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UNITED STATES OF AMERICA

FEDERAL DEPOSIT INSURANCE CORPORATION

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ADVISORY COMMITTEE ON COMMUNITY BANKING

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THURSDAY

JULY 22, 2021

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The Advisory Committee met via Video 

Teleconference, at 1:05 p.m. EDT, Jelena 

McWilliams, Chairman, presiding.

ADVISORY COMMITTEE MEMBERS PRESENT

MIKE BOCK, CEO, Dairy State Bank

ANTHONY CAPOBIANCO, President & CEO, American 

Community Bank

SARAH GETZLAFF, CEO, Security First Bank of 

North Dakota

STEPHEN K. HAYES, Chairman & President, Dakota 

Prairie Bank 

HAROLD HORVAT, President, CEO & Chairman, 

Centreville Bank 

BETSY JOHNSON, President & CEO, Solutions Bank 

KENNETH KELLY, Chairman & CEO, First 

Independence Bank

BRUCE LOWRY, President & CEO, Ireland Bank

NEIL D. McCURRY, Jr., President & CEO, Sabal 

Palm Bank

TERI MESSERSCHMITT, President & CEO, South 

Ottumwa Savings Bank

PATTY MONGOLD, Chairperson, President & Chief 

Executive Officer, Mt. McKinley Bank
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GILBERT NARVAEZ, Jr., President & CEO, Falcon 

International Bank

MARGARET "Marnie" OLDNER, CEO, Stone Bank

MARK PITKIN, President & CEO, Sugar River Bank

JOHN E. "PJ" WHARTON V, President & CEO, Yampa 

Valley Bank

FDIC BOARD MEMBERS & STAFF PRESENT

JELENA McWILLIAMS, Chairman 

LISA ARQUETTE, Associate Director, 

Anti-Money Laundering and Cyber Fraud 

Branch, Division of Risk Management

Supervision

DOREEN EBERLEY, Director, 

Division of Risk Management Supervision

MARTIN HENNING, Deputy Director, 

Operational Risk,

Division of Risk Management Supervision

MARTIN J. GRUENBERG, Director 

ARLEAS UPTON KEA, 

Deputy to the Chairman for External 

Affairs

JAMES LAPIERRE, Regional Director, 

Kansas City Region

ANTHONY LOWE, Ombudsman 

SULTAN MEGHJI, Chief Innovation Officer 

KATHY MOE, Regional Director, 

San Francisco Region

SHAYNA OLESIUK, Associate Director, 

National & Regional Risk Analysis,

Division of Insurance and Research

ELIZABETH ORTIZ, Deputy Director, 

Consumer and Community Affairs,

Division of Depositor and Consumer 

Protection

NICK PODSIADLY, ESQ., General Counsel 

NIKITA PEARSON, Director, 

Office of Minority and Women Inclusion

BETTY RUDOLPH, National Director, 

Minority and Community Development Banking
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C-O-N-T-E-N-T-S

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

Jelena McWilliams

FDIC Chairman

Discussion of Local Banking Conditions ....... 11

Members of the Advisory Committee on

Community Banking

Update from the Minority Depository 

Institutions Subcommittee

Betty Rudolph, National Director....... 138

Minority and Community Development

Banking

Gilbert Narvaez, Jr.................... 140

President and Chief Executive Officer

Falcon International Bank, Laredo,

Texas

Financial Inclusion Update

Elizabeth Ortiz, Deputy Director....... 144

Consumer and Community Affairs

Division of Depositor and Consumer 

Protection

Nikita Pearson, Director............... 156

Office of Minority and Women Inclusion

FDiTech Update

Sultan Meghji.......................... 168

FDIC Chief Innovation Officer
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FDIC Ombudsman Update

M. Anthony Lowe........................ 172

FDIC Ombudsman

Supervision Update

Doreen Eberley, Director............... 186

Division of Risk Management Supervision

Martin Henning, Deputy Director........ 187

Operational Risk

Division of Risk Management Supervision

Lisa Arquette, Associate Director...... 205

Anti-Money Laundering and Cyber Fraud 

Branch

Division of Risk Management Supervision

Closing Remarks

Martin Gruenberg....................... 212

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

1:05 p.m.

CHAIRMAN McWILLIAMS: Good afternoon 

and good morning for those of you on the West 

Coast. Welcome to this meeting of the FDIC 

Advisory Committee on Community Banking. Thank 

you for making the time today to participate and 

to help us inform our decision making and 

thinking about community banks at the FDIC. 

I'm pleased to say that since our last 

meeting in April, the United States has made 

great strides towards returning to normal as we 

recover from the pandemic. We're not out of the 

woods yet and we may not be there for a while, 

but we are in a much better position than we were 

back in April of this year and certainly in April 

of last year.

Community banks throughout this 

period have proven to be a true steward of their 

communities and the lifeblood providing the 

necessary capital credit, and more than that, 
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providing strength and solidarity in the 

communities that you serve. For that, I'm 

grateful to you and I know all of us at the FDIC 

are as well. So I'm excited to see how we have 

made progress since April and what else we can do 

to make things even better for our community 

banking sector.

Before we get started, I would like to 

take a minute to welcome a new committee member, 

Anthony Capobianco. And I hope I said that 

right, Anthony, President and Chief Executive 

Officer of American Community Bank, Glen Cove, 

New York. Thank you for joining our committee 

and welcome.

While I wish I could welcome everyone 

in person, we're not there yet. We are hopefully 

going to be there soon. I'm nonetheless pleased 

that we are having this important meeting and I 

look forward to our discussion today. So again, 

welcome to everyone. Thank you for giving us 

your time and your attention and your feedback. 
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And I will now turn the program over to Arleas 

Upton Kea who will serve as the moderator for 

today's meeting. Thank you.

MS. KEA: Thank you so much, Madam 

Chairman. We'll move on. At this point, as I 

said earlier, we're fortunate to have Director 

Gruenberg and Acting Comptroller Hsu with us 

today. I'm not sure that the comptroller has 

joined us yet, but he will be in and out at the 

meeting and I would like to recognize both and 

ask both of them to make some opening remarks. 

If the comptroller joins before we move beyond 

this portion, we'd like to hear from him. 

But Director Gruenberg, we'll start 

with you.

DIRECTOR GRUENBERG: Well, thank you. 

Thank you, Arleas, and welcome to everyone. 

Thank you for taking the time. It seems like it 

wasn't that long ago that we saw you all, but it 

will be really of great interest to hear how 

things are going for your institutions and for 
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your communities, how you all are being impacted 

by the overall economy and how you view the 

outlook for the rest of this year.

I think the last time we met, my 

recollection is that most, if not all of you were 

really pretty positive about the performance of 

your institutions, and I think we'll be most 

interested to hear whether that's continuing or 

even improving. So I very much look forward to 

the discussion today. And I think we're really 

very grateful for the willingness of all of you 

to take part and share your experience with us. 

Thanks a lot, and Arleas, thank you.

MS. KEA: Thank you so much, Director 

Gruenberg. 

I'm not seeing that Comptroller Hsu 

has joined us as of yet, so at this point I would 

like to move on. I'd like to ask our general 

counsel, Nick Podsiadly, to join us and make a 

few brief remarks.

Nick?
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MR. PODSIADLY: Thank you, Arleas. 

Before we begin today's advisory committee 

meeting, as Arleas pointed out, we have one 

housekeeping item. Because we may be joined by 

three members of the board of directors which 

would normally constitute a quorum of the FDIC 

Board, it's necessary for us to provide a 

reminder about the Government and the Sunshine 

Act.

Under the Government and the Sunshine 

Act, whenever a quorum of the FDIC Board of 

Directors deliberates on agency business such as 

regulator or matter of policy, the board meeting 

is generally required to be open to the public 

and subject to certain notice requirements. 

Today's meeting is not a board meeting 

called for such purposes. Accordingly, general 

discussions among board members on subjects 

relevant to the FDIC's responsibilities, but 

which do not pose specific issues for official 

board resolution either now or reasonably 
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anticipated in the future, do not constitute a 

meeting that is required to be open to the public 

and subject to the notification requirements in 

accordance with the Sunshine Act.

Similarly, informal or exploratory 

discussions among board members do not constitute 

a meeting that is required to be open to the 

public and subject to the notification 

requirements provided that any such discussions 

are preliminary in nature, that there are no 

relevant proposals for action pending before the 

FDIC, and that the merits of the matter could be 

proposed by agency action would be open to full 

consideration at a later time.

If during the course of today's 

meeting staff identifies matters that should be 

discussed by the board members at a subsequent 

board meeting in order to comply with the 

Sunshine Act, staff will advise the board members 

that those matters should be deferred and 

presented to the board in a meeting at a later 
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date, at which time the board members can engage 

in full deliberation on those proposals.

If you have any questions, I'll be 

glad to answer them and my staff will be here as 

well to monitor the discussion. Thank you.

MS. KEA: Thank you so much, Nick. 

So we're going to start this afternoon by turning 

to the committee members for an update about 

trends and issues related to local conditions in 

your communities and that's something that we 

certainly always look forward to hearing. 

After we hear from you all, the 

committee members, then we'll also hear from FDIC 

staff members as they share their observations. 

Shayna Olesiuk, our Associate 

Director of National and Regional Risk Analysis, 

from our Division of Insurance and Research is 

going to cover some observations about the 

national economy and banking trends. And then 

we're also joined by Jim LaPierre, our Regional 

Director from Kansas City, and then Kathy Moe, 
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our Regional Director from San Francisco. And 

they're going to discuss some observations of 

local FDIC staff.

So I'd like to start at this time with 

our committee members' discussion and we'll start 

with Betsy Johnson, President and Chief Executive 

Officer of Solutions Bank. And then Ms. Johnson 

will be followed by the other committee members. 

At this point, to you, Ms. Johnson.

MS. JOHNSON: Hi, hello, and thank 

you. I think banking is well. I think it's doing 

well in our rural area in Illinois and I'm glad. 

I'll start out with that first of all.

I am Betsy Johnson, President and CEO 

of Solutions Bank. We're located in rural 

Illinois, northern Illinois, currently a size of 

$350 million and good agricultural communities, 

although not a concentration for us in lending as 

has been historically as we're required more 

commercial business over the years through growth 

and acquisitions. 
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Ag continues to be a strong part of 

our business and remains to be a constant 

challenge also to retain those customers as we 

compete still with outside agencies in rate 

structures and services. Compeer, to name one. 

As well as I'm also hearing from other bankers 

just across the state line that very strong 

competition with credit unions, so I continue to 

advocate the competition with credit unions, so 

I won't say any more about that at this point. 

But it is a concern and we compete with their 

banking services as well, but now in the ag arena.

I believe that it's much better. 

However, I'll let you know that our ag economy is 

going well from northern Illinois to Southern 

Illinois, the crops seems to be very, very good 

and we hope and pray that continues through the 

harvest season.

Other demands for lending 

opportunities have been steady. Building and 

commercial, even municipalities is occurring and 
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of course refinancing in quarterly numbers are 

higher than normal. They've tapered off in the 

last month we've seen and our bank does not 

service mortgage loans, so we're not heavily 

involved in that, but I do hear from other banks 

that are full-service banks, they remain in 

Illinois to be very busy and they see even a lag 

behind in the title companies involved in that 

process and everybody else that they're behind at 

least several weeks, even up to possibly a month.

However, we know this is not just a 

volume that we see, but it's also due to COVID as 

workers are remote and some have not even 

returned to work yet. Illinois, coming out of

COVID, you know, doing fairly well. Our banks, 

as I said before, many times they've been very 

resilient. Our lobbies are fully opened. Our 

particular bank was only closed for a short 

period of time.

With regard to vaccinations, some of 

the staff are vaccinated and we don't monitor 
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that. We've chosen not to do that, but it's my 

best guess, we're 70 to 75 percent vaccinated. 

So a little higher than the full State of Illinois

On the positive side, we continue to 

operate with staff working remotely and we find 

out that we can do that. We think it's a huge 

advantage, so we continue to improve on those 

efficiencies and fortunately, most of our work 

staff does remain in place. 

However, just as I hear nationally, 

this is a job seekers' market and employees 

demand better benefits, perks, along with higher 

pay has dramatically increased. So that is a 

challenge that not only our industry, but all 

sectors which affect our customers and it's 

affected their businesses. 

Even our small rural areas, 

restaurants, as well as some stores have reduced 

their hours and even not for lack of being able 

to open, it's a lack of ability of staffing. And 

just this week, I have heard from a banker that 
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they're closing on a Thursday and that typically, 

if they had done that before or even 

historically, with some of our banks closed on a 

Wednesday. They're closing not because of the 

lack of traffic in their facilities, but ability 

to staff. So I feel bad in reporting that, but 

I stated I think in the last meeting unemployment 

in Illinois has been about seven percent in 

April. As of June, it kind of remains unchanged, 

the needle hardly moved.

From our knowledge, rates in our area, 

a lot of that stems in dollars that they received 

for COVID relief and we're going to see how that 

changed. I know Illinois workers, you know, just 

in Illinois from the Fiserve Forum in Milwaukee, 

they had to recruit from the United Center in 

Chicago to work the NBA finals because they 

didn't have enough people to hire locally. 

Phoenix Sun has reported the same 

thing that they've recruited from California. So 

it will be interesting to see what happens when 
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employment benefits do run out and what type of 

work force that we had to recruit from, but 

hopefully, we continue to remain safe in our 

daycare and in our schools and be able to operate 

safely as well as because both of us know families 

we know what type of burden and challenges that 

COVID had created.

This brings me to talk about the 

deposits that we have in our bank. I had thought 

that through the COVID relief there are increases 

in deposits which gradually decreased and we find 

that that just isn't the case. So I'm very 

interested to hear any thoughts or conversation 

going forward in the consideration given to --

for at least some period of time of any 

adjustments that will be made, considerations for 

the capital ratios that these large deposits have 

created for us.

Information technology is always 

continuing with us. It's very, very important 

that we protect our systems and our information 
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that we have for our customers, as well as the 

digital services arena which I'm very interested 

to talk more about that as we hear from our new 

innovation person at the FDIC.

Crypto currency, although it's not

prevalent in our area, I do have a few customers 

and people that I know that have attained it. 

It's nothing that's in my arena, although I know 

it is very important and we should all be educated 

and informed about that. That's probably about 

all I'll say on that.

Otherwise, banking in Illinois, in our 

area, I think it's very good and I'm probably at 

the end of my time limit. So thank you and I 

apologize. I need to know who my next person is 

because I wasn't able to bring up my agenda 

quickly enough.

MS. KEA: And that's quite all right. 

Thank you so much for that very informative 

report.

And our next speaker is Harold Horvat.
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MR. HORVAT: Good afternoon. And 

thank you and thanks to the FDIC for including me 

in this. My name is Hal Horvat. I'm the CEO of 

Centreville Bank. We are a very old institution. 

We've been around for 193 years. We're based and 

founded in West Warwick, Rhode Island, just south 

of Providence, Rhode Island.

During 2020, we expanded -- we 

acquired a bank in nearby Connecticut. We now 

have 17 locations in Rhode Island and eastern 

Connecticut. And we're about $1.9 billion in 

assets. 

One of the things we're really proud 

of is we are a community bank and last year in 

2020 we donated over $1 million through our 

foundation throughout the community primarily in 

education-related nonprofits.

In terms of our market is southern New 

England, so really eastern Connecticut, 

southeastern Massachusetts, and the very large 

State of Rhode Island. Rhode Island is really a 
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little bit ahead of the region in terms of 

reopening from the pandemic, a little bit ahead 

of Connecticut and Massachusetts, and that's 

given us an advantage, our businesses an 

advantage.

As of June 1st, as a bank, we're 

completely back to conducting business as normal. 

We're in person. Our lobbies are open. They've 

been open for a while, but all of our employees 

are back in the office. And we were really 

concerned initially as to how that was going to 

work out. Most of them had been out of the office 

for well over a year. And employees have been 

very, very happy to get back in the office and 

get back to some level of normalcy.

In the marketplace, we've seen 

networking and community activities gradually 

returning. There's a great deal of enthusiasm, 

and participation, more than we've ever seen. 

And there's a high level of optimism. I think 

folks are really happy to get back to seeing each 
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other.

In Rhode Island, in this area, tourism 

is a very large part of our local economy and it 

was hit very, very hard last year as you would 

imagine, directly impacting a lot of our 

customers. The hospitality industry is 

gradually seeing a big surge in business this 

summer. And this is a key summer for most of our 

customers and most of the folks in that industry.

Pre-pandemic occupancy rates are 

being reached and resort-type hotels and Airbnb 

and B and Bs in some of our resort areas, and 

restaurants are crowded. The one real issue, as 

Betsy had talked about, is we can't get any help. 

This year, we're used to seeing an influx of 

international students come to New England and 

working restaurants, hotels, et cetera, and they 

have not been able to do that. 

In addition, most hotels have had to 

actually close for a couple of days a week or 

Airbnbs have had to not operate because they 
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can't get enough help to turn over the rooms. 

Restaurants are operating the same. They've had 

to return to their hours or in many cases reduce 

or not have lunch hours at all. So it really has 

been kind of a two-edge sword. The good news is 

the surge is back, the business is there. But 

unfortunately, a lot of businesses can't handle 

it because of the help issues.

And there is a lack of qualified 

workers in other industries and particularly in 

the construction trade. So it's an interesting 

time in Rhode Island because unemployment is very 

high, so it will be interesting to see how that 

all plays out as unemployment benefits go back to 

a level of normalcy.

In terms of the bank, we're actually 

doing quite well this year. We did about $108 

million in PPP loans to 1200 customers and we're 

seeing the benefit of that in our increased 

income from forgiveness of those loans.

Earnings are positive to its budget, 
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but our margins are still tighter than expected

and that's something that we're really concerned 

about as we head into 2022.

Asset quality remains strong, but 

we're cautious as some of these businesses and 

industries come out of the pandemic. 

As of June 30th, we're very happy to 

say we have no more deferrals. We had deferred 

a significant amount of business during 2020. 

We've got a couple of customers that are on 

interest only that we're working with.

Residential lending is thriving with 

low rates, substantial refinance activity. 

Housing inventory has seen a very small uptick as 

people look to take advantage of a hot market, 

but it's still essentially a refinance market.

Deposits are very high, well ahead of 

budgeted projections and as Betsy mentioned, we 

haven't seen any drop in that at all. The 

challenge is really how do we put those deposits 

to use.
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In terms of expectations for the 

future in 2021, we're expected to continue to 

have a strong year. We're more concerned with 

2022 when planning for the increased margin 

pressure and some of the impacts of the long-term

impacts of the pandemic.

We anticipate recovery in the 

hospitality industry. We think that the resort 

hotels are doing better than the hotels that are 

related to business travel because that's been 

much slower to come back.

On the technology front, we've 

actually implemented ITMs. We did that prior to 

the pandemic and that actually has worked really 

well. Usage was very limited. It was hard to 

get our consumers to get used to using the ITMs, 

but once the pandemic hit, they essentially had 

no choice and they really -- that usage has not 

gone down since our lobbies are now open. You'd 

think that's a big positive for us. It certainly 

differentiated for us in this market.
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We continue to focus, as many 

companies are, on diversity, equity, inclusion 

and we've made some great strides in that arena 

and we anticipate continuing that in 2022. 

Overall, we are pretty optimistic. 

We're focused on growth, but we're cautious about 

how we come out of the long-term effects of the 

pandemic in our interest rates.

So thank you very much for this 

opportunity. And at this point, I'll turn it 

over to Stephen Hayes. Thank you.

MR. HAYES: Good afternoon. Thanks, 

Harold. Can everybody hear me okay?

MS. KEA: Yes, sir. We can.

MR. HAYES: Well, first off, I want 

to thank you again for this opportunity. 

Participating here in the last couple of years on 

this group, it's been a wonderful opportunity and 

I really appreciate this.

My name is Steve Hayes. I'm President 

and CEO of Dakota Prairie Bank located in central 
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South Dakota. We're a third generation, familyowned bank and about $120 million in assets. 

Some of that had to do with the PPP loans and so 

forth. 

We have four locations. Three of the 

locations are in small, rural ag communities of 

800 or less in population. Our main office is 

located in a central part, just across the 

Missouri River near the capital, in Pierre. And 

that's about 2,500 to 3,000 people. But overall, 

we are primary ag and our main location is more 

diversified than our branches into the commercial 

and consumer.

As far as the bank, we had another --

we had a pretty good year. We still are having 

similar issues that both individuals have already 

spoken on this afternoon. We're still facing 

with the liquidity and the challenges that go 

along with that. Net interest margins maybe see 

a slight uptick, but I think some of that to do 

with the PPP, the income that came with that. 
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But overall, loan demand has been good. Asset 

quality has been good. I'll talk a little bit 

more on asset quality when we get into the 

economy. I have some concerns there. I'm 

looking forward.

But overall, I think the bank is doing 

pretty well. You know, working with the COVID 

in South Dakota, as Madam Chairman talked about, 

I think we're seeing a little bit of normal, back 

to normal if you will. The thing about this is 

and as mentioned and it's going to be mentioned 

again about the shortage of workers up and down 

Interstate 90 here. You're seeing businesses with 

signs that say shortage of help. And so that 

obviously has an impact on growth and also has an 

impact on wages and salaries and benefits as far 

as looking for people, too, that has changed that 

immensely. But overall, COVID, I think we're 

moving along pretty well with that. 

