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ANNUAL REPORT - CSBS

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2020ANNUAL REPORT

CORE MISSIONCSBS supports state regulators in advancing the system of state financialsupervision by ensuring safety and soundness; protecting consumers;promoting economic growth; and fostering innovative, responsive supervision.State-chartered banks provide:1/279%OF ALL U.S. BANKSARE CHARTEREDAND SUPERVISEDOF ALL U.S. SMALLBUSINESS LENDING2/3BY STATEREGULATORSOF AGRICULTURELENDING IN AMERICASTATE REGULATORS ARE THE SOLE LICENSINGAUTHORITY FOR NONBANK FINANCIAL SERVICESCOMPANIES (mortgage providers, money servicesbusinesses and consumer finance companies).

A LETTERFROM JOHN RYANCSBS began 2020 with forward momentum. We were eagerto implement a bold new strategic plan with a future-basedapproach that looks at how technologies impact financial services and how wewill respond to ensure state leadership in protecting consumers and promotingvibrant state and local economies.Eleven weeks into the new year, the global pandemic overtook every part of our lives. Our office buildingshut down. Our work and meetings became remote. Our members’ most pressing needs changed.Despite the challenges, CSBS staff quickly adjusted to these new demands. That meant meeting andsometimes anticipating our members’ needs amidst the pandemic and its economic fallout, including: Coordinating state and federal regulatory response Shaping the national response through policy and local data Elevating policy issues that strengthen the state system Reimagining our meetings and member forums for the new virtual environmentBut we also kept moving forward on our strategic priorities that advanced us toward a stronger, morestreamlined and more networked system of state supervision, among them: Opposing attempts to preempt state authority Improving supervision technology Furthering uniform regulation of nonbanks Creating nonbank cybersecurity examination procedures Developing new data tools and analytics platforms for state regulatorsThese high-profile initiatives demonstrate state leadership in enhancing financial sector resiliency. I amdelighted to have the opportunity to share our 2020 achievements as we implemented our strategic planand met the challenges the year brought.Sincerely,John W. RyanCSBS President and CEOCONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT1

2020 HIGHLIGHTSOur support for state financial regulators included executing on our state-ledstrategic plan while assisting our members with their operations and with theirefforts to stabilize the financial services industry during the global pandemic.Specific highlights include: Supporting states as they navigated stay-athome orders and essential worker rules toenable the industry to continue its work andserve consumers. Launching the State Examination System(SES), a nationwide technology platform thatallows state examiners to collect informationfrom supervised institutions securely andperform key aspects of formal examinationswithout onsite visits. 2Deploying an updated version of the 50-stateconsumer finance survey that includes acomprehensive catalog of state usury laws. Issuing, with the U.S. Secret Service andBankers Electronic Crimes Taskforce, aransomware self-assessment tool for stateregulators to share with their regulatedinstitutions as ransomware attacks becamethe leading threat to the financial sector. Presenting our first MSB Accreditation inpartnership with the Money TransmitterRegulators Association to the Ohio Divisionof Financial Institutions, setting benchmarkstandards for a modernized and coordinatedsystem of supervision. Creating nonbank cybersecurity examinationprocedures and new tools and analyticsplatforms to aid state regulators, like thenew Risk Identification for State CharteredInstitutions tool.Announcing the MSB Networked Supervisionprogram, which streamlines exams fornationwide payments companies.CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT

2020 CSBS Strategic PlanIn 2020, state regulators committed to a new strategic plan that redefineshow state regulators look to the future by determining what market forces— technology, big data, artificial intelligence and automation — would mostlikely impact the industries we regulate and the state regulatory system inthe next 10 years.The pandemic created systemic shocks thatgenerated confusion and uncertainty about localeconomic prospects across the nation and upsetthe usual daily operations for state agencies, theirregulated institutions and CSBS staff.We could never have anticipated the pandemic.However, our new approach to strategic planning,which had us looking 10 years forward, preparedus to respond in a manner that supported ourmembers. In fact, we realized that the challenges inthe financial sector made the strategic plan morerelevant than ever. And adapting to our new realityadvanced how state regulators conduct businessby years.The new strategic plan has four major objectives:1234Empoweringa strong,efficient andassertivestate systemDevelopinga system ofnetworkedsupervisionLeveragingstate-to-stateand stateto-federalpartnerships;Developing andsupportingthe workforceof financialregulation thatresults in fewercalls for federalpreemptionempowered byreal-time dataof tomorrowcollaboratingwith innovatorsCONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT3

