The below article is the Compliance Notes section of the July 2018 Compliance Journal. The full issue may be viewed by clicking here.

FRB, FDIC, and OCC announced the availability of the 2018 list of distressed or underserved nonmetropolitan middle-income geographies, where revitalization or stabilization activities are eligible to receive Community Reinvestment Act (CRA) consideration under the community development definition. The list may be viewed at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180625a1.pdf


 

FRB issued a Consumer Affairs Letter regarding the restored Protecting Tenants at Foreclosure Act of 2009, which became effective on June 23, 2018. The law protects tenants from immediate eviction by persons or entities that become owners of residential property through the foreclosure process, and extends additional protections for tenants with U.S. Department of Housing and Urban Development Section 8 vouchers. The letter may be viewed at: https://www.federalreserve.gov/supervisionreg/caletters/caltr1804.htm


FDIC issued the Spring/Summer 2018 edition of Money Smart News. The new edition addresses the updated Money Smarts for Adults course scheduled for release in September, the March Money Smarts for Small Business Town Hall, and consumer tips on protecting assets. The full Money Smarts News may be viewed at: https://www.fdic.gov/consumers/consumer/moneysmart/newsletter/spring2018/index.html 


CFPB, OCC, and FDIC released statements regarding S. 2155 Economic Growth, Regulatory Relief, and Consumer Protection Act and the changes it makes to HMDA reporting requirements. The act provides a partial exception to institutions that originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years, and for open-end lines of credit if the institution originated fewer than 500 open-end lines of credit in each of the two preceding calendar years. CFPB’s statement may be viewed at: https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-issues-statement-implementation-economic-growth-regulatory-relief-and-consumer-protection-act-amendments-home-mortgage-disclosure-act/ 
OCC’s statement may be viewed at: https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-19.html
FDIC’s statement may be viewed at: https://www.fdic.gov/news/news/financial/2018/fil18036.html 


NMLS issued its first quarter 2018 Mortgage Industry Report. The report compiles data concerning companies, branches and mortgage loan originators (MLOs) who are licensed or registered through NMLS in order to conduct mortgage activities. The report indicates that the number of active MLOs in the first quarter of 2018 decreased by 0.7 percent nationwide over the first quarter of 2017, among other findings. The report may be viewed at: https://mortgage.nationwidelicensingsystem.org/about/Reports/2018Q1-Mortgage-Report.pdf.


FRB has issued the semi-annual Money Policy Report to Congress which found that economic activity increased at a solid pace over the first half of 2018, and the labor market has continued to strengthen. Inflation has moved up, and in May, the most recent period for which data are available, inflation measured on a 12-month basis was a little above the Federal Open Market Committee’s (FOMC) longer-run objective of 2 percent. The report may be viewed at: https://www.federalreserve.gov/monetarypolicy/2018-07-mpr-summary.htm


FBI’s Internet Crime Complaint Center issued a PSA regarding Business Email Compromise, which is a sophisticated scam targeting both businesses and individuals performing wire transfer payments. The scam is frequently carried out when a subject compromises legitimate business e-mail accounts through social engineering or computer intrusion techniques to conduct unauthorized transfers of funds. These sorts of scams heavily target those conducting real estate transactions. The PSA may be viewed at: https://www.ic3.gov/media/2018/180712.aspx 


FRB issued the July 2018 Report to the Congress on the Profitability of Credit Card Operations of Depository Institutions. The data in the report indicates that the level of earnings in 2017 from credit cards is down in 2016. The full report may be viewed at: https://www.federalreserve.gov/publications/files/ccprofit2018.pdf


OCC issued an alert regarding a scam wherein consumers receive fictitious e-mail messages, allegedly initiated by OCC, regarding funds purportedly under the control of OCC. OCC does not participate in the transfer of funds for, or on behalf of, individuals, business enterprises, or governmental entities. The communication may include a fictitious “Letter of Authorization” with a signature name of “Anhar Tonny Coptalen, Comptroller General Of The Currency.” The perpetrators may request, among other data, bank account information, including bank statements, with the purported purpose of making a large dollar deposit into the potential victim’s account. Consumers who have provided bank account information should contact their financial institutions immediately to report the issue and discuss options to protect their account assets.  The full alert may be viewed at: https://www.occ.gov/news-issuances/alerts/2018/alert-2018-9.html


Deputy Attorney General Rod Rosenstein announced the establishment of a new Task Force on Market Integrity and Consumer Fraud. The Task Force, which is formed pursuant to Presidential Executive Order, will provide guidance for the investigation and prosecution of cases involving fraud on the government, the financial markets, and consumers, including cyber-fraud and other fraud targeting the elderly, service members and veterans, and other members of the public; procurement and grant fraud; securities and commodities fraud, as well as other corporate fraud, with particular attention to fraud affecting the general public; digital currency fraud; money laundering, including the recovery of proceeds; health care fraud; tax fraud; and other financial crimes. The full announcement may be viewed at: https://www.justice.gov/opa/pr/department-justice-bureau-consumer-financial-protection-us-securities-and-exchange-commission 


OCC has announced will host two workshops at the Magnolia Hotel St. Louis in St. Louis, Mo., August 21-22, for directors of national community banks and federal savings associations supervised by the OCC. August 21 will be a Risk Governance workshop and August 22 will be a Credit Risk workshop. Further information may be viewed at: https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-72.html


FHFA released its Foreclosure Prevention Report for the first quarter 2018 which showed that the Enterprises’ overall delinquency rate decreased in the first quarter of 2018. The percentage of loans that are 30-59 days delinquent dropped to 1.2 percent while the 60-plus-day delinquency rate decreased to 1.4 percent at the end of the quarter. The Enterprises’ serious delinquency rate also decreased to 1.1 percent at the end of the quarter. The full report may be viewed at: https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FPR_1Q2018.pdf 

By, Ally Bates

The below article is the Regulatory Spotlight section of the July 2018 Compliance Journal. The full issue may be viewed by clicking here.

Agencies Issue Policy Statement on Interagency Notification of Formal Enforcement.

The Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a policy statement on interagency notification of formal enforcement actions in coordination with the Federal Financial Institutions Examination Council (FFIEC) rescinding the existing policy statement and to incorporate and reflect current practices. The policy statement is applicable 06/12/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-12/pdf/2018-12556.pdf. Federal Register, Vol. 83, No. 113, 06/12/2018, 27371-27372.

CFPB Issues Semiannual Regulatory Agenda.

The Bureau of Consumer Financial Protection (CFPB) issued its semiannual regulatory agenda as a part of the Spring 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions. CFPB reasonably anticipates having the regulatory matters identified in the agenda under consideration during the period from 05/01/2018, to 04/30/2019. The next agenda will be published in fall 2018 and will update this agenda through fall 2019. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-11/pdf/2018-11229.pdf. Federal Register, Vol. 83, No. 112, 06/11/2018, 27234-27236.