The area that I really wanted to cover 

is our economy in central South Dakota and really 
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the entire state. You know, our commercial 

accounts have done well. I think overall I think 

they're starting to come back from the COVID. 

We're starting to see less past dues and 

deferrals. I think it's showing better gains on 

some of our commercial. 

The issue right now and I call it --

we used to call it regulatory hot buttons. We 

still do. This is our internal hot button here 

is the drought we're faced with right now. The 

heat, the lack of moisture, the lack of feed. 

And we have grain producers. We have cattle 

producers. The grain producers are seeing some 

pretty good commodity prices right now. The row 

crops, the corn, the beans, the flowers, that's 

going to be hurting and it's a major impact as 

far as the cash flow on the grain farmers.

Really the folks we're starting to see 

struggling right now is our livestock producers. 

Normally at this time of year, we have our 

livestock out in open grazing areas and until 
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closer to November and December. Now we're 

starting to see some of our producers start 

feeding that hay just because the grass isn't 

there. So because of that, we're starting to see 

people starting to sell their cow herd down and 

that's okay, but yet with small amounts, but 

we're starting to see more and more people 

starting to hold some of their younger herds just 

because of the drought.

And as I mentioned before about 

classifying the issues with that, I worry about 

that moving forward because of potential -- the 

income may not be there for some of those 

livestock producers because of the drought. But 

we'll have to see how that plays out. I mean 

it's just the moisture hasn't been there and the 

grass isn't there and people, because of the cost 

of feed, are ending up selling their livestock. 

So that is really my hot button here in our area. 

It's really been this drought and how much impact 

-- we're in cycles and last cycle was in 2012 and 
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2013. And it's not going to happen overnight, 

so it takes a little bit of time.

But overall, things are going pretty 

good. An interesting truth -- and again, I talk 

about regulatory hot buttons, there was a group 

of about 250 to 300 bankers. Four states got 

together in June and one of the sessions we had 

was a question that we asked what keeps you awake 

at night in '21? Number one was cybersecurity, 

ransomware. The second one is the technology 

innovation, the anxiety -- the digital 

transformation for -- those areas were number one 

and number two. 

So some issues we're looking forward, 

just a little anxiety, but we'll tackle it like 

we have everything else. So that covers pretty 

much for us in central South Dakota. Thank you 

and I'll turn it over to Neil McCurry.

MR. McCURRY: Hello, my name is Neil 

McCurry. I'm the President and CEO of Sabal Palm 

Bank in Sarasota, Florida. We are a $400 million 
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bank. We're about to celebrate our 15th year in 

operation. And we have three locations.

All we do is, I think, traditional 

community banking. We just focus on small 

businesses and individual entrepreneurs in our 

local market. We really don't do banking 

activities outside of our general region.

And a few comments since the last time 

we got together, there certainly has been a lot 

of progress when it comes to COVID, in general. 

We, like some of the other commenters, have 

opened up our lobbies and back to whatever the 

new normal is, we are doing that now.

That being said, I think this new 

Delta strain is causing concern and we're all 

watching it. I think just as an individual 

always when I'm out, I pay attention to what the 

people are doing. And last month we saw mask 

usage declining where you often go into stores 

and there would be no one wearing a mask. And 

just this past week, and as recently as today, I 
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noticed the places where you might have 25 to 50 

percent of people wearing a mask. 

Why is that important? And that, I 

think, is people are one, paying attention to 

this new strain which is certainly good, but I 

think that will have some impact on consumer 

confidence if there's concerns that we're going 

to have some other type of prolonged issues. I 

think most people felt like the worse was behind 

us and now there might be some uncertainty. What 

impact that has on our bank, our community, our 

country is to be determined, but certainly I 

think it's an important topic for all of us to 

pay attention to.

It was talked about cybersecurity 

earlier and it's going to be talked about later 

on in this presentation, a later day. It's 

always been a big issue for us, for me, what I 

late at night worry about is that a crime that 

can kill an institution by a thousand cuts. And 

we spend a lot of time, a lot of money, a lot of 
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efforts to try to prevent that, never sure if 

we're doing enough.

 But it's becoming so common out there. 

We're also seeing businesses now in our 

community, I just found out about a local 

business that had a ransomware attack and they 

are going through that decision of how they 

address it. 

And I think many businesses, small 

businesses in particular, medium-size businesses 

don't have the time, expertise, and ability to do 

a lot of the cyber planning that financial 

institutions do. So I think it's a concern as 

it grows, not only for our industry, but for 

business and how that can impact credit quality 

on an overall community. And it's a threat that 

I don't think that we can ever pause and not be 

concerned about.

Another thing I think as far as our 

industry might look at, my 30 plus years and I 

think most people feel the same way, there's 
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probably been more -- we're in the midst of more 

changes than we've ever seen from digital 

platforms being used more and more from other 

currencies, cybercurrency -- cryptocurrencies to 

fintech. I think that's challenging us as an 

industry quite a bit. And I think that we have 

to go into these with the understanding of 

operating in a safe manner, but also realizing 

that these trends are upon us and aren't going 

away and how do we adapt to them as well. I 

think it's important that we make sure that we 

don't make ourselves irrelevant to certain people 

like businesses, consumers, particularly younger 

consumers as more and more of these different 

platforms get adopted.

So those are things that certainly as 

an institution, as an individual, I continue to 

pay attention to and a great concern, and hope to 

have the ability to partner and work with the 

FDIC and other banks as well to make sure we're 

all prepared for these changes in our industry.
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Back to just Sabal Palm in Florida, 

some different challenges I've heard, we actually 

had a significant amount of liquidity right now. 

It's almost the cup runneth over down here to the 

point where we've lowered our CD rates to almost 

zero percent because we just don't need -- we 

have so much excess liquidity. At the same time, 

credit quality continues to stay strong. And 

loan demand continues to stay robust.

Not to say there's not challenges 

ahead. We certainly have housing crises in 

Florida continuing to increase at unsustainable 

amounts which is going to cause the ability for 

labor shortage -- or working people to afford 

housing, younger families, et cetera. 

Construction costs have been going up and that, 

I think, is part and parcel to the inflation 

concerns that are out there. Whether that's 

temporary or not, we're not sure. Some raw 

materials, I think, wood, I think is starting to 

decline a little bit, but they're still 
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significantly higher over pre-COVID numbers as 

well, and what impact will that have on the 

future.

And then labor shortages, I think, I 

heard some of the other guests talk about labor 

shortages are continuing to be a challenge in our 

market and different businesses, particularly 

that have to deal with lower skilled, lower paid 

jobs are having an incredibly difficult time 

filling those positions, cutting hours. Fastfood places are reverting to drive-thrus only as 

well. And what impact will that have in the 

future.

We have an Amazon distribution center 

that's going to be built. It's in the process -

- latter stages of being built. They expect to 

hire 2,000 employees which on the outside sounds 

like great news for the community, but where are 

they going to get them in a tight labor market? 

Are they going to cannibalize other businesses? 

Are they going to recruit from other parts of the 
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country to come to Florida? So these are all 

challenges that affect us in our local community 

and I think across the board as a country.

So I think there's a lot of things 

we're excited about and optimistic about. The 

bank continues to perform well. We're having 

another record year as far as profitability. But 

I think there's a lot of things that need to be 

concerned about and again, continue to look 

forward to partnership with the FDIC and our 

state regulators as we go through these unique, 

challenging, and new times for all of us.

With that said, I'll turn it over to 

Margaret from Stone Bank.

MS. OLDNER: Thank you, Neil.

This is Marnie Oldner and I'm the CEO 

of Stone Bank. It's a $550 million commercial 

and ag bank chartered in Arkansas, but we do have 

a government-guaranteed lending division, 

USDA/FSA, and SBA that serves a multi-state 

region. We have six locations and all of those 
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locations. 

In all of those locations in Arkansas 

we do have ITMs. I know Harold or Hal mentioned 

the use of ITMs. That does help provide greater 

access to banking services, particularly in times 

like we've just gone through. However, we have 

found that the consumer is very slow to really 

use it to its fullest capacity, so that's still 

something that is evolving.

The financial performance in Arkansas 

is very good with ROAs above 1.6 percent, which 

is above the national average. At Stone Bank 

we're enjoying a profitable year with an ROA of 

1.54 so far this year. 

Asset quality numbers also remain 

strong, although there are uncertainties about 

the future.

While most banks have experienced some 

margin compression profitability remains strong. 

Liquidity, however, is a challenge. As one of 

my fellow bankers in Northeast Arkansas said, we 
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have times of liquidity and loan demand is slow.

Now loan demand varies throughout the 

State of Arkansas. Northwest Arkansas is I think 

recovering quite well. In Central Arkansas 

there's a moderate amount of business for all of 

us to enjoy. But when you look into the rural 

markets throughout the state it is a bit slow.

Another banker in Central Arkansas 

mentioned that we are awash with liquidity, so 

that is an issue that I think is on the minds of 

bankers. Arkansas bankers have not shown any 

tendency to loosen credit standards, but we are 

pricing our loans much lower in order to compete. 

And it's our perception that non-bank lenders 

don't follow the same rules that we do or have 

the same credit underwriting standards that we 

have, and for that reason then it's a competitive 

threat for us.

The consolidation of our industry in 

Arkansas does continue, but assets and deposits 

have grown substantially. Susannah Marshall, 
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our bank commissioner, shared with me that

Arkansas is tied for sixth place in the nation 

for the number of state charter banks with assets 

in excess of 10 billion.

Deposits in Arkansas have doubled in 

the past 10 years with that trend accelerating in 

the past year or year-and-a-half. However, the 

number of Arkansas banks has declined 55 percent 

in the past 20 years, and in the past two years 

another 10 percent as banks do continue to merge 

with one another. 

The unemployment rate in Arkansas is 

4.4 percent, and it's been hovering there for the 

past three months, I believe. So I believe 

that's below the national average, but we do find 

that a lot of businesses are struggling to find 

the talent they need to staff appropriately.

COVID remains a very significant 

problem here in Arkansas. Only 35 percent of our 

Arkansans are fully vaccinated. New projections 

from researchers at the University of Medical 
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Sciences say the pandemic in the state has 

radically changed in the last two weeks. The 

test positivity rate in Arkansas is 20 percent, 

which is 5 times the national average. The 

information released also indicates new cases are 

much more prevalent among young people now. 

Obviously we cannot subdue this -- if we don't 

subdue this pandemic, economic uncertainties will 

remain with us.

Arkansas banks are well-capitalized 

though, have strong earnings and reserves, good 

asset quality indicators, and a very resilient 

access sector despite some weather-related issues 

earlier this year and fluctuating commodity 

prices. According to our bank commissioners 

Arkansas banks as of May reported $1.7 billion in 

PPP loans. I believe here at our bank we did 

about 1,200 loans totally about 80 to $85 

million.

So we do have a lot of positive things 

that we are proud of, but at the same there remain 
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challenges with regard to COVID.

Thank you very much and I'll now turn 

it over to Bruce Lowry.

MR. LOWRY: Thank you, Marnie.

I'd like to start off by just saying 

thank you to Chair McWilliams and Director 

Gruenberg for the honor of being involved with 

this committee and getting the insight and 

perspective from the FDIC and my fellow bankers 

across the country. I truly is an honor.

I'm Bruce Lowry, President and CEO of 

Ireland Bank. Our world headquarters is located 

in a small community in Southern Idaho and we are 

currently in our 129th year of operations and 

have the distinction of being the oldest 

surviving state-charted bank in Idaho.

The Idaho economy is doing very well. 

As a state we're leading or among the top five in 

many measures of economic improvement in the 

nation. The Idaho unemployment rate is very low, 

at about three percent, and we definitely have 
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more jobs than workers to fill them in many parts 

of the state.

Our state is experiencing significant 

population growth which in turn is resulting in 

a very robust housing market, though state prices 

have increased in recent months and home 

inventory is very tight. Most new housing 

construction is sold before the homes are even 

finished. And to make that even tighter 

increasing lumber prices and labor shortages have 

slowed the construction progress, yet the demand 

continues to remain strong.

The agricultural sector in our state 

is a current -- is a significant portion of our 

economy and currently we are also suffering from 

a significant drought. Water storage systems 

used for crop irrigation are short of water in 

some areas and it will be a challenge to finish 

out the growing season. Dry land crops have been 

significantly damaged and some crops will not be 

worth harvesting this fall. 
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We're hoping for above-normal snow 

pack this winter to refill water storage systems 

for the 2022 growing season. The positive side of 

that is luckily most farm producers in Southern 

Idaho are diversified and they're not singlecrop-dependent. This will help them to weather 

through the drought.

The drought also impacts the 

recreation and the tourism sectors of our economy 

because of the higher than normal temperatures 

and the inability to participate in water-based 

recreation as nearly all the water storage 

reservoirs also provide recreational 

opportunities in our part of the world.

We're very ag-centric in Southern 

Idaho, so while our local economies are less 

dependent on ag than we've historically been, 

challenges in the ag sector will be felt across 

the entire economy. So it will be drag on our 

overall economy for the next several months.

At the same time that our reservoirs 
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are dry community banks in Idaho are drowning in 

liquidity. Deposit growth has been 

unprecedented over the past 18 to 24 months. 

Loan demand is not keeping pace and with interest 

rates where they are, net interest margin 

compression continues to be a challenges. The 

effects of NIM compression on profitability is 

obvious and it appears to be with us for some 

time to come.

On the positive side our credit 

quality is very good. We just all hope that this 

continues for a period of time and at least until 

we've had a chance to kind of digest the growth 

in deposits and deploy those assets into better 

earning venues.

Ireland Bank is experiencing a 

reasonably good year so far in 2021. We have too 

much liquidity and resulting net interest margin 

are our biggest challenges at the present time. 

Luckily asset quality is very good and we are 

finding revenue streams, mortgages, and some 
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other areas that have improved significantly that 

is offsetting the loss of interest income.

So again I thank you for the 

opportunity to be part of this committee and I 

will turn the time over to Kenneth Kelly.

MR. KELLY: Thank you, Bruce.

And let me say good afternoon to 

Chairwoman McWilliams and Director Gruenberg. 

Thank you so much for the opportunity to 

participate. Part of these discussions is really 

about learning. 

And, Bruce, I will tell you what I 

just learned from you is that First Independence 

Bank also has a world headquarters and it's based 

in Detroit, Michigan. And I just want to tell 

you it just opened my perspective to hear you 

talk about a world headquarters.

But we are roughly a $300 million 

institution based in Detroit, Michigan into our 

51st year, and would like to share a little bit 

about what's been going on really since the last 
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meeting we had in addition to maybe the course of 

the -- over the course of the pandemic.

In general I will tell you bank 

operations and our performance has been moving 

upward. 2020 was a challenging year for us just 

based on the construct of our business model. 

And when interest rates moved as fast as they did 

in March 2020, it really put compression on our 

income, and so we had to really make some tough 

decisions in the midst of also making a decision 

on technology because we changed from a 

traditional core provider to a digital platform 

and choosing and selecting Sinastra. Finastra. 

I'm sorry.

What I'd like to also say though is 

that employment rates in the city have started to 

come down to normal. Last year as you were aware 

we took it on the chin in Detroit. And we also 

are still seeing some challenges from the auto 

industry in Detroit. If any of you are now 

traveling, you will see that rental car rates are 
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high because of the low supply. The purchase of 

automobiles in certain parts of the country is 

high. In fact they're charging over MSRP in some 

parts of the country because of the lack of the 

chips that have been a challenge for the 

automotive industry. And so we're seeing some 

of that really impact the economy.

The traditional language you heard 

from some of my peers is the same: high liquidity; 

low long growth is still an issue. We're still 

seeing issues with residential housing, meaning 

that there is just a low supply of desirable 

housing, and the cost of construction is very 

expensive. Lumber was very expensive here 

recently. We're seeing -- starting to trend down 

a little bit and hopeful that will come back into 

line at some point in time here in the future.

The concerns of (audio interference) 

in managing and balancing those is certainly 

something that was of concern for us, even in the 

first quarter of this year. And so we were very 
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fortunate to have a capital injection from one of 

the G-SIBs that took place, and that's been 

publicly announced from Wells Fargo that was 

certainly an impact to us. 

And as you think about DE&I, Wells 

Fargo basically made a commitment back in March 

of 2020, before most of the social unrest, to 

invest $50 million into African American banks 

across this country because as they looked at the 

data they saw that there was some discrepancies 

there. I believe that they have completed that 

and we are seeing quite a few other of the large 

G-SIBs really engage in that way and supporting 

minority depository institutions.

Several of the MDIs and CDFIs will be 

participating in the ECIP, the Emergency Capital 

Investment Fund that is being run by Treasury at 

this point in time. I don't think they've set a 

deadline on that. And the intent is they'll come 

out with an FAQ and I think at some point in time 

shortly thereafter the applications will be due 
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for going through that process. My speculation 

would be it will be very late this year before 

that is implemented or executed, or hopefully 

early of 2022.

Again the information technology 

sector and space inside of banking is a big 

concern relative to cybersecurity. We saw what 

happened with the gas pipeline and how it 

impacted the country. We are hopeful that as we 

talk about this from the business banking 

perspective it is an area that we lend a lot of 

resources to and it could help us protect the 

deposits in the banking system in this country.

I will tell you in looking through 

these slides to #GetBank IC is a great ideal. It

really is comparable to the Bank On Program that 

our bank has participated in and was hopeful that 

we can get more people into banking. 

There was a little bit of a shortage 

in looking at that presentation. Hopefully we 

can talk about that a little bit during the 
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conversation today and that I didn't see Detroit, 

Michigan mentioned on their part. I thought I 

saw Atlanta and Houston. And Detroit of course 

has the highest population of any metro area for 

African Americans in this country and in 

addition, too, we are unfortunately one of the 

higher unbanked populations. So I'm hopeful in 

hearing some of the discussion from there later 

today that Detroit will be considered for part of 

that process.

The fintech space is one I think we 

are engaging, but we certainly need to be from a 

regulatory perspective mindful of how it impacts 

us. We are seeing the ability as we looked at 

the PPP roll out. All of our banks did 

exceptional and the big numbers were with our 

banks, but we did see fintech move in a way that 

was just very swift relative to some of our 

cultures on the banking side. And I think we 

have to continue to talk about that because 

there's got to be a way that we come together in 
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a way that is beneficial to both banks, the 

fintech industry, and certainly the customers who 

are most important.

At a macro level I think we're seeing 

the discussion of DE&I really at the highest 

level it's been probably in my career. The 

question becomes how we turn that into something 

that is certainly meaningful, impactful, and 

certainly meets the standard of the metrics that 

we're using to guide the need for having DE&I 

discussions at this point in time. I made 

reference to Wells Fargo earlier. Again there 

are many other institutions that have made 

commitments on this, but the question becomes how 

do we effectuate that into something that has a 

tangible outcome five years from now, 10 years 

from now? 

I do want to applaud the Chairwoman 

for her efforts in looking at the establishment 

of setting up a fund. I think it creates 

credibility in the space on this topic. We just 
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have got to be sure that when we roll that out 

it's one -- it is done in a manner that is --

certainly that was intended. And so we'll be 

very supportive of that.

And so I'll end by closing the 

comments associated with what I think are the 

important pillars in particular when you look at

that there are only 18 African American-owned 

banks in the country out of the over 5,000. 

One is capital. There's no need to 

really kind of go down that path of describing 

that. The metrics kind of prove it in 

themselves. 

Revenue opportunities. We're seeing 

some of those across the board with some of the 

larger banks, and even some of the regional 

banks. We have forged a relationship with -- the 

Chairwoman hosted a regional MDI summit I know in 

Chicago I participated in and we're seeing some 

of the fruits of that. That's been close to two 

years ago now, and so we need to see more of those 
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opportunities to create revenue for these 

institutions so that they can do work in the 

impacted communities that they so desire.

And then lastly of course deposits. 

And I highlight that only because deposits sound 

like an easy lift for many institutions, but the 

reality is the economy in our banking system is 

flush with deposits at this point in time. We 

all know that that pendulum is going to swing 

again and so we're keeping it on the list as 

something that we know we're going to have to 

deal with and probably have a higher need for it 

at a point in time, but it is third out of the 

three major items. So it's capital first, 

revenue opportunities, and then lastly deposits.

So thank you so much for allowing us 

to have this opportunity to participate and I 

will pass onto Shaza Anderson, I believe, because 

Anthony Capobianco is not here, if I recall 

correctly.

MR. CAPOBIANCO: No.
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MS. KEA: Ken, thank you. Shaza is 

in fact not here.

MR. KELLY: Oh, Shaza's not here? 

I'm sorry. So let me (audio interference) 

Anthony.

MS. KEA: Thank you.

MR. KELLY: Okay. Sorry, got ahead 

of myself here. 

By the way, welcome, Anthony.

MR. CAPOBIANCO: Thank you, Ken. 

I hope everyone can hear me. Thank 

you also to Lisa Roy for initially reaching out 

and offering me the opportunity to join this 

committee. 

And to Shannon earlier for helping me 

out with the technical difficulties I had on the 

Webex.

