Basel III

date, only 9,000 community bank employees nationwide have signed the Basel III petition issued by ICBA.  While we
realize that capital rules are not front and center in the concerns of many
employees who are tasked with day to day operations in the bank, it is
extremely important that we send a strong message that Basel III will
irreparably harm the community banking industry.

encourage ALL employees of your bank to take approximately one minute to sign
the petition.

Appraisals Summit

federal regulators proposed a rule to establish new appraisal requirements for
"higher-risk mortgage loans" as mandated by the Dodd-Frank Act. A
mortgage loan is higher-risk if it is secured by a consumer's home and has an
interest rate 1.5 percentage points above the average prime rate. Under the
proposed rule, lenders would be required to disclose to mortgage applicants information
about the purpose of the appraisal and provide consumers with a free copy of
any appraisal report. Lenders would also have to obtain an additional
appraisal, at no cost to the consumer, for a home-purchase higher-risk mortgage
loan if the seller acquired the property for a lower price within the previous
six months.

the CFPB issued a proposed rule that would amend Regulation B and would require
creditors to provide mortgage applicants with a copy of written appraisals and
home value estimates.  Creditors would have three days after receipt of an
application to inform consumers of their right to receive a free copy of an
appraisal report or home value estimate used in connection with the
transaction.  Under the proposed rule from the CFPB, creditors could still
charge reasonable fees associated with conducting appraisals and home value
estimates; however, the rule would prohibit creditors from charging consumers
fees for obtaining the reports.  IBAT will be issuing comment letters arguing
against the proposed appraisal rules because they would increase the cost to
borrowers and may be unworkable in rural Texas communities. The joint proposed
rule is available here. The CFPB proposed rule is available here. The public has until October 15 to comment
on each proposal.

IBAT is offering a Summit dedicated entirely to appraisals on August
30, 2012. Topics range from an overview of the appraisals process to compliance
with applicable real estate regulations.

IBAT Emergency Hotline

Ice Storms, Hurricanes, Tornadoes, Fire: How Would You Communicate With Your Staff?

Do you have a way to communicate to your staff in the aftermath of an emergency or natural disaster?  IBAT established a FREE hotline/voice mail box (and web access - under construction) for each of its members as an option for Disaster Recovery or Business Continuity Plans.  Simply assign two contact people (a primary and a secondary) and send them this link to print and read:  http://www.ibat.org/pdfs/2009/04/07/ibat-emergency-hotline-instructions.  Pre-enrollment is required, but it's easy!  Hopefully you'll never need this service, but if you do, IBAT's ready.

Each firm must pre-register to participate. It's FREE and EASY.

This benefit is courtesy of your IBAT membership. 

Major Reg Z and RESPA Changes

CFPB issued two sets of proposals aimed at mortgage servicers. Among the
changes proposed for Regulation Z are "clear" monthly mortgage statements, a
warning before interest rate adjustments, options for avoiding forced placed
insurance, and information and options for avoiding foreclosure. Among the
changes proposed for RESPA are rules for crediting payments, maintenance of
information, requirements for handling alleged errors, servicer access for
delinquent borrowers, and review of application for foreclosure avoidance
options.  The CFPB proposed rule for Regulation Z is available here. The CFPB proposed rule for RESPA is
available here. The public has until October 9 to comment on
each rule.

ALM and Bank Investment Summits

Community bankers find themselves struggling
with unprecedented challenges. Among these are weak loan demand, regulatory
pressure and an uncertain loan environment. The Asset/Liability Management and Bank Investment Summits, taking place September 5
and 6, will provide a regulatory update, touching on strategic planning,
current regulatory hot buttons, examination preparation and capital planning.
In the presentation, we will also provide a brief overview of the Basel III
proposals, including the revisions to regulatory capital requirements and
risk-weighting of bank assets.

Don't miss out on important regulatory guidance and lively discussion with
fellow bankers.

IBAT Legislative Day

the date for IBAT's Community Banking Day at the Texas Capitol, March 5-6
in Austin
.  Originally, IBAT planned on holding the event in February, but
decided to push it back to line up with committee appointments and the
commencement of the legislative process in earnest.

wave of retirements and primary upsets has set the stage for a very different
composition of the Texas Legislature," said IBAT Executive Vice President
Steve Scurlock. "We felt that the legislative priorities of IBAT members
would be better served by letting the smoke clear at the beginning of the
session and getting bankers in front of their lawmakers when the real work is
being done."

