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     A Bi-Weekly News Bulletin for CBAI Members                     June 12, 2013 Graphic
Community Bankers Association of Illinois
Community Bankers Association of Illinois Community Bankers Association of Illinois
  • St. Louis Fed Study Shows Community Banks Can Thrive in Bad Economy
  • First Quarter Bank Performance Shows Improvement
  • Grass Roots Efforts Needed on Privacy Notice Relief!
  • Community Banks Win Reprieve on Balloon Loans
  • ICBA Refutes Goldman Report on Mega Bank Subsidy
  • CFPB Finalizes Amendments to Qualified Mortgage Rule
  • Senate Passes Farm Bill; Now Up to House
  • Federal Reserve’s “Beige Book” Economic Report Released
  • Baker Market Update
  • The Baker Group Springfield Seminar Set for August 5th - Register Now!
  • Time to Complete the ICBA Community Bank Payments Survey
  • Community Banks Urged To Review Relationships with Payment Processors
  • Financial Literacy Survey Findings Released
  • Growth Corp Awarded for Outstanding Lending Performance
  • KASASA Ad 7 - “Nearby ATM”
  • CBAI Advises Banks to Ignore Corporate Records Scam
  • Section 11 of Conveyances Act Clarified as of June 1, 2013
  • FREE Webinar: Winning the War Through “Co-Opetition”
  • New, Free, Quarterly Newspaper Ads Now Available
  • Stress Testing 101 for Community Banks Scheduled June 18 & 19
  • Loan Review Expectations 2013 to be Held for June 25 & 26
  • Principles for Understanding, Managing, and Monitoring Your Information Systems Set for June 25 & 26
  • The Pitfalls of Estate Administration Scheduled for June 27
  • The Community Bankers School Scheduled for July 14-19

  • St. Louis Fed Study Shows Community Banks Can Thrive in Bad Economy

    A new study from the Federal Reserve Bank of St. Louis found that the community bank model can thrive in a financial crisis. The study noted, “The community banks that will prosper in the future will have characteristics similar to those of thriving banks that performed well during the recent financial crisis and its aftermath. The events of recent years can be considered a real-world stress test of the community bank business model.”

    The study indicated that, beyond the CAMELS analysis, thriving banks possessed the following characteristics:

      • Featured strong and localized customer service focus with high community visibility;
      • operated in a thriving (i.e., growing ) environment;
      • practiced forward-looking risk management with an eye toward long-term bank performance;
      • demonstrated balance between growth and risk levels, and
      • had patient and conservative ownership that operated with the belief that returns on investments should be attractive, but not necessarily spectacular.
    The study concluded that community bankers who maintain a strong commitment to conservative lending principles and sound underwriting, even in the face of relaxing standards by their competitors, will likely thrive in the future.
    See St. Louis Fed Release.

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    First Quarter Bank Performance Shows Improvement

    The recently released FDIC bank performance results for the first quarter of 2013 reveal several encouraging indicators as follows: 1) due to improvements in noninterest income and expense and reductions in loan loss provisions, overall earnings reached a record high of $40.3 billion; 2) loss provisions fell to the pre-crisis level; 3) higher retained earnings bolstered equity capital; and 4) the number of problem banks continued to decline.
    See FDIC Quarterly Banking Profile. See Illinois Banking Performance Summary.

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    Grass Roots Efforts Needed on Privacy Notice Relief!

    CBAI is calling on Illinois community banks to urge Illinois Senators Richard Durbin and Mark Kirk to co-sponsor the Privacy Notice Modernization Act (S. 635). The legislation eliminates the annual privacy notification requirement when no change in policy has occurred. This proposal has already made significant strides in the 113th Congress when the U.S. House passed their version of the bill in March by a voice vote.

    Your grassroots efforts are needed to take it over the top in the Senate. Please help support your CBAI Governmental Relations effort, and help relieve your burdensome “no change” notification requirement, by responding to this Action Alert today.

