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FEDERAL DEPOSIT INSURANCE CORPORATION

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ADVISORY COMMITTEE ON COMMUNITY BANKING

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MEETING

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TUESDAY,

JULY 28, 2020

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The Advisory Committee convened at 

1:00 p.m. EDT via Video-Teleconference, Jelena 

McWilliams, Chairman, presiding.

PRESENT:

JELENA McWILLIAMS, Chairman, FDIC

SHAZA ANDERSEN, CEO, Trustar Bank

DICK BESHEAR, Chairman, President & CEO, First

Security Bank & Trust Company

FRED DeBIASI, President & COO, Valley Central

Bank

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

KEITH EPSTEIN, EVP & CEO, Roxboro Savings Bank,

SSB

SARAH GETZLAFF, CEO, Security First Bank of North

Dakota

MARTIN J. GRUENBERG, Director, FDIC

KENNETH KELLY, Chairman & CEO, First Independence

Bank

BRUCE KIMBELL, President & CEO, First Community

Bank of the Heartland

THOMAS LEAVITT, President & CEO, Northfield

Savings Bank

LORI MALEY, President & CEO, Bank of 

Bird-in-Hand
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TERI MESSERSCHMITT, President & CEO, South

Ottumwa Savings Bank

PATTY MONGOLD, Chairperson, President & CEO, Mt.

McKinley Bank

GILBERT NARVAEZ, JR., President & CEO, Falcon

International Bank

MARK PITKIN, President & CEO, Sugar River Bank

ALAN SHETTLESWORTH, President & COO, Main Bank

CATHY STUCHLIK, Chairwoman & President, Clackamas

County Bank

LOUISE WALKER, President & CEO, First Northern

Bank

ALSO PRESENT:

BOBBY BEAN, Associate Director, Capital Markets

Branch, Division of Risk Management

Supervision

LEONARD CHANIN, Deputy to the Chairman for

Consumer Protection and Innovation

SUSAN COSPER, Board Member, Financial Accounting

Standards Board

DOREEN EBERLEY, Director, Division of Risk

Management Supervision

CHAD DAVIS, Moderator, Deputy to the Chairman for

External Affairs

FRANK HUGHES, Regional Director, New York Region

JOHN JILOVEC, Deputy Regional Director, Kansas

City Region

RICHARD JONES, Chairman, Financial Accounting

Standards Board

SHAYNE KUHANECK, Acting Technical Director,

Financial Accounting Standards Board

CLAIRE LAM, Acting Director, Office of Minority

and Women Inclusion

YAN LEE, Economist, Special Studies Section,

Division of Insurance and Research

ASHLEY MIHALIK, Chief, Banking and Regulatory

Policy Section, Division of Insurance and

Research

BRANDON MILHORN, Deputy to the Chairman & Chief

of Staff
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RAE-ANN MILLER, Associate Director, Risk

Management Policy Branch, Division of Risk

Management Supervision

SHAYNA OLESIUK, Associate Director, National &

Regional Risk Analysis, Division of

Insurance and Research

JOHN RIEGER, Chief Accountant, Division of Risk

Management Supervision

BETTY RUDOLPH, National Director, Minority and

Community Development Banking
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CONTENTS

Introductory Remarks

Jelena McWilliams,

FDIC Chairman............................ 7

Discussion of Local Banking Conditions

Members of the Advisory Committee

on Community Banking

Lori Maley, President & CEO, Bank of

Bird-in-Hand............................ 10

James J. Edwards, Jr., CEO, United Bank ...... 18

Louise Walker, President & CEO, 

First Northern Bank..................... 25

Gilbert Narvaez, Jr., President & CEO,

Falcon International Bank............... 30

Kenneth Kelly, Chairman & CEO, First

Independence Bank....................... 36

Shaza Andersen, CEO, Trustar Bank ............ 43

Alan Shettlesworth, President & COO,

Main Bank............................... 46

Patty Mongold, Chairperson, President

& CEO, Mt. McKinley Bank................ 52

Fred DiBiasi, President & COO,

Valley Central Bank..................... 56

Teri Messerschmitt, President &

CEO, South Ottumwa Savings Bank......... 61

Dick Beshear, Chairman, President &

CEO, First Security Bank &

Trust Company........................... 70

Thomas Leavitt, President & CEO,

Northfield Savings Bank................. 72

Bruce Kimbell, President & CEO,

First Community Bank of the

Heartland............................... 80

Keith Epstein, EVP & CEO, Roxboro

Savings Bank, SSB....................... 84

Mark Pitkin, President & CEO,

Sugar River Bank........................ 90

Sarah Getzlaff, CEO, Security First
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Bank of North Dakota.................... 97

Shayna Olesiuk

Associate Director, National &

Regional Risk Analysis

Division of Insurance and Research..... 103

Frank Hughes

Regional Director

New York Region........................ 105

John Jilovec

Deputy Regional Director

Kansas City Region..................... 111

Update from the Minority Depository 

Institutions Subcommittee

Betty Rudolph, National Director,

Minority and Community Development

Banking................................ 122

Gilbert Narvaez, Jr., President and CEO

Falcon International Bank,

Laredo, Texas.......................... 124

Supervision Update

Doreen Eberley, Director, Division of

Risk Management Supervision............ 133

John Rieger, Chief Accountant, Division of

Risk Management Supervision............ 135

Rae-Ann Miller, Associate Director,

Risk Management Policy Branch, Division

of Risk Management Supervision......... 141

Bobby Bean, Associate Director,

Capital Markets Branch, Division of

Risk Management Supervision............ 147

Leonard Chanin

Deputy to the Chairman for Consumer

Protection and Innovation.............. 157
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Update on the Current Expected Credit Losses 

Standard

Richard Jones, Chairman

Financial Accounting Standards Board... 170

Susan Cosper, Board Member

Financial Accounting Standards Board... 177

Shayne Kuhaneck, Acting Technical Director

Financial Accounting Standards Board

Diversity and Inclusion at Financial Institutions

Claire Lam, Acting Director, Office of

Minority and Women Inclusion........... 180

Division of Insurance and Research Update

Ashley Mihalik, Chief,

Banking and Regulatory Policy Section

Division of Insurance and Research..... 200

Yan Lee, Economist,

Special Studies Section

Division of Insurance and Research..... 204

Rapid Prototyping Technology Competition

Brandon Milhorn, Deputy to the Chairman

& Chief of Staff.......................218

Closing Remarks

Jelena McWilliams

FDIC Chairman.......................... 229

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

1:03 p.m.

CHAIRMAN McWILLIAMS: Good afternoon, 

or good morning, as the case may be, depending on 

where you are in the country. Welcome to the 

July meeting of the FDIC Advisory Committee on 

Community Banking. Thank you for taking the time

today to participate. For participants who are 

watching from afar, thank you as well.

This is the first time that we’ve had 

a virtual meeting of this committee. We last met 

in October and obviously, the world has changed 

quite a bit since then. Your banks have been on 

the forefront of fighting the pandemic and 

helping borrowers to save their homes and be able 

to make their monthly obligations. Thank you for 

that.

While I wish that I could be with all 

of you in person, I'm pleased that we're having 

this important discussion and at least we're able 

to get this meeting done. Before we get started, 
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I'd like to take a minute to welcome all the new 

members for joining us for the first time.

We have a little bit of an echo. 

MR. DAVIS: If you can just put your 

mute on, that would be good. 

CHAIRMAN McWILLIAMS: Yes, if you can 

just put yourself on mute unless you are 

partaking in the discussion, that would be good.

So the new members of the committee, 

Shaza Andersen, CEO of Trustar Bank, Great Falls, 

Virginia. Welcome, Shaza. Teri Messerschmitt, 

President and CEO of South Ottumwa Savings Bank 

in Ottumwa, Iowa. Welcome Teri. Patty Mongold, 

Chairperson, President, and CEO of Mt. McKinley 

Bank, Fairbanks, Alaska. Hi, Patty and welcome.

So again welcome to everybody. Thank 

you for being with us at this important meeting 

of the of the feedback committee here at the FDIC 

and I look forward to our discussion. 

I will now turn the program over to 

Chad Davis, who will serve the moderator for 
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today's meeting. Thank you.

MR. DAVIS: Thank you, Chairman and before 

I get started, Director Gruenberg, did you want 

to say anything?

(Silence)

Okay. We will then move to discussion 

of local banking conditions. I would ask as we 

go around to everyone that members please try to 

keep their comments to about three to four 

minutes. In doing the math, if we kind of 

generally keep to that time frame, then that's 

our best shot at staying on schedule for the 

agenda.

After we've heard from the committee 

members, we've also asked some FDIC staff members 

to discuss observations from a national and 

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 
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have Frank Hughes, the FDIC's Regional Director 

from the New York Region, and John Jilovic, who 

is the FDIC's Deputy Regional Director for Risk 

Management from the Kansas City Region today. 

They're going to discuss local observations from 

the local FDIC staff.

I'd like to start our committee member 

discussion with Lori Maley, who will be followed 

by the other committee members.

Lori, thank you.

MEMBER MALEY: Thank you, Mr. Davis. 

First of all, I would like to thank you, Chairman 

McWilliams, and all the members of the FDIC, 

Federal Reserve, and State Banking Regulators for 

your leadership during these most trying times. 

Just as employees and customers look to us as 

bankers during uncertainty, so we too look to our 

industry leadership for guidance and insight. 

I'd like to start off by saying timing 

is everything. Had we faced this crisis six years 

ago, the challenges may have been too much for a 
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start-up bank. However, during the first six 

months of 2020, the bank experienced several 

milestones even during COVID. The bank surpassed 

70 employees. The bank also crossed $500 million 

in asset mark in just under six and a half years. 

The bank had reached the critical mass necessary 

to weather this storm.

I think there were two main reasons we 

had this. When we look at this: how do we keep 

our staff and customers safe? And how do we make 

sure our customers are satisfied financially 

during this disconcerting period?

So we have actually approached it from 

several different directions. On the deposit 

side, we removed service charges, including 

overdraft fees and minimal balance fees on 

deposit accounts, so if customers dropped below 

the minimum balance, there were no fees. We 

offered deferred payments on loans to those 

customers who needed some temporary relief. 

These deferments were only for a period of 60 
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days and the bank had approximately 170 total 

deferrals and only four of those customers asked 

for an additional extension of time.

We applied to be an SBA lender. We 

had not been one prior to the PPP program and 

basically it was a product we had not utilized in 

our community. The Plain community actually has 

their own fund where new farmers may apply and 

receive loans. I credit the SBA as I think they 

did a great job as far as the timing in approving

the SBA lender status. However, at that point, 

we were wary a little bit about putting into place 

a product that we really had no experience in 

using. And we were also unsure how the timing 

would be for us to get into the E-Tran system 

since it was something we had not done before.

We looked at the overall situation and 

looked at the risk profile and it was a little 

bit higher than our normal risk. So during this 

time, when all of this was going on, the bank was 

also helping our existing customers. We priced 
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the majority of our term loans in response to the 

market conditions. 

Overall, the bank has done about 407 

total loan modifications in accordance with 150 

basis points decrease in rates. We actually took 

a parallel path while applying for SBA 7(a) 

designation. We also teamed up with a fintech 

company called Kabbage that actually helped us 

participate in the PPP program. This allowed us 

to provide the application process to both 

customers as well as our non-customers. In 

total, we were able to process $7.5 million for 

approximately 100 applicants.

We were able to operate at our 

facilities with full staff from the onset of the 

virus. We closed our lobbies and we assisted 

customers through the drive-through as well as 

walk-up windows. Since our IT platform provided 

us with roaming profiles and many employees were 

already equipped with laptops, we were able to 

maintain full production with both retail staff, 
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as well as our operational employees.

In the Lancaster County market, we 

continue to see growth and strength on the 

residential side, be it construction or 

renovation. Window suppliers are not able to get 

in enough product fast enough and shed builders 

are about six to eight weeks behind in orders. 

We have seen large commercial 

construction restarting after a pause. 

Healthcare and retirement communities are still 

struggling with losses tied to the cost of PPP 

equipment. Restaurants and hotels are suffering 

also. Pennsylvania has scaled restaurants back 

to 25 percent capacity and that includes 

restaurant workers.

We have very little exposure right now 

in this industry, but it is an area of uncertainty 

in a lot of the bank loan portfolios of other 

banks. Airbnbs, on the other hand, they're 

booked solid in the area, so I think people are 

making alternate plans as far as vacationing. 
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The agricultural business is 

continuing as an essential business type during 

COVID. The Plain communities have diversified 

their farms. They may be tobacco farmers, but 

they also raise chickens. Dairy farmers did feel 

the pain as the closing of schools and 

restaurants created a disruption in the demand 

for fluid milk. So the milk margin has recently 

increased and provided some relief to the dairy 

farmers. Real estate collateral values, believe 

it or not, are holding well and there has been an 

increase in pricing based upon the last several 

real estate auctions that we've seen.

The Lancaster area is one of the most 

unique based upon the culture and people who make 

up the community. In this area, our customers 

view disruption in the market as a presentation 

of opportunities. 

From March through June, the bank 

originated $57 million in loans through June. At 

the onset of the crisis, the bank set up an 
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executive dashboard that allowed us to monitor 

any movement or deterioration in key indicators,

which included overdrafts, loans 30 days past 

due, draws on lines of credit, and also deposit 

trends.

Deposits also grew over the past six 

months by $40 million as people pulled money out 

of the market in what I call flight to safety. 

We have not seen a migration to date in our loan 

portfolio. As of June 30th, we had only one loan 

30 days past due with a balance of $27,000. 

We were bracing for a possible uptick 

in delinquencies in the residential loan, the 

rental loans, as we anticipated people may not 

have been able to make their monthly rent. We 

did not see this, nor did we see lessors and 

landlords, who are customers, ask for deferrals. 

I spoke to one Amish customer that has a 50-unit 

building. He stated that there was not one person 

who did not pay their rent. Also, he said units 

were at full capacity.
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While other banks are closing branches 

in areas where there are few options for Amish 

and the Plain community to bank, Bank of Birdin-Hand will be rolling out two more of its 

flagship mobile banking units. Gelt Bus Number

Two and Gelt Bus Number Three, Gelt Bus meaning 

money or cash. So, these two mobile branches 

will create eight additional locations where the

Amish and others in the community can have access 

to banking services within their travel 

circumference.

The new mobile units are larger than 

the original Gelt Bus One and provide additional 

privacy to open accounts, as well as conduct 

business inside the bus. These are anticipated 

to roll out in early September.

During this time, I realized how 

blessed we were to be able really to keep the

bank at full employment. So many people had to 

deal with loss of work, loss of health, and some 

loss of life. We look forward to the remaining 
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part of 2020 with cautious optimism.

We, as bankers, need to stay focused 

on doing what we do best: helping our customers 

and being a staple in the community. Thank you.

MEMBER EDWARDS: Well, good afternoon 

or good morning as the case may be from the 

different participants. I'm Jim Edwards and it's 

great to be with everybody even if it is 

virtually, by virtual meeting today.

As a reminder, United Bank, the bank 

I'm CEO of, is a closely-held 110 year old 

community bank with about $1.7 billion in assets

and we operate in ten contiguous counties south 

of Atlanta.

Chairman McWilliams, if you had told 

me the last time we met, if you could have looked 

into a crystal ball and said “Now, here's what's 

going to happen, we're going to have a pandemic 

and the next time we meet you'll be several months 

into that pandemic. Many of your retail 

customers will be shut down. A significant 
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portion of your employees will be working from 

home.” I never would have believed that we could 

do all that and be in that sort of environment 

and have the bank continue to function and meet 

the needs of our customers, frankly, as well as 

I think we've been able to. But we have, and 

that is really, really encouraging.

You know, we initially closed our 

lobbies, except for pre-arranged customer 

appointments and we relied heavily on our call 

center and interactive teller systems and those 

worked very, very well. And we worked hard to 

disperse our functions, our key bank functions 

geographically, spread people out throughout our 

system. We had to ask our employees to really be 

flexible and really stretch themselves. 

We had all been through plenty of 

contingency exercises previously, obviously, but 

had never done it to this level. And I guess at 

the end of the day, I'm very pleased that I feel 

like the bank is -- we've really built our 
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resilience and that's not just our bank. I think 

our entire industry has certainly done that here 

over the last several months.

But Georgia was one of the first 

states to reopen and we reopened our offices here 

in early June. We installed shields. We required 

masks pretty much from the get go there. But 

things are working out well and lobby volumes are 

back to, probably, I would say 80 percent of what 

they were pre-COVID. So we're pleased to see 

customers coming back in the bank and obviously 

continuing to use our digital channels as well.

We still have about ten percent of our 

employees that are working from home. We've got 

a significant additional number of employees that 

are partially working from home. But overall, 

we've been very fortunate that only about two 

percent of our employee workforce has had the 

virus here.

So, having said all that, it's taken 

a tremendous amount of time for our HR areas to 
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deal with the COVID-related issues and training 

and things like that. And as we look towards 

school reopenings here in Georgia here in the 

next month or so, that's going to present another 

potential problem if schools aren't able to open. 

We've got to figure out how to help employees who 

have young children that they may need to stay 

home, obviously, to school at home or other 

things.

The PPP loan program was a very big 

success in our bank. We closed over 1,400 loans, 

totaling over $113 million. Our smallest loan 

was below $1,000 and our largest loans ranged 

into the several million dollars, but 80 percent 

of our PPP loans were under $150,000. So we're 

really pleased to be able to help so many of our 

small business customers with that important

program and I would echo Lori's comments and say

that, obviously, there were fits and starts with 

the program, but it was pretty impressive to see 

how the SBA stood that program up in Treasury,
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and so kudos to them.

Our volume in PPP loans has slowed 

dramatically, but we closed one yesterday. So,

we are still making new PPP loans.

Deferrals, we had a very liberal 

payment deferral policy when the virus outbreak 

initially hit here. We deferred loans pretty 

much across the board for people that asked, up 

to 90 days. Those loans will come -- or those 

deferrals will come to an end here at the end of 

the month. We ended up deferring about 11 percent 

of our loan portfolio, and we will continue to 

look at those on a case-by-case basis.

But I have to tell you, I'm very 

pleased that it appears that it about 90 percent 

of our loan deferral customers tell us that 

they’ve either started, restarted making 

payments, or they're telling us they're going to 

be able to do that. So that's good and that’s 

pretty much the same whether they're small 

business customers or our mortgage customers. So 
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that is very positive and we're very pleased about 

that.

Areas of the portfolio that give us 

the greatest concern, this is no -- I'm sure this 

is probably similar to other banks, but 

hospitality industry is really hurt in our area. 

Restaurants still have a long way to go and are 

struggling. A number of retail customers are 

continuing to have issues. So, those are the 

three areas that I think we're spending the most 

time trying to assist customers with and 

monitoring from a portfolio standpoint.

Other concerns, margin pressure. With 

the decrease in market interest rates here, we 

are certainly going -- we are experiencing, 

beginning to experience margin pressures that we 

did not budget for at the beginning of the year, 

so we've re-run budgets. I still think the bank 

will have a very solid year, but it will be a 

challenging year due to that margin pressure.

We've also seen other fee areas such 
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as debit card interchange really slow down. 

That's coming back now, but early on that really 

dropped off the cliff when the COVID outbreak 

initially occurred here.

Having said that, our pipelines are 

very, very strong, almost at record levels. New 

home construction is really, really strong and we 

have virtually no stale – and our builders have 

virtually no stale inventory and so it's just a 

really strong housing market in Georgia right now 

and that's exciting to see.

Other positives, deposit growth, the 

bank has grown $200 million or almost 20 percent 

here in deposits year-over-year. So this is just 

incredible growth in deposits and again, for many 

of the same reasons that Lori mentioned earlier 

in her market there.

Our permanent mortgage originations 

are also at record levels, really, really strong 

mortgage volume, both on the refinance and the

new construction or new purchase side. 
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So overall, I'm very pleased to tell 

you that the state of banking in Georgia is quite 

positive, given all that we've been through here. 

Thank you very much.

MEMBER WALKER: Good afternoon or 

morning, whichever it is in your area. I'm Louise 

Walker and I'm the CEO of a $1.6 billion

community bank which is located between San 

Francisco and Sacramento in California.

I, too, want to thank Chairwoman 

McWilliams for her leadership and for the 

leadership of the rest of the FDIC staff.

We are clearly now in a new crisis,

the likes of which we have never previously 

encountered (audio interference) and the 

financial crisis. We are operating under the 

premise that we cannot control everything, but we 

can navigate through anything. So that's what 

we've been doing for the past five months which 

frankly seems a lot longer than five months.

We have remained opened for business 
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for our customers, while 40 percent of our 

workforce is working remote. While we feel good 

about where we stand today and how we've managed 

the impacts of COVID-19, there is significant 

uncertainty in the months ahead. While we have 

low exposures in these areas, we feel the hardest 

hit loan types will be commercial real estate, 

specifically in office and retail. We also expect 

hotels, restaurants, churches, schools, and gas 

stations to be impacted due to the shelter-inplace orders, the reopening, and the subsequent 

closures due to the increases in COVID-19 cases 

in our area. All of these areas have been greatly 

impacted.

Industrial and multi-family sectors 

have been positive in our region, while a decline 

in occupancy, effective rents, and valuation is 

expected, we believe that it will be relatively 

mild.

Agriculture is facing headwinds, 

specifically in the area of nut tree farming which 
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has experienced increased supply because of 

really good weather and low prices. Rice and 

tomato crops continue to be strong. 

Construction is robust with most 

contractors doing well, but some have public 

works projects that may face challenges ahead as 

local governments experience impacts to their 

budgets. And then housing, as Jim just said, is 

extremely strong and resilient in our market 

area.

