestock prices down by 24 percent from 

30 

last year. Our ag customers could see some erosion of equity and problems with 

cash flow. If we are required to rely on cash flow analysis, we could possibly find 

ourselves in the situation of not being able to loan operating money to a rancher 

even though the rancher may have equity in the millions simply because the cash 

flow is fluctuating due to dropping commodity prices. In the past, these loans have 

been made safely and successfully 

Uniform Overdraft Requirements Will Harm Rural Customers 

The Consumer Financial Protection Bureau (CFPB) is inquiring into overdraft 

procedures to determine how those practices are impacting consumers. First National Bank considers itself an ‘‘ad hoc’’ meaning we generally cover overdrafts rather than return checks. We are willing to assume that risk in most cases. However, 

we are being told that we should counsel those account holders that are routinely 

overdrawn. But, we don’t know what counseling means and we don’t know at what 

level counseling begins. Statistics show that 8 percent of account holders pay 75 percent of the charges, and the burden falls disproportionally on those between 18 and 

25 years of age. Should regulations force us to close accounts, there would be many 

who wouldn’t be able to own an account at a bank. First National Bank in Philip 

has voluntarily limited overdraft charges to five items per day in the hope that impact upon account holders be minimized. We don’t want to close accounts and force 

people to pawn shops and pay day lenders. This is a perfect example of unintended 

consequences. 

The Bank Call Report Is Unnecessarily Burdensome 

Twenty-five years ago, the call report required by FFIEC was less than 10 pages 

long. Today, for our bank, it is 86 pages. Ironically, many of the pages are not applicable to us or other rural community banks. 

Nonbank Lenders Compete With Unjustified Competitive Advantages 

Competition from nonbank lenders is an ongoing problem. Farm Credit System 

(FCS) and credit unions enjoy special tax treatments giving these institutions a 

competitive advantage over banks. The special tax treatments were gifted to these 

nonbank lenders in order to encourage lending to certain groups of individuals. The 

advantages afforded to these institutions need to be reexamined and reduced in 

terms of tax exemptions and regulatory burden. For example, the FCS paid only 4.5 

percent tax rate last year while earning approximately $5 billion in net income. 

Why should multibillion dollar GSE lenders be exempted from taxation earned on 

their real estate and mortgage lending when competing to serve the same borrowers 

as much smaller community banks? Why were FCS institutions exempted from the 

burdens of the Dodd-Frank Act since the FCS also has authority to make residential 

mortgage loans in small rural towns to the same types of borrows community banks 

serve? Of great concern, we see the FCS’s regulator allowing FCS institutions to 

venture into non-farm lending, although they were not created to serve both farm 

and non-farm customers. 

We are also very concerned about a new regulatory proposal to allow credit unions 

to dramatically increase their business lending. 

The increased business lending activity by both the credit unions and the FCS institutions will come at the expense of community banks which will lose loans to 

these institutions due to their tax exemptions. These institutions are all too happy 

to siphon away loans from community banks, but they strenuously refuse to pay 

taxes that are used to finance schools and other services necessary to keep America’s communities viable. 

These Challenges Have Costs for Banks and the Communities They Serve 

While the situation is different for every bank, it should be helpful to examine 

specific financial burdens to our bank. The staff at First National Bank reviewed 

our records to determine the actual cost of regulation. Specifically, we have found 

that we spend over $222,000 on compliance costs every year. This amounts to over 

18 percent of our total overhead. 

Be mindful, this analysis doesn’t include any personnel expense. We have 33 

FTE’s, and we assume that one could conclude four of them spend their time on 

studying, enforcing and analyzing regulations. The financial burden of unnecessary 

regulations is a struggle for all community banks. 

31 

Ultimately our customers and communities are the ones who feel the true cost of 

this burden. They feel it in the form of more expensive financial services and fewer 

options. For example 58 percent of banks have held off or canceled the launch of 

new products—designed to meet consumer demand—due to expected increases in 

regulatory costs or risks. Additionally, 44 percent of banks have been forced to reduce existing consumer products or services due to compliance or regulatory burden. 

This means less credit in our communities. Less credit means fewer jobs, lower income for workers, and less economic growth. 

Commonsense Solutions Would Help Banks Alleviate This Burden 

I believe my time in front of this Subcommittee would be wasted if some possible 

solutions weren’t offered. However, I know enough about the legislative process to 

also know that if I suggested that CFPB be repealed entirely, my time would also 

be wasted. The current regulatory environment in which we live was created with 

good intentions. But, as with many good intentions, there are always unintended 

consequences. That, I believe, is the case we find ourselves in today. Below I note 

selected bills that would provide viable and effective solutions to many of the concerns I have noted in this testimony. 

The Community Lending Enhancement and Regulatory Relief Act of 2015 (the 

‘‘CLEAR Act’’, S.812), introduced by Senators Jerry Moran and Jon Tester, would 

provide qualified mortgage status for any mortgage held in portfolio and an exemption for loans held in portfolio from new escrow requirements for higher priced mortgages for any lender with less than $10 billion in assets. Like S.1816 (noted above), 

S.812 would provide an exemption from internal control attestation requirements for 

community banks with assets of less than $1 billion. 