HOW OUR STRATEGIC PLANPREPARED US FOR THE PANDEMICAmid a pandemic economy and preemption threats, CSBS increased its profile bypositioning state regulators as future-oriented problem-solvers with a broaderarray of external stakeholders, setting the stage for even greater awareness goingforward. We were able to do this because of the strategic plan, which capturesthe possibilities that technology and data can bring to both enable and ensure thefuture of the state system.CSBS QUICKLY ADJUSTED TO THE NEW DEMANDS, INCLUDING: Coordinating state and federal regulatoryresponse to the pandemic Coordinating and partnering with federal andstate agencies to issue guidance Participating in financial sector calls onissues like troubled debt restructuring, loanaccommodations, essential workers, thePaycheck Protection Program and fraud 4 Engaging with Capitol Hill on issues likeCurrent Expected Credit Losses, troubled debtrestructuring relief and state-licensed mortgageservicers’ liquidity challenges Providing both state and federal analysis of themortgage market Distributing off site performance tools andsharing best practices to help regulators navigateoff-site examinations and supervisionPartnering with federal agencies to issueguidance documents including the primarydocument providing examiner guidanceCONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT

REIMAGINING OUR MEETINGS ANDMEMBER FORUMS FOR THE NEWVIRTUAL ENVIRONMENTWe began the year with exciting new educationofferings, like the new Advanced Data AnalyticsTraining Workshop in Indianapolis and held ourlargest-ever NMLS Annual Conference & Trainingin San Francisco.As both government and the financial industrytransitioned to remote work, we quickly switchedto virtual meetings and conferences and found thebest ways to engage participants. That included:Our work on forbearance and foreclosure matterstranspiring under the CARES Act resulted insignificant public notices. We not only identifiedboth consumer and industry need and gaps, butwe also rallied the Consumer Financial ProtectionBureau to join us in providing guidance throughthese notices. This action was followed by thedelivery of state examination procedures to testindustry compliance under the CARES Act. Asthe pandemic lingered and CARES Act deadlinesapproached, we raised concerns about confusionaround the expiration date for mortgage reliefand successfully advocated for a federal agencyclarification that resulted in an extended deadlinefor struggling consumers. Offering over 20 weekly, one-hour, live virtualdiscussions with members on a wide range oftimely and relevant topics of common interest. Developing on-demand training contentavailable in our Learning Management System. Launching our on-demand Day One: BankSecrecy Act and Anti-Money Laundering (BSA/AML) Examiner training, a comprehensive seriesof online modules that address foundationalelements of BSA/AML examinations. Piloting video content production software thatwe rapidly developed into instructional videosand tutorials on a wide range of topics.The NMLS Annual Conference, held in San Francisco in February, attracted nearly 800 attendees.CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT5

NMLS DURING THE PANDEMIC Consolidated state agency guidance on the NMLSResource Center, working with our vendors to ensuremortgage loan originator (MLO) testing, education andcriminal background-check processing continued in asafe and responsible manner and facilitated governancecommittees to adjust system deadlines to ease the impacton licensees. Accommodated a surge of MLO applications,administrating more than 47,000 national MLO tests and168,000 applications, a 63% increase over 2019. Launched an online proctored MLO testing option, givingcandidates an alternative to taking tests in physical testcenters.As low rates drove home refinances and purchasing, wepositioned NMLS Consumer Access as a vital tool in thehomebuying process, resulting in several mentions inconsumer media.NMLS by the numbersAt the end of 2020 .645081 6State agencies usedNMLS to manageat least one licenseauthority.Total different licenseauthorities1 managedcovering a broad rangeof nonbank financialservices.As of December 31, NMLS manages:432Company280BranchLicense or registration types “Authorities” refers to the license programs managed on NMLS. Branch license types are not included in this count.CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT76Individual

HOW WEIMPLEMENTED OURSTRATEGIC PLANPREVENTING FEDERAL PREEMPTIONThe Office of the Comptroller of the Currency (OCC) and otherfederal agencies proposed several rules that would preemptstate laws or authority, including the OCC/FDIC valid-whenmade rule, the OCC’s true-lender proposed rule and other OCCproposals pertaining to bank operations, activities and licensing.CSBS submitted comment letters and provided insight into thestate system.Meanwhile, as Congress’ interest in fintech issues continuedto grow, CSBS maintained a consistent presence with the Hillto communicate states’ work in improving nonbank financiallicensing and supervision.CSBS also successfully advocated for the set of BSA/AML reformbills to include and integrate state regulators into proposedregulatory processes and structures.OCC LitigationIn December, CSBS filed a complaint in the U.S. District Court for the District of Columbia opposingthe OCC’s creation of a new national bank charter for nonbank companies and its acceptance andimpending approval of a charter application from Figure Technologies Inc. By taking such action,the OCC has exceeded the limited authority granted to it by Congress under the National Bank Actand other federal banking laws that authorize the OCC to only charter institutions that receivedeposits and obtain FDIC deposit insurance. The CSBS complaint is a continuation of legal actioninitiated in 2017.CSBS also submitted an amicus brief supporting the New York Department of Financial Servicesin the U.S. District Court for the Southern District of New York. The OCC is appealing the court’sdecision in favor of NYDFS’s challenge to OCC’s fintech charter. The court ruled the OCC lacks theauthority to grant a charter to an entity that does not take deposits and does not obtain depositinsurance in a decision.CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT7