CFPB Issues Correction to Request for Comment on Information Collection.

CFPB issued a correction to a request for comment on an information collection published in the Federal Register on 05/14/2018. The notice incorrectly included the word “Compliant” in one mention of the collection’s title when it should have read “Complaint.” The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-15/pdf/2018-12908.pdf. Federal Register, Vol. 83, No. 116, 06/15/2018, 27975.

FFIEC Rescinds Policy Statement on Interagency Coordination of Formal Corrective Action.

The Federal Financial Institutions Examination Council (FFIEC) is rescinding its policy statement titled “Interagency Coordination of Formal Corrective Action by the Federal Bank Regulatory Agencies” that was issued on 02/20/1997. This action is being coordinated with the publication of a new policy statement in the Federal Register by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), which reflects the current practices of the federal banking agencies with respect to the coordination of formal enforcement actions against federally regulated financial institutions and institution-affiliated parties. The rescission of the policy is effective 06/12/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-12/pdf/2018-12557.pdf. Federal Register, Vol. 83, No. 113, 06/12/2018, 27329-27330.

FRB Finalizes Amendments to Regulation A.

The Board of Governors of the Federal Reserve System (FRB) adopted final amendments to its Regulation A to reflect FRB’s approval of an increase in the rate for primary credit at each Federal Reserve Bank. The secondary credit rate at each Reserve Bank automatically increased by formula as a result of FRB’s primary credit rate action. The amendments are effective 06/20/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-20/pdf/2018-13270.pdf. Federal Register, Vol. 83, No. 119, 06/20/2018, 28526-28527.

FRB Finalizes Amendments to Regulation D.

FRB is amending Regulation D (Reserve Requirements of Depository Institutions) to revise the rate of interest paid on balances maintained to satisfy reserve balance requirements (IORR) and the rate of interest paid on excess balances (IOER) maintained at Federal Reserve Banks by or on behalf of eligible institutions. The final amendments specify that IORR is 1.95 percent and IOER is 1.95 percent, a 0.20 percentage point increase from their prior levels. The amendments are intended to enhance the role of such rates of interest in moving the Federal funds rate into the target range established by the Federal Open Market Committee. The amendments are effective 07/20/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-20/pdf/2018-13267.pdf. Federal Register, Vol. 83, No. 119, 06/20/2018, 28527-28528.

FRB Issues Semiannual Regulatory Agenda.

The Board of Governors of the Federal Reserve System (FRB) issued its semiannual regulatory agenda as a part of the Spring 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions. FRB reasonably anticipates having the regulatory matters identified in the agenda under consideration during the period from 05/01/2018, to 04/30/2019. The next agenda will be published in fall 2018 and will update this agenda through fall 2019. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-11/pdf/2018-11243.pdf. Federal Register, Vol. 83, No. 112, 06/11/2018, 27272-27273.

FRB Announces Financial Sector Liabilities.

FRB announced the financial sector liabilities for 2018. Aggregate financial sector liabilities is equal to $20,283,121,945,000. This measure is in effect from 07/01/2018 through 06/30/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-03/pdf/2018-14241.pdf. Federal Register, Vol. 83, No. 128, 07/03/2018, 31148-31149.

FRB Proposes New Message Format for the Fedwire Funds Service.

FRB has proposed to adopt the ISO 20022 message format for the Fedwire Funds Service. ISO 20022 is an international standard that would replace the Fedwire Funds Service’s current, proprietary message format. The migration to ISO 20022 would take place in three phases beginning in 2020 and ending in 2023. Comments are due 09/04/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-05/pdf/2018-14351.pdf. Federal Register, Vol. 83, No. 129, 07/05/2018, 31391-31396.

FRB Requests Comment on Information Collection.

FRB announced it seeks comment on the information collection titled Interagency Guidance on Managing Compliance and Reputation Risks for Reverse Mortgage Products. FRB also gave notice that it sent the collection to OMB for review. Comments are due 09/04/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-03/pdf/2018-14303.pdf. Federal Register, Vol. 83, No. 128, 07/03/2018, 31146-31148.

FDIC Requests Comment on Information Collection.

The Federal Deposit Insurance Corporation (FDIC) announced it seeks comment on the information collection titled Assessment Rate Adjustment Guidelines for Large and Highly Complex Institutions. FDIC also gave notice that it sent the collection to OMB for review. Comments are due 08/08/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-09/pdf/2018-14540.pdf. Federal Register, Vol. 83, No. 131, 07/09/2018, 31757-31758.

FDIC Issues Terminations of Receiverships.

  • FDIC as Receiver for former depository institutions, intends to terminate its receivership for the institutions listed in the notice. The liquidation of the assets for each receivership has been completed. To the extent permitted by available funds and in accordance with law, the Receiver will be making a final dividend payment to proven creditors. Based upon the foregoing, the Receiver has determined that the continued existence of the receiverships will serve no useful purpose. Consequently, notice is given that the receiverships shall be terminated, to be effective no sooner than thirty days after the date of this notice. If any person wishes to comment concerning the termination of any of the receiverships, such comment must be made in writing, identify the receivership to which the comment pertains, and be sent within thirty days of the date of this notice to: Federal Deposit Insurance Corporation, Division of Resolutions and Receiverships, Attention: Receivership Oversight Department 34.6, 1601 Bryan Street, Dallas, TX 75201. No comments concerning the termination of the above-mentioned receiverships will be considered which are not sent within this time frame. The notices may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-22/pdf/2018-13361.pdf. Federal Register, Vol. 83, No. 121, 06/22/2018, 29115;
    https://www.gpo.gov/fdsys/pkg/FR-2018-07-09/pdf/2018-14592.pdf. Federal Register, Vol. 83, No. 131, 07/09/2018, 31758.
  • FDIC as Receiver was charged with the duty of winding up the affairs of former depository institutions and liquidating all related assets. The Receiver has fulfilled its obligations and made all dividend distributions required by law. The Receiver has further irrevocably authorized and appointed FDIC-Corporate as its attorney-in-fact to execute and file any and all documents that may be required to be executed by the Receiver which FDIC-Corporate, in its sole discretion, deems necessary, including but not limited to releases, discharges, satisfactions, endorsements, assignments, and deeds. Effective on the termination dates listed in the final column of the chart in the notice, the Receiverships have been terminated, the Receiver has been discharged, and the Receiverships have ceased to exist as legal entities. The notices may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-09/pdf/2018-14591.pdf. Federal Register, Vol. 83, No. 131, 07/09/2018, 31757.

OCC Requests Comment on Information Collections.

