DBCF Virtual Symposium

Department of Banking and Consumer Finance Virtual Symposium E-Packet

October 26-28 , 20 20

Department of Banking and Consumer Finance P.O. Box 12129 | Jackson MS 39236-2129

www.dbcf.ms.gov

DBCF Virtual Symposium Schedule of Events

October 26, 2020 Opening Remarks

9:00 AM-9:15 AM

Rhoshunda Kelly Interim Commissioner Mississippi Department of Banking and Consumer Finance Supervision and the Pandemic – A Discussion with Regulators Matt Atkins Bank Examiner Mississippi Department of Banking and Consumer Finance Bryan Burton Examiner Mississippi Department of Banking and Consumer Finance Alan Hargett Chief Executive Officer and President Planters Bank & Trust Company Sam Hubbard Director of Banking Division Mississippi Department of Banking and Consumer Finance Matt Mitchell Department of Banking and Consumer Finance Supervisory Examiner Closing Remarks for Morning Session

9:15 AM-10:15 AM

10:15 AM-10:30 AM

Break

10:30 AM- 1:00 PM

Opening Remarks and Introductions

1:00 PM-1:15 PM

Rhoshunda Kelly Interim Commissioner Mississippi Department of Banking and Consumer Finance

Technology and the Pandemic Impact – Banker Roundtable

1:15 PM-2:15 PM

Wes Fulmer Executive Vice President and Board Member The Peoples Bank Clayton Legear President and CEO Merchants & Marine Bank (M&M Bank) Lillous Shoemaker President and General Counsel Magnolia State Bank Erik Smith Supervisory Review Examiner Mississippi Department of Banking and Consumer Finance Rob Massengill Chief Executive Officer Bank of Brookhaven Closing Remarks for Afternoon Session

2:15 PM-2:30 PM

October 27, 2020 Opening Remarks

9:00 AM-9:15 AM

Rhoshunda Kelly Interim Commissioner Mississippi Department of Banking and Consumer Finance FDIC Chairman, Jelena McWilliams

9:15 AM-10:15 AM

Closing Remarks for Morning Session

10:15 AM-10:30 AM

Break

10:30 AM-1:00 PM

Opening Remarks and Introductions

1:00 PM-1:15 PM

Rhoshunda Kelly Interim Commissioner Mississippi Department of Banking and Consumer Finance

A Large Bank Discussion

1:15 PM-2:15 PM

Dolores Atallo Managing Director Protiviti Ariste Reno Managing Director Protiviti Closing Remarks for Afternoon Session October 28, 2020 Opening Remarks Rhoshunda Kelly Interim Commissioner Mississippi Department of Banking and Consumer Finance A Look at the Economy… Thomas F. Siems, PhD Senior Economist and Director of Research Conference of State Bank Supervisors Closing Remarks for Morning Session Break Opening Remarks and Introductions Rhoshunda Kelly Interim Commissioner Mississippi Department of Banking and Consumer Finance The Future of Banking

2:15 PM-2:30 PM

9:00 AM-9:15 AM

9:15 AM-10:15 AM

10:15 AM-10:30 AM 10:30 AM- 1:00 PM 1:00 PM-1:15 PM

1:15 PM-2:15 PM

Dave Martin Founder Bankmechanics Closing Remarks for Afternoon Session

2:15 PM-2:30 PM

Matt Atkins Bank Examiner Mississippi Department of Banking and Consumer Finance

Matt grew in up Blue Mountain, Mississippi, and is a 2010 graduate of the University of Mississippi holding double majors for Banking & Finance and Managerial Finance with emphasis in Real Estate and Investments. Currently, he is completing a Graduate Degree in Banking from the Graduate School of Banking at LSU. Additionally, he completed the Federal Deposit Insurance Corporation (FDIC) Corporate University with distinction of Examiner ‐ in ‐ Charge (EIC). During his 4 years with the DBCF, as a Bank Examiner, Matt has held numerous Examiner ‐ In ‐ Charge, loan review, and operations roles. Prior to joining the department, Matt was employed with Regions Bank, for 5 years in various management positions and lending roles.