CSBS county-level Covid case mapNETWORKED SUPERVISION &REAL-TIME DATAWe made significant progress on key Vision 2020 initiatives that empowerstates to operate as a single network by creating multistate agreementsand expanding the use of technology platforms. As we moved into 2021,we transitioned our public commentary around regulatory modernizationfrom Vision 2020 to Networked Supervision, which captures the promise of amodernized and coordinated state system.We published a white-paper series that explainshow nonbanks are licensed and supervised bystate financial regulators and discusses issuesaffecting regulatory changes going forward.With nonbank mortgage servicing nowcomprising more than 50% of the market, it iscritical that states have a common standard forassessing these entities’ safety, soundness andcorporate governance. To meet that need, CSBS8advanced an initiative to establish prudentialstandards for nonbank mortgage servicers byseeking public comment. Prudential standardswill not only provide better protection forborrowers, investors and other stakeholders,but they also will enhance effective regulatoryoversight and market discipline and improvetransparency, accountability, risk managementand corporate governance standards.CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT

CSBS created new tools and analyticsplatforms to aid state regulators, including: Risk Identification for State CharteredInstitutions: Examiners can dive deeplyinto individual bank call report data to seefundamentals driving risk and conductpeer analysis. The first real-time, county-level Covidconfirmed cases tracking map: The mapwas relied upon by media outlets, federalfinancial regulators and the White House. A suite of economic reports anddashboards: States get a head start onmaking sense of how Covid impacts wouldplay out in local economies.We made significant progress on Vision 2020 initiatives, including: Launching the State Examination System (SES)and Consumer Complaints tool. Awarding contracts to complete NMLSModernization.Launching the MSB Networked Supervisionprogram, which streamlines exams fornationwide payments companies. Began developing a networked licensingframework with the 64 agencies thatuse NMLS.Improving the licensing process through theMultistate MSB Licensing Agreement, which nowhas 28 state signatories. Announcing the MSB Networked Supervision OneCompany/One Exam program, which beginningin 2021 will apply to 78 of the nation’s largestpayments and cryptocurrency companies thatmove more than 1 trillion a year in customerfunds.Expanding the use of NMLS, as more stateagencies began using optional functionalityand as states continue to bring new licensetypes onto NMLS.CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT9

DEVELOPING THE WORKFORCEOF TOMORROWWe are committed to developing the workforce of tomorrow, collaborating withstate regulators to identify the knowledge, skills and abilities that examinersneed to possess and build upon at key stages of their careers,developing learning content and experiences thatwill increase the examiners’ speed to competencyand delivering these learning experiences in themost effective and efficient manner — no matterwhat the format.The ExaminerCertificationand Accreditationprograms remainamong the mostvalued and soughtafter memberservices we offer.In 2020, in partnership with the Money TransmitterRegulators Association, CSBS presented the firstMSB Accreditation to the Ohio Division of FinancialInstitutions, marking another significant milestonein the state regulatory system’s evolution toward amore networked system of supervision.In 2020, there were:2644AgenciesDesignations for bankand non bank examiners1,200Certified examinersOur Accreditation Program grew to offer a third accreditation for MSB regulatoryagencies, in addition to the existing bank and mortgage program. The number of agenciesaccredited for each are:4710Bank29MortgageCONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT2MSB(Ohio and Texas)

FDIC Chairman Jelena McWilliams and CSBS President and CEO John Ryan record a podcast together at the CSBS studio in January.PARTNERSHIPS ANDCOLLABORATIONWe made several strides leveraging partnerships with our state and federalcounterparts, working in collaboration with those we regulate and their vendors: Following unanimous passage of the House bill toamend the Bank Service Company Act to improvestate-federal coordination and informationsharing on bank vendor oversight, CSBS securedthe introduction of a companion bipartisanSenate bill. Recognizing the remarkable rise of ransomwareattacks, which have become the number onethreat to the financial sector, CSBS joined theU.S. Secret Service and Bankers Electronic CrimesTaskforce to issue a ransomware self-assessmenttool for state regulators to send to the banks theysupervise. CSBS deployed an updated version of the50-state consumer finance survey that includes acomprehensive catalog of state usury laws. The growing awareness of the states’ fintechinitiatives lead to the United Kingdom governmenthosting a delegation of state regulators and CSBSstaff in London for meetings with HM Treasuryand several U.K. financial regulatory agencies,including the Bank of England and the U.K.’sFinancial Conduct Authority, the U.K.’s fintechregulator. The delegation also met with a rangeof financial industry representatives.CONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT11

