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Community Bankers Association of Illinois
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     A Bi-Weekly News Bulletin for CBAI Members                                    November 22, 2017

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Community Bankers Association of Illinois
Community Bankers Association of Illinois Community Bankers Association of Illinois
  • CBAI and ICBA Back Bipartisan Senate Regulatory Relief Agreement
  • House Panel Advances More Regulatory Relief Bills
  • ICBA’s Heitkamp: Don’t Count Out Community Bank Regulatory Relief!
  • House Passes Tax Reform Bill - Action Requested
  • FDIC, OCC Leaders Advocate Community Bank Relief
  • Bill to Repeal Small-Business Reporting Mandate Introduced
  • Community Bank Earnings Rise 9.4 Percent
  • Settlement Reached to Release Community Banks from ADA Liability
  • CFPB’s Cordray Stepping Down
  • The “Bank of Amazon” Shouldn’t Happen!
  • Investment News From THE BAKER GROUP
  • Rural Mainstreet Index Indicates Economic Weakness
  • Fed Approves New Fee Schedule for Reserve Bank Services
  • What Are You Going to Do About It?
  • CBAI LEGAL: Buyer’s Remorse Does Not Undo Tax Purchase
  • CBIS: Could the Rash of Sexual Harassment Spread to Community Banks?
  • Time to Check Your Inventory - 10% Off Print Supplies!
  • The Ten-year Ticking Timebomb: Core Legacy Systems
  • Important News from Wolters Kluwer
  • Auditing Secondary Mortgage Markets Scheduled for November 28
  • Account Titling to Be Held November 28-30
  • Safe-Deposit-Box “Danger Zones” Set for December 6
  • CBAI’s Community-Bank Directors’ Conference Slated for December 11


  • CBAI and ICBA Back Bipartisan Senate Regulatory Relief Agreement

    CBAI and ICBA are expressing strong support for a bipartisan Senate legislative agreement that offers significant community bank regulatory relief. The agreement—announced by a coalition of 18 bipartisan senators led by Senate Banking Committee Chairman Mike Crapo (R-Idaho) and committee Democrats Joe Donnelly (Ind.), Heidi Heitkamp (N.D.), Jon Tester (Mont.) and Mark Warner (Va.)—incorporates numerous provisions from ICBA’s Plan for Prosperity platform.

    The bipartisan legislative agreement includes CBAI and ICBA-advocated provisions to:

    • Increase exemption thresholds for Home Mortgage Disclosure Act reporting;
    • Provide “qualified mortgage” status for portfolio mortgage loans at most community banks;
    • Exempt certain community bank loans from escrow requirements;
    • Simplify community bank capital requirements;
    • Increase eligibility for a short-form call report to restore proportionality to quarterly reporting;
    • Expand eligibility for the 18-month regulatory examination cycle;
    • Ease appraisal requirements to facilitate mortgage credit in local communities;
    • Exempt most community banks from the Volcker Rule;
    • Expand access to the Federal Reserve’s Small Bank Holding Company Policy Statement to help more community banks build capital; and
    • Improve regulatory treatment of reciprocal deposits and certain municipal securities.
    Although CBAI believes that the Congress can and should do more to provide real regulatory relief to the nation’s community banks, we will continue to strongly advocate and support the passage of this U.S. Senate regulatory relief bill. CBAI is urging Illinois Senators Dick Durbin and Tammy Duckworth to co-sponsor and support this meaningful reform proposal.

    Joining as original co-sponsors are Senators Bob Corker (R-Tenn.), Tim Scott (R-S.C.), Tom Cotton (R-Ark.), Mike Rounds (R-S.D.), David Perdue (R-Ga.), Thom Tillis (R-N.C.), John Kennedy (R-La.), Jerry Moran (R-Kan.), Tim Kaine (D-Va.), Angus King (I-Maine), Joe Manchin (D-W.Va.), Claire McCaskill (D-Mo.), and Gary Peters (D-Mich.). The bill was formally introduced last week. The Senate Banking Committee has scheduled a Tuesday, December 5, markup for the legislation (S 2155) that offers significant community bank regulatory relief. Read Release. Read Bill Summary. Read Cam Fine’s Message. Read Bill. See Committee Markup Announcement.