Dolores Atallo Managing Director Protiviti

Dolores Atallo is the North American Leader of the ERM Center of Excellence and a member of the ERM Global Leadership team. She is a trusted advisor in matters of governance, risk oversight structure, roles, risk appetite, linkage to strategy, risk assessment and culture integration. Dolores has over 25 years of Big Four and financial services industry consulting experience helping clients build and enhance Enterprise Risk Management (ERM), corporate governance and compliance programs that align strategy, objectives, and performance. She facilitates the articulation of strategic goals with regulatory readiness and communication with external stakeholders, including rating agencies, analysts, and investors, such as:

• Balancing strategy and business objectives with governance and oversight • Aligning products and services with risk profile, appetite, and culture • Driving high value business insights through enabling tools • Collaborating with diverse colleagues and team members

Bryan Burton Examiner Mississippi Department of Banking and Consumer Finance

Bryan has been an examiner with the Mississippi DBCF for over 3 years. He has participated in numerous examinations and several projects within the Department. He graduated from Mississippi State University in 2017, where he majored in Business and Finance. After graduation, he moved back home to Louisville, Mississippi. During his time away from work, Bryan is an avid Bulldog fan and enjoys spending time with family and friends.

A. Wes Fulmer Executive Vice President and Board Member The Peoples Bank

Wes Fulmer is the Executive Vice President and Board Member of The Peoples Bank. He has been in banking for the past 35 years. A native of Gulfport, MS, Wes started his banking career after earning his bachelor’s and master’s degrees in business from Mississippi State University. He is a graduate of the Mississippi School of Banking, Graduate School of Banking at LSU, and the National Commercial Lending School. He is a past Trustee for The Mississippi School of Banking and is on the Board of Trustees of the Graduate School of Banking at LSU. He is a past board member of the Mississippi Bankers Association. He has served as Chairman of the Mississippi Gulf Coast Chamber Board and previously served as President of the Biloxi Chamber. He was recipient of the Pat Santucci Spirit of the Gulf Coast award in 2018. He has served many non-profit organizations and is presently serving as President of the Pine Burr Area Council of the Boy Scouts of America and President of the Mississippi State University M.B.A. Advisory Board. He is a graduate of Leadership Gulf Coast and previously served on that Board of Trustees. He was included in the “Top 40 Under 40” by the Mississippi Business Journal in 2000. He was selected as South Mississippi’s Top Community Leader Class of 2005.

Alan H. Hargett Chief Executive Officer and President Planters Bank & Trust Company

On September 1, 2019, Alan H. Hargett was named CEO and serves now serves as CEO/President of Planters Bank & Trust Company. Previously Hargett served as Chief Credit Officer for Planters Bank and was responsible for all aspects of the credit functions of the bank including loan growth and credit quality. He received his B achelor’s Degree from Mississippi State University before continuing to Mississippi School of Banking, Louisiana State University Graduate School, and Southeastern School of Commercial Lending.

Sam Hubbard Director of Banking Division Mississippi Department of Banking and Consumer Finance

Sam Hubbard has worked for the Department of Banking and Consumer Finance for over 30 years. He served as an examiner for 25 years, which included two years as Chief Examiner. For the last five years, he has served as the Director, Banking Division and oversees all Banking and Credit Union operations. He graduated from Ole Miss and attended the Graduate School of Banking at LSU.

Rhoshunda Cork Kelly Interim Commissioner Mississippi Department of Banking and Consumer Finance

Rhoshunda Kelly is the Interim Commissioner for the Mississippi Department of Banking and Consumer Finance. She has over 19 years of regulatory experience and began her career with the Department as a Bank Examiner Trainee. As field examiner, Kelly served as examiner-in-charge and relationship manager of community banks, a subject matter expert in information technology and a trust examiner. Prior to her appointment to Interim Commissioner, Kelly served as Deputy Commissioner, responsible for supervisory oversight of bank and nonbank activities (including mortgage and consumer finance industries), the implementation of new legislation/regulation, effective coordination of examination policies and practices between the state and federal regulators and review of all merger, acquisition and de novo activity. Kelly served as the Director of Bank Supervision where she was responsible for the daily operations of the Banking Division and supervisory and examination processes for all Mississippi state-chartered banks and credit unions. Rhoshunda received her undergraduate degree in Business with a concentration in Banking and Finance from Mississippi State University and is a graduate of the School of Banking at Louisiana State University. She is also an honor graduate of American Bankers Association Graduate Trust School. Kelly is a Certified Public Manager and a Certified Examinations Manager. Kelly is active in the Conference of State Bank Supervisors (CSBS), serving on the CSBS Board of Directors, State Supervisory Processes Committee, Non-Depository Supervisory Committee, Past-Chair of the Performance Standards Committee, and the Finance, Compensation and Benefits Committee.