So good afternoon. I'm Tony 

Capobianco, President and CEO of American 

Community Bank. We started this bank about 20 

years ago, and for those not familiar with the 
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area, we're located in the suburbs of Long 

Island, about 30 minutes outside of New York City 

in the counties of Nassau and Suffolk. Our 

footings total about 240 million and we have five 

branches throughout those two counties. The 

lion's share of our business is commercial real 

estate; I'd say about 95 percent-plus. 

So our local banking conditions have 

obviously been impacted tremendously by the COVID 

pandemic for the better part of almost a yearand-a-half now, like all of us. However, all of 

our branches except one stayed open throughout 

the entire pandemic, and that really went a long 

way in building up good will with our 

communities. And our back office employees 

worked remotely for the most part, but only for 

a few months, and I'd say as far back as last 

July about 90 percent of even our back office 

employees were all back.

So the initial impact of the pandemic 

began with temporary loan accommodations program 
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of deferred monthly loan payments for either 

three or six months. Fortunately all of the 

borrowers that we provided loan accommodations 

for resumed their regular payment schedules as of 

November of last year. 

The next phase of the COVID impact 

continued with the SBA PPP loan programs; round 

1 last year and round 2 this year. We were able 

to provide close to 1,000 individual loans 

totaling over $50 million that funneled back into 

small businesses to support our local 

communities. The median loan size was about 

$20,000, so a majority of those loans went to 

businesses with less than 10 employees, and we 

were proud to at least try to help them save 

thousands of jobs.

So far all of our PPP loans from round 

1 have been forgiven by the SBA as of June 30th 

of this year, last month. And while we are in a 

holding pattern now for the next several months 

to begin the forgiveness applications for round 
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2 of the PPP loans, we're focusing on ramping up 

new commercial real estate loan originations 

since we kind of had a moratorium on them for --

I wouldn't say the entire pandemic, but probably 

between six and nine months.

So we really didn't get back into the 

commercial real estate lending game until the 

beginning of the second quarter of this year, but 

we only loosened up our underwriting standards by 

about 50 percent. Now with the start of the 

third quarter just recently we're back in it by 

about 75 percent and the plan is beginning fourth 

quarter, or October 1st, to get back to 100 

percent of our normal underwriting parameters, so 

basically getting back to normal hopefully. 

That's provided there isn't another surge in the 

COVID pandemic and hopefully the Delta variant 

doesn't become a factor. 

But the main impact I'd say of the 

pandemic to our local banking conditions has been 

a significant -- I'd say a tremendous increase in 
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liquidity via core deposits, which most of you 

have also alluded to, as well as so much positive 

feedback tremendously from the local communities 

that we were there for them during the pandemic, 

unlike some of the local branches of the money 

center banks around here.

Also unlike the recession of 2008 when 

we were grouped with the larger banks as being 

the bad guys, this time I think the community 

banks like ours are being appreciated more and 

more and looked up as the good guys that we all 

are, right? 

Anyway, overall I would say that the 

local banking conditions are positive and I've 

been looking toward 2022 probably for the --

starting six months ago as more of a challenge 

based on anticipated margin compressions due to 

increased interest rates on our deposits as well 

as increased competition for loan demand and loan 

growth. And that's before the anticipated 

increase in the corporate tax rate, perhaps.
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Right now we're having our best year 

in our history again for the second consecutive 

year and our credit quality remains pristine with 

zero past dues and zero sub-standards. And even 

though I expect a downward trend in earnings for 

2022, I remain cautiously optimistic for a strong 

recovery in the economy pending continued 

reopening of businesses and the continued 

successful outcome from the vaccines.

So thank you and now I'll turn it over 

to the next speaker, Gilbert.

MR. NARVAEZ: Good afternoon, 

everyone. Our bank is headquartered in Laredo, 

Texas, and we've been in operation for 35 years 

and currently stand at about 1.7 billion in 

assets. We conduct a significant part of our 

business along the Texas-Mexico border. The 

bank's 17-branch footprint extends into the South 

Texas -- South Central Texas region, which 

includes the metropolitan areas of San Antonio 

and Austin, and we have entered into the Dallas 
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market as well. Our branches service communities 

comprised of predominantly Hispanic population 

and also serve many customers in the low to 

moderate income areas.

Being that Laredo is one of the 

largest inland ports between the U.S. and Mexico 

international trade and transportation sectors 

continue to be active and very important sectors 

of our operating environment. We are very 

grateful that throughout this pandemic the 

international bridges have remained open for 

international trade business.

Today our local economies have opened 

up to as close to business as usual to prepandemic levels and with the exception of the 

Mexican border still closed to the non-essential 

travel sector, which the sector includes retail 

and tourism activity. The border has remained 

closed to this non-essential travel sector since 

March of last year and the reopening of this 

specific sector still remains on standby. This 
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specific sector vastly will improve the retail, 

hospitality and restaurant business sectors of 

those cities along the border. 

Most of our markets have been 

experiencing positive and -- business activity, 

economic business activity, but we are dealing 

with challenges in the labor market. We have 

labor shortages primarily in the construction, 

restaurant, hospitality, and other 

entertainment-related sectors. We've been 

having difficulties hiring workers due to a 

combination of factors. One is the expanded and 

enhanced unemployment benefits, but we anticipate 

that the expiration of these benefits as of June 

30th for the state is expected to improve the 

situation. 

And also another factor is child care 

needs and responsibilities which have also 

affected our labor force, but it's also expected 

to improve once our youths return to in-person 

schooling this fall.
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Up until a few weeks ago the number of 

new COVID cases and hospitalization rates had 

been improving and declined to all-time low 

levels, however, recently we experienced an 

uptick in those cases and mostly due to this new 

Delta variant. This has not been disruptive to 

business so far, but if the trends continue, it 

may be.

Texas as a whole has been able to 

vaccinate -- fully vaccinate over 50 percent of 

its eligible population. Percentages in the 

areas that we operate that are fully vaccinated 

range from over 50 percent to up to -- in the 

high 70s. I'm happy to report that at the bank 

company level we have over 90 percent of our staff 

that is fully vaccinated and continue to make --

encourage our staff to get vaccinated.

We're hoping that we can continue to 

avoid future business disruptions and from the 

continuing effects of these new COVID variants, 

but we remain optimistic that the economic trends 
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will continue.

I'd like to conclude my report by 

sharing our most recent regulatory exam 

experience on our safety and soundness exam. We 

had been hearing that most of the banks had been 

experiencing some positive and welcoming 

experiences from their regulatory processes. 

Our recent exam was conducted jointly by the FDIC 

and the Department of Banking of the State of 

Texas. Although the exam was 100 percent virtual 

I can tell you that it was non-intrusive to our 

day-to-day operations. The regulators from both 

agencies were very accommodating and 

understanding throughout the entire engagement. 

All in all we, too, experienced a very welcoming 

and positive experience and we expressed our 

gratitude for their helpful and understanding 

mind set and posture.

That concludes my report and I'd like 

to introduce Teri Messerschmitt as our next 

speaker.
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MS. MESSERSCHMITT: Thank you, 

Gilbert.

And good afternoon, Chairman 

McWilliams, all the FDIC staff, and fellow 

bankers. I'm Teri Messerschmitt and I am the 

President and CEO of South Ottumwa Savings Bank 

in Ottumwa, Iowa, located in Southeast Iowa, and 

we're about a $570 million bank.

The State of Iowa is rebounding. In 

general we've opened up our businesses. We do 

have a few exceptions where some people are still 

working remotely from home. We also have several 

restaurants like was mentioned earlier that only 

have their drive-thrus open. I think in most 

cases what we're seeing is it appears to be a 

labor shortage also. There's an issue due to 

that and we see help wanted signs posted in most 

of the businesses just about wherever you go.

Iowa does have one of the lowest 

unemployment rates; we're at 3.9 percent compared 

to the unemployment rate of the national rate of 
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5.8. Iowa also has one of the highest 

participation rates in the country, and so most 

of our Iowans are already working. And we're 

continuing to see a shortage in our workforce.

We have seen an increase in wages 

also. I heard that today as well. We're seeing 

a lot of competition from some long-term 

employees actually moving from their current jobs 

and going to other positions where they can 

better themselves just because of the shortage of 

eligible workers that are out there.

Effective June 12th the State of Iowa 

was one of the first states to opt out of the 

extra unemployment benefits that were offered by 

the Federal Government, and I do think that will 

help. We really need to attract and retain 

people to our state, and that really continues to 

be a major concern for us.

And update on the COVID situation in 

Iowa: The risk level for the coronavirus in Iowa 

is at a medium level. Approximately 50 percent 
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of all Iowa residents are fully vaccinated. Our 

positivity rate is running pretty low at about 

four percent. Masks are not required, both 

indoor and outdoor, for vaccinated people.

The bank, we're doing really well. 

It's been a very busy year for us. We've been 

very busy with the second allocation of the PPP 

funding. We processed 656 PPP loans for the 

second go-around for a total of about 13 million. 

The number of loans was twice the number of our 

first go-around in the PPP funding, although it 

was about half the dollar amount. 

We were very happy though this time 

that many of our farmers were eligible under the 

second round of the PPP proceeds, and our bank 

really was a leader in assisting many individuals 

and businesses in our market so that we could 

help them with the PPP funding. And actually we 

were very aggressive to reach out to potential 

applicants that could qualify for the PPP 

funding, both customers and non-customers, just 
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to make them aware of the program.

The PPP program really was a great 

opportunity for our community and community banks 

like ours since we focus on trying to deliver 

outstanding customer service every day and 

building that relationship with our customers 

really helps set us apart from our competition.

The bank was actually recognized by 

the U.S. Small Business Administration from round 

1 of our PPP loans and we were given an impact 

award for our efforts in keeping the small 

businesses up and running and the workers 

employed during the COVID-19 pandemic.

To date all but one of our first goaround of PPP loans have been forgiven and 

approximately 40 percent of our second round have 

been forgiven now. So we have been very busy 

with that program.

We have also been busy with the 

residential real estate lending. It really is a 

seller's market in many areas of our state. This 
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is really due to a high demand and a limited 

supply of inventory of homes and it really is 

resulting in some increases in some sale prices. 

We're actually seeing homes being sold for more 

than their asking price.

Also the long-term fixed rates are 

still relatively low and I think as people's 

concerns get more and more concerned about the 

inflation and the interests rates going up --

that is why a lot of the people have started to 

really think about buying that house now or 

continue with their refinancing in that market.

We do have a concentration of ag 

credits in our loan portfolio, and I mentioned 

that before. Our ag portfolio really is in good 

shape right now and that's due in part to the PPP 

Loan Program. We've had the Corona Food 

Assistance Program, the CAP payments, and then 

the current commodity prices. Even though 

there's been some volatility in those commodity 

prices, the prices are still up.
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Farmers have taken advantage of those 

commodity prices during 2021. They've been 

selling their inventories of their stored grain 

and they've also sold some of their -- locked 

into some future pricing for their 2021 new crop 

production as well.

Southern Iowa has had plenty of 

moisture. I think that Northern Iowa could use 

some additional rain, although overall I think 

Iowa does have a potential for a good 2021 crop 

at this time.

Our loan quality continues to be very 

strong with very little delinquencies. All of 

our COVID modifications that we made during the 

pandemic have returned to a paying status. We 

continue to increase our provision for loan loss 

and we continue to monitor all of our business 

sectors with the uncertainty out there still of 

the economic impact of COVID that's still ahead 

of us.

We are currently getting our CECL 
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model implemented with a goal of being completed 

by the end of this third quarter. We're not sure 

what that impact is going to be on our ALLL at 

this time, but we are anxious to get it up and 

running and want to have it up and running for at 

least a year before it's actually implemented.

Our capital continues to be very 

strong and even though that we're having a really 

great year I'm already concerned about the budget 

for 2022. We know we've had significant fee 

income this year. That's due to the PPP program 

and also due to the residential real estate 

mortgages. The volume that we've had in that 

area has been significant. If interest rates 

start going up I'm sure those residential real 

estate mortgages will start to slow.

We also have limited loan demand in 

our area especially and there is really extreme 

competition from our competitors for new loans 

and existing loans that are on our books. 

The net interest margin compression is 
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definitely something that I am very worried 

about. We have, like some many other people have 

mentioned today, an extreme amount of liquidity. 

With limited loan demand our option is to go into 

investments. With the low interest rates that 

are available in the investment portfolio there's 

not a lot of margin you can pick up there. And 

in addition to our existing investments we 

continue to get pay downs, we get the investments 

called, and some of them are maturing. So those 

continue to roll off and we have to continue to 

put it in into the lower yielding investments.

Another area of concern that really 

continues to keep me up at night is the increased 

number of cyber-attacks. We have a local JBS 

meat processing plant in our community. And JBS, 

the world's largest meat processing company, just 

paid them 11 million in ransom when they were 

hacked in June. The company did shut down their 

cattle slaughtering and all of its U.S. plants 

for a day and the disruption threatened the food 
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supplies and risked higher food prices for our 

consumers. 

That attack came on the heels of the 

Colonial Pipeline attack as well. We continue 

to work very hard at educating our staff to help 

them develop their skills and their awareness and 

to help limit our exposure in this area.

In closing I want to extend a thank 

you to the FDIC and to the Iowa Department of 

Banking for all their assistance and support 

throughout the year. Thank you very much for 

your time and I'll turn it over to Patty Mongold.

MS. MONGOLD: Good morning. For me 

it's still morning, so I'm happy to be here with 

the group. I am Patty Mongold, President and CEO 

of Mt. McKinley Bank in Fairbanks, Alaska. We 

are a mutual bank. Right now we're at about 615 

million in assets. 

We've been enjoying quite a good year 

(audio interference). We exceeded our 

expectations for both income and balance sheet 
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growth. We're cautiously optimistic that we will 

have similar earnings in 2021 as we did in 2020.

We're seeing an influx of deposits 

primarily due to customers leaving bigger banks 

in order to avoid fees, but we also see some 

growth, continued growth due to the pandemic, 

mostly in the areas of businesses, 

municipalities, and travel (audio interference) 

but also from individuals.

Our mortgage loan demand remains 

robust and our title companies and appraisers are 

struggling with this demand, which of course 

slows the closing process. We are seeing 

multiple offers on homes and there is a -- it's 

like everyone -- other people that have discussed 

it today it is definitely a seller's market.

Like the rest of the U.S. Alaska has 

seen an uptick in coronavirus cases and our 

vaccination levels continue to be lower than 

ideal. The state remains open with no 

restrictions placed on business operations and no 
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mask mandate. Many organizations have begun 

holding in-person meetings, but some do continue 

to offer a virtual option for those who prefer 

it.

As to PPP loans Mt. McKinley Bank made 

385 first-round loans for about 39 million, 212 

second-round PPP loans for right around 19 

million. On June 30th we had 300 loans in a 

total amount of 30 million still outstanding. 

We're encouraging our remaining PPP borrowers to 

apply for forgiveness and I'm really happy to 

report that the SBA process has been going very 

well.

We continue to monitor our non-owneroccupied commercial real estate loans as we 

believe that this is an area of risk to the bank 

partially due to the fact that many businesses 

are allowing people -- employees to continue to 

work from home. At present our non-owneroccupied commercial real estate portfolio has low 

delinquencies. Our values are holding steady and 
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the CAP rates are also holding steady. We have 

adjusted our allowance for loan on lease losses 

to account for the increased risk we believe this 

portfolio has.

There's not much new to report on the 

Alaskan economy. We're still experiencing an 

unemployment rate above seven percent. It still 

shows the effect of the pandemic.

Tourism numbers are better though than 

we expected and that's -- we've seen a dramatic 

increase in the individual traveler, those people 

who must have been tired of sitting at home and 

wanted to get out and now they're coming to 

Alaska. Our businesses that cater to tourists 

are happy to have them, but the independent 

traveler does bring a higher level of interaction 

and increased workload for their businesses. And 

this is at a time when they don't have the 

employees to help as the farm workers, the J-1 

workers that they rely on aren't able to get those 

visas and are not able to come to the U.S.
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With the recent announcement that 

Canada will open its borders to vaccinated U.S. 

citizens we may see an increase in traffic from 

the tour operators. That will be welcomed by the 

tourism-reliant businesses, but still

problematic since employees remain scarce.

At the bank we are experiencing 

difficulties hiring people as well, but we are 

grateful that our employees have remained healthy 

throughout this experience and continue to be 

available for customers all while taking on a 

heavier workload as we try to hire people to fill 

vacant positions.

We're in the midst of our first 

virtual safety and soundness examination and it's 

obvious that the FDIC has worked hard to make the 

process as easy as possible for the bank. The 

FDIC team along with the examiners from the State 

of Alaska have been understanding as we deal with 

some limitations on our systems that have caused 

delays and we really appreciate their efforts, 
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however, I must say that there's really no 

replacement for meeting across a table from an 

examiner and discussing some topics that are --

some of them are very complicated and it's really 

nice to have that in-person opportunity. So I 

will look forward to the next exam when we can 

have at least a hybrid of that opportunity.

I want to thank the Chair and the rest 

of the staff at the FDIC for this opportunity to 

participate. I really appreciate it. I enjoy 

hearing the stories from the other bankers, I 

enjoy hearing the presentations from the FDIC 

staff, and Chair McWilliams' comments. So thank 

you for this opportunity. It's a pleasure to be 

here. And I'm going to turn it over now to Mike 

Bock. Thank you.

MR. BOCK: Thank you, Patty.

Mike Bock here, Dairy State Bank. 

Rice Lake, Wisconsin is our headquarters. 

Bouncing right around 700 million in assets right 

now, up significantly from where we started pre-
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COVID. Obviously that means a lot of liquidity, 

like everybody else has said.

Like Patty's bank we are right now in 

the middle of a virtual FDIC exam. It is nearing 

the end. It has gone extremely well. Compliment 

the FDIC staff and its organization process to 

prepare for this. Started advance prep with us 

earlier than normal which gave us plenty of times 

to get things ready and in their hands and I think 

it's worked very, very well. So compliments to 

the FDIC and its staff and everything you're 

doing to get this process completed.

Northwest Wisconsin in general is 

rebounding nicely from COVID. We're in a market 

that -- where our southern market is largely 

agriculture. The year started off very, very 

well for agriculture growing. We are touching a 

drought world right now. If we don't get rain 

sometime with the next week or two we're going to 

have some farmers that had some very promising 

crops look a little bit more difficult. So 
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hopefully we'll get some rain soon. There's a 

chance in the forecast and hopefully it comes.

The northern part of our area is 

largely resort, hospitality, tourist-driven and 

we've seen a phenomenal rebound in that area 

through the summer. Hotel occupancy is almost 

running 100 percent on weekends. Staffing is the 

problem for those folks. It's a great rebound 

for what's going on.

We do know some of that traffic has 

stopped here because the Canadian border has been 

closed, but we do have some fishing and tourist 

opportunities here. We don't know how that may 

change our environment, how that folks can start 

running up to Canada soon, but up to this point 

it's been a great summer for anybody in the 

hospitality, resort, and vacationing business. 

So it's been a great summer that way.

Businesses have been going strong. 

Those in production are producing about as far as 

their staff and their raw materials will allow 
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them to do that. There are some supply chain 

challenges in some of the industries. It seems 

like they get 90 percent of what they need to 

finish a product, the last little piece, they 

don't know when it's going to come, which is 

resulting in significant backlogs, even though 

they're busy at the current time.

So what I think I'm hearing from a lot 

of businesses because of the backlogs, they're 

looking at a very optimistic 12 to 18-month 

period coming down the road with the backlog 

that's out there. What they don't know is when 

they finally get caught up what may follow beyond 

that. So I think 12 to 18 months is a very 

optimistic business world around here, but 

uncertainty beyond that. As was mentioned 

earlier we've got some tax implications that may 

come down over the next year or two that may also 

influence businesses. 

So real estate demand is unbelievable. 

It's almost impossible to find a home to buy. We 
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have a labor shortage here as people try to 

relocate labor. There's nowhere to go. So there 

has been some construction of residential rental 

property which with the price of construction and 

everything that goes into that property now and 

it takes a very high monthly rent to make those 

pay on the back end. And we are in kind of what 

I call a mid-market income area so some of those 

rental incomes could be a challenge going 

forward. So I think if there's an industry 

segment that I could see a challenge coming down 

the road is a residential rental that's being 

constructed right now, a high rent rate that's 

going to be required to service those debts.

COVID is low right now. Pretty much 

everything is open, pretty much mask-free, but 

there has been a little rebound lately with the 

new Delta variant. Hoping that will stay under 

control. We are running about 40 percent 

vacancy -- fully vacancy rate, which is a little 

bit lower than what the state would like to see, 
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but that's where we are.

What are the challenges in the 

economic scenario? It's a lot of good stuff with 

labor, labor, and labor. We've heard that many, 

many times. It's a shortage for virtually 

everyone: skilled, unskilled, or whatever the 

case might be. There's just not enough people. 

Those people that want to relocate right now just 

do not have a place to live, so multiple 

challenges on that front.

