CBAI E-Newsletter, sponsored by SHAZAM
March 27, 2019
IN THE NEWS

CBAI ACTION ALERT: Urge Regulators to Improve Basel III Exemption
The Community Bankers Association of Illinois (CBAI) is calling on all Illinois community bankers to urge the banking regulators to exempt more community banks from the Basel III capital rules and eliminate the unintended consequences of establishing a new Prompt Corrective Action (PCA) framework for community banks which opt-in for simplified capital treatment under the Community Bank Leverage Ratio (CBLR).


ICBA: Megabanks Admit to Ditching Local Communities
Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey issued the following statement on last week’s Bank Policy Institute report on banking industry deposit growth.

“In today’s Bank Policy Institute report, the nation’s largest financial institutions admit something the rest of us already knew—they are profiting by withdrawing from Main Street communities. Unfortunately for many parts of our country, the local communities hit hardest by the fallout of the Wall Street financial crisis are being left behind by the entities that caused the calamity and the years-long recession that followed."

“While these megabanks congratulate themselves for a century of banking consolidation that has resulted in institutions that are too big to fail due to the systemic risks they pose, community banks are busy adding new bank offices to meet the needs of local communities. Community banks added more than 700 offices between June 2017 and June 2018, whereas noncommunity banks shrunk by 384 offices over the same period, according to the Federal Deposit Insurance Corp. Meanwhile, community bank loan growth has exceeded growth at noncommunity banks for six consecutive years, reflecting their success at fostering economic development in these communities.”

The Bank Policy Institute (BPI) report states that the big banks’ edge lies in their sizable presence in faster-growing cities, not due to any unfair structural or regulatory advantage. The BPI is the result of a merger between the former Clearing House Association and Financial Services Roundtable and represents only big banks. In CBAI’s opinion, the recent name change has helped to obfuscate the true nature of BPI’s representation and advocacy. CBAI applauds ICBA’s strong and timely response.


CBAI NEWS FROM THE FRONT 03/25/19
Legislative sessions continue in both Springfield and Washington D.C. and the CBAI governmental relations team is engaged in a host of issues. We are making a major push for safe harbor provisions in both state and federal law to protect banks who choose to provide services to the legal cannabis industry. CBAI takes no position on whether cannabis should be legal or not. We do, however, believe that if it is a legal product either medicinally or recreationally, banks should have the option to provide financial services just like they do for every other legal industry.


CBAI Participates in FDIC Deposit Insurance Applications Roundtable
The Federal Deposit Insurance Corporation (FDIC) hosted a Deposit Insurance Applications Roundtable on March 22, 2019, to obtain an array of views and suggestions regarding the deposit insurance applications process. Those attending included a variety of individuals and firms both interested in and familiar with the organization of newly chartered (de novo) banks.

Community Bankers Association of Illinois (CBAI) SVP Federal Governmental Relations, David Schroeder, participated in the Roundtable at the FDIC’s regional office in Chicago. CBAI appreciates the opportunity to participate in this Roundtable and looks forward to the consistent success of applicants obtaining FDIC insurance for scores of community banks over the next several years. CBAI encourages the FDIC to move swiftly in that direction.


CBAI Meets with CFPB to Discuss Community Bank Issues
CBAI’s SVP of Federal Governmental Relations, David Schroeder, met in Chicago with the Consumer Financial Protection Bureau’s Midwest Regional Director, John Schroeder, to discuss important issues for community banks. At this meeting, Schroeder addressed CBAI’s position on two issues which are critically important to community bankers and consumers – the Federal Reserve’s role in payments system improvements and the modernization of the Community Reinvestment Act (CRA). Concerning both issues, CBAI has strongly advocated for regulatory actions that will enhance community banks’ abilities to serve their customers and communities. 