Chairman Pat Toomey and Senator Joe Donnelly have introduced legislation 

(S.970) which would allow a highly rated bank (CAMELS 1 or 2) with assets of less 

than $1 billion to be examined on an 18-month cycle. Under current statute and 

agency guidance, only a highly rated bank with assets of less than $500 million is 

allowed to use an 18-month exam cycle; all others are on a 12-month cycle. Preparations for bank exams, and the exams themselves, distract bank management from 

serving their communities to their full potential. S.970 is identical to a provision of 

S.1484 noted above. 

In addition to a longer exam cycle, we would request there be some directive given 

to bank examiners in the area of cash flow lending vs. equity and collateral based 

lending. As previously stated, First National Bank in Philip is an equity lender, and 

over our history, we have experienced few losses. At least, we would ask that examiners understand the uniqueness of farming and ranching and the difficulty in cash 

flowing with fluctuating grain and livestock prices. 

In addition to these bills, we hope that account overdrafts can be managed internally, especially for rural community banks. We know our customers’ needs and 

don’t want to be forced to close accounts because of excessive oversight. 

32 

Call reports could be simplified to reflect a bank’s business model and size. It seems unreasonable to assume that the same call report is needed for a $10 billion 

bank as a $250 million bank. One size does not fit all. 

This hearing is most likely not the time or place to take up the issue of Farm 

Credit System and credit unions, but the issue needs to be noted. 

Conclusion 

Credit will only remain available in rural America as long as local financial institutions remain healthy and viable. Local banks, many of which have been in business for generations, understand the risks associated with lending in rural areas. 

They are good at what they do. Now, many of them feel under assault by excessive 

regulations. Regulations that take the ‘‘one size fits all’’ approach don’t understand 

the unique relation rural banks play in individuals’ lives and communities. 

First National Bank in Philip recently hired a team of auditors to complete a Directors’ exam. At the exit interview, the auditor stated that banks are more highly 

regulated than hospitals. I sit on the local hospital board and understand all too 

well how highly regulated hospitals are. To have someone who examines both state 

that banks are more regulated was an eye opener. 

We ask for regulation and oversight that is truly beneficial to rural consumers 

who rely on local banks for credit. The focus should be on enforcing existing laws 

rather than creating new rules and regulations that threaten banks’ future existence. Rural banks can compete, but they can’t compete while burdened with red 

tape and unnecessary, unfocused regulations. It’s not fair to local banks and the 

communities that rely on them. 

At the end of the day, this isn’t about banks. It’s not about First National Bank 

in Philip. It is about people. It is about communities and lifestyles of those who populate rural America. We have a unique opportunity this morning to begin the process of effecting change which will truly help the residents of rural America. 

Thank you and I look forward to your questions. 

PREPARED STATEMENT OF CARRIE WOOD 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, TIMBERLAND FEDERAL CREDIT UNION, DUBOIS, PENNSYLVANIA

OCTOBER 28, 2015 

Chairman Toomey, Ranking Member Merkley, Members of the Subcommittee: 

Thank you for the opportunity to testify at today’s hearing. The Committee’s continued focus on the regulatory burden facing small community financial institutions is 

critical. 

My name is Carrie Wood, and I am president and chief executive officer of Timberland FCU, a $60 million credit union located in DuBois, Pennsylvania. We 

serve 9,800 members, over three-quarters of which are low-income. The 15 full-time 

members of my staff and I work hard every day to help meet their financial service 

needs. 

As a CEO of a credit union serving a rural area, I am faced with the mile-wide, 

inch-deep dilemma that other credit unions and small banks face: I am forced to 

comply with many of the same regulations as the largest financial institutions, but 

with far fewer resources than the too-big-to-fail banks. 

While my title is CEO, I am also the security administrator, human resources department, compliance officer, marketing and business development department, 

backup IT person and NMLS administrator. To help me keep up with the changes 

in rules coming out of Washington, I have assigned a team of five staff, a full third 

of my total, from various departments across the credit union. 

When these team members are working on compliance issues, they are not serving our members. They’re not helping them get loans. They’re not providing financial counseling. They’re not helping improve our processes and how we offer our 

services. 

The time and resources we spend complying with rules designed for bad actors 

and large institutions are unnecessary costs that rob our members of the services 

we could have provided them. 

Since the beginning of the financial crisis, credit unions have been subjected to 

at least 202 regulatory changes from nearly two dozen Federal agencies totaling 

more than 6,000 Federal Register pages. These numbers do not take into account 

regulatory changes that may emanate from State regulators. Every time a rule is 

changed credit unions and members incur costs—even if we are not ultimately required to comply with the rule. The credit union staff and board must make the 

time to understand the new requirement, modify our computer systems, update our 

33 

internal processes, properly train staff on the compliance liability and new policies, 

design and print new forms and produce materials to help the credit union member 

understand the new requirement. Even simple changes in regulation cost credit 

unions thousands of dollars and many hours: time and resources that could be more 

appropriately spent on serving the needs of credit union members. 