Back in March, we offered a temporary 

forbearance program for our customers and I want 

to thank again FDIC for your guidance on 

encouraging us to work with our borrowers, which 

is exactly what we have done. Approximately ten 

percent of our loans are on payment deferrals, 

mainly those secured by commercial real estate,

for up to six months.

During the second quarter, deferrals 

have been muted. Some loans have recently come 

off of forbearance and they are making payments. 
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In March, we also provided accommodations to 

further assist our loan and deposit customers 

during this challenging time, including the 

waiver of nonsufficient fund fees, late fees, and 

early withdrawal fees on certificates of 

deposits. We had already offered free checking 

and this will go through August 1st. 

The bright spot continues to be 

mortgage production due to low rates and an uptick 

in refinancing activity, so our staff has been 

very busy in that area because we stayed in the 

business of offering mortgages.

We remain in contact with a group of 

customers and we have since the beginning of March 

to track their resiliency to the challenges 

ahead. Our pipeline has slowed somewhat, but is 

acceptable and we see opportunities focused in 

agriculture, multi-family, solar, and industrial. 

Competition remains strong and pricing continues 

to be aggressive.

We have also increased loan loss 
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provisions and are experiencing margin 

compression due to the recent Federal Reserve 

interest rate reductions and our deposits have 

grown over 30 percent.

I was moved and so proud to see the 

passion put forth by the bank's employees to 

deliver for our clients and communities. We 

participated in the PPP and originated 1,320 

loans, totaling $235 million, impacting 24,510 

jobs. And 28 percent of those loans went to 

underserved communities and 33 percent of the 

dollars to underserved communities.

Prior to PPP, on March 24th, we also 

went through an online banking and mobile banking 

conversion and -- which was quite an experience 

because it was done remote. And we also see our 

mobile deposits have increased 58 percent over 

last year.

In April and May, we had a remote FDIC 

compliance examination. It was the first remote 

examination experience for both of us and we 
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appreciate the willingness of the regulatory team 

to be flexible during the examination.

Today, I'm hoping to learn more about 

CRA modernization for non-OCC licensed entities 

and any additional color that you can provide on 

the recent interagency examiner guidance for 

assessing safety and soundness considering the 

effect of COVID-19 pandemic on institutions.

And then, just as an FYI, California 

is considering pending legislation which is AB310 that would convert the California 

Infrastructure and Economic Development Bank, 

also known as IBank, into a deposit-taking, 

state-run bank. So this is an additional step 

over public banks. Thank you again.

MEMBER NARVAEZ: Good afternoon, 

everyone. Gilbert Narvaez, Jr. I'm President 

and CEO of Falcon Bank. I'd like to start off by 

thanking Chairman McWilliams, the Directors, and 

the rest of the FDIC staff here today for the 

opportunity to participate and serve on this very 
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important advisory committee along with my fellow 

committee members.

Local conditions in this part of the 

nation, our bank is headquartered in Laredo, 

Texas. We conduct business along the U.S.-Mexico 

border down from the southern tip, which is 

Brownsville, and all the way to Del Rio and we 

also extend our footprint into the south central 

region of Texas into the San Antonio and Austin 

metropolitan areas. 

Our footprint services communities 

comprised of predominantly Hispanic population 

and many are located in low-to-moderate 

communities. Laredo is one of the largest inland 

ports of entry between the U.S. and Mexico, so 

international trade and the transportation 

business is very important to us and they're very 

important sectors.

Other forms of entry along the border,

outside of Laredo, serves as additional trade and 

distribution points. The passage of the U.S.-
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Mexico-Canada trade agreement earlier this year 

sealed any uncertainty of trade disruptions, so 

the trade sector and transportation business is 

very strong and continues to be strong even in 

this pandemic situation.

Although the pandemic has affected the 

unrestricted cross-border crossings, the bridges 

remain open for transportation and trade activity 

and other essential travel. The closure of the 

bridges have affected retail, hospitality, and 

restaurant business sectors of those cities along 

the border and the other service areas in San 

Antonio as well, (audio interference)on tourism 

and has also affected the hospitality and 

restaurant business and other retail as well. 

As far as customer and employee 

safety, that has been of utmost importance for 

us. We've established appropriate social 

distancing. We continue to meet the needs of our 

customers. We actively had to close some of our 

bank lobbies because of the hot spots that 
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transpired in our areas. However, our drivethroughs are open -- all of the drive-throughs 

are open and the lobbies are open by appointment 

and that seems to be predominant with the rest of 

our competitors or competition around here.

We have also reduced some lobby hours 

for those that remained open. That also follows 

with what the competition is doing. 

We approximately have one-third of our 

workforce working remotely from home, and we've 

also sent our high-risk employees to work from 

home or to stay home and not risk contracting any 

complications due to the pandemic.

For customer support and community 

support, we've received tremendous positive 

feedback from the PPP loan program. We helped 

out almost 500 small business customers to the 

tune of $35 million. We’ve assisted the local 

food banks and other civic organizations that are 

under relief efforts, so that the customers that 

have been affected or communities that have been 
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affected. And we also have assisted a lot of our 

borrowers with loan modifications as well, 

offering some relief to the tune of about 32 

percent of our loan portfolio in some type of 

loan modification.

I'm happy to report that a good 

portion of them are -- have already returned to 

normal payment behaviors and we expect that at 

least 90 percent of those borrowers will be able 

to come back and continue their normal payments.

We've noted an increase in digital 

channel usage by customers during this time, 

online banking services and products. We've also 

noted that customers' spending habits (audio 

interference) merchant income, debit card usage

and also customers are not spending what they 

used to.

Like the rest of the U.S. regions, 

this pandemic has also affected our unemployment. 

The pre-pandemic unemployment rates were -- in 

the areas that we operate ranged from a 3.1 
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percent to 6.5 percent and now those same areas 

are in the 12.7 to 17 percent range. And our

statewide unemployment rate stands at 13 percent.

Other areas that we -- that have been 

affected are earnings. There has been some net

interest margin compression caused by the zero 

interest rate environment. We had to make 

additional provisions for loan loss to the tune 

of $2 million so far this year. And like I 

noticed before -- mentioned before, debit card 

interchange income has also been reduced. People 

are not spending in the areas that they used to 

spend before.

Liquidity, we have been -- noted an

increase in deposits of up to $100 million. A 

lot of them have to do with the PPP loan 

disbursements and other safe harbor deposits from 

customers and some of the public funds that we 

also hold for our customers.

Capital, while still strong, deposit 

growth has affected our Tier 1 Leverage, but still 
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remains very strong. Credit quality, it's kind 

of really difficult to tell right now. There are

some concerns regarding loan modifications and 

deferrals, and -- but we anticipate that it should 

remain strong as well.

We hope that this pandemic situation 

improves and that we have continued growth, a 

pathway to further opening of the economy and 

that will lead us to a new normal way of 

conducting business and servicing our customers.

That concludes my report. Thank you.

MR. DAVIS: Cathy, you're next. (No 

Response) Okay. We can go back to Cathy. Ken, 

you're on.

MEMBER KELLY: Thanks, Chad. Can you 

hear me?

MR. DAVIS: Yes.

MEMBER KELLY: Okay, thanks, Chad, and 

good afternoon, everyone. I'm Kenneth Kelly. I 

serve as Chairman and CEO of First Independence 

Bank. We're actually a 50-year-old institution 
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roughly right at about $300 million in assets. 

Ironically, we're celebrating our 50th 

anniversary having been one of the positive 

byproducts of the Detroit riots from 1967.

Leadership has always stated that it's 

in the little things, and I think my friend, Jim, 

mentioned it earlier. We have been seeing some 

of the impact of COVID-19 hit us in many areas, 

even ATMs, I think he mentioned. Also just we've

been seeing compression of our margins going 

forward and competition, actually a little bit of 

runoff in facing competition in the current space 

that we have now.

The good news is our wealth presence 

has increased as we went through shelter-in-place 

there in Michigan. And so it's given us a little 

bit of an opportunity to have a broader reach in 

-- with our website.

Like many others, PPP was a component 

we got pretty deeply into and was very successful 

in meeting not only our customers' needs, but an 
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example, through the first round I think close to 

40 percent of our PPP recipients were noncustomers. So it gave us a chance to build our 

brand with some individuals we knew in the 

community and in particular nonprofits. We had 

a chance to build a good rapport with them.

What we're seeing in our portfolio is 

very similar to what I thought maybe Gilbert or 

someone just mentioned a moment ago. We're about 

20 percent in the forbearance and deferral 

process, kind of due to COVID. On the residential 

side, we were right about ten percent. So the 

challenge is kind of this bandwidth of how long 

will we have to shelter-in-place and what's the 

impact that's going to be in our sector.

We've had and been through 

examinations. I want to take a moment to thank 

the Chicago staff on the compliance side. They 

were very helpful. I know it's under the 

leadership of John Henrie there, but Bela Joshi 

and Adam Traverse were very flexible in working 
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with us through the April time frame. When we 

had a compliance exam, we were able to kind of 

push that out, so I just want to thank the staff 

publicly for their help there and we were able to 

get through it.

Also, Gabriel and Kristin have been 

doing some follow up for us so I just want to say 

thank you to the staff in their being flexible 

and working with us kind of during this trying 

time.

On the NBA side, the National Bankers 

Association, there is definitely a desire for 

many to now increase deposits within our 

association after the George Floyd incident. I 

would tell you we have been very successful in 

striking a partnership with the ABA. Many of you 

are very familiar with the ABA. That was actually 

announced and publicized in April. It is 

something we think that will certainly build a 

strategic strength of the National Bankers 

Association in building on the Mentor Protégé
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Program through Treasury, et cetera.

But the real needs of our association 

and minority banks across the country is equity 

capital and it's one of those that I will tell 

you I'm personally concerned about at this point 

in time because as we know, demographics will 

show that minority communities have typically 

taken it a little bit harder during the downturns 

than others. 

The second component of that really is 

revenue generation opportunities, where it makes 

sense, and so that's item number two. And then 

the third is actually deposits. 

I've mentioned the data demonstrate 

that these communities and these banks typically 

face it a little bit harder. One example of 

something that's positive that will hopefully 

ride into this is the partnership that Wells Fargo 

announced back in March, basically noting that 

they were going to invest up to $50 million into 

minority institutions. This is one example of 
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the type of partnerships that we're going to need 

to be sure that this sector is successful in 

meeting the needs of the communities that they 

serve.

A couple of things I'd like to 

mention, kind of policy oriented. One is brokered

deposits. I know there was an ABA article, 

American Banker article, that just came out that 

quoted Chairwoman McWilliams regarding the 

brokered deposits and being sure that, you know, 

asset growth restrictions could be somewhat

applied to that.

I think we need to have a smart policy 

in that regard. There was a good case that was 

built on the People's Bank in that article and so 

I just want to refer to that, if those who are 

listening haven't had a chance to look at that.

And then the second one is CRA reform. 

I know there was a proposal that came out from 

OCC, but we just want to be sure that that's on 

record as one that we're really interested in and 
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being sure that it meets the needs of the bank. 

So the bottom line is I will tell you 

before closing that the George Floyd situation 

really demonstrated inequities and how they 

resonated not only in our country, but around the 

world. And I just want to take a moment to 

reflect upon one of the officers of the FDIC who 

kind of called me out of the blue, Teresa Sabanty, 

out of the Chicago Office. And we had a 

conversation I tell you that resonated very well 

with me. I know I've had a conversation, also 

Madam Chair, with you on some of these topics. 

And I say that because I believe the banking 

sector has a role to play in ensuring that where 

there's an opportunity to create more equity 

across our country, we should be taking the lead 

in doing that. 

And so, I just want to offer to my 

colleagues who sit around this table with me, 

when we think about a capitalistic society, it is 

always based on finances and so our institutions 
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represent the repository for those finances and 

I'm hopeful that we can do that in a way that 

demonstrates equity across the country. So those 

are my closing comments. Thank you, Chad.

MR. DAVIS: Thank you, Kenneth. 

Shaza, you're next. And welcome.

MEMBER ANDERSEN: Hello, thank you. 

Good afternoon, everyone. I'm Shaza Andersen, 

CEO of Trustar Bank. I'm really thrilled to be 

joining this committee and to participate on 

today's call.

And I want to thank Chairman 

McWilliams especially for making significant 

changes in the area of approving de novo banks. 

As it happens, I am a de novo bank. We just 

celebrated one year - our one-year anniversary. 

We were the first community bank to be chartered 

in the Greater Washington Area in over ten years. 

There hasn't been any other bank that has started 

before then. So I really thank you for making 

that happen.
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The Greater Washington Area is a very 

attractive market and we're pleased that, you 

know, after one year, we're currently at $250 

million in assets with three branch offices. So 

the bank is doing well, but like everyone else, 

we did not anticipate a pandemic of this magnitude 

and we really have been able to jump right in and 

try and serve our community which is why we, you 

know, started the bank. 

We have remained open throughout the 

entire pandemic. We’ve followed all the CDC 

guidelines and we gave employees an option to 

work from home, but also to alternate, you know, 

working from the office, but we remained open. 

We never really closed our doors. 

And of course, we jumped in with 

everybody else and we started doing the SBA's PPP 

program. Our little bank was able to approve and 

process over 350 loans in a two-week period, 

generating over $80 million in loans.

Talking about the GW Area, the Greater 
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Washington Area, our area is really a real estate 

market. It's real estate or government 

contracting. We don't have manufacturing. We 

don't have agriculture. So we're very -- a niche 

area I call it, and we were fortunate as a new 

bank that we didn't have any clients or we haven't 

experienced clients that were severely damaged by 

the pandemic. So we haven't really needed to 

offer forbearance to clients and then the PPP 

program helped a lot of people remaining open or 

paying their employees and everything that it 

entails, the CARES Act.

So with that I would say that our 

pipeline has remained healthy. We're doing 

things different throughout the pandemic. We're 

a little bit more careful about the loans that we 

approve, but again, going back, it's a real estate 

market, it's a government contracting market and, 

you know, those two areas have not been hit as 

hard as restaurants, hotels, et cetera, airlines. 

So, but we do have a challenge and it's the 
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margins, the shrinking margins I call it.

But what we're doing right now is 

we're planning for 2021. We're thinking of 

creative ways to try and make up that difference 

somehow, but we're really excited to continue to 

serve the Greater Washington community and be 

able to try and come through this pandemic 

altogether, you know, as healthy as we can.

So with that, I thank you all and I'm 

really looking forward to working with all of 

you. I know I'm a new member on the committee, 

but I'm just really thrilled to listen to 

everybody's story and work with each of you. So 

thank you.

MR. DAVIS: Thank you, Shaza. Alan, 

you're up.

MEMBER SHETTLESWORTH: Chad, can you 

hear me? This is Alan.

MR. DAVIS: Yes. We can hear you. 

Thank you.

MEMBER SHETTLESWORTH: Great. Thanks, 
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Chad. Good morning, good afternoon, everybody. 

This is Alan Shettlesworth. I'm the President 

and COO of Main Bank. We're located in 

Albuquerque, New Mexico. We have one location. 

That one location has made an extremely 

interesting time for us dealing with COVID. Most 

of our folks are able to work remotely, but 

several of the functions in the bank cannot. And 

so that's an area of major concern for me right 

now and will be for at least another year is 

making sure that we can attempt to maintain normal 

business function with realizing that we have one 

location and the exposure for us, or the risk for 

us, if we are to catch the virus inside the bank 

is pretty significant. So that's something we 

certainly have our eye on.

But we closed our lobby door early in 

March and we have not opened it since, and I don't 

know that we will be opening it later this year. 

We're doing appointments only and we're able to 

conduct most of our business through the drive-
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through so that seems to be okay and very very

little, if any, negative feedback from any of our 

customers. So we're able to accommodate them and 

they're being very flexible given the situation.

So going into this environment, so at 

the end of March we were about $180 million in 

total assets. Our focus is small- to mediumsized commercial businesses. We do - we have 

very little in the way of consumer traffic. PostCOVID or now, we find ourselves at $220 million 

in total assets, so we approved about $38 million 

in, I’m sorry, $48 million, I apologize, $48 

million in PPP loans with a total of 275, and so 

that was a real blessing for us to be able to 

focus on that stimulus as opposed to dwelling on 

the potential negative consequences from this 

pandemic. So it was a blessing for us to be able 

to reach out and do that. 

About 30 to 40 percent of the PPP 

customers were brand-new customers that were 

unable to be helped by the larger banks or some 
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of the other banks and credit unions in our 

market. And so we were able to pick up a lot of 

opportunity there. So that's been a real blessing 

and so we started out in March at $180 million 

and now we're about $220 million.

We're fine with that. We hope it's 

short term because that has obviously blown up 

our balance sheet a little bit. Our capital was 

just under nine percent in March and today it's 

about 7.3 percent. And so we have been in contact 

with our FDIC and state regulators in New Mexico 

and they're not putting any pressure on us, 

thankfully, but we're hopeful that we'll level 

out and get somewhere closer to $200 million by 

the end of the year if everything goes according 

to plan.

We have about 24 percent of our 

portfolio in some type of deferment, either 

outright payments or interest-only. Some 

customers are starting to go back to normal 

payments. Some of those customers who were 
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deferred have improved to interest-only and so 

we'll be working with that.

We're in a fairly restricted state 

with New Mexico. The governor there has put on 

some pretty tight restrictions and so many 

businesses still cannot open. Fortunately, we 

don't have a lot of that. We do have some 

customers who still cannot open, and I don't know 

-- I don't know how long you work with certain 

customers in those situations, 90 days, six 

months, for some of these customers, it's clearly 

not going to be enough. And so I'm starting to 

think if there's a reasonable path to get folks 

relief for a year and a half or up to two years, 

I think that's kind of our strategy of looking at 

any loan modifications for folks. I don't want 

to put a band-aid on this. We need to help these 

folks through, and it's going to be a long road.

I am amazed to see though that we are 

actually able to make some money on the one 

percent PPP loans, forget the fee income, just on 
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the interest. We are technically slightly 

positive, and it was interesting that we just 

finished the second quarter of this year of 2020 

was the best quarter the bank has ever 

experienced, although I think there's some fake 

news in there because who knows which of our 

customers right now won't ultimately be able to 

recover.

And so the economy overall is -- some 

customers are doing phenomenally well. I would 

say at least 60 percent of our PPP customers, in 

hindsight, did not need the PPP funds. We didn't 

know that, of course, and neither did they going 

into it. So that's the positive side. The 

negative side is there's 40 percent who really 

desperately needed it and they need another round 

or two and so I'm unclear if those businesses -

the restaurants and hotels and other ones that 

are additionally restricted by our governor, I 

don't know how they get out of this trap. So 

that's our concern is working with those folks 
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for the next couple of years.

So anyhow, in general, we are closing 

some new loans which is exciting, but not a lot. 

A lot of the projects are on hold so -- but we're 

trying to find a way to make loans because I think 

one of the biggest detriments you could have on 

an economy right now is that lenders, like us, 

pull out of the market and just sit it out. So 

we're not interested in doing that. We are 

looking at all options for deals. If we can do 

them conventionally, we will, but if we need to 

put an SBA guarantee on it and do an SBA 504 loan, 

we're happy to do that as well.

So given the situation, all things are 

about as good as can be expected right now. So 

thank you for having me.

MR. DAVIS: Thank you, Alan. Patty, 

you're up next.

MEMBER MONGOLD: Thank you. I'm Patty 

Mongold, President and CEO of Mount McKinley Bank 

in Fairbanks, Alaska. We're right in the interior 
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of Alaska and we have a trade area of about 

105,000 people. It includes two large military 

bases, one communication hub, and a missile 

defense site.

The main economy in Fairbanks in the 

interior is government, followed by oil and 

tourism. And many of our customers are in tourism 

and the current situation has caused a lot of 

stress. We -- they rely heavily on tourists 

coming up from the Lower 48, from other countries, 

and that market is just shut down. Those 

customers, some of them, get up to 90 percent of 

their income during the summer months and, you 

know, the end of July, and they're facing – excuse 

me - many, many cancellations. They have a lot 

of reserves, so they're going to be fine, but a 

second year of this virus would be very 

devastating for them.

One bright spot in our economy is that 

the Air Force base here is expanding and getting 

the F-35 fighter planes. So there's been a lot 
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of construction and a whole lot of activity 

related to that and it kind of has a trickle-down 

effect.

For competition, Alaska has five 

banks, local banks, four of which operate in the 

interior. We have two national banks that operate 

here. We have ten credit unions in the state, 

five of which operate here. We compete pretty 

heavily with the credit unions. They have the 

tax advantages that you're all well aware of. And 

that allows them to pay a higher rate of interest 

than we can pay, so we fight for our core deposits 

pretty regularly with the credit unions.

We also have seen a lot of competition 

with mortgage lenders coming in from online or 

out of state, and they've been able to capture a 

lot of the market because of their marketing 

budgets, but we've been seeing a few of those 

people come back to us because of lack of ability 

to get their lender to call them back or just the 

slow service that they were receiving. So that's 
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been helpful.

We ended 2019 with $467 million in 

assets and $94 million in capital. We've been 

working towards slow, steady growth for the last 

five years, but 2020 has challenged us as our

assets have ballooned to $526 million as of June 

30th. Much of that is due to the coronavirus and 

we have probably about $45 million on deposit 

that's CARES funds, so those will be leaving. We 

made nearly 400 PPP loans for about $40 million, 

so we were able to help our community quite a bit 

with that. 

We continue to deal with the net 

interest margin compression, and we've had a 

substantial turnover in our investment portfolio 

and I'm thinking that 2021 is going to be a 

challenging year.

We've had a difficult time attracting 

qualified personnel. We seem to have -- we've 

been working on succession planning for several 

years and we have a lot of people getting ready 
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to retire. It seems that there's not a lot of 

young people going into the field of accounting 

and finance so that's caused us to have to try to 

look out, work outside the box and we started a 

management trainee program with hopes of being 

able to create our own future accountants.

