Pub. 8 2017 Issue 2

www.wvbankers.org 10 West Virginia Banker Reduction in Call Report Requirements for Small Financial Institutions By Tyler R. Wilson, Arnett Carbis Toothman LLP Introduction Effective with the March 31, 2017 report, financial institutions meeting the Federal Financial Institutions Examination Council‘s (FFIEC) definition of a small financial institution have the option to prepare quarterly Consolidated Reports of Condition and Income (Call Reports) using a less stringent Reporting form. This new rule attempts to reduce the amount of time and effort needed to prepare the Call Report. Origin of Changes The new rule is part of the FFIEC‘s burden-reducing initiative to minimize the reporting requirements placed on financial institutions while still providing meaningful data for comparison and review purposes. The FFIEC announced the burden reducing initiative in De- cember 2014 as the result of an ongoing regulatory review performed in accord- ance with the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). EGRPRA requires Federal banking agencies to review their rules at least every ten years to determine the need for removal of outdated or unreasonable regulations. The FFIEC invited public comment on the proposal to compress reporting requirements on August 5, 2016. According to the orig- inal FFIEC press release, the proposal would affect roughly 90 percent of financial institutions and would reduce Call Report data input items by nearly 40 percent. The FFIEC developed three main princi- ples to assist in determining revisions to the data items included in the Call Re- port. These included whether or not the data item served a long-term regulatory or public policy purpose, maximized practical utility while minimizing the burden on financial institutions and was readily available by some other means. In order to achieve an understanding of the effects of the Call Report process on the industry, the FFIEC conducted numerous on-site visits, telephonic Summer 2017 11 West Virginia Banker Tyler Wilson is a Supervisor at Arnett Carbis Toothman LLP, Certified Public Accountants, Charleston, West Virginia. A Certified Public Accountant, Mr. Wilson has over four years’ experience in the financial institutions industry. He provides audit, internal audit, and loan review services to community banks through the firm’s Financial Institutions Service Group and is vice chair of the Banking, Industry and Government Committee of the West Virginia Society of CPA’s. Mr. Wilson canbecontactedat800-642-3601or Tyler.Wilson@actcpas.com. interviews and other forms of correspondence with commu- nity banks and savings institutions. It was determined that a Call Report required roughly 44 hours to prepare based upon a survey of 3,900 banks. Criteria and Implementation Institutions must meet certain criteria under the FFIEC’s definition of a small financial institution for purposes of the reporting requirement. Institutions must have less than $1 billion in total assets while also maintaining only domestic offices. Credit Unions are not included in the definition of a small financial institution. Certain other highly uncommon exceptions exist and can be found in the Call Report instruc- tions. To implement the new rules, a new version of the Call Report, FFIEC 051, was developed. The new form is essentially a modified version of FFIEC 041. The new form attempts to maintain as much of the numbering and structure of FFIEC 041 in order to make the transition easier for preparers. The main adjustments to this form include the removal of any items that are required due to a $1 billion asset threshold for reporting purposes, reduction of the collection of certain items deemed to be needed less than quarterly, addition of a supplemental schedule of questions and data indicators to facilitate the reduction or removal of six schedules relating to certain complex and specialized activities, and the elimina- tion of certain reportable items throughout the form that are determined as not applicable to financial institutions of less than $1 billion in total assets due to interagency reviews of existing call reports. Small financial institutions have the option to file either FFIEC 041 or 051 beginning on March 31, 2017. Institutions may choose to report using FFIEC 051 in any quarter leading up to and including March 31, 2018. The new FFIEC 051 and the re- lated Call Report instruction book are located on the FFIEC’s website. In addition to the creation of FFIEC 051, FFIEC 031 and 041 were revised as part of the burden-reduction initiative. These revisions included higher thresholds for reporting and elimination of certain data items required by the Call Report. According to a March 21, 2017 FFIEC press release, other actions planned or taken because of EGRPRA include simplification of regulatory capital rules for community banks, increased commercial real estate loan appraisal thresholds, and reduction of the frequency of regulator examinations for a larger number of financial institutions. The council has signaled that simplification of the regulatory capital rules will likely make completion of the Call Report’s capital schedules less onerous. Proposals for potential additional changes to reporting requirements for FFIEC 031, 041 and 051 Call Re- ports are on the horizon with an anticipated implementation date of March 31, 2018. Benefits of using the new form may be limited for certain eligible banks, with some data on FFIEC 041 not reported by institutions having assets under $1 billion while other data removed from reporting for FFIEC 051 were already not applicable and therefore not reported. In addition, the launch of FFIEC 051 and modification of FFIEC 041 is part of a larger “Full Review,” which could result in further simplification to either form. Conclusion The new Call Report provides many efficiencies and stream- lines the reporting requirements for small financial institutions by eliminating and reducing unnecessary data points. Yet, institutions eligible to use the new FFIEC 051 must determine whether the benefits of the streamlined form warrant the ef- forts required to convert data gathering and input processes to the new form either now or by March 31, 2018. 