Supply chain challenges. Almost 

every industry is going through some form of a 

challenge they are figuring out how to get around 

it, but it still makes their life a little bit 

more difficult. Like I said, real estate pricing 

is just off the map, and it's being driven partly 

by local demand, but also there's a number of 

out-of-area folks that are looking to come to our 

area. We have some lakes here, some nice lake 

homes. We're close enough to the Twin Cities 

that people can commute or they can work from 
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home and it works out very well. So we're having 

very, very high demand in all forms of 

residential real estate right now.

Regarding the bank, like almost 

everybody else, our liquidity is off the map and 

it's in various sectors. It's the government 

entities, it's business entities, and it comes 

right down to the consumer level. In visiting 

with a lot of the business sectors that have the 

higher-than-normal deposits right now pretty much 

all of them have shared with us that they don't 

plan to do much with that money for 6 to 12 months 

because they have some uncertainty in their 

world. 

They plan to stay on that cash with 

some I think some gunpowder at hand. There is 

some discussion sometimes about some expansion 

projects, but again enough uncertainties. 

They're just not pulling the trigger. All that 

cash plus the lack of inventory, which we do a 

lot of financing of -- with the lack of inventory 
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nobody needs inventory financing. So the 

byproduct is our loan demand has been somewhat 

soft throughout the course of the year, outside 

of PPP of course, which we did a whole bunch of 

those loans.

Margins are being challenged like 

almost everybody else in this particular world 

and asset quality has remained very, very good. 

Virtually every loan that was put on some sort of 

a modification due to the COVID scenario is back 

on full P&I; they're brought current. And now 

with occupancies specifically in our hotel 

industry we did some specific reservings --

specific reserves for that industry when we felt 

a little bit of uncertainty there. Those are 

coming back. We may be able to dial those back 

a little bit, too. So PPP. Again, the 

forgiveness process, as someone else had 

mentioned, the second round is going much easier 

with the SBA. They're going very quickly. 

They're turning that money faster, just providing 
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with a little more liquidity, which we probably 

don't need any more of, but we know it's coming 

back some time soon.

Still a lot of real estate being 

refinanced. We don't know where these folks are 

coming from yet. As long as rates have been low, 

you'd think everybody would be out there, but 

they're not. They're still coming in. So 

between the PPP fees, real estate fees -- and we 

had the good fortune of a very significant loan 

recovery this year, we are going to have a 

phenomenal year in terms of income.

Going to specific banking challenges 

we got here, we are really running short of 

commercial appraisers even though we're not 

having a lot of new commercial work being done. 

When any commercial appraisal is needed we are 

having some difficulties finding appraisers that 

are licensed and available to do things on a 

relatively timely basis. We have gone outside 

of what we call our typical appraiser market to 
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find a few more bodies with the skill sets that 

we need, but it's something we needed to.

And we see some more of the folks that 

are in this business looking to retire. I think 

this is going to be a challenge for our area for 

probably some years to come until we can convince 

some folks that commercial appraising is a good 

business and you can stay busy and make some good 

money.

Probably the biggest change that's 

going on right now in our market is one of our 

biggest national banks that has multiple branches 

in our market has recently announced some changes 

in terms of closures or service reductions. We 

aren’t in a lot of small communities out here yet 

and when the big bank makes the announcement that 

through COVID we found a lot of people go to 

online banking and we think we can close these 

locations and people can stay in the online 

world, there's still a lot of people in small 

communities that want to go into a bank, see a 
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person, and be helped on a face-to-face basis. 

So we, over the last -- since the 

announcement of this two weeks ago, have 

experienced a significant increase in new 

accounts, not that we need them right now with 

the liquidity we have, but it is a trend that is 

happening. And I think that it's going to 

continue to happen with some of the large banks 

in our area as again they work through COVID. 

And they've found a lot of people went to Internet 

banking, but when having options coming back, 

when the community bank -- they're back to a fullservice mode, I think they're going to start 

leaving the large banks and have deposits run off 

like they weren't anticipating. 

They've also reduced staff 

significantly, which provided some staffing

opportunities for us. Some trained people and 

skilled people are out there in the market now, 

so we've got some opportunities to pick up from 

that. 
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So overall banking is good here, 

economy is good here. Again, 12 to 18 months I 

think there's a ton of optimism, but beyond that 

there's a lot of question marks. We're going to 

enjoy the next 12 to 18 months and we'll start 

dealing with those questions on a day-to-day 

basis as we go forward. 

So that's the end of my comments. So 

with that I'm going to turn over to John 

Wharton. Thank you.

MR. WHARTON: Thank you, Mike. Door 

County, Wisconsin is one of my favorite places in 

the world. My family has a cottage there. So 

kudos to you.

Greetings from Steamboat Springs, 

Colorado. We are a town of 12,500 people. Just 

to give you an idea of our reliance on tourism, 

on New Year's Eve and Fourth of July we go from 

12,500 to 25,000. So we are a ski community and 

summer community. 

I'm very excited to report that 
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Alterra, which is the owner of Steamboat Ski 

Corporation, has committed and actually torn down 

our gondola building. They're spending about 

$120 million in our ski town and we are 

anticipating the largest gondola in terms of 

length in North America. So I want to invite all 

of my fellow bankers to come join me in skiing in 

about three years. Give us a year to get this 

new gondola and new base area constructed.

I want to thank Madam Chairman 

McWilliams for your comments and for your 

leadership of this group and how honored I am and 

in awe of the bankers from across the country in 

terms of your amazing success and what you do for 

our communities and for community banking. I'm 

very, very optimistic in regards to our future. 

The mega banks continue to leave our small 

communities. They continue to not necessarily 

be open and continue, when it came to PPP, give 

a 1-800 number and actually refer business our 

way. So I'm very, very bullish on our community
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banks across the country.

I want to thank Director Gruenberg for 

your leadership, and most importantly Arleas and 

Lisa. Herding cats. I know all of us, we have 

been on Zoom meetings every day, GoTo meetings, 

but it still technically is a challenge. So 

thank you for your leadership there.

In regards to banking I'm the Chairman 

of Independent Bankers of Colorado. We just had

a meeting for our board about a week ago. And 

my friend Kyle Heckman from Boulder, Colorado I 

think said it best, and he said we're having a 

severe drought of loan administrators and credit 

analysts. 

I think our number one issue, and 

again ditto for everyone who has spoken, has been 

staffing issues. Historically our Loan 

Department here in Steamboat Springs -- we have 

two branches. We have 42 employees in Steamboat, 

20 employees 44 miles to the west in Craig, 

Colorado, and historically our Loan Department 
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has been our most stable. As of yesterday I had 

a meeting with our Compensation Committee. 

We are actively recruiting 8 positions 

in our Loan Department out of a total of 15, and 

we have been forced to go to 3 of those positions 

being 100 percent remote. We've had to think way 

out of the box. We've hired a fantastic lead 

credit analyst who lives in Tampa, Florida. Her 

husband is in the military and obviously with 

being moved on a constant basis 100 percent 

remote is the only way. We are hiring a loan 

administrator out of South Dakota. We are also 

looking at a credit analyst out of Washington, 

D.C. So again, significant pressure on wages. 

Same scenario. We have lost 

employees to other industries in the Yampa 

Valley. We had one employee who joined us from 

Alaska. 

So, Patty, he thought he wanted to get 

back to the Lower 48 and within a year he was 

hired back for a $50,000 pay raise. So he joined 
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us for one year. Lost him. 

And we are seeing significant housing 

shortages and price problems. Here in Steamboat 

Springs the average home is about 650,000. We're 

seeing construction prices 400 to $800 per square 

foot, which seems shocking. We're seeing 

residential homes in Old Town, in Downtown 

Steamboat Springs, tear-downs being a million, 

and moderate homes being 2 to $2.5 million. So 

our employees are forced to live 25 miles from 

town, and obviously that puts some pressure of 

why am I here? Maybe I'll go to the Front Range.

Significant competition for talent. 

So yesterday in our Compensation Committee I did 

a presentation for increases to the majority of 

our team between 4 and 8 percent, and we're now 

projecting next year our SG&A expense to be up 11 

to 12 percent for 2022.

We've been very blessed with PPP. 

Like most of you, PPP One created -- we did 566 

loans. Our bank has assets, total assets between 
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460 and 500 million. It's been very volatile 

this year with deposits coming in from all over 

the place. Real estate sales of $20 million, et 

cetera. So 566 PPP One; 281 PPP Two. The total 

volume was $58.3 million. We were very honored 

to be recognized by the governor as one of the 

top PPP lenders in the State of Colorado. And I 

could tell you on Main Street it has made a 

tremendous difference. Specifically restaurants 

and retail that may not have made it through last 

year are now thriving. 

Again similar to most of you, our 

tourism market has been off the charts. As we 

all know, you can't find a bicycle, you can't 

find a camper, and they are coming to beautiful 

Northwest Colorado. 

We are experiencing a drought. We 

have a fire 11 miles to the north of Steamboat 

Springs and another fire 15 miles to the 

southeast of Steamboat Springs. We're blessed 

that our wild land fire fighters are doing an 
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amazing job of basically managing them. There 

is no major structures, so unlike Oregon and 

Washington, California, we're not losing houses 

for the most part. It's in the national forest.

So actually tourism and camping is 

actually still doing very, very well.

A couple things just to talk about. 

Again, liquidity. Normally we have $8 million 

on overnight at the Fed at 0.07 percent. Right 

now it's 65 million. Due to the great PPP 

revenue for the year, which we anticipate is 

around 1.5 million, we will set a record for 2021, 

but obviously I'm very concerned about 2022 when 

that jolt of PPP fee income goes away. And as I 

described our SG&A expense is looking at a 12 

percent increase.

The good news is our board of 16 are 

mostly community business leaders and every one 

of them to a person is experiencing the exact 

same problems. And again as many of you have 

commented, restaurants being closed a couple 
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nights a week, hotels not having daily cleaning 

because they do not have the staffing. On the 

construction side we have carpenters going from 

$30 to $40 an hour and being stolen from one 

business to another.

So all in all things are actually 

very, very strong. I can tell you from a 

management perspective this has been the most 

difficult year specifically from talent 

managements as well as technology. Again you 

guys have done a great job of covering how open 

we are to all things technology. 

And from a diversity perspective I'm 

so excited about #GetBanked and we are working 

very, very hard -- we have large Hispanic 

population that is not comfortable with going 

into banks for a variety of reason, and we have 

very strong leadership and are working with the 

local integrated community, which is a nonprofit, to educate and reach out to this 

population. And because of our Spanish-speaking 
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leadership at the bank; we have four leaders who 

are doing great outreach, we're really hopeful 

that we can really make a difference.

Last but not least, just talking about 

fraud attempts. From our perspective we have 

never seen a year like this where we've had at 

least one customer per month have some type of 

either ACH fraud or man-in-the-middle with emails 

specifically going after real estate 

transactions, or other situations. And again, 

these are many times experienced business owners 

so they are not necessarily our most vulnerable. 

And we have seen again generally in that 25 to 

$150,000 range of fraud attempts. We've had 

great fortune working with the Colorado Bureau of 

Investigations by reaching out to them 

proactively. They've helped us and we've had 

really actually excellent protection for our 

clients and getting money back for our clients.

So again I just want to thank the FDIC 

for the honor of being on this committee and with 
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such esteemed fellow bankers. And again, hope 

to invite each and every one of you to Steamboat 

Springs in the winter, or the summer, and get out 

on some skis. 

So with that, I want to turn it over 

to Mr. Mark Pitkin. 

Mark?

MR. PITKIN: Well thank you, John, I 

appreciate it. Thank you all very much, as 

always, for giving myself and the others the 

opportunity to prepare and provide our thoughts. 

That's certainly much appreciated. And like many 

others have indicated, it's a great learning 

experience for all of us around the table.

Certainly thank you to Chairwoman 

McWilliams, Director Gruenberg, and the entire 

FDIC team. Again, it is an honor to serve on 

this committee.

So, Sugar River Bank is a 126 year old 

state charted mutual institution. We operate six 

branches spanning from the west central part of 
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the state to the central part of the state.

Although as many of you know, you can 

go one end to the other in two hours. So when 

we're talking about our markets, for the most 

part, New Hampshire could be considered all of 

our markets.

Our current assets total $362 million. 

And our mission is to exceed the expectation of 

our customers.

I am pleased to report that banking in 

the overall economy in New Hampshire is strong, 

both locally as well as state wide. So as of 

July 19th, New Hampshire was down to 224 active 

COVID-19 cases.

This was certainly before some of the 

upticks with the Delta variant over the last 

couple of weeks. And we are down to 18 

hospitalized patients in the state.

Pleased to say that 64 percent of the 

state has received at least one dose of the COVID19 vaccine, which places New Hampshire seventh 
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among the states with the highest percentage of 

residents vaccinated.

And also at the present time, all New 

England states have reached a 60 percent or 

higher vaccination rate. And again, we are 

fortunate to have a couple neighbors that have 

surpassed 70 percent. So that said, business at 

most banks, certainly in the state, is back to 

normal.

So New Hampshire's current housing 

inventory, like many others, remains at all-time 

lows. To address the issue, our state 

legislature recently attempted to amend some 

statutes to provide municipalities with 

incentives in what they call a little additional 

oversight, to increase the number of locally 

issued building permits and to review all denied 

permits.

Needless to say, the bill inevitably 

failed, but it clearly signifies the severity of 

the housing situation in the state. Many believe 
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that the consequences of our existing housing 

shortage could negatively affect economic 

development efforts in the entire state for years 

to come. So we're looking very closely at that.

The total number of residential sales 

in New Hampshire, year-over-year, was up ten 

percent as of April 30th. However, the total 

dollar volume of sales was up a remarkable 31 

percent.

So that validates a significant price 

depreciation in the state over the last 12 

months. It's becoming very difficult for 

individuals to afford housing in most parts of 

the state.

As a result of this booming housing 

demand, the turnaround time for appraisals, if we 

can find any appraisers, continues to be 60 days 

or more. Which is almost twice as long as the 

pre-pandemic average turnaround time.

So with this backlog, unfortunately 

our origination of closing throughput has slowed, 
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resulting also in a loan pipeline that's running 

about twice its normal volume.

On the commercial front, while some 

sectors saw business plummet during the pandemic, 

most are recovering at a very healthy pace. 

Including restaurants and lodging facilities.

And thankfully, tourism from adjacent 

states has rebounded to near pre-pandemic levels. 

Which has contributed to that economic rebound.

The local and state construction 

industry, as I heard from a couple other 

distinguished panel members here in New 

Hampshire, has also been moving ahead at full 

steam. However, while residential and 

commercial construction projects are in high 

demand, like others, there are headwinds from 

ongoing workforce shortages, rising cost in 

materials, and also supply chain disruptions, all 

of which are raising some concerns in that 

particular industry.

Also of note, is the continued gain of 
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migrants moving to New Hampshire from other U.S. 

destinations. The largest gains are among young 

adults.

So whereas just a couple of years ago, 

the state was trying to figure out how to keep 

young adults here in New Hampshire. So these 

recent migration gains certainly have provided 

some additional human and social capital to a 

state which is challenged by an aging workforce 

and population. So good news with regards to the 

migration.

With that said, we are facing, like 

others, much higher than average turnover. And 

the prospects of finding new qualified employees 

continues to be a challenge, not only for the 

bank, but most employers in the state.

At the current time, New Hampshire 

exhibits a very low unemployment rate of only 2.9 

percent. So we are truly fighting for employees 

amongst several different companies in our 

markets.
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And unfortunately it appears that the 

only way folks are getting employees, especially 

in banking, is to call those that are at other 

banks. So we are seeing a lot of what we term, 

poaching, here in the state.

So with continued low interest rates 

and high housing demand, as previously noted, the 

banks residential mortgage lending continues to 

be very strong. However, the bank's net interest 

margin, like others, continues to erode due to 

the fact that we have to reinvest those dollars 

in much lower yielding loans and securities.

Also with little movement anticipated 

in rates for the near future, coupled with what 

some are calling, "transitory inflation," the 

bank continues to explore new opportunities and 

strategies to sustain, and hopefully grow our 

earnings, in the future.

So the bank's on-balance sheet 

liquidity remains very strong, bolstered by 

growing increases in cash balances. As a result, 
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our total assets have grown by over ten percent 

in the first half of 2021.

Tier 1 leverage remains strong despite 

the significant asset growth. And again, like 

others, we're doing well with regards to 

earnings, mid-year earnings, and tracking about 

56 percent above budget.

Although I will note that they have 

been bolstered in part by some security gains, 

which became available.

The bank's asset quality remains 

strong. Adversely classified assets to capital, 

nonperforming assets and delinquencies remain 

historically low.

As a result of the strong credit 

quality, coupled with a minimal impact from the 

pandemic, fortunately, the bank has resumed prepandemic funding levels to the allowance.

From a governance standpoint, and I 

have heard this loud and clear from several 

others, their recent proliferation of the 
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cybersecurity threat attacks in the U.S. has 

certainly led our board and management to enhance 

our cybersecurity training, readiness and 

preparedness. And ransomware, in particular, 

has been a very hot topic of discussions at all 

levels of the bank.

So with that, I thank you all, again, 

for the opportunity to share what's going on at 

the bank in our great state of New Hampshire. 

And lastly, as a final plug, I would like to thank 

Sultan, for accepting our invitation to speak at 

our upcoming New Hampshire and Vermont bankers 

association annual conference, which, yay, will 

be in person. So, look forward to seeing you 

seen.

And now I will turn it over to Sarah 

Getzlaff.

MS. GETZLAFF: Good afternoon, 

everyone, I am Sarah Getzlaff. I am the CEO of 

Security First Bank of North Dakota in Bismarck, 

North Dakota. It's a $220 million community bank 
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that is family owned. And I am a third 

generation banker.

Thank you to Chairman McWilliams, 

Director Gruenberg and FDIC for this opportunity. 

Since I am last, I'll try to keep it a little bit 

shorter.

But in North Dakota COVID currently 

isn't a huge issue, other than when you're at the 

airport or entering a medical facility there 

really isn't a mask to be seen. We currently 

last had, have less than 200 cases, have less 

than ten people hospitalized. And 40 percent of 

our total population has been vaccinated.

I think the thing on everyone's mind 

right now is what happens when it starts to get 

cold in North Dakota. Our surge happened earlier 

last year, and I think part of that is because 

everybody goes indoors a lot earlier around here 

because it gets colder so much faster.

So, that's kind of weighing on the 

back of our minds, but as of right now, all of 
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our businesses are operating normally. Our 

unemployment rate is back to the pre-COVID, above 

3.4 percent. And our loan portfolio is the 

cleanest it's been in a really long time.

On the residential side our portfolio 

is strong. We're kind of coming off the re-fi 

boom.

The one concern that we do have is 

finding an outlet for loans secured by second 

homes and investment properties. FHFA and Fannie 

Mae recently came out with a seven percent limit.

And we sell directly to Fannie Mae and 

our volume isn't that large and so seven percent 

for us is basically a game ender. We won't be 

able to sell those types of loans anymore.

Which is a huge competitive 

disadvantage for us and so we're currently 

searching for an outlet for that.

We're not really sure is whether FHFA 

realizes the disparity impact this ruling will 

have on small community banks, but we're hoping 
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that they'll realize that and maybe have a 

different set of standards for smaller banks to 

maybe be volume based or origination based.

We are also concerned that our 

commercial real estate market might get tough. 

Many employers, especially the state of North 

Dakota, who is our biggest employer locally, have 

decided to keep people working at home 

permanently. And so we are going to have a lot 

of office space opening up as leases start to 

expire.

Our agricultural portfolio at the end 

of 2020 was really good. We had a good crop. 

And a lot of people received government payments 

and PPP loans.

However, this year we are in a massive 

drought. We didn't have snow this winter and now 

we've had almost no rain this spring and this 

summer. When you combine that with temperatures

in the 90s for most of the summer, most of our 

farmers won't even have a crop to combine. Which 
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will make for a very, very tough 2021.

Overall our earnings will be strong, 

as a lot of others have mentioned. PPP income 

will really help us through 2021.

We have already received forgiveness 

on over 50 percent of our round two PPP loans. 

And so that income is being recognized as we 

speak.

But as others have also said, we are 

swimming in deposits that we thought would go 

away as the economy got back to normal. Usually 

we're in a borrowing position this time of year 

and we're borrowing maybe $10 million, and right 

now we have $35 million in fed funds sold.

When you combine these excess deposits 

with the lower loan demand, and then you add in 

increased competition from non-banks and credit 

unions who don't have the same regulatory burden 

as us and don't have the same tax consequence as 

us it makes it really tough.

And then when you turn to the bond 
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market, it's a terrible time to buy bonds because 

rates are low and if you go out on a seven year 

bond at one and a quarter percent, you know rates 

are going to rise and that bond is going to become 

even less valuable than it already is.

And so, our margin is shrinking. And 

so we're not so concerned about earnings this 

year, but we're concerned about earnings next 

year and in the next five years because most of 

our loans lock in for five years or more.

And we have seen a lot of competitors 

starting to do ten year locks or longer to try to 

get loans. And so it's just kind of, you know, 

an increasingly difficult situation.

With that, I really would like to 

thank you for your time. I really do appreciate 

this opportunity. And I will turn it over to 

Shayna.

MS. KEA: Thank you, Sarah. First, 

before Shayna, let me just say I really want to 

thank you all for sharing your observations from 
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your communities.