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    House Panel Advances More Regulatory Relief Bills

    The House Financial Services Committee approved several bills last week to ease regulatory burdens on community banks. The panel approved the CBAI and ICBA-supported:

    • Securing Access to Affordable Mortgages Act (H.R. 3221), sponsored by Representative David Kustoff (R-Tenn.) and passed 32-26, to exempt mortgage loans of less than $250,000 held in portfolio from “higher-risk” appraisal requirements,
    • Protecting Consumers’ Access to Credit Act of 2017 (H.R. 3299), sponsored by Representative Patrick McHenry (R-N.C.) and passed 42-17, to restore the “valid-when-made” doctrine and overturn the Madden v. Midland Funding case,
    • TRID Improvement Act (H.R. 3978), sponsored by Representative French Hill (R-Ark.) and passed 53-5, to clarify homeowner title insurance disclosures, and
    • Corporate Governance Reform and Transparency Act (H.R. 4015), sponsored by Representative Sean Duffy (R-Wis.) and passed 40-20, to increase oversight of proxy advisory firms, which wield enormous influence over corporate governance.
    See Committee Report. Read ICBA Letter.

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    ICBA’s Heitkamp: Don’t Count Out Community Bank Regulatory Relief!

    Last week’s Senate agreement came on the heels of a new op-ed from ICBA Chairman Scott Heitkamp on prospects for regulatory relief in the 115th Congress. The president and CEO of ValueBank Texas in Corpus Christi wrote in American Banker that the many regulatory relief measures advancing on Capitol Hill leave plenty of room for optimism among community bankers. “While partisanship continues to plague our nation’s capital, the almost universal support for community bank relief continues to offer a ray of hope for our overburdened industry,” Heitkamp wrote. “If we stay as engaged with our members of Congress as we do with our customers—and with each other in times of need—I remain optimistic that we will continue to achieve positive results in Washington.” Read Heitkamp’s Op-Ed.

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    House Passes Tax Reform Bill - Action Requested

    The House voted 227-205 to pass its comprehensive tax reform bill last week. The Illinois congressional delegation voted strictly along party lines with all seven Republican members voting for the measure and all 11 Democratic members voting against the measure. The passage of the Tax Cuts and Jobs Act (H.R. 1) now focuses attention on the Senate.

    CBAI and ICBA are encouraged by the continued momentum for tax reform, citing pro-community bank provisions and others. Both associations support the permanent 20 percent corporate rate, estate tax relief, and repeal of the alternative minimum tax for individuals and corporations.

    However, CBAI and ICBA are very concerned with the treatment of Subchapter S corporations, including active shareholders in Subchapter S community banks. “We will continue working with lawmakers to ensure it provides meaningful tax relief to Subchapter S community banks and addresses the inequity from the generous taxpayer subsidies given to tax-exempt credit unions and Farm Credit System lenders,” ICBA President and CEO Cam Fine said in a statement.

    ICBA’s new issue brief on the tax reform debate offers the latest details for community bankers. With Congress moving rapidly, CBAI and ICBA are continuing to urge Subchapter S banks to weigh in with their congressmen to protect the Subchapter S model. See Final Vote. Read ICBA Statement. See Tax Issue Brief. Contact Congress Now!

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    Does your financial institution originate ACH transactions? Do you work with third-party senders? New NACHA Operating Rules now require financial institutions that originate ACH transactions to register their Third-Party Sender customers or attest to maintaining no such customers. Visit the new risk-management portal to register your Third-Party Sender customers by March 1, 2018.