Clayton Legear President and CEO Merchants & Marine Bank (M&M Bank)

Clayton Legear is President & Chief Executive Officer of Pascagoula-based Merchants & Marine Bank (M&M Bank) and the bank’s Holding Company, Merchants & Marine Bancorp, Inc. Clayton joined M&M Bank in 2011 and has served in a variety of roles since that time including: Vice President - Compliance Manager, Senior Vice President - Chief Risk Officer, Executive Vice President - Chief Operating Officer and President.  Prior to joining M&M Bank Clayton served as a Federal Financial Institution Examiner & Deposit Insurance Claims Specialist with the Federal Deposit Insurance Corporation (FDIC). Clayton is passionate about community banking and community building. He enjoys leveraging his diverse experience and unique perspective to support continual improvement within M&M Bank, to serve the communities M&M Bank calls home and to advocate for the community banking industry as a whole. A native of Webb, Alabama, Clayton holds a Bachelor’s of Science Degree in Business Administration from Troy University, where he graduated with honors.  He is also a graduate of the Graduate School of Banking of the South at Louisiana State University.  Clayton is an alumnus of Leadership Jackson County and of Leadership Mississippi. He has also been recognized as one of the Top 10 Business Leaders Under 40 by the Mississippi Gulf Coast Chamber of Commerce. Clayton is actively involved in numerous civic, charitable and professional organizations, including:  the Jackson County Chamber of Commerce (Chairman of the Board), Gulf Coast Business Council (Director), United Way of Jackson and George County (Vice President / Treasurer), Mobile Area Chamber of Commerce (Board of Advisors), Pascagoula Rotary Club, East Central Men’s Club and the Mississippi Bankers Association.  In hi s free time, Clayton enjoys spending time with his wife Megan and three sons Jackson, Sawyer, & Tucker.  His hobbies include guitar, woodworking and golf.

Robb Massengill Chief Executive Officer Bank of Brookhaven

Robb Massengill was born in Brookhaven, Mississippi. He graduated from Brookhaven High School (’90) Ole Miss, BS (’94) & the University of Memphis, MBA (’97) . He met his beautiful wife of 24 years, Fran, at Ole Miss. They have 3 children, Maggie (Junior at Ole Miss), Gracey (Freshman at Ole Miss) and Robert (9th Grade at Brookhaven High School). He is the CEO of Bank of Brookhaven where he has worked 20 years during which he served as President of Mississippi Young Bankers. He actively serves the community through church, as a Brookhaven School District Board Member and as a Board Member of the Children’s Advocacy Center. One of his favorite hobbies is growing Bonsai.

Dave Martin Founder Bankmechanics

Dave Martin is founder of bankmechanics, a retail banking consultancy. He has spoken in front of and consulted with several hundred banks and industry organizations across 46 states and Canada over the past 25+ years. Dave is one of the most prolific writers in the banking industry. He has written the bi-weekly Advantage Letter for 25 years, read by tens of thousands of bankers and retailing professionals each month. Dave also writes the longest continually running opinion column in the history of the American Banker publication, the most read banking journal in the world. Dave was previously EVP / Chief Development Officer with Financial Supermarkets, Inc., a leading provider of training, consulting, design, and construction for non-traditional branches. Prior to joining FSI, Dave was EVP/Chief Training Officer for NCBS, a SunTrust Bank subsidiary. His banking background includes serving as Director of In-Store Banking for First National Bank Texas, managing at that time the largest Wal-Mart in-store banking program in the United States. Dave’s banking career began as branch manager of an in -store branch in Thibodaux, Louisiana. Dave has a BS in Accounting and an MBA from Nicholls State University. He is a member of the guest faculty at the Southwest Graduate School of Banking at Southern Methodist University. Dave and his wife, Cindy, have two sons in college (Jessy and Abraham) and reside in Sugar Land, Texas.

Jelena McWilliams Chairman FDIC

Jelena McWilliams was sworn in as the 21st Chairman of the FDIC on June 5, 2018. She serves a six-year term on the FDIC Board of Directors, and is designated as Chairman for a term of five years.