One of the bright spots for us in 2020 

was our safety and soundness exam which happened 

in February. We had a very collaborative exam. 

We had a great exam team both from the FDIC and 

the State of Alaska, and we came away from that 

exam feeling pretty positive about the direction 

we were headed.

I'd like to thank the FDIC and Chair 

McWilliams for inviting me to be a part of this 

group. I'm pretty excited to be able to join you 

and look forward to future meetings. Thank you.

MR. DAVIS: Thank you, Patty. Fred, 

you're up next.

MEMBER DIBIASI: Good afternoon. 

Thank you, Chad. My name is Fred DiBiasi. I'm 
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President and COO of Valley Central Bank in 

Liberty Township of Middletown, Ohio, in 

southwest Ohio. I want to start out by thanking 

Chairman McWilliams and the staff at FDIC for 

allowing me the opportunity to speak today. I'd 

also like to welcome the new members to the 

committee, and I hope you find the experience as 

rewarding and enjoyable as I have.

To start with, you know, the pandemic, 

I will say this, I don't think I will ever roll 

my eyes at a regulator again when they ask for 

our pandemic plan. We used to kind of wring our 

hands and just kind of act annoyed when they would 

ask for our updated pandemic policy and now we 

certainly understand why as we've put our plan in 

full effect.

We closed our lobbies in March, for 

about three months, and we did reopen in June. 

We are back open for business. It's been quite 

challenging at times; we've had probably 80 to 90 

percent of our staff working from home. We did 
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find out a lot of things that did work well during 

that time and we found that we were very very 

efficient, more so than we thought we would be. 

So that was a positive.

We also, now that our lobbies are open 

I have to say I never in 30 years of banking ever 

thought I would see the day when we would 

encourage customers to come in the bank wearing 

masks. I never thought that would happen in my 

career and that’s where we’re at right now. And 

again, it’s been a complete paradigm shift on a 

lot of levels.

PPP, you know, we participated. I 

can’t say enough about our team at our bank at 

Valley Central. Really, the entire banking 

industry in Ohio, how the entire industry really 

stepped up and became the conduit for the PPP 

program and really put the capital in the hands 

of mainly in our market, the small businesses 

that needed it the most.

We’ll see. You know, the verdict is 
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out on how that’s ultimately going to play out, 

but so far it's been a positive and it's kept a 

fair amount of doors open through that program 

and we were certainly excited to be a part of it.

In the deferrals, we had our fair 

share. We are a $155 million institution. We 

had about a hundred accounts that were on – you 

know, they are on deferral. They are getting 

ready to come off of deferrals. It's about seven 

percent, eight percent of our portfolio that was 

on deferrals. Fortunately, we weren't really 

heavy in CRE at our bank. We did have a fair 

amount of non-owner occupied rental properties 

that were impacted by the COVID crisis that we're 

still kind of waiting and seeing where that takes 

us, as it plays out through the rest of the year. 

We are certainly being aggressive, as 

we can, in increasing reserves just in 

anticipation for what could happen. We haven't 

seen any real detrimental impact yet, but I still 

think that, you know, it remains to be seen how 
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it's going to play out.

On a positive, a really positive note, 

our mortgage banking operation has been robust. 

Our pipelines are full. We are really stretched 

to capacity. I know in our market in southwest 

Ohio, the inventory is low, demand is high for 

housing. Housing starts are up really in the 

Greater Cincinnati Area, the Miami Valley as a 

whole, we're probably up about 14 percent in 

housing, new housing starts. Of course with rates 

being low, the refinancing activity is high. 

Purchases are high. Homes are not staying on the 

market long and in a lot of cases, we're seeing 

bidding wars for houses going well above asking 

price. It's kind of just a strange dynamic right 

now with everything going on. So that's been a 

strong area for us, you know, in terms of activity 

and profitability.

Also, you know, we did have our 

largest employer in the Middletown area. We were 

traditionally a smokestack, now we're a steel 
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town. Our largest employer, AK Steel, did merge 

late last year and you know, obviously, they had 

really no idea what was coming. It sounds like 

the merger provided them with the capital and 

resources, liquidity to get through this crisis 

where they may not have otherwise gotten through 

the crisis without it. So it kept their workforce 

employed and that certainly has helped keep our 

community somewhat propped up.

With that being said, again, thank you 

for the opportunity and again, look forward to 

how things play out the rest of the year. Have 

a great day and appreciate the opportunity.

MR. DAVIS: Thank you, Fred. Mark, 

you’re up next.

(Silence)

Mark, are you on with us? 

(Silence)

Okay, we can come back. Teri.

MEMBER MESSERSCHMITT: Good afternoon, 

everyone. I'd like to thank the FDIC staff for 
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all that you do for us all year long, and also 

for allowing me to be a new participant in this 

group and to be able to contribute to the 

Committee.

My name is Teri Messerschmitt. I'm 

the President, CEO of South Ottumwa Savings Bank 

in Ottumwa, Iowa. Ottumwa, Iowa's located in 

Wapello County. We're located in the 

southeastern part of the state (audio 

interference) the Missouri line, about 75 miles 

west of Illinois. Our bank is about 117 years 

old, and we're currently at 550 million in assets. 

We're headquartered in Ottumwa, Iowa, 

and we're the only community bank in Ottumwa. We 

do also have three other locations. We have 

locations in Albia, Hedrick, and in West Liberty. 

And the combined population really of all of our 

communities is only about 35,000.

Our communities, really, you could 

describe those as we have very little growth and 

stagnant populations. We have a shortage of 
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skilled labor. And basically we have no new 

housing development going on in our communities. 

And as a result of that, we really haven't been 

able to attract new businesses and the job 

opportunities that would really come along with 

those businesses.

The unemployment rate in Wapello 

County has historically ran higher than the state 

average. And as of June, the end of June, we 

were at 9.9, and the state average was around 9.7

percent. 

Our loan-to-deposit ratio is about 65

percent, and that really is the result of a low 

loan demand that we have in our markets. Our 

mix, we're about 50 percent commercial and 

commercial real estate. We've got 25 percent in 

Ag and Ag real estate, and another 25 percent in 

our residential real estate. We have very few 

consumer loans.

And really, our loan quality has been 

very, very good. It's been strong, we have very 
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few delinquencies. We are keeping a close watch 

on a few of our loans now due to the COVID 

situation, but so far we have not done very many 

modifications. I think we've done 40 customers 

is what we've done so far.

Our major competitor in our market is 

the larger credit unions, and there is one credit 

union that does have several locations in several 

of our market areas. And we really feel like we 

can compete with the banks in all of our areas, 

but we really have a tough time in competing with 

the credit unions.

I strongly feel that those credit 

unions should be subject to the same standards 

that the banks are. And I think it's really 

ironic that some of the employees that work for 

these credit unions refer to themselves as 

bankers. 

Agriculture is a big part of our 

communities, and the Ag sector continues to be a 

concern with the continued stress on the 
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commodity pricing -- prices that we're seeing. 

Our concern is mitigated somewhat, a little bit 

by the fact that we do have probably 50 percent

of our Ag customers that do have other off-farm 

income. That certainly helps take a little 

pressure off those commodity prices and makes 

them a little less dependent on their crop income.

And also with basically no growth in 

our community, we really don't have any market, 

very little anyway, market appreciation in our 

land values. So we feel like the collateral 

valuations that we're using with our customers is 

very conservative.

Right now, our crops look really good, 

and we think that we're going to have some really 

big yields. That's barring any unforeseen 

circumstances that we're not aware of yet. We're 

really hoping to hold our own this year in the Ag 

sector.

One thing that we are seeing in the Ag 

sector is a lot of farmers looking at retirement. 
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Some of them are starting to phase out already, 

and many of them don't have family members that 

are interested in stepping in and taking over the 

family farm. So there's going to be a lot of 

farms that are going to be up for rent or there's 

going to be a lot of competition for cash rents 

with other farmers.

And so, you know, with the combination 

of fewer farmers entering the market and some of 

them having difficulty in getting financing to 

get started, I think we're going to see these big 

farmers just continue to grow. And you know, 

they can come in, the big farmers, they can offer 

the higher cash rents and the higher price for 

the purchase of the ground. And I think it's 

just inevitable that that's probably what's going 

to happen.

Net interest margin continues to be a 

concern for our bank. With limited loan demand, 

we have 32 percent of our assets in the investment 

portfolio. And we all know how difficult it is 
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to make money in the investment portfolio right 

now. So that's definitely a challenge for us.

Also, a big change for us, and it's

kept us very busy this year, is we did acquire 

the Peoples State Bank in Albia. Our merger was 

completed as of the end of January this year. 

That merger allowed us to increase our assets to 

over the $500 million mark, so that brought around 

some more challenges for us as well.

We started putting in some of the 

operational and the financial changes that we 

need to do because we crossed this threshold. And 

also, you know, the legal merger took place as of 

the end of January this year, but our operational 

merger is not going to take place until probably 

the end of January, for us, next year.

So based on that, we're going to be 

running two core systems for about a year. And 

there's some additional challenges related to 

that. We knew we were going to have those 

challenges with our purchase of the Peoples State 
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Bank. They do a lot of their processing in house, 

so we knew that was going to add some challenges 

for us. But we really didn't know COVID was going 

to be a big challenge for us as well.

And in response to COVID, in March, we 

decided to go ahead and close all of our lobbies 

and we went to the drive-up situation as well. 

We did offer appointments only within our banks 

as needed for important appointments that needed 

to be made. 

We kept our lobbies closed for about 

nine weeks, and a couple of weeks ago we actually 

had to reopen one of our lobbies again. Or, I'm 

sorry, close one of our lobbies again. And we 

just reopened that lobby yesterday. So we are 

happy to get them all open again and up and 

running.

During this time, we did strongly 

support the PPP program. We have ended up with 

about 300 loan applications right now, and 

totaling about 16 million. So we really feel 
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like we strongly supported our local businesses. 

And we were willing to take applications from

both customers and non-customers, where we have 

competitors in town that would only take their 

bank customers or did not participate in the 

program at all.

I would like to thank the FDIC and the 

Iowa Department of Banking for all the assistance 

they've given us on our recent merger that we've

been working on and for the assistance that they 

offer throughout the year as well.

And you know, I'm also pleased to --

that the last FDIC exam that we had, it was very 

nice to see the bank ratings determined on 

something other than just raw numbers. It's nice 

to see other criteria, factors used, such as 

trends and stability and maybe the entire risk of 

the portfolio or the entire risk of the 

organization overall, rather than just pure 

numbers to take a look at in determining those 

numbers.
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So that's about all I have, and I thank 

you for your time.

MR. DAVIS: Thank you, Teri. Dick, 

you're up.

MEMBER BESHEAR: My name is Dick 

Beshear. Can you hear me all right?

MR. DAVIS: Yes, we can.

MEMBER BESHEAR: Okay, thank you. I'm 

Chairman of First Security Bank in Oklahoma City. 

I first want to thank Chairman McWilliams and --

for allowing me to be a member of the Committee 

on Community Banking. 

I also want to thank Kenneth Kelly. 

Kenneth has been an advocate for MDI banks. First 

Security Bank is a minority depository 

institution. And he's shown great leadership 

through the National Bankers Association. And 

Kenneth, we certainly appreciate your, the time 

you put into that.

First Security Bank has experienced 

the same thing many other of our community banks 
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have. We started the pandemic about 55 million 

in assets. Today we're about 65 million in 

assets. We've had a lot of growth of deposits. 

We've focused on taking care of our community. 

With two lenders we did about 305 PPP loans, for 

about five and a half million in loans for about 

$18,000 per loan, with 84 percent of those going 

to minority businesses or minority individuals.

So we really feel like we reached out 

and took care of our customers like many others 

have not. We also got a lot of new customers 

during this process, and we're very pleased about 

that.

During the shelter-in-place part of 

our COVID experience, we did close the lobby to 

appointment-only. We had our drive-through open, 

and our customers were very accommodating to work 

with us in that manner. But like I said, we did 

do 305 PPP loans, so our lobby and our lenders 

were very busy during that time period.

Even before the pandemic, we started 
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seeing a slow-down in the oil business and with 

layoffs in the oil and gas industry, as well as 

the service companies. We haven't really seen 

that effect. Our business at First Security Bank, 

we've only had about a dozen loan deferrals and 

loan extensions that we've done. 

And by and large, our loan portfolio 

is performing all right. And we feel very good 

about kind of where we're at. We've communicated 

with all of our customers. Most of our customers 

feel like they'll be able to navigate the pandemic 

and hopefully come out on the other side in good 

shape.

That's really all I have right now, 

and I'll conclude my remarks.

MR. DAVIS: Great, thank you, Dick. 

Tom.

MEMBER LEAVITT: Hello, everyone, good 

to see you, kind of. We're hanging in there in 

Vermont. We have had less of the health effect 

in terms of the pandemic outcomes here than the 
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economic effect. And that's partly due to the 

health protocols and safeguards that Governor 

Scott has put into effect.

He's been managing the crisis well 

with Dr. Mark Levine, the Commissioner of Health. 

So we have all cooperated up here for the most 

part in the Green Mountains and the Champlain 

Valley. So we've had one of the lower incidences 

of outbreak in the country, and I think we 

surpassed a full month without a death here just 

in the last number of weeks.

So that doesn't mean that we're out of 

the woods. It does mean that we've had a slower 

reopening perhaps than some. And due to that, we 

have experienced some real economic slowdown. I 

talked to you last year at this time about having 

a 2.1 percent unemployment rate, which was the 

lowest in the nation at the time. 

We are now at 9.4 percent, but we have 

visited high teens early in this crisis as the 

hospitality, lodging, food services industries 
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emptied out. They were the first to be hit, 

they're the last to be ramping back up. And we 

are one of the maybe top five or ten states in 

the country in terms of our dependence on out-ofstate visitors. 

So there's only so much food we 

Vermonters can eat ourselves. I've done a pretty 

good job of it with my family. And there are 

only so many staycations that we can engage in. 

But we really need traffic from around New England 

and the Northeast and other parts of the country, 

and Canada, importantly.

Like Gilbert on the northern end of 

the country, I'm dealing with a border that's 

closed for the most part. And so some of that 

traffic into the Chittenden County and other 

parts of the state, we've not seen. So we're 

looking forward to welcoming our Canadian friends 

back at some point.

So we're working our way back. The 

housing sector is strong. Some of the industrial 
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sector has continued to crank along as they've 

had activity. The construction sector's come 

back slowly but starting to really pick up with 

the heart of the season now. They were allowed 

to begin with lesser crews and then ramp up.

We've seen a lot of PPP activity, 

particularly in April. We haven't seen as much 

with round two. We got a lot out to help our 

communities. We're approaching 1,000 PPP loans 

altogether. We, for those of you that are new, 

we're a 1,170,000,000 , give or take. That has 

ballooned some during this first half of 2020. 

And we're 153 year-old mutual in the heart of 

Vermont and up in the Champlain Valley in 

Burlington area, where I'm from.

We've also had the deposit inflows 

that come with the state and the federal relief 

programs and benefits. And those are sticky right 

now. We are a little concerned about when these 

loan deferments and modifications and the PPP 

funds and the idle funds start to, what we call 
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up here in maple sugar country, evaporate or sugar 

off. That what's left in real syrup for those 

businesses that they can really nourish 

themselves back to full health with. We're not 

certain.

We are a bit encouraged, like others 

on this call, that some of those deferments are 

not seeking a second round. So we're hopeful 

about that. We also are feeling relatively good 

about our consumer base, that they at this point, 

given some of the programs that they've had the 

benefit of and that they have exhibited in terms 

of their deposit levels here at the bank, that 

they're hanging in there right now.

So our unemployment rate's now at 9.4 

and we're look to get that back down into the 

mid-single digits. But we don't know if that's 

going to happen this year. So that will bring 

casualties, it will bring fallout. We have upped 

our provision by a couple million dollars in the 

second quarter. 
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We took a loss, the first one since 

I've been here over six years, in the month of 

June. But we're also offsetting that with some 

PPP fee income that we'll be continuing to onboard 

over the remainder of the year.

We're in a phased resumption of 

activities here at Northfield Savings Bank. We 

returned to our strategic plan, NSB 2020. And 

we've got four phases essentially, three that 

take us through the third quarter of this year 

and then one big phase that goes nine months, 

fourth quarter through the second quarter of 

2001.

And the reason for that is that we 

delayed our core conversion project, upgrading 

from Jack Henry CIF 20/20 to Jack Henry 

Silverlake, that was scheduled for October of 

this year. Now it will be May of 2021. So we 

essentially pushed our strategic plan out by six 

months, and we'll be building a new plan to take 

us into the heart of 2021.
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I just want to close by thanking 

Chairman McWilliams, Director Gruenberg, Doreen 

Eberley, and the whole team for the way you've 

listened to us in these forums. I came on in the 

May meeting of 2019, this is my fourth. We missed 

the spring meeting this year, I look forward to 

wrapping up in the fall. 

But the way that we've introduced 

issues to this committee and the way that you've 

responded each time gives me great encouragement. 

It's really been something that our board and our 

management team have appreciated. So I look 

forward to hearing more about those updates that 

you're bringing to us today, and I'll get off the 

mic here in just a second to allow others to wrap 

up so we can get on with that part of the program.

I do want to put in one item today, 

and that is we topped the billion dollar mark in 

December of 2018. That was scheduled, we were 

anticipating that. But we have now had six 

quarters of FDICIA activity. We've got the 
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control regime in place. We were preparing for 

that a couple years in advance. We have our 

external auditor reviewing and auditing those 

controls. We're not getting a great deal of 

compensatory utility from the 100,000 or so that 

we're spending annualized on that exercise, as a 

slightly more than a billion-dollar institution. 

We certainly would be grateful for 

consideration relative to raising the threshold 

for the requirement for the external examination 

of those controls to continue. But we'll live 

with whatever the outcome is there. So I look 

forward to the rest of the day, and thank you for 

giving me this time.

MR. DAVIS: Thank you, Tom. Sarah, 

it's your turn. 

(silence)

Sarah, I see you there, maybe you're 

having some difficulties. I'll come back to you 

shortly. Bruce.

(silence)
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MEMBER KIMBELL: Good afternoon. Can 

you hear me now?

MR. DAVIS: Yes, we can hear you, 

Bruce.

MEMBER KIMBELL: All right, wonderful. 

Thank you, sorry for that. I'm Bruce Kimbell 

with First Community Bank in Clinton, Kentucky. 

We operate a $290 million bank located in 

southwestern Kentucky and northwest Tennessee. 

We are primarily an agricultural bank, 

and very much like the folks from earlier from 

Iowa, we too have seen a wonderful growing season 

for our crops this year. Although prices are 

somewhat depressed, we, it's always better when 

we can at least have something out here to 

harvest. And so at this point in time we've got 

a wonderful crop, and that's boding well for the 

Ag industry in this part of the world.

We presently are servicing about 150 

PPP loans that we completed. Being in a rural 

area, that particular program was pretty limited. 
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That 150 loans is about $6 million. So you can 

see on the average, about $40,000. I think our 

largest loan was about 250,000. So that program 

very beneficial, but just not a lot of need.

We've seen really very few deferrals 

come our way, deferral requests. It's been very 

limited. Probably in our bank, probably less 

than 25 of our customers have asked for a 

deferral. Again, being in a very rural area, 

we've been somewhat insulated to our CRE 

exposure, really next to nothing. And so because 

of that, that bodes well for us during this time.

We do continue to see though a lot of 

activity within our residential portfolio here 

lately with a lot of interest in either 

refinancing or purchases too. Continue to see a 

lot of individuals move into our particular area 

looking for a more rural lifestyle. 

And so I think I spoke to that at our 

last committee meeting. It seems like we have 

had an overabundance here lately of individuals 
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moving out of more urban/suburban settings into 

a rural area. And we're very appreciative of 

that, that's been very strong and really helps 

kind of shore up our real estate market and we've 

been very pleased with that. So we hope to 

continue to see that happen.

Our loan demand within the Ag side has 

been strong too. We opened two new offices in 

Tennessee in the last six months. And so because 

of that, we've continued to see strong loan demand 

within that particular area. 

And that's pressured us a little bit 

as we've grown. I said we're about 290, 295 

million. And so because of that, that does keep 

us looking to make sure that our capital levels 

are such that we can be well prepared for any 

downturns that might come our way.

So we continue to work with all the 

regulatory folks. We had actually just completed 

both our safety and soundness and our compliance 

exam at the end of 2019, in early 2020 before all 
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of the COVID situation arose. And we're thankful 

to get that behind us. 

Our lobbies are all open at this point 

in time. We did close them for a few weeks back 

at the, I believe it was in the April, and we 

stayed closed probably for four or five weeks. 

And then those have all reopened now and 

everything seems to be going very smoothly. 

Although I will say a lot of our 

customers have chosen to continue to take care of 

their business transactions through the drivethroughs and to limit their, you know, their lobby 

presence. And so that's worked out quite well.

Kentucky and Tennessee have had a 

little bit different reaction as far as the COVID 

part. Tennessee's been a little bit more open 

during all this time and that's really helped us, 

as a lot of the businesses have -- were able to 

maintain their presence and we were able to work 

with them.

We continue to see a lot of our 
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commercial clients who we pick up look for a 

community bank. And so we try to fill that niche 

and really feel that it has played to our benefit 

to continue to be there. And so for those 

individuals that are still looking for the 

personal attention that a community bank can give 

them.

I want to thank Chairman McWilliams 

and all the FDIC staff for having us, and I 

appreciate it, and look forward to hearing 

everyone else's comments. Thank you.

MR. DAVIS: Thank you very much, 

Bruce. Bruce -- Keith, you're up.