Rules are often changed in the name of consumer protection, but when they make 

it harder or more expensive for me to serve my members, that’s not consumer protection. Sometimes the new rules are difficult for us to decipher, and more so to explain and educate our members on the changes we are forced to make. 

Since the passage of the Dodd-Frank Act the sheer volume and complexity of the 

rules that we must comply have increased substantially, which means that I need 

to hire specialists in order to comply and keep the regulators from citing me for violations. One of the most recent demands is that NCUA would like me to have two 

technology specialists on staff to comply with cyber security requirements. As CEO, 

I above anyone, understand the importance of protecting my members, however, it 

can be very expensive and difficult to attract high quality personnel with the necessary experience because they are not always found locally, and they don’t often 

want to give up urban life for rural living. A real-world issue that is not considered 

by my regulator. 

The constant churn of new regulatory requirements not only takes a hit on our 

bottom line—which for a not-for-profit institution directly affects our members and 

service—it also has kept us from entering new markets. 

Our members want us to offer small business loans, but we are hesitant because 

of the regulatory and statutory restrictions in place today. 

We also delayed our entry into indirect auto lending because the ongoing dilemma 

of who is going to oversee the program and administer the day-to-day, what compliance issues are there, when are we going to train for it, what procedures do we 

need, who will audit, what is NCUA going to be require in our policy and for a compliant program. We know these programs are on the regulators radar and have proceeded with caution. As a result, we find ourselves behind on meeting member demands, perhaps to the detriment of their credit, in the name of convenience. 

On top of that, the CFPB has added an entire new level of regulatory anxiety for 

my credit union and others like us. In the interest of time, I will raise an immediate 

issue we are facing related to the implementation of the TILA–RESPA Integrated 

Disclosure (TRID) forms. But rest assured there are many others. 

We have known TRID is coming down the pipe for some time and we have worked 

with our vendors to comply. TRID is a complicated rule and the CFPB provided us 

absolutely no transition time. One day we have to do things the way we’ve always 

done them; the next day, we were required to abruptly change and do things differently. No transition period. No enforcement delay. No protection from legal liability if we made a mistake. As a small institution, we rely on outside vendors on 

many things. With this particular change, we are vendor-dependent to ensure our 

data processing system pulls all the right information into the correct fields on the 

forms. When we ran into an unanticipated problem after we flipped the switch to 

the new form, we were forced to manually input information into the new forms, 

slowing down the process for our members and potentially exposing us to errors. 

I know the NCUA, which will supervise our compliance, has said that their examiners are going to exercise tolerance for a reasonable amount of time. But what I 

don’t understand is why Congress will not protect us from legal liability as we work 

out the kinks in the system. We’re trying to comply as we continue to serve our 

members, but I don’t want to see our credit union hit with a lawsuit 3 or 5 years 

down the road because we made a mistake in the first few months of this new system. 

Despite the ever increasing regulatory burden, we continue to do what we can to 

help our members. And, in closing, let me tell you about a few of those services. 

When members open an account, we offer a free credit review. We are also working on having three current staff members receive their Certified Financial Counselor designation to have free, in-house credit counseling for our members. 

We participate in our State program called ‘‘Better Choice’’, which allows us to 

offer an alternative to pay day lending. For members to take advantage of this program, we require financial counseling and partner with our local Community Action 

to provide that counseling. Timberland FCU makes absolutely no money on this program; we offer it as a member service. 

Additionally, small, underwritten loans are pretty common here. Members request 

small loans to get fuel, payoff pay day lenders, buy an Amish mattress, among other 

things. I once did a loan for a man who just had his 5 granddaughters move back 

in with him because his daughter lost her job. He needed $200 because the girls 

had contracted a medical condition at school. He couldn’t afford the treatments until 

34 

* This testimony is based primarily on an issue brief published earlier this year by the Center 

for American Progress about financial reform and community banking and recent testimony provided by the Center to the House Subcommittee on Economic Growth, Tax, and Capital Access. 

The full issue brief is attached: David Sanchez, Sarah Edelman, and Julia Gordon, ‘‘Do Not Gut 

Financial Reform in the Name of Helping Small Banks’’, Center for American Progress: July, 

2015, available at https://www.americanprogress.org/issues/housing/report/2015/07/07/ 

113119/do-not-gut-financial-reform-in-the-name-of-helping-small-banks/. For the testimony, see: 

Julia Gordon, Testimony before the U.S. House Committee on Small Business Subcommittee on 

Economic Growth, Tax, and Capital Access, ‘‘Financing Main Street: How Dodd-Frank Is Crippling Small Lenders and Access to Capital’’, September 17, 2015, available at http:// 

smbiz.house.gov/uploadedfiles/9-17-2015lgordonlltestimony.pdf. 1David Sanchez, Sarah Edelman, and Julia Gordon, ‘‘Do Not Gut Financial Reform in the 

Name of Helping Small Banks’’, Center for American Progress: July, 2015, available at https:// 

www.americanprogress.org/issues/housing/report/2015/07/07/113119/do-not-gut-financial-reform-in-the-name-of-helping-small-banks/. 2 Ibid. 

his next social security check, and the girls couldn’t go back to school until he took 

care of them. I’ve written car loans for members who’ve totaled their cars due to 

hitting a deer, and once, for a member who hit a horse. Public transportation is a 

struggle because we are so spread out. I drive 23 miles one way to work every day, 

but it only takes me 1⁄2 hour. My members need a car, which makes expediency of 

these types of loans a must. The work we do at Timberland FCU—like the work 

credit unions across the country do—helps families stay in their homes, members 

hold their jobs, and children stay in school. We’re a lifeline for our members. 

