1

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

FEDERAL DEPOSIT INSURANCE CORPORATION

+ + + + +

ADVISORY COMMITTEE ON COMMUNITY BANKING

+ + + + +

MEETING

+ + + + +

WEDNESDAY

OCTOBER 28, 2020

+ + + + +

The Advisory Committee on Community 

Banking met via Video Teleconference, at 1:00 

p.m. EDT, Jelena McWilliams, Chairman, Federal 

Deposit Insurance Corporation Board of Directors, 

presiding.

PRESENT

JELENA MCWILLIAMS, Chairman, FDIC Board

of Directors

SHAZA ANDERSEN, CEO, Trustar Bank

DICK BESHEAR, Chairman, President and CEO, First

Security Bank and Trust Company

FRED DeBIASI, President and COO, Valley Central

Bank

JAMES J. EDWARDS, JR., CEO, United Bank

KEITH EPSTEIN, Executive Vice President and CEO,

Roxboro Savings Bank

SARAH GETZLAFF, CEO, Security First Bank of North

Dakota

STEPHEN HAYES, Chairman and President, Dakota

Prairie Bank

KENNETH KELLY, Chairman and CEO, First
2

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Independence Bank
3

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

BRUCE KIMBELL, President and CEO, First Community

Bank of the Heartland

THOMAS LEAVITT, President and CEO, Northfield

Savings Bank

LORI MALEY, President and CEO, Bank of Bird-inHand

PATTY MONGOLD, Chairperson, President and CEO,

Mt. McKinley Bank

GILBERT NARVAEZ, JR., President and CEO, Falcon

International Bank

MARK PITKIN, President and CEO, Sugar River Bank

ALAN SHETTLESWORTH, President and COO, Main Bank

LOUISE WALKER, President and CEO, First Northern

Bank

ALSO PRESENT

MARTIN GRUENBERG, Director (Internal), FDIC

JAMES ANDERSON, Deputy General Counsel

ZACKARY ANDERSON, Special Assistant, Division of 

Resolutions and Receiverships

SHANNON BEATTIE, Deputy Chief Accountant,

Division of Risk Management Supervision

WILLIAM BRIGGS, Deputy Associate Administrator,

Office of Capital Access, U.S. Small

Business Administration 

MARY CALKINS, Attorney

JOHN CONNEELY, Regional Director, Chicago Region

KYMBERLY COPA, Deputy to the Director 

(Appointive) BRIAN COX, Chief, Capital Markets 

Strategies

CHAD DAVIS, Deputy to the Chairman for External

Affairs

DOREEN EBERLEY, Director, Division of Risk

Management Supervision

DIANE ELLIS, Director, Division of Insurance

and Research 

PAMELA FARWIG, Deputy Director, Franchise and

Asset Marketing Branch, Division of

Resolutions and Receiverships

JASA GITOMER, Attorney

SHANNON GRECO, Senior Conference Planning Manager

PATRICIA GURNEAU, Regulatory Editing Specialist, 
4

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Legal Division

ISAAC HERNANDEZ, Deputy Director, Infrastructure

Services, Division of Information 

Technology

TRAVIS HILL, Deputy to the Chairman for Policy

ANGELA HINTON, Senior Financial Analyst, Division

of Insurance and Research

DANIEL HOOPLE, Financial Economist, Division of

Insurance and Research

ANTHONY LOWE, FDIC Ombudsman; Director, Office of

the Ombudsman

CHRISTOPHER LUCAS, Senior IT Specialist, Division 

of Information Technology

SAMUEL LUTZ, Counsel, Legal Division

BRANDON MILHORN, Deputy to the Chairman and Chief

of Staff

JONATHAN MILLER, Deputy Director for Policy and

Research, Division of Depositor and 

Consumer Protection

RAE-ANN MILLER, Associate Director, Risk

Management Policy Branch, Division of Risk

Management Supervision

KATHY MOE, Regional Director, San Francisco

Region

SHAYNA OLESIUK, Associate Director, National &

Regional Risk Analysis, Division of

Insurance and Research

MARK PEARCE, Director, Division of Depositor and

Consumer Protection

HARREL PETTWAY, Senior Deputy General Counsel

NICHOLAS PODSIADLY, General Counsel

JONATHAN POGACH, Chief, Financial Modeling &

Research Section, Division of Insurance and

Research 

JOHN RIEGER, Chief Accountant, Division of Risk

Management Supervision

WILLIAM A. ROWE, III, Deputy to the Director 

(Comptroller of the Currency)

LISA ROY, Associate Director, Division of Risk

Management Supervision

BETTY RUDOLPH, National Director, Minority and

Community Development Banking

MARK SAVI, Lead IT Specialist, Division of 
5

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Information Technology

DIANNA SEABORN, Director, Office of Financial

Assistance, U.S. Small Business

Administration 

MICHAEL SHAHEEN, Program Specialist, Division of

Risk Management Supervision

JAMES SHEESLEY, Assistant Executive Secretary

(Supervisory Counsel)

SUSAN STREICH, Director, Office of Credit Risk

Management, U.S. Small Business

Administration 

JOCELYN SUTTON, Deputy to the Director (CFPB)

MONA THOMAS, Chief, Special Services Unit, 

Division of Administration

JOHN VOGEL, Deputy Director of Operations and

Chief of Staff, Division of Risk Management

Supervision

JAMES WATTS, Counsel, Legal Division
6

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

CONTENTS

Introductory Remarks .......................... 6

Discussion of Local Banking Issues ............ 9

Shayna Olesiuk ............................... 97

Kathy Moe ................................... 101

John Conneely ............................... 109

Update from the Minority Depository

Institutions Subcommittee

Gilbert Narvaez, Jr. ........................ 121

Betty Rudolph ............................... 124

Proposed Changes to the Supervisory

Appeals Process

James Watts ................................. 139

Samuel Lutz ................................. 143

Supervision Update

Doreen Eberley .............................. 152

John Rieger ................................. 153

Shannon Beattie ............................. 157

Rae-Ann Miller .............................. 174

Rapid Prototyping Competition and Request

for Information on Proposed Voluntary

Certification Program to Promote New 

Technologies

Brandon Milhorn ............................. 176

Update from the U.S. Small Business

Administration ............................. 186

Division of Insurance and Research Update

Angela Hinton ............................... 216

Daniel Hoople ............................... 230

Jonathan Pogach ............................. 242

Closing Remarks ............................. 246
7

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

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

1:14 p.m.

CHAIRMAN MCWILLIAMS: Thank you, Chad, 

and good morning or good afternoon, everybody, 

depending on where you are. This is our second 

virtual meeting of the Community Bank Advisory 

Committee here at the FDIC. I want to welcome 

you all for what I hope to be a very productive 

discussion. A lot has happened in the last few 

months since we last met, and I have to tell you 

we have been really, really trying very hard at 

the FDIC to make sure that the banks throughout 

the United States, community banks like you, can 

continue to do the business of banking amidst 

very, very dire circumstances and unprecedented 

business closures in the pandemic.

I won't belabor this too much. I will 

welcome you again to the committee meeting. I'm 

glad you're here. I look very forward to hearing 

your input. We do have a new member joining us 

today for the first time. It's Stephen Hayes, 
8

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Chairman and President of Dakota Prairie Bank, 

Fort Pierre, South Dakota. Welcome, Stephen. 

You will hopefully enjoy a very robust 

discussion. Thank you all again for being here 

today, and I will turn it over to Chad Davis. 

Thank you.

MR. DAVIS: Thank you, Chairman. 

Before I start with the panel, Director 

Gruenberg, are there any remarks you would like 

to add?

DIRECTOR GRUENBERG: Thank you, Chad. 

Just want to take the opportunity to thank all 

the members of the committee for participating 

today. I very much look forward in particular to 

the roundtable discussion coming up. I would be 

interested in hearing both what you're 

experiencing now and from your standpoint, what 

the outlook is. We've had a pretty challenging 

and surreal seven or eight months here. I think 

the next six to 12 months could well be even more 

so. I very much look forward to the discussion 
9

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

today and thank the members of the committee for 

their participation. Thank you, Chad.

MR. DAVIS: Thank you, Director 

Gruenberg. We're going to start this afternoon 

by turning to the committee members for a 

discussion of trends and issues related to local 

banking environments and conditions. After we've 

heard from the committee members, we've also 

asked some FDIC staff members to discuss 

observations from a national and a regional 

perspective. 

Shayna Olesiuk, Associate Director, 

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. We also have John 

Conneely, the FDIC's Regional Director from the 

Chicago region, and Kathy Moe, the FDIC's 

Regional Director from the San Francisco region. 

They're going to discuss observations from local 

FDIC staff. So with that, Tom, I will turn it 
10

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

over to you to begin our discussion.

MEMBER LEAVITT: Thank you very much, 

Chad. I'll pause here for just a second as my 

voice and video catch up to the program. I'm 

assuming that's streaming at this point. Good 

afternoon, Chairman McWilliams, Director 

Gruenberg, leadership team at the FDIC, the 

staff, my fellow bankers all around the country. 

We're moving along here in the Green Mountain 

State. 

The unemployment rate that I talked 

about last year, which was leading the country on 

the low side as you heard this summer, had 

elevated to 16.5 percent as of April of this year. 

It had come down to 8.3 percent in July, and now 

is down to 4.2 percent in September. State tax 

revenues in September were well above lowered 

expectations and appear to be positively affected 

by the federal and state relief programs that 

have benefitted from on businesses and 

households. That's the good news.
11

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Our actual employment growth is down 

year over year, with a declining workforce as 

more people have opted out. We are seeing the 

first real threat from the Coronavirus pandemic 

since spring. After succeeding with on-campus 

college re-openings around the state this fall, 

we’ve had one school recently at the center of a 

cluster of positive cases, and some community 

spread in a few other pockets around the state, 

resulting in clusters.

Trending throughout the country and 

here in the Northeast is a bit ominous, and we 

look out into the cold weather months with some 

concern, along with some hope that we'll be able 

to continue to operate somewhat in the fashion 

that we have been doing this quarter. Still we 

have the lowest incidence of COVID-19 in the 

nation and have a very low positivity rate as 

testing significantly ramps up. We have no 

deaths here in Vermont since late July.

We saw some modest improvements in the 
12

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

hospitality sector during what was a brilliant 

fall foliage season this year. Those gains are 

at risk, as the winter comes and indoor 

activities are potentially again in a more 

restricted mode, something that the governor is 

signaling may happen if we do not see a quick 

reversal of case counts. That would again put 

pressure on the Labor Department with increasing 

unemployment claims.

Overall year to date, we are fortunate 

we have not seen greater delinquencies, with our 

asset quality holding up at the moment. 

Vermonters are generally conscientious about debt 

commitments, and we have seen those with 

modifications earlier in the year returning to 

normal paying status. Though we took some 

heavier provision in the second quarter, we have 

leveled off in Q3 and will do so further in Q4. 

That said, we are taking preventive steps now to 

bolster the workout capacity of our lenders so 

that we can be proactive, should any stress among 
13

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

our commercial borrowers materialize.

We are proud of the resilience of the 

team here at NSB. Having successfully navigated 

business continuity pandemic response, we return 

to our major strategic initiatives, including 

resuming our core conversion project to scale our 

operational capacity. We are building a new 

strategic plan to kick in mid-2021 after the 

conversion is complete in the second quarter. 

We have been active moving forward 

with our NSB equity framework. We had the 

contours of this commitment outlined over the 

past year and a half, and have been moved by the 

events of 2020 to solidify eight pillars to 

support the framework. We have been making 

community investments in programs advancing 

under-represented populations. We have been 

diversifying representation in our governance at 

the board level and among our corporators.

We are working on education and 

communications internally with the board, 
14

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

management, and staff, including sessions 

facilitated here by the University of Vermont's 

Vice President of Diversity, Equity and 

Inclusion. We are building better pathways to 

inclusion in recruitment, mentoring, and 

workplace environment. And we are taking 

encouragement from the FDIC with this month's 

publication of the resource guide, Investing in 

the Future of Mission-Driven Banks.

Along with a meaningful phone call I 

had with Kenneth Kelly following this summer's 

advisory committee session, to begin exploration 

of how we might more actively support one or more 

of the four CDFIs operating in the State of 

Vermont. The framework is being built for the 

long haul, with recognition that progress does 

not come in an instant, but we are encouraged by 

these important and necessary preliminary steps.

I want to thank my fellow bankers on 

the advisory committee. I have been taking 

inspiration from each of you over the last two 
15

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

years, as you have demonstrated why our industry 

is an essential economic backbone for our 

country. Keep up the great work. And to Chairman 

McWilliams, Director Gruenberg, the leadership 

team and the dedicated staff at the FDIC, thank 

you for giving Northfield Savings Bank the honor 

of serving and being heard. Our depositors and 

the safety and soundness of our banking system in 

America are in very good hands. Stay well, 

everyone. Thank you.

MR. DAVIS: Thank you, Tom. Bruce, 

please proceed. Bruce?

MEMBER KIMBELL: Yes?

MR. DAVIS: Go ahead.

MEMBER KIMBELL: Are you there?

MR. DAVIS: Yes, I can hear you. Go 

ahead.

MEMBER KIMBELL: Okay. Great. For 

some reason my video's not popping up, but we'll 

go on from there. Maybe it will momentarily. 

Bruce Kimbell with First Community Bank in 
16

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Clinton, Kentucky. We are located in the extreme 

western corner of Kentucky and Northwestern 

Tennessee. At this point in this particular 

area, we're in the middle of harvest season, 

although recent rain has slowed that down 

somewhat.

We are an agricultural bank at our 

core, and because of that we're having a 

wonderful year actually this year, even with the 

COVID situation going on. Presently, crops are 

coming in with record yields on both corn and 

soybeans. Prices have recently rebounded 

considerably, which is just really helping the 

outlook overall of not only our bank, but just 

our local area.

So go our farmers, so go our local 

economy. We continue to see very little 

deferrals from a COVID standpoint, either on a 

personal side or on a commercial side, very few 

on the deferrals as far as residential or 

commercial loans. We are in excellent shape on 
17

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the loan portfolio. Do continue to work with our 

borrowers, though. Actually our mortgage 

department has been extremely busy, as I'm sure 

everyone else's has, too, with refinancings given 

the historic interest rate environment that we're 

living through today.

The biggest thing that we see recently 

though is just a lack of inventory throughout our 

rural counties that we serve. We do continue to 

have an influx of individuals moving from some 

more populous centers, trying to find country 

living. And so they have chosen to come to this 

part of the world for that. 

It's really put a strain on housing 

inventory, so it will be interesting to see how 

that shakes out over the next few months, 

especially given at this point in time very high 

building costs associated with increased lumber 

prices and the whole service framework that's set 

up around home construction in rural America, so 

right now that's looking very well.
18

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

We continue to work with our customers 

on satisfying the forgiveness aspects of their 

PPP loans. Our experience with the program was 

pretty well limited, just because there's not a 

lot of retail in the communities that we serve 

and because of that, that was a pretty small 

amount. But now we are starting to get those 

turned in and have recently began to receive some 

of those back through the SBA, so that's going 

good.

Again, right now with farming being 

really on top of its game, that's really helping 

to lift all of the boats in this particular part 

of the world. I, too, just like my good friend 

that just went in front of me, want to thank the 

Chairman and all of the FDIC staff for allowing 

me to participate on the committee for the last 

couple years. It's been a great experience. 

Wonderful bankers from across the country, all 

trying to do those things that benefit all of our 

communities around this country. I'm very 
19

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

thankful to participate and be a part of this. 

Thank you, and have a great day.

MEMBER SHETTLESWORTH: Hey Bruce, 

thank you. This is Alan Shettlesworth, I'll take 

it from here. Alan Shettlesworth, President and 

COO of Main Bank here in Albuquerque, New Mexico. 

Bruce, I'm glad to hear from you and Thomas, that 

your respective banks are doing really well. 

Glad to hear it. We Main Banks have one location 

here in Albuquerque and we do mostly commercial 

real estate-related transactions.

Prior to COVID we were about $180 

million in total assets, so roughly at the end of 

the March and today we find ourselves at $214 

million in total assets. We thought by this time 

this year we would've already shrunk closer to 

$200 million in total assets, but that has not 

materialized. We even raised additional 

liquidity, about $15 million from the Federal 

Home Loan Bank. We paid that back last month and 

we're still awash with liquidity. That's a real 
20

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

problem to have, but it's actually a wonderful 

problem to have in this environment. 

I can't quite explain this, because 

we're going to end the year with a record year. 

None of this makes sense. Record year from 

profitability, record year from loan growths and 

customer growth across the board. So that doesn't 

make sense. We thought we'd have a lot more 

problems than we do right now. We don't have 

any, knock on wood. We just filed our Call Report 

yesterday, and there are no delinquencies, no 

non-accruals, no past dues, and that's just odd 

for me to say that in this environment.

The community here in Albuquerque and 

in New Mexico seems to be picking up. A lot of 

the transactions that we had were going up until 

about March and it seems like they plateaued or 

stopped or paused, I guess you could say, from 

March until about two months ago. Then we've 

seen a real pickup in actual real commercial loan 

demand, not just federal stimulus or grant 
21

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

programs. We suspect outside of the PPP program 

that we will finish the year with an actual real 

net loan growth compared to where we were last 

year.

Honestly, the challenge for us right 

now this year is just maintaining our same level 

of customer service with the relationships that 

we have already won. One of my biggest fears is 

that the community will forget or that the nation 

will forget or that the federal regulators will 

forget the impact that the community banks had on 

our communities with this PPP program. We 

clearly hit above our weight when it came to 

winning this stimulus for our local businesses. 

Wells Fargo, for instance, is the 

largest depositor in the State of New Mexico, and 

I did not hear of a single dollar that they got 

out from PPP in Phase One. So it was up to the 

community banks to really help stimulate the 

local economy. I'm just so thankful that we had 

the opportunity to do that. I just hope that we 
22

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

don't lose sight of how impactful this effort was 

by the community banking industry in the next 

couple years. That's my concern overall for the 

community banking industry.

We're currently staffing up. We hired 

a net new employee within the last month, and we 

have another additional employee starting 

tomorrow, which is actually great news. We will 

go to a whopping total, where we were 15 before, 

to 17 employees by tomorrow. That's a small

number of employees, but for us that's big. We've 

never been at these employee levels. I'm happy 

to say that things are moving in the right 

direction for us right now. 

We did increase our provisions. We 

increased those starting in March. We've doubled 

them from what we were budgeting, and we are going 

to double them again this year. Again, we don't 

think we have any problems right now, but I don't 

think we, or I don't think the banking industry 

really knows what problems we have until next 
23

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

year. We're trying to do that preemptively. 

One of the other challenges we've had 

is capital. Because we've grown so much in such 

a short amount of time, our retained earnings 

haven't been able to catch up. We're 

contemplating a small capital raise just to go 

ahead and beef up our capital ratios. While we 

really do appreciate and thank the FDIC and all 

of our federal regulators, state regulators for 

obviously giving us flexibility to work with our 

customers and not put any pressure on us. 

We're very thankful of that effort and 

I can't express enough to you all how significant 

that was so we did not have to focus on regulatory 

matters. We could focus on helping our 

customers. So, that was a huge thing for us, and 

we appreciate the efforts that you have made and 

we hope that effort continues, but I don't think 

that that effort goes on indefinitely. We are 

trying to be cautious and do the right things for 

the bank and for the community. With that said, 
24

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

I'll conclude that we are surprisingly very 

bullish right now. We're still very skeptical 

that things could get worse, but right now very 

bullish and looking forward to next year. That 

will conclude it for me. Thank you.

MEMBER WALKER: Thank you, Alan. 

Louise Walker with First Northern Bank here in 

Dixon, California. I'm so glad to be here with 

all of you today. Thank you, Chairwoman 

McWilliams and all of the FDIC staff for your 

continued leadership during this time, and for 

especially your focus on ensuring an inclusive 

banking system. With three more months behind 

us, it appears that our regional and local 

economies are faring much better than we 

anticipated several months ago.

The government stimulus certainly has 

helped small businesses, but for some the concern 

is how long they can hang on without additional 

stimulus assistance. As I travel around the 

Greater Sacramento region, I hear small business 
25

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

owners concerned about the possibility of 

additional shutdowns and whether that will mean 

the end to their businesses, which means the end 

to their ability to pay their employees.

First Northern Bank and many others in 

our region remain open for branch traffic, but 

the back offices continue to work in a work-fromhome status. Our front-line employees continue 

to be remarkably resilient and simply amazing, 

providing exceptional customer service to our 

customers.

The last time we spoke, I mentioned 

several loan types that we anticipated seeing 

significant deterioration. I'm pleased to say 

that it really hasn't occurred or materialized. 

For example, we thought office, retail, specialpurpose loan types like churches, hotels and gas 

stations would be devastated, but early 

indications show these businesses are going to be 

at break-even or maybe better.

Like many other community banks, we 
26

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

offered a temporary payment forbearance program 

for our customers. The forbearance period has 

ended for some of the business customers and they 

have resumed their payments. Many others return 

to contractual payments in October and November, 

but we remain optimistic that they will be able 

to make their full principal and interest 

payments.

We have also been processing PPP loan 

forgiveness applications. Out of the 1,320 loans 

totaling $235 million, we have processed and 

submitted over 300 applications totaling so far 

about $60 million to the SBA. This week, we 

started receiving funds for about $3 million. In 

general, our loan pipeline continues to be steady 

and, of course, competition continues to be 

robust. 

An area that is doing exceptionally 

well is the residential and multi-family 

construction area. Even amidst the financial 

havoc from COVID-19, local economists express 
27

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

optimism for recovery. That's because in this 

region, while they're still trying to reduce 

their dependence on government jobs, we're 

attracting an accelerating number of workers from 

coastal urban hubs in search of a more affordable 

housing situation.

Really it's the Bay Area exodus to 

Sacramento, and that's really nothing new. Many 

work at California technology companies, many of 

which are not only encouraging remote work, but 

they're also telling their employees not to stray 

too far from home. Facebook, for example, has 

been telling employees that they want to open up 

more remote work, so as long as employees live 

within a four-hour drive of Facebook then that's 

fine.

So what we're seeing is, since we're 

only about two hours from their headquarters, we 

have a lot of those individuals moving our way. 

This certainly continues to be a bright spot for 

the few community banks in our area that continue 
28

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

to offer mortgages. I know our mortgage division 

has been extremely busy with purchases and 

refinances.

Another area that has been strong is 

the healthcare and education sector, as well. We 

still have some road to go before we know the 

full impact of the pandemic on our communities, 

but we are excited about the opportunities that 

exist here for community banking. Yes, we can 

provide the digital experience, but there's so 

much focus on that from others right now, we think 

it really creates an opportunity for community 

banks like ours that are focused on relationship 

banking, because it is a people business.

I just want to conclude by 

acknowledging my regional director, Kathy Moe, 

and our field supervisor, Andrea Davis, for their 

tremendous leadership during the pandemic. They 

have been proactive, and they appreciate the 

challenges that we're facing and are extremely 

accommodating to our needs. We reach out to them 
29

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

when we have questions and also if we want to 

share some insight into what we're experiencing. 

They are knowledgeable, reasonable 

and understanding, and I'm grateful for our 

relationship, which is one built on mutual 

respect and understanding. I just want to say 

thank you. It's been an honor to serve with all 

of you, and it's just been a great experience to 

be on this committee, so thank you.

MEMBER EPSTEIN: Good afternoon, Keith 

Epstein with Roxboro Savings Bank in Roxboro, 

North Carolina. I would like to echo the comments 

of the four that have gone before me and say that 

it truly has been a privilege to be a part of 

this distinguished group, and I very much 

appreciate Chairwoman McWilliams' leadership 

during this national crisis. I have enjoyed the 

opportunity, as well, to meet Director Gruenberg 

when we were able to meet in person at the 

meetings last year, and the entire staff has just 

been so accommodating, and I certainly appreciate 
30

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

that.