We heard a lot of trends, we heard a 

lot of themes. And at this point, just as a 

reminder, I'd like to turn it over to Shayna, and 

we also have Jim and Kathy. Thank you.

MS. OLESIUK: Great, thank you, 

Arleas. And thank you to all of the participants 

in today's discussion.

I've really enjoyed hearing all of 

your information and insights, and so I'll spend 

just a few minutes talking about some of the 

FDIC's observations, which are very much in line 

with what I heard today. And then I will provide 

a summary of our 2021 risk review, which we 

published earlier this spring. And a link to the 

report was included in the materials.

So, in summary, we agree that economic 

conditions continue to improve across the 

country. And importantly, banks have remained 

very resilient.

However, there is still uncertainty 
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about post-pandemic risks and the implications 

for major lending portfolios at banks. 

Particularly real estate.

There is also a lot of uncertainty in 

the outlook for inflation. The consensus 

forecast show that by year end inflation will 

settle at around two percent. But it's currently 

much higher than that, so some uncertainty there.

Looking at GDP growth. In first 

quarter 2021 we had GDP growth of 6.4 percent. 

And the current consensus is that we'll even 

increase for the entire year to about 6.7 

percent.

So the consensus shows that also the 

economy will reach and surpass its pre-pandemic 

GDP level in second quarter of this year, which 

is great news. Of course the significant 

stimulus payments have been instrumental in 

boosting GDP over the last several quarters.

As many of you mentioned, employment 

continues to recover from the lows back in 2020. 
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And as I've pointed out in recent meetings, this 

recovery has not been as quick as GDP.

Payrolls have recovered about twothirds of what was lost last year, so still about 

a third of the way to go.

And as we heard from several speakers 

today, the recovery and job growth is slowing in 

many places because of the labor shortages that 

we're seeing. With some workers being unable to 

return to work for a variety of reasons.

And the labor force participation rate 

has dropped to record lows nationwide. So this 

is certainly a concern for the pace of growth 

going forward.

Thinking about, or turning to the 2021 

risk review. This is an annual publication that 

we put out. So just a few highlights from that, 

that may be of interest.

So we covered several key credit 

risks, looking at the aftermath of the pandemic. 

We looked at several sectors, including 
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commercial real estate, energy and small business 

in areas, that was, this group was sectors that 

had been particularly challenged in 2020.

In particular, we looked at commercial 

real estate. And we focused on this partly 

because commercial real estate loans held by FDIC 

insured institutions reached a record high at the 

end of 2020. So continue to grow even despite 

the pandemic.

And community banks hold about 28 

percent, or about $725 billion, in commercial 

real estate loans. This is well above their 

share of the banking industry's total assets and 

total loans. So there is considerable exposure 

to this sector.

Commercial real estate asset quality 

remained stable at year end 2020. And actually 

much more favorable then after, in this point in 

the cycle and prior recessions. But of course 

we still await the post-pandemic period after the 

loan accommodations and forbearance.
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We also wrote about some credit 

portfolios that did better than expected in 2020. 

Including housing and agriculture.

So housing, as was mentioned today, 

even though there was a low early in 2020, home 

sales continued to climb last year. The 

inventory of available homes for sale continued 

to decline. And all of this supported price 

growth.

And some encouraging signs is that 

there is a record low supply, which is helping to 

support prices. And also, there is a very small 

share of homes with negative equity.

Especially compared to what we saw 

back in 2008, 2009. So, that also could help 

insulate banks and other lenders from potential 

losses, like we saw last cycle.

And we also touched on agriculture, 

but I know that Jim will be talking about that, 

so I will pass on that. Basically, as we heard 

today, agriculture did very well in 2020.
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And then finally, the risk reviewed 

talked about manager's margin compression, which 

we know is certainly a challenge. And we heard 

that from several of the participants today.

As we pointed out in the quarterly 

banking profile for the first quarter of 2021, 

NIM for both the industry and community banks 

reached a record low. And this is going to be 

particularly challenging when combined with the 

low rates and low loan growth going forward.

So I encourage you to read the risk 

review and let me know if you have ideas or 

suggestions for topics for the next issue. We'll 

be starting to work on next year's report soon. 

So with that, I will turn it to Regional Director 

Jim LaPierre.

MR. LAPIERRE: All right. Thank you, 

Shayna. And thanks everybody for joining the 

meeting today. I want to say hello to my three 

bankers, Teri and Steve and Sarah.

I also want to say hi to Mark Pitkin 
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in New Hampshire. As you said, Mark, you drive 

across the entire state in a couple of hours. 

I'm from Gilford, my wife is from Concord, so her 

and I are practically your next door neighbors, 

so always good to see a fellow New Hampshirite.

I'm going to talk about what's 

happening in the Kansas City region. It's 

interesting, as we run around, and all of you 

spoke, not only has everything on my list been 

covered, it's all been covered at least by a 

couple of you across the country, so really 

clearly what you're seeing is what we're seeing.

But my focus is very much on our seven 

states, which are Kansas and Missouri, Iowa, 

Nebraska, North and South Dakota and Minnesota.

So, we are a very ag centric region. 

And we do, probably you've heard Shayna talk in 

the past about what we do. We do what we call 

regional risk committees twice a year.

Our regional risk committee always 

starts with a presentation on what's happening in 
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the ag sector, just because we have so many ag 

banks.

Right now a combination of very strong 

government payments in 2020. And commodity 

prices for the commodities that are grown in our 

region. Being manly three row crops, wheat, 

soybeans and corn. And then livestock, in 

particular, cattle, calf pricing has been good.

And that's been a lot of farmers, as 

I think Teri mentioned, many farmers have 

actually taken, not only been able to sell 

inventory that they had on hand, but also to lock 

in what will be good prices with using the 

future's market.

So we're pretty positive on the ag 

sector. What we are concerned about is the 

drought. And both Steve and Sarah mentioned 

that.

Like Teri, Teri and I are not that far 

apart. Geographically I'm in Kansas City. 

We've had a good moisture here in the southern 
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part of the region, in the eastern part of the 

region.

And I'm not going to go a lot into the 

drought just because Kathy is going to cover it. 

The drought is even more severe in the western 

region, thank you Michael for showing the graph 

here.

And as you can see, the San Francisco 

region, and my colleague and Kathy Moe is going 

to talk about the situation out there so I will 

skip over that. But I do absolutely agree, Steve 

and Sarah, that is a concern here.

Unemployment in the Kansas City region 

has been very low. June numbers just came out 

at the end of last week. 2.5 percent is our low. 

That's Nebraska. Actually the lowest in the 

country, that 2.5 percent unemployment to 4.3 

percent here in Missouri, where I am.

And that's versus 5.9 percent national 

unemployment rate. And that's been, really been 

true throughout the downturn.
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Our states were much more open than a 

lot of states on the east and west coast. And 

we had a return to job growth very quickly last 

summer.

The labor shortages, all of you 

mentioned it, and I'll just agree with what all 

of you said. The local restaurant that my wife 

and I frequent that just not even a mile from our 

house, they had to close on Monday nights because 

they can't find people to work there.

What's interesting is it's a family 

owned restaurant and most of the people who work 

there are family members. So they have a very 

small number of people that they employe that are 

not family members, but even keeping those folks 

has been a challenge. So no different than what 

you're hearing across the country.

I'll talk about exam ratings. Exam 

ratings in the region are better than they have 

been since prior to the 2008, 2009 downturn.

I've been regional director here for 
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16 years, so I was here before the last downturn 

through the downturn and beyond, and we have not 

seen ratings as good for examinations, safety and 

soundness exams, since before the last downturn.

Compliance and CRA exam rating also, 

very, very strong in the region. They are also 

just a little bit better than they were at year 

end 2019. That's the part that I find really 

surprising.

They're only a little bit better 

because 2019, year end 2019 we already had very 

strong exam ratings across the region.

One thing that I am very concerned 

about, and we talk about a lot in our region is 

loan demand. Loan demand, if you back out PPP 

and you back out the residential real estate 

activity that is, many of you talked about, just 

the low demand, or I'm sorry, low supply and very 

high demand, when you back those out, loan demand 

is very weak and is negative in a lot of sectors.

And so, we worry about loan demand. 
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We talked about liquidity. In my region the 

loans to assets at the median, the bank that's 

right in the middle, is less than 60 percent.

Historically, banks in our region run 

from the low 60s to the high 60s to about 70 loans 

to assets. So 59 percent is a low level of loans 

to deposits, or loans to assets. And you talk 

about those deposit rates, agree with you that 

that deposit activity, they're very sticky even 

with the low rates that banks are offering just 

because of the people's desire to remain 

liquidable, both individual consumers and banks.

Asset quality is very strong in our 

region. Past due and nonaccrual. Again, at a 

rate less than 0.9 percent rate at the median, 

below where we have been since prior to the '08, 

'09 crisis.

I will agree with the comments about 

net interest margin and agree with the comments 

that Marnie and Teri made about competition. The 

bankers in our region tell me that they are 
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competing ferociously on price for high quality 

borrowers. Whether those borrowers are 

consumers or businesses. So, I'm hearing exactly 

that.

Last two items I'll mention, 

cybersecurity. I was talking to the commissioner 

in Iowa last Friday, Jeff Plagge, and I said, I 

made a comment, I said, cybersecurity is a game 

you can't win, you just play for a tie every day, 

you play for a tie and the next day you have to 

come in and play for the tie again. And so it's 

just a very, it is a great challenge. It's 

something we talk about a lot within my 

management team.

The last thing I'm going to talk about 

is M&A. I would just, Shayna and I have been 

having a conversation back and forth the last 

month or so about M&A.

If you look at the consolidation rates 

that the FDIC puts out every quarter when we do 

our quarterly banking profile, you'll see 
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consolidation numbers have slowed pretty 

dramatically, but the announced transactions have 

increased very dramatically.

So Raymond James reported at the 

beginning of July that in the first quarter of 

this year were there 35 transactions nationwide 

announced. In the second quarter was 60.

I can tell you in our region we're 

seeing an awful a lot of M&A. I think there is 

pent up supply and pent up demand from last year. 

And I think we're going to see that work its way 

through in the second half of '21 and into '22.

So with that, I will turn it over to 

Kathy Moe, my colleague from the San Francisco 

region.

MS. MOE: All right, very good. 

Thank you, Jim. Well, similar to Jim, the 

bankers on the call today have covered a lot of 

the topics I had planned to cover.

The San Francisco region includes the 

11 western states from Canada to Mexico. And 
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that includes Patty's state, Alaska. And also 

Hawaii, Guam and the pacific territories. So you 

can see that's a very large and diverse 

geographic area.

I just want to highlight a few aspects 

that make the San Francisco region somewhat 

unique and share some local banking and economic 

trends.

Locally, some of the key concerns 

raised by bankers, and the regulators, relate to 

drought, housing affordability and keeping pace 

with tech innovation, competition, the factors 

that you've mentioned today. The labor shortage 

comes up a lot. And then certainly last, but not 

least, that cybersecurity.

Our recovery here in the region has 

been very favorable as well. But there are 

really widespread differences by state, and 

really by micro-metro areas as well.

Utah, for example, the unemployment 

rate is the fourth lowest in the country at 2.7 
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percent, while Hawaii is the highest at eight 

percent. Then that's followed just behind by 

California.

Also, our banks have really 

experienced tremendous asset growth. I spoke 

with a bank in Washington State yesterday, a 

smaller $600 million community bank, they had 18 

percent growth. A growth rate of 18 percent in 

the past 15 months.

One thing I would say for the region, 

the transportation autonomy, I use that word sort 

of broadly, is really key in the return to work 

and in the recovery. And really impacts 

commercial real estate conditions.

Shayna mentioned that commercial real 

estate loans reached a record high at the end of 

last year. And in the San Francisco region, a 

median commercial real estate concentration is 

244 percent of capital. Tier 1 capital. And 

that's well above the nation at 144 percent.

But for the San Francisco region, it's 
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the lowest rate since 2013. But again, still the 

fast growing portfolio besides C&I loans, which 

is represented by the PPP loans that you all have 

mentioned.

As far as trends in retail and 

lodging, I think those really mirror the national 

trends. Vacancies are high in terms of retail 

in the bay area and Honolulu. Those areas that 

were really most notably locked down very 

significantly, California, Hawaii, for example.

Lodging really depends on the location 

and the type of property. Several of you 

mentioned the national parks and ski areas and so 

forth, and those have been really popular and 

have fared pretty well.

I think the key here is the return of 

the business traveler and foreign visitors. 

There are really paramount to the full recovery, 

as far as the lodging sector.

Our office performance continues to 

weaken, but mainly along the coast. Seattle, 
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southern California, Bay area. And then other 

markets are really improving, Salt Lake and 

Phoenix.

And really, I think it's the story of 

the telework and tech companies pushing remote 

work. And that really continues to evolve.

We are seeing some positive signs for 

office. For example, Los Angeles recently saw 

their largest office lease signed since early 

2019. And that was to a talent agency.

One of the things I have been telling 

bankers, in terms of commercial real estate, is 

just the importance of reviewing the future 

prospects of their commercial real estate 

portfolio since I think we've all seen the radius 

of where people live compared to where they work 

is much wider now. So, how does that effect your 

portfolio.

Some businesses rely on that physical 

location presence and others don't. So that 

might impact who shops where, who leases what 
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space and so forth.

So I think that's really, those are 

really good questions to think about when 

analyzing the commercial real estate portfolio.

Like Jim said, good news on, as far as 

ratings are concerned. Our ratings have really 

remained stable. And so that's a positive for 

all of our banks.

And again, I want to take this moment 

just to recognize all the hard work that the 

bankers have put in to this past 15 plus months 

and the programs that you've implemented. And 

the flexibility you've shown in terms of remote 

examinations. It's really been a collaborative 

partnership so I certainly appreciate that.

Mike, if you can go back to that 

drought map. My banker friend in Idaho mentioned 

some of this already.

Out here in the west some of the 

conditions here are pretty dire, as you can see. 

The dark red really represents the worst of the 
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worst.

Twenty-eight percent of our region is 

in exceptional drought. And that's the most dire 

category. Ninety-five percent of the west 

climate is experiencing drought, with 64 percent 

in extreme drought. But the exceptional drought 

is almost a third. Alaska and Hawaii are the 

only states that really have had a less impact.

So I think, what does this mean for 

us, it's early in the year so that is a concern. 

But I think the conditions are expected to 

persist or intensive through the summer.

Reservoirs are at very low levels. 

Lake Mead, or the Hoover Dam, which supplies 

water to people in Southern California, Arizona 

and Nevada is rapidly depleting. And I 

understand that the government, they actually 

declared the first ever shortage on the lake next 

month, and will trigger cuts in water deliveries, 

perhaps starting as early as January of next 

year.
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Right now there aren't any water 

restrictions or mandatory state wide water 

restrictions at this time, but curtailment is 

certainly being encouraged. And the agriculture 

area will have a huge impact on, or will be 

significantly impacted by the drought and the 

water restrictions.

The drought has also caused increased 

fire activity, which has been mentioned. We've 

seen an unusually early and active start to the 

wildfire season here in the west.

There are 70 active large wildfires in 

the nation. All but three of those are in the 

San Francisco region. And we've had over a 

million acres burn so far. The largest one is 

the one in southern Oregon, which is roughly 

400,000 acres and only about 30 percent contained 

at this point.

The concern I hear in this area is 

really one about insurance concerns. It's become 

too expensive. Or in some cases, it's just not 
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available in mountain areas, higher elevations.

And Mr. Wharton from Colorado may have 

had that experience too that it's just not 

available to some of the customers.

San Francisco is also unique from the 

perspective of some of new bank interests, the 

applications we've received as well as the range 

of strategic partners and activities we've seen 

here in the west. Roughly a third of the banks 

have some kind of a relationship with a fintech 

or they're developing their own technologies.

And we certainly saw that increase 

during PPP implementation. But I think we've all 

experienced an increase observation of people 

being more comfortable with online activity and 

digital lending and so forth. And with that 

brings some new interest in crypto and different 

types of technology.

I wanted to share yesterday, we had a 

meeting, and my local fed counterpart mentioned 

that they performed a LinkedIn search of jobs 
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that mention crypto. Seventy-five hundred jobs 

came up. Fifteen hundred of those are in 

California.

So it just tells you what interests 

there is and how these technologies and different 

things are becoming more and more prominent.

Wyoming also has a unique charter, 

special purpose depository charter, which is not 

yet operational. But focuses on digital assets.

Our de novo activity in the west 

clearly is reflective of the animation out here. 

And we've seen pretty robust de novo activity. 

And certainly have seen groups also take 

advantage of the FDIC's draft proposal process.

We have not seen the M&A activity that 

Jim alluded to. At least not as robust as other 

parts of the country. Although we do see some 

announcements, but we just haven't seen quite the 

level of activity.

And lastly, I'll just quickly touch on 

housing affordability. Many of you mentioned 
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that today. It is increasingly a concern. And 

I'm not referring to San Francisco.

I think what we used to refer to as 

the hot housing markets or sort of the, a boom 

town, we're now referring to those hot housing 

markets as zoom towns. Those people that are 

living elsewhere and able to do their job.

Markets like Boise and Jackson and 

Phoenix have really, have really benefitted from 

that migration. But it's amplified the housing 

shortages.

And local residents are out priced or

out bid. And there is not new construction 

available or the construction costs, as was 

mentioned, are really prohibitive.

So I think I'll stop there. But 

again, bankers, I think you all have been very 

resilient and very flexible with us in our remote 

working examination environment and I appreciate 

that. Thank you.

MS. KEA: Thank you all. To the FDIC 
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Staff. I would like to invite the bankers to ask 

any questions that they might have for Shayna, 

Jim or Kathy.

Any questions, comments? I’ll give 

it just a moment, in the event there is a delay.

If not, I'd like to just thank all of 

the bankers for your observations. Once again, 

thank you to our staff for giving that very 

insightful information and reaction to the trends 

and themes that we've heard from our bankers.

And to the extent that there aren't 

any questions, after we take a short break then 

we can come back. Thank you all.

At this point let us take a ten minute 

break. I show that we have 3:15, let us come 

back at 3:25.

(Whereupon, the above-entitled matter 

went off the record at 3:15 p.m. and resumed at 

3:25 p.m.)

MS. KEA: Well let me welcome everyone 

back. And thank you once again to all of our 
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members for that very meaningful sharing that you 

provided in terms of your local conditions. And 

thank you to our staff.

Now that you've had just a brief 

pause, I did want to ask whether any of our 

members had any questions, had any comments or 

observations for our FDIC Staff? Related to our 

earlier discussion. I'll give it just a moment.

Okay, if not, then I'd like to go 

ahead and move on to our next agenda item. Some 

of you may be aware that on yesterday we had a 

meeting at the minority depository institution 

subcommittee.

And you may also recall that Gilbert 

Narvaez serves on both this committee and the MDI 

subcommittee. So I've asked Gilbert and then 

Betty Rudolph, our national director of minority 

and community development banking, to provide us 

with a brief update from yesterday's meeting.

So at this point I'd like to turn it 

over to Betty and to Gilbert.
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MS. RUDOLPH: Thank you, Arleas. I'd 

like to briefly remind the Committee that the 

FDIC established the MDI Subcommittee back in 

2019 under the authority of the advisory 

committee on community banking, or the CBAC.

And the Federal Advisory Committee Act 

requires that subcommittees provide advice or 

recommendations to the agency through the parent 

committee. And as a result, the MDI subcommittee 

reports directly to the CBAC, or all of you, and 

not to the FDIC.

The three goals of the MDI 

subcommittee are to serve as a source of feedback 

for the FDIC on strategies to fulfill its 

statutory goals to preserve and promote MDIs. To 

provide a platform for MDIs to promote 

collaboration, partnerships and best practices. 

And finally, to identify ways to highlight the 

work of MDIs and their communities.

The MDI subcommittee is composed of 

nine MDI executives representing a diversity of 
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types of MDIs. African-American, Asian, 

Hispanic and Native American. And a range of 

business model size and geographic mix.

The nine members of the MDI 

subcommittee represent about ten percent of the 

94 MDIs that the FDIC supervises. In addition, 

we have three MDIs represented on the CBAC. 

Kenneth Kelly, Gilbert Narvaez and Andrew West.

At this time, the MDI subcommittee 

does not have any recommendations for the FDIC, 

but the subcommittee does want to share a brief 

summary of our discussions yesterday. And I'll 

turn it over now to Gilbert Narvaez to walk you 

through these updates.

MR. NARVAEZ: Thank you, Betty. We 

had a briefing on BankOn accounts, which are safe 

affordable accounts that are designed to attract 

customers who historically have been unbanked. 

The accounts are low cost and feature no 

overdrafts or surprise fees.

Over the past year these accounts have 
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grown in popularity as a way to receive a direct 

deposit, a variety of benefit payments connected 

with COVID-19 pandemic recovery.

We heard about the benefits of these 

accounts and how the certification process works. 

And how two MDIs had successfully implemented 

these accounts to reach an important customer 

niche. I think CBAC will hear more about these 

accounts in the next session of our meeting.

Also, during the roundtable, each MDI 

member discussed their current banking conditions 

and unique issues facing their institution. Many 

of the themes were echoed, those discussed 

earlier today.

