Arizona Bankers Association - Issue, 1 2016
Transcription
Arizona Bankers Association - Issue, 1 2016
ISSUE 1 . 2016 113th Annual AzBA Annual Convention The Enchantment Resort, Sedona, Arizona June 12-14, 2016 Register now at www.azbankers.org Page 6 Inside: 4 | Arizona Shows Promising Progress in Economic and Personal Finance Education 12 | AzBA Banker Day at the Capital 2016 18 | What are the Benefits and Challenges of Model Validations for Banks? We Are Your Solution! 111 West Monroe, Suite 440 Phoenix, Arizona 85003 Phone: (602) 258-1200 • Fax: (602) 258-8980 AzBA BOARD OF DIRECTORS 2015-2016 Mike Thorell, Chairman President Pinnacle Bank Toby Day, Chairman-Elect Arizona President Arizona Business Bank Dave Ralston, Vice Chairman CEO Bank of Arizona Whether your needs include financial/operational, regulatory compliance, or trust audits, or a compliance training partner, we are your solution! Jan Anderson, CFSA [email protected] 533 W. Guadalupe Rd., #2061 • Mesa, AZ 85210 • 480.633.9179 7151 Wright Terrace • Niles, IL 60714 • 847.983.8232 Jack Barry, Treasurer Chairman & CEO, Arizona Region Enterprise Bank & Trust Dean Rennell Regional President Wells Fargo Bank Annette Musa Arizona Market President Comerica Brad Parker Phoenix, CEO BBVA Compass Bank Curtis Reed Market Manager - Arizona & Nevada JPMorgan Chase Bank, N. A. Brian Riley President & CEO Mohave State Bank Pat Rourke Arizona Market President Bankers Trust Brian Schwallie Banking Equipment & Security Services Bankers Bank of the West..................... Page 11 Arizona Market President US Bank Sherri Slayton Executive Vice President Alliance Bank of Arizona Candace Wiest Compliance and Internal Audit Services Iversen & Anderson................................ Page 3 Law Firm Zia Trust, Inc........................................... Page 9 Buchalter Nemer.................................. Page 11 Engelman Berger, PC............................... Page 2 Gust Rosenfeld..................................... Page 24 Ryley Carlock & Applewhite................. Page 23 Stinson Leonard Street......................... Page 22 President & CEO West Valley National Bank AzBA STAFF Paul Hickman President & CEO Bill Ridenour General Counsel Steven Killian Director of Government Relations Theresa Kleinlein Director of Marketing Angelique Gerard Executive Administrator ISSUE 1 . 2016 3 Arizona Shows Promising Progress in Economic and Personal Finance Education 2016 Survey of the States for our Nation’s Schools S COTTSDALE, AZ. FEBRUARY 4, 2016 – THE NATIONAL COUNCIL FOR ECONOMIC EDUCATION HAS RELEASED ITS BI-ANNUAL COMPREHENSIVE REVIEW OF K-12 ECONOMIC AND FINANCIAL EDUCATION IN THE UNITED States. Arizona joins 14 other leading states which have adopted mandatory standards spanning both economics and personal finance from Kindergarten to 12th grade. Furthermore, a high school economics and personal finance course is required for high school graduation. At the end of 2007, when most of our country was still unaware of the impending financial crisis, the worst since the Great Depression, the Arizona Department of Education and the Board of Education approved new economic and financial education standards. Teachers are now required to be highly qualified to teach high school economics. Arizona has certainly come a long way, as demonstrated by the 2013 legislative mandate (SB1449) for financial literacy education. “I definitely see the positive difference in my incoming freshmen college students because of the new financial literacy mandate.” Debbie Henney, economics professor at Mesa Community College. According to the Center for Financial Security at the University of Wisconsin-Madison, state standards matter and those states which combine personal finance and economics, support teachers and hold students accountable give their students the best chance to become sound financial managers 4 www.azbankers.org Arizona Shows Promising Progress in Economic an 2016 Survey of the States for our N and stewards of their own personal credit. Georgia, Texas Scottsdale, AZ. February 4, 2016 – The national Council fo and Idaho have shown student credit scores are 8 to 17 points its bi-annual comprehensive review of K-12 economic and higher by age 22 for graduates who have metjoins a fi14nancial States. Arizona other leading states which have ad both economics and personal finance from Kindergarten to education requirement. Althoughschool Arizona’s economic and economics and personal finance course is required f financial education standards were implemented a few years At the end of 2007, when most of our country was still una later than those in Georgia, Texas and Idaho, we hope to see crisis, the worst since the Great Depression, the Arizona De similar results. In comparison to Board mathof education, economic Education approved new economic and financial e now so required to is be highly to teach high school eco education is still a very new subject there muchqualified to learn long way, as demonstrated by the 2013 legislative mandate about the optimal strategy in terms of topics, duration, testing education. “I definitely see the positive difference in my inc because of the new financial literacy mandate.” Debbie Hen and grade levels. Community College. According to the Center for Financial Security at the Unive The 55th annual Financial Literacy and Economic Educastandards matter and those states which combine personal tion Conference will be held in Arizona onhold October 5-8, 2016 teachers and students accountable give their students financial managers stewards of at the Renaissance Downtown Phoenix Hotel, and featuring a their own personal cred shown student credit scores are 8 to 17 points higher by age diverse selection of professional development on financial educationworkshops requirement. Although Arizona’s econ were implemented a few years later than those in economics and financial literacy. standards K-12 teachers from around to see similar results. In comparison to math education, ec the State and around the countrysubject and the world will be atso there is much to learn about the optimal strategy and grade levels.to Arizona was tending. The last time this conference came 1963! w The 55th annual Financial Literacy and Economic Educatio on October 5-8, 2016 at the Renaissance Downtown Phoen of professional development workshops on economics and Please visit www.azecon.org for more information on the national conference around the State and around the country and the world wil and the survey of the states. conference came to Arizona was 1963! The Arizona Council on Economic Education (ACEE) is a 501(c)3 nonprofit Please visit www.azecon.org for more information on the n organization founded in 1973, dedicated the to improving economic and personal states. financial literacy in The Arizona Council on Economic Education (ACEE) is a 5 founded 1973, dedicated to improving economic and pe Arizona. It is an affiliate of the national Council forinEconomic Education. It is an affiliate of the national Working with many partners, ACEE trains Arizona. 