MEMBER EPSTEIN: Thank you, Chad. It 

is an honor to continue serving as a member of 

this committee. I certainly appreciate this 

opportunity.

Roxboro Savings Bank is a 97-year-old 

mutual. We have $245 million in assets. I guess

as a point of reference, we were at $224 million 

in assets when we last had an opportunity to meet 
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in person in the fall of last year.

Person County, where we're located, 

has a population of 40,000 and counting. We are 

situated directly north of Durham County within 

the Durham-Chapel Hill MSA. In recent years, our 

business has really benefitted from rapid growth 

in the triangle region and steady economic 

activity within the rural markets that we serve.

Resilient is the best way to describe 

our customers as they continue to persevere in 

spite of the COVID-19 crisis. In response to the 

pandemic, we have implemented a payment deferral 

program, waived late fees, and eliminated time 

deposit early withdrawal penalties. The 

percentage of our portfolio in deferred status 

peaked at 7.3 percent in May and has retreated to 

a modest 2 percent at present.

The safety of our staff and customers 

has been our top focus, our top priority. We 

have modified operations to promote social 

distancing while still delivering a full range of 
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products and services. As many of you have stated 

earlier, the use of our online and mobile products 

has never been greater. 

Launching our online mortgage 

application portal in January has proven 

especially fortuitous, given the demand caused by 

the drop in rates to historically low levels. The 

majority of our unprecedented year-to-date 

mortgage production has been concentrated in 

secondary market eligible loans, refinances in 

particular. Volume through the first half of 

2020 is up 83 percent over last year, and revenues 

have nearly tripled over the same period in 2019.

We retain servicing on all of the 

mortgages we originate. In addition to loans 

held in portfolio, we do service loans for Fannie 

Mae. We are currently servicing over $63 million 

in loans sold on the secondary market, with 

retained servicing. And that is a 15 percent

annual increase in the size of that segment of 

our portfolio.
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Reducing housing costs for our 

customers has been rewarding on many levels. 

Deposits have surged this year. Unexpectedly, we 

have achieved 878 percent of our budgeted deposit 

growth. Finding ways to deploy this surplus of 

funds in a manner consistent with our mission and 

business model has been challenging.

One successful effort has been 

offering unsolicited refinance proposals to local 

governments and related entities in an effort to 

help them reduce the cost of their existing debt. 

This initiative has resulted in nearly $4 million 

in new loans. And by our projections, we'll 

deliver combined interest savings of nearly 

$500,000 over the life of these new facilities, 

helping to minimize some of the impact of loss in 

sales and use tax revenues in our communities.

Margin compression, I know I sound 

repetitive here, but margin compression, as so 

many of you have stated before me, is a pressing 

concern. It's our biggest concern long-term, 
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aside from the immediate concern of the pandemic. 

The Fed's move to the zero lower bound 

in March adversely impacted our asset-sensitive 

balance sheet. Mortgage loan originations, and 

to a lesser extent securities gains, have more 

than offset the loss in interest income in the 

near term. But we know that the decline in our 

spread will eventually result in lower profits.

Gathering low-cost deposits --

continuing to gather low-cost deposits, 

solidifying consumer relationships by offering 

responsible assistance through this crisis, and 

strategically investing in technology are the 

foundations of our plan to position the bank for 

success going forward.

Credit quality, I'm pleased to report, 

at our bank and really amongst all of our North 

Carolina peer banks, for the moment anyway, is 

excellent. Last quarter, we suffered no losses, 

made a qualitative adjustment to our allowance at 

the end of June due to deteriorating economic 
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data, especially unemployment that spiked at over 

11 percent in May. The resulting provision was 

double the amount we had set aside the prior 

quarter, which was itself larger than what we had 

set aside in quarters last year and back to 2018.

Our customers are resilient, as I 

mentioned, but we do anticipate a rise in problem 

loans if the pandemic persists beyond the fall. 

The interagency guidance on loan modifications 

issued in March allowed us to quickly implement 

our deferral program, and the subsequent guidance 

issued in June regarding safe-and-sound credit 

practices as the pandemic continues to unfold 

gives us confidence that we can constructively 

work with borrowers to minimize loss and continue 

to be a reliable source of credit in the 

communities we serve.

I applaud Chairman McWilliams and 

everyone in the regulatory community for being so 

proactive to provide supportive regulations such 

as this guidance. It's invaluable, it's 
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appreciated, and it allows us to focus not so 

much on how will this be interpreted during our 

next exam and just focus on our customers and how 

can we provide them the most relief possible.

Mission creep by credit unions and the 

uncertain impact of GSE reform upon smaller 

mortgage providers and originators such as 

Roxboro Savings Bank are potential threats to our 

business. We are actively participating in 

advocacy efforts to address these concerns.

Thank you for listening, look forward 

to the rest of the program.

MR. DAVIS: Thanks, Keith. Mark, I 

believe you're back on, so you're up.

MEMBER PITKIN: All right, can you 

hear me okay?

MR. DAVIS: Yes, we can, thank you.

MEMBER PITKIN: Wonderful. Sorry I 

missed my turn, I was having some technical 

difficulties, but I believe I've got it taken 

care of. So good afternoon and morning, everyone, 
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my name is Mark Pitkin, President and CEO of Sugar 

River Bank in Newport, New Hampshire. 

As others, I wish to thank the FDIC 

and especially Chairman McWilliams for her 

refreshing and positive outlook on community 

banking, and also for providing the opportunity 

to learn and share about community banking across 

the country.

Sugar River Bank is a $335 million 

dollar mutual institution. We've got six 

branches spanning from the west to the central 

part of the state. And I'm pleased to report, as 

some others, that we are celebrating an 

anniversary this year. It is our 125th. 

So unfortunately we had big plans, we 

had a number of customer appreciation events, 

which we've had to put on hold due to safe 

distancing, but we are doing our best to make 

sure we incorporate our customers in other type 

of social distancing events.

We are very fortunate that New 
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Hampshire has fared very well in comparison to 

other states in the U.S., and our unemployment 

levels, while certainly still elevated, have 

dropped significantly since the beginning of the 

pandemic. Our restaurant and lodging 

establishments were hit the hardest, as in most 

places of the country, while most local 

manufacturers continued to operate successfully 

as essential businesses.

Multifamily properties in our area 

have also continued to successfully navigate 

through the crisis, with little if any disruption 

in rent collections. We, like most banks in the 

state, closed our lobbies and operated out of our 

drive-up facilities and through electronic means 

for several weeks. Employees and customers alike 

were very supportive and understanding.

Many employees were relegated to 

working remotely, which required a very short 

learning curve and much support from the staff to 

enact our pandemic plans. We did reopen our 
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lobbies on June 1 based upon the Governor's 

allowance to do that and we now require masks in 

all public areas. All but a few employees are 

now back on site and all is going well.

It is worth mentioning that during the 

early stages of the pandemic, the bank was 

scheduled for both a risk and a compliance 

examination and we concluded the last part of 

those two examinations on June 30. So I would 

say that our executive team was very pleased with 

the flexibility, understanding, and the support 

of both examination teams. We were all in the 

same boat learning how to successfully conduct an 

examination 100 percent remotely.

I am very pleased to report that the 

process went surprisingly well, on both sides,

and was a great learning experience for all. I 

congratulate both my staff and that of the EICs 

for their monumental efforts during a once-in-alifetime examination event.

As most FIs would attest, our 2020 
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business plan drastically deviated from its 

original course with the onset of COVID-19. And 

while net interest margins have contracted more 

than projected, the bank has witnessed one of the 

largest increases we have ever seen in our loan 

pipeline in nearly ten years. So as of June 30,

we nearly surpassed the closed mortgage volume 

for the entire year of 2019.

The volume in most areas of New 

Hampshire has been bolstered by a strong 

purchase, refinance, and construction market. 

Residential construction lending in particular 

has been very strong as real estate values are 

increasing throughout our markets, and new 

housing inventory remains low.

On the commercial side of the house, 

I am pleased to report that 23 percent of all 

loans closed through June 30th were PPP loans 

granted to small local businesses. With only two 

commercial lenders and certainly the help of many 

others throughout the organization, we were able 
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to originate 10.3 million in PPP loans to 240 

small businesses, saving approximately 1,420 

jobs.

As a community bank, there was no loan 

request that was too small. Our average loan was 

43,000, and the range was from a high of 578,000, 

to as little as $256. Excuse me. Despite the 

onset of the pandemic and concerns of struggling 

borrowers, the bank's asset quality remains 

strong. 

While available to anyone in need, the 

bank granted a total of 50 loan deferrals, 

representing 5.3 percent of the total loan 

portfolio, many of which have come out of 

forbearance successfully. Adversely classified 

assets to capital, nonperforming assets, and 

delinquencies remain at historic lows, which is 

indicative, luckily, of most banks in New 

Hampshire. 

We continue to successfully partner 

with fintechs -- Bank Alliance and Lending Club, 
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to name a couple -- to diversify our asset base,

and we are consistently looking for additional 

partnerships to strengthen operations and 

customer relationships.

The bank also experienced 

significantly more growth in deposits than 

projected, due to the consumers or more consumers 

staying home and cutting back on spending and the 

inflow of PPP loan deposits and stimulus funds. 

Total deposits increased by 15 percent

through June 30, which represented approximately 

a 14 percent variance from budget. With the 

inflow of anticipated deposits coupled with a 

strategy to bolster our liquidity to historic 

highs to prepare us for the pandemic and beyond, 

our cash balances grew by 240 percent from yearend 2019.

Despite the growth in the balance 

sheet over the last few months, the bank's 

capital, as well as most banks in the state of 

New Hampshire, remains very strong, and we are at 
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approximately 14 percent.

Continued challenges for the bank 

include recruiting talent in certain roles, 

primarily lending and investment services; 

keeping up with increased complexities of cyber 

security; and managing the acquisition and 

development of new products and services.

In conclusion, while the circumstances 

surrounding the pandemic created an operational 

environment unlike anything we have ever seen, 

the bank has successfully persevered due to our 

amazingly resilient staff and our supportive 

customers. So with that, I'd like thank you all 

for allowing me the opportunity to share what's 

going on at the bank and in our market area.

(silence)

MEMBER GETZLAFF: Can you guys hear me 

this time?

MS. GRECO: Hi, Sarah, yes, we can 

hear you.

MEMBER GETZLAFF: Okay, perfect. I'm 
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Sarah Getzlaff, I am the CEO of the Security First 

Bank of North Dakota, a $200 million family-owned 

bank in Bismarck, North Dakota and a few 

surrounding very rural communities.

First off, I'd like to thank Chairman 

McWilliams and everyone else from the FDIC for 

the opportunity to be on this committee. As 

everybody has mentioned, this spring has really 

just been a whirlwind for all of us. 

I went to a conference in Florida at 

the beginning of March, and I flew back the same 

day the Governor of North Dakota shut down 

schools. And so on that day I added teacher to 

my resume for two elementary children. And three 

days later, we closed our lobbies and made 

decisions faster than we’ve ever made them before 

to get everything up and running and functioning 

so we might be able to assist our customers just 

as before.

And five days after that, we started 

our very first fully remote FDIC exam. Throughout 
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the exam, every single person we worked with at 

FDIC was absolutely amazing. They were flexible, 

understanding, respectful of our time, and so I'd 

really like to thank every one of you for making 

that process so flexible. I know that the tone 

was definitely set at the top, and all of you had 

a big part in that.

We went straight from our FDIC exam 

into PPP loans, with all of us working around the 

clock to authorize and fund PPP loans in addition 

to home schooling and taking on all sorts of other 

roles that we didn't even know existed at our 

bank. 

But as Alan mentioned earlier, going 

through this pandemic process and being able to 

focus on helping keep our customers' businesses 

alive through PPP loans really pulled our team 

together and it was really kind of a silver lining 

that they gave us something else to focus on.

We funded about $8 million in PPP 

loans. We didn't turn anybody away, customer or 
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not, we funded every single loan. We also 

processed about $17 million in loan deferral 

requests. A lot of those probably didn't need 

it, but they were just trying to be proactive and 

felt that that gave them peace of mind. It was 

kind of the least we could do, and most of them 

will pull through just fine at this point.

At this point, we are totally 

reopened. We reopened on May 18. And North 

Dakota in general is really open for business, 

but we are just starting to see kind of a peak 

here. Today was our biggest day of cases in this 

county so far, so I guess we'll see what happens. 

But, I'm honestly really hoping I 

don't have to add a kindergartner to my home 

schooling roster this fall. So fingers crossed 

that schools can open, and I think a big part of 

that is that if schools can open somehow, then 

parents can get back to work and our economy can 

grow stronger overall.

Since year-end, we've grown $12 
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million. Eight million of that was from PPP 

loans, but we honestly already have enough in our 

pipeline to replace that 8 million, and this 

growth has been really surprising for us, 

partially because of the pandemic, but also 

because we're in such a hyper-competitive market. 

We've had a lot of financial 

institutions move into our area, and we've seen 

some really, really low rates. We just saw a 

credit union offer one of our customers a 1

percent fixed-rate loan on a million dollar 

commercial building that they were actually in 

the process of foreclosing on. I mean, that's 

something, along with the pandemic, that I never 

thought we would see.

And with all of this local pressure 

that we have on rates and the uneven playing field 

that several have mentioned already with credit 

unions and farm credit services and their tax 

advantages, the one thing that I would like to 

ask for help with today is an expanded moratorium 
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on the ILC loophole. 

As you all know, as a bank we’re not 

allowed to mix commercial activities and banking. 

In exchange for that, we have FDIC insurance. We 

are also very heavily regulated. 

And I guess to think that a company 

like, you know, Walmart back in the day, but now 

I think it’s Rakuten is how you pronounce it, the 

Amazon of Japan, is trying to go through the ILC 

process. And it just seems unfair, but also just 

unthinkable, especially in a time when we’re 

already dealing with a pandemic. And if feels 

like everything we’re doing has additional risk 

and our commercial customers are at risk. It 

just seems like the wrong time to even consider 

adding an ILC. And so, I would like to ask for 

the FDIC to consider doing another moratorium on 

ILCs until Congress can take action and hopefully

- hopefully they will take action.

At one of the very first ICBA

conventions I ever attended, I remember being in 
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this giant ballroom with thousands of people, and 

they were standing on their chairs clapping when 

Walmart withdrew their application and an initial 

ILC moratorium was put in place. But I remember 

thinking, oh, it's crazy that all these people 

get so excited about a piece of banking 

regulation. 

But I'm honestly hoping, A) that we 

can get together in a room with thousands of 

people again this spring, and that B) we’ll all 

be standing on our chairs cheering for this ILC 

loophole moratorium.

And with that, I would just like to 

thank you again for your time.

(silence)

MS. OLESIUK: Hello, everyone, this is 

Shayna Olesiuk from the FDIC, and I will just 

briefly summarize some of our views. I think my, 

my main reaction to hearing all of you is that 

our views are very consistent with much of the 

information that was shared today. 
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Clearly, we are in a recession and 

have seen significant job losses across the 

country. We saw 23 million job losses in March 

and April of this year and we have seen some 

recovery in May and June, primarily in the leisure 

and hospitality sector as well as retail trade.

However, despite those gains, we are 

still in a net loss position for the economy 

overall and across industries. So we certainly 

have considerable concern about the state of the 

economy and the elevated unemployment rates that 

many of you mentioned as well today.

Looking across the regional data, the 

job losses have been concentrated in the 

northeast, where the virus hit first and was 

significant in the early days of the pandemic, as 

well as tourism-concentrated states such as 

Florida, Nevada, and Hawaii, as well as the Great 

Lakes region, with the hard-hit manufacturing 

sector.

So, as far as what consensus forecasts 
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say for what we expect throughout the rest of the 

year, many economists are saying that the 

recession, at least from a technical standpoint, 

is already over and we'll begin to see hiring 

resume and output beginning to grow in the second 

half of the year. Of course, there is still 

significant uncertainty and the possibility of 

another wave of the virus and continued economic 

weakness.

So with that, I will turn over the 

floor to Frank Hughes and John Jilovec, who will 

discuss some of our key risk areas, commercial 

real estate, and agriculture.

MR. HUGHES: All right, thanks, 

Shayna. Can everybody hear me?

MS. OLESIUK: Yes.

MR. DAVIS: Yes, we can hear you.

MR. HUGHES: Okay, great, great. So 

I'll go, I know we're well over time, so I'll go 

pretty quickly. Just to echo Shayna's comments, 

I have a lot of the same comments that we're 
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hearing from the bankers around the country. 

And just by way of background, the New 

York region covers states from Maine to Maryland. 

We also supervise banks in the District of 

Columbia, Puerto Rico, and the Virgin Islands.

And as Shayna mentioned, the New York 

region really was the center of the COVID-19 

outbreak, which significantly impacted our 

institutions. We've had numerous temporary 

branch closures throughout the region, and not 

surprisingly, the states in the New York region 

were among the first to close, affecting 

consumers, small businesses, retail, hospitality,

etc., which are important customer lines for our 

banks.

Prior to the pandemic, the region had 

higher concentrations of commercial real estate 

than other parts of the country, with 

concentrations especially prevalent in the 

multifamily sector. And banks in the New York 

region also shared less on balance sheet 
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liquidity.

So as a result, a lot of our 

supervisory activities really were focusing on 

risk management practices related to both those 

areas during our exams, visits, and outreach 

events. 

So not surprisingly with respect to 

CRE, we are seeing some weaknesses in the market. 

Although overall rent collections did improve in 

June and July from May lows, there are still areas 

showing material weaknesses, particularly, as 

previously mentioned, in the retail and 

hospitality sectors.

The industrial space segment is also 

performing well, with close to 100 percent of 

typical rents received in July. Conversely, the 

commercial mortgage-backed security delinquency 

rates for lodging and retail sectors not 

surprisingly increased in June, with delinquency 

rates in excess of 15 percent for these sectors.

So just as a quick example of the 
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pandemic's impact on the hospitality sector, here 

in New York City the hotel occupancy rate was 

recently, was 36 percent recently, significantly 

below the 89 percent level we saw for the same 

period last year. But in the good news, up from 

the low of 18 percent that we saw early on in the 

pandemic.

On the multifamily front, I mentioned 

we do have concentrations in our region of 

multifamily. We are seeing some signs of 

weaknesses. Full rental payments have declined 

from last year's levels a little bit, and they've 

declined even from last month's levels. 

So even though the declines are small 

or not material at this point, I think for 

properties with lower initial debt service 

coverage ratios, these differences could be 

material and we'll have to watch that trend too 

to see what happens on the multifamily front.

And additionally, the community 

housing improvement program members, which 
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represents owners and operators, more than 

400,000 rent-stabilized units here in New York 

City, said that almost 25 percent of New York 

City's rent-stabilized renters did not pay rent 

in June. And then furthermore, more than 10,000 

apartments were listed for rent in Manhattan in 

June, an increase of 85 percent over last year. 

So a significant increase.

Now, this stat is interesting. The 

official vacancy rate hit a record 3.67 percent, 

so still small, but still a record. But we're 

hearing that brokers are saying that those 

vacancy rates may be far higher in some other 

buildings in the New York City area. 

And definitely seeing strong incentive 

for renters to stay or to move into buildings. 

And anecdotally we're hearing that residential 

real estate outside our major metropolitan areas 

here in the northeast are in high demand, which 

I think aligns with some of the comments that 

were made earlier.
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I mentioned liquidity previously. 

Just confirming what we've heard from many of 

you. Deposits have increased significantly, 

whether that's due to stimulus checks, increased 

savings, decrease in consumer spending, PPP 

funds, etc., we're certainly seeing liquidity 

across the region as a whole increasing.

So really in general, our banks 

entered the recession here in the New York region 

in overall strong condition, with increasing 

levels of capital, strong asset quality metrics, 

and satisfactory risk management practices.

Earnings have always been a challenge 

for banks in the New York region. We've 

historically had lower than national median 

return on assets and net interest margins. And 

much like many of you have already said, we're 

seeing earnings continue to feel pressure from 

provisions for credit losses, both in the first 

and second quarter, and net interest margin 

compression.
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So really I'll just sum it up and turn 

it over to John. But so in summary, you know, 

the initial outbreak did have a significant 

impact on the region and we're continuing to see 

that impact in the industry and metrics related 

to particularly CRE and multifamily vacancy rates 

and performance.

As I said, liquidity levels have 

actually improved across the region, while 

earnings remain a challenge. And as noted, banks 

in general here in the New York region are 

entering the period of economic uncertainty with 

strong asset quality metrics, increased capital 

levels and satisfactory risk management 

practices.

So with that, I'll turn it over to 

John Jilovec, who's the Deputy Regional Director 

for Risk Management Supervision in our Kansas 

City region.

MR. JILOVEC: Thank you, Frank. The 

story with agriculture is not limited to the 
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pandemic and 2020 and what has occurred in 2020. 

Agriculture enjoyed what we refer to as a super 

cycle that really ended in 2013. 

So the decade between -- excuse me, 

2003 and 2013 is that period where it was very 

prosperous for the Ag sector. So they really 

didn't experience the last downturn in the 

economy that began probably in 2007 and was more 

or less concluded by 2012.

As I said, it ended in 2013, and that's 

when commodity prices have been, really took a 

turn for the worse. And they've been depressed 

since then, with periodic spikes that savvy 

marketers were able to take advantage of. 

But overall, it's been a depressed 

overall commodity market for whether it be wheat 

or soybeans or corn or cattle or swine, it's been 

depressed really in almost all those markets 

generally speaking since the conclusion of 2013.

The pandemic has added challenges to 

almost all areas of agriculture in my part of the 
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country, which is basically the upper Midwest. 

And some of the issues the pandemic has thrown at 

us are supply chain disruptions, restaurants, 

schools, and other commercial enterprises that 

would order their product in bulk. 