Ms. McWilliams was Executive Vice President, Chief Legal Officer, and Corporate Secretary for Fifth Third Bank in Cincinnati, Ohio. At Fifth Third Bank she served as a member of the executive management team and numerous bank committees including: Management Compliance, Enterprise Risk, Risk and Compliance, Operational Risk, Enterprise Marketing, and Regulatory Change. Prior to joining Fifth Third Bank, Ms. McWilliams worked in the U.S. Senate for six years, most recently as Chief Counsel and Deputy Staff Director with the Senate Committee on Banking, Housing and Urban Affairs, and previously as Assistant Chief Counsel with the Senate Small Business and Entrepreneurship Committee. From 2007 to 2010, Ms. McWilliams served as an attorney at the Federal Reserve Board of Governors, where she drafted consumer protection regulations, reviewed and analyzed comment letters on regulatory proposals, and responded to consumer complaints. Before entering public service, she practiced corporate and securities law at Morrison & Foerster LLP in Palo Alto, California, and Hogan & Hartson LLP (now Hogan Lovells LLP) in Washington, D.C. In legal practice, Ms. McWilliams advised management and boards of directors on corporate governance, compliance, and reporting requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934. She also represented publicly- and privately held companies in mergers and acquisitions, securities offerings, strategic business ventures, venture capital investments, and general corporate matters.

Ms. McWilliams graduated with highest honors from the University of California at Berkeley with a B.S. in political science and earned her law degree from U.C. Berkeley School of Law.

Matt Mitchell Department of Banking and Consumer Finance Supervisory Examiner

Matt Mitchell has worked for the Department of Banking and Consumer Finance for over 20 years and currently serves as a Supervisory Examiner. Throughout that time, he has been to every state chartered financial institution in Mississippi. He is an alumnus of the University of Mississippi with a major in Banking and Finance, Managerial Finance and General Business. He is also a graduate of the Graduate School of Banking at Louisiana State University and the ABA Graduate Trust School. When not working, he enjoys anything outdoors including farming, boating, hunting, fishing, grilling, little league sports, and is a member of Madison Heights Church. He resides in Madison, Mississippi with his wife and two sons.

Ariste Reno Managing Director Protiviti

Ariste is a Managing Director with Protiviti in the Risk and Compliance Practice. She has over 25 years of credit risk management, financial advisory and banking experience. She specializes in providing advisory services to clients for allowance and reserving practices using CECL and the incurred loss approach, qualitative adjustment frameworks to incorporate management adjustments, model imprecision, and asymmetric risk; risk modeling and analytics for credit risk, capital planning and stress testing, model validation, credit review outsourcing and co- sourcing, independent credit review assessments, internal controls effectiveness assessment / program development, counterparty credit risk management, M&A due diligence and credit risk governance. Prior to joining Protiviti, Ariste was a partner and National Credit Analytics Practice Leader at a Big Four firm and served as a Director at a second Big Four firm where she led its commercial credit risk management consulting practice. She has also held leadership roles at several banks including Bank of America, Rabobank International, Harris Bank/Bank of Montreal and Citibank.

Lillous Ann Shoemaker President and General Counsel Magnolia State Bank

Lillous Ann Shoemaker is President and General Counsel of Magnolia State Bank.  She graduated from the University of Southern Mississippi and obtained her law degree from the University of Mississippi School of Law.  After law school, she obtained her LL.M. in taxation from New York University School of Law.  She serves as Chairman of the Bank Attorneys Committee, member of the Mississippi School of Banking Board of Trustees and Chairman of the Board of Lauren Rogers Museum of Art in Laurel. She is a member of the Bay Springs United Methodist Church where she enjoys teaching the Children’s Sunday School cl ass.

Thomas F. Siems, PhD Senior Economist and Director of Research Conference of State Bank Supervisors

Thomas Siems is the Senior Economist and Director of Research at the Conference of State Bank Supervisors (CSBS) in Washington, DC. His data-driven research contributes to the development of sound financial services policy and supports the state system of financial regulation in a changing environment. Prior to joining CSBS, Tom served for nearly 34 years at the Federal Reserve Bank of Dallas, most recently as assistant vice president and senior economist, where he led a team to advance the understanding of economic growth and stability to business and community thought-leaders. Siems earned a BSE in industrial and operations engineering from the University of Michigan and MS and PhD degrees in operations research from Southern Methodist University in Dallas. Tom has published more than 75 articles in academic, Federal Reserve, and referred journals. He delivered a 2015 TEDxSMU Talk, “The Wealth of Innovations,” and has authored five children’s picture books, including The Dangerous Pet, which poetically guides readers to comprehend the dangers of debt.