Which included the recovering 

economy, labor constraints. Particularly in the 

hospitality and tourism industries. The hot real 

estate markets and the increases in material 

costs for construction.

Next, the FDIC chief innovation 

officer provided us an update on the initiatives 
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of the FDiTech. Including tech sprints to reach 

the unbanked. That the CBAC will also hear later 

on this afternoon.

Next we received an update on the 

mission driven bank fund. FDIC is developing the 

framework structure and concept of operations of 

this fund. Which will channel private sector 

investments into FDIC insured minority deposit 

institution and community development financial 

institution.

The FDIC will not be an investor or 

make investment decisions, but will retain an 

advisory role.

We learned about the governance 

structure that is designed to emphasize the 

mission, orientation of the fund. We also 

learned that the FDIC and investors will be 

providing addition information about the fund to 

the public in the near future.

Finally, we had an update on recent 

MDI program initiatives. The FDIC board approved 
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the final statement of policy regarding minority 

deposit institutions that was published in the 

federal register on June 23, and becomes 

effective on August 23rd.

We updated the statement of policy. 

Clarifies the FDIC's expectations for technical 

assistance and illustrates opportunities for 

engagement with variety of FDIC Staff.

It also highlights the FDIC outreach 

efforts, including the MDIC subcommittee. It 

defines terms used in the MDI program. And it 

details considerations made by examination staff 

when evaluating performance and assigning 

ratings.

We also reviewed the 2021 MDI program 

effectiveness survey. The FDIC has 12 outcome 

program goals related to MDI satisfaction with 

technical assistance outreach and education and 

training. Eight-five percent of the respondents 

are either likely, very likely or almost certain 

to participate in technical assistance, outreach 
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and educational initiatives in the future.

We also heard about some of the key 

features of the 2021 interagency MDI and CDFI 

bank conference that will be held virtually at 

the end of September.

And we also discussed the recording of 

the MDI origin stories. Which are videos that 

the FDIC will be facilitating in the coming 

months as part of this advocacy initiative.

This concludes the report of the MDI 

subcommittee. Betty and I welcome any questions 

you may have.

MS. KEA: Okay. Any questions for 

Gilbert or Betty? Let me thank you, Betty, and 

let me thank you, Gilbert, for giving that 

report.

We'll move on to the next item. In 

the many trends and themes that I heard you all, 

members of the subcommittee mention, almost 

everyone talked about the importance of financial 

inclusion. You also mentioned diversity, equity 
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and inclusion.

And I think that you will really find 

the information that we have to share in this 

next session very, very informative and important 

to you. We have Nikita Pearson, who is our 

Director of Office of Minority and Women 

Inclusion, and Elizabeth Ortiz, our Deputy 

Director of Consumer and Community Affairs.

And they are going to discuss some of 

our initiatives in these areas. So, Liz and 

Nikita, I'd like to turn it over to you.

MS. ORTIZ: Thank you, Arleas. And 

good afternoon everyone.

I think I am going to start us off. 

And I want to start by thanking everyone for 

making time on the agenda for me and for Nikita 

to talk about FDIC's efforts to expand financial 

and economic inclusion.

You can go ahead and move to the next 

slide. And I would not be at all surprised if 

Sultan Meghji doesn't speak about it a bit during 
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his presentation as well.

And that's not just a happy 

coincidence, that really reflects this agency's 

longstanding commitment to bringing the benefits 

of a banking relationship. That idea of 

belonging and participating in the financial 

mainstream to all consumers.

The easiest way for me to describe the 

FDIC's economic inclusion strategy is to ask you 

to picture a ladder. Each rung on the ladder 

represents a point of connection between the 

consumer and his or her financial institution.

Our ladder envisions five specific 

points of connection. And as consumers work 

their way up the ladder they are deepening their 

relationship to the financial system, and we hope 

increasing their financial stability and 

resilience.

I wanted you to see the whole picture, 

even as I now turn to the second economic 

inclusion opportunity area. Access to an insured 
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account.

And by now I hope all of you have heard 

or seen something related to the FDIC's GetBanked 

initiative. And if you have not yet visited 

fdic.gov/getbanked, our landing page, please feel 

free to do so now.

GetBanked is a three pronged effort to 

motivate unbanked consumers to begin a banking 

relationship by opening a bank account. First, 

we envision that there will be more banks 

offering accounts that work for consumers. 

Particularly those consumers that are new to 

banking or have had a bank account before and now 

want to begin again.

Second, we hope to increase consumer 

awareness about the benefits of a banking 

relationship and the availability of accounts 

that can work for them.

Third, we are investing in strong 

local networks. Those coalitions of community 

based organizations, non-profits, government 
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agencies, that act as a bridge connecting 

consumers and communities that need access to 

financial services with the banks that can serve 

them.

And if we want to move the needle for 

the unbanked, then we need to be firing on all 

three of these cylinders at once.

I would also like to offer my personal 

perspective on why this matters. The FDIC has 

seen economic inclusion as mission critical going 

back to the last financial crisis, and even well 

before that.

Broad based participation is an 

essential element of stability. It's the most 

tangible indicator of public confidence.

So banking access matters all the 

time. However, right now, and especially in the 

past year and a half, we have seen that there is 

an overlap among those communities hardest hit by 

the pandemic and those facing economic hardship.

And when you're trying to get 
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financial assistance safely and quickly to those 

that need it the most, adding a bank account and 

having a direct deposit is the best way to do it. 

However, many of these same families are among 

those represented in the unbanked. And so you 

have a disconnect.

As an industry and as a regulator, we 

are well positioned to address this challenge. 

And we can work together with non-profit and 

government partners and we can make a difference 

when it comes to closing the gap among the 

unbanked.

So, let's talk a little bit more about 

#GetBanked. Next slide please. The FDIC 

created its GetBanked landing page in English and 

Spanish for consumers that were interested in 

opening a bank account.

The webpage has resources that address 

questions from consumers about why it's important 

to have a bank account and how to find one that's

going to work for them.
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Our goal was to have a one-stop shop 

so that any organization or any agency that 

wanted to promote account opening for their 

clients or contacts, especially as it related to 

direct deposit, had a trusted resource that they 

could point to.

Next slide please. The first phase 

of the GetBanked initiative actually kicked off 

last April when the first round of economic 

impact payments were announced.

The FDIC wanted to communicate the 

importance of getting banked so that low and 

moderate communities who were hardest hit by 

COVID could more easily access government 

financial assistance.

We worked closely with three groups of 

stakeholders in order to achieve the initiative’s 

goals. First, government agencies at all levels. 

Federal, state and local.

Two, we've looked to bank trade 

associations. And three, intermediaries. Those 
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community based organizations that help connect 

consumers to the financial institutions and other 

resource providers in their communities.

And we continue to use all avenues to 

communicate with all of our stakeholders. 

Outreach and events that are delivered by our 

community affairs specialists across the country.

And these events have continued 

virtually throughout the pandemic. And this 

allows us to keep our local connections active 

and alive and working, even as we continue to 

align the relationships with our contacts and 

partners here in D.C.

We use social media, podcasts, 

publications and short videos, like FDIC 

Explains.

Historically much of the FDIC's 

communications have been through institutions and 

through partners. Although more recently we have 

tried to be creative as look to increase the level 

of communication with the public.
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We are learning and experimenting with 

different avenues for communicating and getting 

our messages to consumers directly. Which brings 

me to the next slide.

On April 5th the FDIC launched a 

public awareness advertising campaign to motivate 

unbanked consumers to join the banking system. 

We worked closely with our colleagues in OMWI to 

develop messaging that would resonate with our 

target volumes.

There are approximately 7.1 million 

unbanked households in the United States. That's 

roughly 5.4 percent of the population.

But there are important distinctions 

when you drill down. With Black and Hispanic 

households being many, many more times likely to 

be unbanked.

Our advertising took place in two 

metropolitan areas. The Atlanta and Houston 

MSAs.

And we tried to reach our target 
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audience directly. Through streaming audio 

advertising, digital banners, streaming TV, 

mobile video advertising. Basically anything 

that you can get through your phone, which just 

about everyone has and uses for just about 

everything.

The ads ran through July and they 

encouraged people to visit fdic.gov/getbanked and 

open a bank account. We are still processing the 

data on the results of this campaign pilot, but 

the preliminary numbers are encouraging.

Individuals who saw the digital videos 

watched them through to the very end. 

Individuals from both cities clicked on the FDIC 

GetBanked webpage with noticeable increase in the 

number of visitors coming to that page from 

Atlanta and Houston during the period that the 

campaign was running.

And we know that visitors to our page 

also visited the websites of organizations like 

BankOn as well.
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So what now? Next slide please. I 

leave you with a couple of things to consider. 

Review the research that's available from the 

Federal Reserve Bank of St. Louis.

They are tracking data from now ten 

banks that are voluntarily reporting information 

about their institutions experience with BankOn 

certified accounts. And as of right now, over 

100 banks have become certified.

Just one nugget. In 2019 1.9 million 

accounts were opened by the ten institutions that 

are reporting data. Of which 85 percent were new 

to the institutions. As more institutions get 

certified and volunteer to report, the database 

will become even more robust and more useful.

The second thing I'd like you to do is 

continue to assess the benefits of working with 

a local network that promotes economic inclusion. 

Such as the FDIC's alliances for economic 

inclusion or BankOn coalitions or other financial 

empowerment organizations that exist in many 
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cities across the country.

And then finally, determine how 

offering an affordable account might allow your 

bank to cultivate and grow successful customer 

relationships. Consider offering a BankOn 

certified account or a similar type of low fee, 

no overdraft account.

And know that the American Bankers 

Association is working with the core service 

providers to make it easier for community banks 

to adapt their platforms to accommodate some of 

the accounts most important features, like no 

overdraft.

And I would offer just one final 

anecdote. Beginning July 15, child tax payments 

have started to flow to millions of families 

across the United States.

The FDIC's webpage is listed on the 

IRS's webpage. That encourages tax payers who 

are eligible for this child tax credit to update 

their account information so that they can start 
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to receive monthly payments, to provide 

additional support for their families.

In the first week that the IRS portal 

was opened, roughly 350,000 people input their 

bank account information. And last week, we are 

seeing at the FDIC as many as 10,000 visitors to 

the FDIC's GetBanked webpage each day.

And our partners at BankOn report to 

us that at least half of their website traffic 

comes from the FDIC. And half of those visitors 

clicked through to a bank.

I share this with you so you can see 

how we are making the connections we can in order 

to bring consumers closer to a banking 

relationship.

Next slide. So contact me or any 

member of the Community Affairs Team. Their 

contact information is listed here.

Follow us on social media, use our 

hashtags and let's work together to get American 

banked. Thank you. I now turn it over to 
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Nikita.

MS. PEARSON: Thank you very much, 

Liz. I'm so excited to have the wonderful 

opportunity to work with Liz, because financial 

inclusion is particularly important to me and to 

the FDIC. And it really -- the work that Liz is 

doing and the work that I'm doing in our Office 

of Minority and Women Inclusion intersects, and 

that is because true equity and inclusion cannot 

be achieved until every American has access to 

the benefits of the U.S. banking system. And so 

that's one of the many reasons that we released 

earlier this year our very ambitious DEI, 

diversity, equity, and inclusion strategic plan.

Mr. Kelly, I heard you earlier mention 

about how do we make our efforts in this area 

meaningful and have real progress and make it 

more impactful. And I told you and Madam 

Chairman McWilliams really must have had a 

conversation together. And I’ll tell you a short 

story related to that. I've been with the agency 
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for 23 years, and I must say when I took on this 

job, it had a start like no other. On my first 

day on the job, I learned two things.

The first thing I learned that I 

needed to represent the FDIC to testify before 

Congress about diversity. That's a story for 

another day.

The second thing that I learned is 

that the Chairman hated the draft DEI Strategic

Plan that we actually had. And so I had a meeting 

with the Chairman. I said, Madam Chairman, I 

know this is my first day on the job here. There 

are a lot of people who put in a lot of great 

work into this plan. You know, we got all the 

fancy words, all the nice -- the dots and the 

connections. And I asked her, "What don't you 

like about it?" And she looked at me and she 

says, "It's two things I don't like about this 

plan. One, it is a whole lot of nice great 

corporate words. It has all the DEI lingo, but 

I can't tell what we're actually going to do. 
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The second thing is that I have no idea what our 

desired outcome and results are and how we're 

going to measure our success." Then she looked 

at me and said, "Fix it after you testify before 

Congress." I said, "Okay, we got this."

So we started working on the DEI 

Strategic Plan, and there are a few ways, if you 

take a look out on our website and you look up 

our plan, there are a couple of ways that it's 

different that I'll point out to you today. The 

first thing is that we wanted to make sure that 

we defined our mission, our values, and our 

vision as it relates to diversity, equity, and 

inclusion. Beforehand our plans had the list of, 

you know, the vision and everything got more so 

related purely to our bank supervision 

activities, but we really needed to take the time 

to say what DEI means to us, how we plan to 

accomplish it within our mandate.

The second thing is that we wanted to 

make sure that we did not go and just focus on 
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our workforce. Our workforce is important. 

It's our greatest asset. We also had an 

opportunity to have an impact on the communities 

that we serve. And so this is the first time our 

DEI Strategic Plan also incorporated that all in 

an effort to be more meaningful and more 

impactful.

So we got to what our vision is. Our 

vision is to foster a safer, fairer, and more 

inclusive workplace and banking system, and there 

are ways that we can get to this. We call them 

the five C's. When I'm speaking out in public 

groups, I say named them all C's so that you can 

remember them better. It's a marketing ploy. 

But when I'm actually talking with bankers, I 

want to make sure that I make the point I'm also 

a commissioned bank examiner. So just like you 

have five C's of credit, that resonates with me, 

so we have our five C's for DEI. And those C's 

are culture, career, communication, consistency, 

and community.
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I'll briefly walk you through each one 

of those before telling you a little bit more. 

When you think about culture, there's a book and 

also this great saying that culture eats strategy 

for breakfast. When we started to think about 

DEI, if we just came up with a strategy, we could 

make the best strategy in the world, and it can 

be great, and everyone can tell us it's great. 

But if our culture isn't right, everything that 

we do would absolutely be for naught. So we 

focused first on our culture.

The second thing is related to career, 

and when we started dealing with career, we had 

to take a look at from the moment we started our 

recruitment activities to the moment the employee 

comes on, the training and development that we 

give them, all of those parts of the employee 

life -- employment cycle. How can we make sure 

that those are meaningful and everyone has equal 

opportunity to succeed wherever that they are? 

And I heard that and I point this out because 
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there are a couple of things that we're doing 

that I think may be beneficial for some of you. 

One thing that we're doing is we are increasing 

our outreach and work with minority-serving 

institutions. For example, I am the Co-Chair of 

the Economic Development Cluster for the White 

House Initiative on HCBUs.

As I listen to you all, each of you 

talk about some of your staffing challenges and 

some of the challenges that your businesses are 

having. If you haven't already, I would 

encourage you to look at some resources that you 

may not have looked at in the past, build 

relationships with minority-serving 

institutions, and look at hiring opportunities 

for them. This may be the opportunity that is 

perfect for this time and moment and it’s 

particularly when you're having staffing 

shortages, it's great when you can expand your 

talent pool in that kind of way.

Some of the other things, this third 
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C relates to communication. We determined that 

there is a great way for us to build trust through 

transparency in this area. We didn't just need 

to build trust through transparency with our 

workforce. We also needed to do it with the 

public and with you. You'll hear more about our 

financial institution diversity program, and we 

want you to know the same things that we are 

asking you to do that we're actually doing 

ourselves. You can read more about some of our 

efforts in our annual report to Congress.

The fourth C relates to consistency, 

and there's this really great quote -- I can't 

remember who said it at this moment, but what 

this quote says is that intensity makes for a 

good story and consistency makes for progress. 

That one's for you Mr. Kelly. And that is 

because there are a lot of things happening and 

have been happening over the past year or two 

that there are a lot of intensity around it, a 

lot of news stories around it, but how do we make 
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sure that we put things in place that actually 

results in meaningful progress so that we can 

have that consistency in it.

And then the last C relates to 

community. When I think about community, I 

really think about two aspects of our program, 

our minority and women owned business program as 

well as our regulated entities.

So I'll start with our minority and 

women owned business program. When I think about 

minority and women owned businesses, minority and 

women owned law firms, and minority and women 

owned investors, we are looking for ways to 

incorporate and help these entities be able to 

prepare to compete for contracts with the FDIC or 

for any government entity. And so we provide a 

lot of technical assistance. You might ask me, 

Nikita, why should I care about the technical 

assistance that you're giving for people to 

compete for your contracts. That is because 

these minority and women owned businesses, law 
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firms, investors, or diverse attorneys, they will 

be looking for -- they also will need capital. 

They will also have loan requests. They will 

also have bank accounts. And so if you are 

having opportunities or you have some type of 

small business program or any other type of 

program where this audience is reached, and 

actually anyone can participate in our technical

assistance event, we ask you to use us as a 

resource. This is what we do and we are happy 

to help.

The last part I'll talk about in 

community is related to our regulated entities. 

This program is near and dear to my heart for two 

aspects of it. The first is the financial 

institution diversity program. This is where 

annually, we ask all of our banks that have 100 

or more employees to self-report their diversity 

self-assessments to us. And we heard you when 

you told us it was an arduous program, and then 

you also let us know that it was, at the time, 
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the year 2020, and who does anything in paper. 

We heard you. So we created an automated system, 

and we have an automated system to submit your 

diversity self-assessments.

But we didn't stop there. We needed 

to make sure that when you provide us with 

information, that it actually results in 

something that is meaningful for you. So when 

you submit your information, we actually analyze 

the data that is submitted to us, and we share it 

out on our website. So if you're looking for 

ideas about what other institutions are doing in 

a diversity, equity, inclusion space, you can 

come to us.

But I have a challenge. My challenge 

is we are still struggling to get banks to submit 

their voluntary diversity self-assessments. So 

I ask for your help in that space. We are looking 

and working very hard to make sure that this is 

a good use of your time for the small amount of 

time that it is and that we can give you a return 
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on your investment in that.

And then the next part, it relates to 

something that we did earlier this week, because 

we are constantly looking for ways to take our 

programs up to another level. Earlier this week, 

we did a co-hosting with the Ohio Bankers League. 

And as a part of the event, we did what's called 

the perspective diverse director's symposium. 

And in that symposium, what the Ohio Bankers 

League did is partner with diverse trade 

organizations and other federal regulators like 

the FDIC, and we talked to some perspective 

diverse board candidates and told them the things 

that they needed to know. We had a panel of 

diverse directors along with the regulators and 

some other folks. And with that, we hope that 

there is an opportunity to increase the

representation of women and minorities on bank 

board leadership.

So those are a few of the things that 

we've been working on in the FDIC to help foster 
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diversity, equity, and inclusion. And with that, 

I'm going to pause because I want to make sure 

that we have time for questions.

(Pause.) 

Arleas? Any questions for either Liz 

or myself?

MS. KEA: I see a very nice comment 

in the chat from Mr. Kelly. Thank you very much 

for that. Let's just pause for a moment in the 

event there is a delay in this platform. Someone 

is repeating culture, career, communications, 

consistency, and community.

MS. PEARSON: Yay, five C's.

MS. KEA: Okay. I hate to let you go 

and I feel like this is just the start of what 

can be a very long conversation, and I'm sure 

that as time goes on, there'll be more 

opportunities to interact. So let me thank you, 

Nikita, and let me thank you, Liz. That was a 

great presentation of your updates. Thank you.

So let us move on. You had heard 
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mention already of Sultan Meghji, our new chief 

innovation officer. And I'd like to ask him to 

come on at this point, and he's going to give you 

an update on a lot of our tech initiatives. 

Sultan?

MR. MEGHJI: Thank you very much, 

Arleas. And I have to say, following Nikita and 

Liz is -- sometimes it's great and sometimes it's 

bad, it's great, because it's fantastic to follow 

them. They get everybody woken up after a couple 

of hours of meeting like this. The bad thing is 

you have to live up to that expectation, so I'll 

try to do that. And for those who haven't met 

me yet, my name is Sultan Meghji. I'm the chief 

innovation officer. It's wonderful to meet all 

of you.

I'd like to thank all the bankers 

who've been participating in this. I've been 

listening for the entire meeting so far. I'm 

just really, really interested in hearing what 

you guys have -- what you guys were talking about. 
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By way of banking, my experience in the banking 

sector is, you know, some in New York at large 

institutions but also in the Midwest around 

smaller institutions. And so hearing, you know, 

what's really going on out there was, I think, 

hugely valuable for us. And I just wanted to 

thank you. Also, just say to Mark, I'm looking 

forward to sitting with you and the rest of the 

guys up in New Hampshire and Vermont here in a 

month or so. I lost track tack of when that 

event actually is.

You know, it was interesting listening 

to all of you guys talk. I was really excited 

to hear talk on cybersecurity; obviously, very 

excited to hear talk about diversity, but also 

this undercurrent of innovation that lives across 

banking right now and an energy inside of this 

market that is, I think, unlike what we've seen, 

you know, previously. And some of that is 

because of necessity from the pandemic. Some of 

that is because of pressures from both inside of 
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the banking sector as well as with out. But it 

also speaks very highly to the fact that I think 

this is one of the most exciting times to be in 

banking. Whether it's sitting here in a seat 

like this at FDIC or sitting or in a bank or, 

frankly, being an American consumer or a small 

business owner, there is more optionality out 

there. The market is thriving and robust and 

there's a lot of great activity going on. I just 

-- and given everything we've seen over the last 

few years, I think it's actually fantastic that 

the resilience, which is a word I'll come back to 

in a moment, the resilience of the sector is so 

strong.