So they would order, you know, a whole 

side of beef or an entire hog, and it's packaged 

as such. It was not meant for the retail 

distribution channel. And so the packers had to 

really, or processors had to figure out how to 

revise their supply chains to get more of that 

product to the grocery stores instead of to 

restaurants and commercial enterprises, 

restaurants, etc.

Additionally, the processing plants 

were hit with various COVID-19 cluster infections 

whereby some plants had to close periodically to 

clean the plant and to basically re-engineer 

their operation to create more space between the 

employees. 

At one point, beef and pork processing 
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was down 40 percent year over year. And so,

really, there was a greatly diminished processing 

capacity that was due to either plant closures or 

because of some of the re-engineering where you 

couldn't have as many people in the plant at one 

time.

Additionally, the reduced gasoline use 

that occurred throughout the United States and 

throughout the world, I guess, had an impact on 

agriculture because 40 percent of U.S. corn is 

used by ethanol producers and ethanol is blended 

into gasoline. And so that also impacted the 

price of the corn commodity. So all of those 

things were negatives.

Now, there are many, many positives as 

well. There are tremendous government support 

programs that -- they've existed historically to 

support the agriculture industry. And as an 

example, in 2017, farm support payments comprised 

15 percent of net farm income. That's 2017, 15

percent. 
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In 2018, that number increased to 16

percent, and it's estimated right now that the 

2019 contribution of government support program 

payments will be 25 percent. So 25 percent of 

net farm income. So incredible support.

And that support continues in 2020 as 

well. There was an additional $16 billion 

included in the CARES Act to support agriculture 

and a lot of that has already been distributed. 

As an example, 2.5 billion through July 20, 

through last, I guess a week ago Monday, had been 

distributed to producers in the Kansas City 

region. So the seven-state footprint that 

comprises our FDIC region, 6.2 billion throughout 

the United States.

And another positive is, and this is 

the tremendous positive that has really kept the 

Ag economy going, is that farmland values have 

remained incredibly resilient. Low interest 

rates, the government support programs, and 

various other factors have enabled a lot of 
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producers to, and bankers to continue with their 

producers through a very distressed farm economy.

However, we are now seeing the seventh 

year of depressed commodity prices, and some 

producers during the last seven years have burned 

through a substantial portion of their equity. 

Or they now have debt levels through carryover 

operating debt for which their asset base simply 

cannot service in a normal operating year. So 

that has forced some producers to make some 

changes. 

It also has resulted in an increase in Chapter 12 

bankruptcies. Chapter 12 is unique to the 

agriculture industry. I'm from Iowa, not too far 

from where Ms. Messerschmitt resides, and in --

excuse me, in a year-over-year period, April 2019 

through March of 2020, there were 37 Chapter 12 

bankruptcies in Iowa. And that number is, is

roughly, well, I'm not sure what the percentage 

is, but it greatly exceeds the typical. The

average between the 2001 and the 2017 is eight 
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Chapter 12 bankruptcies on an annual basis. So 

eight is the average, 37 in the last 12-month 

period, ending March of 2020. So the number has 

grown significantly. 

However, you have to keep in mind that 

there are 85,000 farms in the state of Iowa. So 

37 bankruptcies out of 85,000 farms, you know, is 

really a nominal amount. Throughout the United 

States, there were 627 Chapter 12 bankruptcies in 

the year ended March 30th. That number was 353 

in 2015. So you know, it's almost double during 

the last five-year period. But keep in mind also 

that there are over two million farms throughout 

the United States. So you know, although it 

increased from 353 in 2015 to 627 last year, you 

know, out of two million farms, it's still, I 

don't want to say insignificant, but it's a 

nominal amount.

We also are seeing increasing loan 

delinquencies in Ag banks. And Ag banks as 

defined by the FDIC are banks that have either 25
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percent of their total loans in production loans, 

25 percent in Ag -- secured by Ag real estate or 

the combination of those two. 

And so we are seeing an increase in 

delinquencies. And our levels now, or I should 

say as of the end of March of 2020, are similar 

to where they were in 2004. So, and it's still 

relatively low.

I mentioned the Ag super cycle and the 

fact that it ended in March of -- or excuse me, 

in 2013. In March of 2013, the median delinquency 

of an Ag bank was 0.13 percent. So relatively 

low. It remains low. It's increased quite a 

bit, but it remains low. As of the end of the 

first quarter of this year, it was 1.05 percent. 

So the increase during that seven-year down cycle 

only was from 0.13 to 1.05.

And we're also seeing an uptick in 

adverse classifications, but most banks are doing 

a great job in managing their portfolio and 

working with their more distressed producers by 
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either restructuring their operation; working 

with the producer to help them identify 

opportunities to reduce expenses; making changes 

to their asset base, such as selling equipment 

that might have a limited use, maybe even reducing 

the size of their footprint by selling various 

parcels of real estate; and/or obtaining off-farm 

income to, to really supplement family living 

expenses.

And as a result of you bankers working 

with your producers, those that are in the Ag 

space, there really is no discernable trend in 

the number of problem banks or banks that are 

rated less than satisfactory within our region. 

And when I say we're kind of Ag central from an 

FDIC perspective. Roughly 65 -- 60 percent of 

our banks meet that definition of an Ag bank. 

And we ended the first quarter of 2020 

in as good a shape from a banking perspective as 

we've been in for quite some time. And some of 

the factors that Frank mentioned, such as the Ag 
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banks have generally fairly well capitalized, and 

they've maintained a good, solid allowances to 

deal with the problems that they encounter. They 

have fairly good earning spaces. And so I think 

that's a reflection of your hard work and the Ag 

bankers' hard work.

And so despite substantial headwinds, 

the overall condition of Ag-focused banks remains 

relatively healthy. And you know, the likelihood 

of that continuing will in part depend upon I 

think continuing government support, favorable 

yields, the crop. As it was mentioned by the 

gentleman from Kentucky, the crops look fantastic 

throughout our footprint. And then hopefully at 

some point, we’ll get increased commodity prices 

when some of the trade issues are resolved and 

various other variables come into play.

With that stated, that concludes my 

remarks, thank you.

MR. DAVIS: Great, thank you, 

everyone. We are – just a couple things to flag 
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everyone. We’re going to take a very short, fiveminute break until 3:10. And then at 3:10, we're 

going to move to the update from the MDI 

subcommittee. So Gilbert, just a heads up that 

you'll be up when we come back from the break.

We're going to hold-off on the rapid 

prototyping segment for now, and if we make up 

some time, we can cover it then. Thank you, and 

we'll see you in about five minutes.

(Whereupon, the above-entitled matter 

went off the record at 3:06 p.m. and resumed at 

3:11 p.m.)

MR. DAVIS: and Betty Rudolph, the 

FDIC's National Director of Minority and 

Community Development Banking, are going to 

provide us an update on yesterday's meeting. So, 

Gilbert, I see you on camera there so I'll turn 

it over to you. Thank you. 

MS. RUDOLPH: Chad, is (Speaking 

simultaneously). No, go ahead.

MEMBER NARVAEZ: I think you’re going 
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to start if off, right? 

MS. RUDOLPH: Yes, I'll get started. 

Thank you, Gilbert. 

Just a couple of brief introductory 

remarks, before Gilbert summarizes what the 

committee has been doing. 

The MDI Subcommittee serves as-- under 

the authority of the Advisory Committee on 

Community Banking and so it does report to you 

all, to the CBAC, not to the FDIC. And that's 

why we're reporting out today to keep you apprised 

of what we've been doing. 

The goal, the goals of the 

Subcommittee are to serve as a source of feedback 

for the FDIC on strategies that we take to fulfill 

our five statutory goals for the program, to 

provide a platform for MDIs to promote 

collaboration, partnerships and best practices,

and to identify ways to highlight the work of 

MDIs in their communities. 

The Subcommittee is comprised of nine 
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MDI executives, and they represent a broad cross 

section of all of the types of MDIs -- African 

American, Asian, Hispanic, and Native American, 

and they have a range of business models, size, 

and geographic mix. 

The nine members of the MDI 

Subcommittee represent about 10 percent of the 96 

MDIs supervised by the FDIC. And, in addition we 

have three MDIs that serve on the CBAC. Those 

include Kenneth Kelly, Dick Beshear, and Gilbert 

Narvaez, Jr. 

Just want to share a couple more 

points of background before I turn it over to 

Gilbert. The MDI Subcommittee had its inaugural 

meeting in December of last year and then, as 

Chad said, we just met yesterday as well. 

At both of these meetings, one of the 

key topics of conversation was an update to the 

FDIC's policy statement regarding minority 

depository institutions, and this policy 

statement signals the FDIC Board's commitment to 
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fulfilling our statutory goals and to promote 

MDIs, and it provides the framework for our 

program across the FDIC. 

In your packet of materials, you all 

had a copy of the FDIC's proposed policy statement 

update that we presented yesterday with the 

Subcommittee, as well as a red-line version. And 

we wanted to update the policy statement to 

reflect the FDIC's strengthened commitment to 

this important segment of our banking system. 

So, Gilbert Narvaez will now walk you 

through some of the key changes of our discussion. 

MEMBER NARVAEZ: Thank you, Betty. 

The FDIC asked for our feedback on the 

policy statement that governs the MDI program. 

And today we want to share some of our feedback 

and hope that you will consider supporting our 

recommendations to the FDIC. There are three key 

changes to the policy statement. 

The first one is, there’s a new 

engagement section that discusses the many ways 
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that the FDIC engages with MDIs. The new feature 

is to include the MDI Subcommittee as one of these 

engagement activities. That’s a key change. 

Second, the second new requirement is 

to measure the MDIs program effectiveness. The 

FDIC will conduct an annual survey of MDI 

executives to receive feedback on the 

effectiveness of the program activities such as 

technical assistance, training and education, and 

outreach. The policy statement now includes 

definitions for each of these activities. 

We had the opportunity to review the 

results of the 2019-20 survey results, which 

showed the FDIC met 11 of the 12 goals for 

effectiveness of program activities. The overall 

combined satisfactory rate for MDI executives was 

at 88 percent. 

The third update is to articulate the 

FDIC's examinations approach on how the FDIC 

considers an institution's unique business model, 

relative to examination standards. Under the 
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uniform examination standards, the FDIC conducts 

all examinations within the parameters of 

outstanding guidance. Examiners measure the risk 

to the deposit insurance. They also take into 

account each bank's risk profile, size, 

sophistication, and nature and complexity of its 

business activities. The policy statement 

highlights that peer comparisons are not included 

in the rating system. 

The MDI Subcommittee supports these 

updates to the policy statement. In addition, we 

provided feedback in December that the FDIC 

update its description of technical assistance 

program to highlight the ongoing nature of 

technical assistance that an MDI can request at 

any point in the exam cycle to better understand 

the regulations, FDIC policies, examination 

procedures, accounting practices, supervisory 

recommendations, risk management procedures and 

compliance management procedures. 

The prior policy statement emphasized 
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technical assistance provided 90 to 120 days 

after an exam. After our discussion, the FDIC 

clarified that technical assistance is a tool to 

provide ongoing support to institutions in an 

effort to insure timely implementation of 

recommendations, a full understanding of 

regulatory requirements and, in some cases,

viability of the institution. Technical 

assistance is not a supervisory activity and is

not intended to present additional regulatory 

burden. 

We understand that the FDIC intends to 

present the updated policy statement for 

consideration at an upcoming Board meeting. If 

approved, the FDIC will then publish it in the 

Federal Register for public comment over a 60-day 

period. The FDIC Board would then consider public 

comments and consider a final vote on the policy 

statement. 

The MDI Subcommittee believes that the 

FDIC should move forward with the strengthened 
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policy statement regarding the minority 

depository institutions. 

At yesterday's meeting, we also 

discussed the many recent corporate announcements 

of support for MDIs. These include a $50 million

commitment by Wells Fargo with direct investment 

in African American MDIs. A $100 million

commitment by Netflix to support MDIs in black 

communities. And a $100 million commitment by 

Microsoft to support mission-oriented banks and 

several others. 

The FDIC asked about various roles 

that they could play to help direct the support 

most effectively to MDIs. They developed the 

draft resource guide outlining the different 

types of assistance that MDIs might receive, 

including deposits, direct investment, grants, 

technical assistance, and more. Since many MDIs 

have different needs and corporations have 

different strategies for providing assistance, we 

support publication of this guide. 
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This concludes the report from the MDI 

Subcommittee, and Betty and I welcome any 

questions you may have or any further discussion 

on these recommendations. 

MR. DAVIS: Thank you, both. Do we 

have any questions from the committee members?

(silence)

Okay. While folks are thinking if they 

have any questions, I just remind everyone that 

we had sent information ahead of the meeting for 

the interaction between the Subcommittee and the 

Committee. So, what we are trying to do today is 

establish if there is a consensus within the 

committee to go ahead and move the recommendation 

to the FDIC. 

We do not require any kind of a formal 

vote or anything along those lines. It will 

mostly just be based upon the results of the 

conversation. And, Keith, I see you have a 

question, so please go ahead. 

MEMBER EPSTEIN: Thank you, Chad. I 
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guess less of a question and more just wanted to 

express my support and appreciation. There's 

obviously a lot of time that's gone into this 

draft, and it's a pleasure to read and you 

certainly have my support. 

MR. DAVIS: Thank you, Keith. 

MEMBER EPSTEIN: While I have the 

floor, if I may, I do have one other quick 

question. I'm not too well informed in this area. 

The CDFIF, which I think is the funding source 

within the Treasury Department, it's my 

understanding that some of the programs, some of 

the financial support that they provide to 

minority deposit institutions and community 

development financial institutions can be 

considered capital or equity rather than just 

subsidized lending. And if that is, in fact, the 

case, is there any thought about making some of 

that capital funding, if you will, available to 

any prospective de novo minority deposit 

institutions? I mean, certainly as community 
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bankers we want to support the formation of de 

novo institutions of all shapes and sizes across 

the entire geography of our country. But, in 

particular, since it seems a number of minority 

deposit institutions, you know, has not grown 

might that be something that could be explored? 

MS. RUDOLPH: Hi, Keith. Thank you 

for that question. This is Betty again.

I think the CDFI fund actually deploys 

capital through the Bank Enterprise Program and 

Financial Assistance Programs and those require 

that the institution demonstrate that they have 

60 percent of their activity and most of that is 

looking backwards, so I'm not sure if for de novos 

that's an issue. But that's a great question. 

We have seen a few new de novo MDIs. 

And we had two open last year but I think that 

like community banks there's a continuing 

consolidation effort as well, as institutions try 

to create efficiencies through size and scale. 

Thank you. 
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MR. DAVIS: Okay. Any other 

questions? Comments? Thoughts? 

(silence)

Okay, it doesn’t appear --

MEMBER KELLY: Chad, this is Kenneth. 

I would just say that, you know, I'm in full 

support of it. I heard you say we're not going 

take an official vote. But I will certainly be 

in support of it. 

MR. DAVIS: Thank you, Kenneth. And 

I see through the chat that we have additional 

support there as well. So, I think without 

objection from the Committee, I think that we can 

say that this satisfies a consensus of the 

Committee. However, if there are any other 

comments anyone wishes to make please do so. 

(silence)

Okay. Hearing none, Gilbert, Betty, thank you. 

Now, we're going to move to an update on several

supervision matters. Doreen Eberley, our

Director of the Division of Risk Management and 
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Supervision is on and I'm going to turn it over 

to her now. 

Thank you. 

MS. EBERLEY: Okay. Thanks, Chad. Hi, 

everybody. 

It was really a pleasure to get to 

hear earlier today how you're faring through the 

pandemic, and we appreciate the difficulties 

you've worked through and how your operations 

have had to change and your understanding for how 

our operations have had to change. 

Several of you mentioned having 

examinations and we have moved to an off-site 

basis. And, you know, some other things have 

changed as well. So, that's what we wanted to 

talk about today. We're going to talk a little 

bit about the interagency guidance that we issued 

on loan modifications fairly early in the 

pandemic. We updated that guidance again after 

the CARES Act was approved by Congress. 

We're going to talk about some 
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examiner instructions that we've issued for 

examining banks during a pandemic. We'll talk 

about the community bank leverage ratio. A little 

bit on appraisals, and some changes that we've 

made there, and some changes to regulatory 

reporting. And then we'll wrap up with a 

conversation about our small dollar lending 

guidance.

So, presenting today will be Rae-Ann 

Miller, the Associate Director who oversees the 

Risk Management Policy Branch and John Rieger, 

our Chief Accountant. They'll talk about 

appraisals, the recent examiner guidance relating 

to the pandemic, loan modifications, and 

regulatory reporting. Bobby Bean, the Associate 

Director of our Risk Management Supervision 

Capital Markets Branch will cover modifications 

to the community bank leverage ratio framework. 

And Leonard Chanin, Deputy to the Chairman for 

Consumer Protection and Innovation will talk 

about the guidance on small-dollar loans. 
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So, I will turn the program over to 

Rae-Ann to kick us off. 

Thank you. 

MS. MILLER: Yes, Hi, Doreen. That 

was a great introduction, and our first slide is 

actually going to be covered, if you would advance 

the slide deck, Shannon, by John Rieger, our Chief 

Accountant. John? 

MR. RIEGER: Thanks, Rae-Ann. I 

appreciate the introduction. And before I get 

started I really want to say I appreciate 

listening to the institutions. I'm busy with the 

accounting work, but I don't often get to really 

see how you guys are doing and it's encouraging 

to hear all the work that you are putting into 

it.

So, on this slide, I mentioned 

Financial Institutions Letter 36-2020 which was 

issued April 7th, 2020, and it's an interagency 

document on working with borrowers. The document 

offers direction both from an accounting 
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perspective and from a credit risk reporting 

perspective. 

We want institutions to work with the 

customers under the current conditions so we 

messaged that agencies will not criticize for 

prudent loan modifications. And we want 

examiners to consider the unique, evolving, and 

potentially long-term nature of this environment. 

We want examiners to consider -- these things, 

but we still need them to continue to assess 

institutions in accordance with existing policies 

and procedures. And they can provide supervisory 

feedback or downgrades on an institution's 

composite or component ratings when conditions 

have deteriorated. 

Examiners will still consider whether 

institution management has managed risk 

appropriately, including taking appropriate 

actions in response to stresses caused by the 

COVID-19 impacts. 

Now, examiners will be giving
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consideration to the challenges involved in 

assessing a risk and respond to the institutions 

in real time given the level of information 

available and the stage of local economic 

recovery. 

Now, if you can move to the next slide, 

Slide 3, thank you. 

Now, my work as the accountant, the 

current environment and the CARES Act created the 

need to provide some clarity on the interaction 

between the accounting standards and the CARES 

Act, Section 4013. Participating on supervisory 

views also includes instructions and guidance on 

past dues and on nonaccrual reporting. 

Institutions should not report those loans 

captured in Section 4013 as past due or nonaccrual 

in their current reporting. 

So, if you move to Slide 3, I have a 

simplified illustration to help visualize what 

I'm talking about. Slide 4, excuse me. There we 

go. Yeah, my mistake. 
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So, when you're thinking about the 

accounting under the CARES Act and under normal 

TDR accounting, there were two prongs or two 

methods that were made available. Financial 

institutions may elect to account for an eligible 

loan modification under Section 4013 -- you'll 

see that on the left side. Or within the 

interpretation of GAAP discussed in the 

interagency statement. 

Under Section 4013, financial 

institutions are not required to apply ASC 

Subtopic 310-40 to the loan modification. In 

other words, the trigger of the TDR, if the 

customer is experiencing financial difficulty,

which basically is if the customer is 

experiencing financial difficulty and the 

concession is granted. They do not have to report 

such loans as TDRs in regulatory reports. They 

do not need to determine impairment associated 

with certain loan concessions that would 

otherwise have been required for TDRs -- such as 
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interest rate concessions, payment deferrals or 

loan extensions. They should maintain records of 

the volume of Section 4013 loans, however. And 

they should contain, should continue to maintain 

an appropriate allowance for loan and lease 

losses or allowance for credit losses as 

applicable. 

And one of the conditions of the 4013,

as you can see there, they must have been current 

as of December 31st, 2019. We have additional 

information on this in our supplemental 

instructions to the Call Report, which are 

available on the FFIEC's website.

Now, on the right side under the 

interagency statement, institutions may presume 

that short-term modifications made to borrowers 

affected by COVID-19 that are current on payments 

are not experiencing financial difficulties for 

purposes of determining TDR status. If 

modification is performed as part of the program,

no further TDR analysis is required for each loan 
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modification in the program. So, you see there's 

two paths you can go down. Under this criteria,

the modification should be short term in nature, 

e.g., six months, and made in good faith basis in 

response to COVID-19. Borrowers were current 

prior to any relief, which means less than 30 

days past due on their contractual payments at 

the time the modification was implemented. 

So, these are the two paths. Now, I've 

been talking about the accounting perspective,

but there's also risk management and regulatory 

risk rating perspective. Regulatory risk ratings 

or classifications is a separate and distinct 

decision from the TDR determination. Regulatory 

risk ratings remain governed by all existing 

guidance and policy for determining 

creditworthiness of borrowers, and the agency's 

examiners will exercise judgment in reviewing 

loan modifications and will not automatically

adversely risk rate credits that are affected by 

COVID-19.
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Regardless of whether modifications 

result in loans that are considered TDRs, Section 

4013 loans, or adversely classified, examiners 

will not criticize prudent efforts to modify the 

terms on existing loans to affected customers. 

And with that, I'll turn back to you, 

Rae-Ann. 

MS. MILLER: Thank you very much, 

John. 

Hopefully everybody can see me and 

it's great – quote, seeing everybody today. 