  • The Office of the Comptroller of the Currency (OCC) announced it seeks comment on the information collection titled Procedures to Enhance the Accuracy and Integrity of Information Furnished to Consumer Reporting Agencies under Section 312 of the Fair and Accurate Credit Transactions Act (FACT Act). OCC also gave notice that it sent the collection to OMB for review. Comments are due 07/23/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-22/pdf/2018-13384.pdf. Federal Register, Vol. 83, No. 121, 06/22/2018, 29153-29154.
  • OCC announced it seeks comment on the information collection titled Loans in Areas Having Special Flood Hazards. OCC also gave notice that it sent the collection to OMB for review. Comments are due 07/27/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-27/pdf/2018-13745.pdf. Federal Register, Vol. 83, No. 124, 06/27/2018, 30220-30221.  

OCC Renews Minority Depository Institution Advisory Committee Charter.

OCC has determined that the renewal of the charter of the OCC Minority Depository Institutions Advisory Committee (MDIAC) is necessary and in the public interest. OCC hereby gives notice of the renewal of the charter. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-10/pdf/2018-14690.pdf. Federal Register, Vol. 83, No. 132, 07/10/2018, 31990.

HUD Issues Interpretive Rule on Loan Seasoning for Ginnie Mae Mortgage-Backed Securities.

The Department of Housing and Urban Development (HUD) issued an interpretive rule to clarify the scope of the provision of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (Act) that prohibits the Government National Mortgage Association (Ginnie Mae) from guaranteeing the timely payment of principal and interest on a security that is “backed by a mortgage” that fails to meet certain “seasoning” requirements. With this new amendment, questions have arisen as to the effect of this provision on Ginnie Mae’s ability to guarantee Multiclass Securities where the trust assets consist of direct or indirect interests in certificates, previously lawfully guaranteed by Ginnie Mae, but with underlying mortgage loans that may not be in compliance with the seasoning requirements. The rule provides HUD’s interpretation that the statutory provision does not prohibit Ginnie Mae from making guarantees in this context. The interpretive rule is effective 06/29/2018. Comments are due 08/02/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-03/pdf/2018-14354.pdf. Federal Register, Vol. 83, No. 128, 07/03/2018, 31042-31045.

HUD Finalizes Rule on the Removal of the FHA Inspector Roster.

HUD issued a final rule streamlining the inspection requirements for FHA single-family mortgage insurance by removing the regulations for the FHA Inspector Roster (Roster). The Roster is a list of inspectors approved by FHA as eligible to determine if the construction quality of a one- to four-unit property is acceptable as security for an FHA-insured loan. The removal of the Roster regulations is based on the recognition of the sufficiency and quality of inspections carried out by certified inspectors and other qualified individuals. The final rule is effective 08/02/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-03/pdf/2018-14212.pdf. Federal Register, Vol. 83, No. 128, 06/03/2018, 31038-31042.

HUD Issues Semiannual Regulatory Agenda.

HUD issued its semiannual regulatory agenda as a part of the Spring 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions. HUD reasonably anticipates having the regulatory matters identified in the agenda under consideration during the period from 05/01/2018, to 04/30/2019. The next agenda will be published in fall 2018 and will update this agenda through fall 2019. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-11/pdf/2018-11248.pdf. Federal Register, Vol. 83, No. 112, 06/11/2018, 27148-27149.

HUD Requests Comment on the Fair Housing Act’s Disparate Impact Standard. 

HUD is reviewing its 2013 final rule implementing the Fair Housing Act’s disparate impact standard, as well as the 2016 supplement to HUD’s responses to certain insurance industry comments made during the rulemaking. HUD is reviewing the final rule and supplement to determine what changes, if any, are appropriate following the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which held that disparate impact claims were cognizable under the Fair Housing Act and discussed standards for, and the constitutional limitations on, such claims. As HUD conducts its review, it is soliciting public comment on the disparate impact standard set forth in the final rule and supplement, the burden-shifting approach, the relevant definitions, the causation standard, and whether changes to these or other provisions of the rule would be appropriate. Comments are due 08/20/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-20/pdf/2018-13340.pdf. Federal Register, Vol. 83, No. 119, 06/20/2018, 28560-28562.

HUD Requests Comment on Information Collections.

  • HUD announced it seeks comment on the information collection titled Comprehensive Listing of Transactional Documents for Mortgagors, Mortgagees and Contractors, Federal Housing Administration (FHA) Healthcare Facility Documents: Proposed Revisions and Updates of Information Collection. HUD also gave notice that it sent the collection to OMB for review. Comments are due 07/16/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-29/pdf/2018-14081.pdf. Federal Register, Vol. 83, No. 126, 06/29/2018, 30769-30771.
  • HUD announced it seeks comment on the information collection titled Housing Trust Fund (HTF). HUD also gave notice that it sent the collection to OMB for review. Comments are due 09/04/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-05/pdf/2018-14353.pdf. Federal Register, Vol. 83, No. 129, 07/05/2018, 31413-31415.

FEMA Issues Final Rule on Suspensions of NFIP Community Eligibility.

The Federal Emergency Management Agency (FEMA) issued a final rule which identifies communities in the states of Illinois, and Nebraska, where the sale of flood insurance has been authorized under the National Flood Insurance Program (NFIP) that are scheduled for suspension on the effective dates listed within the final rule because of noncompliance with the floodplain management requirements of the program. If FEMA receives documentation that the community has adopted the required floodplain management measures prior to the effective suspension date given in the final rule, the suspension will not occur and a notice of this will be provided by publication in the Federal Register on a subsequent date. The effective date of each community’s scheduled suspension is the third date listed in the third column of the tables in the final rule. The final rule may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-03/pdf/2018-14229.pdf. Federal Register, Vol. 83, No. 128, 07/3/2018, 31075-31077.

FEMA Issues Final Flood Hazard Determinations.

  • FEMA has issued a final notice which identifies communities in the state of Iowa, where flood hazard determinations, which may include additions or modifications of Base Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, or regulatory floodways on the Flood Insurance Rate Maps (FIRMs) and where applicable, in the supporting Flood Insurance Study (FIS) reports have been made final. The FIRM and FIS report are the basis of the floodplain management measures that a community is required either to adopt or to show evidence of having in effect in order to qualify or remain qualified for participation in FEMA’s National Flood Insurance Program (NFIP). The final notice is effective 10/05/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-14/pdf/2018-12738.pdf. Federal Register, Vol. 83, No. 115, 06/14/2018, 27791-27793.
  • FEMA has issued a final notice which identifies communities in the state of Wisconsin, where flood hazard determinations, which may include additions or modifications of Base Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, or regulatory floodways on the Flood Insurance Rate Maps (FIRMs) and where applicable, in the supporting Flood Insurance Study (FIS) reports have been made final. The FIRM and FIS report are the basis of the floodplain management measures that a community is required either to adopt or to show evidence of having in effect in order to qualify or remain qualified for participation in FEMA’s National Flood Insurance Program (NFIP). The final notice is effective 09/28/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-26/pdf/2018-13607.pdf. Federal Register, Vol. 83, No. 123, 06/26/2018, 29805-29807.