As a reminder from my previous time 

here -- and in case some of you didn't hear it, 

we have organized innovation here at FDIC into 

four themes. The first is around inclusion, and 

it comes, you know, right on the heels of talking 

about our bank initiative and our other DEI 

initiatives. But inclusion is really about how 
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we foster the most inclusive, diverse, and 

equitable banking system out there.

As we continue to build up our muscles 

in this way, one of the first things we did when 

I started here was bring on one of our colleagues 

from CFPB to join us who specifically works on 

something called "tech sprints." And tech 

sprints come out of the tech community. They 

used to be called "hack-a-thons." And it's where 

you would define a very specific problem, and you 

would bring a very disparate group of people 

together who would all propose ways of solving 

that problem. And then you'd create an 

environment where they could work together. And 

then you would give them the opportunity to 

demonstrate after a finite amount of time 

interesting solutions around that.

And so that's what we're doing. We're 

going to do a series of these through this year, 

but the first one is on inclusion. It's 

especially focused on, as you've heard 
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previously, this last mile problem. There is 

amazing banking out there, whether it's 

traditional banking just done really well 

attacking mainstream challenges, or it's digital, 

or it's everything in between. And there's a 

lot of great opportunity there.

As we -- you know, as we always hear 

in our "How America Banks" survey, there are 

still far too many Americans who don't have great 

access and don't have access to this robust 

system. And so we're looking at new and 

interesting ways of how we can do that.

I will say just as an aside for everyone 

listening, and the bankers especially, please do 

-- I'm going to leave some time at the end of my 

time to get any questions answered -- so please, 

if you have questions, do that. But I'm also 

soliciting a little bit of homework from all of 

you. What do you think we can be doing better, 

or we as the FDIC, or we as an industry, or we -

- or bankers, you know? And I'd love to hear 
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that. We have an email that you can send to, or 

you can just send it to me directly, 

innovation@fdic.gov. It's an awesome 

opportunity and I'm really trying to instill not 

just a little more transparency into this but 

also a culture of listening. I really want to 

hear from all the experts here.

And so on that, just the day before 

yesterday, applications for our first tech sprint 

at FDIC closed, and it's specifically on 

inclusion. We had just under 60 applicants and, 

you know, we're still working through the whole 

list but there are some absolutely amazing 

proposals, even just the proposals got our juices 

going. And I'm very excited for us to work 

through that list and to announce more of that in 

the coming weeks. So that's our first meeting 

theme. It's around inclusion.

Our second is around resilience and a 

lot of you talked about cybersecurity here 

earlier in the meeting, and it is a tremendous 
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issue and a huge problem in this market, and it's 

becoming larger. And it's really, you know, 

growing because of two ways. One is the use of 

technology in this market is just growing, and 

it's growing tremendously.

But then the second is there are more 

bad guys out there with better tools who are 

coming after us, and it's everything from -- you 

know, you've heard about the Microsoft hacks, 

from the energy pipeline and other ransomwares. 

There are a lot of activities out there. We're 

seeing attacks against our digital supply chain. 

Now what's a digital supply chain? It is where 

all the code is written and all the chips are 

manufactured and the dependencies across all of 

that is becoming more and more of an issue.

Yesterday we actually released one of 

our innovation podcasts here where I interviewed 

a former Homeland Security Secretary, Michael 

Chertoff. You know, I've known Michael for a 

long time and Michael's a really thoughtful guy, 
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and he talks about resilience as being able to 

take a punch and get back up. But it's not just 

being able to do it. It's knowing that you're 

going to get punched, and it's knowing that 

that's coming. And so you plan for that. You 

know, in the case of ransomware, we see banks 

that are successfully navigating that and it's 

really because of the strength of their backups 

but also defensive technologies around 

cybersecurity. But resilience is a big issue, 

and it's something that we're putting a lot of 

energy into, and I expect to be able to tell you 

more about that.

But if you're into podcasts, I would 

absolutely listen to it. Michael's an incredibly 

thoughtful guy, and he said some great stuff that 

I think everyone should hear.

One of the other things that we're 

very focused on and our third theme is around 

amplification. You know, there are a lot of 

experts listening to the sound of my voice, 
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people with decades of experience. And we don't 

always do the best job in our industry of making 

sure that those people have the most efficient 

and straightforward way of doing their jobs, 

whether you're sitting in a bank and you're maybe 

a bank secrecy officer looking at potentially, 

you know, bad transactions or you're a regulator 

or you're someone sitting in an office like this. 

We have decades of technology, some of it very 

good, some of it not so good. And we need to 

find ways of removing the friction from every --

the day-to-day lives of people across the system. 

You know, at FDIC, it means if I've got an 

examiner and they spend an hour every day working 

but 45 minutes of that hour is, you know, typing 

into keyboards or something like that, that's not 

a very efficient use of their time. So let's see 

if we can amplify them so they can spend an hour 

being an expert and not 45 minutes. I would much 

rather have some -- a commissioned bank examiner 

like Director Pearson focused on being the expert 
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that she is and not, you know, pecking away at a 

keyboard.

The final theme is what we call the X 

factor one. I call it "protecting the future." 

You know, the 20th Century, in many ways, was 

defined by the American experiment leaning on the 

American banking system and being a leader 

globally, whether it was our manufacturing base, 

or the strength of our balance sheet, or the 

strength of our foreign policy, or the strength 

of our military, so much of that relied on the 

banking system being that backbone. And as I 

look to the 21st Century and an era where now 

we're starting to talk about great power conflict 

again, and we're looking at how to not just 

continue but extend our leadership in the world, 

making sure that we have a banking system that 

can be positioned to tackle those challenges is 

a big piece of this, so whether it's artificial 

intelligence or crypto or quantum computing or, 

you know, people putting crypto notes into orbit, 
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or Elon Musk putting a bank on Mars, you know, 

these things are all coming, and some of them 

faster than we expect. You know, I'll talk about 

two and then I'll look for some questions.

The first one is I was making this --

I thought it was kind of a hyperbolic joke about 

people putting crypto in orbit a few months ago. 

And then I was -- you know, I got a little new 

alert and there was a company that took a crypto 

note and actually launched it onto a satellite 

not too long ago. So I guess my far off science 

fiction was, you know, reality.

And the second is around quantum 

computing. You know, right now, we work in 

digital computers, ones and zeros. Quantum 

computing is not just one or zero, but it's one 

and every other number. And what that 

fundamentally means is for every one piece of any 

one computer that's a traditional digital 

computer, a quantum computer of similar size, 

etcetera would be many, many times faster. And 
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so many, many orders of magnitude faster in 

calculations. And one of the biggest concerns 

that a lot of us have is that that can be used by 

bad guys to attack our financial system. And so 

the National Institute of Standards and 

Technology is running a multi-year program to 

create new encryption standards for all of us, 

and we're incredibly excited to watch that work 

come. But as that comes, we need to be ready for 

it.

And so it's not just one of those 

things where it comes and you install it, you do 

an update like all of you guys do on a weekend. 

This is going to be different. This is going to 

be more like a Y2K or maybe even a little more 

intense than that, because it's not just changing 

the software, but it's also changing the 

hardware. And so getting to change management 

in place, getting the people in place, getting 

ready for that is something I think we should 

start thinking about.
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So with that, giving you a little bit 

of an update. We've got more to come. I look 

forward to speaking to you all again. And if I 

don't see any questions, I will very happily cede 

the floor back to Arleas.

MS. KEA: Thank you, Sultan. Let me 

just in to see if there are any questions or 

thoughts. I think some of your initiatives were 

mentioned earlier by some of our members, so we 

appreciate your being with us. Okay. Let's move 

on then to our next agenda item. Sultan, Thank 

you again.

I'd like to welcome up next Anthony 

Lowe, who is our ombudsman. Anthony is going to 

also provide an update on information which has 

been gathered by his office, and I think he's 

looking forward to engaging with all of you. 

Anthony?

MR. LOWE: Okay. Thank you, Arleas, 

and I appreciate having the opportunity to 

present and talk with the bankers this afternoon 
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and look forward to some questions and comments 

that you might have also.

So I'm going to take a few minutes. 

I've got a handful of slides to capsulize our 

recently-issued report of activities for 2019 and

2020. This is our second publically-issued 

report in the modern era, and if you reviewed the 

previous report, you'll see that we did take to 

heart quite a few of the comments that we got 

from the industry. We've added some more 

substantive details on specific assistance that 

the office has provided to the industry. And 

again, it does cover two years and hopefully, 

this is a one off because we do want to issue 

this report on an annual basis going forward.

As you have or if you will observe 

when you review the report, the previous two 

years were extremely period for the agency and 

for our office, the Office of the Ombudsman, 

where we dealt with a lot of incoming comments, 

questions, observations from the industry 
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including concerns about the disagreements with 

specific exam findings or recommendations about 

delayed responses to correspondence or requests 

from bankers, about the professional conduct of 

the examinations and requests for assistance and 

identifying relevant parties that could help with 

getting some item or some matter to a conclusion.

The report, if you have a chance to 

look at it, provides information about the 

composition of our office, our responsibilities, 

and some really detailed information about 

individual industry cases and comments that we 

got from the external stakeholders. So again, 

hopefully, you'll have an opportunity to review 

it if you have not already. Next slide, please?

So although COVID did affect, you 

know, everyone, I think, in the country and 

definitely the FDIC and my office, the Office of 

the Ombudsman, in many ways, I think we were able 

to continue to remain a source of strength for 

the FDIC during a very difficult time. You know, 
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we had to alter our format for conducting our 

outreach. The majority of our outreach after 

March of 2019 was conducted virtually either 

through using Microsoft Teams or through a 

conference call, but we were able to use that 

technology, and it actually allowed us to see a 

little bit of an increase in our outreach 

activities in 2020. So it is very important for 

us to continue, I think, with that outreach, 

which is extremely important for our 

responsibilities, because it allows us to be able 

to provide timely responses and information to 

the industry, allows us, from an internal 

standpoint, that we can provide feedback from the 

industry to internal stakeholders and decisionmakers about issues, concerns that are coming up 

from the industry.

And most importantly, I think it 

allowed us as ombudsmen to continue serving, to 

some degree, as a clearinghouse resource for 

bankers, you know, that were dealing with a 
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dramatic change in operating environment over the 

last couple of years. And the volume of 

inquiries and requests increased in 2020, and a 

portion of that, I think, is attributable to, you 

know, 230-plus specific pandemic-related 

conversations, questions, and inquiries that we 

got. And I'll talk about some of those in a 

little bit more detail later. But, you know, 

compared to 2019, we also experienced a 57 

percent increase in calls and also increase in 

industry cases. Next slide, please?

So industry cases, those pretty much 

represent questions, concerns, complaints, 

requests for assistance from banks, trade 

associations, some bank commissioners regarding 

the FDIC's operations, our procedures, and our 

communications. As I mentioned, you know, a 

material increase in cases, a lot of it can be, 

you know, attributed to a number of factors. I 

mentioned the pandemic-related inquiries about 

PPPs, SBA, call reports, branch closings. Also, 
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the office assumed responsibility for overseeing 

the post examination survey process towards the 

end of 2019, which has also resulted in some 

additional activity for the office.

During the period that was covered by 

the report, we received over 200 requests for 

information but, you know, over half of those, 

more than half of those involving regulatoryspecific matters, CRA, appraisal regs, national 

interest rates, HMDA, those type of items that 

came up consistently. We also assisted in 

resolving close to 150 issues in 2020, which was 

double what we had in 2019 with regard to 

examination topics, enforcement action 

compliance, classification, clarification on 

assigned ratings, information on the appeals

process, also ineffective or untimely 

communications between a bank, a specific banker 

or counsel in a regional office, you know, with 

regard to correspondence, trying to get a 

response, and also, again, providing 
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clarification on regulatory requirements and 

expectations.

We also received close to 50 

unsolicited contacts often involving allegations 

of questionable activities that were being taken 

by financial institutions or their employees. 

And in most of these cases, after we, you know, 

did a review and tried to determine, you know, 

the proper direction, those would be either 

referred to one of the operating examination 

divisions or to our IG for further review. Next 

slide, please?

You know, when we think about the 

outreach visits, I think it's also important to, 

you know, make sure that it's clear that they 

provide an opportunity for our stakeholders to 

obtain answers to questions about the supervisory 

process and they also provide the corporation, 

you know, feedback. But for bankers, I think 

it's very important that they have that 

opportunity to provide their comments, their 
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questions, you know, their observations in a safe 

and confidential environment.

During that two-year period, we had 

2,600 or close to 2,600 feedback items. Over 

half of that feedback that we received from the 

external stakeholders, again, focused on 

examination matters, you know, broadly 

distributed both risk management and the 

compliance side. I would say that the feedback 

overall, generally, was favorable with regard to, 

you know, our examination processes, 

applications, everything that we do with the 

external stakeholders opining; specifically got 

this comment several times, the examination 

processes now are more collaborative and 

cooperative than in the past.

Also, we got specific comments about 

consumer compliance examiners, that they were 

more helpful in ensuring bankers could understand 

and develop strategies for affecting compliance 

with governing laws and regulations.
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We also got a lot of feedback 

regarding a pilot program for a streamlined 

report of examination that Division of Depositor 

and Consumer Compliance is looking at, and that 

will be used, I'm sure, when that division gets 

ready to get to a final product.

Again, overall the commentary and 

feedback was consistently favorable, but we did 

see, you know, one item that I did want to comment 

on -- and I think Director Mongold mentioned it 

earlier -- in regard to the virtual examinations. 

You know, there was positive feedback about the 

flexibility, the communications, you know, moving 

dates around, meetings and everything else 

communications. But we have seen a growing 

sentiment from the industry asking, requesting, 

you know, that there be some type of a hybrid 

product going forward for future examinations, 

that there be some build out for making sure that 

we do have some portion of the exam that is 

conducted onsite.
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You know, regardless if the feedback 

that we get is positive or not, we try to make 

certain that we report this information up again 

to the internal stakeholders, specifically, you 

know, the chairman's office and also to the 

division directors of risk management and 

depositor -- the compliance group. So we do try 

to make sure we get that information to them in 

a timely manner. Next slide, please?

I did want to talk a little bit about 

the post-examination survey. You know, 

consistent with the FDIC's trust and transparency 

process that we went through, we did have some 

outreach activities at the end of 2019 and 2020 

to, you know, try and get some additional 

information about the post-exam surveys, but we 

did a lot of focus at those listening sessions 

which we held with regard to -- I think we went 

over one slide -- I'm sorry -- next, slide 5, 

please? Okay, that's pertinent. Sorry about 

that.
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So we did have these webinar -- we had 

a webinar in eight sessions around the country, 

different locations. We had close to 250 

participants. And a big part of this was to look 

at the existing guidelines that we had with 

regard to the appeals process. A couple of 

things that we built in to encourage candid 

discussion, we limited the participants from the 

FDIC in that it was mainly just people from my 

group and some folks from the Legal Division.

No one from Examination Divisions did 

participate. And we also, other than handwritten 

notes, there was no recordation of the 

discussion. And we also made sure that the 

participants knew that any of the commentary, 

anything that we put into any type of report would 

not have any specific attribution to a specific 

bank or an individual.

And we learned a lot from, you know, 

the people that participated, you know, 

specifically because we were trying to get to the 
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core question, why are not more appeals or 

disputes of examinations filed, that we're 

advocating for that but we had a question about 

that. And I think at the end of the day, after 

talking with the bankers, it comes down four or 

five major issues; they're concerned about the 

potential time that it might take to go through 

that process, concerned about the cost, concerned 

about the outcome and the fairness of, you know, 

getting a fair decision; and also, there was a 

fear, to some degree, of retaliation if they did 

pursue that process.

You know, I will say that the 

participants' comments when we did get those 

aggregated and shared those internally, those 

were considered last year as the agency began to 

move forward on proposing some revisions to the 

guidelines for the appeal of supervisory 

determinations. And of course, we published a 

proposal in August of last year and after a 

comment period in January, the Board did approve 
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some amendments to the guidelines for the appeal 

process. I'm not going to try to get into all 

of the specifics of the revisions, but I will 

note that the SARC, or the Supervisory Appeals 

Review Committee, will eventually be replaced by 

an independent standalone Office of Supervisory 

Appeals which comports with several of the 

comments and recommendations that we did receive 

during the listening sessions. Now back to the 

next slide?

I've referenced a couple of times the 

post examination surveys and as you all are 

probably aware, the survey is an important tool 

for us to gather valuable information from 

bankers about their examination experiences. 

And we definitely want to get candid responses. 

So to enhance the confidentiality and help ensure 

bankers felt empowered to provide candid 

response, this office did assume responsibility 

for that process towards the end of 2019. You 

know, there had been some variances among the 
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different regions, the geographical regions and 

also along the divisions.

But we have seen a trend of improved 

response rates with regard to bankers completing 

the post examination survey, which I think is 

very good. Also, we've seen a pretty remarkable 

increase in the number of bankers that use the 

survey and check the box and ask for a call from 

this office after the examination has been 

completed, you know, the completed process, the 

transmittal letter. I think when we assumed 

responsibility back in 2019, it was in single 

digits, the number of follow-up calls that were 

requested. Last year it was up to 34 and so far 

this year, in 2021, it's close to 25, so that 

number, if you project it out, is continuing to 

increase.

So again, I do want to encourage you 

and your colleagues -- you know, it's very 

important to use that process and the post 

examination survey. Next slide, please?
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So I did want to make sure that you 

knew that we are embracing technology. Each of 

the committee members, you should be receiving in 

the mail here pretty soon -- hope you can see 

that, maybe you can't, but it's a card, a 

business-sized card that has a QR code on it that 

you can use your smartphone, and this will 

immediately take you to the report which, again, 

has a lot of -- lot more information, more 

granularity than I was able to provide this 

afternoon but hopefully, you'll find it useful.

Definitely looking forward to 

hearing, you know, feedback, comments, 

recommendations, what we can do to make the 

report better for next year. And, you know, for 

now that's my prepared comments, and I welcome 

your questions. Thank you. Back to you, Arleas.

MS. KEA: Anthony, thank you so much. 

We didn't want to have this meeting without also 

providing you with the opportunity to get an 

update from the Division of Risk Management 
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Supervision. And so next up, I'd really like to 

present to you Doreen Eberley, who is the 

Director of the Division, and I'll ask her to 

introduce some staff members that she has with 

her. So Doreen?

MS. EBERLEY: Thanks, Arleas. Hi, 

everybody. We're really happy to be able to be 

here with you this afternoon and hopefully talk 

about some topics that are of interest to you. 

At least I think they will be based on the 

conversation this morning. We wanted to have a 

chance to talk about cybersecurity risk 

management practices and some best practices in 

that area and how you're approaching things. And 

then we also wanted to give you just a quick 

overview, a very high-level overview of some 

changes coming to the Bank Secrecy Act area 

coming out of some legislation earlier this year.

So Martin Henning, Deputy Director for 

Operational Risk, will present the cybersecurity 

portion of the program, and Lisa Arquette, who is 
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Associate Director for Bank Secrecy Act and Anti 

Money Laundering, will provide the second 

presentation. So Martin, take it away. 

MR. HENNING: Great. Thank you, 

Doreen. It's good to see you all, even if 

virtually. I think the last time we presented 

on cybersecurity was back in October of 2019, but 

we certainly value a discussion on this old but 

still very relevant topic, as your comments 

alluded to at the beginning. The threats 

continuously change. The threats continuously 

react to the defenses you put in place, so you 

have a significant challenge to adjust to and 

remain at low risk levels.

So we really want to hear from you, 

how you're leading your companies to continuously 

improve and being careful to avoid talking about 

specific controls in this public meeting, more 

managerial techniques for keeping ahead on this 

important topic. I think as much as I can try 

to put myself in your shoes, it's tough to know 
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where to go next. There's any number of vendors 

out there that will sell, but how do you zero in 

on the next best thing for your company to do.

So perhaps we can talk some about even 

not only your own defenses but those of your 

customers. I heard Neil McCurry comment at the 

beginning about, I believe, either a customer or 

at least a local business in Sarasota that had 

this morning reported a ransomware attack and 

even the comments he made about the impact of 

cybersecurity incidents on the credit worthiness 

or the repayment ability of borrowers is a whole 

nother dimension to cybersecurity. So Mike, if 

you could move to slide 3?

So the threats on this list are 

familiar to all of you except for maybe the last 

one. Sultan mentioned that one but with regard 

to the first one -- I won't cover them all --

ransomware continues to be a top threat. It's 

why it's first on the list. The successful 

attacks in the U.S., when compared to other 
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countries is low, knock on wood, but as several 

of you pointed out, U.S. companies are not 

immune. And when I say "successful attacks," I 

mean big payments. We are researching to see 

what happens in companies that are attacked and 

differentiate and understand the differences 

between those companies that are unsuccessfully 

attacked and those attacks that are successful. 