1,500 teachers reaching more than Council for Econo partners, ACEE trains 1,500 teachers reaching more than 200,000 students annually. The Impact of Electronic Payments By ELLEN RICHEY, Vice Chairman of Risk and Public Policy, Visa, Inc. I N BUSINESS WE OFTEN TALK ABOUT DOING WELL BY DOING GOOD—FORTUNATELY AT VISA, THAT IS ACTUALLY A REALITY. ONE OF THE virtues of working in the payments industry is that we have an opportunity to contribute to society in an impactful way. We can do a lot of good just by being good at what we do. Being in the business of electronic payments means helping the unbanked gain access to the formal financial system. It means bringing ordinary consumers into the world of mobile and digital commerce. It means helping businesses connect with more customers, so they can expand their reach and accelerate growth. It means helping governments go cashless, allowing them to more efficiently provide benefits and gain more insight into commercial activity. In other words, by making electronic payments easier and less expensive, we are helping families and businesses succeed and enabling countries to grow their economies. A recent study entitled “The Impact of Electronic Payments on Economic Growth” conducted by Moody’s Analytics and commissioned by Visa drives home this point. Moody’s analyzed the impact of electronic payments on economic growth across 70 countries between 2011 and 2015. Moody’s found the increased use of electronic payment products, including credit, debit and prepaid cards, added US $296B to GDP globally, while raising consumption by an average of 0.18 percent per year. The 70 countries in the study make up almost 95 percent of global GDP. Nearly all countries in the study experienced growth from electronic payments. During the five years studied, emerging markets saw a bigger increase in GDP than developed countries. In the future, emerging markets can have an even larger impact on GDP by increasing card penetration rates—for example, by providing merchants more ways to accept electronic payments. What the Moody’s study suggests is a simple but powerful pattern—a virtuous circle, whereby the increased use of electronic payments reduces friction in the overall economy and leads to more spending on goods and services. This results in greater consumption, which in turn, translates into increased production, more jobs, higher incomes, and greater economic prosperity and growth. We have seen this pattern play out time and time again, and in virtually every corner of the world. In Chile for example, card usage increased by more than seven percent over the last five years as more banks and merchants became equipped to accept electronic payments. That contributed about $2.6 billion, or a 0.23% increase to its GDP growth, according to the Moody’s report. Even in more advanced economies, like Singapore and the United States, where electronic payments are the norm, the Moody’s analysis suggests that increased card usage accounts for a sizable amount of economic growth. Although electronic payments in both countries rose modestly, it contributed about $1.17 billion, or 0.10% increase in the GDP of Singapore, and about $81.55 billion, or a 0.12% rise in in the GDP in the United States. Of course, electronic payments are just one component of a program to increase a country’s prosperity. Payments function best within a well-developed financial system and a healthy economy. Countries around the world must continue to strengthen their financial infrastructure and make investments in technology and innovations so that people can pay any way they choose. Lastly, we must find ways for government and the private sector to work more closely to promote financial literacy and inclusion so that the gains from economic growth accrue across the board. Encouraging the adoption of electronic payments can provide an important spark to the world’s economy. Every day, we see the contribution they make to consumption, economic activity and job growth. That’s why Visa continues to invest in new technologies, new products and services—doing our part to encourage electronic payments by providing merchants and consumers a more secure and convenient way to engage in commerce. - See more at: http://goo.gl/e4bAbb w ISSUE 1 . 2016 5 Join Us for the 2016 Annual Convention at the Enchantment Resort June 12-14 S URROUNDED BY THE TOWERING RED ROCK WALLS OF BOYNTON CANYON IN SEDONA, ENCHANTMENT RESORT COMBINES THE RUGGED GRANDEUR OF THE SOUTHWEST WITH EQUAL PARTS LUXURY AND NATIVE American culture. It’s a hideaway like no other. All guest rooms and suites are within casitas that feature beautiful hardwood floors, regional décor and magnificent views. All accommodations have private decks, some offer kitchenettes and include kiva fireplaces. The experience is complete in every way; choose from more than 100 activities a week including hiking, mountain biking, tennis and swimming. Enjoy dining at a variety of distinctive restaurants, all amid glorious settings. Experience Mii amo, a destination spa at Enchantment which has recently be named #2 in the World by the readers of Travel + Leisure, where life-enhancing treatments leave you feeling nurtured and restored. Adjacent Seven Canyons, Enchantment’s exclusive 18-hole championship course, boasts of incredible scenery within 100,000 acres of pristine National Forest land and towering red rock canyons. Designed by Tom Weiskopf, this par-70 course is situated at 4,600 feet which delivers mild temperatures year-round. A