We are a 97-year-old mutual savings 

bank, $254 million in assets, based in Person 

County, North Carolina, which is located in the 

far northwestern corner of the Triangle Region. 

Durham County adjoins Person to the south and 

serves as an important secondary and high-growth 

market for our bank. 

Both of our offices are operating in 

a modified pandemic mode. We continue to 

encourage customers to utilize our digital, 

phone, ATM, drive-thru, other alternate delivery 

channels, but we are open to the public and 

inviting customers in with appropriate social 

distancing, wearing masks, and so forth. The 

customer relief programs that we introduced in 

the early days of the COVID-19 outbreak are still 

in place. We are offering deferrals, but fewer 

customers have opted to defer loan payments with 

each passing month. 

We peaked at 7.3 percent of all 
31

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

borrowers in April, and today we do not have any 

that are in deferred status. The fortitude of 

our borrowers, in particular the small business 

owners, has really been nothing short of 

inspiring. The unexpected deluge really, of 

mortgage refinances which flooded into our bank 

when rates fell in March show no signs of slowing. 

The secondary market sales revenue has surpassed 

900 percent of our budget just through the month 

of September.

Even more surprising has been the 

continuous growth of our local housing market 

year over year. The average sales price is up 

11.4 percent, and month’s inventory is down 38.1 

percent to a remarkably low 1.3 months per the 

September Triangle multiple listing service 

report. The shortage of inventory has fueled new 

construction, which persists despite an increase 

in material costs, lumber, in particular.

Non-bank mortgage lenders have 

extended their pursuit of market share beyond 
32

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Durham and Chapel Hill into Person County. In 

August of 2019, 53 percent of all mortgages in 

our county were originated by local lenders, as 

compared to only 39 percent this August. Rocket 

Mortgage has recorded the fourth-highest number 

of real estate loans in our county, and the State 

Employees' Credit Union ranks second.

We have addressed competition by 

investing in an online mortgage platform and 

focusing on the relationships that have seen us 

through countless cycles in the past. New 

construction, rural properties, smaller loans, 

more complex transactions, that's the space where 

we really have something unique to offer the 

market.

The pandemic is not the only disaster 

scenario which had been hypothetical up until 

this year. Recently, cyber-attacks have hit 

Person and Durham counties, our local junior 

college, and our core system provider. The 

Register of Deeds in both countries closed for 
33

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

days and weeks, respectively, while damage 

assessment and data recall were conducted.

The disruption to our business was 

limited to loan closing delays, but the 

experience was sobering for all that do business 

and interact with county government. The junior 

college successfully defended itself, and our 

core provider preemptively took the system down, 

and no actual breach occurred. We took action to 

mitigate the disruption to our customers by

increasing standing card limits and communicating 

status messages via our website, phone service,

and social media.

Earlier this year, we initiated 

perpetual social engineering testing to help our 

staff develop the awareness and skill necessary 

to avoid and detect harmful emails. But with 

that said, we realize these attacks are 

ubiquitous and hope to enhance our defenses 

further, and also contribute to practices in 

local economy that will minimize risks to our 
34

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

business community. 

The fundamental value of knowing your 

customer has never been more relevant in our 

local market. Large national banks have reduced 

open customer credit lines, tightened their 

underwriting standards, and in some cases, 

retreated from consumer lending altogether. They 

are apparently unable to determine the financial 

condition of our friends and neighbors, but 

fortunately we know these people and we know them 

well. I'm happy to report that the vast majority 

are doing well, and we are certainly committed to 

continuing to provide them with credit and other 

financial services. Thank you very much for 

listening. Appreciate it.

MEMBER GETZLAFF: Good morning. I'm 

Sarah Getzlaff. I'm the CEO of Security First 

Bank of North Dakota, which is a $200 million 

community bank in rural North Dakota. I'd like 

to start by thanking Chairman McWilliams and the 

FDIC for this opportunity. In North Dakota, our 
35

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

economy has been rebounding. We've had a really 

good summer. 

Most of us tend to spend as much time 

as possible outdoors in the summer in the few 

nice months that we have, which probably really 

helped us control the spread of COVID early on. 

But last week the snow already came, and that 

will keep many people indoors. I'm sure you've 

seen on the news that North Dakota is spiking. 

The governor keeps saying it's because we're 

doing more testing, but I'm not sure if that's a 

way to keep us positive or if that's really the 

truth.

Our unemployment rate has come down. 

It had spiked to 10 percent, but it's now 

currently at 3.9 percent. With limits recently 

coming back into place for restaurant capacities 

and other businesses, I think that that 

unemployment rate will go back up. Our ag

portfolio is in excellent shape. Part of that is 

due to government payments that our borrowers 
36

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

have received.

Our commercial market is the one that 

we worry about, not just the small businesses 

that are failing or that aren't faring so well, 

but our rental market is tough with employers 

deciding to keep employees at home permanently. 

Our largest renter of space, which is the State 

of North Dakota, is actually taking the lead on 

that, which is really disappointing. I 

understand the need to cut costs, but I think 

that we also need to support our state economy, 

especially in a time like this.

Speaking of supporting the economy, 

our Bank of North Dakota, which is the only stateowned bank in the country, has really stepped up. 

Post-PPP they came out with several programs to 

help some of our smaller businesses. They came 

out with some low interest rate loan programs, 

and then recently they authorized $70 million to 

fund retroactive interest assistance to 

businesses.
37

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Basically you can look back the last 

six months and whatever interest a business paid 

on their loan, they could have it completely 

funded through the Bank of North Dakota, which 

would, of course, help our bank and many other 

banks, as well.

The final thing I wanted to talk 

about, just last week I had the opportunity to be 

a small business representative on a SBREFA panel 

hosted by the CFPB for Section 1071 of DoddFrank, which of course covers reporting on small 

business loans. And as I think about what's on 

the horizon that could affect my bank, I can't 

help but think about 1071, especially since I 

just spent 15 hours on it. I know this isn't an 

FDIC regulation, but it will definitely impact 

all of us on this panel and every FDIC-insured 

bank in the country, so I wanted to give a brief 

update.

I went into the meetings a little 

blindly, believing that because this is called 
38

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the Dodd-Frank Wall Street Reform Act that all 

the small business reps on the panel would band 

together and plead for a broad exemption so that 

this rule doesn't unintentionally burden our 

small businesses, our small banks. But initially 

a couple of the CDFI reps from large metropolitan 

areas really controlled the conversation or 

dominated the conversation, and they asked for 

the rule to be as expansive as possible to collect 

data on 99 percent of small business loans, with 

the thought that it would help as many women and 

minority-owned businesses as possible.

While I think that's an admirable goal 

and it's something everybody would want, I think 

that PPP data shows that community banks are 

already doing that. We're already helping small 

businesses, and collecting this additional data 

will only increase our cost of doing business and 

it won't change the outcome. By the end of the 

panel, I was pleasantly surprised the focus 

shifted in support of protecting smaller FIs from 
39

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

undue burden. We wondered if we really needed 99 

percent of the data or could we apply the rule to 

FIs over $10 billion first and then slowly expand 

it if more data was needed. We also wondered 

about the protection of small business owners and 

their privacy.

While I'm hoping for aggregate data 

reporting, I'm not sure that that will come. But 

I believe that if they disclose at a loan level, 

there will be major unintended consequences. For 

example, my hometown, it's the only town in the 

county. We're the only bank in the county. We 

have one butcher, one mechanic. If anybody 

wanted to look at that data, they could easily 

tell who applied for what loan, how much they 

applied for, what their gross annual revenue was. 

I really think that small businesses 

are not going to appreciate that. I also think 

that it will cause them to look for funding 

elsewhere, maybe with a high-rate personal credit 

card or maybe they'll go to a bigger bank in a 
40

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

different county, but it'll definitely push loans 

away from small hometown banks. I know my example 

is extreme, but I really believe much of America 

is rural, and there's a lot of counties out there 

with very few businesses. 

I also think that people will look at 

that data and they'll make an assumption about 

somebody being discriminated against when that's 

not really the case. You might have one business 

starting up that looks a lot like another 

business on paper, but maybe there's a guarantor 

for one and not for the other. Or maybe character 

really takes the decision to a different level 

for one borrower than the other.

Fintechs use data to make their 

decisions, but community banks take character 

into account. You won't see that if you're just 

looking at data, and I think that there could be 

a lot of lawsuits just like we saw with bank 

websites, where there's lawyers just waiting in 

the wings trying to pick data apart to bring 
41

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

lawsuits.

Finally, I just think that Dodd-Frank 

has enacted a lot of stuff. The intent was to 

reign in Wall Street, but we saw with all the 

mortgage regulations that came into play that 

what it did was it caused many small banks to 

exit mortgage lending, which pushed customers 

back to bigger banks that initially created the 

problem. So rather than being punished, they're 

gaining business.

I think that 1071 is the final piece 

of Dodd-Frank, and I don't want it to be the final 

nail in the coffin of many independently-owned 

community banks like mine. I know that's not the 

intent of the regulation, I just hope that the 

CFPB understands that, and I hope that through 

the panel we were able to convey that to them. 

That is all I have. Thank you again for letting 

me speak today.

MEMBER NARVAEZ: Good afternoon, 

everyone. Gilbert Narvaez, Junior. I'm 
42

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

President and CEO of Falcon Bank. First of all 

I'd like to thank Madame Chairman McWilliams, 

Director Gruenberg, Betty Rudolph, and the rest 

of the FDIC staff here today for the opportunity 

to participate and serve in this very important 

advisory committee. I'd like to thank my fellow 

committee members for their time and their 

efforts in trying to make a difference.

Regarding our local conditions in this 

part of the country, our bank is headquartered in 

Laredo, Texas. We conduct a significant part of 

our business along the US/Mexico border. The 

bank's 17-branch footprint also extends into 

South Texas region, which includes the cities of 

San Antonio and Austin metro areas. 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 ports of entry between the US and Mexico, 

our international trade and transportation 
43

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

sectors continue to be active and are very 

important sectors of our operating environment. 

Other ports of entry along the border serve as 

additional trade and distribution points.

Although the pandemic has affected the 

unrestricted cross-border crossings, the bridges 

remain open for transportation and trade activity 

and other essential travel purposes. Closure of 

these bridges to non-trade related business has 

drastically affected the retail, hospitality and 

restaurant business sectors of those cities along 

the border. 

Regarding our customers, customer and 

employee safety is the utmost important to us. 

We currently are operating as close to business 

as usual as possible, with some social-distancing 

protocol twists. We continue to meet the banking 

needs of our customers. All of our lobbies have 

reopened for regular business. We still have, 

however, one-third of our workforce is still 

working remotely.
44

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

We have grade school programs here 

that are still operating virtually. We have 

university and higher education programs being 

conducted via a hybrid model, on-campus and 

virtual. 

We continue to support our community. 

We participated in the PPP loan program. We 

funded over $35 million loans to over 500 small 

businesses. We continue to assist local food 

banks and other civic organizations on pandemic 

relief efforts.

We also continue to assist borrowers 

with loan deferral requests and submission of the 

PPP loan forgiveness documentation through SBA, 

which has been somewhat of a nightmare for most 

banks and also our customers, as well. We've 

noticed an increase in our digital and noncontact delivery channel because of this 

pandemic, and that's worked well for us. 

Our online banking products, our 

drive-thru and curbside services have really done 
45

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the trick to service our customers. We've also 

noted that our customers’ spending habits have 

changed, and that's affected our interchange 

income as we go forward. Our state's recent 

unemployment rate dropped from 13 percent plus at 

the inception of the pandemic. It's now down to 

8.2, 8.3 percent. 

We're expected to continue to improve 

unless there's another spike or surge in the 

virus cases, which is happening in some sectors 

of the nation. We used to be one of the hot 

spots, or our area used to be one of the hot 

spots, and since then it has simmered down and 

has reopened a lot of the income sectors within 

our operating environment.

However, that could drastically 

change in the coming months, which I expect the 

next six to 12 weeks to be the epicenter of what 

the virus affects. Other areas and components 

that are being affected are earnings due to net 

interest margin compression. They've also been 
46

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

affected. We've also started rebuilding our ALLL 

provisions, as well, in anticipation for some 

possible losses. That still remains to be seen.

Our liquidity continues to be very 

plentiful. Capital, despite the decrease in 

earnings, we still have very strong, healthy 

capital levels. The credit quality of our nonperforming assets and our delinquency levels are 

at all-time lows. While it's still too early to 

tell, there are some concerns on that; as the 

prolonged effects of the pandemic linger, some of 

those levels may tend to start decreasing or 

dropping.

The pace of the economic recovery 

continues to depend on the longevity of the 

pandemic. The sooner the availability of 

effective, therapeutic virus treatments and/or 

vaccines will be the sooner that we all recover. 

That concludes my comments. Thank you.

MR. DAVIS: Thank you, Gilbert. Lori, 

you're up next.
47

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

MEMBER MALEY: Good afternoon. Thank 

you, Chad. Thank you, Chairman McWilliams and 

Director Gruenberg and all attendees. I'm Lori 

Maley, the President and CEO of Bank of Bird-inHand, a $550 million bank in Lancaster County, 

Pennsylvania, with three branches which are 

brick-and-mortar, and now three mobile bank 

units. Our bank is approaching its seventh year 

of providing community banking services to the 

community, which includes the plain community 

made up of Amish and Mennonite. 

We as a bank were able to assist many 

of our customers during these trying times. The 

crisis differed from the Great Recession. Banks 

during the crisis were friends, not foes. With 

the help of the CARES Act and PPP, both 

individuals, as well as businesses were able to 

stay afloat in our area. As partners, we were 

able to help our existing loan customers by 

lowering their loan rates based upon the 150 

basis-point decrease in prime rate.
48

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

From an economic perspective, dairy 

farmers survived, but a minority of them quit 

milking cows and are working off the farm or 

growing produce and crops. Core businesses 

actually did prosper during COVID. Real estate 

development, both residential, as well as 

commercial, continues to thrive. However, 

supplies and inventory still seem to be a 

problem. Lumber prices, which had gone through 

the roof initially, seem to have backed off a bit 

recently.

We have seen a resurgence in the 

tourism industry in Lancaster. However, there 

are still restrictions as to restaurant seating 

and occupancy still in place at this time. 

Unemployment is still very low in Lancaster 

County, which is evident by the Help Wanted signs 

in many businesses. Economic health is evident 

by the bank's pending loan report, which topped 

$13 million for the month of October.

This indicates that businesses 
49

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

continue to move forward with some level of 

confidence. Loan volume, as well as asset 

quality for us remains strong. We had one 

delinquent loan 30 days past due as of 9/30. 

We do ask for the FDIC's assistance in 

reconsidering the Amish Aid Policy use for flood 

insurance. Our competitor OCC banks and Farm 

Credit banks have politely informed us that they 

are eating our lunch regarding these loans. I 

know the intention was not to put FDIC banks at 

a competitive disadvantage. However, the result 

is that we estimate we have lost at least $2 

million in Amish loans to a local OCC bank since 

last year. The Amish customers that bank with us 

are paying flood insurance premiums they would 

not necessarily have if they banked with an OCC 

bank. They stay with us, I think, due to their 

sense of loyalty, but there is a cost to them. 

So any assistance you can provide in this topic 

would be greatly appreciated.

The term mobile banking has a 
50

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

completely different connotation in the Amish 

Country and Lancaster County. On October 5th, 

our bank launched what we call Gelt Bus No. 2 and 

No. 3, Gelt meaning cash in PA Dutch. This 

allowed the bank to bring full-service banking 

via a mobile bank unit, which is a 34-foot RV 

equipped with everything that the brick and 

mortar branches have. This enabled our bank to 

cover 16 separate locations with its fleet of 

three mobile bank units.

We changed our plans for the delivery 

of the new buses by really assigning them to an 

all-day location in order to better serve 

customers in remote areas. Our original Gelt Bus 

No. 1 covers nine separate locations per week, 

with the hours of business being usually split 

between two separate locations per day.

Our bank is currently in the final 

phase of finishing up a Pennsylvania Department 

of Banking and Securities Safety and Soundness,

IT, and BSA Exam, in addition to an FDIC CRA,
51

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Fair Lending, and Compliance Exam. It is amazing 

how smooth the process is and how efficient the 

exam teams were in processing the information. 

It is always better to meet face to face, but 

under the current circumstances, it was a really 

fine-tuned process.

Lastly, in August our board of 

directors decided to commence a stock offering, 

which began September 14th. Even though the bank 

had not reached its capital policy triggers to go 

out for additional capital, the uncertainty in 

the financial markets precipitated the move to 

secure capital when the bank believed it was 

available. 

The miraculous thing about it is the 

bank sold out of the first $15 million in two 

weeks. The offering circular provided the option 

of invoking a greenshoe to expand the offering to 

$20 million. The bank closed the full offering 

at $20 million in approximately three weeks after 

the start of the offering. We've actually had to 
52

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

return $900,000 of subscriptions that came in 

after the offering closed. 

I think this sends a very strong 

message that our shareholders, both existing and 

new, believe that community banks have been a 

source of strength during the crisis. In a time 

of uncertainty, the investment of people's hardearned money is a testament to faith and trust in 

the financial services industry. In conclusion, 

I would like to thank the FDIC for allowing our 

bank to be part of this wonderful committee. It 

is truly an honor and privilege. Thank you.

MR. DAVIS: Thank you, Lori. Kenneth, 

you're up next.

MEMBER KELLY: Yes, thanks Chad. And 

thank you Chairwoman McWilliams and Director 

Gruenberg, and the staff of the FDIC. We really 

appreciate the opportunity to be before you. And 

to my fellow bankers, it's great seeing you and 

hearing from you. I think many of the stories 

that you will hear will have a resonating theme 
53

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

throughout them. 

What I can tell you is in Detroit we 

have seen a little bit more of a challenge than 

some of the other cities. For instance, in 

leisure and hospitality I believe we were down at 

the end of June about 40 percent when the nation 

was down about 27 percent. The good news is, 

though, as we look at the bank, asset quality

still seems to remain relatively strong.

Those who went through deferments and 

forbearance, that number has cinched back. In 

the short run, it appears that again, many of the 

same things have been stated previously, are able 

to make payments. The question is how long will 

that stimulus be able to hold on. And, in 

particular, where we're seeing Coronavirus begin 

to escalate again and may call for the need for 

again maybe sheltering-in-place type activities, 

will it dampen the economy going forward? That

is a concern that we have top of mind.

At the core bank loan for us, we're 
54

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

having to take some provisions for our ALLL, and 

those are impactful. We are hopeful we can guide 

through this. On the technical side, we are 

working through a three-year plan that will move 

us from our current core provider to a completely 

digital format as of April 29th. 

We saw PPP and some of the fintechs, 

as mentioned earlier, move at a quicker pace. We 

are hopeful that we'll be able to provide 

services that will be at a lower cost and better 

convenience to our customers going forward. I 

think I mentioned asset quality and strategic 

plan that we working on, but there is one area 

that I do want to spend a little bit of time on 

that I think is important.

In many cases it's the elephant in the 

room, but Chairman McWilliams, I want to thank 

you for being out front on these topics regarding 

diversity and inclusion. I just got off a call 

with your Chicago region on this topic. Tom 

Leavitt, who opened up this segment, talked about 
55

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

a conversation that he and I had. But, the 

reality is in a capitalistic society what we know 

is that economics is the measuring stick and is 

the one that we determine where there is equality 

and disparities.

As fellow bankers and, of course, the 

FDIC, I think all of us can figure out how to 

lean into that. I'm looking forward to seeing 

the comments on the fund. I think I've got some 

input I'd like to share there. But in reality 

what it is also about is relationships and being 

sure that there is capability to come along with 

those relationships that produce positive 

outcomes. 

So when we look at things like net 

worth and income inequality across gender and 

home values, et cetera, the data says that we 

have not been equitable. In this moment in 2020, 

we believe that there is an opportunity for 

bankers to be leaders in this, regardless of what 

your demographic market says. We believe bankers 
56

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

can be leaders in this. 

I want to conclude by saying on behalf 

of my fellow colleagues with the National Bankers 

Association, where I think I shared this back at 

the last meeting at the end of July, where our 

approaches really have been across three 

priorities. One is equity capital for these 

institutions. Number two is revenue generation 

opportunities for these institutions, and then 

third, deposits. 

Putting that in perspective, we've 

seen companies like Square and Uber move in the 

right directions to say that they're going to 

support efforts like the National Bankers 

Association and income equality going forward. 

So I just want to say thank you on behalf of that.

As I close, again, when we think about 

success, it is a measure of not where we are, but 

where we need to go. Chairwoman McWilliams and 

Director Gruenberg, we expect your leadership 

will continue to lead the FDIC as a regulatory 
57

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

agency that we can all be proud of and help us 

all grow together. Thank you.

MR. DAVIS: Thank you, Kenneth. Jim, 

please go ahead.

MEMBER EDWARDS: Good afternoon to 

everybody. I hope you can all hear me. I had a 

few technical difficulties getting in to the 

meeting here. I'm doing a workaround on my phone,

and I hope the sound quality is okay with that. 

It's great to be with everybody, even if it is 

just virtually today. Just as a quick reminder, 

I'm CEO of United Bank, 115 year-old closely-held 

$1.8 billion community bank operating in 11 

contiguous counties between Atlanta and Macon, 

Georgia.

I'll tell you that, as some of you may 

know, Georgia was one of the first states to 

reopen after the virus crisis here. Our bank 

reopened in a fairly normal manner a week or two 

after the governor lifted those restrictions. We 

have a very strict mask protocol, and we've been 
58

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

limiting the number of people in any one branch 

location at any time. But overall, things are 

coming back to normal and I'm really pleased to 

see that.

We've had good traffic flows back in 

our lobby, and to date we've only had about five 

percent of our over 400 employees that have had 

the virus. We've not had to close any branches, 

which is something that we certainly spent a lot 

of time thinking about and continue to have plans 

in place if we need to shift people around to do 

that. I'm just very pleased and grateful that 

this virus has not impacted us any more than it 

has so far, although it certainly has been the 

primary change we've experienced in my banking 

career, certainly in the last several years here.

Big picture, I still remain I guess 

surprised, I would say, at how well our customers 

and our bank is doing. If you had asked me back 

in March and April would we have these sort of 

numbers, would our customers in general be doing 
59

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

as well and as healthy financially as they are, 

I would have said, gosh I just don't think so 

given all of the headwinds that we have against 

us in this economy.

It's not booming, but it is quite 

strong. Just to give you an idea, our total 

deposits, as many of you who I've heard who have 

gone prior to me have mentioned, our total 

deposits are up dramatically, up over 20 percent 

this year. Non-interest bearing deposits are up 

over 30 percent, the strongest growth in 

certainly my banking career in any one year. 

Our loans are up about 15 percent. 

However, when you factor out the PPP loans, which 

we were a very active participant in that 

program, when you pull those out our loan 

portfolio is really only minimally higher. So I 

wouldn't call loan demand as robust as I wish it 

was in our part of the world, although certain 

segments of loan demand are very, very strong.

Past dues, as many of you have said, 
60

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

past dues, criticized assets, problem assets, 

they really are at unbelievably low records, 

pandemic or no pandemic. Part of that is 

certainly stimulus money and part of that is just 

some general underlying strength that remains in 

our part of the country here, but they are quite 

low.

Deferrals, which is something we were 

all concerned about, remain concerned about, but 

I'm really pleased to say that from a commercial 

loan standpoint, only about 15 percent of the 

loans that we deferred initially or at the height 

of our loans, only about 15 percent of those 

commercial loans remain in deferral.

Our credit card portfolio, which we 

are still a community bank that has its own credit 

card portfolio, the credit metrics on that 

portfolio have remained surprisingly strong, as 

well. Our mortgage deferrals have not dropped 

quite as fast as our commercial loan deferrals. 

They're down about 40 percent from the high, but 
61

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

we're a large Freddie Mac originator and 

servicer, so some of those have had pretty 

generous terms with borrowers. I think we'll see 

more of those continue to come off deferral as 

some of those programs come to an end there.