FEMA Issues Final Notices of Changes in Flood Hazard Determinations.

  • FEMA issued new or modified Base (1% annual-chance) Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, and/or regulatory floodways (hereinafter referred to as flood hazard determinations) as shown on the indicated Letter of Map Revision (LOMR) for communities in the states of Illinois, Indiana, and Minnesota. Each LOMR revises the Flood Insurance Rate Maps (FIRMs), and in some cases the Flood Insurance Study (FIS) reports, currently in effect for the listed communities. The flood hazard determinations modified by each LOMR will be used to calculate flood insurance premium rates for new buildings and their contents. The effective date for each LOMR is indicated in the table in the final notice. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-14/pdf/2018-12741.pdf. Federal Register, Vol. 83, No. 115, 06/14/2018, 27788-27789.
  • FEMA issued new or modified Base (1% annual-chance) Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, and/or regulatory floodways (hereinafter referred to as flood hazard determinations) as shown on the indicated Letter of Map Revision (LOMR) for communities in the states of Indiana, and Wisconsin. Each LOMR revises the Flood Insurance Rate Maps (FIRMs), and in some cases the Flood Insurance Study (FIS) reports, currently in effect for the listed communities. The flood hazard determinations modified by each LOMR will be used to calculate flood insurance premium rates for new buildings and their contents. The effective date for each LOMR is indicated in the table in the final notice. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-26/pdf/2018-13605.pdf. Federal Register, Vol. 83, No. 123, 06/26/2018, 29808-29810.
  • FEMA issued new or modified Base (1% annual-chance) Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, and/or regulatory floodways (hereinafter referred to as flood hazard determinations) as shown on the indicated Letter of Map Revision (LOMR) for communities in the states of Illinois, and Indiana. Each LOMR revises the Flood Insurance Rate Maps (FIRMs), and in some cases the Flood Insurance Study (FIS) reports, currently in effect for the listed communities. The flood hazard determinations modified by each LOMR will be used to calculate flood insurance premium rates for new buildings and their contents. The effective date for each LOMR is indicated in the table in the final notice. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-27/pdf/2018-13741.pdf. Federal Register, Vol. 83, No. 124, 06/27/2018, 30187-30188.

FEMA Issues Correction to Changes in Flood Hazard Determinations.

On 04/05/2018, FEMA published in the Federal Register a changes in flood hazard determination notice that contained an erroneous table. The correction provides corrections to the table, to be used in lieu of the previously published table. The table provided in the correction represents the communities affected for Outagamie County, Wisconsin. The correction may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-13/pdf/2018-12643.pdf. Federal Register, Vol. 83, No. 114, 06/13/2018, 27623.

FEMA Removes Pilot Inspection Program Regulations.

FEMA is revising its regulations to remove a pilot inspection program under the National Flood Insurance Program (NFIP). This pilot inspection program applied to Monroe County, Florida. FEMA terminated this program on 06/28/2013, and is now removing the applicable regulations from the Code of Federal Regulations because they are no longer necessary. The rule is effective 07/05/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-05/pdf/2018-14477.pdf. Federal Register, Vol. 83, No. 129, 07/5/2018, 31337-31340.

FEMA Requests Comment on Information Collections.

  • FEMA announced it seeks comment on the information collection titled Elevation Certificate/Floodproofing Certificate. FEMA also gave notice that it sent the collection to OMB for review. Comments are due 07/30/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-29/pdf/2018-13992.pdf. Federal Register, Vol. 83, No 126, 06/29/2018, 30760-30761.
  • FEMA announced it seeks comment on the information collection titled Standard Flood Hazard Determination Form. FEMA also gave notice that it sent the collection to OMB for review. Comments are due 08/28/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-29/pdf/2018-13991.pdf. Federal Register, Vol. 83, No. 126, 06/29/2018, 30758-30759.

Treasury Issues Semiannual Regulatory Agenda.

The Department of the Treasury (Treasury) issued its semiannual regulatory agenda as a part of the Spring 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions. Treasury reasonably anticipates having the regulatory matters identified in the agenda under consideration during the period from 05/01/2018, to 04/30/2019. The next agenda will be published in fall 2018 and will update this agenda through fall 2019. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-11/pdf/2018-11278.pdf. Federal Register, Vol. 83, No. 112, 06/11/2018, 27192.

Treasury Opens Qualified Issuer Applications and Guarantee Applications for CDFI Bond Guarantee Program.

Treasury has opened Qualified Issuer Applications and Guarantee Applications for the Community Development Financial Institutions (CDFI) Bond Guarantee Program. Applications are due 07/12/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-12/pdf/2018-12605.pdf. Federal Register, Vol. 83, No. 113, 06/12/2018, 27370-27371.

Treasury Requests Comment on Information Collections.

  • Treasury announced it seeks comment on the information collection titled Energy Efficient Homes Credit; Manufactured Homes. Treasury also gave notice that it sent the collection to OMB for review. Comments are due 08/24/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-25/pdf/2018-13559.pdf. Federal Register, Vol. 83, No. 122, 06/25/2018, 29618-29619.   
  • Treasury announced it seeks comment on the information collection titled Revenue Procedure 2015–41 (Formerly 2006–9)—Section 482— Allocation of Income and Deductions Among Taxpayers. Treasury also gave notice that it sent the collection to OMB for review. Comments are due 08/27/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-27/pdf/2018-13748.pdf. Federal Register, Vol. 83, No. 124, 06/27/2018, 30221-30222.
  • Treasury announced it seeks comment on the information collection titled Form 5310, Application for Determination for Terminating Plan, and Form 6088, Distributable Benefits from Employee Pension Benefit Plans. Treasury also gave notice that it sent the collection to OMB for review. Comments are due 08/27/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-27/pdf/2018-13749.pdf. Federal Register, Vol. 83, No. 124, 06/27/2018, 30222.
  • Treasury announced it seeks comment on the information collection titled Requirements Respecting the Adoption or Change of Accounting Method; Extensions of Time to Make Elections. Treasury also gave notice that it sent the collection to OMB for review. Comments are due 08/27/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-27/pdf/2018-13750.pdf. Federal Register, Vol. 83, No. 124, 06/27/2018, 30222-30223.

SBA Issues Semiannual Regulatory Agenda.