My members need their credit union to be in a position to help them in these situations. Unfortunately, every time a rule is created or modified it makes it much 

more difficult for us to be there when they need us. 

There is a reason that we are losing a credit union a day—and it’s coming out 

of Washington in the form of ever-changing and ever-increasing regulatory burden. 

Again, your focus on the crisis facing small community financial institutions is critical, and I applaud your efforts. 

Thank you for the opportunity to testify. 

PREPARED STATEMENT OF SARAH EDELMAN 

DIRECTOR, HOUSING POLICY, CENTER FOR AMERICAN PROGRESS

OCTOBER 28, 2015 

Introduction 

Thank you, Chairman Toomey, Ranking Member Merkley, and Members of the 

Subcommittee for the invitation to appear before you today. My name is Sarah 

Edelman, and I am the Director of Housing Policy at the Center for American 

Progress. Thank you for holding a hearing on this important topic.* 

Consumers living in rural areas rely on community banks to meet their credit 

needs. These banks provide vital support to the small businesses, farmers, and 

homeowners that make rural economies function. However, for decades, the number 

of community banks serving these areas has been declining. 1

This decline long precedes the financial reform measures put into place after the 

2007 financial crisis. 2 There are many reasons for this trend including slowing population growth in rural areas, changes in the financial market, and changes to interstate banking rules that made it easier for banks to consolidate. 

I plan to make the following points in my testimony today: 

• Many rural economies are in trouble. Community banks can, and should be, an 

important partner in revitalizing rural economies. 

• Rolling back financial regulation is not the right approach to support community banks. Deregulation of the banking sector increases risk to the broader 

economy and to community banks. 

• A comprehensive approach is needed to support rural communities and the 

banks that serve them. 

Community Banks Provide a Vital Source of Credit for Consumers Living 

in Rural Areas 

For many families living in rural areas, access to lending is severely limited. For 

generations, community banks have served as important partners to small businesses, family farms, and families seeking to buy or refinance a home. Often, the 

35 

3Federal Deposit Insurance Corporation, ‘‘FDIC Community Banking Study’’, December 2012, 

pp.3–5, available at https://www.fdic.gov/regulations/resources/cbi/report/cbi-full.pdf. 4 Ibid, p.I. 

5 Ibid. 

6Forthcoming, Michela Zonta and Sarah Edelman, ‘‘The Uneven Housing Recovery’’, Center 

for American Progress: October, 2015. 7 Ibid. 

8There is no one definition for a small or community bank, but many analysts use asset size, 

such as a threshold of $1 billion or less, to characterize such a bank. The FDIC uses a definition 

that takes into account a bank’s lending and deposit-taking activities, as well as the geographic 

location of its branches. Through its definition, the FDIC eliminates certain specialty institutions and institutions that operate on more of a national scale. Source: David Sanchez, Sarah 

Edelman, and Julia Gordon, ‘‘Do Not Gut Financial Reform in the Name of Helping Small 

Banks’’, See also: Federal Deposit Insurance Corporation, ‘‘FDIC Community Banking Study’’. 9Federal Deposit Insurance Corporation, ‘‘FDIC Community Banking Study’’. 

10David Sanchez, Sarah Edelman, and Julia Gordon, ‘‘Do Not Gut Financial Reform in the 

Name of Helping Small Banks’’. 11 Ibid. 

only source of credit for rural consumers is their local community bank. 3 Approximately one out of every five counties in the United States is served exclusively by 

community banks—and three quarters of these counties are located in rural areas. 4

While community banks hold a diminishing share of the banking sector’s total assets—14 percent in 2011, according to the FDIC—they continue to make nearly half 

of all small business and agricultural loans. 5 Lending to small businesses and farmers remains a core part of the community bank business model, even as larger 

banks have shifted away from this type of lending. 

In the wake of the recession, there is a great need for capital in rural communities. The small business and mortgage loans community lenders offer in rural 

communities will play an important role in supporting economic recovery and a recovery in the housing market. 6 Even as the broader housing market is recovering, 

some rural housing markets are seeing conditions further deteriorate. The percentage of mortgaged homes with negative equity in nonmetropolitan rural counties increased from an average of 11 percent in the second quarter of 2011 to 20 percent 

in the first quarter of 2015. 7

Without home equity, small business owners and entrepreneurs have fewer reserves to draw upon to make investments in their existing business or to start a 

new one. Through investing in local businesses, community banks can help to stimulate economic recovery in rural areas. 