    FDIC, OCC Leaders Advocate Community Bank Relief

    Officials from the FDIC and OCC recently expressed support for community bank regulatory relief in separate speeches. Speaking in San Francisco, FDIC Chairman Tom Hoenig advocated relief for community banks principally engaged in traditional commercial banking activities, citing the impact of excessive regulation on industry consolidation and concentration.

    In a separate speech in Chicago, Deputy Comptroller for the Central District Blake Paulson said the OCC is optimistic about the opportunity for further relief, citing regulatory efforts to ease capital requirements and bipartisan legislation recently introduced in the Senate. Read Hoenig’s Remarks. Read Paulson’s Comments.

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    Bill to Repeal Small-Business Reporting Mandate Introduced

    A community bank supported bill to repeal data-collection and -reporting requirements on small-business lending has been introduced in the House. Representative Robert Pittenger’s (R-N.C.) Right to Lend Act of 2017 (H.R. 4452) would repeal Section 1071 of the Dodd-Frank Act, a key provision of ICBA’s Plan for Prosperity regulatory relief platform that was included in the Financial CHOICE Act passed by the House in June.

    CBAI and ICBA have repeatedly called on the Consumer Financial Protection Bureau to use its authority to exempt community banks from the mandates and on Congress to repeal them. Responding to the CFPB’s request for information in September, ICBA issued a release stating that a standardized collection process would disproportionately affect community banks, clash with the individualized nature of community bank small-business lending, and raise privacy concerns. See Release.

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    Community Bank Earnings Rise 9.4 Percent

    Community banks reported $6 billion in net income in the third quarter, up $513 million (9.4 percent) from the same time a year ago, according to the FDIC’s Quarterly Banking Profile.

    At the 5,294 insured institutions identified as community banks by the FDIC, net operating revenue rose $1.5 billion (6.7 percent) and net interest income increased $1.7 billion (9.7 percent). Noninterest income declined 3.4 percent as loan-loss provisions increased 5.5 percent and noninterest expenses rose 4.3 percent. Loan growth was 7.3 percent.

    Overall, the banking industry reported aggregate net income of $47.9 billion in the third quarter of 2017, up 5.2 percent from a year earlier. The increase was mainly attributable to an $8.8 billion (7.4 percent) increase in net interest income. Of the 5,737 insured institutions reporting third-quarter results, 67.3 percent reported year-over-year earnings growth, while the proportion of unprofitable banks fell to 3.9 percent from 4.6 percent a year earlier.

    Two new commercial bank charters were added in the third quarter, bringing the total for the first nine months of 2017 to four new institutions. The FDIC’s Problem Bank List fell from 105 to 104 during the third quarter, the fewest since the first quarter of 2008.

    The Deposit Insurance Fund balance increased $2.9 billion to $90.5 billion as of September 30, with the DIF reserve ratio rising to 1.28 percent from 1.24 percent at the end of June. Estimated insured deposits rose 0.7 percent. Access FDIC Quarterly Banking Profile. See Illinois Banking Performance Summary.

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    Settlement Reached to Release Community Banks from ADA Liability

    ICBA and Access Now, Inc. (“Access Now”) have reached a mutually-agreeable settlement whereby: a) as a reaffirmation of its ongoing commitment to encouraging accessibility for visually-impaired persons, ICBA is adopting and distributing to its current members a Restatement of Voluntary Access Principles referenced below that are acceptable to Access Now; and b)Access Now, on behalf of itself and its members, released ICBA’s members and banks eligible for membership with assets of $50 billion or less from all claims related to the provision of Electronic Banking Services such as any electronic information technology, including website, mobile apps, accessibility, online banking, mobile banking, ATM services, and telephone banking.

    Access Now and its members, through its counsel Carlson Lynch Sweet Kilpela and KamberLaw LLC, had sent letters to banks offering to settle purported claims against such banks for alleged violations of the Americans with Disabilities Act (ADA). Read More.