The Small Business Administration (SBA) issued its semiannual regulatory agenda as a part of the Spring 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions. SBA reasonably anticipates having the regulatory matters identified in the agenda under consideration during the period from 05/01/2018, to 04/30/2019. The next agenda will be published in fall 2018 and will update this agenda through fall 2019. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-11/pdf/2018-11293.pdf. Federal Register, Vol. 83, No. 112, 06/11/2018, 27212-27216.

SBA Issues Peg Rate.

SBA publishes an interest rate called the optional peg rate on a quarterly basis. The rate is a weighted average cost of money to the government for maturities similar to the average SBA direct loan. The rate may be used as a base rate for guaranteed fluctuating interest rate SBA loans. The rate will be 2.875 percent for the July-September quarter of FY 2018. Pursuant to 13 CFR 120.921(b), the maximum legal interest rate for any third party lender’s commercial loan which funds any portion of the cost of a 504 project shall be 6 percent over the New York Prime rate or, if that exceeds the maximum interest rate permitted by the constitution or laws of a given state, the maximum interest rate will be the rate permitted by the constitution or laws of the given state. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-03/pdf/2018-14208.pdf. Federal Register, Vol. 83, No. 128, 07/03/2018, 31246-31247.

FCA Proposes Standards of Conduct and Referral of Known or Suspected Criminal Violations.

The Farm Credit Administration (FCA) proposes amendments to its regulations governing standards of conduct of directors and employees of Farm Credit System (FCS) institutions, excluding the Federal Agricultural Mortgage Corporation. The proposed rule would replace the original proposed rule, and would require every FCS institution to have or develop a Standards of Conduct Program based on core principles to put into effect ethical values as part of corporate culture. Comments are due 09/13/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-15/pdf/2018-12874.pdf. Federal Register, Vol. 83, No. 116, 06/15/2018, 27922-27932.

FCA Issues Correction to Final Rule on Investments.

FCA is correcting a final rule that appeared in the Federal Register on 06/12/2018 that amends regulations governing investments of both Farm Credit System (FCS) banks and associations. The final rule strengthens eligibility criteria for investments that FCS banks purchase and hold, and implements section 939A of the Dodd-Frank Act by removing references to and requirements for credit ratings and substituting other appropriate standards of creditworthiness. The final rule revises FCA’s regulatory approach to investments by FCS associations by limiting the type and amount of investments that an association may hold for risk management purposes. The correction is effective 01/01/2019. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-02/pdf/2018-14107.pdf. Federal Register, Vol. 83, No. 127, 07/02/2018, 30833.

RBC Invites Applications for Technical Assistance for Rural Transportation Systems Grants. 

Rural Business-Cooperative Service (RBC) has invited applications for grants to provide Technical Assistance for Rural Transportation (RT) systems under the Rural Business Development Grant (RBDG) to provide Technical Assistance for RT systems and for RT systems to Federally Recognized Native American Tribes’ and the terms provided in such funding. Successful applications will be selected by RBC for funding and subsequently awarded from funds appropriated for the RBDG program. Applications are due 09/25/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-27/pdf/2018-13752.pdf. Federal Register, Vol. 83, No. 124, 06/27/2018, 30102-30106. 

RHS Proposes Amendments to Single Family Housing Guaranteed Loan Program.

The Rural Housing Service (RHS) proposes amendments to the Single Family Housing Guaranteed Loan Program (SFHGLP) on the subject of Single Close Combination Construction to Permanent Loans. RHS proposes to amend the regulation to provide increased flexibility in loan terms that affect the costs of interim construction financing and the viability of combination construction to permanent loans on the secondary market in a manner which will enable more lenders to make these combination construction to permanent loans to SFHGLP borrowers. Specifically, RHS proposes to: Allow and define a maximum interest rate for interim construction financing that is different than the underlying rate; allow for the escrow or reserve of regularly scheduled principal, interest, taxes and insurance (PITI) payments; and remove the requirement for loan modification or re-amortization once construction is complete. Comments are due 08/20/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-20/pdf/2018-13154.pdf. Federal Register, Vol. 83, No. 119, 06/20/2018, 28547-28550.

RHS Invites Applications for Section 514 Farm Labor Housing Loans and Section 516 Farm Labor Housing Grants for Off-Farm Housing for Fiscal Year 2018.

RHS announced the timeframe to submit pre-applications for Section 514 Farm Labor Housing (FLH) loans and Section 516 FLH grants for the construction of new off-farm FLH units and related facilities for domestic farm laborers and for the purchase and substantial rehabilitation of non-FLH property. The intended purpose of the loans and grants are to increase the number of available housing units for domestic farm laborers. Applications are due 08/27/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-27/pdf/2018-13761.pdf. Federal Register, Vol. 83, No. 124, 06/27/2018, 30106-30113.

SEC Finalizes Amendments to Investment Company Liquidity Disclosure.

The Securities and Exchange Commission (SEC) is adopting amendments to its forms designed to improve the reporting and disclosure of liquidity information by registered open-end investment companies. SEC is adopting a new requirement that funds disclose information about the operation and effectiveness of their liquidity risk management program in their reports to shareholders. SEC in turn is rescinding the requirement in Form N–PORT under the Investment Company Act of 1940 that funds publicly disclose aggregate liquidity classification information about their portfolios. In addition, SEC is adopting amendments to Form N– PORT that will allow funds classifying the liquidity of their investments pursuant to their liquidity risk management programs to report multiple liquidity classification categories for a single position under specified circumstances. SEC also is adding a new requirement to Form N–PORT that funds and other registrants report their holdings of cash and cash equivalents. The amendments are final 09/10/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-10/pdf/2018-14366.pdf. Federal Register, Vol. 83, No. 132, 07/10/2018, 31859-31877.

SEC Finalizes Amendments to Smaller Reporting Company Definition.

SEC finalized amendments to the definition of “smaller reporting company” as used in its rules and regulations. The amendments expand the number of registrants that qualify as smaller reporting companies and are intended to reduce compliance costs for these registrants and promote capital formation, while maintaining appropriate investor protections. SEC is amending the definition of “smaller reporting company” to include registrants with a public float of less than $250 million, as well as registrants with annual revenues of less than $100 million for the previous year and either no public float or a public float of less than $700 million. SEC is also amending other rules and forms in light of the new definition of “smaller reporting company,” including amendments to the definitions of “accelerated filer” and “large accelerated filer” to preserve the existing thresholds in those definitions. Qualifying as a “smaller reporting company” will no longer automatically make a registrant a non-accelerated filer. The Chairman of the SEC, however, has directed the staff to formulate recommendations to SEC for possible additional changes to the “accelerated filer” definition that, if adopted, would have the effect of reducing the number of registrants that qualify as accelerated filers. The final rule is effective 09/10/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-10/pdf/2018-14306.pdf. Federal Register, Vol. 83, No. 132, 07/10/2018, 31992-32022.

