2019 Journal of Community Bank Case Studies

University of Tennessee at Martin

THIRD PLACE:

throughout the bank. The Compliance Department, an especially critical department given FirstBank’s large mortgage operation, is responsible for insuring compliance with regulations around BSA and compliance with consumer protection and fair lending laws. This function is a highly expensive necessity. The Risk Management Department focuses on physical security of all locations, internal investigations, and operational risk. The task of the Loan Review division is to ensure the safety and soundness of the loan portfolio and compliance with the loan policy and controls. The final department, Internal Audit, oversees the internal audit and internal control processes within FirstBank and assists the Audit Committee. FirstBank reduced the outsourcing of its internal auditing and increased its staff over the past three years. To accommodate this shift to in-house internal auditing, FirstBank has hired at least one auditor in most years from 2016 to 2019 (Durham). Based on industry average, FirstBank estimates that the total annual compliance cost ranges from approximately $14 million to $17 million (Durham). This calculation is based on the CSBS estimate of “5.3% of non-interest expenses for a $1 billion to $10 billion bank,” as well as an added consideration for FirstBank’s large mortgage and manufactured housing divisions (Durham). Johnson explains the allocation of compliance costs throughout FirstBank as follows, “The cost [of compliance] is dispersed among all job functions within the organization. Virtually, every employee spends some time during a year on compliance.” As noted

previously, compliance and regulations are burdensome to FirstBank and all community banks across the United States given the high cost and the large number of employees dedicated to and involved in compliance. Review of Relevant EGRRCPA Provisions and Impact on FirstBank Since FirstBank is a larger community bank with over $5 billion in total assets, it is excluded from capitalizing on a number of EGRRCPA provisions. However, the regulatory provisions that FirstBank has the opportunity to utilize could have significant effects on FirstBank’s operations. Because of FirstBank’s mortgage- heavy loan origination, the most significant provisions from the EGRRCPA are the simplified capital rules and mortgage servicing capital regulations. The Volcker Rule exclusion will also allow FirstBank the opportunity to invest into local community investment funds and financial technology (FinTech) companies.

FirstBank reduced the outsourcing of its internal auditing and increased its staff over the past three years.

61