Erik Smith Supervisory Review Examiner Mississippi Department of Banking and Consumer Finance

Erik has a Bachelor ’s Degree in Banking & Finance from the University of Mississippi and a Graduate Degree from the School of Banking at LSU. He currently serves as Supervisory Review Examiner for the MSDBCF where he has been employed for the last 16 years. Erik serves on various Committees and Working Groups in his capacity. Some of these include the State Examiner Review Team (SERT), Data Task Force, Data Working Group, ED Module Maintenance Committee, and Risk ID Team. Most recently, Erik organized and managed a Large Bank Peer Review Pilot group made up of Large Bank Examiners in 5 states. The Large Bank Peer Review Pilot was successful and will be continued by the Conference of State Bank Supervisors (CSBS) to enhance transparency and communication across the states for large bank examinations.

DBCF Virtual Symposium Materials

October 26, 2020 Supervision and the Pandemic – A Discussion with Regulators

Technology and the Pandemic Impact – Banker Roundtable

October 27, 2020

FDIC Chairman, Jelena McWilliams A Large Bank Discussion

*Materials Included October 28, 2020

A Look at the Economy *Materials Included

The Future of Banking

*Please be aware of the length of this e-book before printing*

Supervision and the Pandemic – A Discussion with Regulators Matt Atkins Bryan Burton Alan Hargett Sam Hubbard Matt Mitchell

Technology and the Pandemic Impact – Banker Roundtable Wes Fulmer Clayton Leager Lillous Shoemaker Erik Smith Rob Massengill

FDIC Chairman Jelena McWilliams

A Large Bank Discussion Ariste Reno Dolores Atallo

10/15/2020

DBCF - ENTERPRISE RISK MANAGEMENT TOPICS & TRENDS

Protiviti ERM Perspective Enterprise Resilience Regulatory Alignment

2 3 4 5 6 7 8 9

Credit Risk Model Risk

Updating the Lines of Defense? External Reporting Consistency Board and Stakeholder Reporting Risk Culture Key Takeaways: Getting the Most from your ERM Program Protiviti Resources Protiviti Contacts

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PROTIVITI ENTERPRISE RISK MANAGEMENT PERSPECTIVE

The Protiviti ERM methodology is based on a Risk-Informed perspective.

A major goal of ERM is to provide management and the board with information on risks and opportunities that may influence key decision- making. This can be accomplished by an ERM journey guided by a trusted advisor to facilitate their success.

Industry/Business Context

External Factors

Make Risk- Informed Decisions

Identify Risks and Opportunities

Assess and Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

Identify

Quantify

Decide

Monitor

ERM Process Steps Integrated into Strategy Setting and Performance Management

Evaluation of Strategic Options Business Planning and Forecasting Strategy and Business Execution

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Internal Factors

Expectations, Needs and Constraints

External Factors may include known and emerging market trends, industry regulations, listing regulations, external stakeholder expectations, as well as, unexpected events. • External factors shape an organization’s journey. They may serve as either shortcuts or roadblocks in the path to creating an effective ERM program. The ERM methodology helps navigate these factors, whether they serve as facilitators or challenges on the path to ERM.

ERM Enablers provide indicators to allow for decision-making that is supported by measurable information and data. • Measurable metrics enable effective debate about risks and opportunities and improve resource allocation based on risk- return analysis.

Integrating ERM Process Steps Into Strategy Setting And Performance Management allows management and the board to utilize relevant risk information during decision-making. • ERM integration into day-to-day strategy and business execution allows the organization to select what risks are relevant for the viability of business objectives defined by the entity. By integrating quantification and monitoring of critical risks into operating activities, ERM can become more effective. • Integrating ERM into business planning and forecasting allows clients to understand acceptable variation of target results, agree on the strength and reliability of the plans and adjust and monitor them to suit the entity’s risk appetite. • Finally, ERM integration into evaluation of strategic options allows the organization to select business initiatives, such as investments, new products, new markets, new partnerships, etc., that, based on the expected risk-return profile, better fit the entity’s risk appetite.

ERM Pillars are Risk Governance, Risk Appetite and Risk Culture, and serve as the foundation of the ERM system and will influence ERM program design, execution and implementation. • The pillars will help define how ERM is used in decision-making.

Internal Factors will vary by organization but can include the expectations from the top of the organization, governance structure, business model complexity, availability/quality of resources and data. • Internal factors will influence ERM program design and implementation and be impacted by the risk culture of the organization.

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© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

A key area of focus (and an area with opportunity for improvement) within large financial institutions is enterprise resilience. Enterprise resilience has come into focus given recent uncertainty and change in operational resilience with the progression of COVID-19.