challenging, rewarding layout, it measures 6,746 yards from the championship tees and has subtle contours and small greens, narrow landing areas and artfully placed bunkers and water features. Seven Canyons has been acclaimed as one of America’s 50 Greatest Golf Retreats by Golf Digest and is consistently ranked as one of the best. The property’s delicious cuisine at a choice of options, all with breathtaking views is an added highlight at this 6 www.azbankers.org canyon retreat. The signature restaurant, Che Ah Chi, features modern American cuisine using many Arizona-sourced ingredients. Tii Gavo features Southwestern-inspired fare, and View 180 offers small plates for sharing with wines by the glass and specialty cocktails. The clubhouse at Seven Canyons offers a gastro-pub theme features upscale comfort food in a sophisticated and contemporary atmosphere. The bar features a library of bourbons, right in step with the spirit’s renaissance, for tasting flights and classic cocktails with a twist. Complementing the diverse menu are several high end barrel-strength bourbons plus an extensive selection of small batch single-barrel bourbons. With some low-proof bourbon for those who want an introduction to ‘America’s whiskey.’ Camp Coyote is Enchantment Resort’s program designed to educate and entertain children ages 4 -12. Trained counselors guide camp-goers in exciting activities that explore the region's culture and natural environment. Highlights include nature walks, Native American influenced arts and crafts include sand painting, beadwork or weaving dream catchers. Mii amo, a Yuman word signifying "to continue one’s path, moving forward, or journey," is a destination spa resort located on the grounds o Enchantment Resort. Like many Native American pueblos, the 24,000-square-foot, two-level main building is nestled in the natural slope of the canyon wall, maximizing views of the red rock canyon. Simple lines, monumental forms, and pure materials—adobe brick, wood, indigenous stone-- blend organically with the surrounding environment. Natural light and water are recurring themes, and interior and exterior spaces flow into one another, making the building easily adaptable to the seasons. The signature form is a 172-foot-long horizontal spine from which rise 5 adobe brick towers inspired by the cliff dwellings of the Anasazi. Communal areas and pools are on the ground level; treatment rooms are housed on the second floor. The design is at once modern and ancient, representing a modern application of many Anasazi ideas. Nineteen spacious treatment rooms are located on the second level with chapel-like privacy, and either windows overlooking the canyon or natural light wells. Five outdoor treatment areas, shaded by wooden trellises inspired by Native American "wikiups," provide secluded, hillside shelter for outdoor massage, meditation and Watsu therapy. Guests choose from three-, four- and seven-night programs, inclusive of luxury accommodation, daily meals at Mii amo Café, spa treatments, private consultation, fitness classes, lectures, and use of spa facilities. Full- 60- and 90-minute treatments include massage, Reiki, Cranial Sacral, hydrotherapy baths, body treatments, Watsu, Ayurvedic treatments, facials and spiritual sessions. Specially trained therapists provide a number of restorative therapies using Mii amo signature blends of oils and lotions, natural ingredients and Native American traditional practices. Ongoing fitness classes yoga, Pilates, Qigong, aqua aerobics, and outdoor walks. Other activities include mountain biking, stargazing, cooking demonstrations, organic gardening, guest lectures, guided meditation and Native American programs. For meetings and gatherings of 10 to 400 the Meeting Village comprises more than 13,000 square feet of indoor meeting space, including 11 function rooms, an expansive executive board room, three ballrooms with patios and floorto-ceiling windows, and versatile smaller function spaces. An additional 20,000 sq. ft. of outdoor venue space offers dramatic scenery, starry skies. w Please visit enchantmentresort.com for more information or call (855) 403-4921 ENCHANTMENT RESORT Call now to reserve your room: (855) 421-1088 Referred to by AzBA Deadline May 13th Register for Convention at www.azbankers.org For Sponsorship info call (602) 684-9016 ISSUE 1 . 2016 7 COUNSELOR’S CORNER conducted by the County Treasurer during the second following February after the tax year. For example, taxes from the 2014 tax year were sold this past February of 2016. The auction process in Maricopa County and some other Arizona counties is now entirely on-line. Some counties still retain a live auction. The auctions are always in February. The bidders are typically investors. Taxes not sold at that auction are “struck off to the state” and can be later purchased “over the counter” from the Treasurer. Lenders: Beware of Real Estate Tax Liens By CHRISTOPHER M. MCNICHOL “N OTHING IS CERTAIN EXCEPT DEATH AND TAXES.” THAT HOARY EXPRESSION APPLIES with special force to Arizona real property taxes. Because those taxes are a senior priority lien on the real property, ahead of essentially all other liens including any mortgage/deed of trust liens securing loans, a lender’s failure to pay attention to the taxes can lead to the death of its lien. 8 www.azbankers.org Property taxes are paid in arrears. The first half of the calendar year tax, from January 1 through June 30, is due on September 1 of that same year, and delinquent a month later, on October 1. The second half of that calendar year’s tax is due the following March 1, and delinquent two months later, on May 1. Unpaid taxes accrue interest at 16% per annum. If the taxes, interest, and the statutory penalty fees are not paid, the tax liens are sold in an open auction The auction is not a matter of bidding the price up, but rather bidding the interest rate down. The successful bidder is the person who offers the lowest interest rate that must be paid to redeem the property from the tax sale, starting at 16%. The bids go down from there. Years ago, when there were fewer investors, the interest rates would often settle out at 8-10%. But now, with so many interested investors, especially large funds bidding on blocks of tax liens, the winning interest rates have dropped