Financial Reform Legislation Is Not Responsible for the Decline in the 

Number of Community Banks 

Despite the important role community banks 8 play in counties across the country, 

the number of them has declined precipitously for over a generation. 9 This 30-year 

decline has very little to do with postcrisis financial regulation. Factors causing the 

decline include an increasingly complex financial services sector where the size of 

the banking institution matters for profitability, economic challenges in the communities these banks tend to serve, and changes in interstate banking laws that make 

it easier for bank mergers and consolidation to take place. 

The number of community banks has declined at a rate of about 300 per year over 

the past 30 years, mostly through consolidation with other banks, according to the 

FDIC. 10 This decline began far before the 2007 financial crisis and the subsequent 

Dodd-Frank Wall Street Reform and Consumer Protection Act. The decline has continued at about the same pace since regulators began implementing the law. 11

36 

12 C. M. Tolbert, ‘‘Restructuring of Financial Industry: Disappearance of Locally Owned Traditional Financial Services in Rural America’’, Rural Sociology 2014. 13 Ibid. 14David Sanchez, Sarah Edelman, and Julia Gordon, ‘‘Do Not Gut Financial Reform in the 

Name of Helping Small Banks’’. 15Federal Deposit Insurance Corporation, ‘‘FDIC Community Banking Study’’, pp.I–II. 

The number of locally owned community banks has also declined, particularly in 

rural areas from approximately 80 percent in 1976 to approximately 20 percent in 

2007. 12

While the number of bank offices operating outside of metropolitan areas appears 

to have been stable during the same period, the offices are typically owned by outof-county or out-of-State banks which may be less likely to consider ‘‘soft data’’ when 

making loans, such as the applicant’s reputation for financial responsibility within 

the community. 13

Over the past 30 years, more than 80 percent of banks that have exited the market have not failed, but rather, have merged with an unaffiliated bank or consolidated with another chartered bank, sometimes within the same organization. 14

Many banks took advantage of changes in interstate banking rules in the 1980s and 

1990s to expand their scale and geographic footprint through mergers and consolidations. Others consolidated because they were at risk of failure. 15

37 

16 Ron J. Feldman and Paul Schreck, ‘‘Assessing Community Bank Consolidation’’, Federal 

Reserve Bank of Minneapolis, February 6, 2014, available at https://www.minneapolisfed.org/ 

research/economic-policy-papers/assessing-community-bank-consolidation. 17 U.S. Government and Accountability Office, ‘‘Community Banks and Credit Unions: Impact 

of the Dodd-Frank Act Depends Largely on Future Rule Makings’’, September 2012, p.10, available at http://www.gao.gov/assets/650/648210.pdf. 18Dr. Adam J. Levitin, Testimony before the U.S. House Committee on Financial Services, 

‘‘Preserving Consumer Choice and Financial Independence’’, March 18, 2015, available at 

http://financialservices.house.gov/uploadedfiles/hhrg-114-ba00-wstate-alevitin-20150318.pdf. 19Federal Deposit Insurance Corporation, ‘‘FDIC Community Banking Study’’, pp.3–8. 20 CAP calculation of U.S. Census Bureau 2000–2010, ‘‘County Business Patterns’’; and, ‘‘Federal Deposit Insurance Corporation’’, ‘‘FDIC Community Banking Study’’, pp.3–8. 21 U.S. Department of Agriculture Economic Research Service, ‘‘Employment & Education’’, 

available at http://www.ers.usda.gov/topics/rural-economy-population/employment-education.aspx. 

Why are there fewer community banks now than there were in the 1980s? First, 

the financial market has become more complex in recent decades. Large banks can 

benefit from the economies of scale that make certain operations more efficient, 

while small banks cannot. The Government Accountability Office, or GAO, has concluded that, ‘‘larger banks generally are more profitable and efficient than smaller 

banks, which may reflect increasing returns to scale.’’ 17 These advantages are particularly evident in mortgage lending, where technology can make it much easier 

for a bank to make and service a loan. 18

Community banks are also victim to the population loss and economic challenges 

afflicting rural communities. For example, 86 percent of rural counties in the Great 

Plains experienced population loss between 1980 and 2010. 19 As jobs become more 

concentrated in metropolitan areas, many young people are leaving rural areas for 

these job centers. 20 Further, employment in urban centers has generally recovered 

more quickly than in rural areas, and rural workers earn about 20 percent less than 

those in urban areas. 21 Unlike a larger bank that may have branches across many 

types of geographies, a community bank may be more vulnerable in the case of a 

local economic downturn or if its local customer base declines. 