IBAT Community Banking Day at the Texas Capitol is
the only event specifically dedicated to voicing the concerns of Texas
community bankers.

Tee Off for the PAC

Be sure to
register for the 25th
Annual Leadership Golf Classic
being held in conjunction
with our upcoming Annual Convention, October 6, at the Twin Creeks Country Club
in Cedar Park.

The Florida
Scramble begins with a 1:30 pm shotgun start.   Your $175
registration fee benefits the IBAT PAC (personal check or credit card...no
corporate checks may be accepted).  We hope you will consider joining your
community bank colleagues from across Texas for a great day of golf at a
wonderful venue - and support a most worthy cause!  For additional
information and a registration form, please click here

deadline is September 14th.

Mind Your P’s, Q’s and SQLs

By Jeff Multz, Vice President, Dell SecureWorks

The following article
originally ran as a feature in the July/August
of The
Texas Independent Banker Magazine

Cybercriminals are out to get you.

It sounds amazing, but hackers can easily
sneak into a bank's website and network through Web pages that contain an open
field, or boxes into which computer users type a username or password.

Using Web application attacks, cyber
criminals can steal funds, private information and entire databases from

Computer programmers create Web pages using
code, or computer language, such as HTML or JavaScript.  Typically, programmers are tasked with
creating an application that works and getting it to the client as quickly as
possible.  So, if a bank wants a
programmer to create an application that allows its clients to transfer money
or write a check, programmers create the application as quickly as possible.  And when the application works and online
users find it easy to navigate, the bank and customers are happy.  At least for a while.

Often, programmers either don't know
how to write code securely or don't take the extra time to do so.  Unless banks check the code with a security
expert, they don't realize that the code may contain holes, or
"vulnerabilities," which could allow intruders to hack the website and access
files on its computer network.

While hackers use many methods to
breach websites, one of the most popular methods is called "SQL injection."  That is when a hacker injects malicious code
into an open field.

For example, in
the slot where someone should enter a username, a hacker could type in a code,
something like "OR 1=1#>."  Once the
hacker enters the malicious code, the hacker could acquire access to the
administrative part of the bank's website, change the way the website looks and
obtain access to any documents on the network.  That might include company trade secrets, as
well as clients' usernames, passwords, and bank account information. 

Many bank executives think that just
because they are "Web compliant" their system is safe.  Basically, compliance rules tell banks to be
sure to lock the doors and windows of their website so no hacker can get in.  But the rules don't show where the doors and
windows are or how a business can lock them.  And just because the doors are all locked one
day, doesn't mean they remain locked 24x7x365.

While it's great to be "compliant," it
doesn't ensure safety.  Numerous
financial institutions that have been compliant have been hacked, losing
hundreds of millions and loss of their good reputations.  For their own safety, banks would be better
off approaching security first and compliancy second, because compliancy will
not necessarily keep a company secure.  A
good security consultant will automatically review the steps a company should
take in order to be secure and

So what should an organization do to
be secure?  Plenty. Unfortunately, safety takes more than any one
single layer of protection.  A multi-layered
approach to safety is the best way to keep criminals away so that they look for
easier prey.

The first thing banks should do is
hire a security expert to review the source code for all the pages on its
website.  Each time the source code is
changed to add a new feature to the website, a security expert should review

If a business does not have access to its
source code, it should employ a security expert to try to break into the site
using numerous hacking techniques.  This
is called "penetration testing" or "Web application reviews."

If any vulnerabilities are found, the
code should be fixed as soon as possible. 
Additionally, a bank should install, maintain and continuously monitor a
Web application firewall to prevent Web applications from being infiltrated
while the code is being fixed or tested.  A bank should also perform external Web
application scanning on an ongoing basis, at least quarterly and every time it
deploys new code. 

Lastly, a bank should retain security
experts to monitor its server and firewall logs 24x7x365, in real-time.  If a bank has security professionals
monitoring logs just a couple of times a day, by the time they see the
malicious activity that has hit the website, the hacker likely has acquired
access to the site's financial information and stolen the bank's crown jewels.

