What a difference a year makes.

Carter Bank & Trust in Martinsville, Va., finished 2015 on a high note that culminated in record earnings at the $4.7 billion-asset institution. The notoriously frugal bank had gained momentum bringing in revenue to go along with its tight cost control.

Much of that changed when the bank felt firsthand the chilling effect of regulatory burden.

Carter disclosed last month that it was hit with a consent order requiring it to beef up compliance tied to the Bank Secrecy Act. The bank said in a letter to shareholders that regulators advised it to increase the number of people in its BSA department from three full-time employees to "a minimum of 22."

"We have no choice to but to comply … and will do so in a timely manner," Worth Harris Carter, the bank's chairman and chief executive, wrote in the letter, which did not cite any specific reason the institution received the mandate. "As of this date, the total cost is not known and we are making every effort to mitigate" the impact.

Officials at Carter Bank, along with the regulators behind the consent order — the Federal Deposit Insurance Corp. and Virginia's Department of Financial Institutions — did not respond to requests for comment.

Carter Bank's quandary is further proof that regulators are stepping up BSA and anti-money-laundering enforcement at smaller institutions, industry experts said.

"It's a cost of doing business in the United States," said Andy Fernandez, a lawyer at Holland & Knight in Miami who specializes in BSA and AML issues. In fact, Fernandez said he has worked with community banks in South Florida that employ twice as many people in their BSA units as Carter Bank is expected to have.

"All financial institutions are being held to a higher standard," Fernandez said. The bar for BSA compliance "has been raised across the board."

Other small banks have been dealing with increased oversight.

Carver Bancorp in New York disclosed in May that it had signed a consent order that was tied in part to possible BSA violations. On Monday the $701 million-asset company reported a $252,000 third-quarter loss that reflected costs "associated with strengthening the bank's regulatory and compliance infrastructure."

Regulators in August flagged the $22 billion-asset Investors Bancorp in Short Hills, N.J., for BSA deficiencies. A month later the $2.7 billion-asset CU Bancorp in Los Angeles agreed to a consent order to address perceived BSA compliance, noting that its expected annual costs to rise by $1.1 million due to increased staffing.

"We're definitely seeing increased activism on the part of regulatory authorities," said Sharon Brown-Hruska, an economist who recently authored a study of BSA regulatory activity. "Has there been more crime or more money laundering? I'm not necessarily seeing a correlation."

The Government Accountability Office noted in a March report that regulators assessed $5.2 billion in BSA-related fines from 2009 to 2016, though the lion's share was linked to several large, high-profile penalties levied against giants such as JPMorgan Chase, HSBC, ABN Amro and Citigroup's Banamex unit.

Carter Bank, for its part, did not admit any wrongdoing and was not assessed a financial penalty. Still, the order's requirements could cause considerable pain for an institution that takes great pride in pinching pennies. The bank's efficiency ratio last year was just 55.7%, compared with 63% at similarly sized banks.

The bank must step up board oversight of BSA compliance, hire more compliance officers, overhaul and upgrade its training and retain an outside firm to review the program. "Infrastructure changes, additional resources to assist with regulatory compliance, additional investments in new technology and additional personnel are all requirements," Carter noted in his letter.

Compliance "does not produce any revenue for the bank, rather it is a significant expense," Carter lamented, noting that examiners had found no BSA deficiencies at his institution before this year.

Carter Bank's shareholders will also take a hit. The bank's board opted to forgo a fourth-quarter dividend, ending a streak of at least 37 straight quarters — predating the financial crisis — where the institution made such a payment.

"This decision was an extremely difficult one," Carter wrote. "The board believes this decision is necessary and appropriate as the bank … makes significant investments in new technology and resources in part to comply with the" consent order.

If CU Bancorp's experience is any guide, Carter Bank might end up spending millions to bring its systems up to regulators' expectations. CU Bancorp said that, in addition to increased staffing expenses, it expects to pay $2 million to consultants. The company also hired a chief risk officer earlier this year.

While Carter Bank, CU Bancorp and others have disclosed their orders, there are a number of informal, nonpublic BSA agreements that have been issued, Fernandez said. "Every big bank in the United States has been affected in one way or another over the past five years," he said.

Brown-Hruska said she could understand the frustration of community bankers such as Carter.

BSA compliance "really does create added hurdles and cost without necessarily demonstrating a benefit," Brown-Hruska said. "I think we should be somewhat concerned that it has become such a significant cost."

Still, there are instances to support a need for enhanced regulation, as missteps in BSA/AML compliance tend to be catastrophic — even for small banks. In June of last year the $96 million-asset Bank of Mingo in Williamson, W.Va., agreed to pay $4.5 million in fines and legal settlements after prosecutors accused it of violating anti-money-laundering laws.

Banks "could get bitten if they aren't aware of risks, or they unwittingly participate in a Ponzi scheme," Brown-Hruska said. "They have to be on the lookout for that type of collateral movement. … In the long run, compliance improves the integrity of the institution."

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