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    Community Banks Win Reprieve on Balloon Loans

    Last week the CFPB announced changes to mortgage rules that require lenders to determine a borrower’s ability to repay a loan. Most notably, financial institutions with less than $2 billion in assets and make fewer than 500 loans now have two years to continue originating balloon loans to all customers. ICBA was heavily involved in attaining this change. The reprieve gives time for community banks to get this issue totally fixed.
    See AB Article.

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    ICBA Refutes Goldman Report on Mega Bank Subsidy

    Last month Goldman Sachs issued a report that represents the latest attempt by the Wall Street spin machine to claim that the too big to fail mega banks do not enjoy a TBTF subsidy in the form of lower borrowing costs or costs of funds. The report counters the findings of the International Monetary Fund earlier this year that concluded the six largest U.S. banks receive an $83 billion annual subsidy because they are considered too big to fail.
    See Bloomberg Article.

    ICBA’s Senior Regulatory Counsel Chris Cole conducted an analysis of the Goldman report and found numerous flaws in the data which resulted in a flawed conclusion. See AB Article.

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    CFPB Finalizes Amendments to Qualified Mortgage Rule

    The Consumer Financial Protection Bureau (CFPB) finalized amendments to the Ability-to-Repay/Qualified Mortgage (QM) rule by creating specific exemptions and modifications for small creditors and by also revising the rule on how to calculate loan origination compensation.

    Under the amendments, the CFPB made several adjustments to the Ability-to-Repay rule to facilitate lending by small creditors, including community banks that have less than $2 billion in assets and make 500 or fewer first-lien mortgage loans.

      The rule extends QM status to loans that small creditors hold in their own portfolio even if the customers’ debt-to-income ratio exceeds 43%.

      The rule provides a two-year transition period during which small creditors can make balloon loans and those loans will meet the definition of QMs. During this transition period the CFPB will study whether the definition of “rural” or “underserved” needs to be changed.

      The rule allows small creditors to charge a higher annual percentage rate for first-lien QMs while maintaining a safe harbor for the Ability-to-Repay requirements.
    Under the amendments, the CFPB provides certain exceptions to the Dodd-Frank requirement that loan originator compensation be included in the permissible points and fees. The compensation paid by a mortgage broker to a loan originator employee does not count towards the points and fees threshold.

    The amendments take effect with the Ability-to-Repay rule on January 10, 2014.

    The Community Bankers Association of Illinois appreciates the CFPB’s willingness to amend the Ability-to-Repay rule. In a February 22, 2013 comment letter, CBAI strongly advocated for the new “small creditor” category, a $5 billion asset and 3,500 mortgage threshold, as well as expanded definitions of “rural” and “underserved’ communities. CBAI and the Independent Community Bankers of America will continue to work with the CFPB to make this rule more favorable for community bank participation in residential mortgage lending.

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    Senate Passes Farm Bill; Now Up to House

    This Monday the U.S. Senate approved a new farm bill that will cost about $955 billion over the next 10 years. The measure finances crop insurance for farmers, food assistance for low-income families, and foreign food aid. It also eliminates about $5 billion a year in direct payments to farmers and farmland owners, thereby making the crop insurance program the primary safety net when prices drop.
    See New York Times Article.

    House Speaker John Boehner (R-Ohio) announced today that he will support a farm bill in the House, thus giving its chances for passage a big boost. See Boehner Endorsement. Meanwhile, ICBA joined a coalition of numerous organizations that signed a letter to all members of the House encouraging adoption of a farm bill this year. If the House acts, then a House-Senate conference will likely take place to craft a proposal for final action. See Coalition Letter.

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    Federal Reserve’s “Beige Book” Economic Report Released

    The Federal Reserve System last week released its latest “Beige Book” report which indicated that overall national economic activity increased at a modest to moderate pace across all Fed Districts except the Dallas District which reported strong economic growth.