Enterprise Resilience

1 Identify Critical Business Services Establish Front to Back Mapping of Business Services 3 Understand Economic Impact and Establish Impact Tolerance

Industry/Business Context

External Factors

Identify Risks and Opportunities

2

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

Identify

Quantify

Decide

Monitor

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

4

Implement Appropriate Governance

Business Planning and Forecasting

Evaluation of Strategic Options

5 Test and Improve

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

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Internal Factors

Continue to Evolve Foundational Elements

Expectations, Needs and Constraints

© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

Regulatory Alignment

Understanding and aligning with ERM principles and requirements should be a focus when building and evaluating the ERM program.

Supervisory guidance provides principles and key elements needed for establishing a strong risk management program

Industry/Business Context

External Factors

Identify Risks and Opportunities

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

• Board and senior management oversight • Policies, procedures, and limits/boundaries • Risk monitoring and technology to support • Internal controls • Enhanced reporting to the board and senior management for larger, more complex institutions

Identify

Quantify

Decide

Monitor

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

Business Planning and Forecasting

Evaluation of Strategic Options

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Internal Factors

Expectations, Needs and Constraints

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© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

Institutions need to closely monitor second and third inning COVID impacts on credit risk exposures, incorporate potential offsetting impact of next round of government stimulus, and emerging credit concentrations that diverge from historical patterns.

Credit Risk

Industry/Business Context

Evaluate uneven economic impact on credit exposures and potential changes in concentration risk

External Factors

Identify Risks and Opportunities

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

Identify

Quantify

Decide

Monitor

Update credit risk limits / thresholds for new economic reality and pandemic risk

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

Business Planning and Forecasting

Evaluation of Strategic Options

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Adjust credit reporting and strategic playbook actions for possible scenarios / incorporate sensitivity analysis / other black swan events

Internal Factors

Expectations, Needs and Constraints

© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

Compensating processes and controls are needed to manage model risk as models become unreliable in times of severe economic stress and prolonged uncertainty.

Model Risk

Industry/Business Context

External Factors

Identify higher risk models that no longer work, and the compensating adjustments being used

Identify Risks and Opportunities

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

Identify

Quantify

Decide

Monitor

Update process and controls to manage model risk until models can be redeveloped / some level of stability returns

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

Business Planning and Forecasting

Evaluation of Strategic Options

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Ensure overall conceptual alignment in modeling approaches for different purposes – reserving, capital planning, business planning, etc.

Internal Factors

Expectations, Needs and Constraints

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© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

Updating the Lines of Defense?

Shifting views on the roles of the three lines of defense may alter the way the ERM program is implemented at financial institutions.

Industry/Business Context

What to expect when assessing the ERM program at large financial institutions

External Factors

Identify Risks and Opportunities

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

Identify

Quantify

Decide

Monitor

Trends in ERM roles across the lines of defense

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

Business Planning and Forecasting

Evaluation of Strategic Options

Institute of Internal Auditors (IIA) updated guidance focusing on collaboration between key players

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Internal Factors

Expectations, Needs and Constraints

© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

External Reporting Consistency

The institution should develop a consistent message across its external reporting on risks.

Industry/Business Context

Institutions can benefit from mapping their disclosed risks to the key elements of their ERM program.

External Factors

Identify Risks and Opportunities

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

Identify

Quantify

Decide

Monitor

There may be variation across the risks reported in an institution’s 10-K, SOX reporting, and other external reports.

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

Business Planning and Forecasting

Evaluation of Strategic Options

Risk reporting may focus on identifying the risks, but not how the institution addresses those risks.

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Internal Factors

Expectations, Needs and Constraints

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© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

Board and Stakeholder Reporting Reporting to stakeholders is critical for communicating the risks across the institution.

Effective reporting to stakeholders will include:

Industry/Business Context

External Factors

1 Critical and Emerging Risks

Identify Risks and Opportunities

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

2

Prioritization of Risks

Identify

Quantify

Decide

Monitor

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

3 Impact to Key Business Objectives

Business Planning and Forecasting

Evaluation of Strategic Options

4

Alignment to Risk Appetite

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Internal Factors

5 External and Internal Context

Expectations, Needs and Constraints

© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

An effective ERM program considers not just external factors, but also internal. Risk Culture is a key internal factor and a pillar that shapes the institutions’ ERM program.