Jeff Multz is vice president of Dell SecureWorks, a market leading
provider of world-class
information security services
worldwide, spanning North America, Latin America, Europe, the Middle East and
the Pacific Rim. He is a former computer programmer for
financial institutions.

IBAT Salary Survey

Now is the
time to start thinking about your 2013 compensation and budget planning, so let
the Texas Community Bank Salary and Compensation Survey go to work for you!
Take advantage of salary and compensation data from community bankers across
the state to competitively position your bank and retain bank personnel with

This online
product is a subscription-based, on-demand salary survey customized to meet the
needs of your community bank:

  • Salary
    data may be submitted and updated year-round
  • All
    data is secure and strictly confidential
  • Customized
    Excel and/or PDF reports based on parameters you set
  • Historical
    data available to track trends
  • In-depth,
    useful salary information to help your bank

is key! The most immediate benefit to participation is preferential pricing but
more importantly: the more banks that participate, the more valuable the
reports become.

Get started today

Mobile Banking

DALLAS, August 13, 2012 -
Cash or credit? Soon consumers may replace both with their favorite
mobile device according to a recent survey from Dallas-based SWACHA, one
of the largest not-for-profit electronic payments associations in the
country. According to SWACHA's Consumer Insights Survey mobile banking
usage has tripled with 20 percent of those surveyed currently banking on
their phones compared to 7 percent in 2009.

more consumers use their mobile devices to make purchases the use of
cash is in sharp decline according to the survey with consumers
reporting they can go an average of 95 days without making a cash
purchase compared to 53 days in 2009.

payments are the next frontier for our industry and we expect the
service to spread quickly over the next few years," said Dennis Simmons,
AAP, president and CEO of SWACHA. "People are widely using their phones
to check their account balance and transfer money, and as financial
institutions, mobile devices and retailers adopt the technology we
expect most people to swipe their phone at the register of their
favorite stores as well."

survey revealed people currently use mobile devices for banking in a
variety of ways. 94 percent of respondents reported checking account
balances, 59 percent transfer money between accounts, 36 percent pay
bills and 18 percent make purchases.

mobile banking's increasing popularity, financial institutions must
address concerns about the security of transactions made on a mobile
device. According SWACHA's survey, 52 percent of those surveyed cited
security concerns as the primary reason they do not use mobile banking.

is our responsibility as an electronic payments resource to keep
financial institutions informed on security for mobile transactions and
help raise awareness on mobile security as more people bank on the go,"
said Simmons. "We believe mobile banking will be the personal finance
tool of the future, and we look forward to watching how people will make
payments in the coming years."

About the Survey

online survey of 600 Texas residents was conducted in August 2011 by
Decision Analyst with a confidence interval of 95 percent and a
corresponding margin of error of +/- 4 percent.  Only
those respondents who identified themselves as the person responsible
for paying household bills were permitted to complete the survey.


SWACHA-The Electronic Payments Resource®,
is one of the largest not-for-profit regional payments associations in
the country with approximately 1,100 members across the Southwest.
SWACHA is the resource of choice for financial institutions and
corporations in the areas of education, training, payments system risks
and knowledge about electronic payments.

Reg E Overdraft Opt-in

hard to believe, but last Wednesday marked the two year anniversary of the
Federal Reserve's infamous Regulation E opt-in regulation for debit card and
ATM overdrafts. Almost a year later (July 1, 2011), the FDIC issued their
controversial overdraft guidance.

how has the industry fared since then? In the third quarter of 2010, annualized
industry income from all overdraft revenue was some $33.9 billion. Revenue
decreased by some $4.4 billion just a year later.  Through the first
quarter of 2012, the industry appears to be rebounding slightly as OD revenue
is estimated to reach $31.0 billion by year-end.

average national price of overdrafts was $27.66 nationally in June of 2010 and
today it has risen slightly to $27.94 - an increase of 1%. The Consumer Price
Index (CPI) has risen 4.9% during the same period.

what's the takeaway?  It is clear that consumers continue to rely on the
overdraft safety net as a convenient and useful financial tool, even while
regulators continue to search for ways to "fix" the overdraft

Featured Convention Speaker

The following article was written by Lee Wetherington,
Director of Strategic Insight for ProfitStars.  Lee will be one of the
featured speakers at IBAT's 38th
Annual Convention
, October 6-9 in Austin, TX.  Lee directs the
development of actionable insight and strategy for the financial services
industry. To this end, he creates programs, presentations, and articles
designed to orient and educate financial executives on the trends and
implications of new technologies.