to 2-4% for most tax liens. The successful bidder acquires what is called commonly called a Certificate of Purchase (CP). The winning bidder does not own the property, only the CP. After three years from the date of the tax sale, if the taxes are not redeemed by the owner of the property, a lienholder such as a secured lender, or the holder of a CP from a different tax year (yes, in some counties, there can be different parties holding different CPs from different tax years on the same property), then the holder may file a lawsuit to foreclose all rights of redemption. The CP holder must successfully prosecute the tax lien foreclosure action, including naming the lender as a defendant, and then proceed to judgment. CPs can be bought, sold and assigned. The person who successfully bid for the CP at the tax sale may thus not be the same person foreclosing the CP three years later. Until a final judgment is entered in the foreclosure action, the taxes can still be redeemed. But the price goes up. After the filing of the foreclosure action, the reasonable attorneys’ fees and costs must also be paid in order to redeem the property and dismiss the action. Once the CP holder obtains a judgment in the foreclosure action, it applies to the County Treasurer for a Treasurer’s Deed. It is this Deed which then transfers the title to the property to the grantee of the Deed. As noted, the taxes and the tax lien, including the CP, are senior to the lender’s deed of trust lien on the property securing its loan. Completing the foreclosure and obtaining judgment and a Treasurer’s Deed will extinguish the THE CP HOLDER MUST SUCCESSFULLY PROSECUTE THE TAX LIEN FORECLOSURE ACTION, INCLUDING NAMING THE LENDER AS A DEFENDANT, AND THEN PROCEED TO JUDGMENT. deed of trust, turning the lender’s loan from secured to unsecured. As statutorily required, prior to filing the foreclosure action the CP holder must send a notice letter to the owner of the property and the County Treasurer informing of the imminence of the foreclosure action. However, the CP holder is not required to give notice to the lender. If the lender has not previously addressed the unpaid taxes, it may learn of the foreclosure for the first time only when it is served with the Complaint. At that point, in addition to the taxes, interest, and penalties, there would also be due the attorneys’ fees and court costs in order to redeem and dismiss the action. A borrower’s failure to pay taxes is typically an event of default under the loan documents. Those same documents almost always allow the lender to advance money under the loan in order to pay delinquent taxes. If the lender wants to protect its lien position in the property, it should advance money to pay off the delinquent taxes far before any final judgment of foreclosure. w Zia Trust, Inc. The Advisors’ Trust Company® Announcing the opening of our new office. We are honored to serve Arizona families! 11811 North Tatum Boulevard Suite #1062 Paradise Village Office Park Just north of East Shea Boulevard • We work alongside your client’s investment advisor • Providing independent trust services working alongside community bankers www.ziatrust.com 602.633.7999 ISSUE 1 . 2016 9 Under the Copper Dome Patent Troll By STEVEN KILLIAN T ECHNOLOGY IS UPENDING THE WORKFLOW AND PROCESSES IN THE FINANCIAL SERVICES INDUSTRY. TASKS ONCE HANDLED WITH PAPER MONEY, BULKY COMPUTERS, AND HUMAN INTERACTION ARE NOW BEING COMPLETED ENTIRELY ON DIGITAL INTERFACES. Almost every type financial activity-from banking to payments to wealth management can now be completed with a few quick touches on your smart phone. By making services like payments, lending, and deposits available on mobile platforms, banks have been able to grow their market base while cutting costs at the same time. While these new disruptive technologies have allowed banks to reach customers they wouldn’t otherwise have access too, these new technologies have also made banks a magnet for patent trolls. “Patent Trolling” is the process of filing a claim of patent infringement against an entity, despite the fact that the claimant does not manufacture or supply the product or service in question. The risk of abusive patent infringement claims impact nearly every industry, and is a serious concern for banks of all sizes. In an effort to stop patent trolling and incomprehensible demand letters, Congress in 2011 enacted the American invents Act, which increased banks’ ability to challenge the validity of existing patents through use of several new tools. These tools can greatly reduce banks' costs to contest an infringement claim while expediting the resolution process, because the patent office must rule on patent invalidity cases within 18 months. 10 www.azbankers.org Yet, despite attempts by Congress to reform overly broad business methods patents, patent trolls continue to threaten litigation and make licensing fee demands. To help stop this abusive business practice, the Arizona Bankers Association with the help of the Arizona Attorney General’s Office, The Arizona Tech Council, has proposed legislation this session that would vest the Arizona Attorney General with enforcement authority under the Arizona Consumer Protection Act to hold fraudulent patent trolls accountable. The Arizona Patent Troll Prevention Act is modeled after legislation that has been enacted in 26 states. Under this act, a person may not make assertions of patent infringement in bad faith. An assertion of patent infringement in bad faith is demonstrated when a person or business entity sends a demand threatening a target with litigation while asserting that the target infringed a patent or that the target should obtain a license in order to avoid litigation. Bad faith factors include; a demand that does not contain specific information such as a patent number, the name and address of the patent owner, or facts relating to specific areas in how the target is infringing the patent, or failing to provide the preceding information up request. In creating this legislation, the Association was particularly mindful not to stifle innovation or inventors' legitimate property rights. The Association firmly believes that this legislation will protect the legal rights of both Arizona banks and Arizona business, while maintaining a fair and legitimate operation for our intellectual property system that is so critical to the Arizona economy. w RELIABILITY providing our banking clients with the best business solutions Buchalter Nemer a full service business law firm www.buchalter.com ISSUE 1 . 