SEC Issues Semiannual Regulatory Agenda.

SEC issued its semiannual regulatory agenda as a part of the Spring 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions. SEC reasonably anticipates having the regulatory matters identified in the agenda under consideration during the period from 05/01/2018, to 04/30/2019. The next agenda will be published in fall 2018 and will update this agenda through fall 2019. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-11/pdf/2018-11245.pdf. Federal Register, Vol. 83, No. 112, 06/11/2018, 27280-272840.

NCUA Finalizes Rule on Mergers of Federally Insured Credit Unions.

The National Credit Union Administration (NCUA) finalized revisions to procedures a federally insured credit union (FICU) must follow to merge voluntarily with another FICU. The changes: revise and clarify the contents and format of the member notice; require merging credit unions to disclose certain merger-related financial arrangements for covered persons; increase the minimum member notice period; and provide a method for members and others to submit comments to NCUA regarding the proposed merger. In addition, NCUA has replaced its Merger Manual with revised model forms that conform to the requirements of this rule. The regulations now includes these forms. The rule is effective 10/01/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-28/pdf/2018-13867.pdf. Federal Register, Vol. 83, No. 125, 06/28/2018, 30301-30314.

NCUA Finalizes Amendments to Chartering and Field of Membership Rules.

NCUA is amending its chartering and field of membership rules with respect to applicants for a community charter approval, expansion or conversion. NCUA will allow the option for an applicant to submit a narrative to establish the existence of a well-defined local community instead of limiting the applicant to a presumptive statistical community. Also, NCUA will hold a public hearing for narrative applications where the proposed community exceeds a population of 2.5 million people. Further, for communities that are subdivided into metropolitan divisions, NCUA will permit an applicant to designate a portion of the area as its community without regard to division boundaries. The final rule is effective 09/01/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-28/pdf/2018-13869.pdf. Federal Register, Vol. 83, No. 125, 06/28/2018, 30289-30301.

DOL Finalizes Rule on Association Health Plans.

The Department of Labor (DOL) finalized regulation under Title I of the Employee Retirement Income Security Act (ERISA) that establishes additional criteria under ERISA section 3(5) for determining when employers may join together in a group or association of employers that will be treated as the “employer” sponsor of a single multiple-employer “employee welfare benefit plan” and “group health plan,” as those terms are defined in Title I of ERISA. By establishing a more flexible ‘‘commonality of interest’’ test for the employer members than DOL had adopted in sub-regulatory interpretive rulings under ERISA section 3(5), and otherwise removing undue restrictions on the establishment and maintenance of Association Health Plans (AHPs) under ERISA, the regulation facilitates the adoption and administration of AHPs and expands access to affordable health coverage, especially for employees of small employers and certain self-employed individuals. The regulation is effective 08/20/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-06-21/pdf/2018-12992.pdf. Federal Register, Vol. 83, No. 120, 06/21/2018, 28912-28964.

Education Requests Comment on Information Collection.

The Department of Education (Education) announced it seeks comment on an information collection titled Federal Perkins/ NDSL Loan Assignment Form. Education also gave notice that it sent the collection to OMB for review. Comments are due 09/07/2018. The notice may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-09/pdf/2018-14603.pdf. Federal Register, Vol. 83, No. 131, 07/09/2018, 31740.

By, Ally Bates

Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) on May 22, 2018. The bill was signed by President Trump on May 24. While the Act is now law, many of its provisions require implementation from the Federal banking agencies in order to be effective. The Act provides some direct regulatory relief, but also serves as an acknowledgement of a need for change in the realm of deregulation. It passed by a bipartisan vote of 258-159 and represents a step in the right direction. What follows is not a comprehensive review of the Act, but a summary of key provisions related to the banking industry.

Title I. Improving Consumer Access to Mortgage Credit

Section 101

Creates a new category of qualified mortgage (QM) for purposes of meeting the Truth in Lending Act’s (TILA) ability to repay requirements. This QM is available to financial institutions less than $10 billion in assets that originate and retain the loan in portfolio. To obtain QM status under this rule the loan must meet certain requirements:

  • Restrictions on prepayment penalties;
  • Total points and fees less than or equal to 3% of the loan amount;
  • No negative amortization or interest only features; and,
  • Fully amortized for fixed rate loan.

While this QM status is available as a matter of law, some clarification is still required by the Consumer Financial Protection Bureau (CFPB). For instance, CFPB must clarify the relationship between the new QM category and the existing small creditor QM. 

Section 103

Provides an exception from appraisal requirements in rural areas. An appraisal for a federally-related mortgage loan is not required if the following criteria are met:

  • Loan is under $400,000;
  • Real property located in a rural area (under TILA);
  • Within 3 days after providing the Closing Disclosure, contact at least 3 State certified appraisers;
    • These appraisers must not be available within 5 business days, and the financial institution must document this fact; and,
  • Loan is held in portfolio.
    • May be sold or transferred under limited circumstances.

This relief is not available for high cost mortgage loans (under TILA) or, for loans where an appraisal would otherwise be required for safety and soundness reasons under other federal regulatory requirements.

Section 104

Exempts certain small-volume loan originators from the new HMDA reporting requirements. Financial institutions that originate fewer than 500 closed-end mortgage loans in each of the two preceding calendar years may revert to pre-January 2018 HMDA reporting requirements. Similarly, financial institutions that originate fewer than 500 open-end lines of credit in each of the two preceding calendar years may revert to pre-January 2018 reporting requirements. Thus, for HELOCs there is an:

  • Exemption from HMDA reporting for HELOCs during 2018-2019 period; and,
  • Limited HELOC reporting for post 2019 period.

None of the Section 104 exemptions apply to any bank that has received a “needs to improve” CRA rating during each of the last 2 most recent exams or a “substantial non-compliance” rating on its most recent exam. CFPB. The CFPB will need to implement, or rewrite, the existing HMDA rule to clarify Section 104’s relation to current reporting requirements.

Section 108

Creates a new exemption from escrow requirements for residential mortgage loans (under TILA) for financial institutions that:

  • Have assets of $10 billion or less;
  • Originated 1,000 or fewer first lien mortgages secured by a principal dwelling in the preceding year; 
  • Originated at least one covered transaction in a rural or underserved area (under TILA); and
  • Do not maintain an escrow account for real estate secured loans other than when required for HPML or distressed customers. however, an HPML must continue to meet the covered transaction, extension, and asset threshold tests under 1026.35(b)(2)(iii).

This exemption is created in addition to the existing escrow exemption available under TILA. This exemption is not immediately effective. The CFPB must write implementing regulations in order for the exemption to become available. The Act does not give a timeline that CFPB must follow for implementation.