Thanks for being here and I just want to echo 

John and Doreen's remarks about how we really 

enjoy hearing from the bankers. We'll be taking 

questions at the end. I should have said that at 

the beginning, but I really appreciated the 

comments and the understanding. We're all sort 

of navigating through this uncertain times and my 

group, John reports to me in Accounting but the 

other side of my house is general safety and 

soundness practices and policies, credit risk, 
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corporate governance, emerging issues. But we 

also prepare the instructions for safety and 

soundness examiners. And just like you described 

your scrambling and issues with branch 

openings/closings, safety of your employees, we 

really had to come up with instructions and 

policies for how to do the examiners’ work which 

is essentially dealing with bankers on an offsite basis. So, we really do appreciate all the 

cooperation and the comments. I think Pattie 

from Alaska, I think it was, mentioned -- I had 

to write it down. Safety and soundness was a 

bright spot in your year. So, I don't often hear 

that so I do appreciate all that. 

Shannon, if you'll advance to slide 

Number 5, please. 

We're going to talk a little bit about 

this piece of guidance that we issued to 

examiners. And one of the speakers, I didn't 

take down the name, at the end of the presentation 

earlier today, mentioned this – and really read 
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it and I think took it to heart because some of 

your comments, with -- that’s what we were trying 

to telegraph here. And so this is instructions 

for our examiners on how to examine during a 

national emergency like this. It's an

interagency piece of guidance. It's not for the 

banks. You know, there's no action required on 

the part of banks. But we wanted to make sure 

that we were consistent across the agencies in 

our philosophy and within the regions and local 

offices that the message was received on, you 

know, how deeply this event is reaching into our 

communities and how examiners should review that. 

Now, we do have experience with this 

on a smaller scale. We have issued similar 

guidance documents to our examiners in

hurricanes, if you remember, I think it was last 

year, perhaps two years ago, we had a significant 

hurricane season in Puerto Rico, for example. And 

there were a number of dislocations, physical 

dislocations as well as damage to physical 
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properties that were out of banks’ control. And 

so, how do you examine in that type of situation? 

But this is obviously a much broader impact. 

And in those types of guidance 

documents to examiners and in this one we 

acknowledged that there are exogenous factors 

that can hurt institutions even when they're 

doing whatever they need to do to try and correct 

the situation and manage the situation. They 

have good risk management practices. So that was 

sort of the idea and that sort of sets the table 

on this Slide Number 5.

So, moving to the next slide, please, 

Shannon, Number 6. 

So, the examiner instructions basically tell 

examiners to look at the evolving and long-term 

nature of the pandemic. And I wanted to point 

out that we will continue to assess institutions 

in accordance with our existing policies, our 

practices. As you know, we have a rating system, 

an interagency rating system that we use for 
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safety and soundness. It is the CAMELS system, 

otherwise known as UFIRS. And somebody mentioned 

earlier in the presentation, the banker 

presentation, that they were pleased to have the 

recognition of examiners recognizing risk 

management practices. And so all the UFIRS 

components have not just conditions but risk 

management practices. And risk management 

practices go both ways. 

So, you could have a situation where 

a bank has loose risk management practices but 

financial conditions are still good because, you 

know, we’re in a boom situation or time hasn't 

passed for bad practices to run through the 

institution. And, conversely, you could have a 

situation where we're faced with for many 

institutions now where there are very good risk 

management frameworks in place, but out of the 

control of institutions, this factor hit in. So, 

there are both of those things to look at when we 

assess and rate an institution. Risk management 
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goes both ways. 

Shannon, advance to Slide Number 7, 

please.

So, the guidance and it’s -- I 

encourage you if you have not read it already to 

please to do. It will give you a sense of what 

to expect and we're looking at, again, risk 

management. We are looking at, you know, what 

are the bank's plans to right problems? I heard 

a lot of the things that we would be looking at, 

working with borrowers, working on your 

operational issues. You know, making sure we 

take care of our employees as well. Our examiners 

are going to recognize those efforts and 

recognize the challenges that institutions have 

in trying to work with sometimes opaque 

information or uncertain projections. 

We heard an institution talk about a 

branch that was opened and that needed to be 

closed again. So, being flexible with those types 

of give-and-take situations. And as always the 
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last bullet on that slide is, you know, we're 

going to be looking at complexity, risk profile, 

business model, business focus of customers. 

Location is an issue now. I think our banker 

from Vermont mentioned, you know, it is a tourist 

area and certainly the economic recovery will 

really hinge on those folks coming back and 

enjoying Vermont and those businesses. 

So, that's the basic focus, is focus 

on risk management, focus on risk assessment and 

plans to deal with the situation and understand 

sometimes they're doing that with a void in the

information. 

And with that I'm going to turn it 

over to Bobby Bean to pick up the next slide. 

MR. BEAN: I hope everyone can see and 

hear me. About the time that we decided to 

discuss policy initiatives, the power went out in 

Falls Church, Virginia, so I am running on short 

power supply. And if I start sweating, it's not 

that I'm telling a fib it's just the AC also 
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doesn't work as well as the computer power. 

So, I'd like to this afternoon talk a 

little bit about the community bank leverage 

ratio. As you know, the agencies issued the rule 

the latter part of last year with an effective of 

the first quarter of this year. Actually, they, 

yeah-- so, as we went into this year the last 

quarterly filing we had actually 39 percent of 

all eligible institutions, about 1,710 

institutions, elected to apply the community bank 

leverage ratio. So, about 40 percent, being the 

first quarter that this was available it was 

encouraging, the number of institutions that 

chose to apply the CBLR. 

As you know, with the CARES Act, there 

was a modification made to the CBLR that allowed 

the agencies to drop the required CBLR down to 

eight percent for the duration of the pandemic. 

So, the agencies, we were concerned a little bit 

about the temporary nature of the drop especially 

since once the leverage ratio, once the national 
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emergency was declared lifted, the CBLR ratio 

would jump immediately from 8 percent to 9

percent. 

So, on August the 23rd, we issued two 

interim final rules into the community bank 

leverage ratio. 

If you could move to Slide Number 9, 

please. 

The two IFRs made kind of 

contemporaneous changes. The first IFR basically 

moved the CBLR to 8 percent beginning in the 

second quarter, consistent with the CARES Act. 

Under the CARES Act, it would be 8 percent through

the remainder of the year unless the emergency 

declaration ended earlier, in which case it would 

move back up to 9 percent. So, we issued one 

CBLR that would implement that provision. And 

the second IFR we issued actually changed the 

agencies' transition period for the CBLR. It 

laid in place the eight percent leverage ratio 

for the remainder of 2020. It moved the CBLR to 
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8.5 percent for 2021, and then beginning in 2022,

it would go back up to 9 percent for all periods 

after that. We thought this was important for 

institutions to be able to appropriately capital 

plan. We were concerned about a drop in the 

leverage ratio followed by a sudden rise and this 

way, it allows institutions to kind of foresee, 

you know, potential losses and to plan to build 

back up the CBLR gradually over a two-year period 

of time.

The comment periods, we asked for 

comments on both of the interim final rules. We 

got a grand total of one comment that supported 

the interim final rules on the CBLR and we -- and 

if you look at Slide number 10, you know, the

agencies, we plan to kind of move forward with, 

you know, the CBLR as we have indicated. 

When we take a look at the number of 

institutions that are below 9 percent -- those 

institutions that could apply the CBLR on a firsttime basis below the 9 percent ratio, it picks up 
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about, only about 480 institutions. The majority 

of institutions that apply the CBLR already have 

ratios well above 12 percent. So, you know, if 

we expand the scope of the CBLR by the drop from 

8 to 9 percent, like I said it's going to move 

the number of institutions that would be eligible 

at 9 percent, which is about 4,385. It will move 

the number to approximately 4,980. So, most 

institutions less than $1 billion, most 

institutions have a leverage ratio that's well 

above the 9 percent, let alone the 8 percent 

number. 

Anyway, so I will turn it back over to 

Slide Number 11, whoever is going to be covering 

the appraisals. 

MS. MILLER: Thanks, Bob, that would 

be me.

So, I'll be very quick with the next 

couple of slides. They're talking about some 

appraisal issues that we dealt with and pretty 

soon after the pandemic, you know, there was a 
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number of different issues obviously we were 

dealing with. But we started getting questions 

about appraisals and evaluations and the 

restriction of movement of those individuals and 

some jurisdictions were even talking about 

perhaps making appraisers essential employees. 

And, you know, that's a jurisdictional issue in 

states. But, we certainly did hear those 

concerns. 

And so we did two things on an 

interagency basis. And this, Slide Number 11 

deals with the first thing that we did which was 

to issue an Interim Final Rule creating a 

temporary provision to our appraisal regulation 

that allows institutions to defer an appraisal 

for a federally related transaction, for most 

transactions -- acquisition, development and 

construction loans were not included in this 

temporary deferral process. And we wanted to 

make sure we got this out quickly that we 

certainly didn’t want an appraisal issue to be a 
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hold up on getting capital into the hands of 

borrowers. 

The IFR expires on December 31st. We 

do have the option to extend it and I should point 

out, before I move from this slide, is that part 

of the IFR mentioned that examiners will be 

looking to make sure that institutions have made 

some effort to obtain some type of value process 

either based on existing information, information 

available electronically or otherwise available 

to the institution. 

So, let’s move to Slide Number 12, 

please, Shannon. 

And the second thing that we did on 

the same day was we issued an interagency 

statement that talked about some of the existing 

flexibilities in regulations. We touched on, 

even though they’re not our regulations, we did 

touch on some temporary changes to Fannie Mae and 

Freddie Mac, the enterprise appraisal standards. 

They made some changes almost immediately based 
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on the physical limitations on appraisers. 

And then we also talked about some of 

the flexibilities available in USPAP and in our 

existing regulations. And so for instance, while 

property inspections are certainly customary and 

are often required by the bank and it's just good 

practice to do so, especially for more 

complicated properties. USPAP actually does not 

require a physical inspection and so that was 

something that we wanted to make sure people were 

aware of and clarified that for them. 

And then we also talked about some of 

the existing flexibilities in our exceptions for 

our appraisal regulations. So, for residential 

real estate you may know that federally related 

transactions are already exempted from the 

appraisal requirements if they are less than 

$400,000 and they're also exempted if they are 

eligible for sale to the enterprises or otherwise 

government guaranteed. And that is a very big 

exemption on the resi side. And on the commercial 
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side, as you might remember we just recently 

raised the threshold on the commercial side. They 

just recently, it’s probably 18 months ago now,

but to $500,000 for commercial transactions. 

So that was our statement and I'm 

going to turn back over to John, our Chief 

Accountant to discuss some Call Report revisions. 

John? 

MR. RIEGER: Thanks, Rae-Ann. 

Turning to Slide 13, I just want to 

cover a few revisions on Call Report instructions 

that have taken place in response to the COVID19. So, on July 10th, 2020, the FFIEC issued 

information regarding the June 30, 2020, Call 

Report to include revisions associated with 

several of the interim rules and a final rule 

issued by one or all of the agencies in response 

to the impact on the financial markets and the 

strains on the U.S. economy as a result of COVID19. 

As you can see at the bottom, that's 
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the Financial Institution Letter 69-2020 if 

you're interested. 

So, moving to Slide 14, I want to focus 

on some specific new data items that have been 

included as a result of the CARES Act. So, these 

new items will take effect for the June 30, 2020, 

report and they also cover capital rules issued 

on FIL 10-2020, which was dated February 18, 2020. 

So, what these new items are, and you 

can see them on Slide 15, eligible loan 

modifications under Section 4013, Temporary 

Relief from Troubled Debt Restructurings, of the 

2020 CARES Act will need to be disclosed in the 

Call Report. Now, they are collected on a 

confidential basis. So, I just want to emphasize 

that. They're in the Schedule RC-C, Part 1 Loans 

and Leases and the Schedule RC-M, the memorandum 

to collect data on. 

In addition to those, there's a 

requirement to include the SBA Paycheck 

Protection Plan information, the U.S. Small 
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Business Administration Paycheck Protection 

Program Loans and the borrowings under the 

Federal Reserve PPP, which is the liquidity 

facility, which is the PPPLF, on it. 

In addition, there is, they're 

collecting information. If you use the, what's 

called the MMLF, the Money Market Mutual Fund 

Liquidity Facility and specifically RC-C Part 1, 

Memorandum 1, Schedule RC-N Memorandum, Item 1, 

these all relate to the 4013 Loans, Schedule RCO, Memorandum, Item 16. So, just be aware of 

those additional items on the Call Report and the 

required disclosures. 

That's all I have right now on the 

Call Report. So, I'll turn it back to you, RaeAnn. 

MS. MILLER: Thank you, John, I think 

Leonard is going to take us into Slide Number 16. 

Leonard? 

MR. CHANIN: Yes, thank you very much, 

Rae-Ann. 
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I'm going to talk a little bit about 

Small Dollar Lending. 

Actually, the FDIC began looking at 

Small Dollar Lending before the pandemic after 

having conversations with a number of financial 

institutions who suggested that existing 

guidance, excuse me, from the FDIC and other 

agencies was viewed by institutions as not 

encouraging them to make responsible small dollar 

loans. So, actually in March of 2020 we issued 

a short statement, along with the other banking 

agencies, encouraging institutions to offer 

responsible small dollar loans to consumers and 

small businesses and noted in that issuance in 

March that we would be following it up with a 

little more detailed guidance in coming months. 

And in May we did issue a bit more 

guidance to institutions. It's pretty high-level 

guidance, that is, it does not go into great 

detail as to, for example, the types of products 

that institutions should offer. We mention 
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institutions may want to consider installment 

loans. Institutions may want to consider lines 

of credit or other products that may be best 

suitable to their customers' needs.

So, then we mention a few other things 

in terms of the guidance. The guidance mentions, 

for example, the loan structure that institutions 

should structure these transactions and have 

repayment terms that encourage or enable borrower 

affordability. That is, that enable borrowers to 

have successful repayment plans under the terms 

of the transaction. We also mention, of course, 

loan underwriting, noting that institutions need 

to assess consumers’ creditworthiness. This,

coupled with other guidance we'd issued earlier 

in the year dealing with alternative data, we 

suggested institutions may use internal data to 

evaluate creditworthiness, or credit reports, or 

alternative data -- such as cash flow 

information, whatever is going to be most 

productive in terms of ensuring that consumers 
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can get transactions that are structured so 

they're able to repay the loans. 

And then, finally we talk about loan 

servicing and safeguards suggesting that 

achieving successful repayment should be the 

goals of the small dollar loans while avoiding 

cycles of debt or the need to re-borrow in order 

to repay these transactions. And we also suggest 

that as appropriate institutions may want to 

consider reasonable workout strategies if 

consumers find themselves unable to repay under 

the existing terms of the transactions. 

So, really what we hope to do is to 

encourage institutions to provide small dollar 

loans to their customers and to people who are 

not their customers today to really add some 

competition to the market. We know, and 

institutions obviously know, that there are 

choices out there for consumers, but many are 

higher-priced transactions, may not have the 

terms that are best suited for consumers. So we 
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want to encourage more choices to be offered to 

consumers recognizing that, quite honestly, that 

small dollar loans are generally not profit 

centers for institutions, but hoping that 

institutions can structure these in a way that 

provides responsible loans to customers and 

perhaps to encourage further customer 

relationships as a result of having those loans 

available to customers.

So, I'll stop there and turn it back 

over to Rae-Ann. I'm not sure if we're taking 

questions or what the status is at this point. 

Thank you. 

MS. MILLER: Thanks, Leonard. I think 

we can take some questions, Chad, if people were 

going to do the hand raising.

(Silence) 

I don't see any questions queued up. 

(Silence)

Thank you very much. 

MR. CHANIN: Thank you.
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MR. DAVIS: Wait, wait, wait. Can you 

hear me? Sorry, we had a technical issue. We do 

have a couple questions. 

MS. MILLER: Great. 

MR. DAVIS: Keith Epstein and Tom 

Leavitt.

MS. MILLER: Thank you. 

MR. DAVIS: Keith, if you don’t mind 

going first, Keith?

MEMBER EPSTEIN: Thank you, Chad, 

and thank you Rae-Ann. Can you hear me? 

MS. MILLER: Yes, I can hear you.

MR. DAVIS: Yes. 

MEMBER EPSTEIN: Okay. Thank you so 

much. I just want to run one quick scenario by 

you. 

I hope this doesn't become necessary,

but in our state the governor has implemented a 

phased reopening or resumption of business. We 

got through the first phase, we got through the 

second phase, and now we have paused rather than 
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move to the third phase because the trends are 

not favorable in terms of the Coronavirus. And 

if we were to have to step back and resume some 

of the restrictions, or go all the way back and 

some business closure, I'm wondering if that 

occurred and we had a customer who came back for 

another modification after they had had payments 

deferred and then resumed making payments, but 

were still within the applicable period and the 

circumstances were essentially the same as those 

that were in place when we gave them the first 

deferral, could we look at another one, two, 

three, however many months of deferral as long as 

we are consistent with the rest of the guidance? 

MS. MILLER: So, I'll start and John 

can add on(audio interference). We encourage 

institutions to provide accommodations to 

customers, accommodations under safe-and-sound 

conditions and you guys are reviewing 

accommodations as they come through, but I think 

it was mentioned, you know, three months, six 
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months might not be enough for some of these 

folks. And down the road, they have options and 

recovery you feel that it’s a good use of your, 

the bank's funds to help these people. And so 

usually those types of accommodations are in the 

best interest of both the banks and the borrowers 

and we encourage them. 

Now, we encourage them before Section 

4013 and, you know, what 4013 provides for you is 

the ability to not have to report those as 

troubled debt restructurings. 4013 does not 

change the fact that allowances must be kept. We 

would expect institutions to risk rate credits in 

accordance with your internal policies. You'll 

have to look at accrual status of loans, but there 

is nothing preventing you from doing that and we 

encourage you to do so. 

The statement that we issued in April 

and then the later statement in June, and I’m 

sorry (audio interference). 

I’m sorry, do you have a follow up? 
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MEMBER EPSTEIN: Oh, no, I just wanted 

to say thank you. We're just concerned with the 

optics if we did not -- this was a discussion we 

had the other day, if we didn't label that a TDR 

and, again, just the optics that maybe there was 

a recurring problem when, in fact, it was really 

beyond the borrower's control. So, that helps me 

and it's consistent with the way you all have 

approached this and the support you've given us. 

So, thank you. 

MR. RIEGER: This is John Rieger. You 

know, a lot of institutions have done kind of 

short-term modifications so that they can stay 

closer to their customers. And we've had this 

question asked if they've done a three-month 

deferral and they need to do another three-month 

deferral, if they're still in that emergency 

period and they do that again they basically would 

still qualify for that relief so you would still 

not from an accounting perspective need to 

disclose that as a TDR. 
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MS. MILLER: Thanks, John. 

MR. LEAVITT: Hi, Tom Leavitt here. 

As we were going around the banker roundtable, we 

were kind of in the trees of our individual 

regions. And then it was very helpful to lift 

out of those trees a little bit and hear the 

regional directors speak to what was going on in 

the Northeast and the Midwest. So, Keith 

mentioned scenarios. My question gets at what 

kind of modeling is the FDIC doing at the forest

level relative to factors that in a prolonged 

pandemic will be of concern to you in terms of 

mounting bank failures?

MS. MILLER: Thanks very much. And 

I'll start that, Tom, and we are certainly 

monitoring institutions. We have a long set of 

models that we use to look at institutions offsite. Now, the number one tool that we use is 

institutions that already have identified 

problems. And so that goes without saying that 

they get more attention if we know conditions or 
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risk management is poor at those institutions,

they already have heightened monitoring 

associated with them. And we're continuing to do 

that, you know, with a flavor of, you know, 

obviously, we're limited to doing that off-site 

and having some more contact with those 

institutions. 

We look at institutions for growth, 

for (audio interference), for liquidity flags,

and particular pandemic created some 

vulnerabilities where they may not have been on 

our radar screen. So, we are trying to 

incorporate those.

And some of you had mentioned some of 

those things -- can you guys still hear me? I'm 

getting a strange message. 

MR. RIEGER: Yes.

MS. MILLER: So, some new factors that 

we've tried to work in as best we can are things 

like concentrations in industries that may have 

been hit hard, and you mentioned some of them --
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resorts, you know, hospitality, aviation, oil and 

gas was certainly already on our radar, but has 

just sort of exploded there. And ag has been 

sort of a slow burn for us as well. So, yeah, we 

try to modify our models. 

I will say one thing. It's easier to 

do in some ways in the larger institutions where 

we have more touches with those institutions 

because there is a limit to what we collect offsite for call information. So, I might know an 

institution's commercial portfolio, but I 

wouldn't know necessarily what type of loans they 

have underneath that from an off-site basis and 

then even within some sectors we're learning, say 

the hotel sector, there are certain sectors, 

pieces of that sector, that are hit harder. So, 

if you've got a convention type of hotel that 

tends to be hit harder than a motel by the highway 

which is used by workers and more moderate-priced 

rooms. 

So, hopefully that answers your
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question. I don't know if you wanted to add 

anything to that, Doreen, or anyone else on the 

line? 

MS. EBERLEY: Yeah, I was just going 

to add so, you know, there certainly is 

uncertainty and you've expressed some of the 

uncertainty, you know, about which way things are 

going to go in the fall and with your borrowers 

and so, you know, we're monitoring conditions, 

we're talking to institutions. You know, we don't 

have a crystal ball that tells us how everything 

is going to play out, but we're just carefully 

paying attention and monitoring what's going on. 

MR. LEAVITT: Thank you, both. 

MR. DAVIS: Okay. Thank you, 

everyone. It doesn't appear we have any more 

questions. 

It is now about 4:10. We'll take a 

10-minute break and then our next segment is an 

Update on the Current Expected Credit Loss 

Standard, and we will start that right at 4:20. 
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Thank you. 