Risk Culture

Industry/Business Context

Risk culture is the “set of encouraged and acceptable behaviors, discussions, decisions and attitudes toward taking and managing risk within an institution. 1 ”

External Factors

Identify Risks and Opportunities

Make Risk- Informed Decisions

Assessand Quantify Impacts

Monitor and Report

Culture

ERM Enablers

Methodologies, Data and Tools

Performance Management

Risk Management

Identify

Quantify

Decide

Monitor

ERM Process Steps Integrated into Strategy Setting and Performance Management

Strategy and Business Execution

Business Planning and Forecasting

Evaluation of Strategic Options

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Business Strategy

Risk Appetite

Internal Factors

Expectations, Needs and Constraints

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© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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ENTERPRISE RISK MANAGEMENT – KEY TOPICS AND TRENDS

Key Takeaways: Getting the Most from your ERM Program

• ERM is a tool to foster discipline in the risk management program • Institutions want to see the value in their risk management program • The opportunity and the challenge is to align ERM with organizational goals in the context of regulatory expectations

Industry/Business Context

External Factors

Make Risk- Informed Decisions

Identify Risks and Opportunities

Assess and Quantify Impacts

Monitor and Report

ERM Enablers

Methodologies, Data and Tools

Identify

Quantify

Decide

Monitor

ERM Process Steps Integrated into Strategy Setting and Performance Management

Evaluation of Strategic Options Business Planning and Forecasting Strategy and Business Execution

Risk Governance

Risk Appetite

Risk Culture

ERM Pillars

Internal Factors

Expectations, Needs and Constraints

© 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

11

11

PROTIVITI RESOURCES

The following Protiviti resources support the key topics included in today’s presentation:

#

Resource Title

Topic

Link

Risk Culture

Link to Document

1

Establishing and Nurturing an Effective Risk Culture

General Information

Link to Document

2

Time to Take a Fresh Look at ERM

General Information

Link to Document

3

So, You’ve Implemented ERM? Take Another Look

Board and Stakeholder Reporting

Link to Document

4

Improving Board Risk Reporting

Enterprise Resilience

Link to Document

5

Getting There Eventually: Finding Equilibrium in Uncertain Times (Part 1 – Build on Your Strengths)

Risk Culture

Link to Document

6

Revamping Risk Culture in the Digital Age

Enterprise Resilience

Link to Document

7

Getting There Eventually: Finding Equilibrium in Uncertain Times (Part 2 – Resilience Is the North Star)

Enterprise Resilience

Link to Document

8

A Guide to Busines Continuity Management – Top 15 Frequently Asked Questions

6

12 © 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

12

10/15/2020

PROTIVITI CONTACTS

Ariste Reno Managing Director

Dolores Atallo Managing Director

Office#: (212)708 ‐ 6323 Mobile #: (201)390 ‐ 7742 dolores.atallo@@protiviti.com

Mobile #: (312)961 ‐ 4885 ariste.reno@protiviti.com

Face the Future with Confidence. ®

Face the Future with Confidence. ®

13 © 2020 Protiviti Inc. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

13

© 2020 Protiviti - Confidential. An Equal Opportunity Employer M/F/Disability/Veterans. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. All registered trademarks are the property of their respective owners.

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14

A Look at the Economy… Thomas F. Siems, PhD

2020 Economic Update and the Reverse-Radical Recovery By Thomas F. Siems, Ph.D. CSBS Sr Economist & Director of Research

2020 Mississippi DBCF Symposium October 28, 2020

2020 Economic Update and the Reverse-Radical Recovery

Has an Economic Recovery Started?

What Does the CBSI Indicate?

What Do Recoveries Typically Look Like?

What’s Going On Now?

2020 Economic Update and the Reverse-Radical Recovery

Has an Economic Recovery Started?

What Does the CBSI Indicate?

What Do Recoveries Typically Look Like?

What’s Going On Now?

2020 Job Losses Compared to Post-WWII Recessions

2020: April

BLS establishment survey net job losses

2020: Mar 15-May 2 Sum of Dept. of Labor weekly initial jobless claims

Recessions Since WWII Sum of BLS establishment survey peak-to-trough job losses during recessions

0

5

10

15

20

25

30

35

40

Jobs Lost (in Millions)

2008-09 2001-03 1990-91 1981-82 1980 1974-75 1970 1960 1957-58 1953-54 1948-49 1945

2020 Economic Update and the Reverse-Radical Recovery

Has an Economic Recovery Started?

What Does the CBSI Indicate?

What Do Recoveries Typically Look Like?

What’s Going On Now?