RESEARCH2020Q498CBSI:The Community Bank Sentiment Index was not evena year old when the pandemic hit in March, but itsrelevance was on clear display. As the first quarterresults came in, we literally watched the economycrater in real time as banker sentiment dropped.We later saw the economy stabilize. The quarterlyindex told us the story of what community bankscould see throughout the year — information latersupported by bank performance data.They will bebetter than today.Business conditionsThey will bethe same as They will beworse than today.38%123I don’t know.18%6%120( 17%)Monetary policy6%62%20%12%86(-4%)Regulatory burden35%Capital expenditures35%4061%(-17%)44%11520%( 2%)Operations expansionProfitabilityFranchise value39%20%54%20%39%5%62(-6%)58%43%137( 4%)12%127( 11%)COMMUNITY BANK RESEARCH CONFERENCE:Federal Reserve Board of Governors Miki Bowmanaddresses the Community Bank Research ConferenceThe eighth annual Community Banking in the 21stCentury Research and Policy Conference, co-sponsoredby CSBS, the Federal Reserve System and the FDIC,redefined itself as a virtual platform in 2020. Stateand federal policy makers, academics and communitybankers gathered online to hear the latest research oncommunity banking. Federal Reserve Governor MichelleBowman opened the conference with how communitybankers were managing the pandemic and its economicfall-out, and FDIC Chairman Jelena McWilliams sharedher views in a fireside chat.CASE STUDIES:CSBS sponsors the annual Community BankCase Study Competition for students in all fieldsof study as an opportunity to gain valuable firsthand knowledge of the banking industry. The2020 case studies focused on the impact of theBSA-AML requirements on community banks.Each student team partnered with a local bankto examine compliance challenges and identifypotential regulatory reforms. The winningteams were from Mississippi State University(first), James Madison University (second) andMansfield University of Pennsylvania (third).122020 Case Study winning team from Mississippi State UniversityCONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT

CSBS BOARD OF DIRECTORSChair-ElectChairKEVIN B. HAGLERMELANIE HALLMontanaGeorgiaVice ChairTHOMAS C. FITEIndianaTreasurerI. LISE KRUSENorth DakotaSecretaryCHARLES CLARKWashingtonImmediate Past ChairBRET AFDAHLSouth DakotaNon-Depository SupervisoryCommittee ChairDEBORAH HAGANIllinoisLegislative Committee ChairIRIS IKEDAHawaiiRegulatory Committee ChairKAREN K. LAWSONMichiganState Supervisory ProcessesCommitter ChairCHRISTOPHER DIETZIndianaCSBS Education FoundationBoard of Trustees ChairCHARLES A. VICEKentuckyState Regulatory RegistryBoard of ManagersActing ChairCHARLES G. COOPERTexasBankers AdvisoryBoard Co-ChairRAY GRACENorth CarolinaBankers Advisory BoardIndustry Co-ChairANDY ANDERSONPresident & CEOBank of AnguillaDistrict I ChairANTONIO P. SALAZARMarylandDistrict II ChairKEVIN R. ALLARDOhioDistrict III ChairRHOSHUNDA G. KELLYMississippiDistrict V ChairROBERTA HOLLINSHEADWashingtonMember at LargeCHARLES G. COOPERTexasMember at LargeLINDA A. LACEWELLNew YorkChair EmeritusALBERT L. FORKNERWyoming (2017-18)CHARLES G. COOPERTexas (2016-17)CHARLES A. VICEKentucky (2013-14)GREG GONZALESTennessee (2012-13)E. JOSEPH FACE, JR.Virginia (2006-07)MICK THOMPSONOklahoma (2003-04)G. EDWARD LEARYUtah (1997-98)District IV ChairKELLY LAMMERSNebraskaCONFERENCE OF STATE BANK SUPERVISORS 2020 ANNUAL REPORT13

CONFERENCE OF STATE BANK SUPERVISORSwww.csbs.org / @csbsnews

Launched an online proctored MLO testing option, giving candidates an alternative to taking tests in physical test centers. As low rates drove home refinances and purchasing, we positioned NMLS Consumer Access as a vital tool in the homebuying