(Whereupon, the above-entitled matter 

went off the record at 4:09 p.m. and resumed at 

4:20 p.m.)

MR. DAVIS: Okay, we're going to get 

started again. Welcome back, everybody, for our 

next session.

 We're fortunate to have several people 

from the Financial Accounting Standards Board 

join us to discuss the Current Expected Credit 

Losses standard. With us today are Richard Jones, 

who began serving as Chairman of FASB earlier

this month; Susan Cosper, who serves as a board 

member of FASB; and Shayne Kuhaneck, who's Acting

Technical Director of FASB. Thank you.

MR. JONES: Well, thanks very much and 

thanks to all of you for joining us here and 

inviting us here today.

I would like to thank Chairman 

McWilliams for having us here. I just actually 

met Chairman McWilliams last week and -- I came 
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in to introduce myself and to understand her 

perspectives on financial reporting and CECL, and 

she was kind enough to invite me here today to 

hear some perspectives from all of you. So, I am 

looking forward to it.

As mentioned earlier, I do have two people with 

me. Sue Cosper is one of my fellow board members. 

She just joined the board one year ago. She comes 

from a public accounting background and has 

experience with auditing community banks. So, I 

thought this would be particularly relevant for 

her to join.

And Shayne Kuhaneck, who is our 

technical director. He previously, prior to 

joining the FASB, actually worked in a large 

nonbank financial institution.

And myself, I'm the newest member. I 

actually joined the FASB as chairman. I became 

chairman just July 1st of this year. So, I'm in 

my first month. Prior to that, I spent my career 

in public accounting, most recently as the chief 
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accountant of a Big Four accounting firm. So, 

I'm looking forward to interacting with you 

today.

I thought a few things from a 

background perspective may help just before I 

turn the floor over to each of you, is, as all of 

you know, the FASB sets GAAP accounting 

standards, principally designed to facilitate 

capital allocation by investors and lenders.

We don't set regulatory capital; 

however, we do understand that our standards are 

used by banking regulators.

When the Board adopted CECL, one thing 

they purposely did was they selected phased 

implementation where public companies adopted,

followed by private companies three years later.

And one of the reasons for that is 

because we were committed that both entities and 

we could learn from adoption of the public 

companies before the private companies adopted, 

and we, as standard setters, could identify 
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whether there were areas where we needed to take 

action.

That evaluation, evaluating the public 

company adoption and continued dialog with the 

private companies and understanding their needs 

and concerns, that's something that we broadly 

call our "post-implementation review," and that 

includes outreach to investors, regulators, 

preparers, auditors, and other stakeholders. 

This would be an example of some of that postimplementation review.

That review is done by our board, the 

FASB board, but a couple points. The first, as 

standard setters, I will tell you each of our 

board members is committed to continuous 

improvement. We're focused on -- we recognize 

that standards, particularly large standards, are 

rarely one and done. They often require some 

fine-tuning.

The other part is our board, our 

seven-member board, is term limited. Meaning, 
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each of our board members, they can serve a term. 

But at the end of the term, they move on to the 

next role and there's a new member appointed.

Interestingly enough, from the time 

that CECL was adopted by our board, there's only 

one remaining board member who voted for CECL.

So, it does show you that it is effectively a 

fresh look by a new board, and that is by design.

So, I do view your input today as kind 

of the start of or, I would say, the continuation 

of a conversation. I hope it doesn't end here. 

We're looking forward to hearing both your 

comments today and in the future. We want to 

hear your perspectives and we want to hear your 

concerns.

When you do share your concerns 

related to your implementation activities, it 

would be particularly helpful if you could tell 

us whether they are cost-related or outcomerelated. And if they're outcome-related, if you 

see them more as regulatory capital or do you see 
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them more as financial reporting issues, and that 

will simply help us understand how to work through 

those comments and how to follow up with you.

So, with that, I want to turn it back 

to your moderator. I think he has some 

participants that would like to share some input 

with us on CECL.

MR. DAVIS: Great. And, again, if 

folks could either use the raise hand function or 

chat that they have a question, we can get 

started.

Tom, I think your hand is raised. Is 

that from last time or do you have a question?

MEMBER LEAVITT: That was from last 

time, Chad. But while my microphone is on, thank 

you for that update, Richard.

With the provisions that banks are 

suddenly taking as they're doing their allowance 

for loan losses in the second quarter, a lot of 

community banks, like ours in Vermont, clearly 

we've had a really good run in the northeast, our 
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bank has, in terms of asset quality and we're not 

yet on the CECL standard. So, we're still living 

by the old experience loss model, if you will.

So, building in new factors as we do 

our general reserve is more an art than a science 

right now.

I don't know if you or your team want 

to speak to that. We were not anticipating a 

pandemic and suddenly taking a couple million in 

new provisions as we bumped along this year.

MR. JONES: Yeah, let me -- I'll chime 

in and then, Sue, I'll ask you to also chime in. 

Obviously, the environment that we're in is not 

one that we expected or, nor others.

That being said, the proponents of the 

CECL model did argue that in addition to providing 

transparency into the views of management, 

enabled allowances and losses to be recognized 

earlier versus toward the end of the cycle and, 

therefore, preventing a panic.

So, that transparency into the 
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estimate of management and management thinking 

that, in case, to estimate those lifetime losses 

was in the best -- in the best position to do so.

That being said, there is no doubt 

this is an environment that I don't think any of 

us envisioned we would be walking into in this 

period.

Sue, if there's something you'd like 

to add?

MS. COSPER: Sure. So, yeah, I think,

of course, no one could have predicted the 

pandemic, but I do think that much like the 

subjectivity that you're dealing with today and 

applying the incurred loss model and sort of 

thinking about what sort of estimates you need to 

make, as you think forward to CECL, you know, 

you're still going to have estimates that you are 

making based on information that affects your 

individual facts and circumstances, the market in 

which your institution operates and so on.

So, I think that -- you know, 
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certainly I think the judgments that you're 

making today are no doubt very difficult 

considering the environment that we're in.

And in a small institution setting, no 

one knows your individual customers better than 

you do and know what and how -- what they're 

dealing with and what your expectations are. So, 

I'll just pause there.

MR. DAVIS: Thank you. Other 

questions? 

(silence)

Other comments?

MR. JONES: Maybe one more comment 

from me, if that's okay. Sorry, I didn’t use 

raise hands.

MR. DAVIS: No, please go ahead.

MR. JONES: Okay. I know that as the 

institutions on this call work forward through 

the current environment as well as through their 

implementation activities, there may be other 

items to come up or either questions or -- about 
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how to apply the standard or any observations on 

how it could be improved.

I'd encourage them even though not --

maybe not in this forum or -- feel free to reach 

out to us directly because we are looking for 

that input from you.

MR. DAVIS: Great. Thank you. One 

last call for questions. 

(silence)

Okay. Well, Richard and Susan and 

Shayne, thank you very much for joining us. 

I really appreciate you taking some 

time to come in and introduce yourselves and 

hopefully that will be a dialog that can continue 

as we move forward. So, thank you again. I 

appreciate it.

MR. JONES: Great. Thank you.

MR. DAVIS: Next on the agenda we have 

Claire Lam. She is the Acting Director of the 

FDIC's Office of Minority and Women Inclusion.

Claire is going to lead a discussion 
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on diversity and inclusion at financial 

institutions. Thank you, Claire.

MS. LAM: Hi. Thank you, Chad, for 

the introduction.

Can you hear me okay?

MR. DAVIS: Yes, we can. Thank you.

MS. LAM: Okay. Great. Thank you. 

Okay. For today's discussion, I want 

to first provide you with background information 

about the FDIC's Financial Institution Diversity 

Program, basically what it is, and then we'll 

lead into a conversation about the diversity 

challenges facing community banks.

As part of the presentation, I'd like 

to also get your feedback. As I walk through the 

presentation, please think about how some of 

these diversity and inclusion -- or D&I -- issues 

apply to your bank.

Are there any examples that you've 

experienced or that you anticipate that you can 

share with the group?
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And please consider how the FDIC can 

better support you in your D&I journey. For 

example, what guidance and information would be 

most helpful to you as you work to develop new 

D&I practices?

At the end, we'll have time for a

discussion. I hope you will be able to share 

some of these experiences and insight with us.

Okay. Let's see. Let's go to the 

next slide, please. Section 342 of the DoddFrank Wall Street Reform and Consumer Protection 

Act of 2010 required that the financial 

regulatory agencies’ Office of Minority and Women 

Inclusion to develop standards to assess 

diversity policies and practices of financial 

institutions that they regulate.

In order to do so, on June 10th of 

2015 the FDIC, along with other regulators, 

issued a policy statement that contains standards 

that provide a framework for financial 

institutions to self-assess their diversity 
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policies and practices.

These standards identify the following 

five key areas as important for advancing D&I 

within an organization and were the result of 

roundtable discussions held with the financial 

services industry.

The FDIC encourages its regulated 

entities that have 100 or more employees to 

conduct a self-assessment annually and to 

voluntarily share the results with us so that the 

trends may be shared with the industry.

Financial institutions, regardless of 

size, can also benefit from conducting the 

diversity self-assessment because a diverse 

workforce and an inclusive culture help financial 

institutions to better connect with the local 

community and an increasingly diverse customer 

base.

Next slide, please. Thank you. We're 

on slide 3. The Financial Institution Diversity, 

or FID program, has three overarching strategic 
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goals.

We seek to create and strengthen 

partnerships with our financial institutions with 

the ultimate goal of helping them to mature their 

diversity and inclusion programs.

We also want to leverage technology in 

order to make it as easy as possible for our banks 

to conduct their self-assessment.

Our strategy for achieving these goals 

start with expanding the number of participating 

institutions each year.

Having that rich and robust data on 

D&I trends enable us to share across the industry, 

and among our financial institutions, which 

ultimately will result in progress in D&I 

practices.

Another approach is to develop 

resources based on what the banks are telling us 

in their diversity assessment that they need, 

things that will help them improve their D&I 

programs and practices.
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In other words, when we see an area of 

challenge across the industry, we can start to do 

the research and then share that information 

again with the aim at helping our banks to better 

address and overcome those challenges.

Recently, we developed and posted on 

our website some white papers that serve as 

resources to support financial institutions in 

developing and maturing their diversity policies 

and practices.

At the end of the presentation, you'll 

see our website and I hope you have time to check 

that out.

And finally, we seek to promote and to 

share the benefits of D&I for our financial 

institutions.

In recent years, we've joined other 

regulators in hosting the OMWI forum with local 

bankers in both the New York City area and the 

Chicago area, and we’ve also engaged in outreach 

activities with professional associations such as 
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the American Bankers Association.

Next slide. On slide 4, we’re excited 

to announce the recent deployment of the 

Financial Institution Diversity Self-Assessment 

application, also known as FID-SA.

This application is accessible through 

a secure portal within the FDICconnect system. 

The FDIC developed the FID-SA application to 

facilitate the collection of self-assessment 

data, which allows the financial institution to 

electronically submit this data to us. FID-SA 

also enables the banks to set up multiple users,

who are then able to work on their self-assessment 

simultaneously.

Other features include the ability to 

view prior years’ submissions as well as the 

ability to attach supporting documentation, to 

download and to print.

Behind the scenes, though, the 

application allows the OMWI staff with the 

ability to perform much improved trend analysis 
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using aggregate data. And prior to this year, we 

were using a fillable PDF form, which banks either 

emailed or snail-mailed to us.

So, given the efficient enhancement 

that the FID-SA application provides to both 

bankers and OMWI, you can see why we're so excited 

about promoting the use of this portal.

Financial institutions now have quick access to 

their self-assessment data through this 

application and they can easily update that data 

each year.

Next slide, please. As I mentioned 

earlier, the FDIC encourages financial 

institutions with 100 or more employees to 

conduct and voluntarily submit an assessment.

Many of you are thinking, well, that 

doesn't apply to my bank, but I would say that 

you can't afford not to at least be aware of the 

benefits of the self-assessment. Community banks 

are encouraged to use the standard in a manner 

that is appropriate to their size, their 
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governance structure and characteristics.

The self-assessment tool will walk you 

through five categories, and the results will 

identify your specific areas of strength as well 

as any areas of challenge. And this allows you 

to strategically target your resources to the 

most relevant D&I areas.

And when you compare your results with 

the annual report that we publish containing the 

aggregate data across the industry, you can 

measure how your institution's data aligns 

against other institutions of similar size, 

location, practices, and so on.

You can also highlight your D&I 

successes and increase awareness of your 

challenges as well as identifying opportunities 

where you can proactively and strategically take 

to improve and grow your D&I practices.

Next slide. Let's talk about what 

bankers are telling us, starting with some of the 

challenges that we've seen across the industry 
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over the years. Overwhelmingly, we've heard that 

location and size are factors that impede a bank's 

ability to grow their D&I programs. In other 

words, their ability to recruit, to hire, and to 

retain a diverse workforce.

When you're a small community bank, 

it's hard to compete with the big banks for 

talent, much less for qualified diverse talent.

And for those that are in the rural locations, 

they don't have access to the same diverse talent 

pool that urban area banks do. We've also heard 

significant challenges in retaining a diverse 

workforce, especially in the rural areas.

And because D&I programs are not one 

size fits all and it's so unique to each 

organization, we've heard time and time again 

that financial institutions are at different 

stages of the maturity model. What works for one 

bank doesn't always work for another; however, we 

do know that regardless of size the small 

community banks can take certain practices from 
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larger institutions and apply them on a much 

smaller scale.

Also, conducting a self-assessment is 

singularly the most important diversity practice 

to identify that baseline toward improving.

Many financial institutions, large and 

small, also report that they're not aware of how 

they can maximize the use of the self-assessment 

tool. They're also not aware of the FID program 

itself as well as the benefits and engaging with 

FDIC's Office of Minority and Women Inclusion, as 

yet another resource for helping them implement 

their D&I program.

We've also heard that many in the 

banking community are wary of sharing their D&I 

data with their regulators. To this end, I want 

to stress that we only report statistics of the 

financial institution in the aggregate. No 

specific identifying information is reported or 

provided to the public. All submission received 

are treated as commercially confidential 
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information and secured appropriately.

Despite these challenges, many 

institutions are committed to maturing their D&I 

programs because they recognize the importance 

and the value of having a workforce that reflects 

the communities where they do business.

So, as I mentioned, these are just a 

few examples that we're seeing from our 

submissions, and I want to take a pause to ask 

you, do any of these issues sound familiar to 

you? And do they apply to your bank? Are there 

any other examples that you've experienced? 

Chad, I'm not able to see the chat. 

So, stop me if you see --

MR. DAVIS: Yeah. At this point, 

Claire, we don't see any hands raised.

MS. LAM: Okay.

MR. DAVIS: So, give it maybe a --

MS. LAM: I'll move on.

MR. DAVIS: -- couple more seconds and 

then you can just move forward. Okay.
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MS. LAM: Okay.

MR. DAVIS: I think you can go ahead 

and proceed.

MS. LAM: Okay. Great. If you could 

move to the next slide, please.

The information shared by our 

financial institutions have also provided many 

examples of diversity and inclusion that are 

being practiced in each of the areas covered by 

the five standards that you saw earlier.

The FDIC Section 342 annual report 

highlights some of the good work that the 

financial institutions are doing. Again, what 

works for one bank doesn't always work for 

another, but it's always good to be aware of all 

the different ways in which banks accomplish 

their D&I goals. The examples are highlighted 

here on this slide, and I'll go over some of them 

with you.

Some of the banks have invested in 

employee development programs that are targeted 
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toward developing women and minorities for 

leadership positions while others report 

effectively incorporating D&I scorecards in 

management dashboards. Banks also report that 

they provide training for staff at all levels, 

both voluntary and mandatory, to enhance employee 

awareness about diversity and inclusion issues

that may exist.

Senior leaders and managers have a 

pivotal role in fostering a diverse and inclusive 

environment. Therefore, many banks have reported 

that they included D&I in their leadership and 

management curricula.

And some banks report success with 

programs that leverage student interns, providing 

them with opportunities for full and part-time 

employment. We've often seen these student 

programs targeted toward minority-serving 

institutions or in underserved communities.

In recent years, supplier diversity 

has been an area of focus for many banks. They 
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have begun to look at how their business 

strategies ensure a diverse supplier base in the 

procurement of their goods and services. More 

and more banks are measuring the economic impact 

of their supplier diversity programs to gain a 

clearer picture of what diverse spending means 

for the communities that they serve.

And finally, the last two bullets 

speak to accountability. Many banks report 

incorporating components of D&I into their 

corporate goals and adding D&I into the 

performance standards of their senior management 

team.

This commitment to organizational and 

individual accountability goes a long way to 

driving change that's needed in order to achieve 

their D&I goals.

Next slide, please. The information 

that I shared in the previous slides is just a 

few examples of what bankers are telling us from 

the 2015 to 2018 reporting period.
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I imagine that this year's reporting 

period will be very interesting as bankers share 

how they are adjusting and implementing D&I 

during these unprecedented times.

And so, at this time, I'd like to ask 

you, are there any examples that you've 

experienced that you can share and how have you 

met some of your D&I challenges this year?

MR. DAVIS: Great. Thank you, Claire.

Again, if -- folks that have questions 

or comments for Claire, if they could please just 

raise their hand in the WebEx, I'll get right to 

your question.

MS. LAM: Or you could also tell us how 

we can better support you in your D&I journey.

MEMBER KELLY: Chad, this is Kenneth. 

Maybe I'm the slow one. I don't see a place to 

raise my hand. So, I --

MR. DAVIS: Feel free to jump in.

MEMBER KELLY: -- am just kind of 

jumping in here. 
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I just want to say a very thoughtful 

presentation. It is heavy. This is a very heavy 

subject, especially in our country at this time.

And so, I just want to show my 

appreciation to the FDIC in even having this 

topic, you know, brought up on, you know, before 

this body.

As I said in my opening comments, I 

believe that bankers really have a responsibility 

to kind of demonstrate the leadership that is 

needed in this country and every aspect of 

injustice has a root in economics. And you can 

just name the time period and you can find that 

there was an economic basis in it. Whether it 

was slavery itself, Jim Crow itself, the civil 

rights movement, all of those things have had an 

economic floor that was really the premise for 

those challenges.

And so, I'll just ask my colleagues on 

this panel to help us think about how we can do 

that. Now, I'll be real clear what you put forth 
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can feel very heavy to the audience, because I've 

sat in those shoes.

The reality is a bank in Iowa -- and 

please go with me on the stereotypes here. A 

bank in Iowa may not have the diversity of the 

city of Los Angeles. That's just the reality, 

right?

And so, what will make, I think, many 

of these institutions be comfortable with these 

discussions is ensuring that they won't be put 

out as the poster child for not complying.

And so, we'll have to be very 

thoughtful in what we mean by, you know, you are 

meeting a benchmark or you're not meeting a 

benchmark because it should be somewhat -- I won't 

say exactly proportionate, but it needs to be 

based in something that is real.

So, for example, if you are in the 

State of Alabama and your workforce was 85 percent 

white and, say, 15 percent African American, if 

you just use those two ethnicities, that would be 
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out of line with the population of the state. And 

there are some reasons for that, right? So, you 

can bench on that.

But if you're in Iowa, that's very 

different. If you're in LA, it's very different. 

So, we'll have to be, in my opinion, very 

thoughtful on this, but I think it's a -- the 

type of conversation we need to have. And I want 

to commend you and -- Chairwoman McWilliams on

your leadership, Director Gruenberg in your 

leadership, in even bringing this topic to the 

table.

And I hope that even the colleagues 

and everyone under the sound of my voice can be 

comfortable with having this conversation so we 

can begin to make some progress.

MS. LAM: Thank you for your thoughts, 

Kenneth, and I completely agree.

There's a -- diversity and inclusion 

can't be mandated, but there are studies after 

studies regarding the benefits of having a 
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workforce that reflects the community that you 

live in, the community that we work in. And so, 

I absolutely agree with you.

MR. DAVIS: Okay. One last call for 

questions. Okay. Claire, thank you. Kenneth, 

thank you. 

MS. LAM: Yes.

MR. DAVIS: Go ahead, Claire.

MS. LAM: As I go ahead and close, I 

want to echo what Kenneth said. Diversity and 

inclusion is a difficult topic, it's a heavy 

topic. But as you think about this and you want 

to provide feedback for us, we do want to provide 

resources that enable you to accomplish your D&I 

goals. So, on this slide, you will see my contact 

information. Please feel free to reach out to me 

and provide us with any feedback. We want to 

make sure that we're meeting your needs and, you 

know -- and also you can check out our website. 

All the information is there. We've got a list 

of historical reports that document some of the 
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trends and analysis over the years.

Okay. And in closing, I want to 

encourage your institution to consider conducting 

the D&I assessment for 2020. If you haven't 

already done so, please check out a FID-SA 

application in the FDICconnect and get access to 

that. It will be your first step toward the D&I 

awareness and practice and engaging with us.

So, thank you, I welcome your 

feedback, and thank you for your time.

MR. DAVIS: Great. Thank you, Claire.

Our next panel is from the Division of 

Insurance and Research. Ashley Mihalik is the 

Section Chief of the Banking and Regulatory 

Policy Section and is going to go over the recent 

final rule related to deposit insurance 

assessments.

And Yan Lee, an economist in the 

Special Studies Section, is going to discuss the 

FDIC Small Business Lending Survey.

Great. Please proceed.
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MS. MIHALIK: Thanks, Chad.

My name is Ashley Mihalik, as Chad 

introduced me. I'm the Chief of the Banking and 

Regulatory Policy Section in the Division of 

Insurance and Research at the FDIC. 

I'm providing an update today on a 

rule that the FDIC Board recently approved 

related to deposit insurance assessments and the 

SBA's Paycheck Protection Program as well as the 

Federal Reserve's PPP Liquidity Facility and the 

Money Market Liquidity Facility, or MMLF.