2016 11 AzBA Banker Day at the Capital 2016 “T HIS WAS THE MOST SUCCESSFUL BANKER DAY WE HAVE HAD SINCE WE STARTED THIS PROGRAM 5 YEARS AGO,” COMMENTED PAUL HICKMAN, AzBA CEO. “WE HAD OVER 40 bankers join us for the day portion at the Capital. Lobbying as a unified voice is the backbone of The AzBA and is imperative to the success of our industry.” The day started with a meeting that included Arizona Senator David Farnsworth, Chair of the Senate Committee on Financial Institutions. The group then met with Deputy Arizona Treasure, Mark Swenson, for a tour. Then it was time for the regulatory panel which included representation from the FDIC, Federal Reserve Bank of San Francisco, OCC, and CFPB. After an in-depth session of “Q & A” the bankers departed for a meeting with Attorney General, Mark Brnovich. The afternoon was comprised of key meeting and intense lobbying against a bill that would create a state charted bank. Led by AzBA Government Relations Director, Steven Killian, the group attended and participated in a Senate Banking Committee Hearing. He then facilitated meetings with Senate Majority Leader, Steven Yarbrough; House Banking Committee Chair and Vice-Chair, Representative Kate Brophy McGee and Representative Jeff Weninger; and Senate President Andy Biggs. The day concluded with an intimate and entertaining cocktail party and dinner at Lon’s at The Hermose Inn. “We were thrilled to have a full room of legislators and public officials joining our bankers for this annual event,” remarked Theresa Kleinlein, AzBA Communication and Marketing Director. The honored speakers were John Ryan, CEO of The Conference of State Bank Supervisors. To conclude the evening U.S. Congressman David Schweikert delivered a committee report from the Banking Committee. Paul Hickman summarized the dinner with a smile, “The speakers were informative and dynamic. Senator Schweikert is always as informative as he is witty. Another successful Banker Day for The AzBA.” w Banker Day Dinner Sponsors Dwight Alexander and Kevin Blackburn of Federal Home Loan Bank of San Francisco; Honored Speaker, Congressman David Schweikert 12 www.azbankers.org Theresa Kleinlein, AzBA; Kevin Blackburn, FHLB; Dwight Alexander, FHLB; Paul Hickman, CEO, AzBA; Kate Maynard, Alliance Bank of Arizona Arizona Corporation Commissioner, Tom Forese; Marina DeWit, Arizona State Treasurer Jeff Dewit; Ed Zito, President, Alliance Bank of Arizona Craig Robb, Vice President, National Bank of Arizona; Carolyn Robb Honored Speaker, John Ryan, CEO, Conference of State Bank Supervisors AzBA General Counsel, William Ridenour, Fennemore Craig; Joey Ridenour ISSUE 1 . 2016 13 Launch of Year Two of PHX Startup Week Returns Spotlight to Entrepreneurs Chase to Announce $400,000 in Grants to Nonprofits Assisting Small Businesses • PHOENIX – Year two of PHX Startup Week kicks off on Monday, Feb. 22, to bring together the Valley’s entrepreneurs for five days of educational workshops and panels, inspirational keynotes and networking at no cost to participants. There will be myriad of happenings that will be held from Phoenix to Chandler, Scottsdale and Tempe. • The kick-off will be held Monday, Feb. 22 at 8:45 a.m. at Chase Basecamp, the epicenter for Monday’s activities, 111 W. Monroe St. – 19th Floor, 14 www.azbankers.org Phoenix. EMBARGOED UNTIL MONDAY, FEB. 22, 9 a.m.: At the kick-off, JPMorgan Chase & Co. will announce $400,000 total in philanthropic grants $100,000 each to four Valley nonprofit organizations that assist small businesses and have strong programs for women and minority entrepreneurs. Executives from these nonprofits will provide information about how their programs can help entrepreneurs. Representing the organizations at the kickoff event will be: o Gonzalo A. de la Melena, Jr., President/CEO of the o o o • Arizona Hispanic Chamber of Commerce David Adame, President/CEO of Chicanos Por La Causa Courtney Klein, Co-Founder and CEO of SEED SPOT Roberto Valdez-Beltran, Market Manager for Accion Arizona To help entrepreneurs find local resources, the Phoenix Source Finder, an online database and print guide created by U.S. Sourcelink, will be unveiled. Sponsored by Chase, the easyto-read visual illustration of key entrepreneurial resources will be distributed at PHX Startup Week, and the website phoenixsourcefinder.com will go live on Feb. 22. Chase returns as the presenting sponsor of PHX Startup Week, which premiered last year to celebrate everything entrepreneurial during the week-long series of events focused on connecting, inspiring and strengthening entrepreneurs. Several years ago, Chase began its sponsorship of Startup Weeks in Denver and has been expanding its sponsorship to include more cities. In addition to Phoenix and Denver, Chase is sponsoring Startup Weeks in Seattle, Tampa, Dallas, Columbus, and for the first time in Detroit. “When startups thrive, our community thrives,” said Noreen Bishop, Chase’s regional manager for Business Banking. “Startups are innovators and job creators and they contribute to the local economy. Through Chase’s sponsorship of Phoenix Startup Week and our philanthropic contributions, we want to help grow this ecosystem to its full potential.” **The following grant information is EMBARGOED until Monday, Feb. 22, at 9 a.m.