Camouflage: Your
Best Prospects Are Disguised as Customers

I live in South Georgia. On a dirt road. In the woods.

Camouflage is common here. On hunters, trucks, barco loungers, even toilet
paper. Yes, toilet paper...the last thing you'd want camouflaged when you really
need it. Go figure.

Maybe it's where I live, but lately I've been seeing everything-or is it
nothing?-in camouflage. It seems both banks and credit unions suffer from being
unable to see what is lurking nearby.

To hedge against dwindling fee income per account, many financial
institutions are desperately seeking new account acquisitions to bolster
volumes. The problem, according to a Cornerstone
' report, Benchmarks
and Best Practices for Mid-Size Banks
, is that banks are closing 100
accounts for every 112 new accounts opened, i.e., they are "opening 112 new
accounts to net grow only 12".

Other financial institutions, however, are beginning to look inward for
growth, and they are discovering major opportunities camouflaged among existing

Underbanked Disguised as Banked

Birmingham, Ala.-based Regions bank has received a lot of press recently for
discovering that 23% of its customers are also consumers of alternative
financial service
s such as check cashing, money orders and payday
loans. In other words, Regions realized that they were already and unwittingly
underserving the underbanked.


Basel III Update

Last week, IBAT issued a clarion
call to action for all IBAT members to contact their members of Congress and
urge action to exempt community banks from proposed Basel III capital rules.

"Community bankers are upset, and
justifiably so, over what we believe to be totally unnecessary and
inappropriate proposals to redefine capital adequacy for all banks, regardless
of size or risk profile," wrote Chris Williston, IBAT President and CEO. "None
of us recall an issue that has generated more concern, confusion, anger and
frustration... and there have been a number of issues and challenges over the
past few years."

With lawmakers on August recess,
IBAT hopes that all community bankers will encourage their members of
Congress to contact the Fed, the FDIC and the OCC to let the regulators know
that we are all gravely concerned about this damaging proposal.

Williston's full email to members,
including helpful bullet points is available online here.

International Money Transfers

Consumer Financial Protection Bureau (CFPB) issued its final rule on
international money transfers and increased the previously proposed safe harbor
of 25 transactions to 100.  The new rule provides that institutions
consistently conducting 100 or fewer remittance transfers per year will not be
subject to the requirements of the remittance rule.  (IBAT is interested
to know how the CFPB's remittance rule will affect your bank. Please take a
moment to complete our two question survey on this issue.)

Although the final rule is an improvement, the ultimate result hasn't
changed-many community banks will be forced out of the business of
international money transmission. And that will be devastating for many
community banks, particularly those in border states such as Texas.
Many community banks will be faced with the choice of cutting off their
transmission business after 100 transactions or exiting the business
altogether. There is a third choice: comply with the disclosure requirements
and assume the additional liability mandated by the error-resolution
requirements. But that is impossible or impractical for most, if not all,
community banks.

the road to hell is paved with good intentions, community bankers are
travelling on a compliance superhighway," said Chris Williston, President
and CEO of the Independent Bankers Association of Texas. "I'm not sure how
much more help consumers can take from the federal government. This rule will
put an end to international transmissions at many community banks, resulting in
less choice and ultimately higher costs to consumers as they are forced to do
business with a smaller pool of larger players."

not delayed, the rule will take effect February 7, 2013, which does not give
community banks sufficient time to establish agreements with upstream

IBAT is considering all options, including a challenge to the rule
to be filed with the Financial Stability Oversight Council, as we believe the
rule disproportionately and unfairly impacts community bankers in border


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powerful resource book with over 500 pages of detailed, up-to-date information
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 Everyone in your organization needs this handy daily reference. It's the
perfect selection for corporate professionals and associates who need to be
current with financial data.  To order your copy, contact Jessica Molina at

Silver Alert





with Alzheimer's, HISPANIC,
MALE, 63 years old, DOB 11/15/1948,
WEARING RED T-SHIRT AND BLUE PANTS WITH A STRIPE DOWN THE LEGS.                                       

The senior
citizen was last seen at 930 AM, 08/16/2012 at 2540 WICKER

enforcement officials believe this senior citizen's disappearance poses a
credible threat to HIS/HER own health and safety.