CFPB Plans Rule on Debt Collection
The Consumer Financial Protection Bureau said it plans to issue a notice of proposed rulemaking on debt collection. In a report to Congress on administration of the Fair Debt Collection Practices Act, the bureau said it is seeking to address issues ranging from communication practices to consumer disclosures.
Treasury Tosses Old Tax Rules
The Treasury Department finalized the repeal of 296 unnecessary, duplicative or obsolete tax regulations. The Treasury said the elimination of regulatory “deadwood” helps advance the policies of President Trump’s Executive Orders 13777 and 13789, which direct the department to identify and reduce burdensome tax regulations.  


FDIC Releases Fourth Quarter State Profiles
The FDIC released its state profiles for the fourth quarter of 2018. The profiles summarize data on the economic and banking conditions for all 50 states, Puerto Rico, and the Virgin Islands. 


Rural Mainstreet Economic Index Rises for March: Almost Half Report Negative Flood Impacts
The Creighton University Rural Mainstreet Index for March rose to its highest level since December of last year according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. A large share of survey responses occurred before most of the negative impacts of the recent floods became widely known. 
   
The overall index expanded to 52.9 from 50.2 in February. This is the eleventh time in the past 12 months that the index has moved above growth neutral. The index ranges between 0 and 100 with 50.0 representing growth neutral. The March RMI for Illinois fell to 46.8 from 50.5 in February. The farmland-price index sank to 34.8 from February’s 42.3. The state’s new-hiring index increased to 59.1 from last month’s 58.5. In 2018, Illinois exported $3.4 billion in goods to China. This represented a 34.8 percent decline from the 2017 level. “Our surveys over the last several months indicate the Rural Mainstreet economy is expanding outside of agriculture. However, the negative impacts of tariffs and low agriculture commodity prices continue to weaken the farm sector,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business. 


Fed’s Bowman Optimistic about Rural America
Federal Reserve Governor Michelle “Miki” Bowman said she is optimistic about the future of rural America. Speaking in Washington at the National Agricultural Credit Conference this week, Bowman said rural populations have stabilized following six years of steady declines, rural unemployment and poverty are declining, and agricultural conditions are stable after recent decreases in commodity prices. “The narrative of rural decline is too sweeping and brushes aside the diversity of the rural experience,” she said.
Fed: No More Rate Hikes This Year  
The Federal Open Market Committee held target interest rates at a range of 2.25 to 2.50 percent and indicated there would be no further rate hikes this year. In its updated economic forecast, the Fed projected a median federal funds rate of 2.4 percent this year, down from 2.9 percent in its December forecast. It also slightly downgraded its projection of GDP growth and the unemployment rate. The FOMC also said it will slow its reduction in balance sheet holdings of Treasury securities over the coming quarters. By reducing the cap on monthly redemptions from $30 billion to $15 billion beginning in May, the Fed will slow normalization and limit its effect on financial markets.


CSBS: State-Chartered Banks' Share of Agriculture Financing Ticks Upward
Research data from the Conference of State Bank Supervisors (CSBS) shows the percent of agricultural loans made by state-chartered banks as a percent of all agricultural loans (non-seasonally adjusted) made by banks and how that share has changed over time. State-chartered banks are an important source of agricultural financing to farmers – and have taken on a larger share of total agricultural financing over time. In the most recent quarter (Q4 2018), state-chartered banks provided the third-highest share of agricultural loans in the history of the Call Report data (67.8%). Agricultural loans consist of two data elements from the Call Report data: Real Estate Loans Secured by Farmland and Loans to Finance Agricultural Production and Other Loans to Farmers. 


The Big Picture of Banking in Three Simple Charts
According to John Maxfield of Bank Director magazine, one thing that separates great bankers from their peers is a deep appreciation for the highly cyclical nature of the banking industry. He believes that bankers with a big-picture perspective have an advantage over bankers without a similarly deep and broad appreciation for the history of banking, combined with knowledge about the strengths and infirmities innate in a bank’s business model.

How does one go about gaining a big-picture perspective? By accruing experience by proxy—that is, by learning how things unfolded in the past. He cites three simple charts to make his point.