** $100,000 grants each to four Valley nonprofit organizations will help entrepreneurs, small businesses • JPMorgan Chase will announce philanthropic grants to the following nonprofit organizations: • Accion. The grant helps fund the organization’s staff efforts to ensure that entrepreneurs in Arizona have better access to the financial education and credit that Accion provides. Accion helps entrepreneurs with the tools they need to operate, grow or start their business, and offers small business loans and other resources. • Arizona Hispanic Chamber of Commerce. This grant supports the Chamber’s minority business enterprise and women’s busi- • ness enterprise initiatives with workshops, outreach, cohort trainings, networking events and conferences. The Chamber operates the Phoenix Minority Business Development Agency Business Center, which is one of 40 centers nationwide and was recognized by the U.S. Department of Commerce as the No. 1 such business center in the nation for 2014-2015. The Hispanic Chamber promotes the success of Hispanic-owned and small businesses. Chicanos Por La Causa, Inc., for its subsidiary, Prestamos. The grant supports the efforts of Prestamos to provide access to capital to small businesses in low-income communities to create jobs and revitalize communities. Through Prestamos, CPLC has provided more than $43.8 million in loans to small businesses in the last five years, creating more 1,900 jobs. CPLC is a community organization dedicated to building stronger and healthier communities. SEED SPOT. The grant supports the following SEED SPOT programs: the Latino Entrepreneur Program, which partners with the Univision television station in Phoenix for a “casting-call” for entrepreneurs to participate in a boot camp; the Women’s Entrepreneur Program, targeting women entrepreneurs who have an idea, prototype or existing business they are looking to scale; and the Cohort Capital Training Program, which helps graduates of SEED SPOT’s accelerator program raise capital. SEED SPOT is dedicated to educating, accelerating and investing in entrepreneurs who are creating solutions to social problems. w About Chase Chase is the U.S. consumer and commercial banking business of JPMorgan Chase & Co. (NYSE: JPM), a leading global financial services firm with assets of $2.4 trillion and operations worldwide. Chase serves nearly half of America’s households with a broad range of financial services, including personal banking, credit cards, mortgages, auto financing, investment advice, small business loans and payment processing. Customers can choose how and where they want to bank: 5,400 branches, 17,000 ATMs, mobile, online and by phone. For more information, go to Chase.com. About PHX Startup Week PHX Startup Week is an annual week-long, Valley-wide showcase and celebration of Arizona’s entrepreneur community. Launched in 2015, the shared mission is to serve current and future entrepreneurs with quality content and meaningful connections. The vision is to foster the world’s most generous community for entrepreneurs. Register free to attend or get involved by visiting phxstartupweek.com. ISSUE 1 . 2016 15 The Rise of Phoenix’s Financial Services Sector CHRIS CAMACHO, PRESIDENT & CEO OF THE GREATER PHOENIX ECONOMIC COUNCIL G REATER PHOENIX IS ON TRACK TO BECOMING A NATIONAL LEADER IN THE FINANCIAL SERVICES INDUSTRY. OVER THE NEXT 10 years, financial services jobs in the Greater Phoenix region are projected to grow by 14 percent, compared to eight percent nationally. This above average growth reflects the region’s popularity as an alternative to other legacy markets – such as New York City, San Francisco, Los Angeles and Chicago – and positions Greater Phoenix as a place where financial services businesses can optimize their strategic growth, while keeping up with consumer demands. 16 www.azbankers.org The region’s appeal is broad: competitive labor costs, a diverse, skilled workforce, access to western and international markets, reliable transportation infrastructure, a supportive startup climate for scaling up FinTech companies and a culture that encourages collaboration and creativity. During the economic downturn, many financial services sub-industries contracted their banking, lending and mortgage operations, in an attempt to lean out cost and improve the revenue position against total headcount. Now that these jobs are returning nationally, businesses are choosing Greater Phoenix for the consolidation of these shared services. The highly regulated reality of the While the reasons for locating a financial services business to Greater Phoenix vary, there are common themes cited by company CEOs, including the availability of a skilled financial services workforce, which provides employers with a strong talent pool from which to hire. The presence of major higher educational institutions, such as Arizona State University, Grand Canyon University and the Maricopa County Community Colleges, provide a constant stream of talent into the local workforce. Also, Arizona’s public universities conferred 552 finance degrees in 2014 alone. ALSO, ARIZONA’S PUBLIC UNIVERSITIES CONFERRED 552 FINANCE DEGREES IN 2014 ALONE. post-recession economy has heightened the need for businesses to develop alternative, strategic cost solutions in market where they can scale up quickly. The financial services industry in Greater Phoenix is anchored by Wells Fargo, JPMorgan Chase & Co., Bank of America, American Express and Alliance Bank, for example, who combined have more than 40,410 employees working in the region. The presence of these major players has helped to attract like businesses to the area, resulting in a concentration of financial services in Greater Phoenix that is 59 percent greater than the national average. The financial services sector in Greater Phoenix currently employs more than 130,000 people, with no signs of slowing down over the next decade. In fact, by 2025, it is projected than the industry will produce more than 150,000 jobs—a 14 percent growth. Since 2013, more than 20 financial services companies--including Northern Trust, Silicon Valley Bank, Asurion and Santander Bank--have located all or part of their operations to the Greater Phoenix region. The investment these businesses make by locating to the region brings thousands of high-wage jobs and has a direct, positive impact on the surrounding communities and businesses they support. In addition to the opportunity to draw from a diverse, skilled workforce, employers recognize the region’s relative affordability—particularly in the housing market—creates opportunities for mid-level employees not available in markets such as San Francisco or New York. Not only do employees enjoy a higher quality of life overall, but businesses also benefit from lower operational and labor costs. Today's workers strive to find a solid work-life balance, seeking access to community amenities such as art festivals and cultural events, diverse food choices and craft beer options, and a solid local music scene. Increasingly, Greater Phoenix is being recognized as a place people want to live, work and play. Featuring a strong entrepreneurial community, the Greater Phoenix region is where new ideas are cultivated. Increased innovation in FinTech is breathing new life into the financial services market and providing alternatives to businesses and consumers. As a young, diverse region, Greater Phoenix provides a platform for new technology, products and ideas to thrive. Greater Phoenix’s financial service sector is poised to continue its unprecedented growth for years to come, contributing to the growth of a sustainable economy. w ISSUE 1 . 