Section 109

Eliminates the 3-day waiting period required by the TILA/RESPA integrated disclosure rules when a consumer receives a second offer for credit by the same lender. Meaning, if the APR becomes inaccurate, by changing more than 1/8th of a 1% that results in a lower rate, a corrected Closing Disclosure is still required, but does not require a 3 day waiting period before closing.

Title II. Regulatory Relief and Protecting Consumer Access to Credit

Section 201

Simplifies the capital calculations for community banks that have less than $10 billion in assets by requiring the Federal banking agencies to establish a specified Community Bank Leverage Ratio between 8% and 10%. This specified ratio is designed to provide relief from Basel III capital standards for community banks. Financial institutions that maintain this ratio are presumed to be well capitalized an in compliance with risk based capital and leverage requirements.

Section 203

Exempts banks with less than $10 billion in assets from the Volcker Rule. 

Section 205

Requires the federal banking agencies to implement regulations raising the eligibility for reduced Report of Condition and Income (short form call reports) from $1 billion to $5 billion in assets.

Section 210

Increases the asset threshold for the 18 month instead of 12 month examination cycle from $1 billion to $3 billion in assets.

Section 213 

Permits the collection and use of certain information, such as a copy of a customer’s driver’s license, in connection with online banking.

Other Sections to Consider

As discussed above, this article does not provide a comprehensive analysis of S. 2155. It is designed to highlight certain portions of select sections within the Act. There are other sections in each title above, as well as titles not discussed above. Some of those titles not discussed that readers should be aware of are:

  • Title III – Protections for Veterans, Consumers, and Homeowners;
  • Title IV – Tailoring Regulations for Certain Bank Holding Companies;
  • Title V – Encouraging Capital Formation; and,
  • Title VI – Protections for Student Borrowers.

Conclusion

Readers are encouraged to consult S. 2155 to review the sections above in full, as well as those sections not discussed. The Act can be found here: https://www.congress.gov/bill/115th-congress/senate-bill/2155

In addition, if you missed the WBA webinar, Everything You Need to Know About S.2155 All Member Call, you can access its recording here: https://gsb.adobeconnect.com/pumj4imny6uh?proto=true 

Click here to view the rest of the July 2018 Compliance Journal.

By, Ally Bates

The July 2018 edition of the WBA Compliance Journal has been published.

This month's Special Focus article discusses key provisions of s. 2155 for banks. Regulatory Spotlight includes agencies' Semiannual Regulatory Agendas. CFPB, OCC, and FDIC's recent statements on S. 2155 and the changes it makes to HMDA reporting requiremments are amongst the items discussed in Compliance Notes.

Click here to download the July 2018 WBA Compliance Journal.

By, Ally Bates

Jeff Gruetzmacher headshotCorn. Soybeans. Cattle. Dairy. Heifers. Equipment. Dairy Buildings…

As we all know, if cash flow doesn't pay the loan back, the collateral will have to.

We all follow land prices with a keen interest, being able to rattle off land sales for this-and-that soil type on a per acre basis. The general public and the Fed also closely track it. So far, at least in Wisconsin, land has shown to be very resilient. But what about other non-land assets on our customer's balance sheets?

It used to be valuing our farm customer's ag assets was easy. In fact, for many years, our customers didn't really change asset prices from year to year on balance sheets. All that changed were unit counts, acres, and liabilities because the underlying asset prices didn't change a lot.

However, with uncertainty abounding in every corner, and even more volatility (as if that were possible) in the commodity markets, how can you really put a "market value" on assets on the balance sheet? On what day? Should you change your strategy? 

If you start adjusting asset pricing to current values, you are going to introduce extreme volatility into balance sheets, requiring you to do equity reconciliations and accrual adjustments all the time, not just on medium to larger credits. Sometimes accounts will be given earnings credit for unsold inventory when it's not justified. Accrual adjustments to earnings, while favored by accountant types, can also be used to hide real cash flow problems as inventory is rolled and rolled.

On the other hand, if you leave asset pricing stagnant and only adjust unit values and liabilities, you might be short-changing your customer's true equity position by ignoring increasing prices—or worse, by overstating their equity position in declining markets.

Even if you're diligent and make changes to the market value every year, there is an elephant in the room many want to ignore: highly improved building sites. While we can all wish the dairy economy was better, it does nothing for the fact that the desirability of existing highly improved dairy units has been waning. What used to be a building's 50-70% contribution to the overall value now seems to be a lot less.

Regardless of how balance sheets are constructed, an honest look in the next year at asset pricing is essential for the customer and financial institutions to weather this cycle of volatile and low prices.

Gruetzmacher is senior vice president at Royal Bank in Lancaster, Wis. He is a board member of the WBA Ag Banking section and serves on the national ICBA Committee for Ag and Rural Affairs.

By, Amber Seitz

Leverage culture as a competitive advantage

According to data recently compiled by Houston-based consulting firm PDR Corp, a strong positive culture can enhance employee engagement by 30 percent, resulting in up to a 19 percent increase in operating income and a 28 percent increase in earnings growth. In order to see these results, however, the company's leaders must be intentional about fostering a culture that fits their organizational goals and strategy. As margins shrink, customers grow more demanding, and competition creeps in from outside the industry, leveraging your bank's cultural potential could be the best tool you have to increase your competitive advantage. 

Driven in large part by Silicon Valley's tech start-ups, the predominant perception of "company culture" today consists of foosball tables, smoothie bars, and endless after-hours entertainment—but those are superficial perks, not culture. "Company culture is the intangible, but very real, feeling or vibe of an organization," explained Carver Smith, partner, Baker Tilly Search & Staffing. "It's what employees experience, which may or may not be in line with a company's stated values." That disconnect between what the company says it values and what employees experience occurs most often when leadership ignores their organization's culture. "Culture either happens by design or by default," explained Steve Jones, leadership coach and consultant and a keynote speaker at the recent WBA BOLT Leadership Summit. "You're either intentional—talking about it and growing and improving it—or it just happens." Odds are, a 'culture by default' is not optimized for your institution's goals. 

Benefits of Intentional Culture

One of the most important benefits of being intentional about your bank's culture is also a prerequisite for the success of that culture. When assessing their company culture, the most valuable question for management to ask isn't "do we have a great culture?" but rather "does our culture fit our strategy?". They must be aligned in order for either one to be successful. "Culture eats strategy for lunch," said Mark Mohr, president/CEO, First Bank Financial Centre, Oconomowoc. "We can't successfully execute our strategy without a positive culture." Doug Gordon, president and CEO, WaterStone Bank, Wauwatosa, agreed. "You might be a great CEO in strategy, but you can't create the culture necessary to execute those strategies from behind a desk," he said. Both FBFC and WaterStone Bank have been awarded a "Top Workplace" by the Milwaukee Journal Sentinel for nine consecutive years, a feat only 18 companies have achieved. The Journal Sentinel compiles the list based on employee surveys, so this terrific achievement demonstrates the positive impact of culture at each institution. 