Group Meeting Registration Now Open for Groups 1, 2, 4, 7, 10, 11 & 12
CBAI leaders and executive staff are visiting 11 locations on the 2019 Group Meetings Tour this spring. Bankers from nearly 200 banks participate in these enjoyable and informative annual events. For this year’s after-dinner presentation, an analyst from The Baker Group provides an update on market conditions, Fed policy, regulatory hot-topics and industry trends for community banks. The opening portion of each Group Meeting will focus on critical legislative and association issues. CBAI President Kraig Lounsberry provides updates on Association projects and community banking in general, and SVP of Governmental Relations Jerry Peck offers an up-to-the-minute report of banking-related legislative activities.

Consisting of an optional golf outing and a dinner meeting, each Group Meeting provides an excellent opportunity to get the latest information on key banking issues and catch up with friends and peers. (Note: The Groups 1 & 2 meeting follows a different format). Make plans now to attend!


What Do Millennials Want from Banks? Non-Financial Products
According to one banking analyst, banks are missing opportunities to expand their sources of revenue by not offering millennials non-financial services such as identity theft protection, personal/family data storage, travel and trip insurance, roadside assistance, and cell phone damage protection. As a result, banks are potentially losing interchange revenue when consumers purchase these services using another issuer's debit or credit card.

Banks are concerned about staying relevant to young consumers. Offering non-financial products bundled with or without checking accounts is a step in that direction.
The Top Five Challenges and Opportunities for AI in RegTech
I n the span of a just few years, artificial intelligence (AI) has gone from a niche, relatively abstract concept, to entwining itself in multiple aspects of our daily lives. Within the financial services industry, early adopters have already started to integrate these cognitive technologies into higher value customer service and account management applications, such as chat bots and virtual bankers. However, until recently, these advancements had been only marginally utilized within the risk and compliance groups, whether due to lack of specific use cases or limited visibility into the challenges that analysts, compliance officers and risk managers face. But financial institutions are awakening to the potential impact these technologies encompassing AI can make – and regulators are on board as well.


Submit a Nomination for the 2019 Excellence & Innovation BKD Award,
Presented by CBAI
Nominations are now being accepted for the 2019 Excellence & Innovation BKD Award, presented by CBAI. This award recognizes CBAI member banks that go above and beyond to demonstrate their commitment to their customers, employees, shareholders and the community through innovative outreach programs. Since 1999, CBAI and BKD have honored financial institutions for their efforts to build a healthy future for themselves and their communities by developing an innovative way to serve customers or enhance corporate citizenship. Institutions may nominate themselves and do not need to be a BKD client to participate. The deadline to submit is Monday, June 3, 2019. The winner will be announced at CBAI’s 45 th Annual Convention & Expo, September 19-21, 2019. The winning institution receives $1,000 donation to the charity of its choice as well as an award symbolizing its innovation and excellence. 


Community Banking Week in Illinois is Coming!
April 7 – 13, 2019, is the 29th Anniversary of Community Banking Week in Illinois. This year’s theme is “Sharing Your Dreams.” Invite the friends and neighbors of your community bank to help celebrate the independent spirit that is the hallmark of locally-run banks. For your FREE kit, contact Bobbi Watson today! 


Residential Real-Estate Lending Institute To Be Held April 2-4 in Springfield
This three-day mini-institute provides the real-estate lending professional with a solid foundation for managing and producing a quality mortgage portfolio. This hands-on institute includes exercises in buying and selling mortgages in the secondary markets, a visit to a construction site, and analysis of the tax return of a self-employed borrower. The institute's objective is to assist the participants in three areas: improved customer service, more efficient processing and servicing, and stronger underwriting. All of these should result in increased earnings from the mortgage portfolio. The “new” underwriting findings are also discussed. David Kemp, founder and president of Bankers Management, Inc., College Park, GA, and Aaron Lewis, consultant with Young & Associates, Inc., Kent, OH, lead this institute.