38 

22 Center for American Progress analysis of Home Mortgage Disclosure Act, or HMDA, data 

for owner-occupied, 1–4 unit home purchase mortgages for 2010 and 2013. Community banks 

are identified using the FDIC’s definition; smaller community banks are those with less than 

$1 billion in assets. See Consumer Financial Protection Bureau, ‘‘The Home Mortgage Disclosure 

Act’’, available at http://www.consumerfinance.gov/hmda/explore (last accessed May 2015); 

Federal Deposit Insurance Corporation, ‘‘Community Banking Reference Data’’, available at 

https://www.fdic.gov/regulations/resources/cbi/data.html (last accessed June 2015). 23Kate Davidson, ‘‘Dodd-Frank’s Effect on Small Banks Is Muted’’, The Wall Street Journal, 

October 4, 2015, available at http://www.wsj.com/articles/dodd-franks-effect-on-small-banks-ismuted-1443993212. 24Federal Deposit Insurance Corporation, ‘‘Quarterly Banking Profile: Second Quarter 2015’’, 

available at https://www.fdic.gov/bank/analytical/quarterly/2015lvol9l3/ 

FDICl2Q2015lv9n3.pdf. 25 Richard Brown, Testimony to the U.S. Senate Committee on Banking, Housing, and Urban 

Affairs, ‘‘Lessons Learned From the Financial Crisis Regarding Community Banks’’, June, 13, 

Finally, it is true that smaller institutions may have a more difficult time managing the cost of complying with regulation, as the resources required to report to 

State and Federal regulators require a greater share of the bank’s resources. However, many of these compliance costs long precede the Dodd-Frank Wall Street Reform Act. As described in greater detail below, regulators have been very careful to 

make sure community banks have the flexibility they need to meet the new financial regulatory requirements. 

Despite all of the challenges described above, community banks have performed 

relatively well in recent years. Both smaller and larger community banks originated 

a larger share and number of home purchase mortgages today than they did in 

2010. 22 Last year, community banks increased their lending volume at almost twice 

the rate of larger banks. 23 Data from the FDIC also show that the performance and 

financial health of community banks has experienced consistent improvement over 

the past 5 years. 24

Gutting Financial Reform Would Do Little To Help Community Banks and 

May Further Undermine Community Banks 

Policymakers should continue to monitor the implementation of financial regulatory requirements to ensure that compliance is as simple as possible. However, 

undermining financial reform in the name of helping small banks in rural areas is 

not the right approach. Returning to precrisis regulatory standards would ultimately put more banks at risk of failure. 

Most of the bank failures that have occurred over the past 30 years have occurred 

during a financial or economic crisis. 25 Community banks are no exception to this 

39 

2013, available at http://www.banking.senate.gov/public/ 

index.cfm?FuseAction=Files.View&FileStorelid=9a223606-f64b-4a72-9874-b4886f2f9f2b. 26The FDIC Community Banking Research Project, ‘‘Community Banking by the Numbers’’, 

presentation at the FDIC Future of Community Banking Conference, February 12, 2012, slide 

15, available at https://www.fdic.gov/news/conferences/communitybanking/communitylbankinglbylthelnumberslclean.pdf. 27 Richard Brown, Testimony to the U.S. Senate Committee on Banking, Housing, and Urban 

Affairs, p.4. 28Federal Deposit Insurance Corporation, ‘‘FDIC Community Banking Study’’. 29 Richard Brown, Testimony to the U.S. Senate Committee on Banking, Housing, and Urban 

Affairs, p.1. 30 Consumer Financial Protection Bureau, ‘‘Ability-To-Repay and Qualified Mortgage Rule: 

Small Entity Compliance Guide’’ (2013), Section 4.3, available at http:// 

files.consumerfinance.gov/f/201308lcfpblatr-qm-implementation-guidelfinal.pdf. 31 Consumer Financial Protection Bureau, ‘‘Ability-To-Repay and Qualified Mortgage Rule: 

Small Entity Compliance Guide’’, Section 4.6.2. 32 Consumer Financial Protection Bureau, ‘‘CFPB Issues Proposal To Facilitate Access To 

Credit in Rural and Underserved Areas’’, Press release, January 29, 2015, available at http:// 

www.consumerfinance.gov/newsroom/cfpb-issues-proposal-to-facilitate-access-to-credit-in-ruraland-underserved-areas/. 33 Consumer Financial Protection Bureau, ‘‘Amendments Relating to Small Creditors and 

Rural or Underserved Areas Under the Truth in Lending Act (Regulation Z)’’ (2015), available 

at http://files.consumerfinance.gov/f/201501lcfpblamendments-relating-to-small-creditorsand-rural-or-underserved-areas.pdf. 34 Consumer Financial Protection Bureau, ‘‘TILA Higher Priced Mortgage Loans (HPML) Escrow Rule: Small Entity Compliance Guide’’ (2014), Section 4, available at http:// 

files.consumerfinance.gov/f/201401lcfpbltila-hpml-escrowlcompliance-guide.pdf. 35 Consumer Financial Protection Bureau, ‘‘2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules: Small Entity Compliance Guide’’ (2013), Section 3, available at http://files.consumerfinance.gov/f/ 

201306lcfpblcompliance-guidel2013-mortgage-servicing-rules.pdf. 

trend and have had failure rates comparable to other types of banks. 26 According 

to Richard Brown, the former chief economist of the FDIC, ‘‘To the extent that future crises can be avoided or mitigated, bank failures should contribute much less 

to future consolidation.’’ 27

The Great Recession negatively impacted the community banking sector. While 

generally community banks did not engage in the type of predatory residential mortgage lending that brought down larger banks, many community banks also failed 

in the wake of the financial crisis. During the bubble years, some community banks 

aggressively expanded their commercial lending, often in the form of construction 

loans. When the financial crisis and subsequent recession caused home prices to decline, these banks suffered crippling losses and many failed. 28 Between 2008 and 

2011, 419 of the 481 depository banks that failed were small banks. 29

The long-term health of community banking depends on a healthy economy and 

a stable financial market. Strong regulation helps banks of all sizes establish a sturdy foundation and will help prevent future financial crises, and the loss of more 

community banks. 