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    CFPB’s Cordray Stepping Down

    Consumer Financial Protection Bureau Director Richard Cordray said last week that he will step down from the agency on November 30. Cordray, who is rumored to be planning a run for governor of his home state of Ohio, made the announcement in an email to CFPB staff.

    A White House spokesperson said President Trump will name an acting CFPB director “at the appropriate time,” with a change in leadership likely to usher in a dramatic shift in the agency’s regulatory and enforcement focus. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) and Acting Comptroller of the Currency Keith Noreika are among the names that have been floated to take over the bureau.

    Meanwhile, House Financial Services Committee Chairman Jeb Hensarling (R-TX), the sponsor of the House-passed Financial CHOICE Act, stated, “The resignation of the Bureau’s director is an excellent opportunity to enact desperately needed reforms. The Bureau has an important mission. Properly designed and led, it can truly protect consumers by ensuring they have access to competitive markets that are vigorously policed for fraud. That’s the best way to provide consumers with more affordable choices for the financial products and services they want and need. Americans deserve the opportunity to choose the checking account they want, the mortgage they want and the credit card they want. I look forward to working with President Trump’s choice for CFPB director to protect consumers." Read Hensarling Release.

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    The “Bank of Amazon” Shouldn’t Happen!

    Investment advisor Eric Salzman recently offered his reasons for not allowing commercial companies to get bank charters after the acting head of The Comptroller of the Currency (OCC), Keith Noreika, said it is time to consider it again. CBAI for years has opposed the mixing of banking and commercial firms.

    Salzman notes that it has been nearly two decades since the “dot com” implosion, and tech companies now have what they really didn’t have in 1999: a business model that generates profits. The leading companies have their own acronym, FAANG, which stands for Facebook, Amazon, Apple, Netflix, and Google. The technological infrastructure that these companies have built is both breathtaking and intimidating. They have moved from their traditional business lines to gobble up market share and disrupt entire industries. Now, they (especially Amazon), want to become banks. Naturally, the banking profession is alarmed because Amazon’s track record is to dominate a market and eliminate its competitors.

    Salzman thinks the best approach is a combination of fintech and banks because electronic cash management solutions allow customers to pay bills from an account at one banking institution to another, perform person-to-person transfers, and manage accounts, to just to name a few services. The banking system is embracing technology at a rapid pace, which increases efficiencies and reduces costs. This technology is now available to institutions both big and small. The banking system still needs people who “know stuff,” like banking combined with technology. He notes that the technology without the banker won’t cut it. Read More.

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    Investment News From THE BAKER GROUP

    Baker Market Update

    The nation’s legislators generated a lot of news recently. Some we can talk about, and some we can’t. Judging from their reactions, one might conclude that House Republicans had just won the Super Bowl. They might need to be reminded that it’s not even halftime yet. Despite the many, joyous declarations of “victory”, there’s a long way to go before reaching the End Zone of tax reform. See Baker Market Update.

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    Rural Mainstreet Index Indicates Economic Weakness

    Majority of Bankers Boosted Farm Loan Collateral Requirements

    The Creighton University Rural Mainstreet Index dipped from October’s weak reading and remained below growth neutral, according to the November monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. “Since peaking in 2013, farm commodity prices have declined by approximately 17 percent and U.S. farm income has fallen for four straight years. Not surprisingly, Creighton’s overall Rural Mainstreet Index has risen above growth neutral only three times in the past three years,” said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

    Jeff Bonnett, president of Havana National Bank in Havana and CBAI Treasurer, said, “Many of our farm customers experienced record yields with this year's harvest. Like them, we are all hoping that this is enough to offset the yet again low commodity prices that challenge the Ag economy today.”