Free Seminar for CBAI Members on Normalizing Banking for Cannabis-Related Businesses  
The CBAI governmental relations team invites you to join us for a summit presented by Illinois Treasurer Mike Frerichs focusing on cannabis banking related issues. The Normalizing Banking for Cannabis-Related Businesses Summit is focused on the barriers unique to banking in the legal cannabis industry. Panelists, including financial institutions currently serving cannabis-related businesses, state regulators, state legislators and CBAI governmental relations staff, will have candid discussions on their varied experiences throughout the evolution of the cannabis industry in Illinois, as well as confronting banking issues raised by the conflict between state and federal law. The summit is relevant to those in banking, including CEOs, the board of directors, legal counsel, COOs, CFOs, compliance officers and risk officers. A limited number of seats are available. Contact Jerry Peck , SVP of governmental relations, for more information.
Registration is now open for CBAI’s 45th Annual Convention & Expo, scheduled for September 19-21, 2019, at the Crowne Plaza, Springfield, IL.

Don't wait! Register today for early-bird pricing and receive a significant discount to attend CBAI's annual showcase event! You won't want to miss it!
NEWS FROM SERVICES

Baker Market Update
There’s a lot of data scheduled for release this week. In fact, there’s so much of it, some observers may conclude that there’s a statistical conspiracy going on and all the quants have colluded to overwhelm financial markets with numbers. Readers may have noticed, conspiracy theories are big these days.

SAVE THE DATE: The Baker Group Bank Investment Strategies for 2nd Quarter Webinar
Thursday, April 11, 2019 - 10:30 a.m. CDT
Actual topics to be determined at a later date. General topics will include:
·    Economic Update and Fed Policy Outlook
·    Industry Trends and Regulatory Hot Button Issues
·    Current Investment Strategy Recommendations
·    Interest Rate Risk and Liquidity Management Guidance

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Illini State Bank Taps Kasasa to Grow Consumer Deposits
Today’s highly competitive environment has made it even more crucial that community financial institutions leverage every advantage to meet the evolving needs of consumers. To help do so, Kasasa provides products and services that deliver superior value. Its free, rewards-based checking and savings accounts require no minimum balance and enable community banks and credit unions to increase non-interest income, reduce overall expenses and compete with megabanks.

As a pillar within its community, Illini State Bank recognized its need to deliver an innovative consumer deposit product that would stand out to attract, engage and retain account holders. Additionally, in 2017, Illini State Bank opened a Loan Production Office to expand its footprint and take further steps in growing the bank. This new office has experienced substantial loan volume growth. As a result, the bank needed to fund the asset side of its balance sheet with sticky, core deposits to continue to increase loan volume. Furthermore, the bank was looking to replace some of the brokered deposits it obtained through its growth period with core deposits. Illini State Bank tapped Kasasa for its rewards-based accounts, realizing that Kasasa could help drive them towards relationship-based deposits that typically outperform core deposits.


Harland Clarke: Contact Center Outsourcing: When, Why and How
Outsourcing is a business initiative often reserved for noncritical services, but when it comes to a strategic business task, such as providing exceptional customer service, the contact center is anything but noncritical. Because of the importance of delivering outstanding customer experiences, many financial institutions are often hesitant to outsource the contact center, even though the positives can far outweigh the negatives. Outsourcing can prove especially valuable when institutions need extra staffing and expertise, for example, during or after online and mobile banking conversions or other high volume, inbound events. During these times, call volumes and handle times can double, putting an extra burden on your contact center team. What’s really needed is the flexibility to quickly scale up or ramp down and manage spikes in activity, without having to hire a large number of people for a small window of time — and without sacrificing the quality service that your account holders expect. Outsourcing (when done right!) can accomplish this – and more.


CBAI LEGAL: Reverse Stock Splits
Reverse stock splits are legal for state-chartered banks, national banks and bank holding companies. Financial and public relations factors should be weighed when determining the desirability of this corporate maneuver. 


CBIS: How to Handle a Suspicious Package or Envelope
Unfortunately, we live in a world that can bring new perils for concern. As a child, an unusually-shaped package received in the mail meant something “fun” for our birthday. Now, however, a suspicious or threatening package or envelope should never be handled more than necessary. Community banks, of course, are ever-mindful of the importance of sound security procedures but may not have examined their risk management procedures recently, or ever, for this type of peril.