If you have
any information regarding this missing senior citizen, contact the FARMERS BRANCH PD at 972-484-3620.



Wish Granted!

National Credit Union Administration (NCUA) last week unilaterally expanded the
commercial lending powers of over 1000 credit unions by streamlining the
process to qualify as a "Low Income Credit Union" (LICU) to a simple
"opt in" rather than the normal application process. This announcement was made by President Obama in a
press conference to announce several measures aimed at providing drought
relief.  As an editorial aside, we are at somewhat of a loss to ascertain
the nexus between expanded business lending for credit unions and drought
relief for farmers and ranchers.

In addition to the ability to completely ignore the already generous limits on
member business lending, LICUs are also eligible for Community Development
Revolving Loan Fund grants and low-interest loans; have the ability to accept
deposits from non-members; and have authorization to obtain supplemental
capital (another item on the "wish list" for the credit union

The credit union industry has attempted for the past several sessions to expand
business lending.  We have continually believed - fervently - that such
was a terrible idea, and have fought any expansion by this tax-exempt industry
to compete directly with community banks in yet another area and play by
different rules.  Congress has not acted, and there is no indication that
they have plans to do so.  While this initiative is applicable only to
LICUs, we find it unacceptable and inappropriate, and will be letting our
members of Congress and the Administration know our thoughts.

San Angelo Sporting Clays

Join your colleagues on Thursday, August 30, for
the 8th annual San Angelo Sporting Clays Tournament. This popular event grows
each year and we appreciate the sponsors who make it happen, including our Gold
Sponsors: The Bankers Bank of Oklahoma, CalTech, Fiserv and The Garland Group.
Following the tournament, there will be a barbecue dinner and news about some
exciting new developments with the IBAT Leadership Division.  Registration deadline is August 24.
To register online, click here.

Sub S Tax

have received several calls from accountants, attorneys and bankers regarding
last week's Bottom Line lead story on potential tax increases if Congress fails
to act.

First, obviously "dividends" as referred to in the original story are
not taxable at the individual level when distributed from Subchapter S
entities. You've already incurred tax liability on your pro-rata share of the
earnings of the entity.  We knew that!  Our apologies for this
oversight and any confusion created.  

Second, if the Bush tax cuts are not extended, the maximum personal income tax
rate reverts to 39.6%.  In addition, one of the provisions in the Obama
healthcare bill imposes a new 3.8% surtax on the "net investment
income" of those married taxpayers with joint income over $250,000 or
individual taxpayers reporting over $200,000.  In general, net investment
income includes interest, taxable C corporation dividends, annuities, royalties
and rents, as well as income from a trade or business that would be treated as
a passive activity with respect to that taxpayer.

In the context of a Subchapter S bank, the surtax would be imposed on
the allocable share of the S corporation's ordinary income on shareholders
whose involvement in the bank is "passive."  However, a full
time bank employee would not be subject to the surtax on that employee's share
of the ordinary income of the bank.  The IRS is currently using the
definition for "passive activity" used in the passive loss rules of
Section 469 of the Code to determine whether a shareholder's share of the S
corporation as income would be treated as "passive" for purposes of
the 3.8% surtax. The IRS has indicated it plans to issue additional guidance on
this subject in the coming months.

It is not pleasant to err... but it is indeed gratifying to know that our
members are carefully reading what we distribute.  Special thanks to
Stormy Greef of Hunton & Williams LLP for lending his expertise and edits.

TAG Extension

Ryan, President and CEO of the Conference of State Bank Supervisors (CSBS),
sent a letter to House and Senate leadership urging an extension of the
Transaction Account Guarantee Program (TAG) for two years. Ryan stressed the
importance of the program to community banks in the face of the ongoing
competitive imbalance with the too-big-to-fail institutions.  

"IBAT appreciates the support of CSBS in urging an extension of the TAG
program.  We believe that this extension is critical for community banks -
and the communities they serve - to continue to attract adequate funding to
fuel local economies," said Chris Williston, IBAT President and CEO.
 "This is a priority for IBAT, and the credibility that CSBS brings
to the table is significant. Special thanks to our Banking Commissioner Charles
Cooper for his support on this important issue."  
Further information can be found in the CSBS press release.