Housing demand in our area remains 

extremely strong in really all segments, from 

whether it's speculative construction in one- to 

four-family or contract houses or just people 

coming in and wanting to add on a new room to 

their house. I heard Louise mention the stayat-home situation had been positive for her area 

outside of San Francisco. We're outside of 

Atlanta, and that same thing has happened in our 

area, as well. 

I think people have realized that 

they're spending all their time in their house,

and they don't see themselves, many of them, 

going back to work in downtown Atlanta offices 

every day. They've decided they need an 

independent office in their house, need more 
62

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

space in their house, so they're just spending 

money there. We've been a beneficiary of that 

and have been delighted to help a number of 

customers with those financing needs.

Our permanent mortgage business has 

just been astounding really. It is up almost 90 

percent this year over a very solid 2019. Every 

night when I leave here, I've got mortgage 

lenders that are burning the midnight oil that 

I'm leaving here that are just trying to handle 

the volume that we're trying to deal with right 

now. Low rates are really, really driving a lot 

of that, but again, it's just very, very strong 

demand.

I think the question in terms of where 

do we go from here, some of that remains what 

additional stimulus will we get? I am concerned 

about the hospitality industry in our area. We 

have a number of customers that are struggling 

there, and that really is what the majority of 

our commercial loan deferrals are. It revolves 
63

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

around primarily hospitality and one or two 

situations, some private gyms that we have 

financed, as well.

We are not far from the Atlanta 

airport, so our area is tied pretty much to the 

airline industry, with Delta being headquartered 

here. That's a challenge that we also -- as they 

struggle and continue to try to fight through the 

COVID situation and get air traffic demand back 

up, that's an issue there. The question is how 

long does it take for us to transition to a postCOVID economy? Will we have some additional 

stimulus for these really hard-hit areas? That's 

something that's on my mind as we think about 

this.

Then ultimately, of course, the big 

question is when will we get a vaccine? When 

will we get this virus predominantly behind us 

and be able to move back to a more normal 

situation from an economic standpoint? Nobody 

really knows that. All we can do is continue to 
64

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

work, try to meet the needs of our customers, try 

to be safe and work hard to do everything we can 

to help that day come as soon as we can and help 

our local economies here. We are very hopeful 

about the advent of a vaccine that will be 

effective here.

As I look towards next year, I have to 

say, I've heard a couple of the other bankers say 

they're concerned about the net interest margin. 

That is certainly going to hit us. Even without 

the increase in negative credit situations, if we 

continue to have very strong portfolios -- credit 

metrics, we're still probably going to have lower 

earnings next year. That's simply because of the 

significant contraction of our net interest 

margin.

Our deposit rates are down. I don't 

see us being able to affect those very much. We 

do see both on the loan portfolio earning rates, 

as well as bond portfolios, that's going to 

continue to come down. That is certainly a 
65

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

challenge. 

I will just say in closing that this 

is my last meeting, as well. I want to thank 

Chairman McWilliams, Director Gruenberg, the 

other FDIC staff. It's just really been a real 

pleasure and an honor to serve on this committee. 

I've enjoyed getting to know all of you better. 

I appreciate all that each of you do for our 

industry. I've very much enjoyed getting to know 

all of the bankers that I've served with on this 

committee. 

It's astounding to me how often when 

I hear you speak I realize it doesn't matter 

whether you're in Washington or Texas or New York 

or Georgia, so many of our challenges and 

opportunities are the same. It's been great to 

get to know you to hear those comments. I'll 

just close with saying I'm very much looking 

forward to seeing all of you again in person in 

the hopefully not too distant future. Thank you.

MR. DAVIS: Thank you, Jim. Stephen, 
66

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

you're up.

MEMBER HAYES: Okay, are we on?

MR. DAVIS: Yes, we can see and hear 

you.

MEMBER HAYES: Great, thank you. Like 

I said, my name is Steve Hayes. I'm the President 

and CEO of Dakota Prairie Bank. I'd first like 

to begin by saying thank you to Chairman 

McWilliams and Director Gruenberg and the staff 

for giving me such an opportunity here. I'm very 

humbled by this meeting and moving forward. I 

just again want to thank you for this 

opportunity.

Dakota Prairie Bank is located in 

central South Dakota. It's a third-generation 

family-owned bank established by my grandfather 

in 1906. We have roughly about $115 million in 

total assets, with 60 to 65 percent of our total 

loans in agriculture, and the balances are in the 

commercial and the consumer portfolio. We have 

four locations, all located in central South 
67

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Dakota, probably within 30 to 50 miles apart from 

one another.

Three of our branches in our 

communities with a population of 500 to 800 

people. Our main office is located in a community 

of about 2,200, and it's just adjacent, across 

the Missouri River from the capital city of 

Pierre. We're really close, work together with 

a community of about 10,000. Again, that's where 

most of our commercial and consumer loans are 

located.

COVID, we started just like everybody 

else. In March, we shut down. We reopened in 

June. We had a lot of people working at home. 

We had the lobbies obviously were closed, and 

then the drive-ups were very, very popular. 

Today, Sarah from North Dakota mentioned about an 

increase in cases in North Dakota. We're seeing 

the same thing in South Dakota. We're dealing 

with that as we go. We don't have anybody with 

COVID that has left the bank, so we're holding 
68

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

our own so far.

PPP loans, we were able to put 

together about 50 loans, averaging about $30,000, 

with a total amount of about $1.35 million. We 

had about 24 loans that we extended up to 90 days, 

and most of those were commercial, particularly 

the restaurant business then the consumer-type 

loans that people were laid off. Those have been 

taken care of, and we've been seeing some pretty 

good progress on some of these past dues and 

extended loans.

One of the things I want to bring up, 

and I call it, without a better topic or a title 

is COVID eye-opener. Out here when you go to the 

grocery store during March, April, and May and 

you’ve seen the meat counters completely bare, 

what was there was very, very expensive. You 

realize that the pandemic is here. You just don't 

see that very often.

The food chain, as you've talked 

about, has been broken. The restaurants, the 
69

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

schools were closed, unable to use any of the 

meat. Smithfield, some of you have heard that, 

was shut down, one of the largest pork plants in 

the country, located in the eastern part of the 

state in a community called Sioux Falls. That 

had a huge impact on us. 

What has the bank issues during COVID? 

We've increased our loan-loss reserve. A lot of 

that is due to the loan growth and also the 

qualitative factors related to COVID. Otherwise,

our net interest margins are holding. I'm seeing 

a little down-tick on them a little bit, but 

overall I think our net interest margins are 

holding pretty well.

We have increased in loans and 

deposits. Our loans have been -- some of it's 

due to PPP, some of it's due to the pipeline loans 

that we bought back from participations so old 

that we bought them back on our books. Deposits, 

kind of exciting. We've had a tremendous amount 

of increase in deposits. Some of it's due to the 
70

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

COVID. But in December of 2019, we opened up a 

branch in a community of 800 people.

They had not had a bank since 2009. A 

large metropolitan bank pulled out. Now granted, 

some of these people with the technology, they 

were getting their banking needs met, but I think 

there was a comment made about relationships

there. It's also about brick and mortar for us 

out here. That has really been huge. It's truly 

exciting to come into a community that hasn't had 

a bank for, like I said, 10, 11 years. 

One of the challenges that we're faced 

with, and I know you hear a lot about credit 

unions and farm credits, but man, I'll tell you 

what, out here we've lost some pretty good agreal estate loans to Farm Credit. It's a 

challenge, to say the least. They've been 

offering 1.5, two percent with no fees, no 

appraisal fees, turnaround times basically 

overnight. We've lost some pretty good loans 

that we had sold off, as well. I'm not going to 
71

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

get into a lot about this other than it really 

has been a challenge for us out here.

Economy in our market area, we're 

primarily ag. Grain producers, livestock 

producers, that's basically who we are. Like I 

said, we're over 65 percent ag. 2019 we had 

severe flooding, which meant we couldn't get our 

crops in. The ones that were able to get in, 

they couldn't harvest it because underwater. 

Livestock producers lost a lot of their baby 

calves due to blizzards and the flooding. 

So it was not very good, but what 

really helped us out here was the market 

facilitation payments. That was helpful. 2020 

looks really well. I think Bruce mentioned about 

that, is our ag economy looks really much better 

in 2020. Actually we're in a modest drought, but 

things look really good. Our yields, and they're 

just in the process of starting their corn, and 

things are looking really good.

What also, though, has helped is that 
72

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

food assistance program that started in September 

of 2020. Commodity prices, we've seen an uptick 

on our commodity prices this year, so corn and 

beans and so, I guess you've got to take advantage 

of an opportunity. It may only last a day or 

two, but it has seen a tremendous change and a 

tremendous turnaround.

Because of that, the depressed 

commodity markets and others in the ag-sector, we 

see more and more people working outside the 

farm, either helping with the family living or 

their health insurance. We're seeing that more 

and more all the time. 

I'd just like to conclude with a 

couple comments or a couple things that's really 

had a positive impact on us out here. One was 

part of the Regulatory Relief Bill of 2018, 

raising the appraisal threshold on ag-real estate 

from $250,000 to $500,000. That was absolutely 

a huge benefit for us. It helped us compete with 

the Farm Credit Services on an appraisal 
73

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

turnaround time. Because, out here, for 

appraisals it takes a little while to get the 

appraisers because we just don't have abundance 

of appraisals in our area.

The other thing that it's really 

exciting to be a part of in South Dakota, and I 

think other trade associations in other states 

are working on this. It's called the Emerging 

Leaders Program, getting our young folks. I 

think it was mentioned back in July meeting that 

we needed to get the young folks involved. 

Emerging Leaders Program is done really, really 

well. 

Started the last couple years and 

excited to get the young folks involved, whether 

it's in the rural communities or in the larger 

communities. I always say our greatest asset is 

our people. If we can help a succession plan and 

beginning with our young folks, that's what it's 

all about. 

With that, I want to thank you so much 
74

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

for the opportunity. I look forward, I hope, to 

meeting all the fellow bankers that are on the 

call today and the rest of the staff. I really 

appreciate this so much. Thank you.

MR. DAVIS: Thanks, Steve. Fred, 

you're next.

MEMBER DEBIASI: Thanks, Chad. Good 

afternoon. I'm Fred DeBiasi, President and CEO 

of Valley Central Bank. Valley Central Bank is 

a $155 million mutual savings bank located in 

Liberty Township, Ohio. We're about 20 miles 

north of Cincinnati. Just wanted to say with the 

pandemic, unfortunately since our last meeting in 

July, we have been impacted by COVID. We have 

had several employees test positive for the 

virus, as well as a couple of directors.

Fortunately, the safeguards we put in 

place back in March has assisted in stopping the 

spread of the virus amongst our staff, but yet we 

have been affected for the first time. Our area 

in Southwest Ohio is considered a hotspot, both 
75

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Butler County, where we're located, and Hamilton 

County, where we also have offices. 

I think some of that has to do with 

the time of year and the fact that Miami 

University is headquartered in Butler County, as 

well as the University of Cincinnati is in 

Hamilton County. Both of those universities are 

a big part of where the numbers are spiking. But 

yet, we are seeing some uptick across the board.

The good news, we are having a record 

year financially and that, despite us increasing 

our loan loss reserves by 10 to 15 percent this 

year due to the uncertainty of the pandemic. Yet 

we are still having a very strong year, a lot of 

that driven by mortgage loan activity and the low 

rate environment. Our pipeline has been robust, 

really since the start of the pandemic and then 

continues to grow unabated.

I think we've also, in our area of the 

country, really since the last crisis we've had 

low inventory in housing, and housing demand is 
76

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

up now with the low rates, coupled with the low 

inventory. Housing starts in our region are 

extremely high and really not able to keep up 

with the demand for housing. It's certainly 

impacted us from a positive standpoint. 

Again, we have had deferrals with the 

pandemic. Those seem to have leveled off. 

Delinquency and credit quality still remains 

healthy and at acceptable levels, and we're 

pleased with that. We did also have our first 

fully remote regulatory exam that was just 

completed recently, or almost completed, with the 

State of Ohio Department of Financial 

Institutions.

I have to say, I couldn't have been 

happier with the way that exam went in terms of 

the efficiency, in terms of the smoothness of it. 

I'm hopeful that this is a paradigm shift in the 

way exams are conducted and not just a response 

to the pandemic. With our size institution, 

we've been kind of crying uncle for years that 
77

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

it's very difficult to have eight to 10 examiners 

on-site for two to three weeks for safety and 

soundness.

We just felt there had to be a better 

way, and I think it's coming to pass now that 

there is a better way with technology and with 

the ability to communicate remotely. We're 

hoping again that this will be a paradigm shift 

going forward. We think it was one of the 

positive things that have really come out of a 

bad situation. Unemployment in our area is down 

now to around between 7.5 to 8 percent. It had 

spiked up during the height of the lockdown. It 

seems to have stabilized somewhat.

I think the recurring theme is that 

we're all kind of holding our breath. Things are 

going really well right now. 2021 still seems to 

be a little bit of a wild card. It makes it very 

difficult to budget and forecast when you really 

just don't know what next year is going to bring. 

I think Director Gruenberg alluded to it, that 
78

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the next six to twelve months are going to really 

be telling for where this thing is headed and the 

impact it's going to have on our industry.

We're bracing for it, to be quite 

honest with you. While we're having a record 

year earnings-wise, we're not just resting on 

that laurel. We understand that next year could 

be quite a different picture. Otherwise, we feel 

good about where we're at. We do have four 

offices, four fully functional offices and one 

loan production office. One of our offices is 

still lobby-only due to just concerns and 

staffing issues with the pandemic. The rest of 

our offices we have opened our lobbies and are 

offering full service.

We're kind of a hybrid in terms of a 

lot more of our employees from a back room 

standpoint are working from home and working 

remotely. We found that that's been productive, 

as well. Obviously our front-line staff are 

coming in to serve our customers. We do have 
79

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

quite a few staff members that are working 

remotely at this time.

With that being said, again we feel 

that we're taking a cautious approach with loan 

loss reserves and making sure our liquidity is 

strong, to again head off anything that might 

come our way. 

I'd like to close again, as some of my 

fellow bankers have mentioned, this is also my 

last meeting. I would like to express my 

gratitude to Chairman McWilliams, Director 

Gruenberg, the FDIC staff for the opportunity to 

speak and be a part of this committee. 

It's been a wonderful experience. I 

couldn't have imagined someone from a little town 

in Southwest Ohio would have this opportunity, 

but I'm very grateful, thankful for the 

opportunity. I've met some wonderful bankers on 

this committee, the incredible staff at the FDIC. 

I couldn't be more grateful for that, so thank 

you, Chairman McWilliams. Thank you to Director 
80

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Gruenberg, the FDIC staff and my fellow committee 

members. I wish everyone all the best as we head 

into the home stretch here in 2020. I wish 

everyone a very successful 2021, and everyone 

stay safe. Thank you.

MEMBER ANDERSEN: Thank you, Fred. I 

guess it's my turn. Thank you all so much. I so 

appreciate everything that I've been listening to 

on this call. Thank you, Madame Chairman and all 

the committee members. I'm Shaza Andersen, CEO 

at Trustar Bank. We're located in the Washington 

metropolitan area. We are still considered a de 

novo bank. We opened last year, July of 2019, 

and we opened with three locations in this 

market. 

I'm so proud to say that we are 

currently over $300 million in assets. We have 

grown about 127 percent since the end of last 

year. Most of the growth has been growth through 

our former customers. Only 30 percent of that 

growth has been through PPP. 
81

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Talking about PPP, we're back into it. 

We're now doing all the forgiveness applications, 

and I'm really interested in hearing what the SBA 

has to say a little bit later. But we were able 

to help about 300 small businesses in our 

community as a de novo bank, and are really proud 

that we were able to jump in shortly after we 

opened our doors and process all these 

applications.

From a market and economy perspective 

in the Washington metropolitan area, I would say 

our economy has been fairly resilient. I think 

I mentioned that at our last call, as well. I'm 

pleasantly surprised to see that businesses have 

continued to thrive. Obviously restaurants and 

hotel industry are not the same, but I think that 

some of them are coming back.

From a bank perspective, we offered 

our customers deferrals, and we only had five 

customers that took advantage of the deferral, 

which leads me to believe that they don't need 
82

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

it, which is a good thing for our market. Having 

said that, from a bank perspective our pipeline 

is huge -- the loan pipeline, the deposit 

pipeline. So I feel really good about where we 

are as a bank. I don't know what the future is 

going to hold.

Obviously we're a community bank and 

we're not doing loans to the big major real estate 

businesses that own buildings in DC, but I 

understand that the vacancy after COVID has 

increased. And so, I'm not really sure how 

businesses are going to behave. Since a lot of 

them have been able to work from home, I wonder 

if they'll pay the money to go back into an office 

type of situation.

For us as a bank, we've been open 

since COVID. I feel that we're like a grocery 

store. Customers need us and we need to be there 

for them. We've been mindful about social 

distancing, so we've been rotating people coming 

in and out of the office, but we've been open 
83

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

through the whole pandemic. So far we have not 

experienced any problems. 

As far as the -- I'm just trying to 

look at my notes, I apologize. As far as looking 

ahead, I think that because we're new we didn't 

take advantage of the real estate booming market, 

but I'm pleased to say that we've come into an 

agreement into purchasing a small mortgage 

company. I'm hoping that we'll be able to take 

advantage of whatever is left of that. I think 

homes in this market, they go up and I think 

there's a bidding war to try and buy those homes. 

It's all positive, but then you hear the doom and 

gloom, and unfortunately, all the people that are 

getting sick and losing their job. So I'm 

pleasantly surprised that our market has been 

resilient and we've been able to continue to 

conduct business and be able to help our 

customers and our community. 

With that, I really thank everyone. I 

thank the people that are leaving us today, and 
84

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

I'm really looking forward to meeting with you 

guys in person whenever this whole pandemic is 

behind us. Thank you all, and I appreciate you 

letting me speak.

MEMBER PITKIN: Well good afternoon 

all. Hopefully you all can hear me. 

My name is Mark Pitkin, President and 

CEO of Sugar River Bank. We are located in 

Newport, New Hampshire. First, I wish to thank 

Chairman McWilliams for your participation in 

nearly every virtual meeting I have attended over

the last 30 days. Your support and guidance, as 

well as that of the Board and your entire staff, 

has been critical in allowing community banks 

across the country to focus on the needs of their 

customers and communities during this challenging 

time.

As an introduction, Sugar River Bank 

is a $335 million mutual institution with six 

branches spanning from the west part of the state 

to the central part. As I mentioned at our last 
85

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

meeting, we proudly are celebrating our 125th 

anniversary this year. An anniversary that I can 

assure you we will never forget.

While the bank remains vigilant and 

focused on strict safety protocols for customers 

and staff, the bank's branch footprint has fared 

quite well compared to national COVID-19 

statistics. We have less than a thousand 

coronavirus cases in our counties, and we have a 

total of 28 deaths since the beginning of the 

pandemic. Similarly, state and county 

unemployment levels, at 5.1 percent and 4.6 

percent, respectively, as of October 22nd, 

continue to drop significantly from the pandemic 

highs, which were 17.2 and 13.6 percent. 

Also of note, is New Hampshire's backto-normal state rating, which is calculated by 

Moody's Analytics, which places us in a strong 

seventh position out of 50 states. The governor 

and his appointed COVID task force have been 

consistently loosening many, if honestly not 
86

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

most, of the restrictions that were placed in the 

early stages of the crisis, and this includes now 

allowing up to 100 percent occupancy in 

restaurants and lodging facilities. 

So, that said, the heavily trodden 

restaurant and hospitality industry continues to 

face challenges, but like others have mentioned, 

it is beginning to show signs of improved 

earnings. So, when other commercial segments of 

the bank, while they are still suppressed from 

2019 levels, we have recently noticed an increase 

in loan volume and requests, many of which are 

supporting growth and expansion, which is a great 

news, not only for our area, but also the state. 

Industries exhibiting such expansion include 

health care and precision manufacturing. 

As far as local non-profit 

organizations, it is probably not a surprise that 

many continue to struggle as annual fund-raising 

campaigns continue to be hindered and in many 

cases, non-existent, due to the pandemic. Many 
87

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

of those non-profits are actually questioning 

their ability to survive unless there is 

additional government stimulus which is provided.

Multi-family lending in our market 

area, as well as I believe many parts of the 

state, has moderated over the last 30 days as 

investors, many of which are migrating from the 

Boston market, continue to look for properties, 

but are balking on the purchases due to escalated 

prices. I know I have heard that from others 

here today.

And also, due to the state-mandated 

moratoriums on evictions during the crisis, the 

available housing has become scarce, which is 

also driving up rental rates and consequently 

valuations. So, this does raise some concern to 

us that those rental rates will soon be capped 

and potentially subject to reductions postcrisis, which will indeed put pressures on debt 

service coverage.

With a continued, historically low 
88

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

interest rates, the bank's residential mortgage 

lending continues to be very strong, with nearrecord level purchase, construction and refinance 

activity. Also, with more people working from 

home, we are definitely seeing a substantial 

increase in out-of-state buyers moving into New 

Hampshire, in particular, the Lake Sunapee area, 

which is where we are located. Again, most of 

those are coming from the Boston area. This 

migration, coupled with already low inventory, 

has resulted in over a five percent, state-wide 

annual housing appreciation rate over the last 12 

months, or, I'm sorry, since December of 2019.

It is also worth noting that increased 

lending activity has stretched our appraisal 

turn-around times from 14 days to four to six 

weeks. So, that has been somewhat of a challenge 

-- a challenge managing these purchases, as well 

as the expectation of our customers during this 

very busy period of time.

As others have mentioned, we have been 
89

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

in the process of preparing for and accepting PPP 

loan forgiveness applications. We've accepted 88 

forgiveness applications, which represent 36 

percent of our total of 245 PPP loans. Also of 

note is 86 percent of those total loans do qualify 

for the 3508 simple form as they are under the 

$50,000 threshold. So, again, good news for many 

of our PPP borrowers, as well as the capacity 

restrictions that we have here at the bank. The 

biggest concern of many of those borrowers, 

however, has been the unanticipated requirement 

of deducting the EIDL advances from the 

forgiveness amounts. So we are working through 

those particular cases.

The bank's asset quality remains 

strong. Of the 50 loan deferrals granted during 

the midst of the crisis, only a single 

residential loan with one more interest-only 

payment due in November remains. All of the 

borrowers are successfully making regular 

payments. Adversely classified assets to 
90

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

capital, non-performing assets, as well as 

delinquencies remain at historic lows, which I 

believe is indicative of most banks that are 

located in the state.

 Particular attention has been placed 

on the analysis of our ALL to best ensure we are 

reasonably factoring in any lagging credit risk 

from the pandemic. It is noted that the average 

percentage increase to the ALL by New Hampshire 

banks less than 500 million in assets from 

12-31-19 to 6-30-30 is seven percent, according 

to a recent report from a regional accounting 

firm. So we are noting that people are bolstering 

appropriately, I believe, their allowances.

Lastly, as the COVID-19 pandemic 

continues, the bank remains vigilant in its fraud 

prevention and detection efforts. I will note 

that as of late bogus unemployment claims are the 

most frequent fraudulent activity that we are 

detecting. And I believe that is true of many 

New Hampshire banks as the New Hampshire 
91

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Employment Security has reported that it has 

detected a total of 6,000 fraudulent claims since 

the crisis began. 

So, that is my report of things going 

on here at the bank, and our market, and the 

state, and as many others, I truly thank you for 

allowing me the opportunity to share what is 

going on and I really appreciate working with all 

of you on the committee.

MEMBER MONGOLD: And it's my turn. 

Hi, I'm Patty Mongold. Not sure, I 

don't seen the video. Hopefully you guys can 

hear me. But, Patty Mongold, Mount McKinley Bank 

in Fairbanks, Alaska.