Moreover, regulators have already taken steps to ensure that community banks 

are able to continue lending in a safe way. Recognizing that community banks may 

need more flexibility to serve rural and nonmetropolitan markets, regulators have 

already provided small banks with a series of exemptions from the new mortgage 

rules: 

• Small banks have greater underwriting flexibility when making Qualified Mortgage, or QM, loans—those that are eligible for the highest level of protection 

from legal challenges—because if small banks hold the loans on portfolio, they 

are not bound to the fixed debt-to-income ratio limit that applies to larger lenders. 30

• Small institutions serving rural or underserved areas can get QM protection for 

loans that require a balloon payment, although the general QM definition bans 

balloon loans. 31

• The CFPB recently expanded the definition of small institutions, as well as the 

rural definition, so that more banks now qualify for a variety of mortgage rule 

exemptions, including more flexibility to make QM loans. 32 Under the new definitions, roughly 93 percent of all institutions engaged in mortgage lending are 

eligible for these exemptions. 33

• Small institutions serving rural or underserved areas are exempt from requirements that they maintain escrow accounts for higher-cost loans. 34

• Small creditors are exempt from most mortgage-servicing rules. 35

40 

36 Consumer Financial Protection Bureau, ‘‘Ability-To-Repay and Qualified Mortgage Rule: 

Small Entity Compliance Guide’’, Section 3.13. 37 Consumer Financial Protection Bureau, ‘‘CFPB Study Finds Electronic Mortgage Closings 

Can Benefit Customers’’, Press release, August 5, 2015, available at http:// 

www.consumerfinance.gov/newsroom/cfpb-study-finds-electronic-mortgage-closings-can-benefitconsumers/. 38The White House Council of Economic Advisors, ‘‘Strengthening the Rural Economy—Growing New Businesses in Rural America’’, available at https://www.whitehouse.gov/administration/eop/cea/factsheets-reports/strengthening-the-rural-economy/growing-new-businesses-inrural-america. 39 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Bill, 2016, H. Rept. 205, 114 Cong. 1 Sess. June 14, 2015, available at https:// 

www.congress.gov/114/crpt/hrpt205/CRPT-114hrpt205.pdf; Agriculture, Rural Development, 

Food and Drug Administration, and Related Agencies Appropriations Bill, 2016, S. Rept. 82, 114 

Cong. 1 Sess. July 16, 2015, available at https://www.congress.gov/114/crpt/srpt82/CRPT114srpt82.pdf; Financial Services and General Government Appropriations Bill, 2016, H. Rept. 

194. 114 Cong. 1 Sess. July 9, 2015, available at https://www.congress.gov/114/crpt/hrpt194/ 

CRPT-114hrpt194.pdf; and, Financial Services and General Government Appropriations Bill, 

2016, S. Rept. 97. 114 Cong. 1 Sess. July 30, 2015, available at https://www.congress.gov/114/ 

crpt/srpt97/CRPT-114srpt97.pdf. 

• An array of mission-oriented lenders, such as Community Development Financial Institutions and State housing finance agencies, are fully exempt from the 

entire CFPB Ability-To-Repay requirement. 36

There are also various opportunities for small banks to weigh in with regulators 

about the regulatory process. The CFPB, the FDIC and the Federal Reserve have 

all formed community bank advisory councils since the financial crisis. Moreover, 

the CFPB has to permit small businesses, including community banks, to weigh in 

on rulemaking efforts before proposed rules are released for public comment. The 

voices of community banks are well represented and regulators continue to be responsive to their concerns. 

These exemptions may actually help to make community banks more competitive 

relative to larger banks serving the same communities. Rolling back regulations for 

bigger institutions in the name of helping small banks may erode this competitive 

advantage while exposing all banks to greater risk of failure. 

A More Sensible Approach 

Instead of pursuing sweeping deregulatory legislation that will do little to help 

small banks, policymakers should take a more comprehensive approach. 

First, regulators are the best positioned to work with community banks to help 

ensure that regulatory compliance is as simple and straightforward as possible. As 

new regulations are fully implemented, the CFPB, FDIC, and other regulators 

should continue to communicate with small banks and to monitor for any challenges 

that may arise. To the extent the data suggest specific policy changes that can help 

community banks address compliance costs without weakening consumer protections or endangering their safety and soundness, policymakers should pursue these 

reforms in a targeted and careful way. Otherwise, rolling back financial regulation 

will simply expose consumers, communities, or our banking system to greater risk. 