2016 17 What are the Benefits and Challenges of Model Validations for Banks? BY DR. ERIC GOLLA T HE ARIZONA DEPARTMENT OF FINANCIAL INSTITUTIONS (AZDFI) MONITORS AND FOLLOWS THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BANK (FRB), AND THE OFFICE OF THE Comptroller of the Currency (OCC) auditing and examination trends (Examination, n.d.). Reviewing the validation of internally developed and vendor models deployed at large banks is an FDIC and OCC priority. A strong belief exists that regulators will begin model validation reviews at midsize banks. Model Validation Model validations help reduce model misuse and accuracy risk that can result in financial losses and reputation damage. A model validation should identify data, design, development, testing, deployment, and monitoring risks (Supervisory, 2011). The validation may not reveal that a model is optimal. However, a thorough validation will result in actionable, riskreducing, recommendations. Components of model validations include conceptual soundness, data quality and timeliness, design and development processes, outcome analysis, and monitoring. Executive and detailed validation reports contain a critical evaluation of each component (Burns, 2005). Leaders should be able to read and understand validation documents without an interpreter or a statistics book. 18 www.azbankers.org Benefits Financial regulators require that banks use external auditing resources (External Audit, 1996). Outside resources or internal groups, separate from the model development team, can perform the model validations and create the documents for regulatory review. Passing regulatory reviews is not the only reason to perform model validations. Other benefits of model validations include 1) gaining executive trust, 2) understanding data source risks, 3) identifying fair lending issues, 4) monitoring disparate impact, and 5) identifying model optimization opportunities. More than one banking leader has questioned their models’ accuracy and business value. Easy to understand validation reports that contain an overview, results, and recommendations can reduce the trust gap. Validations help discover prohibitive model inputs such as race, religion, sex, and gender. Using prohibitive inputs to influence decisions is illegal and can result in fines and reputation damage. As fair lending monitoring increased, banks increased the use of model driven, automated decisions. Even with automated decisions, disparate impacts can exist. Documenting adverse decisions via reason codes can help reduce disparate impact risk. Model validations should identify issues and provide recommendations that can resolve compliance issues, enhance models, and create best practices. MODEL VALIDATIONS SHOULD IDENTIFY ISSUES AND PROVIDE RECOMMENDATIONS THAT CAN RESOLVE COMPLIANCE ISSUES, ENHANCE MODELS, AND CREATE BEST PRACTICES. Challenges Conclusion Chief executive officers (CEOs) of national banks received The Supervisory Guidance on Model Risk Management document in 2011 from the Federal Reserve and OCC (Supervisory, 2011). Banks created or enhanced their model risk management groups, but model validations still failed examinations. Model validation challenges for banks include 1) knowledge gaps, 2) limited resources, 3) inconsistent line-of-business development processes, and 4) proper documentation. Identifying and obtaining resources that contain the experience and knowledge to connect the dots between business units, compliance, legal, technology, and modeling groups is difficult. Inconsistent documentation across an organization's functional units requires additional resources and time to validate models and resolve audit issues. Model validations can appear to be a daunting, time-consuming task. However, the necessary information to create the validation documents should be readily available. First, technology should have documentation that includes the data sources, controls, processes, and service level agreements. Next, internal model development should follow documented model design, development, testing, and deployment processes. Finally, results from judgmental and model driven decisions should be available to understand the business impact. If the above information is available, the validation time decreases. If the information is not available, the model validation documents can be used to reduce the bank’s information gaps. Model validation documentation presents other problems. First, interpreting guidelines requires resources that can decipher and communicate the guidelines to leadership, compliance, modeling, and line of business teams. Second, modelers are normally not the optimal choice to write validation documents. Modelers have a tendency to write documentation for statisticians. Finally, leaders may prefer a particular documentation framework that does not pass a regulatory exam. The good news is that after the first model validation is complete, leveraging the validation process and documentation framework will reduce validation time and resources. The reduced time will allow banks to expedite model validations and use the valuable results and recommendations as inputs into profitable business strategies. Dr. Eric Golla is an Innovation and Data Science advisor for TechMileage. TechMileage is a Phoenix Metro Area, AZ-based software development, advanced analytics and model validation company with extensive experience in developing enterprise solutions and products. TechMileage specializes in providing end-to-end software solutions, modeling, model validations, and business intelligence. For more information, contact, Rajesh Kumar at (602) 334-9964 or rajesh. [email protected]. Burns, R. L. (2005). Supervisory Insights. Retrieved from https://www. fdic.gov/regulations/examinations/ supervisory/insights/siwin05/article01_ model_governance.html External Audit (June 24, 1996). Statement of Policy Regarding Independent External Auditing Programs of State NonMember Banks. Retrieved from http://www.azdfi.gov/ LawsRulesPolicy/SPS%20Links/ DFI-AD-PO-BA-SUB_POL_STATEFDIC_Attachment_BA-1-062496ver1. pdf Examination, (n.d.). Bank Examinations. Retrieved from http://azdfi.gov/ Licensing/Licensing-FinInst/Banks/ BanksExamination.html. Supervisory. (April 4, 2011). Supervisory Guidance on Model Risk Management. Retrieved from http:// www.federalreserve.gov/bankinforeg/ srletters/sr1107a1.pdf. w ISSUE 1 . 