And, Alaska is one of the states that 

has seen a dramatic growth in positive cases of 

coronavirus in the last few weeks, unfortunately. 

We still have travel mandates in place. When 

returning to Alaska, residents must get tested 

right away. They don't have to quarantine, but 

they do have to social distance until the test 
92

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

results are returned. 

If you are a non-resident traveling to 

the state of Alaska, you have to bring negative 

test results with you and that test has to have 

been conducted within 72 hours of your arrival in 

the state of Alaska. 

The --- other than that, the state is 

pretty much open. There is not a lot of 

requirements on businesses to social distance. 

There is no mask mandate in place that is state 

ordered. So most organizations are business as 

usual. They are conducting meetings with social 

distancing enforced in place. They are -- and I, 

most -- for the most part, masks are worn and 

they are requiring them but not enforcing that 

requirement. It is kind of interesting.

The bright spot in the numbers for 

coronavirus in the state of Alaska is that our 

hospitalization rate and our death rate remain 

low. So, that is a good thing. We are watching 

that closely to hope -- hopefully that doesn't 
93

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

increase. 

Mount McKinley Bank made 385 PPP loans 

for about 39 million. We began submitting the 

forgiveness applications on September 14th. 

We've now entered 33 applications for forgiveness 

and had the SBA confirm payment on eight of them. 

However, four of those loans did have the 

forgiveness amounts reduced due to the borrower 

having received EIDL funds. Something that the 

bank, nor the borrower knew was going to happen, 

so our understanding that those EIDL funds would 

be forgiven and if the SBA would carry the 

remaining balance on their books, rather than the 

banks having us carry the balance on our books. 

It has caused some difficulty with our borrowers 

-- those ones affected -- because they do now 

have a payment due next month and that again was 

something that they weren't anticipating. And so 

we’re working with them to try to get through 

that.

We are happy that our nonaccrual and 
94

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

delinquencies are down. They were at -- continue

to be lower than they were a year ago, so that is 

good news for us. We did see, interestingly, 

we've seen some slight growth in our balance 

sheet between the second and third quarter. We 

weren't sure we would see that growth, but it’s

been slight and that goes back to, we've really 

always wanted to have slow, steady growth, but we 

weren't prepared for the dramatic increase -- the 

PPP volume hit our balance sheet and that growth 

was quite -- took us by surprise.

Our mortgage loan refinance is just 

booming, much like everybody else's. We see a 

lot of refinance activity. That pipeline is 

huge. We see a lot of purchase activity and we 

don't see any slowing down of that, so, people 

are taking advantage of these low rates and 

that’s great. 

Our liquidity is considerably less 

than when this committee met last time, but that 

is by design. We had a tremendous amount of 
95

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

liquidity, and we've been purposely trying to 

reduce that. 

We had a bit more cash than we really 

needed and right now we have -- we still have a 

little bit more than we need, but we are holding 

on to it in the short term. We've been buying 

some short-term investments in order to increase 

our income over what the Fed funds are paying. 

Our -- we are down on income year over 

year about 6.8 percent, but we are still very 

healthy. It's still -- our balance sheet looks 

pretty good.

Right now we’re getting ready to start 

our budgeting process. We’re not sure how that 

is going to go. I believe the expenses are going 

to be up considerably next year, and, for example 

we just received our quote for our health 

insurance renewal and it is up 12 percent. We 

also don't know what we are going to be doing 

with our loan loss reserves for the PPP loans --

well, not PPP loans specifically --- but for the 
96

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

COVID-19 reserve. We are anticipating increasing 

that but we are, at this point, trying to 

determine exactly what we want to do with that. 

We do expect to have to increase the reserve 

balance for that.

I would like to say that I appreciate 

receiving that interim final rule regarding the 

temporary relief from Part 363, the audit and 

reporting requirements. I believe we would have 

crossed that $500 million threshold at the end of 

2021, but we’ve artificially crossed it well 

before that schedule, primarily due to PPP. I 

don't know that we’ll be down below that 500 

million at the end of the year. I have doubts 

that we will, but we really feel very fortunate 

that that interim rule gives us the ability to 

deal with our splitting out that audit function 

in 2022 rather than trying to rush and do it for 

2021. So, really appreciate that ruling.

At the present, two main concerns 

really is providing a healthy, safe work 
97

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

environment for our employees. You know, we've 

only had one positive employee case of COVID-19. 

We want to keep those numbers low, and hopefully 

we are taking all the right steps to make that 

happen. We’re also trying to keep our customers 

safe when they come into the bank, and we want to 

make sure that we are giving them the tools that 

they need from a business perspective to be 

successful, whether it is being with their loans 

or the deposit products that we have. 

And last, I really appreciate the 

opportunity to participate on this committee. I 

appreciate the guidance that we have from the 

FDIC and I am excited to hear from Kathy Moe, our 

Regional Director for the FDIC. She's -- I really 

appreciate her support and leadership during 

these unprecedented times and look forward to 

hearing from her. So, thank you for giving me an 

opportunity to speak.

MR. DAVIS: Great, thank you to all of 

our committee members. In the interest of time,
98

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

I will now turn it over to Shayna, Kathy and John.

MS. OLESIUK: Great, thank you very 

much, Chad.

My name is Shayna Olesiuk. I'm in our 

national and regional risk analysis area here in 

Washington and I will be talking for a few minutes 

about some of our observations related to the

economy and banking trends. 

Many of the themes that I've heard 

over the -- over the speakers over the last couple 

of hours -- our views are very similar to what 

you are discussing. So I think that's good that 

there is a -- we've certainly seen a lot of 

improvement over the last few months, however we 

are still very much below where we were prepandemic and there is still a lot of uncertainty 

in the environment that we are in.

So, first on employment. So, as of 

September the economy has recovered just over 

half, about 52 percent, of the 22 million jobs 

that were lost since the pandemic began. The 
99

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

gains have been spread across sectors and the 

hard hit leisure and retail trades sectors are 

leading in terms of percentage gains. However, 

all sectors and all states remain in negative net 

positions related to their employment relative to 

the pre-pandemic period. 

Now, earlier in the pandemic we saw 

some unevenness in terms of where the jobs were 

lost. Most of the job losses were first

concentrated in the northeast. More recently 

we've seen that even out. There is much less 

difference in terms of how states are faring now. 

The states closest to pre-pandemic levels, Idaho, 

Utah and Arizona, are only about three percent 

below February levels. Many of these states were 

boosted this summer by driving traffic of 

tourism. On the other end of the spectrum, 

Hawaii, California and New York remain farthest 

below pre-pandemic levels at about ten to 17 

percent below those February levels. I think the 

common thread here is these areas -- many of them 
100

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

also rely on tourism, however they are 

destinations that people frequently fly to. So, 

not surprising that they are struggling a little 

bit more.

Also concerning is the pace of hiring 

has slowed down this fall. In recent months, one 

of the sources that we look at is the New York 

Fed's weekly economic index and this shows a 

deceleration in the pace of recovery. So, we are 

watching that closely to see how that plays out 

in the coming months. 

Similarly, unemployment, we’re well 

down below the peak level of 15 percent, earlier 

this spring. Down below eight percent now for 

the nation. However, the share of people 

indicating that they are permanently laid off, as 

opposed to temporarily laid off, that share of 

permanent layoffs is increasing. Which, like the 

pace of slowing -- or the slowing pace of 

employment growth, also, is somewhat concerning.

In terms of the recession, we’ll get 
101

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

GDP numbers later this week for third quarter. 

And the expectation is for significant growth in 

third quarter. However, even with that growth,

the Blue Chip economic forecast consensus is for 

negative 4.6 percent GDP growth for a full year, 

2020. So, like the employment story, despite the 

growth that we've seen recently, we are still 

ending in a net negative position, or that’s the 

forecast for the year.

I'll just touch on a few industries 

that we’re watching and then Kathy and John will 

follow up on those. So, first, commercial real 

estate -- certainly an area that we’re watching 

– we’re seeing deterioration in demand for most 

all types of commercial real estate. The one 

exception is the industrial and warehouse area, 

which has been boosted by the increase in ecommerce and shopping on-line and those sorts of 

things. 

One of the sources that we look at is 

CoStar. CoStar shows that property prices across 
102

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

different property types are down currently about 

five percent from pre-pandemic levels and the 

forecast from CoStar indicates that these prices 

are going to continue to fall over the next 

several quarters. However, the forecast for 

these property prices, at this point, is that 

prices -- price declines will not be as bad as 

the financial crisis, but obviously could be 

revised further down.

Secondly, on the agriculture 

industry, like many of you mentioned, the 

agriculture industry entered the pandemic in a 

stressed situation, but banks have remained very 

resilient. Two factors that have helped banks, 

and many of you mentioned this as well, the 

support from government payments and the 

stability in farmland values. 

So, with that, I will turn it over to 

Kathy and John for their comments.

MS. MOE: All right. Good afternoon 

everyone.
103

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Well, it’s great to be here with you. 

The San Francisco Region -- just for a little bit 

of background --- includes the 11 Western states 

from Canada to Mexico, and that includes Alaska, 

Hawaii, Guam and the Pacific Territories.

It’s a very large and diverse 

geographic area. The region oversees 350 

institutions, and the composition of those banks 

is interesting. We have a lot of large banks. 

The region has roughly, well, 28 large banks that 

are over 10 billion in assets and 16 of those 

large banks are actually state nonmember 

institutions which we supervise. And those 16 

banks represent 65 percent of the total assets in 

the region. 

We also have a good number of minority 

depository institutions in the San Francisco 

Region. There are 44 in the region, 30 of those, 

the FDIC serves as the primary federal regulator. 

And two of those institutions that we oversee are 

actually the largest MDIs in the country, and 
104

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

both of those are Asian-American banks in 

California. 

Another aspect of the region is we’re 

pretty heavily concentrated in CRE, which we 

historically always had been, but we also have a 

big tech expansion. Roughly one-third of the 

banks in the region have relationships with 

fintech companies or they have developed their 

own technologies and I think there’s really kind 

of a range. There is a range from vendor 

provided, peer-to-peer payments to functioning 

primarily as a loan originator for a marketplace 

lender to actually hosting or participating in 

their own innovational lab or fintech accelerator 

or developing some of their own modeling. 

The -- overall, I would say, though, in the 

region, banks are definitely implementing more 

digital lending platforms that’s been absolutely 

paramount and necessary to the banks to compete 

effectively in this COVID, or telework, 

environment, and they are leveraging AI in some 
105

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

areas to help with BSA and AML. So, technology 

overall is becoming more and more prevalent and 

the use of more data driven technology at our 

banks is becoming a lot more common. 

As Shayna alluded to, the commercial 

real estate -- we are certainly watching that 

area very closely. As I said earlier, before the 

Great Recession and after the crisis and more 

recently, the region's banks have always been 

some of the highest as far as commercial real 

estate levels. Total -- the total loan growth, 

this year, obviously, has been in the area of the 

PPP lending. We had 87 percent of our banks in 

the San Francisco Region that participated in PPP 

activity. Our loan modifications in the region 

are stable and represent about six percent of 

total loans. 

No surprise, at our banks, we’re 

seeing banks placing a larger number of loans on 

their watch list. But we haven't really seen 

asset quality deterioration yet. The region has 
106

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

very -- has had very high unemployment. Shayna 

mentioned, some of the states in the region, 

Hawaii, Nevada and California, hold the first, 

second and third highest levels in the nation. 

I've told my staff being number one is not always 

the best, but we do have other states that have 

-- have been stronger in terms of the recovery -

- Idaho, Utah, and Wyoming and Arizona, to name 

a few. 

We are tracking by state and metro 

areas the number of temporary and permanently 

closed businesses and the first state -- the 

first six states on our list, again, ranked as 

having the highest number of permanent closures 

are in the San Francisco Region. 

We also have tracked the metro areas 

with permanent closures. Those metro areas tend 

to have more tourism-related businesses, but some 

metros also have higher rents and so, therefore, 

they have higher fixed costs that make a 

temporary closure more difficult, leading to the 
107

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

permanent closures. 

Apartment rents have dropped in some 

of the more expensive metros and like Louise 

Walker mentioned earlier, we are certainly seeing 

an exit out of some of our higher-cost areas, 

like San Francisco, to more commutable areas in

the Sacramento area, and that is having a big 

impact on apartments rents in the more-expensive 

areas.

And, again, given that leisure is 

really the sector that has been the weakest, and 

it follows that lodging is one of the most 

concerning areas of real estate in our territory 

or region. Also, the long-term outlook for 

office space is somewhat uncertain and 

complicated depending on exactly what happens 

with the shifts back to working at -- in the 

office, or permanent telework. 

In the San Francisco Region, like I 

mentioned, the tech sector really dominates the 

office market, and we are seeing increased office
108

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

vacancy levels in our tech-heavy metro areas such 

as San Francisco, Seattle, Salt Lake and Los 

Angeles. Office vacancies range from seven to 

nine percent, and some metros are expected to go 

even higher. San Francisco has a high percentage 

of sublease space and 40 percent of that sublease 

space is what is available now, or vacant now, so 

that’s a concern that we’re certainly watching.

The median CRE levels for the region 

stands currently at 282 percent of Tier 1 

capital. That is high, but not the highest that 

it’s been historically, but it is high and any 

kind of a concentration is something that we 

always look at closely. Any concentration can 

have a negative consequence, so we certainly look 

at all of our concentrations, but, I would say 

that banks have certainly done a better job of 

stress testing their portfolios. There’s more 

diversification within the CRE portfolio, and I 

certainly see some good trends, or positive 

practices, in that area compared to the last 
109

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

crisis.

We do have some ag in the San 

Francisco Region. Not the ag that has really 

been mentioned today, but it’s fruits and nuts 

and almonds, I think, they expect this year to be 

record production. And, on the other hand, our 

grapes and vineyards have been impacted from the 

California wildfires and the -- just the wildfire 

season overall, across -- up and down the coast, 

has been pretty significant this year and will 

have an impact on some industries.

State budgets have been fairly stable. 

We have seen declines in revenue, obviously from 

lower tax, sales tax revenues, and states are 

feeling the strain, but so far they’ve been able 

to cut costs and budgets and use rainy-day funds, 

so we don't really anticipate any huge problems 

there. 

So, I think I want to end on a positive 

note. Again, banks in the region are very, very 

active with the PPP program and had strong 
110

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

capital going into the situation. And again, I 

think the other aspect of the San Francisco 

Region, we've continued to see some interest in 

de novo institutions, which to me is somewhat a 

sign of returning to a new normal, or at least 

having somewhat of a positive outlook as far as 

our future. And then finally, the Dodgers won 

the World Series for the first time in a long 

while, so, I think I'll stop there and I’ll turn 

it to John.

MR. CONNEELY: Okay, thank you Kathy.

And good afternoon everyone and I 

appreciate your -- the ability to talk with you 

this afternoon. I know we’re way behind schedule 

and so I'll try to channel my comments and be 

pretty succinct. 

My name is John Conneely. I'm the 

regional director in Chicago, and the Chicago 

Region covers six states, the Midwest. We 

supervise roughly 670 some odd banks. And, you 

know, overall, I'll just make really, two points. 
111

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

One is just give you an overall on what the region 

is looking like and what we’re seeing. And the 

big news, and you've heard it from a lot of you 

today -- is the big news is that there is really 

not a lot of bad news at this point, at least 

with respect to bank balance sheets and 

regulatory findings. 

You know, to be sure, economic 

conditions are stressing commercial real estate 

markets, bank profitability, and you know that 

with interest rates going down and remaining low, 

that’s going to be a significant area that we 

focus on. And it’s going to be a big challenge 

for all of you. Labor markets obviously have 

suffered, and something that we are very focused 

on in the Chicago Region is state and local fiscal 

conditions, which have -- were stressed before in 

many of our states and localities, but now even 

more so.

You know, agriculture, we’ve had some 

positive, recent news and I think that -- that's 
112

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

-- crops are good, I think that some of that was 

already mentioned -- and it’s been positive 

results. However, there have been some troubling 

long-term trends, as far as declines in farm net 

income and what have you, over the years. 

So, but really the big thing is -- the 

big point is that there really hasn't been a lot 

of effect yet, on the banks' balance sheets. You 

know, like many of you, I am sure, are really 

waiting for the other shoe to drop. We've 

obviously had massive disruption in our local and 

national and world economies with rapid and high 

unemployment, increasing bankruptcies, and 

closing businesses. And there’s really been 

major shifts in how and where business is being 

done. 

You know, talk about commercial real 

estate we’re seeing huge delinquencies in the 

retail and lodging sectors, but in the industrial 

sector, like Shayna mentioned, e-commerce has 

facilitated or caused the opening of a lot of 
113

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

industrial warehouses and things like that. So, 

there is a shift going on. But the consequences 

of that in the community banks that we supervise 

has really been, so far, muted given the 

extraordinary measures being taken.

You know, while we’ve seen some 

effects of the pandemic, and resulting actions 

taken by the governments and corporations and 

individuals on banks, we really don't yet have a 

good line of sight into the ultimate impact. 

Overall, earnings performance and capital ratios 

have declined, as a result of the pandemic and 

economic downturn, but generally it remains 

fairly favorable. You know, and community banks 

actually saw a little bit of an up-tick in 

earnings. 

The most troubling aspect of this in 

the long term, unfortunately, will be net

interest margin compression, and this compression 

may be exacerbated by the large amounts of low 

yielding assets that you’ve taken on from -- for 
114

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

a variety of factors. But capital levels, which 

were relatively strong going into the crisis, 

we’re seeing some decline. You know, but this 

has primarily been the result of significant 

deposit and asset growth rather than operating 

losses, which is arguably a positive development. 

Liquidity levels, I think it was mentioned 

already, they remain strong and better than they 

were last year, benefitting from some of the same 

dynamics that have caused the asset growth.

Credit quality indicators continue to 

be moderate. We really don't see a lot of issues 

there. The -- we expect that there will be 

deterioration and there has been deterioration, 

and I think -- I think it’s safe to say that the 

use of COVID-related loan modifications has been 

fairly significant and I think indicators are 

probably benefitting from that. Moreover, PPP 

and other assistance programs have likely helped 

businesses continue to perform their obligations.

You know, I could be wrong, but I 
115

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

expect delinquency levels probably will remain 

muted in the third quarter, maybe beyond. But, 

as I said, while not yet showing up in the 

numbers, I think deterioration is happening and 

the question is where and how much. Obviously, 

the service and leisure industries are the most 

immediately affected, but as I mentioned, I think 

my money is on CRE. 

And I think we’re not seeing --

getting -- talking about CRE, some of the 

indicators that we see, and I -- we don't see a 

lot of delinquency levels increasing on banks' 

balance sheets, but if you look at some of the 

delinquency levels in commercial mortgage-backed

securities, particularly in lodging and retail, 

they’ve seen exponential growth. And one 

statistic that I saw had noted that commercial 

delinquencies in the lodging and retail sectors, 

mortgages underlying commercial-backed --

mortgaged-backed securities -- in February were 

about one and half percent and three and a half 
116

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

percent. In August, those delinquencies were 

about 22 percent and 15 percent for the same 

securities. So, there is deterioration there, it 

just hasn't made its way up the banks' balance 

sheets.

You know, so, part of that is COVIDrelated modifications, part of that is PPP, what 

have you, but -- so, it’s hard to get a clear 

line of sight, and it is harder, I'm sure, for 

you and your boards to get a clear line of sight. 

Some of the good practices that we've 

seen banks follow in order to try to get a better 

sense of where things are going and where 

deferrals and deterioration is happening, you 

know, one of the things we’ve seen is banks really 

tracking payment deferrals, and other pandemicrelated modifications -- stratifying it, by

industry, loan type and presenting that report to 

the board monthly. We've seen institutions 

implementing pandemic questionnaires for their 

commercial customers to help identify potential 
117

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

problems proactively, to understand how much 

pandemic-related stress the borrower is facing 

and what the borrower's plans are to work through 

these challenges.

Another practice we’ve seen is the 

implementation of monthly surveys to obtain 

status updates on business operations, liquidity 

and other significant events. And really, you 

know, thinking creatively about determining the 

true financial condition of borrowers and 

recognizing that historic financial statements 

may not be a good source of information at this 

point.

So, those are some of the good 

practices that we've seen, and it’s been our 

experience that the bankers that we've talked to, 

the examinations we've conducted, we've seen a 

lot of good, proactive efforts there. 

So, kudos to all of you. I think we’re 

still waiting for the other shoe to drop, we still 

have a lot of uncertainty, but I think in this 
118

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

pause, both the regulators and the bankers have 

really taken time to try to determine where we’re 

going to be next, and this lull gives us a little 

bit of pause to be able to do that. 

So, that is my first point, sort of 

where we are as far as banking conditions in the 

Chicago Region.

The second point, and I think this 

kind of gets back to a little bit of what Mr. 

Shettlesworth noted earlier in the meeting, is 

forgetting about what’s been done, right? So, I 

really would like to just take a moment to reflect 

on the efforts that the community bankers and all 

of you have made during the pandemic crisis. I 

mean, it’s really been beneficial to the 

communities you serve, as well as the nation as 

a whole. 

In mid-March, the FDIC, all of the 

regulatory agencies, really, had to rapidly pivot 

to conducting examinations off-site, and we also 

paused our examination processes to allow you all 
119

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the time to address your own resource challenges 

and operational strategies. For many of you, if 

not all of you, that also included the addition 

of the SBA PPP program. In meeting these 

strategic challenges, really, it’s clear to me we 

would not have been successful without your 

partnership. 

We had a lot of conversations with 

bankers and we continue to have a lot of 

conversations -- and with the trade groups. You 

know, whether it was alerting us to operational 

changes, raising important issues affecting your 

institution, working with your borrowers, 

counseling consumers on deposit insurance 

coverage, or working with our examiners to enable 

us to get our examinations on an off-site basis, 

you really rose to the challenge and I hope it’s 

apparent and based on some of the comments that 

I’ve heard here today, I think it is. But please 

know that the feedback received from you all 

during this time has really played a vital role 
120

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

in forming the development of regulatory actions 

and guidance and communications. 

You know, and as we navigate through 

the next few months, we will no doubt face 

additional challenges, obstacles and 

opportunities. Nevertheless, I really just 

wanted to recognize your commitment to serving 

your customers and value of the services and 

stability your institutions have provided during 

these unusual times. The work, of course, is not 

yet done and neither are the difficulties. There 

is still a long way to go and in my opinion, 

obviously, we’re not anywhere near the end of 

this crisis. Conversely, I really don't think 

we’ve yet felt its full effects. But, with your 

assistance we’ve been able to work through some 

really trying times. So, I just wanted to make 

that point. 

And with that, I will end my comments. 

Thank you.

MR. DAVIS: Great. Thank you, John.
121

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

So, we are behind schedule, but I do 

still want to try and get everybody, at least, a 

brief break. So, let's take a break until 3:20 

and then we can reconvene and start again. 

So, please take a moment, but please 

be back at 3:20. 

Thank you.

(Whereupon, the above-entitled matter 

went off the record at 3:13 p.m. and resumed at 

3:22)

MR. DAVIS: Okay, welcome back 

everyone. Our next session we are going to get 

an update about yesterday's MDI Subcommittee. 

Gilbert Narvaez, Jr. serves on both the Committee 

and the MDI Subcommittee.

Gilbert and Betty Rudolph, the FDIC's 

National Director of Minority and Community 

Development Banking, are going to provide that 

update. So I will turn it over to you Gilbert. 

Thank you.

MEMBER NARVAEZ: Thank you, Chad. I 
122

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

just want to briefly remind the Committee that 

the FDIC established the MDI Subcommittee under 

the authority of the Advisory Committee of 

Community Banking which is CBAC.

The Federal Advisory Committee Act 

requires that subcommittees provide advice or 

recommendations to the Agency through the parent 

committee. Therefore, the MDI subcommittee 

reports directly to CBAC -- sorry about that --

reports directly to CBAC, which is all of us, and 

not the FDIC.