More attention should also be directed toward helping community banks upgrade 

technological systems. Improved technology could help bring down compliance costs 

and reduce the cost of lending in the long run. The recent CFPB e-closing pilot provided helpful learning about ways technology can be used to improve efficiency and 

generate savings for consumers and banks alike. 37 More research is needed to identify best practices among community banks and ways the Government may be able 

to support technological innovation among community banks. 

Finally, the Federal Government has served as an important partner to rural 

communities and community banks over the years. Lending programs through the 

United States Department of Agriculture, or USDA, and Small Business Administration, or SBA, help to ensure that the credit needs of rural businesses and homeowners are met. 38 In addition to these lending programs, both agencies can partner 

with community banks to help them serve their communities. While Congress has 

said it will fully fund critical lending programs in the coming year, lawmakers have 

proposed serious cuts to the agencies responsible for administering them. 39 Undermining the capacity of USDA and SBA to manage these programs is a bad idea for 

consumers in rural areas as well as for taxpayers. These agencies should be fully 

funded to help ensure that lending programs are available for prospective homeowners and small businesses in rural communities. 

The Federal Housing Finance Agency can also take steps to support more lending 

in rural areas. The FHFA is currently working to finalize the proposed duty to serve 

rule, a rule mandated by the Housing and Economic Recovery Act of 2008 that reVerDate Nov 24 2008 09:49 Apr 01, 2016 Jkt 046629 PO 00000 Frm 00044 Fmt 6621 Sfmt 6621 L:\HEARINGS 2015\10-28 THE STATE OF RURAL BANKING - CHALLENGES AND CONSE
41 

40 ‘‘Duty To Serve Underserved Markets for Enterprises’’, Advanced Notice of Proposed Rulemaking, Federal Housing Finance Agency, 12 CFR. Part 1282, available at http://www.gpo.gov/ 

fdsys/pkg/FR-2009-08-04/pdf/E9-18515.pdf. 

quires Fannie Mae and Freddie Mac to help ensure that the credit needs of underserved and rural markets are met. 40 FHFA should encourage Fannie Mae and 

Freddie Mac to work more with community lenders in rural areas and to help design products that meet the needs of consumers in rural communities. 

Conclusion 

Community banks play an important role in rural communities. Over the last generation, there has been a significant decline in the number of these banks. Changes 

in the underlying market are largely responsible for their decline. However, in recent years the community banks that are serving rural communities have become 

stronger and are doing more consumer lending. Going forward, regulators and Federal agencies should continue to partner with community banks to help them revitalize local economies. 

42 

* The ‘‘assumed’’ premium rate is MCS Bank’s average BIF assessment rate for the prior thirteen (13) quarters (beginning with the 3/31/2008 assessment period) during which the Bank paid 

BIF premiums. 

Prior to 3/31/2008, MCS Bank, based upon its risk profile, was only subject to the FICO Assessment and thus did NOT pay BIF premiums. 

Despite the ‘‘reduction’’ of premiums which resulted from the Dodd-Frank Act, BIF premiums 

remain high from a historical perspective, representing eight basis points of pretax earnings/ 

average assets. 1http://www.icba.org/files/ICBASites/PDFs/FinalBillDepositInsurance.pdf 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN 

FROM TERRY FOSTER 

Q.1. In the Dodd-Frank Act, Congress directed the Federal Deposit 

Insurance Corporation (FDIC) to change how it calculates deposit 

insurance assessments. At the time, the Independent Community 

Bankers of America (ICBA) estimated that the change would save 

community banks $4.5 billion in just the first 3 years the change 

was in effect. Could you estimate how much your institution has 

saved in total assessments because of this change? 

A.1. For assessment periods September 30, 2011, through June 30, 

2015, MCS Bank paid BIF premiums of $340,000. In comparison, 

using an assumed* premium rate for future periods had the Domestic Deposit basis for premium assessments remained in place, 

estimated premiums would have been $522,000, or $182,000 higher 

than what they are under the current assessment model. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN 

FROM ROGER A. PORCH 

Q.1. In the Dodd-Frank Act, Congress directed the Federal Deposit 

Insurance Corporation (FDIC) to change how it calculates deposit 

insurance assessments. At the time, the Independent Community 

Bankers of America (ICBA) estimated that the change would save 

community banks $4.5 billion in just the first 3 years the change 

was in effect. 1 Could you estimate how much your institution has 

saved in total assessments because of this change? 

A.1. 

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ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

CHARTS SUBMITTED BY CHAIRMAN TOOMEY 

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SUMMARY OF THE DEMOCRATIC ALTERNATIVE TO THE ‘‘FINANCIAL 

REGULATORY IMPROVEMENT ACT OF 2015’’ SUBMITTED BY SENATOR MERKLEY 

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LETTER SUBMITTED BY JIM NUSSLE, PRESIDENT AND CEO, CREDIT 

UNION NATIONAL ASSOCIATION 

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