On June 22nd, the FDIC Board approved 

a final rule that mitigates the deposit insurance 

assessment effects of participating in the PPP, 

the PPPLF and the MMLF.

These programs were put in place to 

provide financing to small businesses, and 

liquidity to small business lenders and the 

broader credit markets, and to help stabilize the 

financial system in a time of significant 

economic strain. The final rule ensures that 
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banks will not be subject to significantly higher 

deposit insurance assessments for participating 

in these programs.

As a matter of background, 

institutions are charged deposit insurance 

assessments based on different measures depending 

on whether they are classified as small banks, 

large banks, or highly complex institutions for 

assessment purposes.

There are a number of financial 

measures used to determine a bank's assessment 

rate and a bank's deposit insurance assessment 

amount is calculated by multiplying its rate by 

its assessment base, which is roughly its total 

liabilities or average consolidated assets less 

average tangible equity.

Under the final rule, the FDIC will 

exclude PPP loans from an institution's total 

assets, and will exclude borrowings under the 

PPPLF from an institution's total liabilities, in 

risk measures used to determine an IDI's 
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assessment rate.

For example, one of the measures used 

to determine a small bank's deposit insurance 

assessment rate is asset growth. The FDIC will 

exclude PPP loans from an institution's total 

assets, including in the calculation of the asset 

growth measure, so that an IDI will not be charged 

a higher assessment rate due to asset growth 

resulting from participation in the PPP. 

Participation in the PPP and MMLF programs could 

have the effect of expanding an institution's 

balance sheet.

The final rule also mitigates the 

effect of PPP loans and assets purchased under 

the MMLF increasing an institution's assessment 

base or its assets less equity. Under the final 

rule, the FDIC will provide an offset to an 

institution's total assessment that is equal to 

the increase in its base due to participation in 

the PPP and MMLF.

In addition, the FDIC will exclude all 
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PPP loans and assets purchased under the MMLF 

from total assets in calculating certain 

adjustments that reference a bank's assessment 

base and then classifying institutions as small, 

large, or highly complex for assessment purposes.

These adjustments include the 

unsecured debt adjustment and the depository 

institution debt adjustment. Another adjustment, 

the brokered deposit adjustment, does not apply 

to established small banks.

These changes mean that a small bank 

would not be reclassified as large solely due to 

participation in PPP or MMLF.

The changes under the final rule will 

be applied to insured depository institutions’

quarterly deposit insurance assessment starting 

in the second quarter of 2020, which is paid by 

institutions in September 2020.

Beginning as of June 30th, 2020, as 

John mentioned under the Call Report changes, 

institutions will report on the Consolidated 
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Report of Condition and Income new items related 

to participation in these programs.

There are eight new items that the 

FDIC will use to apply the modifications under 

the final rule in calculating an institution's 

deposit insurance assessment.

The FDIC will post on its public 

website assessment calculators that reflect the 

revisions under the final rule once data for the 

June 30th, 2020 Call Report period becomes 

available.

That concludes my update on the 

assessment rule. I'm going to take questions 

before handing it over to Yan.

(Silence)

MR. DAVIS: Yan, I don't see any 

questions. So, please feel free to proceed, Yan.

MS. LEE: Okay. Thank you so much. 

I'm delighted to be here. Again, my name is Yan 

Lee and I am a Ph.D. Researcher in the Division 

of Insurance and Research.
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And I know that I am the barrier to 

your freedom since I am the last speaker. So, 

I'll try to keep it lively and to the point. And,

of course, I welcome questions during and after 

the presentation.

Actually, let me walk a little bit 

through what we're going to do today. So, today 

I'm going to be talking about new research that's 

come out of the FDIC Small Business Lending 

Survey.

And so, we have ongoing research that 

comes from this data and today I'm going to talk 

about a new staff study that was just published 

this month. And basically we're assessing how 

useful the Call Report data is, how accurate it 

is in measuring small business lending by 

community banks. That's what I'll be talking 

about today.

So, what exactly is the Small Business 

Lending Survey? This is a nationally 

representative survey of bank small business 
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lending practices.

And by "nationally representative," we 

mean that the banks are sampled in a way such 

that we can make inferences about the entire 

industry and not just the banks that answer the 

survey.

And so, the survey -- we contracted 

with the US Census and were able to guarantee 

confidentiality and so we had a very high response 

rate. 

60 percent of the banks that were 

asked to participate ended up actually 

responding, and that ended up being for the number 

of banks, at the time, 1/5th of the US banks, or 

1,200 banks, at the time of the survey.

And so, in 2016, we had our first 

collection and we basically asked banks about a 

wide range of topics that related to small 

business lending. And then in 2017, we analyzed 

the data. And in 2018, we published a report of 

these findings.
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So, today what I'll be talking about 

is some of the new research that we've been able 

to conduct with the data that we collected in 

this 2016 collection.

So, what we're interested in is the 

amount of small business lending by banks and how 

well the Call Report data is able to approximate 

that.

So, given that we have a short 

presentation, I thought it would be easier to use 

a figure to kind of illustrate my points.

So, basically banks are important to 

US small businesses. They are the primary source 

of external financing for US small businesses, 

and community banks are thought to be especially 

adept in addressing the needs of US small 

businesses.

They're on the ground, they're local 

to the economy, they're local to the area, and 

basically they can engage small business in a way 

that perhaps large banks cannot. So, we're really 
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interested in how much lending small banks, and 

banks in general, lend to US small businesses.

So, what are we interested in 

capturing? So, if you think about this square as 

the pie of a bank's small business lending, what 

we're interested in is this orange column.

So, banks make loans to small 

businesses and to larger businesses, and small 

businesses receive small loans and larger loans.

And what we're interested in is, hey, look, for 

a given bank, how much of your lending -- your 

total pie -- goes to these small businesses? 

So, this is A and B. This is what 

we're interested in capturing, loans of all sizes 

that go to US small businesses.

Now, what we used instead is actually 

what we'll call the "Call Report proxy," and that 

is loans of a million dollars or less at 

origination, and we use that to approximate bank 

small business lending.

So, what we want to measure is this 
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area, A plus B, but what we use is A plus C. So, 

these are loans of a million dollars or less at 

origination and that's our proxy for bank small 

business lending.

Now, what we see here is that this 

cell B is actually bigger loans that go to small 

businesses that are not captured if we use this 

Call Report proxy.

And then what we also have is this 

cell C which are the small loans, but sometimes 

they go to bigger businesses. So, for example, 

it could be a C&I credit card loan.

So, what we're interested in is 

whether -- is what size are these B and C cells. 

So, the Call Report proxy would be pretty good if 

B and C are very close to zero. So, again, B is 

understatement of bank small business lending and 

C is overstatement of bank small business 

lending.

Okay. So, these are our main results 

and I know it's a lot going on here. So, I'll 
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walk you through this very, very slowly and --

know it’s a lot going on.

So -- okay. So, basically we're able 

to use the data from the SBLS that was conducted 

in 2016 to answer this question.

And so, what we did was we asked banks

-- hey, of your loans, your C&I loans that are a 

million dollars or less or greater than a million, 

let's parse this by firm size.

So, we asked the banks -- hey, for 

your firms -- for firms that are less than 10 

million gross annual revenue and greater than 10 

million gross annual revenue, how much of the 

lending are they getting in these different loan 

size buckets?

So, basically we're able to say 

something for banks that are one to $10 billion 

dollars in assets in 2015. 

So, these are -- the thing about 

these, there's like larger -- or larger community 

banks or not small community banks.
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So, what we find is that if you think 

about this as a pie for a given bank -- in this 

case, this is the entire industry of banks that 

are one to ten billion assets -- for every hundred 

dollars that they lend in C&I lending, $30 are 

lending to small businesses that are not being 

counted, if we rely on the Call Report proxy, and 

then about $7.50 are lending that will be counted, 

but they're actually going to larger businesses.

So, if you add that together, that 

means about $38 for every hundred is kind of in 

the wrong bucket.

And then if you net that out, what 

that means is that for every $100, $23 are lending 

to small businesses that are not being counted, 

okay? So, this is something that we think is 

important to know. 

And then another thing that I want to 

point out from this slide is that if you look at 

just the lending to small business, which is the 

A and B that we're interested in, and we look at 
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how loans are distributed by the loan size, $1 

million or less or greater than a million, we see 

that basically half the loans that are going to 

small businesses are in these small loans, but

more than half -- more than half -- so, more than 

half are in these larger loans that are going to 

small businesses.

So, that's currently not being counted 

if you rely on the Call Report proxy for small 

business lending.

And, I want to say and reassure you 

that the lending that we measure in the Call 

Report is very, very accurate, but the question 

that we're answering here is whether it's 

accurate in measuring small business lending.

And so, it's very accurate in terms of 

measuring loans that are a million dollars or 

less, but, as you can see here, as of today it 

might not be so accurate in capturing bank small 

business lending to -- bank lending to small 

businesses.
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Okay. So, just to wrap up, in 2016 we 

covered these different topic areas for our data 

collection. And in 2022, we're going to have a 

second data collection. We're going to refine 

these different topics and we're going to expand 

on the previous topics, including banks' response 

to COVID-19; banks' use of fintech -- how they 

engage with fintech, whether they use it at all;

bank loan decision-making in small business 

lending -- so who makes this decision, where are 

the decisions made; and bank SBA lending. And 

this is related to what Ashley shared about 

before.

Basically, we want to see how banks 

have been responding and using these programs 

given the recent pandemic and programs that have 

been offered.

And so, just to do some cheerleading, 

the SBLS 2022, that's our second data collection, 

we're currently in the middle of drafting the 

instrument for that. We'll be testing it in the 
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field with about 50 US banks next year and then 

it will be in the field in 2022.

And so, if you're randomly asked to 

participate, we would love to have you 

participate so that your bank is -- the data for 

your bank is included in our results so that we 

can really say something about the impact of US 

banks for US small businesses.

And in 2023, we'll analyze the data we 

collected. And in 2024, we'll publish a final 

report for this second data collection. Thank 

you.

So, I'm happy to take any questions. 

I know there's a lot that I talked about today 

and I'm happy to flip through my slides to answer 

those questions.

MR. DAVIS: Thank you. 

And, Alan, the floor is yours. I see 

you have a question.

MEMBER SHETTLESWORTH: Can you hear me 

now?
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MR. DAVIS: Yes.

MEMBER SHETTLESWORTH: Great. Thank 

you.

Yan, thank you for that. Again, Alan 

Shettlesworth, Main Bank in Albuquerque, New 

Mexico. 

I'm happy to participate in the next 

survey that you have. So, if you would take my 

contact information down or, you know, we can 

connect after this, happy to do that.

MS. LEE: Okay.

MEMBER SHETTLESWORTH: One point I 

have is I would prefer when we're doing this data 

collection, if we could, if we're going to go 

through the effort of collecting the data and 

reporting the data, I'd feel a lot better about 

it if we could report it by zip code.

New Mexico is one state in particular 

that is -- it's notorious for outside lenders 

coming in and taking deposits and loaning them 

outside of New Mexico. 
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And I wonder how we can incorporate 

that data to see where that is being lent by zip 

code because we do a good job at the FDIC of 

reporting which institutions have deposits based 

by state, but we don't necessarily have that same 

benchmark, at least publicly available, that I'm 

aware of, that dictates who's actually lending 

money back in those economies.

And, to me, that's the most important 

thing for our economies to succeed is to take the 

resources from your area and loan back into that 

area.

MS. LEE: Yeah, that's a great 

comment.

I believe the CFPB has a mandate to 

really investigate whether they can collect bank 

small business lending data at the loan level.

And so, that would make it a 

collection where you can actually identify who's 

a lender --

MS. MIHALIK: (Simultaneous 
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speaking.)Dodd-Frank Act

MS. LEE: Yeah. Yeah. As a function 

-- as a result of Dodd-Frank. So, they have this 

mandate and they are tasked to figure out if they 

can collect at the loan level similar to HMDA 

data where -- who lends to which locations at the 

loan level -- collecting the loan level data with 

these geographic identifiers. So, that's a great 

point.

I'm happy to take more questions 

especially about this slide, if there are any.

MR. DAVIS: Okay. Are there any other 

questions? 

(silence)

Okay. Does not appear that there are 

any more questions, Yan. So, thank you very much. 

We appreciate the presentation.

MS. LEE: Great. Thank you so much.

MR. DAVIS: We now have gained a few 

minutes back in the schedule. So, Brandon 

Milhorn, the Deputy to the Chairman and the Chief 
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of Staff at the FDIC, is going to spend a few 

minutes talking to us about the rapid prototyping

technology competition that we announced last 

month.

MR. MILHORN: Thanks, Chad, and good 

afternoon to the committee.

Last year when I spoke before the 

committee, I talked about our Supervision 

Modernization Subcommittee and our goal of 

looking at our supervisory efforts and 

understanding how technology can be used to 

promote efficiency and effectiveness in our 

supervision while also cutting costs and 

regulatory burden on financial institutions that 

we supervise, particularly at our community 

banks.

Last month, in furtherance of those 

efforts, we announced a competition designed to 

reexamine how we do financial reporting in the 

United States.

And it's interesting -- some of the 
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very conversations that we've been having at the 

committee today are reflective of the challenges 

that we have in data, you know, larger 

institutions we get more granular data on,

smaller institutions we're relying on Call Report 

data that comes in quarterly or examination 

efforts, our supervisory efforts, and the 

challenges that come along with whether it's too 

big and too aggregate and not granular enough.

And so, we've tasked our competitors 

in this competition -- for purposes of the 

competition we brought in 30 competitors from 

financial services, technology, data management, 

big data, data quality, firms with expertise in 

artificial intelligence and machine learning, and 

we tasked them with the challenge: Could you 

provide access to data from our financial

institutions regardless of the data structure, 

regardless of the data source, regardless of data 

type, get access to that data and pull it in and 

run analytics against it so that we could better 
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understand the financial health of the 

institution and use that data to look more broadly 

at the financial health of the overall financial 

sector?

And the biggest challenge there, as 

you all well know, is this data, particularly for 

our community banks is spread across multiple 

core processors, many different data structures, 

and it lends itself to some of the challenges 

that you all, and the community banks 

particularly, have in just filling out your Call 

Reports, even despite efforts to automate that 

process over the last several years.

So, the question, it's very 

interesting. We're using an acquisition method 

known as rapid prototyping.

So, instead of defining out a specific 

set of requirements, we give these competitors, 

all very experienced in this space, a challenge: 

How would you address this challenge? How would 

you pull this data from across multiple providers 
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and run analytics against it?

And the interesting part of that is 

because you put them in this environment, make it 

a competition, the solutions that get proposed

are often ingenious, and we're hoping to see that 

in the context of our competition.

They'll provide their draft concept 

papers, they'll have 90 days after that to produce 

a demo, and then 90 days after that to produce a 

prototype which we'll consider to put in 

production.

I know in the package, one of the 

things that you saw was an op-ed in the American 

Banker by Chairman McWilliams with our goal of 

can we make the Call Report obsolete. Of course 

that's going to take time. This is not something 

that's going to happen in 180 days.

And as the Chairman noted in the oped, it may not even happen in her tenure, but we 

hope that this effort can form the foundation for 

a better supervisory model, a more timely access 
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to targeted datasets regarding the financial

health of our -- of the institutions.

And we can do it in a way that's seamless for 

institutions so it doesn't add burden and add 

costs. And we actually hope that because of what 

we learn about data, it can help cut costs at 

your institutions.

One of the things that we're not going 

to do with this effort is impose or mandate data 

standards or impose a requirement that all 

institutions participate in the technology 

demonstration.

We're hoping that once we have a 

prototype developed, we can -- there will be many 

institutions that volunteer to participate.

You know, using technology can be 

incredibly helpful not only for the FDIC, but 

taking a more forward-looking digital approach to 

operations can also be helpful for our 

institutions.

But we're very cognizant about 
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imposing these costs, particularly on community 

banks that would come in all flavors when it comes 

to technology.

So, we're hoping that our efforts on 

rapid prototyping can provide solutions to 

address regulatory reporting, but also help our 

institutions take a more effective approach to 

onboarding and using technology in their 

operations.

We see this as the foundation for 

several efforts at using technology and 

supervision over the next few years.

So, with that, I'd be happy to take 

any questions that you might have about the --

about our efforts in this space.

MR. DAVIS: Okay. Do we have any 

questions for Brandon? 

Alan, please go ahead.

MEMBER SHETTLESWORTH: Can you hear 

me?

MR. DAVIS: Yes.
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MEMBER SHETTLESWORTH: Okay. Great.

Thank you, Brandon. I like the 

concept here. What I've got going in my head is 

potentially a concept where a file can be created 

or uploaded from our core banking system similar 

to how we handle examinations now.

And so, for specific FDIC examinations 

we just upload a file from our core and send that 

data to you guys and that's really not anything 

extra we really have to do other than upload a 

file periodically.

And so, if the technology can be moved 

in that direction to basically reduce us having 

to do a separate manual Call Report once a 

quarter, we could do some type of manual upload 

of what we're already embedding or inputting in 

our core on a daily basis. 

That, to me, just sounds like a really 

-- a real potential to have real relief there.

MR. MILHORN: Thanks, Alan.

I'd say, you know, that is very close 
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to our goal, you know. We want to make this 

seamless for institutions. We want to be able to 

access the data where it sits, without imposing 

additional requirements or additional burdens on 

institutions to be able to understand and pull 

that data in and run analytics against it. Not 

just necessarily for, you know, this exam, but 

for -- over time so we can see -- you know, from 

my perspective, our goal is to identify risk in 

institutions early, before it grows.

Identify risk in the financial system 

early, before it grows, and so we can see that 

develop and take steps to mitigate it, and we 

think this technology can be a very helpful tool 

in that approach.

Thanks, Alan.

MEMBER SHETTLESWORTH: Thank you.

MR. DAVIS: Louise, I believe you have 

a question, correct?

MEMBER WALKER: You know what? We 

will volunteer, if you're looking for volunteers.
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MR. MILHORN: Thank you very much. I 

appreciate that. We -- I'll get you on speed 

dial.

MEMBER WALKER: Okay.

MR. DAVIS: Any other questions or 

comments for Brandon? Sarah, please go ahead.

MEMBER GETZLAFF: A comment that I 

have is that at our bank there's often times where 

we can upload a file to send it to the Federal 

Reserve Bank, but we're not currently capturing 

all of those data fields within our core system.

We maybe have them, but they're in our 

files and we've never found it useful to enter 

those fields for whatever reason before. And 

now, we're having to go back through and dig 

through all of our existing files to input that 

data.

And so, when it does move towards that 

way, it would be useful to give us those fields, 

you know, well in advance so we can start, you 

know, inputting as we go and not have such a 
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backlog.

MR. MILHORN: Yes, Sarah. 

You know, one of our goals is to take 

the data as it exists. We think there's good 

granular data out there that's already in our 

systems and there's value that can be added using 

external datasets. 

And we can pull that -- if we can pull 

that together and ensure that the data is very 

good quality, then we can run analytics without 

imposing, you know, data formatting or data, you 

know, mandating additional cells.

That, to me, is really the trick with 

this first effort -- the rapid prototyping effort 

in this space, is what can we do without imposing 

these additional format and cell challenges on 

our institutions.

MEMBER GETZLAFF: Thank you.

MR. DAVIS: Anyone else?

(silence)

Okay. Thank you, Brandon.
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MR. MILHORN: Thanks, Chad. I look 

forward to working with the committee on the 

project.

MR. DAVIS: Great. Thank you.

Before we -- that completes the 

agenda. Before we close, Director Gruenberg, do 

you have any comments you'd like to make?

DIRECTOR GRUENBERG: Thanks, Chad. 

I just want to thank the members of 

the committee. These are extraordinary times. 

So, we appreciate you taking the time to share 

your thoughts and experience with us today. As 

always, extraordinarily helpful and insightful.

And I will say, I do think the next 12 

to 18 months are going to be a period of 

extraordinary challenge and stress for the 

financial system and the banking system of the 

United States. And I hope we can continue to 

benefit from the insight and experience of our 

committee members as we move along here.

So, just a word of thanks for taking 
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the time today.

MR. DAVIS: Thank you.

And with that, I'll turn it over to 

Chairman McWilliams to close us.

CHAIRMAN MCWILLIAMS: Thank you, Chad. 

Thank you, Marty. Thank you, members of the 

committee.

I would like to echo Marty's comments. 

These truly are extraordinary times and, frankly, 

in the next year or two years we're going to be 

working through a number of issues as we deal 

with the pandemic and the aftermath.

And hopefully the pandemic will come 

to an end at some point soon when we have the 

vaccine and the herd immunity, but we're not there 

yet.

In the meantime, please continue to 

support your communities. I cannot thank you 

enough for the valuable input you provided to us 

today and took the time out of your busy 

schedules.
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If there's any silver lining, you 

didn't have to travel for this. So, at least 

you're spared the travel time, if nothing else, 

but your input was extraordinarily valuable to 

us.

And we will continue to seek your 

advice as we move forward together dealing with 

myriad issues that are inevitably going to arise 

in the next couple of years.

So, thank you for your time today and 

before we say goodbye, I would like to thank a 

former member -- now a former member, Chris 

Donnelly, from -- who is president and CEO of 

Bank of the Prairie in Olathe, Kansas.

He stopped being a member. The last 

meeting was his last meeting. And we would like 

to thank him for the time and effort he devoted 

to this committee in helping us work on community 

banking issues in general.

To all of you, thank you from the 

bottom of my heart. I know everybody at the FDIC 
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is incredibly grateful for your time, effort, and 

attention to these issues.

Stay safe and we look forward to 

seeing you in October. Thank you.

(Whereupon, the above-entitled matter 

went off the record at 5:21 p.m.)