The goals of the MDI Subcommittee are 

to, first of all, serve as a the source of 

feedback for FDIC on strategies to fulfill its 

statutory goals to preserve and promote MDIs. 

Secondly, to provide a platform for MDIs to 

promote collaboration, partnership, and best 

practices. And, thirdly, identify ways to 

highlight the work of MDIs in their communities.

The MDI Subcommittee is composed of 

nine MDI executives representing a diversity of 
123

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

types of MDIs which include African American, 

Hispanic, Asian American, and Native American, 

and a range of business models in size and 

geographic mix.

The nine members of the MDI 

Subcommittee represent about 10 percent of all 96 

MDIs that are supervised by FDIC. In addition, 

there are three MDIs that represent CBAC, and 

those are Kenneth Kelly of First Independence 

Bank in Detroit; Dick Beshear, First Security 

Bank and Trust of Oklahoma City; and myself of 

Falcon Bank in Laredo, Texas.

I have the distinct pleasure and honor 

of sitting on both the MDI Subcommittee and CBAC, 

and that's why I'm sharing this update with you 

today. We do not have any recommendations, but 

we do want to share with you a summary of our 

discussions yesterday.

First of all, on July 28, CBAC 

affirmed that the MDI Subcommittee's endorsement 

of proposed changes to the FDIC statement of 
124

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

policy regarding minority depository 

institutions. I want to report back that since 

then, the FDIC Board of Directors approved the 

updated policy statement and published it in the 

Federal Register.

I understand that to date, the FDIC 

has not received any comments, and the comment 

period remains open until November 24th.

Second, almost all Subcommittee 

Members shared with the FDIC our observations on 

that the Small Business Administration has taken 

a long time in processing applications to do with 

the PPP program loans. We encourage the FDIC to 

do what it can to work with SBA to try to expedite 

these processes.

Third, we also received updates on the 

FDIC's recent issuance of resource guides titled,

Investing in the Future of Mission-Driven Banks:

a Guide to Facilitating New Partnerships. And 

now Betty Rudolph will tell you a little bit more 

about this in a moment.
125

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

We also saw a demonstration of the MDI 

and CDFI bank locator. It's an interactive 

mapping system that the FDIC published along with 

the resource guide. This resource enables a user 

to explore where all the headquarters and 

branches of FDIC MDIs and CDFIs are located, and 

there's also a link to the website.

Finally, we had a discussion about a 

new mission-driven fund that the FDIC is 

developing to help channel the hundreds of 

millions of dollars of commitments that U.S. 

corporations have recently made to support MDI 

and CDFI banks and the communities they serve.

And now, we'll turn it over to Betty 

Rudolph so she can walk you through some of these 

updates in more detail.

MS. RUDOLPH: Thank you, Gilbert, I 

appreciate that. And Mike, if you could advance 

the slides to the next slide.

Gilbert mentioned our resource guide 

that we just published on October 16. The genesis 
126

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

for this resource guide was the hundreds of 

millions of dollars in commitments, actually 

we're into the billions of dollars now, that 

private companies, large U.S. financial 

institutions, and others have made to support 

low- and moderate-income communities, and 

minority communities, especially through the 

banks that serve those communities, which are 

FDIC insured minority depository institutions and 

community development financial institutions.

And it became apparent to us that many 

of these companies, the non-banking companies, 

the treasury departments were really focused on 

providing deposits because from their perspective 

that was an easy way to channel funds to MDIs and 

CDFIs. But not understanding that the 

significant inflow of deposits could actually 

dilute capital, and so that is something that 

many of these mission-driven banks, MDIs and 

CDFIs, are already struggling to raise capital.

So we wanted to put out this guide to 
127

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

talk about first the roles MDIs and CDFIs play in 

serving LMI and minority communities, to talk 

about their business needs, and then talk about 

ways in addition to deposits that these companies 

could support these sectors. And so that's what 

this guide is intended to do. And if you could 

advance the next slide, Mike. You can find it on 

our website, FDIC.gov/mdi, and there's a whole 

section there that has the guide.

And if you could advance to the next 

slide, Mike. This is just an outline of what the 

guide has in it. So it talks about the business 

needs, the strategic options that these companies 

consider, capacity-building grants, equity 

investments, investment funds, deposits, 

technology support and other partnership 

opportunities.

Attachment A is a really good source 

of the recent commitments that these companies 

have made. This is just a sampling, but as I 

said, it totals in the tens of billions of dollars 
128

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

actually that have been committed to these 

communities and to these mission-driven financial 

institutions. Next slide please.

We included in the guide what we call 

impact stories. These are just short vignettes 

that talk about selected mission-driven banks and 

what they're doing in their communities. This 

one is for M&F Bank located in Durham, North 

Carolina.

We did circulate the guide to a number 

of MDI trade groups to solicit these types of 

stories and also to the MDI Subcommittee members 

and so we got some good stories from them. Next 

slide, please.

We also published this interactive map 

with the guide. We found that a lot of investors 

and others interested in this sector wanted to 

know where are these institutions and what 

communities did they serve. So this map just 

shows the branches and headquarters for all FDIC 

insured MDIs and CDFIs.
129

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

You can click on any one of those and 

if you go to the next slide, Mike, a little white 

box will pop up. It will tell you the name of 

the institution, its address, what type of 

institution it is; if it's MDI, what type; if 

it's a CDFI, and then there's a link to each 

bank's website on there as well.

And it has a lot of interactive 

features. You can click on and draw an area on 

the map, and be able to drill down on all the 

institutions within that, download it a 

spreadsheet and do some analysis. So we've 

gotten really good feedback that this is a 

helpful resource for those that are interested in 

the sector. Next slide.

So in addition to sort of developing 

the resource guide, our Chairman set forth an 

idea back in August about eight weeks ago in her 

speech to the University of Chicago entitled,

Creating a Financial System With Inclusion and 

Belonging. And the idea that she outlined is 
130

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

that we'd like to try to find a way to channel 

all of these hundreds of millions, and tens of 

billions of dollars in commitments to these 

institutions.

And so just last week the FDIC issued 

what I'll call an infographic. It's kind of a 

strategy map for what an investment fund or a 

framework that the FDIC is putting together might 

look like. And so Mike, I'd like to ask you to 

put up the infographic at this point. Great, 

thank you.

So the first part of the infographic 

just talks about the industry and the banks that 

support communities in need. So there are about 

250 MDIs and CDFIs that are FDIC insured. And we 

know from FDIC research that a much higher 

percentage of these banks' portfolios, for 

example mortgage loans and small business loans, 

are in low- and moderate-income communities. And 

CDFI banks by definition have 60 percent of their 

activities in low- and moderate-income 
131

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

communities.

And if you could just scroll down, 

Mike, to the next section, how investment could 

help mission-driven banks and the communities 

they serve. We just talk here about, you know, 

funding could help raise capital that these 

institutions need to continue to lend and expand 

their lending in their communities and help them 

weather the effects of any economic downturns and 

recover more quickly.

It can help them attract technical 

expertise to grow their operations and expand 

their services. And to acquire, deploy, and 

maintain more sophisticated technology 

solutions, including both internal and customerfacing. And finally, to build capacity and scale 

to achieve cost efficiencies. Many of these are 

smaller institutions, and so growing their 

operations can help reduce their costs and serve 

more customers.

And if you could scroll down to the 
132

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

next section, this starts the roadmap that 

describes the mission-driven fund that the FDIC 

is putting together.

So the mission-driven fund is designed 

to provide support where it's most needed. So we 

are establishing this framework to support these 

banks. I wanted to make the point that the FDIC 

will not be a fund investor; we are a facilitator.

The investors will be large companies, 

and we've talked to a number of them in putting 

together this framework who are interested in 

investing in a fund that would, in turn, channel 

this money to MDIs and CDFIs, mission-driven 

banks.

They could include larger 

institutions, financial institutions, as well as 

philanthropic organizations. But we have 

received good interest from investors.

The way the fund would work is that 

MDIs and CDFI banks would make pitches before an 

investment committee that would serve the fund. 
133

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

And the investment committee might meet quarterly 

to receive these proposals from MDIs and CDFIs 

for how they would use any funding that's 

provided.

The way the fund would be managed 

would be an independent fund manager, and the 

investment committee also would be independent. 

Many of these institutions are not interested in 

having their regulator making these decisions.

And from our conversations with 

mission-driven banks as we've been developing 

this proposal, we've heard a need for direct 

equity, structured transactions, lending, and 

loss-share agreements.

We presented this yesterday at the MDI 

Subcommittee and really heard positive feedback 

that flexibility is really important, that many 

institutions have different types of needs, so 

they're looking for flexibility in the types of 

funding that this would provide. And to just 

reiterate, FDIC will not be playing a role in 
134

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

fund management or individual investment 

decisions.

Mike, if you could just scroll down to 

the bottom of the roadmap, thank you. So we've 

heard from some of the investors, potential 

investors, that they are not looking for a market 

rate of return. They want to do good, and they 

are looking for a minimal rate of return, or at 

least preserving their principal.

And so these funding proposals would 

help MDIs and CDFIs better serve their 

communities through expanding their activities 

including mortgages, small businesses, community 

development, affordable housing, and other ways 

that they serve their communities.

And then the final feature I wanted to 

mention about the fund is that we want to make 

sure it's transparent and accountable. And so 

the fund manager would provide annual reports to 

investors and the FDIC on the operations of the 

fund, on where they are making the investments, 
135

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

and how those investments have made an impact in 

the communities that the mission-driven banks 

serve.

And then finally, the FDIC would play 

an ongoing role in making sure that the fund is 

continuing to support the reason that it has been 

established, which is really to maintain its 

mission-driven focus.

And the end of the graphic just shows 

-- Mike, if you could scroll down -- the 

multiplier effect of equity capital. And then 

that's something that we heard from our potential 

investors that's very important. They want to 

have a multiplier effect for the contributions 

they make to the fund.

And one of the things that we found is 

that many of these companies' treasury 

departments weren't aware of sort of the effects 

of deposits versus equity capital in getting more 

funds into the community.

So that is a quick overview of this 
136

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

investment fund. I did hear Ken Kelly earlier 

might have some questions, and I'd like to open 

up the floor now for questions from the 

Committee.

MR. DAVIS: Thanks Betty. Thanks 

Gilbert. I don't see hands raised, so I will 

just say if you have a question, please go ahead 

and throw it out now.

MEMBER KELLY: Hey Betty, this is 

Kenneth coming in. I'm sorry, I couldn't find 

the raise my hand issue. Let me say first, I 

want to commend again on the leadership of 

Chairwoman McWilliams and you in thinking about 

this.

There are a lot of philosophies on 

this and I won't get into all those details, but 

what does come up as a concern for me is being 

sure that as that fund goes out to an RFP, that 

it does not create exclusion based on experience. 

And let me give an example.

You know, there are many minority 
137

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

managers who have done extremely well with 

managing funds. But given the magnitude of 

dollars you just talked about, if an RFP has a 

magnitude of whatever, let's just say it's $2 

billion, and you don't have a minority firm that 

reaches those kinds of thresholds, I would hope 

we would write something into that RFP to 

demonstrate inclusion. Because this is another 

vertical for the potential of exclusion.

So my comment would be that, you know, 

as you're pursuing down this path, and where it's 

appropriate, to be sure that there is inclusion 

in that whole process as an outcome. And so 

that's a little bit of the feedback.

And I'll be happy to work with you. I 

also believe that some of these organizations 

should have a representative in that process to 

help stand this up. So just want to give you a 

little bit of that feedback at this point, but we 

can talk more offline.

MS. RUDOLPH: That sounds great. 
138

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Thank you, Kenneth, for bringing that up. And 

there was some conversation yesterday as well 

about the investment committee and some questions 

around that, and really making sure that the 

investment committee understands the MDI and CDFI 

bank sector. It's very different from mainstream 

banking in many ways, so we are going to 

absolutely have that happen.

So thank you for those comments. And 

I should mention, I guess, in terms of where we 

are in the process that we did go out to get some 

legal help to help start drafting the fund 

documents and helping us with that RFP.

But we are encouraging, you know, 

MWOBs and minority and women-owned business and 

minority and women-owned law firms were invited 

to participate in that. So we are very much 

focused on ensuring participation and diversity 

of participation.

MEMBER KELLY: Thanks, Betty.

MS. RUDOLPH: And Ken, one other thing 
139

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

we mentioned yesterday. You know, a couple of 

the bankers on the MDI Subcommittee said, you 

know, are you still open for feedback and sort of 

some steering, and we definitely are. And so I'm 

available, our Chairman’s Chief of Staff, Brandon 

Milhorn, is also available, and I know you have 

my number because we spoke earlier this week. 

Thank you.

MEMBER KELLY: Certainly. That sounds 

good. We'll plan to talk more offline, but thank 

you. Thanks for listening.

MS. RUDOLPH: Chad, are there any 

other comments or questions?

MR. DAVIS: I don't see anybody in 

line, so I'll pause for just a few more seconds 

and see if there's another question before we 

move on though. Okay.

MS. RUDOLPH: Thank you.

MR. DAVIS: Betty, Gilbert, thank you 

as well. I'm going to adjust the agenda a bit 

because we have to be on schedule for the SBA 
140

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

presenters when they arrive. So Brandon has 

agreed to fill in when we have a gap perhaps a 

little bit later.

So we are going to go to the 3:50 

segment of the agenda, which is the proposed 

changes to our supervisory appeals process. For 

that panel, Samuel Lutz and James Watts are going 

to discuss the proposed changes. Thank you.

MR. WATTS: Okay. Hi everyone, good 

afternoon. I'm James Watts and I'm happy to be 

here today with Sam Lutz. We're both counsel in 

the Legal Division's Assessment Unit, and we're 

here today to talk to you a little bit about the 

FDIC Supervisory Appeals Process.

The FDIC recently proposed some 

changes that are intended to improve this 

process, and we wanted to make you aware of those. 

But first, because some of you may not be familiar 

with the current process, we'll start with a 

quick overview of that before covering the 

proposed changes. Can we get the next slide 
141

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

please? Thank you.

So the FDIC is required by statute to 

have an internal supervisory appeals process to 

allow banks to obtain review of material 

supervisory determinations that are made by the 

FDIC.

Many different types of 

determinations can be appealed using this process 

including exam ratings, cited violations of laws 

and regulations, loan classifications, and plenty 

of others. The process is generally informal and

it's intended to ensure that appeals are heard 

and decided in a timely manner. Can we get the 

next slide please?

The current supervisory appeals 

process provides for review of a material 

supervisory determination at three different 

levels that are summarized here.

First, the FDIC encourages banks to 

attempt to resolve disagreements with the exam 

team and the appropriate regional office. It is 
142

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

not required, but experience has shown that in 

many cases disagreements can be resolved in ways 

that are beneficial for banks. We generally see 

that as the best possible outcome and certainly 

encourage banks to give it a try.

Sometimes though there's a difference 

of opinion that can't be worked out at the 

regional office. And in that case, a bank may 

file a request for review with the appropriate 

division director, typically RMS or DCP. The 

Division Director reviews the matter and issues 

a written decision to the bank.

Now if the bank's not satisfied with 

the Division Director's decision, it may submit 

an appeal to the FDIC's Supervision Appeals 

Review Committee or SARC. The SARC is a boardlevel committee that hears and decides 

supervisory appeals.

The SARC reviews the appeal and, if 

requested, generally meets with the bank and FDIC 

staff to hear their positions and ask questions. 
143

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

The SARC issues a written decision to the bank. 

Those decisions are generally published, but are 

redacted to ensure that sensitive information 

isn't disclosed. Can we get the next slide 

please?

So recently the FDIC decided to 

explore some potential improvements to the 

supervisory appeals process. In 2019, the Office 

of the Ombudsman hosted in-person listening 

sessions in each FDIC region around the country 

as well as a webinar.

A total of about 220 bankers and other 

interested parties participated in these 

sessions. They were asked to provide their views 

on the current process and recommendations for 

how it could be improved.

In August 2020, the FDIC published for 

public comment a proposal to make a number of 

changes to the appeal process. The comment 

period closed October 20th. About 15 comments 

were received, and staff is currently in the 
144

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

process of reviewing those.

We are going to review the key changes 

in the proposal at a high level here. But if

you're interested in learning more, I'd encourage 

you to follow the link in the presentation. That 

takes you to the notice, and the notice describes 

the proposed changes in much greater detail.

To summarize though, the proposal was 

focused on two particular aspects of the process. 

First, it would create an independent, standalone office to review appeals. This office, 

tentatively named the Office of Supervisory 

Appeals, would generally replace the SARC.

Second, the proposal would modify the 

procedures and timeframes that apply to a subset 

of appeals where the FDIC is also considering a 

formal enforcement action. Now I'd like to turn 

it over to Sam to give you a little bit more 

detail on the proposed office.

MR. LUTZ: Hello everyone. So we 

thought it might be useful to start by giving you 
145

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

side-by-side comparison of the SARC and the 

proposed Office of Supervisory Appeals.

So on the left you'll see the 

description of the SARC. The SARC is a boardlevel committee that was established by the 

FDIC's Board of Directors. It's comprised of 

three voting members. The SARC chairperson, who 

is one of the FDIC's three inside directors, and 

then two additional voting members who are either 

the deputy or the special assistant for the other 

two inside directors. And then finally, the 

FDIC's general counsel also serves on the 

committee as a non-voting member.

So under the proposal on the right 

here, the SARC would be replaced by a new, 

tentatively named Office of Supervisory Appeals. 

This would be an independent office inside the 

FDIC that does not report to any of the divisions 

that issue material supervisory determinations.

And the current vision is that the 

office would be staffed by reviewing officials 
146

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

who have either bank supervisory or examination 

experience. For example, retired bank examiners 

might be a group of people that could serve as 

review officials. And the FDIC is anticipating 

recruiting externally for those positions.

The review officials would serve term 

appointments, possibly staggered. And depending 

on the work load, they may serve either on a parttime or intermittent basis. Next slide.

So the proposal would not change the 

initial steps in the supervisory appeals process 

which James described earlier. So consistent 

with the process today, banks would still be 

encouraged to work with the examination team and 

with the regional office to resolve 

disagreements. And if the matter couldn't be 

resolved at the regional level, then a request 

for review could be submitted to the appropriate 

division director.

However, if the appeal was going to go 

beyond the division director, appeals of the 
147

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

director's decision would be considered by the 

new office. The office -- or the appeals would 

be considered by a three-member panel from the 

office. And the division director and the FDIC 

Ombudsman would be invited to submit their views 

on the appeal to the panel for its consideration 

as well.

And in addition consistent with 

current practice used by the SARC, if banks 

requested, they would be permitted to give an 

oral presentation to the panel for its 

consideration when it considered the appeal. 

Next slide.

So the FDIC is also proposing some 

procedural changes that are intended to enhance 

the supervisory appeals process in a subset of 

cases where the FDIC is also contemplating a 

formal enforcement action.

And I should say right at the outset, 

that please keep in mind that these aspects of 

the proposal are only applicable where an 
148

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

enforcement action is being contemplated, so most 

banks are not in that position. So this aspect 

of the proposal is really directed to banks that 

do find themselves in that position. And we 

believe that the proposed changes will provide a 

clearer and more workable process for those 

banks.

So the relevant statute that James 

mentioned earlier provides that the requirement 

to establish an appeals process does not affect 

the authority of the FDIC to take an enforcement 

action against a bank. And currently, FDIC 

determinations underlying a formal enforcement 

action are generally not appealable through the 

supervisory appeal process, either to the 

division director or to the SARC.

And the reason for that is that 

recommendations to pursue a formal enforcement 

action go through a separate administrative 

enforcement process which provides an alternative 

avenue, a different avenue for institutions to 
149

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

contest the FDIC's determinations.

However, under the current 

guidelines, if the FDIC does not pursue an 

enforcement action within a certain timeframe, 

generally right now it's 120 days after the FDIC 

notifies the bank of a recommended enforcement 

action, then the bank would be permitted or 

currently is permitted to challenge the FDIC's 

determination both in the administrative 

enforcement action and also through the 

supervisory appeals process.

So staff identified some 

opportunities to improve this aspect of the 

appeals process. And one notable change that we 

wanted to highlight for you is that the proposed 

process does not include a fixed time limit if 

the bank and the FDIC are negotiating a consent 

order.

So in the current, you know, in the 

current process there's the 120-day limit, and so 

that can be -- that can pose a challenge during 
150

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the negotiation process. Under the proposal, 

there would not be that fixed time limit.

However, if the bank notifies the FDIC 

that it doesn't believe further negotiations 

would be productive, then the FDIC would have 

only 90 days to issue either a notice of charges 

or an order of investigation. And if that didn't 

happen, the bank could then appeal the relevant 

determination through the supervisory appeals 

process similar to what happens today.

And we believe that this change will 

better ensure that the timeframes in the 

supervisory appeals process are not an impediment 

to a potential settlement.

So that completes our summary of the 

proposed changes. Hopefully, that has given you 

a better idea of how the appeals process 

functions and how we're working to improve it. 

And with that, we would be happy to answer any 

questions that you may have. Thank you.

MR. DAVIS: Great, thank you both. 
151

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Steve, I see your hand is raised. Please go ahead 

with your question.

MEMBER HAYES: Can you hear me?

MR. DAVIS: Yes.

MEMBER HAYES: I'm just curious, 

involved in this Office of Supervisory Appeals 

Committee, is there any consideration of adding 

a banker on that group? A retired banker to help 

that independence, or -- I'm just throwing that 

out and see if there's any consideration of 

adding a banker to that committee.

MR. WATTS: I am going to unmute myself 

here. Yes, I'm happy to answer that one. That's 

a good question. It is an issue I can tell you 

having reviewed a number of the comment letters. 

We received some really thoughtful comments along 

those lines, and I think it's something we're 

going to be taking a look at as we're finalizing 

any changes to the process.

But it is something that a number of 

commenters mentioned, and I should say we heard 
152

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

suggestions along those lines, not only retired 

bankers but maybe attorneys and others. We heard 

those types of suggestions during the listening 

sessions that I mentioned and webinars. 

MEMBER HAYES: Okay, thank you.

CHAIRMAN McWILLIAMS: Steve, we would 

have to find a banker that's truly retired.

(Laughter.)

MEMBER HAYES: That's a good comment. 

That's very true. Thank you.

MR. DAVIS: Jim, I saw your video pop 

on for a moment. Do you have a question?

MEMBER EDWARDS: Yeah, I apologize. 

Again, I'm coming to you from my phone here. So 

I was just going to echo what the previous speaker 

said. I wanted to make sure that that comment 

got put out there.

It's not just bankers. I think it 

could be -- it's really more having the diversity 

on the membership of the new office ---

(Audio interference.)
153

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

MR. WATTS: Thanks again for the 

feedback. That's helpful. 

MR. DAVIS: Okay, any other questions? 

All right, well thank you both for the 

presentation. We really appreciate that. And we 

will move to our next panel.

The next panel is going to provide an 

update on a few different supervisory measures. 

We have a number of folks from the Division of 

Risk Management Supervision. With us today is 

Doreen Eberley, Director; Rae-Ann Miller, 

Associate Director, Risk Management Policy; John 

Rieger, Chief Accountant; Shannon Beattie, Deputy 

Chief Accountant. So I will turn it over to 

Doreen.

MS. EBERLEY: Thank you, Chad. I'm 

going to go ahead and just really turn it right 

over to the team. We're going to talk today about 

some of the guidance that we've issued and a 

rulemaking since the last meeting, really 

focusing on the rules around loan modifications 
154

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

and the accounting rules around loan 

modifications, and also the interim final rule on 

Part 363. And then also finally some Call Report 

instructions -- updates related to all the 

rulemakings.

So I'm going to turn it over to 

Shannon and John to get us started. Thank you.

MR. RIEGER: Thanks very much, Doreen. 