    The November RMI for Illinois decreased to 44.8 from 45.1 in October. The farmland-price index rose to 36.5 from 35.1 in October. The state’s new-hiring index rose to 58.1 from last month’s 56.6. Jim Eckert, president of Anchor State Bank, said, “Surprisingly, based on poor rains in our area, most of the corn crop was as good, or a little better than, last year's bumper crop. Soybeans yields were 10 to 15 percent below 2016, due to lack of rain in August and September.” Read Mainstreet Economy Report.

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    Fed Approves New Fee Schedule for Reserve Bank Services

    The Federal Reserve Board last week announced the approval of fee schedules for payment services the Federal Reserve Banks provide to depository institutions. The Reserve Banks estimated that the price adjustments, which take effect January 2, 2018, will result in a 1.4 percent average price increase. Read More.

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    What Are You Going to Do About It?

    The head of the Consumer Financial Protection Bureau (CFPB), Richard Cordray was being interviewed by the NPR host. It was the day after the Senate repealed a CFPB rule that would limit companies’ ability to use arbitration in agreements and make it easier for consumers to sue banks. Community bankers behind the wheel reached to turn the volume up a few clicks. And then, they heard it. Over and over again throughout this interview, Cordray rolled right over the nuance of the argument community bankers had made against the rule and lumped every community bank in with the largest financial institutions in the country. What could happen in your market? See Answer Here.

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    CBAI LEGAL: Buyer’s Remorse Does Not Undo Tax Purchase

    A November 1 Illinois Appellate Court opinion denied the request of a tax sale purchaser to reverse its purchase under a “sale in error” theory. See Most Recent CBAI LEGAL.

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    CBIS: Could the Rash of Sexual Harassment Spread to Community Banks?

    The unseemly abuse by powerful Hollywood and media moguls has opened a Pandora’s box of sexual-harassment allegations across the country that recently reached the Illinois legislature. While accusations against high-profile public figures will always garner headlines, the quiet reality is that sexual harassment claims in the workplace were on the rise before the recent media attention.

    The most recent available data from the Equal Employment Opportunity Commission shows it fielded more than 30,500 complaints in 2011, a 25-percent increase from 2001. As employers, community bankers need to be cognizant of what constitutes sexual harassment in the workplace. See Most Recent CBIS Article.

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    Time to Check Your Inventory - 10% Off Print Supplies!

    Midwest Office wants to make sure that your supplies and print products are fully stocked and ready for action as 2018 grows near. Have you checked your inventory lately? Now is the time to take advantage of Midwest’s drive-thru and statement-envelopes savings!

    Drive-thru bank envelopes are essential tools for any bank. Whether you are communicating with your customers through a window or when they walk up to the counter, these envelopes are designed to keep your customers’ money safe and secure. Midwest Office carries a number of popular sizes and stays on trend so you don’t have to. Your drive-thru bank envelope:

    • Promotes your brand while safely delivering customers’ money;
    • Cross-promotes add-on products and services;
    • Holds their form in pneumatic tubes; and
    • Markets upcoming special events, promotions or holidays.
    Let Midwest Office be your one-stop shop for all your printing needs. Midwest is a preferred service provider of Community BancService Corporation. To place your next order, contact Kevin Gaffney at 217-303-5511 or email kgaffney@midwestoffice.com. See Specials.

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    The Ten-year Ticking Timebomb: Core Legacy Systems

    Financial consultant Chris Skinner believes that banks need to replace core legacy systems. Although some disagree and think they can fudge the issue with plug-ins, he says the new competition will decimate banks that don’t replace their core systems.

    Skinner gives banks with legacy core systems a maximum of 10 years to change or they will experience a slow death by a thousand cuts of code. He indicates that it takes about five years to replace legacy core systems. Read More.

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    Important News from Wolters Kluwer

    IRS Updates Its IRA Form 5305 Series

    On September 6, 2017, the Internal Revenue Service posted updated traditional, Roth, and SIMPLE IRA model agreements (i.e., IRS Form 5305s) to its website. An IRS Form 5305 is the contract used to establish an IRA. Significantly, this is the first update the IRS has made to the IRA Form 5305 series in 15 years. Principal attorney, Karl Leslie from CBSC preferred provider Wolters Kluwer, provides a summary of the changes. Read More.