    Economic activity in the Chicago Fed District expanded at a modest pace in April and May as many businesses expressed continuing caution due to elevated uncertainty over the economic outlook. Meanwhile, the St. Louis Fed District economic activity expanded at a moderate rate during the same period.
    See Federal Reserve Report.

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    Baker Market Update

    Like fidgety schoolchildren, market participants spent last week in nervous anticipation of the jobs report from the Bureau of Labor Statistics. Well, fidget no more. In fact, a yawn might be more in order.
    Read More.

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    The Baker Group Springfield Seminar Set for August 5th - Register Now!

    The Baker Group - Focus 2013 – Investment Strategies and Interest Rate Risk Seminar

    The Baker Group’s upcoming Investment Strategies and Interest Rate Risk Seminar will address specific bond portfolio strategies to improve margin and mitigate unnecessary IRR. They will discuss security selection processes and liquidity management, present tools for analyzing portfolio risk, and explore stress tests for the entire balance sheet using Interest Rate Risk Monitor software. Financial institution managers will come away with sound ideas for using the bond portfolio as an effective tool in managing liquidity, cash flows, and interest rate risk. Attendees will also gain insight into the remarkable changes that the banking profession is experiencing in the current market environment.

    Don't delay!
    Click Here for more information and to register! Registration deadline - July 30, 2013.

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    Time to Complete the ICBA Community Bank Payments Survey

    Community bankers across America are encouraged to complete the 2013 ICBA Payments Survey. The collective data will help ICBA’s advocacy efforts to push back against overzealous regulators, and it will help participating banks build a baseline to measure payment activities and provide strategic direction. CBAI urges all members to complete this survey by directing the survey to the appropriate staff member best prepared to answer questions about payments products and services.
    Take ICBA Payments Survey.

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    Community Banks Urged To Review Relationships with Payment Processors

    Community banks that have account relationships with third-party entities that process payments for merchants are urged to review these relationships closely in accordance with the FDIC guidance issued last year

    While payment processors generally effect legitimate payment transactions for reputable merchants, the risk profile of such entities can vary significantly depending on the make-up of their customer bases, particularly if the payment processor deals with telemarketing and online merchants and the bank originates a significant number of ACH debits on behalf of the merchant clients.

    Payment processors that do not verify the identity of the merchant clients or have adequate risk-management procedures in place can pose elevated money-laundering and fraud risk for financial institutions, as well as legal, reputational and compliance risks if consumers are harmed.

    If community banks improperly manage these risks, they can be subject to the imposition of enforcement orders, such as civil money penalties or restitution orders. Read the FDIC’s Guidance.

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    Financial Literacy Survey Findings Released

    The FINRA Foundation last week released the results of its State-by-State Financial Capability Survey which measures the financial capabilities (or literacy) of Americans. The results found a wide disparity in financial capability across state lines and demographic groups. Financial literacy levels remain low, especially among the youngest workers. The Survey concluded that there is a great need to build financial literacy among consumers.
    See FINRA Release.

    CBAI Foundation Endorses MoneyIsland Financial Literacy Program

    The CBAI Foundation for Community Banking, which awards more than 30 scholarships to graduating high school seniors and college students each year, recommends the MoneyIsland financial literacy program for community banks which has been featured at the CBAI group meetings this spring by its founder, Felix Brandon Lloyd. MoneyIsland is one of the many fine services offered by BancVue, a CBSC marketing partner. See MoneyIsland Program.

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    Growth Corp Awarded for Outstanding Lending Performance

    Recognized by U.S. Small Business Administration

    This week Growth Corp was recognized as Illinois’ 504 Lender of the Year by the SBA. This prestigious award represents Growth Corp’s continued support and extraordinary contribution to the small business community. Douglas Kinley, President of Growth Corp, accepted the award during today’s Illinois Small Business Week Awards Luncheon in Chicago. Kinley has consistently been recognized for his leadership and dedication to the advancement of small business. Growth Corp is a CBAI associate member firm.
    See Release.