If we could move to the next slide please. There, 

thank you. There was a joint statement issued on 

August 3, 2020. It's Financial Institutions 

letter, it's 74-2020, and it provides direction 

on prudent risk management and consumer 

protection principles for financial institutions 

to work with borrowers as loans near the end of 

their initial accommodation period.

These principles are consistent with 

interagency guidelines establishing standards 

for safety and soundness and are generally 

applicable to both commercial and retail loan 

accommodations.
155

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Now these principles in this joint 

statement are intended to be tailored to the 

financial institution size, complexity, and loan 

portfolio risk profile, as well as the industry 

and business focus of its customers or its 

members.

Now some of the highlights of the 

document cover the encouraging of financial 

institutions to consider prudent accommodation 

options that can ease cash flow pressures on 

affected borrowers to improve the customer's 

capacity to service the debt, and facilitate the 

institution's ability to collect loans consistent 

with applicable laws and regulations.

Now these arrangements should help 

mitigate the long-term impact of the financial 

challenges on borrowers by helping to avoid 

delinquencies or other adverse consequences.

It also discusses effective risk 

management, including providing clear and 

accurate communications and disclosures to inform 
156

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

borrowers of affordable and sustainable 

accommodation options prior to the end of the 

accommodation period.

In accordance with U.S. generally 

accepted accounting principles and regulatory 

reporting instructions, management should 

consider the effects of external events such as 

the COVID-19 in its allowance estimation 

processes.

And finally, internal controls need to 

be considered for the initial and any additional 

accommodation periods. These considerations 

include quality assurance, credit risk review, 

operational risk management, compliance risk 

management, internal audit functions that are 

commensurate with the size, complexity, and the 

risk of the financial institution's activities. 

Please turn to the next slide. Thank you.

The accounting and regulatory 

reporting section reminds institutions that they 

must follow existing accounting and regulatory 
157

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

reporting requirements. This includes 

maintaining appropriate allowances for all loan 

modifications.

The joint statement refers 

institutions to Section 4013 of the CARES Act, 

the revised interagency statement on loan 

modifications from April 7, 2020, and regulatory 

reporting instructions.

For the allowance for credit losses, 

it reminds the institutions that in accordance 

with GAAP, when they are calculating the 

allowance either under CECL or the incurred loss 

methodology, institutions need to consider all 

relevant available information including changes 

in borrowers’ financial condition, collateral 

values, lending practices, and economic 

conditions as a result of COVID.

Now for the next slide, I'm going to 

turn it over to Shannon Beattie to cover the next 

--- actually the next couple slides.

MS. BEATTIE: Thank you, John. So 
158

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

this next slide provides a good visual both of 

Section 4013 of the CARES Act and the discussions 

within the April 7th and August 3rd interagency 

statements regarding loan modifications related 

to COVID-19.

This table highlights the main 

differences between Section 4013 and the 

Interagency Statements. An institution may elect 

to account for a modification, including a 

subsequent modification under Section 4013, if it 

meets the following eligibility requirements.

First, the modification, including 

subsequent modifications, was COVID-19 related. 

Second, the loan was current as of December 31, 

2019. And third, the modification, including 

subsequent modifications, was granted between 

March 1, 2020 and the earlier of 60 days after 

the end of the termination of the national 

emergency or December 31, 2020.

If the above criteria are not met or 

the institution elects not to account for a loan 
159

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

modification under Section 4013, the institution 

may refer to the interagency statement which 

includes considerations for when an institution 

may presume a COVID-19 modification is not a TDR 

under Subtopic ASC 310-40, which is the GAAP 

standard for TDRs from the creditor's 

perspective. 

Now keep in mind that the interagency 

statement is viewed as an interpretation of GAAP 

within a COVID-19 environment. And an 

institution can presume a borrower is not 

experiencing financial difficulty when 

modifications, including subsequent 

modifications, are COVID-19 related, the loan was 

current at the time of the modification, and the 

relief granted as a result of the modification or 

modifications was short-term.

When there is a subsequent 

modification, the evaluation of short-term would 

be viewed cumulatively considering prior COVID19 related modifications.
160

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

For all other subsequent 

modifications, institutions should follow 

applicable regulatory reporting instructions, 

which would be Call Report instructions, and its 

own accounting policies to determine whether such 

modifications would be a TDR under ASC Subtopic 

310-40.

So let's go to the next slide to talk 

a little bit more about past due and non-accrual 

reporting. So this slide describes the past due 

reporting and non-accrual status assessment for 

COVID-19-related loan modifications.

Regarding past due reporting, the 

April 7th and August 3rd interagency statements 

discuss that institutions are not expected to 

designate loans with modifications granted due to 

COVID-19 as past due simply because an 

accommodation is made.

The interagency statements remind 

institutions that a loan's payment date is 

governed by the due date determined in the loan 
161

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

agreement, meaning that a past due status 

reported in regulatory reports should be 

determined in accordance with the contractual 

terms of the loan or as revised as part of a 

modification.

Therefore, for past-due reporting in 

regulatory reports, which would be Call Reports, 

institutions need to evaluate whether the 

contractual terms of the loan have been revised 

as part of the accommodation provided.

The institution determines whether 

the payment terms or the timing of the payment 

terms have been revised and agreed to with the 

individual borrower, provided across the board to 

all affected customers as part of an 

accommodation program, or have remained the same.

Past due status would then be 

determined based on the revised terms or by the 

existing terms if the terms have remained the 

same. For some modifications, the existing past 

due status of that loan may be frozen during the 
162

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

accommodation period.

Upon exiting a deferral period, the 

payment past due status and delinquency of a loan 

should be determined in accordance with the 

revised contractual terms of that loan. Payments 

that were previously missed or would have been 

due during the deferment period, may be 

restructured and not contractually due until a 

later date. And so that will depend on the 

specific repayment terms in the modified 

contract.

Moving on to non-accrual status. 

Regarding accrual status of loans with loan 

modifications, an institution should continue to 

refer to the applicable regulatory reporting 

instructions as well as its own internal 

accounting policies to determine whether to 

report loans affected -- loans to affected 

borrowers with accommodations should be reported 

as non-accrual.

There's judgment required to 
163

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

determine whether the loan should be placed on 

non-accrual. And typically, this is done when 

full payment of principal and interest is not 

expected. And this may occur during or after a 

deferral or accommodation period.

I'll turn it back over to John for the 

next slide.

MR. RIEGER: Thanks Shannon. One 

recent event was that on October 20th at the FDIC 

Board meeting, an interim final rule was voted on 

and approved which provides certain relief under 

Section 363 on Audits, Financial Reporting, 

Internal Controls and the makeup of Boards.

This FDIC IFR allows IDIs that have 

experienced growth to determine whether they are 

subject to the requirements of Part 363 of the 

FDI's regulations for fiscal years ending in 2021 

based on their consolidated total assets as of 

December 31, 2019.

Such IDIs whose asset growth may be 

temporary but significant, and would otherwise be 
164

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

required to develop processes and systems to 

comply with an annual independent audit and 

reporting requirement of Part 363 on a 

potentially short-term basis.

The interim final rule was effective 

immediately and comments will be accepted for 30 

days after publication in the Federal Register 

which was just this last Friday, October 23, 

2020.

Now under Section 363, an IDI becomes 

subject to generally an annual independent audit 

and reporting requirement for any fiscal year in 

which its consolidated total assets as of the 

beginning of the fiscal year are $500 million or 

more.

IDIs with consolidated total assets of 

$1 billion or more as of the beginning of any 

fiscal year must provide management's assessment 

of an independent public accountant's report on 

the effectiveness of internal control over 

financial reporting.
165

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Part 363 also includes requirements 

that each IDI with consolidated total assets of 

$500 million or more but less than $1 billion at 

the beginning of its fiscal year must establish 

an independent audit committee of its board of 

directors, the members of which must be outside 

directors, the majority of whom must be 

independent of management of the IDI.

Each IDI with consolidated total 

assets of $1 billion or more must establish an 

independent audit committee of its board of 

directors, the members of which must be outside 

directors who are independent of management of 

the IDI.

And then audit committees of IDIs with 

consolidated total assets of $3 billion or more 

as of the beginning of their fiscal year, are 

required to include members with banking or 

related financial management expertise and have 

access to their own outside counsel and not 

include any large customers of the institution.
166

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

So, this IFR allows IDIs to determine 

the applicability of Part 363 of the FDI's 

regulations annual independent audits and the 

reporting requirements for fiscal years ending in 

2021 based on the lesser of their (a) 

consolidated total assets as of December 31, 

2019, or (b) their consolidated total assets of 

the beginning of their fiscal year ending in 

2021. We inserted the or in case the total assets 

ended up going down between December 31, 2019 and 

the beginning of their fiscal year.

Notwithstanding any temporary relief 

provided by this IFR, an IDI would continue to be 

subject to any otherwise applicable statutory and 

regulatory audit or reporting requirements.

The IFR also reserves the authority to 

require an IDI to comply with one or more 

requirements of Part 363 if the FDIC determines 

that asset growth was related to a merger or 

acquisition.

So now I'll turn it back over to 
167

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Shannon for the next slide.

MS. BEATTIE: Thank you. Wrapping up 

with a discussion on Call Reports. The Call 

Reports for March and June 2020 included 

revisions associated with several capitalrelated and other interim final rules and a final 

rule issued by one or all of the agencies in 

response to the impact on financial markets and 

the strain on the U.S. economy as a result of 

COVID-19.

For information on these interim final 

rules and capital-related rules, those would be 

located in FIL-38-2020 from April, and FIL-60-

2020 from June.

So these revisions also resulted from 

certain provisions of the 2020 Coronavirus Aid, 

Relief, and Economic Securities Act or CARES Act. 

During the third quarter, the agencies finalized 

several of the capital-related IFRs, or interim 

final rules, with no change or only limited 

changes.
168

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Institutions should refer to the 

separate stand-alone September 2020 COVID-19-

related supplemental instructions addressing 

these revisions, which updates the June version 

that was in the supplemental instructions as 

appropriate.

These instructions have been 

published to each of the FFIEC web pages for the 

various reporting forms. So that would be for 

the short form, the FFIEC 050, 051, and the FFIEC 

forms 041 and 031.

There are no new changes to Call 

Report data items in these Call Report forms. So 

the FFIEC 031, 041, and the short form 051 this 

quarter.

There are new topics added to the 

supplemental instructions for the September 2020 

instructions, and those address reference rate 

reform with regard to changes to move away from 

using LIBOR, and uncollectible accrued interest 

receivables under ASC topic 326, which is 
169

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

relevant to institutions that have adopted CECL.

The topic on reporting high volatility 

commercial real estate exposures has been removed 

from the supplemental instructions because this 

has been included in the permanent Call Report 

instruction book.

In addition to these supplemental 

instructions, there is an appendix provided with 

information on certain sections of the CARES Act 

that affect accounting and regulatory reporting. 

This appendix was initially added to the 

supplemental instructions in March and has been 

updated for this quarter.

And so you see a link to the 

supplement instructions on this slide. That 

would be FIL-97-2020 which includes all the 

September supplemental Call Report instructions 

as well as the COVID-19-related supplemental Call 

Report instructions.

And that concludes my remarks on the 

Call Report. I'll turn it back to Doreen.
170

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

MS. EBERLEY: All right. So we are 

happy to entertain any questions that you may 

have on this topic or other supervision topics.

MR. DAVIS: Louise, you came up first 

in the queue, so please go ahead.

MEMBER WALKER: Thank you, Chad. Just 

a quick question. Thank you for your work on 

Part 363, that was great. Having gone through 

that, that is a lot of work for institutions.

I was just curious if any 

consideration had been given to making 

adjustments to the CRA thresholds due to the 

unusual growth in assets?

MS. EBERLEY: I would say that, and 

maybe I'll pause a minute and see if Travis wants 

to respond to this question. Okay. So we are 

taking a look at other thresholds and things that 

might have been impacted.

I don't know that we can say that we 

have a game plan for anything yet, but we are 

taking a look at others and we did comment to 
171

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

that fact in our interim final rule issuance 

through a financial institution letter that we 

were considering other areas.

MEMBER WALKER: Thank you.

MR. DAVIS: Okay. Steve, you're up 

next.

MEMBER HAYES: Okay, thanks Chad. Can 

you go to slide -- I appreciate your comments on 

this and the work you're doing. I just want a 

clarification on slide 6 under the Threshold 

Adjustments Due to Unusual Asset Growth, under 

the last bullet point.

Can you expand on the evaluation 

process? And maybe you did. Maybe you've done 

that, John. I believe you took this slide. 

Clarification on your evaluation process?

MS. EBERLEY: I think, Rae-Ann, maybe 

you want to jump in. This relates to what we 

were really just talking about, that we are 

evaluating regulatory thresholds in light of 

balance sheet increases so we made one 
172

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

adjustment. We're continuing to review others.

MEMBER HAYES: Okay. Okay, thank you.

MR. DAVIS: Okay, Keith, go ahead and 

ask your question.

MEMBER EPSTEIN: Thank you, Chad. I 

hope that you can hear me. So I really appreciate 

the Section 4013, both of the CARES Act and the 

non-section 4013 loan modification review. 

That's extremely helpful and the directives that 

came out early on really allowed us to move 

forward with some confidence and help our 

borrowers with some very immediate relief, so I 

appreciate that so much.

I just wanted to suggest a possible 

future topic for consideration, and that is I 

anticipate that next year when we look to renew 

certain commercial loans and extend new 

commercial credit, we are going to have to 

exercise some discretion perhaps as never before 

when we construct a cash flow.

You know, here in North Carolina, the 
173

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Governor had a variety of phases of shutdown and 

then reopen. And there were certain businesses 

that, you know, per his directive, simply could 

not operate for as much as 90 days, and so this 

year, yes, I think we're going to have to make 

some considerable adjustments.

We have other customers that have 

really benefitted from, you know, in immediate 

boosted sales of some items that they never 

thought would fly off the shelves the way that 

they have.

So, I just wonder if that's a topic 

for consideration. I know every situation is 

going to be unique, and there may be limits to 

how specific you can be. But, you know, just a 

recognition that a bank that acts prudently will 

be given some support and consideration if we 

have to base cash flow or debt service coverage 

over a multi-year period beyond what we would 

normally do or, you know, sort of construct a bit 

of a pro forma statement in lieu of using 2020 
174

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

figures.

Just a thought, because I think that's 

a challenge that we're all going to face. Thank 

you.

MS. EBERLEY: Sure, sure. I'll start 

and I'll ask Rae-Ann to jump in. We have some 

language in our examiner guidance and our 

examiner instructions for examining during a 

pandemic that came out in June. We covered it at 

the last meeting.

But we do have some language in that 

guidance that talks about, acknowledges in fact, 

that bankers are going to have some trouble 

likely with financial statements, you know, and 

having to use kind of a pro forma process for 

financial statements in some cases because of the 

continuing uncertainty or disruption, so that is 

contemplated.

We've asked examiners to be cognizant 

of that. We recognize that you will likely have 

some challenges and want to try to work through 
175

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

those. Rae-Ann, you want to add on to that?

MS. MILLER: Sure, Doreen. So I think 

you and Keith really characterized it well is 

that each situation really depends on the bank, 

on the borrower, on the environment, on the 

recovery scenario.

And, you know, our instructions to 

examiners are look at the risk assessment process 

and the credit risk management process. Just 

because a loan is classified or non-accrual, 

doesn't mean that that's not in the best -- the 

modification wasn't in the best interest of the 

bank and the borrower given the circumstances.

So, you know, I think that's what 

we're working with. And we're all struggling 

through this, Keith, and I think it's going to 

morph. It's going to be different in North 

Carolina and Vermont, and all these different 

areas that we have, and on the bank's business 

focus.

So, you know, we're happy to talk 
176

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

about it next time and we really appreciate your 

stories in the beginning. We do the same thing 

with our examiners and have sort of roundtables 

and talk things through.

We do case studies and training and 

will continue to do those things as this thing 

morphs through the next year or however long it 

lasts.

MR. DAVIS: Do we have any additional 

questions? Louise, I see your hand up but I don't 

know if that was from before or if you had another 

question. Okay. All right, thank you to everyone 

for that panel. I don't see any additional 

questions.

MS. EBERLEY: Okay, thank you.

MR. DAVIS: I believe we are still 

waiting on a couple of our SBA panelists to join. 

We are a few minutes early. I might ask if 

Brandon's available to possibly start on the 

update from FDiTech?

MR. MILHORN: Sure, Chad.
177

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

MR. DAVIS: Okay. Great. Brandon, I 

will throw it over to you.

MR. MILHORN: So this is going to be 

the whirlwind tour of FDiTech and our 

initiatives. I know I've talked to the committee 

in the past about our tech lab. As you know, the 

FDiTech was established about a year and a half 

ago by the Chairman to promote innovation, foster 

innovation in the banking sector.

We've had a number of initiatives 

since then. Our guidance to tech companies on

partnering with third parties. Our financial 

institutions or alternative data work. And then 

most recently, we put out a request for 

information on the establishment of a third-party 

standard setting organization that would be a 

public-private partnership between the FDIC, 

hopefully our partner regulators, as well as 

industry stakeholders to create standards for 

vendor due diligence and technology due 

diligence.
178

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Because we had heard quite clearly 

from both banks and technology companies that the 

on-boarding process needed to be streamlined. It 

was different at each institution. As a 

consequence, it was very costly for technology 

companies to participate in that space.

And so our proposal was to create this 

public-private standard setting organization 

that allowed industry to work with regulators to 

create standards for vendor due diligence and for 

due diligence requirements for technologies, 

including specific technologies whether it's 

underwriting, BSA/AML, know your customer. That 

would be a decision for the SSO to make.

And then vendors could voluntarily 

submit themselves and their technologies to 

auditing organizations, certifying organizations 

that had been approved by the SSO. I'm trying to 

think of them as maybe FDA labs that would approve 

and grant Good Housekeeping Seals of Approval to 

vendors and their technologies.
179

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

And based on those Good Housekeeping 

Seals of Approval, financial institutions, in 

particular community banks who may not have the 

expertise to vet the technology directly or may 

have had to have relied on a third party to do it 

on their behalf, could rely on the certifications 

to bring on the vendors and bring on the 

technology.

Now, this wouldn't change the 

requirement that the institutions continue to 

manage the relationship with the vendor and 

manage the technology, but we do believe it could 

get rid of some of those barriers to entry. 

Those, whether it's real or perceived, regulatory 

barriers to on-boarding or just simply 

operational uncertainty about whether you should 

take that step and bring on a new technology at 

an institution.

So, we're in the process of reviewing 

comments. We've got over 40 comments on the 

request for information. We're reviewing that 
180

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

and we hope over the next few months to work with 

our partner regulators to come up with a proposal 

in this space. That is our request for 

information on the standard setting 

organizations.

Separately, I think many of you have 

probably seen the Chairman's call to make the 

Call Report obsolete. Our goal there is to use 

technology to get more regular access to 

financial institution information.

And we split this competition off in 

June, on June 29th. We had about 30 competitors 

come in. And the challenge that we gave these 

competitors was this. How can you pull data or 

access data from across multiple sources, whether 

it's the core providers that hold 85 percent of 

our institutions’ data or other locations, access 

that data, and run technology tools against that 

data that allow the FDIC to gauge institution 

health and the health of the overall financial 

sector.
181

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Now, we had specific targeted

components in that that's competition-sensitive 

so we're still working with our vendors on that. 

But the good news is, our concept papers came in. 

We had over 30 concept papers. We had chosen 14 

concept papers to move forward on. And these 

vendors now have 180 days from when their 

contract was signed to produce a demo, and then 

ultimately a prototype that the FDIC can use to 

implement this new technology.

Now, we don't think we're going to 

make the Call Report obsolete in 180 days, but we 

do think we're going to learn tremendous lessons 

from this exercise. It's our first hackathon. 

Our goal is to learn as much as we can.

Hopefully, we'll get some products 

that will streamline our supervision process. 

But in the process, I think we'll also learn some 

lessons about how data is stored across the 

sector. Whether we can learn how to access and 

integrate new technologies, not just for 
182

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

supervisory purposes, but also more effectively 

for our financial institutions.

So, these are the goals of our request 

for information and our first hackathon on 

financial reporting. They fit well with the 

Chairman's overall goals to foster innovation in 

the sector and improve the FDIC's use of 

technology to conduct supervision and reduce 

regulatory burden on institutions we supervise.

So with that, I'm happy to ask any 

questions. I don't want to keep you all from 

hearing from the SBA for sure.

MR. DAVIS: Fred, I see your hand. 

Please go ahead.

MEMBER DeBIASI: Thanks, Chad. 

Brandon, nice presentation. Not a question as 

much as I think I would be remiss if I didn't 

comment on my admiration for your Cincinnati Reds 

pennant in the background. That made my day and 

hopefully you're in line for a nice promotion at 

FDIC because of that. Thank you.
183

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

MR. MILHORN: (Laughter) Well, I'll 

have to take that up with the Chairman. But, 

yes, I've been a Reds fan for quite some time,

much to the chagrin of Director Gruenberg.

(Laughter)

CHAIRMAN McWILLIAMS: I will add at 

least I don't ding his reviews for having been a 

Cincinnati Reds fan.

MEMBER DeBIASI: Well, you have a 

kindred spirit in me, Brandon. I'm behind you 

all the way.

MR. MILHORN: Well, they didn't crush 

my soul too much this year.

MR. DAVIS: Keith.

MEMBER EPSTEIN: Thank you, Chad. 

Brandon, I just wanted to tell you that I think 

all of these initiatives are fantastic and 

specifically the certification that will assist 

us in conducting due diligence.

Traditionally, our due diligence has 

been to view a mature balance sheet and contact 
184

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

references that have multi years of relationship 

with a would-be vendor. And these fintech 

companies, you know, that's just not possible.

You look at their balance sheet. You

look at their financial statements. It's all 

intangible intellectual property. They're all in 

their infant stages, and I really feel illequipped to size them up and do proper due 

diligence if you will.

And I had a conversation with Peter 

Gwaltney who's the North Carolina Bankers 

Association CEO, and he mentioned to me the same 

sentiment. So he believes, as I do, that this 

would be a big benefit to our North Carolina banks 

as we look to move forward in partnering with the 

right firms to, you know, advance our technology 

for the benefit of our customers.

So, I just wanted to let you know I 

think this is really a positive initiative, 

particularly for community banks. We just don't 

have the expertise, and this would give us some 
185

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

real comfort to move forward, I think, with some 

companies that would provide a significant value. 

So thank you.

MR. MILHORN: Thanks, Keith. And, you 

know, from my perspective, one of the real 

benefits of the public-private partnership 

component of this is we can get real-time 

feedback from both regulators and industry 

stakeholders sitting at the table to help craft 

these – to craft these standards.

And I think it will allow us to be a 

little bit more nimble in situations just like 

that, Keith, where you're looking at a new 

technology or looking at a potential new vendor 

and how to consider their stability.

Because ultimately, we want vendors 

who are stable and can continue to support our 

financial institutions, but how we operate in 

this environment is challenging right now. So, 

we hope that this will improve the process.

MR. DAVIS: Okay. Any other questions 
186

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

for Brandon? Okay. Well, Brandon, thank you and 

thank you for jumping in in the short window 

there. I appreciate and it's good to see your 

friend.

MR. MILHORN: Rosie. Fred will 

appreciate that is Rosie. Thanks all.

MR. DAVIS: Okay. Next, our next 

panel is from the U.S. Small Business 

Administration. I appreciate very much them 

joining us today. We have William Briggs, Deputy 

Associate Administrator, Office of Capital 

Access; Dianna Seaborn, Director, Office of 

Financial Assistance; and Susan Streich, 

Director, Office of Credit Management. Bill, 

I'll turn things over to you and thank you for 

joining us.

(Audio interference.)

MR. DAVIS: Bill, Bill, I think --

sorry to cut in, but I think we're having some 

audio issues. Your voice sounds very distorted. 

Or does it appear to just be for me?
187

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

MR. BRIGGS: Is that better?