What are the key differentiators? We're doing 

some work on that right now intending to go back 

to our exam procedures and our public statements 

and see is there anything we're missing, is there 

anything as a regulator we're missing in what 

we're saying or what we're telling our examiners 

to look at, what questions they're asking.

But and really, the successful --

there are attacks on banks. The successful 

attacks are minimal but when there are successful 

attacks on any company, as, again, was alluded to 

at the beginning, and the Colonial Pipeline, the 

JBS Meat Packing, they're debilitating. They're 
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-- they have a huge impact.

So I'd say one of the things we 

highlight here is that CISA and others, CISA 

being the Cybersecurity and Critical 

Infrastructure Agency, and DHS analyze threats 

across sectors and publish really good 

information routinely, much faster than any 

regulator could, to help their readers understand 

and protect against the ransomware threat. So 

something to keep, in terms of threat monitoring, 

to keep your eye on.

The last one on the list real quickly, 

encryption, breaking quantum; the risk here is 

that the power of emerging quantum computing 

capability will be used by malicious actors to 

crack encryption protecting sensitive data. And 

as I listen to experts talk about this risk, they 

point out that when malicious actors begin using 

quantum computing for this purpose, not only will 

they be able to get at sensitive encrypted 

information they steal from that point forward 
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but would obviously be able to potentially get at 

sensitive information from previous threat --

thefts.

So this is really, I think, the first 

time the FDIC is even mentioning this particular 

risk. It's certainly a strategic risk, and by 

that, we mean something that hasn't resulted in 

observed related incidents yet, but over the long 

timeframe, you know, 5 to 10 years, there is 

action that's needed. And Sultan already 

mentioned some of the things the U.S. Government, 

NIST is doing. The purpose in bringing it up 

today is simply for initial awareness, might be 

something to ask your critical vendors about how 

aware are they.

Mike, if you can go to slide 4? The 

controls; the controls relevant to the threats in 

the previous slide are also familiar to you. 

These controls, if you look down at the bottom, 

were the ones highlighted in a message we sent 

out to all banks back in May related to the 
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DarkSide ransomware that was used in one of those 

successful cyber-attacks. Again, something 

written by CISA -- jointly by the CISA and the 

FBI.

The question, though, for your company 

-- again, getting back to my intro -- is what 

should your company do next. One of the things 

I want to highlight on this slide, one of the 

controls is multi-factor authentication. The 

FDIC, working with the other FDIC agencies, has 

talked over the years about identity and access 

management, authentication in particular. 

Looking back even today, I was reminded of a sort 

of an entry into that space in 2001, a piece 

titled, "Authentication in an Electronic Banking 

Environment." In 2004, we did a study putting 

an end to account hijacking, identity theft; 

2005, we updated the authentication statement, in 

2011 again; 2011 was the last time.

And one of the things we're working on 

right now is updating that authentication 
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guidance again. Our agencies are considering 

changes to it at the moment. That is a 

particular control that is foundational to 

mitigating risks of things like ransomware but 

many other cybersecurity threats as well.

So just as we move off this slide, 

FDIC cybersecurity, you use the FDIC 

cybersecurity at Google, you'll come straight to, 

if you click on the first link, an FDIC page that 

contains FDIC cybersecurity resources. One of 

the things -- not to forget that we presented to 

this group in the past -- was our cyber challenge 

series. It's a pre-made series of scenarios and 

videos and challenge cards to use in a tabletop 

exercise, perhaps with your directors, as a 

reminder, cyber challenge vignette number 7 is a 

ransomware scenario. So if you haven't done a 

tabletop lately, business continuity tabletop, 

and you want to use those resources, they are 

there and available.

Will also be on that page, I think, 
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the first links are to an FDIC Directors Resource 

Center, a set of technical videos on 

cybersecurity awareness is something that you can 

send your directors to, again, just to keep aware 

we're working on updates to those. So again, a 

page with a lot of resources. It's not only 

FDIC. Some of them we've done interagency with 

FFIC agencies.

So if we turn, Mike, to slide 5? We 

really like to hear your thoughts on these 

questions before we turn it over to Lisa. You 

know, I was thinking ahead of time, you know, 

what would be appropriate in a public setting to 

share. And I know we've received some comments 

on these via email, but what has been most 

significant to you in leading your bank to 

continuously improve. There's a -- you know, 

probably the -- one of the challenges, there's so 

many sources of information that you could use to 

choose the next best thing. What's been most 

beneficial for you, what has been the most 
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significant impediment to continuous 

improvement, and I'd just end by saying covering 

all of this, what we can we do, what can I do at 

the FDIC to help community banks in this country 

improve in cybersecurity.

So I'll stop there and Arleas, 

hopefully, open it up for some questions or any 

comments from our committee members.

MS. KEA: That's fine. Please, I 

invite everyone at this point for your questions 

and comments to Martin.

MR. HENNING: And to cede it a little 

bit, I won't say the name but one of the committee 

members mentioned in an email ahead of time 

incidents have been a big influence. There's 

nothing like actual facts, not theoretical, 

things that have actually happened to crystalize 

the thinking. Hopefully, incidents close but not 

at your company, you know, and incidents that you 

can observe how they happened or your CISA or 

your CIO can observe how they happened and do 
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something about it, but other --

MS. KEA: Martin, I do see a hand 

raised. Is it Bruce? There might be another 

hand as well but Bruce, go ahead.

MR. LOWRY: Thank you. All of these 

that you have listed are important, and we've 

used all of them in our bank. But you asked the 

question how can the FDIC help with this, and I 

think that through the exam process, as long as 

examiners have recommendations and observations 

and are positive in maybe making suggestions or 

things to consider versus punitive, that that is 

a big -- that would be a big help. In the San 

Francisco region where we are examined out of, I 

think that's what we've experienced of late, the 

last several years. And so we've appreciated 

that. They see a lot more things than we do, and 

they have the full resources of the FDIC behind 

them, and the feedback that they provide has been 

very beneficial over the years.

MR. HENNING: Thank you, Bruce. 
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That's helpful.

MS. KEA: Martin, there is another 

question. Mark Pitkin has his hand raised.

MR. PITKIN: Sure. Well, first of 

all, certainly appreciate you presenting to us 

and giving us certainly a number of things to 

consider. But I am happy to answer which one of 

those particular items most has led us to 

continuously improve, and it comes from 

discussions not only with the Board but certainly 

with our technology department. And the answer 

was, by far, unequivocally -- and I think Bruce 

just said this -- it was incidents; right? So 

when we hear things that are happening and we see 

things that are happening to like and similar 

kind businesses, you know, you step back and say 

as well as we think we are doing things, I'm sure 

all of those businesses thought they were doing 

things appropriately as well. So that has been 

very helpful for us to just sort of go back and 

forensically look at all of the incidents that 
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have happened in order to help us improve our 

processes as well as our cybersecurity.

And the other thing that has been very 

helpful, certainly on a director's level, and I 

am not sure if this happens in all regions, but 

at the last trustee and director's college that 

was put on by the FDIC through the New Hampshire 

Bankers Association, the cybersecurity session 

ended with these are, I think, five or six 

questions that you should be asking your IT 

department, and those were directly to the Board. 

So guess what my Board did was they came back to 

the bank and said, "Hey, Mark, we would love you 

to report to the Board on these five or six 

questions." And it has created just a wonderful 

sounding board for us to better educate the 

Board, to better educate management and honestly, 

to better create a culture of cybersecurity in 

the bank. So I mean that is not necessarily 

incidents. That is sort of information and 

questions that were put forth by the FDIC 
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themselves. So certainly appreciate that.

And then lastly, what has been the 

most significant impediment to continuous 

improvement, and that is pretty much universal, 

too, and that's just cost. So every layer of 

defense, and we go over everything here at the 

bank by multiple layers of defense, you know, 

that start at the network level and potentially 

make its way down to -- I'm sorry -- starts at 

policies, procedures, and awareness, and we look 

at all the levels down to devices and every single 

level that we try to improve on just comes, in 

some cases, at a substantial cost, so we're 

always weighing that benefit. But again, we --

or I appreciate this discussion.

MR. HENNING: Thank you. That's very 

helpful, Mark.

MS. KEA: Martin, I'd like to 

recognize Neil McCurry.

MR. McCURRY: Thank you, Martin. 

Neil McCurry. And I probably just wanted to 
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touch on a theme that I believe I touched on at 

last meeting and certainly have at all of our 

regional FDIC meetings that we've had in the 

Southeast about cybersecurity. And again, 

talking to our own company, with our staff and 

our employees, it's that, you know, the greatest 

risk to our company is a cyber-threat. And we 

look at that and it comes in so many different 

ways.

And we've seen vendors that we work 

with that have gone through cyber-attacks. Our 

core provider on a cyber-attack and services we 

use like Microsoft, who, you know, I think you 

hear the name and you feel like there's some 

competence in it. They had theirs. And then 

we've had customers as well. So literally, 

everybody around us has been bitten at this 

point. And we keep saying we haven't at this 

point. We think we're doing the right things, 

but it's such an overwhelming process and ever 

changing.
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So I think, you know, it kind of was 

said earlier, is about working with the FDIC and 

there was comment about the exams not being "got 

you." I think if there's a shortcoming, you 

know, we want to know it but again, I think that 

this is a risk that for the banks that are trying 

their best -- you know, we're outgunned, we're 

outmanned, we're outstaffed to the groups out 

there as well. And, you know, we'd like to have 

partners like the FDIC and other resources, and 

I know there is support already for the banks as 

well, but we've got to continue to work side-byside and look at saying that a problem a bank has 

is a problem at the FDIC and that we all are in 

this together.

And, you know, the comment about cost 

is extensive and I think many banks recognize 

there's expense to it all but, you know, a

community bank like the institutions on this 

call, you know, we can't have 550 cyber IT people 

inside our bank when our staff is 50 right now. 
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So there are some limitations even if we are 

committed to putting resources that are just some 

amount we can do.

So my comment isn't really a question 

just so much as I think many of the banks that 

I've talked to are -- take this seriously, are 

committed, are worried, are scared, you know, 

name it all. And we continue to look towards the 

FDIC as a source of strength and information and, 

frankly, help and more so than any other area. 

You know, compared to credit risk, I mean the 

bankers are very good about understanding threat 

risks and so are the FDIC. So I think there is 

equal minds, but we feel outgunned right now, 

outmanned and again, I just would say ideas that 

we can all collaborate together would be greatly 

appreciated.

MR. HENNING: Great. Thank you, 

Neil. That's -- we want to do great IT 

examinations, so that seems like a vote for 

continuing to improve ourselves, continuously 
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improving ourselves or continuing to challenge 

ourselves and how we think about that. You know, 

I think in this group, we discussed the new IT 

examination work program when it came out back in 

2016-2017 timeframe and really pushed at that 

point in time to rethink how we did IT exams and 

update. And so thank you for those comments. We 

will continue to be creative in how we adjust our 

IT examination programs. Arleas, is there any -

-

MS. KEA: I'd like to recognize --

yes, Teri Messerschmitt.

MS. MESSERSCHMITT: Yes, Martin. I 

just wanted to tell you that in looking over the 

list, I agreed that all of these are super 

important. I do believe the incidents probably 

is the one factor that we just continue to monitor 

realizing that it can happen to anyone at any 

time.

And one thing that we have done is that we 

do have our IT personnel attend our board 
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meetings and at the beginning of each board 

meeting every month, we do have that person come 

in and do some training and just update all of 

the directors that are attending, board members 

as far as, you know, what's going on, what's the 

recent hot button out there and just keeping 

everyone as informed as possible.

We also work really hard to try to 

continue to have training for all of our staff 

throughout the year including social engineering. 

We do that very, very frequently and we do report 

that back to the individual departments so they 

know if we have areas where we need maybe some 

improvement.

As far as impediments to the 

continuous improvement, I would say limited 

resources, both money and time. We do outsource 

our managed services, and we also have one 

internal IT person on staff. So we really take 

a look at our CAT tool. We use that a lot to 

determine where we are within our individual 
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categories, and we prioritize where we feel our 

risk -- our highest risks are, and we just kind 

of take them piece by piece and attack them one 

at a time.

As far as the FDIC helping, just 

keeping updated communications, I think, is super 

important to the banks to hear what's going on, 

different best practices, I think, are very 

helpful to hear as well. Thank you for your 

time.

MR. HENNING: Thank you, Teri.

MS. KEA: Right now I don't see any 

other hands at this time.

MR. HENNING: Great. Well, thank 

you, Arleas, and thanks everybody for your 

comments, very helpful and, you know, our email 

addresses are easy to figure out in fdic.gov. If 

some thoughts come to mind afterwards, I'm here 

for those calls and communications. Thank you. 

I'll turn it over, I think, now to my colleague, 

Lisa Arquette, to give you some highlights on the 
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Anti-Money Laundering Act of 2020.

MS. ARQUETTE: Thank you, Martin, and 

good afternoon, everyone. I plan to highlight 

certain significant and time-sensitive 

provisions of the Anti-Money Laundering Act of 

2020 that will impact community banks. The AntiMoney Laundering Act, or the AML Act, was passed 

by Congress January 1st of 2021 as part of the 

National Defense Authorization Act. The AML Act 

is the most comprehensive set of reforms to the 

Bank Secrecy Act, or BSA, and its implementing 

regulations since the passage of the 2001 USA 

PATRIOT Act. The AML Act is intended to 

modernize the Anti-Money Laundering and 

Countering the Financing of Terrorism, or AML 

CFT, regime. Mike, next slide, please, slide 7?

The first section that I would like to 

highlight directs the Financial Crimes 

Enforcement Network, or FinCEN, to establish and 

make public AML/CFT priorities. On June 30th, 

FinCEN published these priorities which focus on 
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threats to the U.S. financial system and to 

national security. These priorities include, in 

no specific order, corruption, cybercrime, 

terrorist financing, fraud, transnational 

criminal organizations, drug trafficking 

organizations, human trafficking and smuggling, 

and proliferation financing. These priorities 

are intended to assist all covered financial 

institutions in their efforts to combat money 

laundering and to counter terrorist financing.

FinCEN is required to update the 

priorities at least once every four years to 

account for new and emerging threats to the U.S. 

financial system and to national security. The 

FDIC, along with other federal banking agencies 

and FinCEN, issued a statement on the same day 

that the priorities were published. I would 

refer you to the FDIC's Financial Institution 

Letter 46-2021. That statement makes clear that 

FinCEN's publication of the priorities does not 

create an immediate change to the SA requirements 
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or to supervisory expectations for banks. Mike, 

slide 8, please?

FinCEN recognizes that not every 

priority will be relevant to every bank but that 

each bank should review and incorporate the 

priorities into its BSA compliance program as 

appropriate. FinCEN is also required to 

promulgate regulations regarding these 

priorities. A notice of proposed rulemaking from 

FinCEN is expected in the near term and will 

announce FinCEN's proposed modifications to 

incorporate the priorities into the ANL 

Compliance Program Rule for Banks. The final 

rule is expected by year end 2021.

We plan to revise our BSA Compliance 

Program Rule to incorporate these priorities in 

a manner similar to FinCEN. The final rule and 

the preamble to that rule are expected to provide 

clarity regarding how these priorities should be 

reviewed and incorporated into a bank's BSA 

Compliance Program.
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In the meantime, if you or your staff 

are interested in getting a head start, you could

review the 2020 National Strategy for Combating 

Terrorists and Other Illicit Financing and three 

related risk assessments. These documents which 

form the basis for the ANL/CFT priorities were 

issued by the U.S. Department of Treasury and can 

be located on the FDIC's public website under the 

Bankers Resource Bank Secrecy Act page.

The documents include various 

vulnerabilities in the financial system that 

banks can review and consider. However, at this 

time, there is nothing that banks are required to 

do related to these priorities. Mike, slide 9, 

please?

The next important provision to be 

aware of is referred to as the Corporate 

Transparency Act. It addresses changes in how 

beneficial ownership information will be 

reported. FinCEN will soon issue a notice of 

proposed rulemaking associated with this change. 
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FinCEN will be required to maintain beneficial 

ownership information in a confidential secure 

and non-public database. After the development 

of the database and consistent with the 

implementation date of FinCEN's new regulation 

governing the collection and storage of 

beneficial ownership information, banks will no 

longer be required to collect an official 

ownership information. FinCEN is authorized to 

disclose beneficial ownership information with 

the consent of the reporting company to banks to 

facilitate compliance with customer due diligence 

requirements. Regulations implementing the 

beneficial ownership information reporting 

requirements are expected to be finalized by 

January 1st of 2022. Slide 10, please?

The last section that I want to 

highlight for you requires FinCEN, in 

consultation with the federal banking agencies, 

law enforcement, and other agencies to undertake 

a formal review of the regulations implementing 
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the Bank Secrecy Act and related guidance. The 

purpose of the review is to ensure that these 

regulations and the associated guidance continue 

to protect the financial system from threats and 

continue to require certain reports or records 

that are highly useful in countering financial 

crime.

Additionally, the review is intended 

to identify regulations and guidance that may be 

outdated, redundant, or otherwise do not promote 

a risk-based ANL/CFT regime and do not conform 

with international standards. FinCEN will seek 

public comment during this process which provides 

an opportunity for community banks to make 

suggestions either independently or through a 

trade association regarding changes that you 

believe are needed to BSA regulations and 

guidance. FinCEN is required to report to 

Congress by year end on findings and provide any 

recommendations for administrative or 

legislative changes.
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That is the high level update, and I 

thank you for your time and would welcome any 

questions if you have any. And if there are no 

questions, I would turn it back over to Doreen 

Eberley.

MS. EBERLEY: I don't see any 

questions so thank you very much, Martin and 

Lisa, and thank you to our members for 

participating in the conversation. Thank you 

very much.

MS. KEA: Thank you to Doreen, Lisa, 

and Martin. That was very, very informative, and 

I'm sure the members all appreciate that 

discussion. So we have come now to the end of 

our meeting. We recognize here at the FDIC that 

this is a big investment in time for all of you, 

our members. We really do truly appreciate the 

time that you have given us today and all of the 

time in between. These meetings sometimes can 

be a little bit challenging when they're long 

meetings like this one, but you all have been 
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very engaged, and we truly appreciate your 

thoughtful comments and all of your 

participation. The Chairman has, unfortunately, 

had to step away a few minutes early to attend to 

some other business meetings, but Director 

Gruenberg has graciously agreed to close out 

today's meeting. So if there are no other 

questions or comments from any of our members, I 

would like to turn it over to Director Gruenberg 

to close us out. Thank you, Director Gruenberg.

DIRECTOR GRUENBERG: Thanks a lot, 

Arleas, and I promise you all I'll be mercifully 

brief here. I did want to thank you all for 

thoughtful participation in today's meeting. I 

really thought the roundtable was an 

extraordinary overview of how community banks are 

doing across the country and the range of 

challenges that you face. So anybody that is 

looking in on today's discussion, I think, has 

gotten a remarkably insightful overview of the 

issues that you all are confronting and I think 
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are quite relevant more broadly to the financial 

system and the economy.

And just a few thoughts to share with 

you as we conclude the meeting. One, if we think 

back to where we were 12 or 15 months ago, I think 

frankly, we might have expected to be in a more 

difficult situation today, certainly as far as 

the economy and the financial system is 

concerned. I can tell you that as we were doing 

our planning this time last year, we were 

anticipating a more severe environment now. And 

at least thus far, it has not played out that 

way, to all of our benefits. And I'm struck that 

all of you have come through this extraordinary 

period in pretty good shape and fairly positive 

about the outlook, which is certainly encouraging 

for us to hear.

I guess I'm also struck at the 

extraordinary uncertainty we face in the near 

term and in the midterm. We are going to see a 

process of winding down, I think, the 
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extraordinary public support that the economy and 

the financial system has benefitted from. 

There's going to be a challenging transition from 

the -- to a post-COVID environment with 

consequences for how work is done, how business 

functions in the United States that I think we 

can't yet fully appreciate that will have 

consequences for your institutions that I'm sure 

you're quite focused on.

We're specifically focused on 

financial risks in commercial real estate but 

frankly, there may be other underlying risks as 

we go forward that we don't yet fully appreciate. 

So I think this next period and 

whether it's the next 12 months or 24 months is 

one that's going to require careful attention 

from all of us. I think we certainly will intend 

to remain closely engaged with all of you. We 

hope you don't hesitate to reach out to us as you 

encounter issues for your institutions. 

Discussion on cyber risk is probably a good 
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example, and it certainly argues for the 

continued value of this advisory group and the 

FDIC's engagement with you.

So I think we're scheduled to see you 

all again in early November. I can tell you we 

look forward that meeting and to hear what you 

all are experiencing at that time. So once 

again, thank you for your diligent participation 

on this advisory committee. We're asking for a 

lot of your time and you have shared it with us, 

again, in a most thoughtful and constructive way. 

So thanks again. It was great to see you all, 

and we'll see you all again later this year. 

Thanks a lot. Arleas, it's all yours.

MS. KEA: Thank you so much, Director 

Gruenberg. And once again, thank you to the 

members. This concludes our meeting and we look 

forward to interacting again with you, as the 

Director has said, in November. Thank you, all.

(Whereupon, the above-entitled matter went off 

the record at 4:58 p.m.)