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    KASASA Ad 7 - “Nearby ATM”

    No community bank can have an ATM on every corner across the country. But should your account holders have to pay a price just because they can’t find a free ATM nearby? Kasasa’s “Nearby ATM” radio ad points out the fallacy in logic that any account holder should be charged simply for trying to access his or her own money. That’s why free Kasasa checking accounts include nationwide refunds on ATM fees. So account holders can earn their ATM fees back, rather than search far and wide for an in-network ATM.

    After all, it’s easier to bank at a local community bank when a community bank can match a bigger bank’s convenience, from coast to coast. Give your account holders rewards that matter, like nationwide refunds on ATM fees. Contact us to lean more.
    See Ad.

    Want Kasasa to take your community bank to the next level? Contact Steve Prost via email at steve.prost@bancvue .com, or phone at 847.341.8003. Kasasa is one of the many fine products of BancVue, a CBSC Preferred Marketing Partner.

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    CBAI Advises Banks to Ignore Corporate Records Scam

    For the second year in a row, banks and other businesses in Illinois are receiving a form from an entity calling itself “Corporate Records Service” or “CRS.” The form includes out-of-context quotes from Illinois’ Business Corporation Act of 1983 regarding the obligation to maintain corporate minutes and the duty of the board of directors to keep the books of the corporation. CRS implies that it is a professional corporate recordkeeping service and, for a fee of $125.00, will ensure the bank’s (or other business’s) compliance with Illinois law pertaining to corporate minutes and other books and records. The form includes a deadline of June 26, 2013 for submission of the form and $125.00 fee.

    CBAI, as last year, is advising community banks to ignore the solicitation from CRS. There is no Illinois statute or regulation that requires submission of any annual form or other certification regarding the maintenance of corporate minutes or other records.

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    Section 11 of Conveyances Act Clarified as of June 1, 2013

    The uncertainty stemming from bankruptcy court decisions in 2012 regarding whether a mortgage could be voided following bankruptcy filing if the mortgage did not specify all components, including interest rate and term of the underlying note, should now be put to rest with the June 1st effective date of CBAI-initiated legislation that was enacted as part of Public Act 97-1164. Section 11 of the Conveyances Act now unambiguously states that the suggested mortgage language therein is discretionary; has never been intended as mandatory; and that any mortgage lacking one or more of those suggested terms remains valid and fully enforceable, regardless of when the mortgage was recorded.

    On a related note, the federal Court of Appeals recently issued a favorable decision in the last lingering case in which an argument was made that Section 11 contained a mandate that would make a mortgage filing deficient if it lacked the Section 11 components. To read CBAI General Counsel Jerry Cavanaugh’s report on that case,

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    Community banks are facing many challenges. Beyond traditional in-market competition and advances from online-only banks, non-bank competitors (Wal-Mart, Google, Square, etc.) are making significant investments targeting your customers and your streams of revenue. Combine those with ever-increasing regulatory scrutiny and concerns about the future, it’s easy to see that community banks need a new approach. You’ll learn how several bankers partnered to win back marketshare.
    Register Now!

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    New, Free, Quarterly Newspaper Ads Now Available

    Download free your new free quarterly newspapers ads today!
    View Samples.

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    Stress Testing 101 for Community Banks Scheduled for June 18 & 19

    As regulators place greater emphasis on the risk-management framework and overall corporate governance, proactive community banks are using stress testing to evaluate the impact of key risk factors. Banks should evaluate a variety of “what-if” scenarios to understand the potential impact from increased credit losses, declines in collateral values, illiquid markets, and strains on liquidity if the bank falls below “well capitalized.” This
    seminar review regulatory expectations, defines stress testing and examine the pros and cons of different stress testing methods, discusses how to establish your bank’s risk appetite and how to create stress-testing policies and procedures. Various practical-implementation techniques and best practices, as well as how to properly analyze the output from the stress-testing model and integrate into your strategic planning framework, are also discussed. Leading this seminar is Ancin Cooley, CIA, CISA, founder and principal of Synergy Bank Consulting, Inc.