Related to achieving strategic goals, another benefit of a healthy, well-aligned company culture is a measurable positive impact on profitability. That comes, at least in part, from employees feeling empowered to push one another to perform better. "In really strong cultures, psychological safety allows employees to hold one another accountable to meet the standards of the organization," said Jones. "That's when companies really thrive." Gordon says he considers the bank's 50 percent efficiency ratio—which measures better than their peers—a sign that they're heading in the right direction. "Profitability and the success of the bank are an indicator that our culture is working," he explained, noting that WaterStone's leadership make sure employees understand they are the bank's priority. "We stress that employees come first, customers come second, and shareholders third," Gordon continued. "If we have competent, invested employees, they'll provide excellent customer service, which then leads to profits for shareholders."

Finally, culture can be a powerful tool in your HR department's arsenal with respect to recruitment and retention of top-performers. "Culture is everything when it comes to attracting and retaining quality professionals," said Jones. The primary reason is because employees who enjoy their work are more likely to actively promote opportunities to their networks. "A great culture creates employee advocacy," said Mohr. "Much of our recruiting is referrals from existing employees, and to me that's a high compliment." The key is for bank management to be strategic about forming their culture based on the kind of employee the bank needs in order to meet its goals. "Banks need to play to their strengths and determine what type of personality they really need," Smith advised. "They should ask themselves, 'do we have the culture that would appeal to our target employee?'." When a company achieves alignment between culture and the type of professionals it needs to recruit, that's where turnover drops and engagement rises, and profits along with it. 

When leveraging culture as a recruitment tool, it's important for management to follow through—that is, hire for culture as much as use it to attract quality candidates. "People want to work with people they get along with, so you should hire people who fit your culture," said Gordon. "When we're recruiting, we're looking for the most qualified candidate who fits, not necessarily just the most qualified."

Designing Your Culture (Action Steps)

How to design culture

Intentionally designing your bank's culture is a simple undertaking, but it is far from easy. "You have to put the experience before the brand," said Smith.* "You can't just say 'we're X' and have it be true. People have to experience it." To achieve that, Jones recommends creating a culture plan, just like you would a strategic plan, and following it just as diligently. "If you focus on the culture, the profits will follow after," he said. While each institution's plan will differ, there are three basic actions for executing it:

1: Lead from the top
"Listen, observe, and above all, lead by example," Smith advised. "Leaders drive the culture," Jones agreed. "Culture starts with the leaders' vision and everyone understanding that the leaders care about the people within the culture. After that, everyone down to the bottom has to understand that they own it every day." In order for any culture shift to happen, the people at the top must make it a daily priority. "I look at creating a culture where our people feel valued and can succeed as one of my most important jobs," said Mohr.

2: Communicate often
One of the most effective ways to identify and build an organizational culture is to open up communication channels. Both Gordon and Mohr say they meet with employees on a regular basis to solicit feedback and facilitate discussion specifically about the bank's culture. "I visit all of our branches at least once a month to hear what everyone has to say, because my vision might be different from what they see," said Gordon. Sometimes, a different vision can be a good thing. "So many good ideas have come from employee suggestions," Mohr said. "They're really participating in improvements we're making."

3: Adapt as needed 
"Culture is not static in any way, shape, or form," said Gordon. Whether it's reacting to exit interviews or making changes based on employee surveys, the bank's culture must be mutable. As part of that, management must be willing to make cultural adjustments as the workforce becomes more diverse. "Embrace all aspects of diversity and realize culture is not a one-size-fits-all solution," Smith advised. "Understand the differences in people as individuals, not as buckets to be 'dealt with' as is often the case with generational differences."

To make culture changes as smooth as possible, as the culture at the institution shifts, bank leadership must ensure that no employee feels left behind. "You might ostracize some staff unless you help them see the benefits of the changed culture," Smith cautioned. "Make them a part of the change management exercise, not a victim of it." He advises weighing the risk of losing those employees against the value the new culture will create. "Culture comes down to an organization's shared vision and value systems, language, and beliefs," said Jones. "It's ultimately about getting everyone to move in the same direction." 

Building Blocks of Culture
The experts interviewed for this article shared their thoughts on the key features of successful cultures. A few of the most common are: 

  • Clarity of Purpose – "This past year we updated our mission statement to 'make lives better' and that helps everyone understand our purpose." (Mohr)

  • Growth – "Personal growth is important, and we're very proud of the opportunities we present for people to advance within our organization. Employees value an organization that devotes resources to them." (Mohr)

  • Language – "Having a common language everyone understands is also important. If you go into a meeting and everyone's using acronyms and jargon you don't understand, you just become a wallflower." (Jones)

  • Psychological Safety – "People have to feel valued and safe to take risks knowing that failure won't define them." (Jones)

  • Teamwork – "Our tagline is 'one team, one vision.' We foster a culture of celebrating each other's successes rather than being jealous." (Gordon)

  • Ubiquity – "Those that do it successfully discuss it, recognize it, and celebrate it in everything that they do." (Smith)

  • Values – "Culture spreads when people are accountable to the values of the organization." (Jones)

* Smith credits his friend Will Ruch, owner of marketing firm Versant, with this idea.

Baker Tilly is a WBA Silver Associate Member.

By, Amber Seitz

Q: Are Wisconsin Financial Institutions Required to pay Interest on Escrow Accounts for Loans Covered by a First Lien Mortgage or Equivalent Security Interest in a 1-4 Family Dwelling Used as by the Borrower as a Principal Residence?

A: Not after April 18, 2018. Wisconsin Act 340 includes a provision that eliminates the requirement that a financial institution pay interest on escrow accounts for residential mortgage loans originated on or after the effective date of the Act. Thus, a Wisconsin financial institution is not required by law to pay interest on any escrow account maintained in association with a loan originated on or after April 18.

Wisconsin Section 138.052 previously required financial institutions to pay interest on the balance on any required escrow accounts. 138.052 applies to loans secured by a first lien or first lien equivalent in a 1-4 family dwelling that is used as the borrower’s principal residence. Wisconsin Act 340 modified this requirement so that it only applies to loans originated prior to the effective date of the Act. So, financial institutions must continue to pay interest on escrow accounts they required prior to the effective date of Act 340. However, for any escrow account associated with a loan originated after the effective date of Act 340, 138.052 no longer requires payment of interest.

Click here to view Wisconsin Act 340.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution's attorney for special legal advice or assistance. Questions? Email the WBA legal team.

 

By, Amber Seitz