CBSI Index and Level of Uncertainty

140

123

122

121

120

CBSI Index

97

100

91

90

80

60

40

Level of Uncertainty

20

0

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

CBSI Trends from Q2 2019 to Q3 2020

100 120 140 160 180

20 40 60 80

-20 0

CBSI

Business Conditions

Monetary Policy

Regulatory Burden

Operations Expansion

Capital Spending

Profitability Franchise Value

Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020

Regulatory Burden

Business Conditions

Monetary Policy

Operations Expansion

80

80

80

30 80

30

30

30

-70 -20

-20

-20

-20

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

-70

-70

-70

MPp MPn MPi

BCp BCn BCi

RBp RBn RBi

OEp OEn

OEi

CBSI (minus 100) and Uncertainty

Capital Spending

Profitability

Franchise Value

80

80

80

80

22 21 23

30

30

30

30

-9 -10 -3

-20

-20

-20

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

-20

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

-70

-70

-70

-70

CSp CSn CSi

PRp PRn PRi

FVp FVn FVi

BCu MPu RBu OEu CSu PRu FVu CBSI

Community Bank Sentiment Index 2020 Q2 and 2020 Q3

Index

BC Q2 BC Q3 MP Q2 MP Q3 RB Q2 RB Q3 CS Q2 CS Q3 OE Q2 OE Q3 PR Q2 PR Q3 FV Q2 FV Q3

93 103

32

22

39

+10

33

28

30

92 90

15

50

23

-2

10

58

20

57 57 112 113 126 133

4

47

47

0

2

40

45

33 33

45

21

+1

46

20

30

62

4

+7

36

58

3

19 19

14

64

55 68

+13

28

51

98 116

26

43

28

+18

35

42

19

CBSI Q1: CBSI Q2:

90 97

+7

Positive Neutral

Negative Uncertain

Economic Policy Uncertainty Peaked in 2020

400

350

300

250

200

150

100

50

Source: 'Measuring Economic Policy Uncertainty' by Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com

0

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

CBSI Uncertainty Endures in 2020 with Regulatory Burden Uncertainty Leading the Way in Q3 2020

45

40

Level of Uncertainty

35

30

25

20

15

Uncertainty Index

10

5

0

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Business Condtions Capital Spending

Monetary Policy

Regulatory Burden Franchise Value

Operations Expansion

Profitability

Uncertainty Index

2020 Economic Update and the Reverse-Radical Recovery

Has an Economic Recovery Started?

What Does the CBSI Indicate?

What Do Recoveries Typically Look Like?

What’s Going On Now?

The Many Shapes of U.S. Recessions/Recoveries

106

105

104

103

102

101

100

99

98

97

96

0

1

2

3

4

5

6

7

8

9

10

1949

1953-54 1957-58 1960-61 1970

1974-75 1981-82 1990-91 2001

2008-09

1957-58

1960-61

1953-54

1974-75

2001

1990-91

1981-82

2008-09

The AVERAGE Shape of U.S. Recessions/Recoveries

106

105

104

103

102

The Average Recession and Recovery

101

100

99

98

97

96

0

1

2

3

4

5

6

7

8

9

10

Average

UNCERTAINTY • Virus • Consumer Behavior • Business Re-openings • Policy Responses/Implications

Where Are You?

100

80

Parks

60

40

20

Residential

Grocery/Pharmacy

0

3/6

4/3

5/1

5/8

6/5

7/3

8/7

9/4

2/21

2/28

3/13

3/20

3/27

4/10

4/17

4/24

5/15

5/22

5/29

6/12

6/19

6/26

7/10

7/17

7/24

7/31

8/14

8/21

8/28

9/11

-20

Retail and Recreation

Transit Stations

Workplaces

-40

Change from U.S. Baseline (Jan 3 - Feb 6), 7-Day Moving Average

-60

U.S. Restaurant Reservations Plateaued?

20

0

-20

-40

-60

-80

Source: OpenTable State-of-Industry Report

Percentage Change from One Year Ago (7-day moving average)

-100

2020 Air Travel Stalled?

3,000,000

2019

2,500,000

2,000,000

1,500,000

1,000,000

2020

500,000

Travelers Passing through TSA Checkpoints, NSA (7-Day MA)

Source: TSA Total Traveler Throughput

0

3/7 3/21 4/4 4/18 5/2 5/16 5/30 6/13 6/27 7/11 7/25 8/8 8/22 9/5 9/19 10/3 10/17