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    Loan Review Expectations 2013 to be Held June 25 & 26

    The latest hot button of the financial regulators is adequacy of capital. This issue will be discussed during your next safety and soundness exam. Both the independent loan review function and the adequacy of your institution’s ALLL methodology for determining reserve levels are an important part of determining appropriate capital levels for your financial institution. There have been several recent issuances of regulatory policy or guidance statements. This two-day seminar discusses the implication of these in regards to both the loan review function and the impact on ALLL methodology. It also discusses recent comments from both the OCC and the Federal Reserve Bank regarding the appropriateness of an institution’s ALLL methodology. Leading this
    seminar is Wayne Linder, senior consultant at Young & Associates, Inc., Kent, OH.

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    Principles for Understanding, Managing, and Monitoring Your Information Systems Set for June 25 & 26

    As financial institutions become more reliant on technology, it is important to have a better understanding of their information systems to mitigate and monitor risks. Using basic concepts without using technical jargon, this presentation describes and demonstrates fundamental information security strategies for protecting your information systems. The primary focus is the Microsoft Windows network. Many of the security principles presented are described in the FFIEC IT Examination Handbook and various interagency guidelines. Leading this
    seminar is Mark Scholl, partner for WIPFLi LLP. He specializes in all aspects of information security services including information system security auditing and Internet intrusion testing services.

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    The Pitfalls of Estate Administration Scheduled for June 27

    session includes an update on the new estate tax law, as well as the administrative issues (both technical and otherwise) in dealing with estates as executor, executor and trustee, co-executors, agent for executor, and intestacy. Additionally, a quick regulatory update is provided for issues that are “hot buttons” with examiners. Topics covered include trust documents and what the future looks like, the trust pyramid; account acceptance; the importance of ongoing review, and the dreaded discretionary distribution. The purpose of the investment objective, tax traps, the ergonomics of the review process, current litigation causing additional heartburn, and more are covered, as well. Leading this seminar are Roger A. Pond and Becky T. Kelly, partners in The Fiduciary Education Center, LLC, which was established in 2002.

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    The Community Bankers School Scheduled for July 14-19

    The Community Bankers School (CBS), which consists of two, one-week sessions over a two-year period at Illinois Wesleyan University in Bloomington, allows participants to immediately contribute to the overall success of the bank, and provides you the knowledge necessary to get ahead. Scheduled for July 14-19, 2013, CBS features a nationally recognized faculty, an updated curriculum, and timely topics. Topics covered during this intense week for Class I participants include compliance, accounting, deposit and loan documentation, lending, bank security, auditing, investments, and technology, while Class II focuses on management aspects. However, the benefits extend beyond the classroom with outside case studies, an invaluable student notebook with supplemental materials, and networking opportunities with peers, instructors, and senior bankers. Participants gain a background and experience for broader responsibilities and greater effectiveness, as well as insight into a community bank=s overall management responsibilities. Deadline to enroll is July 1, 2013, so
    register today!

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    › Stress Testing 101 for Community Banks
    › Loan Review Expectations 2013
    › Principles for Understanding, Managing, and Monitoring Your Information Systems
    › Pitfalls of Estate Administration


    › GFE & HUD-1: Current Issues, Current Challenges
    › Collecting Decedents’ Debt
    › Fraud Trends and Prevention When Dealing with Compromised Cards
    › Accepting Powers-of-Attorney on Deposit Accounts
    › Regulator Issues & Update for the Credit Analyst
    › Ability to Repay, Part I – New Rules That Impact Your Policies and Products
    › Detecting Counterfeit Items and Fraudulent ID for the Frontline
    › Pricing Consumer & Commercial Loans for Profitability
    › Bank Opportunities with Small Businesses: Growing Deposits, Loans, & Fee Incomes





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