MR. DAVIS: No, unfortunately it 

sounds like you're in slow motion almost. Would 

one of your colleagues be able to step in? We

could see if that audio is working?

(Audio interference.)

MS. SEABORN: Okay, now I'm unmuted. 

Is my voice distorted as well?

MR. DAVIS: No, we can hear you just 

fine. 

MS. SEABORN: Briggs, maybe you just 

want to call in on your phone. No offense. 

MR. DAVIS: And our folks are happy to 

work with you, Bill, to get your audio fixed. 

Susan or Dianna, do you want to go ahead and talk 

a little bit while we work on that?

MS. SEABORN: Oh, we're probably less 

informed about what the topic is that you're 

interested in hearing about than Briggs. We 

usually let him open the door and then we step 

through as the SMEs. But, I'm assuming that the 
188

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

conversation is about forgiveness. Is it in 

general PPP or is it where we are with 

forgiveness?

MR. DAVIS: Yes, we've had a lot of 

questions lately around forgiveness and related 

issues, so that was the original reason that we 

reached out.

MS. SEABORN: Right.

MR. DAVIS: Happy to check in again to 

see if Bill's audio is better, or if you prefer 

we could maybe jump into questions and take it 

from that route.

MS. SEABORN: Sure, whatever works for 

you. Obviously, one of the hot topics that we 

have, it's our trade association big week. We're 

having our national conference this week with the 

National Association of Government Guaranteed 

Lenders, so we've been listening a lot to those 

lenders this week and some of the issues that 

they're having too.

We recently put out information on our 
189

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

change of ownership rules for people who own PPP 

businesses and are trying to sell those 

businesses subsequent to receiving PPP funds, and 

that was overdue because obviously some of the 

businesses started already to change hands.

Bill, is that you? He really only 

sounds like this in the morning when he's still 

grumpy.

(Laughter)

MR. BRIGGS: Can you hear me?

MS. SEABORN: Briggs, I don't know 

what your problem is. Did you try just dialing 

in by phone? One for yes, Briggs, two for no.

MR. DAVIS: Well, I guess while we try 

to connect that, maybe I'll ask the Committee if 

there's anybody who might want to open with a 

question then. I know that on a lot of the calls 

that the Chairman's been doing, this has been a 

frequent topic, and yesterday we had our MDI 

subcommittee meeting and again information about 

how this might proceed was a big question.
190

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

So, I see Alan with his hand up. Alan, 

maybe start us off with a question and we'll see 

if we can get the audio resolved.

MEMBER SHETTLESWORTH: Cool, sounds 

good. I was kind of enjoying that. A couple 

questions, but first a statement though. 

Realizing what the SBA has done in such a short 

amount of time with the resources it was given is 

just incredible, so I mean, I just want to say 

I'm really impressed.

I know a lot of the bankers here kind 

of helped, of course, administer that program, 

but the heavy lifting you guys accomplished in 

that short of period of time is just unbelievably 

impressive.

One kind of theme for me, one question 

we keep getting asked from borrowers is when can 

we expect some type of response from the SBA? We 

have so far submitted 50 forgiveness 

applications. We've received payment on four of 

those applications, and there doesn't appear to 
191

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

be rhyme or reason. I know the SBA according to 

the law has 90 days to respond. But I didn't 

know if there's any type of rhyme or reason or 

pecking order based on loan size that the SBA is 

looking at.

And the second one also along the 

communication theme, we just discovered yesterday 

that there is a notice from the SBA that I think 

is intended to get to the borrower after the PPP 

loan is fully forgiven and the Notice of Paycheck 

Protection Program Forgiveness Payment.

We found that through the online 

portal, but the only people that have access to 

that specific piece of the portal are the 

administrators for the bank. And so, just a 

question on that one. Is it possible to have 

that pushed out separately to our lenders who are 

actually communicating with our borrowers on 

this? So, those are my comments and questions.

MS. SEABORN: Right. So Briggs, are 

you in mode now or no?
192

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

MR. BRIGGS: I've called in so can you 

folks hear me?

MS. SEABORN: Yes, we can.

MR. BRIGGS: Okay, great. So you 

won’t see my face but I am talking. And I 

apologize for the technical difficulties as well.

The first question is, we have started 

remitting payments. Just as a reminder, the 

borrowers apply to the lenders for forgiveness, 

and then the lenders send those forgiveness 

decisions to SBA.

We, if we have 5.2 million PPP loans, 

we have not received a vast majority of 

forgiveness decisions. We have received some, 

and we have started remitting payment on those as 

well.

We are also in the process of, you 

know, measuring twice and cutting once. Because 

forgiveness and the remittance payments are 

really the key point at which the taxpayer funds 

are exposed. So we're also in the air of 
193

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

oversight. We're dealing with our IG, GAO and 

Hill committees to make sure and look at our 

implementation of the PPP.

And we're using some of the lessons 

learned to make sure that during forgiveness it's 

ultimately a lot more smoother and effective. We 

have been remitting payments, and we expect that 

to pick up in the very near future regarding that.

Regarding the second question 

regarding the forgiveness platform, I believe 

that in terms of the access to certain documents 

and all that on the administrator levels, we can 

certainly take a step back and look and see what 

we can do to fix that for you.

MS. SEABORN: Right. And if I can add 

to that, you know, one of the methodical 

intentions of the rollout of the forgiveness was 

to make sure that all of our lenders had signed 

up in the portal, and I believe we are darn close 

to 100 percent but not quite there.

And then to test those ACHs, because 
194

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

what we found when we first started looking at 

the first few was that we had incorrect ACH 

information. And so we wanted -- we went out and 

asked everybody to come back in and check their 

contacts and their information provided so that 

we could do it.

So then what we did instead of just 

proceeding against all of them is to say, okay, 

let us try and get some to each so that we can 

see that it works, that it's effective, that it 

gets there, the ACH goes out, that they get it 

timely, and everything is working.

I think from that now, we're in a mode 

to expand and I think it's very good. And to 

Briggs' point we'll take this away is can we give 

more folks access, or is it one point of access 

or a limited number for the platform for each 

lender.

And I think to some degree it has to 

be controlled, but I think we might be able to 

take a look at that issue because I think that, 
195

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

you know, for the lenders that have done many, 

many loans, that you're going to have to have 

more hands on this than just one or two. So point 

well-taken.

MR. DAVIS: Great, thanks Alan. Bill, 

I want to give you the opportunity since you got 

cut short there, if you want to go back and go 

over any of the comments that you wanted to open 

with.

MR. BRIGGS: Yes. I just really 

wanted to thank the Chairman and all the FDIC 

staff who have been a part of this. They have 

been a crucial part of, you know, the effort over 

the last seven months.

We released today our FY-20 data, and 

when you combine PPP, EIDL, and our regular loan 

program, we've done nearly nine million loans and 

over $750 billion worth of financial assistance 

for small businesses across the country. A 

record year in the history of this agency.

And again, it was combined effort with 
196

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

our lending partners as well as our federal 

regulatory partners, and we greatly appreciate 

everything the FDIC has done as well as the 

lenders obviously participating in both PPP and 

our other programs.

I just want to also acknowledge my 

colleagues, Dianna Seaborn who is the Director of 

Office of Financial Assistance. In the Office of 

Capital Access, she handles all of our policy. 

And Susan Streich who directs our lender 

oversight program in the Office of Credit Risk 

Management.

They have extensive background and 

experience in lending and are highly valued by 

the lending community, the SBA lending community, 

but also here at SBA headquarters for their 

expertise. And especially given Susan's role as 

lender oversight, I wanted to make sure that 

everyone on the call has the benefit of knowing 

her, and also if there is an appropriate 

discussion that she could add her perspective and 
197

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

expertise.

So with that, I would be happy to get 

back to questions and answer where we are in the 

process or anything related to forgiveness as we 

want to make sure that we are sharing accurate 

information with our colleagues.

MR. DAVIS: Excellent, thank you. And 

Alan, I saw you pop back up again. Do you have 

another question?

MEMBER SHETTLESWORTH: I'm sorry, I'm 

quick to the trigger and I don't mean to hog this. 

But we just recently came across this issue 

dealing with the potential tax consequences. 

Some of our CPAs in town are now recommending to 

their borrowers that they do not apply for 

forgiveness until 2021. So there appears to be 

some type of attempted gamesmanship when it comes 

to the potential tax consequences.

Do you have any feedback for us on 

that issue one way or the other because it is not 

clear. And that issue is probably more on the 
198

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

IRS, but do you have any feedback for us on that?

MR. BRIGGS: Yes, I would like to take 

an initial answer that, and then also make sure 

that Dianna weighs in.

First, as a reminder with both PPP and 

EIDL, that on PPP there's a deferral period of 10 

months after the cover period, after the eight or 

24-week cover period in which the borrower does 

not have to pay. Now, if the borrower applies 

for forgiveness and then has a remaining balance, 

that deferral period no longer applies.

But generally speaking, most 

borrowers if they do nothing, do not apply for 

forgiveness, they do not have to make a payment 

on the PPP loan today.

The same thing for EIDL loans. EIDL 

loans have a 12-month deferment. And so again, 

we're expecting with both programs that if a 

borrower does nothing, they do not have to start 

making a repayment until March of next year.

However, in terms of the tax 
199

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

consequences, we're not able to offer that 

individualized advice. That is obviously best 

left with the individual borrower and/or lender. 

But Dianna, I don't know if you have anything to 

add to that.

MS. SEABORN: Yes, just a couple of 

comments. Obviously, the CARES Act authorized 

and requires that the, at a federal tax level, 

the PPP forgiveness will not be considered 

taxable income. That is not true, necessarily,

at every state or local level.

I believe about 26 of the states 

follow federal guidance on that, but as you know, 

that may not be the case for many. And with 

states starving for income, I don't know what 

their position will be in the end.

So, we do know that while the PPP 

forgiveness funds are exempt from federal 

taxation, we cannot tell from state to state, and 

are basically leaving that to the borrowers and 

their accountants to understand what the 
200

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

taxability of that is with regard to their local 

area. Because some states do kind of lock-step 

with the federal agencies on -- the federal rules 

on that. Some of them don't.

We are having discussions with the IRS 

about the other parts of the program where the 

CARES Act did not specifically indicate tax 

exemption. So the payments on the SBA loan 

portfolio, the microloan portfolio 7A and 504, 

they obviously were silent on that. So, at this 

point they're considered to be taxable things.

We are working through 1098 issues and 

1099 issues where the 1098 issues, I guess, are 

the interest paid, and the 1099 would be the 

payments that were made on their behalf and how 

they’ll need to deal with that.

So, we are already in the process of 

working through to provide guidance to the SBA 

and Treasury's position on those issues with 

regard to taxation. I'm sure that the IRS, in 

conversations with them, will be bringing to the 
201

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

table some additional clarity as we get closer to 

tax season.

But to Briggs' point, they don't have 

to file for forgiveness this year if they choose 

not to. It's perfectly within their rights to do 

that. So, we don't consider it to be a problem. 

Certainly, we'd like to get it behind us and most 

lenders would.

You know, while the borrowers have 

reasons to manage their tax liability in any 

given year, and are well-advised to do so by their 

counsel, lenders don't want to get stuck with 

these loans longer than they have to. Everybody 

wants to get back to a normal portfolio 

management kind of thing.

So, the forgiveness process within the 

parameters in the Act in terms of the timing is 

driven by the borrower and not necessarily by the 

lender or SBA in terms of when that happens.

MR. DAVIS: Okay. Fred, I see your 

hand. Do you have a question? Louise, I also 
202

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

see your hand.

(Audio interference.)

MEMBER WALKER: Yes? Fred, are you --

MR. DAVIS: I think we might have some 

audio issues there. Louise, maybe we, we can 

come back to Fred. You want to go with your 

question, Louise?

MEMBER WALKER: Sure. First of all, 

I just want to second Alan's comments, about what 

SBA has achieved. So thank you, on behalf of our 

communities, because it is -- it's been 

wonderful.

Probably one of the biggest challenges 

we have is communicating with our customers. And 

we recently just had two loans that were pulled 

for review.

And the question is: how long after 

we submit the requested items does SBA have to 

get back to our borrower? Because the borrowers 

are nervous about that.

And just as a second part, both of 
203

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

them were below the $2 million we were expecting, 

over $2 million. But I guess you can do them

below $2 million. So anyway that's my question, 

so thank you.

MR. BRIGGS: Yes, I'll take a go at 

this, and then obviously if Dianna wants to add 

anything as well. First, it's helpful to think 

of both the loan review process and the 

forgiveness process as separate but related 

processes.

And by that I mean any loan could be 

reviewed at any time, for any reason, by SBA, 

regardless of size. All loans over $2 million 

will be reviewed for loan necessity, as has been 

stated by the Administrator and the Treasury 

Secretary, for economic need.

And I expect those notices to start 

going out to lenders to access a questionnaire 

and albeit the forgiveness platform that the 

borrower will then complete.

The lender does not have to verify 
204

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

that information on the $2 million question -- $2 

million loan questionnaire, but they are 

responsible for getting the information in and 

sending it back to SBA, but not verifying the 

information.

Regarding loan reviews, we also are 

sending out those notices as well to the lenders 

that certain loans are under review. We don't 

have a specific time frame, but we are generally 

trying to handle these in an expeditious manner.

Our goal is not to further harm the 

borrowers or cause undue burden onto the lenders. 

We are trying to have an expeditious forgiveness 

process overall.

Obviously the loan cannot be forgiven 

until the loan review is completed. However, we 

are working on that and, we again, are trying to 

balance that expeditious loan review and 

forgiveness, as well as making sure that we're 

doing our part and have the internal controls to 

prevent and/or protect the taxpayer funds.
205

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Dianna, I don't know if you have 

anything to add as well?

MS. SEABORN: I just unmuted. I don't 

have anything to add, Briggs. I think you covered 

it pretty well.

MEMBER WALKER: Thank you.

MR. DAVIS: Thank you. Patty, please 

go ahead with your question.

MEMBER MONGOLD: My question has to do 

with the forgiveness. We've received some of the 

forgiveness funds back.

On four of the loans that we received 

those funds back on, they were reduced by EIDL 

payments, and we were unaware of that happening. 

We were -- our borrowers were unaware that that 

was going to happen.

And we were -- we'd like some guidance 

on that, when -- how often is that going to 

happen? Why -- where is the instructions to us 

in advance that -- so we could've made them aware 

of that?
206

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

And we were under the impression that 

those balances would remain on the SBA's balance 

sheet rather than ours, and that the borrower 

would be making payments to SBA.

Now we are having to, our borrowers 

are going to have to start making payments to us 

beginning next month. So just some comment on 

that, if you would please?

MR. BRIGGS: Sure. Patty, I firmly 

recognize your frustration with the EIDL advance. 

And I just want to clearly explain that the EIDL 

advance deduction from the forgiveness amount is 

required by the CARES Act. There is a specific 

provision in Section 1110 that mandates that we 

deduct any EIDL advance amount from the total 

forgiveness amount.

And I think the intent 

originally -- and, again, you have to think back 

a little bit to six or seven months ago, when 

Congress thought this would be a short-term 

situation, you know, an eight-week forgivable 
207

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

loan program, and obviously it has evolved since 

then, and I don't think they anticipated some of 

the situations we are dealing with today.

But right now, for example, if a 

borrower has a $10,000 PPP loan and a $1,000 EIDL 

advance, we must -- that borrower has gotten 

$11,000 of CARES Act, they must deduct the EIDL 

advance from their forgiveness amount.

And in this example, assuming that the 

whole PPP loan would be forgiven, that borrower 

would still have a remaining balance of $1,000, 

which would then as you correctly said, they 

would have to start making payments on it, on 

upon, you know, upon the lender's determination.

We have raised this issue with 

Congress just yesterday. They are aware of this 

situation. But this has clearly been in both the 

CARES Act and the Guidance, and we have been 

trying to inform lenders of this as well.

Part of that challenge too is that the 

borrowers may have told the lenders before the 
208

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

PPP loan happened, or they did not, and then the 

EIDL advance happened after the PPP loan was made 

and the lender had no clue.

We have very clearly heard the 

frustrations from the lending community about 

this. We have also expressed, you know, that 

this would require a statutory fix at this time.

And so we have made that abundantly 

clear to both the lender and the lending 

community, as well as Capitol Hill and the 

Administration as well, that this is something 

that is causing some concern, and probably is one 

of --- a potential unintended consequence -- I'll 

be very careful with my language -- of the CARES 

Act not anticipating how the situation would 

evolve over the last few months. Dianna, I 

don't know if you have any comments on that as 

well?

MS. SEABORN: Nope. That's pretty 

tight, Briggs.

MR. BRIGGS: The one other thing: you 
209

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

should be able to go into the platform and see if 

some of your forgiveness decisions do have EIDL 

advances, which will be deducted.

MEMBER MONGOLD: Okay. Thank you very 

much for that response. Appreciate it.

MR. BRIGGS: Thank you, Patty.

MR. DAVIS: Fred, do you want to try 

again?

(Silence)

MR. DAVIS: Okay. Tom, go ahead, 

please.

MEMBER LEAVITT: Sure. Hey, Bill. 

Tom Leavitt, Northfield Savings Bank in Vermont. 

So if a borrower subtracted the EIDL advance 

amount from their original loan calculation, how 

do we ensure that the SBA doesn't subtract that 

amount again during the forgiveness process?

MR. BRIGGS: Right. So this is one 

of the situations we're facing right now. That 

we are -- and per Dianna's comment of kind of 

slowly rolling this out, as lenders are looking 
210

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

at their forgiveness operations and the decisions 

and also having a chance to look more at 

individual loans.

And I'm sure as we all recall when 

these loans were being originated, it was a mad 

rush. Now there has been some time both to look 

at the documentation, understand lenders 

individually, understanding how they're going 

about their process, and they're seeing these 

situations that, wait a minute, we've already 

tried to account for this EIDL advance or 

something like that.

We are working on these issues with 

Treasury. They have been brought to our 

attention. We don't have an immediate solution 

to this.

Right now, if you feel that 

that -- right now, just right now what would 

happen is, if you apply for forgiveness, that 

EIDL advance will be deducted, and essentially 

that borrower would've gotten a double haircut.
211

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

And so right now, we are working on 

the solution. If you're aware that that has 

happened, I would suggest holding off for a 

little bit on applying for that forgiveness 

decision, as SBA and Treasury kind of try to work 

through our current operational and policy 

framework, within the legal constraints, to try 

to solve some of these problems. But we are aware 

of the situations like that.

MR. DAVIS: Alan, go ahead.

MEMBER SHETTLESWORTH: Last one, I 

promise. Specifically when it comes to the 

smaller dollar loans, meaning $50,000 and under, 

for the Form 3508S, what documentation does the 

SBA really want us to send up there?

I mean I'm happy to send everything we 

get from the customers, but it does seem like 

maybe we're okay just submitting the completed 

application and that's it.

The more documents we request of our 

borrowers, especially on those really small 
212

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

$1,000 and $5,000 loans. I mean that is 

a -- that's just turning out to be a big burden 

for these folks. So what are you looking for 

from the SBA for us to send to you?

MR. BRIGGS: So I'm going to start and 

then I'll let Dianna handle this as well, or 

address it, because she's very familiar. We all 

are familiar with this issue, but she explains it 

very well.

And I want to be very clear. This is 

another situation where the law ties our hands. 

In Section 1106, we are not able to grant 

forgiveness unless we have the documentation 

proving that the funds were spent in the 

appropriate manner.

So those documents still have to be 

submitted. And it's very clear in the new IFR, 

for 3508S, that those documents, supporting 

documentation in addition to the application, 

must be submitted to the lender, and the lender 

must have those in order for forgiveness to be 
213

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

processed, regardless of which application form 

you're using.

And that is a statutory change, and so 

that is still where we are. But Dianna can go 

into some of the benefits and how lenders are 

also benefitting from this 3508S. Dianna.

MS. SEABORN: Sure, sure. Thanks, 

Briggs. We think that Treasury and SBA have gone 

as far as we can in terms of removing the pain 

from the process for smaller loans, based on the 

fact, as Briggs indicated, that the CARES Act 

requires some level of documentation.

So under -- you know, exercising de 

minimis authority, the Treasury and the 

Administrator agreed on this abbreviated form.

So what they don't have to do is walk 

through the calculations and support those 

calculations to you in terms of the document. 

They simply fill in the blank.

They are not subject, they have been 

exempted from dealing with the issue of did I lay 
214

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

anyone off, did I reduce salary, did I lose 

employees? That is not a reality for anyone who's 

going to be able to fill out that Form 3508S and 

move it forward.

So what we would expect them to send 

to the lender is their documentation of payroll 

that shows that they used the proceeds in 

accordance with the program, 60 percent at a 

minimum on payroll, 40 percent on those other 

issues.

And the lender is charged with 

confirming that they sent the form and it was 

complete. That the -- that the documentation was 

received in support of that, and then moving that 

along with their decision to SBA.

And I say that, in talking to all the 

thousands of lenders that are in the NAGGL

conference, today, and that, you know, we don't 

expect a high level of inspection, or 

confirmation.

You don't have to go outside to 
215

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

external sources to confirm this information in 

any way. But the challenge I think for a lender, 

practically speaking, as a former lender, is you 

can't un-know what you know.

So if something screams at you that 

there's a problem that your loan was based on 

this, and this one is wildly different on this 

forgiveness, then obviously it's difficult to 

move it forward, in good conscience, and most of 

our lenders have good conscience and are very 

conscientious about it.

So the requirement is not to do 

external review and to check the calculations, 

because you won't be getting the calculations on 

that -- with that form.

So we have moved away from as many of 

the documents as we possibly could. And one of 

the challenges, as you might appreciate, that

that presents for SBA and the Treasury is, you 

know, if there are no requirements to report, 

collect, or retain any documents, it's very 
216

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

difficult for us to do our job as civil servants, 

and audit and review, you know, for control and 

improper payments -- those loans.

So we've stripped it down I think as 

far as we can, under the statute, and it does 

take some of the burden away from the bar, 

particularly on having to calculate reductions in

force and things of that nature and I think that 

makes it easier for them.

For the lender, what makes it easier 

is you don't have to look and confirm and do the 

math behind them. You don't have to check their 

calculations, because you're not going to see 

their calculations. You're going to take their 

good faith certification on those things.

Not quite as easy as what was asked, 

but in order to take it further than we have that 

would require additional legislation in 

consideration of an alternative for smaller 

loans.

MR. DAVIS: Okay, do we have any other 
217

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

questions? Great. Well thank you for coming 

over, really appreciate that. And you know, we 

may have the opportunity to talk again, but 

hopefully it will be on the other side of some 

things.

Thank you again for coming over, and 

I know this was short notice, so I really 

appreciate you guys making the time.

MR. BRIGGS: Thank you, Chad, and 

thank you to the Chairman.

MR. DAVIS: Thank you.

(Audio interference.)

MR. DAVIS: -- financial economists. 

They're going to talk about deposit trends and 

the Deposit Insurance Fund. And Jonathan Pogach, 

Chief of Financial Modeling and Research Section, 

is going to discuss the FDIC's academic 

challenge.

MS. HINTON: Thank you, Chad. Can 

everybody hear me?

MR. DAVIS: Yes, we can. You're 
218

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

coming through. Thank you.

MS. HINTON: Thank you. I appreciate 

that. Good afternoon to the Advisory Committee. 

So as Chad mentioned, I'm speaking today on 

deposits and liquidity due to the unprecedented 

growth in deposits reported in the first half of 

2020.

The question of where these deposits 

came from, in what form, how stable they are, and 

what you guys as bankers are doing with them is 

at top of mind.

As Chad mentioned, I'll begin by 

looking at some stats for the overall industry as 

a whole, all FDIC-insured institutions, and then 

Dan will discuss the impact of all of that deposit 

growth on the FDIC's reserve ratio.