    Be HMDA Ready in 2018!

    Register for Wolter Kluwer’s webinar titled, "HMDA Final Pit Stop: Fuel Up & Be Ready for 2018." Prepare now and take a holistic view of the new HMDA regulation. Learn More Here!

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    Auditing Secondary Mortgage Markets Scheduled for November 28

    Using internally prepared work papers and regulatory guidance, this seminar guides the attendees through understanding of the different types of secondary-market programs of which a bank can be a part, from a brokered-only program to a complete secondary-market operation. It discusses the regulatory environment and the impact it will have on your internal-audit program. It outlines programs where the loans are sold with servicing retained and servicing released, and the types of internal audits required for each. It brings real-life issues to the attendees and determine appropriate corrective action that the bank should implement to strengthen the internal controls over its secondary-market program and thus strengthen the program. Leading this program are Melissa Blaser, CPA, CRCM, CAMS, CFSA, CFIRS, senior manager specializing in regulatory compliance for financial institutions, and Sara Mikuta, who leads the risk advisory and forensic services team, both at Wipfli LLP.

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    Account Titling to Be Held November 28-30

    This seminar is designed for new account representatives, tellers, and head tellers who need to understand the various types of account ownerships that exist – from single account owners through corporations. You learn what the different ownership types represent and how to make sure you are opening the proper type of account for your customer. In addition, the seminar covers Customer Identification Program requirements and FDIC Insurance, as well as stop payments, forgeries, and tips on spotting and stopping a check-kiting operation. Leading this session is Bryan Fetty with Young & Associates, Inc.

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    Safe-Deposit-Box “Danger Zones” Set for December 6

    Recent safe-deposit vault burglaries, devastating fires, tropical storms, hurricanes and damaging tornados, raging floods, and many other nationwide disasters have significantly impacted the safe-deposit industry. Following these tragic events, financial institutions have been confronted with very difficult challenges and decisions, and very significant lawsuits. Did you inherit the safe-deposit area and then start wondering what liability might exist? Historically, this responsibility has been routinely passed from employee to employee with very little attention given to existing procedures or documentation. Unfortunately, only after a burglary, disaster or lawsuit occurs does management turn its attention to this area. Whether you have 50 boxes or 5,000, this presentation provides a realistic and well-organized method of reviewing and auditing your procedures before a catastrophe occurs. Your speaker knows first-hand what to look for; from the most common errors to the not so common, but potentially costly mistakes. This presentation helps review bank’s own internal procedures. Questions are answered regarding deceased renters, payable-on-death clause, living trusts, court orders, Servicemembers Civil Relief Act, USA Patriot Act, Suspicious Activity Reports, power-of-attorneys, Americans with Disabilities Act, past due boxes, abandoned property, and many other legal and compliance issues that have caused great concern and confusion for the safe deposit industry. David McGuinn, a nationally known expert in safe deposit, will provide clear, concise answers to complicated questions regarding your institution's responsibility and potential liability.

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    CBAI’s Community-Bank Directors’ Conference Slated for December 11

    Being a member of a community bank's board of directors is a challenging and rewarding experience. The community-bank director has duties to the institution, its stockholders and its depositors. And, he or she has responsibilities to the public-at-large. To meet these duties and responsibilities, a director must be knowledgeable and active. Join us at CBAI's Annual Directors' Conference! CBAI gathered top banking experts to make this comprehensive, one-day conference a must-attend. Dale Sheller from THE BAKER GROUP discusses investments and liquidity; Mark Scholl of Wipfli LLP explores new technologies in banking; Jim Mathis of The Reinvention PRO™ discusses how to manage and market to millennials more effectively; and Kraig Lounsberry, CBAI’s senior vice president of governmental relations, provides a legislative and regulation update.

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