So if you would move to the first 

slide. Looking at the first chart here on Slide 

2, you'll see that total industry deposits 

increased by $1.18 trillion, or 7.5 percent in 

second quarter 2020, which is slightly less than 
219

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the $1.24 trillion that they grew in first 

quarter 2020.

The $1.24 trillion growth reported in 

the first quarter was the largest growth reported 

in the Call Report data we have available, which 

goes back to 1984. I should say the electronic 

Call Report data, which goes back to 1984.

So the natural question is: where are 

all these deposits coming from? Fair warning, my 

economist colleagues in DIR helped me out with 

this section, and any tricky questions I might 

send to the way of the economists.

I'm a financial analyst. But we do 

know like several factors that accounted for the 

growth in deposits, several basic factors that 

I'm sure you guys are familiar with.

So first, fiscal stimulus included 

support to businesses and households, totaling 

over $1 trillion, with nearly $525 billion in the 

PPP Program as you all were just discussing, and 

nearly $400 billion in expanded unemployment 
220

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

insurance.

As a result, the data show that 

monthly personal savings more than doubled 

between February and June. And again, the data

I'll be talking about today is mostly through 

June. Personal income as well as personal 

savings increased substantially.

Second, Fed asset purchases and loan 

facilities resulted in a $1.3 trillion increase 

in reserve balances between February and June. 

And typically deposits increase when the Fed

expands reserves.

Third, first quarter saw the largest 

draw-downs in commercial and industrial credit 

lines, since 2011. Many corporations that 

received that money turned around and deposited 

it. In fact, Morgan Stanley banking strategists 

estimated that almost half of the increase in 

deposits in first quarter was from corporate 

credit line draw-downs alone.

Now this process pretty much reversed 
221

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

itself in second quarter. In second quarter, 

capital markets started to open up and U.S. 

corporations issued more dollars in bonds, per 

month, than any time in 2019.

And then those corporations were able 

to use that money to pay down their credit lines, 

while keeping deposits at their banking 

institution.

Fourth, the last main driver of 

deposit growth is that business and consumer 

precautionary cash-holding and their reduced 

expenditures contributed to higher deposit 

levels.

I know the mechanics of a lot of items 

I've just mentioned are worth exploring further, 

they're very interesting. But for now, I hope 

I've just given you a general idea of where all 

of these deposits came from.

So now the second thing you'll notice 

on the first chart is that non-deposit 

liabilities increased in the first quarter and 
222

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

fell in the second quarter almost proportionally. 

And again, here we're looking at all FDIC-insured 

institutions.

We thought it could be the case that 

banks used non-deposit liabilities during the 

first quarter to increase liquidity in 

anticipation of a stressed environment. Or they 

might have used them to fund the large draw-downs 

on credit lines that were reported in the first 

quarter. Either way, as deposits surged in both 

quarters, non-deposit liabilities were paid back 

or rolled off in the second quarter and shrunk in 

about proportion to what they had grown in the 

first quarter.

The last thing I'd like to note before 

moving forward relates to the second chart on 

Slide 2. As I mentioned, total deposit growth 

was not as strong in the second quarter as in the 

first quarter.

However, that was not the case for 

domestic deposits, which grew at an even more 
223

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

rapid clip in the second quarter, while foreign 

deposits declined. I point this out, because the 

next few slides will break down the change in 

deposits into various subcategories.

So next slide please. For instance, 

the first chart on Slide 3 shows that the maturity 

and non-maturity deposit breakdowns are for 

domestic deposits, as that's how those items are 

reported on the Call Report, as many of you I'm 

sure are familiar with.

So therefore, because this is domestic 

deposits, you'll see the largest growth in the 

most recent column of data there on the first 

chart in Slide 3.

The main takeaway from this chart is 

that most of the deposit growth in recent 

quarters has been from non-maturity deposits, 

which are typically considered with some debate 

a stable form of funding, a stable source of 

funding.

Not pictured here is that the share of 
224

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

non-maturity deposits has risen from a recent low 

of 85 percent in first quarter 2019, to 89 percent 

today.

The second chart on Slide 3 shows the 

breakdown in deposits by those in accounts with 

a total balance greater than $250,000, or large 

accounts, and those in accounts with a total 

balance less than $250,000, or small accounts.

The pie that these account types are 

broken out of is not total deposits or domestic 

deposits, but assessable deposits, as you all 

report on Schedule RC-O.

We can see that most of the deposit 

growth this year has been in large accounts. And 

while at first glance that may seem surprising or 

concerning, it may not be given that we believe 

much of the increase in deposits came from 

corporations that drew down their credit lines, 

and those credit lines may well have exceeded 

$250,000.

Some folks may wonder how this relates 
225

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

to insured and uninsured deposits. I know at the 

FDIC that's of concern to us. I'm simplifying 

this, but recall that even in accounts with

balances greater than $250,000, the first 

$250,000 is insured, so not all large account 

deposit growth is uninsured.

Next slide please. Now for a view 

particularly relevant to this meeting, the chart 

on Slide 4 looks at the quarterly growth rate in

domestic deposits at community and non-community 

banks, as defined in the FDIC's 2012 Community 

Banking Study.

And if anybody has questions about how 

we define community banks, I'd be happy to answer 

that later. I'd like to note first that this 

data is merger-adjusted.

That means two things happened to the 

data. The first is that if a bank was acquired, 

we pretend that the deposits of that bank always 

belonged to the acquirer.

That way when we look at growth 
226

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

between two quarters, the deposits of the bank 

that was acquired are not present in the first 

quarter, but are missing in the second quarter, 

driving the growth rate down.

Second, if the FDIC changed a bank 

designation between community and non-community 

bank between quarters, we pretend that we didn't 

change the designation.

In other words, we keep the panel of 

banks constant. That way if a community bank 

grows into a non-community bank over the quarter, 

those deposits are not present in the community 

bank bucket in the first quarter, but missing 

from the second quarter, penalizing community 

banks.

I'll note that I have the 

non-merger-adjusted deposit growth figures as 

well. And while the figures themselves are 

slightly different, they don't change the story 

that's shown here.

So as you can see here on Slide 4, 
227

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

non-community banks reported tremendous deposit 

growth in first quarter 2020, whereas community 

bank deposit growth didn't take off until the 

second quarter.

And as I've noted a couple of times 

now, the largest draw-downs in C&I credit lines 

were in first quarter. And I think many at this 

meeting would know better than I, but I believe 

it's likely that the deposit growth generated by 

those draw-downs was concentrated in large 

institutions, driving their large first quarter 

growth relative to community banks.

And then when federal stimulus for 

consumers kicked in, in the second quarter, 

retail customers piled any extra funds they had 

into deposits at more of their local community 

institutions.

Now moving back to the industry, we 

know that most of the growth in liabilities has 

come from deposits this year, not a huge shocker. 

But I think it would be interesting, from a risk 
228

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

perspective, to look at the change in non-core 

funding and liquid assets at our institutions.

So next slide please. The first chart 

on Slide 5 shows the breakdown in total 

liabilities growth by non-core and all other 

liabilities. We can see that in neither quarter 

did banks report a large increase in non-core 

funds compared to all other liabilities.

Similarly to non-deposit liabilities 

seen on the first chart of this presentation, we 

can see that in first quarter banks reported 

growth and funding from non-core sources.

Then in second quarter, as more 

deposits rolled in, those non-core funding 

balances declined almost in proportion.

On the other side of the balance 

sheet, the chart on the right-hand side of this 

slide shows that in first quarter, liquid assets 

made up approximately half of total asset growth, 

and in second quarter they made up the totality 

of asset growth.
229

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

It should be noted here, you can't see 

it, but total loans did grow by 0.3 percent, in 

the second quarter, but those are grouped in with 

the blue bar called All Other Assets, and when 

you group them with All Other Assets they shrunk 

when combined with those other categories. 

Before we move on to the next and 

final slide, I'd just like to point out that the 

two charts we're going to see on the next slide, 

we'll take the red and the gray sections here, 

representing non-core liabilities and liquid 

assets and break them down into their 

subcomponents.

So next slide please. Okay. So we 

can see that the change in non-core liabilities, 

in both quarters, was fairly broad-based. That's 

on the left-hand side.

While on the right-hand side, we can 

see that the increase in liquid assets was 

predominantly in cash and balances due from 

depository institutions.
230

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

So from that, and from statements made 

by some banks during the second quarter earnings 

season, it appears that this rapid deposit growth 

has generally not been being treated as stable or 

sticky funding by our banks.

Looking towards third quarter 2020, 

early indications show that deposit growth has 

normalized, may be a little high, or has 

normalized.

In other words, while growth may not 

be as large as it was in the second quarter, early 

indications do not show a decline in deposits, at 

least at the industry level.

So I think that's a really good thing, 

indicating that these deposits are probably ---

they're going to be around for a little while 

longer, and at least not seeing a sharp decline 

at the moment.

Of course that's all dependent 

on -- well a lot of things can affect that, like 

federal stimulus going forward, if there will be 
231

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

any, et cetera.

So that's the high-level overview of 

trends in deposit growth for the first half of 

2020, and what we've seen with institutions, what 

we've seen institutions doing with these 

deposits. And on that, I'll be pausing for any 

questions.

(No audible response.)

MS. HINTON: And if there are no 

questions, we'll move forward to how this has 

impacted our reserve ratio at the FDIC.

MR. DAVIS: I don't see any hands. 

I'll give a couple more seconds though, in case 

anybody wants to ask a question. Okay. Thank 

you. Go ahead and hand it off to your colleague.

MR. HOOPLE: Great. Thank you, Chad, 

Angela, and members of the Advisory Committee. 

Today I will be discussing the restoration plan,

as Angela mentioned, adopted by the FDIC Board in 

September.

Beginning with why such a plan was 
232

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

necessary, followed by the components in the 

plan, and the analysis that the plan was based 

on. The discussion of why a restoration plan was 

necessary --

(Off the record comments.)

MR. DAVIS: I think maybe your slide 

might be over your camera.

MR. HOOPLE: Oh. Possibly. Let's see 

if I stop it and start it again. I am not sure.

MR. DAVIS: Okay. We can go with 

audio.

MR. HOOPLE: Okay. All right, so 

going back to the discussion of the restoration 

plan. It builds on the trends that Angela has 

already described.

The chart here depicts recent deposit 

growth experienced by IDIs with respect to 

insured deposits. During the first half of 2020, 

insured deposits grew an annualized rate of about 

18 percent in the first quarter and 33 percent in 

the second quarter.
233

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Such growth was significantly above 

recent years, and was two of the highest growth 

rates since quarterly reporting began in 1991. 

In total, insured deposits grew by an estimated 

$1 trillion in the first half of 2020, an amount 

equal to approximately three years of insured 

deposit growth in just two quarters.

Next slide please. This table shows 

how the change in insured deposits affected the 

DIF reserve ratio, which is measured as the fund 

balance divided by estimated insured deposits.

During the first half of 2020, the 

estimated $1 trillion increase in insured 

deposits caused the reserve ratio to decline from 

its recent peak of 1.41 percent at the beginning 

of the year, to 1.30 percent at the end of the 

second quarter.

Prior to 2020, the reserve ratio had 

not decreased, since the fourth quarter of 2009. 

It is noteworthy as you see here that during the 

first half of 2020, the numerator of the reserve 
234

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

ratio, the fund balance, increased by $4.3 

billion and was not a factor in the reserve 

ratio's decline.

The FDI Act, the Federal Deposit 

Insurance Act, requires that the FDIC adopt a 

restoration plan when the reserve ratio falls 

below its statutory minimum level of 1.35 

percent.

The statute further requires that the 

restoration plan return the reserve ratio to 1.35 

percent within eight years of implementing a 

plan.

As a result of the reserve ratio 

falling below the minimum level, as shown here, 

during the second quarter of 2020, the FDIC Board 

adopted a restoration plan, which took immediate 

effect in September.

Next slide please. The restoration 

plan adopted by the Board has three main 

components. First, under the plan, the FDIC will 

monitor deposit balance trends, potential losses 
235

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

to the DIF, and other factors that affect the 

reserve ratio.

Second, the FDIC will maintain the 

current schedule of assessment rates for all 

IDIs. Finally, the FDIC will update its fund 

projections semi-annually, or more frequently as 

conditions warrant, to determine if changes to 

the plan are necessary.

Together, the three components of the 

restoration plan reflect Agency projections that 

the reserve ratio will likely return to 1.35 

percent by the end of the eight-year period, 

without further action by the FDIC.

Next slide please. The projection 

that the reserve ratio will likely return to its 

statutory minimum without further action is 

subject to considerable uncertainty.

Therefore, the FDIC tested the 

sensitivity of its projections as depicted in 

this table. Here the FDIC projected the fund 

balance and the associated reserve ratio, at the 
236

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

end of eight years, assuming different rates of 

insured deposit growth.

The final column here displays the 

amount of losses that the fund could absorb and 

still reach the statutory minimum level within 

the required time period.

So for example, if insured deposits 

grow at an annual rate of 2.5 percent on average 

over the next eight years, the fund could absorb 

losses of almost $24 billion and still reach the 

minimum requirement within that time frame.

With growth of 3.5 percent, the amount 

available to absorb losses is roughly $12 

billion. While again subject to considerable 

uncertainty, the FDIC believes that the rates 

shown in this table represent a reasonable range 

of likely outcomes for average deposit growth 

over the next eight years.

Already weekly data for the third 

quarter suggests that deposit growth for domestic 

commercial banks has slowed to a rate more 
237

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

comparable to prior year growth. Going forward, 

low interest rates and reduced fiscal support, 

combined with weak economic conditions, is 

expected to play some downward pressure on 

deposit growth, as depositors draw down on 

savings.

Even as economic conditions improve, 

deposits may decline or at least not grow as fast 

as individuals and businesses redirect deposits 

towards consumption and higher-yielding 

investments.

Returning to the table, in all but the 

highest deposit growth scenario, the FDIC 

projects that the fund will be able to absorb 

different levels of losses and still reach the 

1.35 percent reserve ratio within eight years.

Similar to deposit growth, whether 

these projected amounts are sufficient to absorb 

losses and reach the required reserve ratio is 

subject to considerable uncertainty.

In recent years, the DIF has 
238

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

experienced low losses from bank failures. On 

average, five banks per year have failed between 

2015 and 2019, at an annual cost to the fund of 

about $400 million.

Depending on the length of the 

pandemic and the resulting economic and banking 

impacts, future losses may be higher than the 

losses experienced in recent years.

Thus far, however, the banking 

industry has remained a source of strength for 

the economy. The industry remains 

well-capitalized in general, and has appeared 

resilient to early stages of the economic effects 

of the pandemic.

Overall, based on this analysis, the 

considerable uncertainty of long-range 

projections, and because the statutory deadline 

is eight years away, the FDIC believes that 

raising assessments based on two quarters of 

insured deposit growth, albeit extraordinary 

growth, would still be premature at this time, 
239

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

and thus the restoration plan maintains the 

current schedule of assessment rates for all 

IDIs.

However, recognizing this 

considerable uncertainty that's inherent in fund 

projections, the restoration plan includes the 

reassurance that the FDIC will continue to 

monitor the various factors that affect the 

reserve ratio, and that the Agency will update 

its projections semi-annually or more frequently 

as necessary while the restoration plan is in 

effect.

Further detail of the analysis 

underlying the restoration plan can be found in 

the notice published in the Federal Register on 

September 21st.

In the meantime, however, I'm happy to 

answer any questions that you might have. I 

apologize for my camera not working. The light's 

not coming on at all, so that might be the reason.

MR. DAVIS: Okay. Any questions for 
240

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Daniel? Alan, I see your hand. Go ahead.

MEMBER SHETTLESWORTH: Hey, Daniel. 

Daniel, quick question for you. I'm sure the 

discussion has happened, although it doesn't 

appear in your presentation, but it's entirely 

possible that the FDIC might need to increase 

basically the assessments on the banks in order 

to get that DIF ratio -- reserve ratio higher. 

In those discussions, would it be across the 

industry, or would it -- could it be focused more 

on the larger institutions?

MR. HOOPLE: So you're right, Alan, 

that the discussion did occur, as we bounced 

ideas around onwhat might be necessary. 

Obviously it's a large concern to us not to 

overburden the industry at this time, which is 

why we landed where we were.

But there's certainly a lot of 

possibilities if losses increase, or for example 

if there's another fiscal stimulus, or if there's 

an extension of unemployment benefits that lead 
241

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

to, again, that higher personal savings rate that 

Angela mentioned that raise, again, further this 

insured deposit growth.

So there's a lot of different 

scenarios that could lead to just either higher 

losses or higher annual deposit growth rate, 

which would -- which may cause us to have to raise 

assessment rates.

However, one of the other sensitivity 

analyses that we did look at, which isn't shown 

here, is we looked at the -- even just a small 

increase in assessment rates, how much that would 

grow the fund's ability to absorb losses and 

still reach this. We looked at one basis point, 

two basis points, which is significant. I don't 

mean to minimize that at all.

Typically, to answer your 

question -- and it did raise our ability to absorb 

a substantial amount of losses and still reach 

this reserve ratio.

But to answer your question, in 
242

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

general the statutory authority that we're given 

to either increase assessments by up to two basis 

points without notice and comment, or through a 

special assessment, is usually across the board. 

That is how it's been done in the past.

However, there may be some flexibility 

to do it either on a risk-based level, I don't 

know if the statutory -- and with lawyers on the 

call, I don't want to stray too far. I don't 

know if the statute would allow us to do it just 

on certain sized institutions, but there may be 

some ability.

It's not a specific discussion we had, 

but it's something that we certainly have if we 

do make updates in the future.

MEMBER SHETTLESWORTH: Thank you.

MR. DAVIS: And Alan, I would just add

that making a decision like that would be 

something that would have to be considered by the 

Board. And so we're just not there yet.

The current plan is to, to maintain 
243

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

the status quo and to continue to monitor it as 

we move forward. Any other questions? Okay. 

Jonathan, you're up.

MR. POGACH: Thank you, Chad and Dan, 

and members of the Advisory Committee. I'm very 

excited to finish the day for all of you to 

discuss the 2020 and 2021 academic challenge.

So we launched this in September. 

This is our first year doing this. And what the 

academic challenge is, is it's an opportunity to 

bring real world banking policy questions into 

the classroom.

So this is structured as a nationwide 

competition for undergraduate students, and this 

year's challenge question is: what are the 

effects of community banks on local economic 

development?

Next slide. So what we're trying to 

get out of the challenge, as the FDIC, our 

objectives are to first increase the 

understanding of the banking industry and the
244

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

FDIC's role of ensuring the stability of our 

nation's financial system, and to engage in 

critical dialogue with undergraduate students.

We're also interested, of course, in 

promoting interest in future FDIC careers and in 

economics, accounting, and finance from these 

young scholars, and we're also trying to build 

relationships between the FDIC, students, and the 

academic community.

Next slide. So the way that the 

challenge is structured is it's going to consist 

of teams of four or five students, and each 

student is going to -- or each team is going to 

have a faculty advisor.

So the teams are going to first submit 

a written component. I'll discuss the timeline 

for that on the next slide. It's going to be 

about six pages, along with an executive summary, 

tables and graphs.

And then we're going to have 

economists review the submissions and select five 
245

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

finalists who would be invited to Washington, 

conditions permitting -- if not we will do this 

virtually -- to present their work to a panel of 

judges.

As part of the challenge, the FDIC 

provides students with some prompts on how to 

approach the question. Obviously this is a 

complicated question.

There's a lot of different angles that 

students might take in trying to address it, so 

we provide some sub-questions to help them think 

through the issues and how to think about the 

data.

We provide a grading rubric to help 

the students understand how their submissions are 

going to be evaluated. And we also provide public 

data sets and a code book that students can use 

to help engage the material.

They're not restricted to just the 

data that we provide, but we did assemble some 

nice data from public sources that at least can 
246

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

be used as a launching point as students engage 

with the question and the material. Next slide.

So the competition opened on September 

18, 2020. We had our first Q&A session with 

students and faculty advisors on October 7th, 

where they asked questions about what it was that 

we were looking for, and trying to understand the 

different angles that they might take to approach 

this very interesting question.

We're going to have a second Q&A 

session for students on November 12th to help 

them wrap up the material, address any 

last-minute questions on their findings and 

submissions, as the submission deadline is going 

to be on November 20th.

We'll let finalists know and announce 

the finalists in February of 2021. And then in 

April of 2021, on April 16th, we're going to 

invite the teams, the finalist teams to present, 

again, either in person in Washington, conditions 

permitting, or virtually on that date.
247

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

We're very excited about the 

competition. It really seems to be a very 

promising way to talk with students about some 

really interesting issues. And you can find more 

information at the website listed at the bottom 

of this slide here. Thank you.

MR. DAVIS: Great. Thanks. Sorry, I 

couldn't get my video to pull up either. Thanks, 

Jonathan. Any questions? Okay. I don't see 

any. So Jonathan, thank you very much. With 

that, that concludes our agenda. Before we 

close, Director Gruenberg, do you have any 

comments?

DIRECTOR GRUENBERG: Yes. Thank you, 

Chad. First let me thank everybody for hanging 

in there. I got to say this has been a pretty 

long day -- useful discussions, but a long day.

And just if I may reiterate what a 

valuable asset this Committee has been to the 

FDIC over the years. You give us a line of sight 

into what community banks are experiencing at the 
248

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

local level in a way that is difficult for us to 

do in other forums.

And your presentations, particularly 

in the round table, I think if I may say, are a 

great representation of the value community banks 

offer in the role you all play in your communities 

and your commitment to serving those local 

communities.

So thank you again for sticking with 

us and I hope you found this day valuable. Thank 

you. Thank you, Chad.

MR. DAVIS: Great. Okay, Chairman 

McWilliams, would you like to close us out?

CHAIRMAN McWILLIAMS: Yes, and I think 

my video is working, I hope. Thank you, Marty. 

Thank you everybody. And thank you to staff for 

today's presentation.

And perhaps foremost thank you all for

sticking with us in a virtual meeting that lasted 

quite a few hours today. But echoing Marty's 

comments, the feedback that you give us is so 
249

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

highly valuable to us that I don't mind keeping 

you there for this long.

This was truly an engaging 

conversation, and you provided a lot of 

interesting data points for us to consider as we 

move forward, both on the regulatory and 

supervisory fronts.

And I will just say for that, we 

couldn't get a better crowd around this table, 

and yet we try every time we have some members 

leaving.

And with that, I'll just -- I feel a 

little bit heartbroken, some of the members that 

are going to leave us this year because their 

term is up, have been some of the most outspoken 

members of this Committee.

So we're hoping that we're able to 

pass the baton from you to another group of folks 

who are going to be as good at contributing as 

you have proven to be, and it's a high bar.

Those members are Fred DeBiasi, from 
250

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

Valley Central Bank in Liberty Township, Ohio;

James Edwards, of United Bank in Zebulon, 

Georgia; Keith Epstein, of Roxboro Savings Bank 

in North Carolina; Bruce Kimbell, First Community 

Bank of the Heartland in Clinton, Kentucky;

Thomas Leavitt, President and CEO of Northfield 

Savings Bank in Vermont; Lori Maley of Bank of 

Bird-in-Hand in Pennsylvania; Alan 

Shettlesworth, of Main Bank, Albuquerque, New 

Mexico; and Louise Walker, of First Northern Bank 

in Dixon, California.

And I have to tell you, I truly feel 

like this is a family goodbye. But it's just a 

short goodbye, because I'm sure you're going to 

stay involved with the FDIC, and I encourage you 

to do so.

And I hope you will tune in to the 

future Community Bank Advisory Committee 

meetings. With that, thank you all. Because I 

think my dogs are tired of me being locked up in 

a virtual conference for this long as well. Thank 
251

NEAL R. GROSS

COURT REPORTERS AND TRANSCRIBERS

1323 RHODE ISLAND AVE., N.W.

(202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com

you all. God bless you, and stay safe.

(Whereupon, the above-entitled matter 

went off the record at 5:38 p.m.)