2016 19 Guarantors’ “Lost Profits” Completely Offset Lender’s Deficiency Claim By BEN REEVES B ELIEVE IT OR NOT, LENDERS CAN BREACH LOAN AGREEMENTS TOO…AND WHEN THEY DO, THERE CAN BE SIGNIFICANT consequences. In Great Western Bank v. LJC Dev., LLC, 726 Ariz. Adv. Rep. 21 (Ariz. Ct. App. Nov. 10, 2015), the Arizona Court of Appeals affirmed that guarantors’ “lost profits” resulting from the lender’s breach of a loan agreement completely offsets the amount owed under a guaranty. Much can be learned from this unusual outcome. The Loan Agreements In Great Western Bank, the bank’s predecessor entered into an acquisition and development loan (the “A&D Loan”) with Cedar Ridge Investments, 20 www.azbankers.org LLC (“Borrower”) in May 2007 to allow Borrower to acquire a fiftyhome subdivision in Flagstaff, AZ. In January 2008, Borrower entered into a second agreement with the bank to fund the actual construction of homes (the “Agreement”). The Agreement expired on December 1, 2008. The Bank Decides to Cease Funding Construction Loans In July 2008, the bank made an internal decision to cease all construction financing in Arizona. Accordingly, the bank advised Borrower that it “was withdrawing from the Agreement.” Id. at ¶ 4. The Borrower attempted to obtain alternative financing but, as will come to no surprise to those who lived through the Great Recession, was unable to do so. The bank ultimately foreclosed. The Litigation The bank sued the guarantors for an approximate $2.6 million deficiency, but the guarantors counterclaimed, asserting that the bank’s refusal to fund the Agreement constituted an anticipatory repudiation of the contract, breached the covenant of good faith and fair dealing, and gave rise to damages for lost profits. The Evidence at Trial Establishes Breach of Contract At trial, the bank argued that the Agreement did not obligate it to fund THE BORROWER ATTEMPTED TO OBTAIN ALTERNATIVE FINANCING BUT, AS WILL COME TO NO SURPRISE TO THOSE WHO LIVED THROUGH THE GREAT RECESSION, WAS UNABLE TO DO SO. the construction of homes. Rather, it contended that the Agreement was merely a “guidance line” that left the decision of whether to fund, or not fund, the construction of any individual home up to the bank’s discretion. Although the language of the Agreement did set some conditions on funding, the Court of Appeals held that “the Agreement was as much a loan agreement, i.e., a contract binding on its signatories to the lending and borrowing of money, as any loan agreement ever written, notwithstanding Borrower’s obligation to provide certain information to [the bank] before it could make a draw.” Id. at ¶ 14. Thus, the bank’s unilateral decision to “withdraw” from the Agreement without analyzing each individual draw request breached the Agreement. Id. at ¶ 13. Because the lost profits exceeded the amount of the asserted deficiency, the trial court declined to enter any judgment against the guarantors and awarded them their attorneys’ fees and costs. On appeal, the bank argued that the lost profits were, at best, speculative, but the Court of Appeals declined to disturb the trial court’s findings of fact. Thus, the Court of Appeals affirmed and – again – awarded the guarantors their fees and costs. The Evidence at Trial Establishes Lost Profits Conclusion The guarantors2 went on to prove that the breach caused them damages in the form of lost profits. The following three factual findings established lost profits: • First, notwithstanding the bank’s termination of the Agreement in July 2008, Borrower remained current until October 2008. The bank’s own records showed that Borrower’s progress on construction in August 2008 was “acceptable.” Id. at ¶ 26. Thus, the trial court found that the Borrower would have performed but for the bank’s withdrawal. • Second, notwithstanding the automatic expiration of the Agreement in December 2008, the trial court determined that the bank would have extended the loan as it would have been in the bank’s economic interest to do so. With extra time, the trial court determined that Borrower would have sold all the homes but for the bank’s withdrawal. Id. at 30. • Third, the bank’s own appraiser offered evidence that home sales in Flagstaff remained consistent throughout 2009, which would have allowed the Borrower to sell homes at a rate sufficient to service the loan and There are a couple of interesting things to learn from this decision. First, the case provides a stark reminder to banks to perform a thorough review of their loan documents before asserting a breach. Second, although the notion that anyone could have made a profit by developing homes in Arizona in 2008-2009 is somewhat counterintuitive, the trial court’s conclusion was supported by evidence (from the bank’s own appraiser) – and therefore very unlikely to be disturbed on appeal. See id. at ¶ 38. It appears that the bank attempted to rebut the evidence by arguing that “the loss was more likely caused by a declining economy rather than a breach of the Agreement.” Id. at ¶ 38. Although this argument seems accurate, banks should remember to confront every defense, even if it seems incredible, with specific evidence. w make Borrower a profit. Id. at ¶ 38. Thus, the trial court concluded that the Borrower would have made a profit in the aggregate amount of somewhere between $2,808,000 and $3,500,000. Id. at ¶ 37. Guarantors Prevail at Trial and on Appeal Ben Reeves is a partner in the Bankruptcy, Reorganization, and Insolvency Group at Snell & Wilmer, L.L.P. 2The trial court ruled that Restatement (First) of Security § 133 (1941) allowed the guarantors to assert Borrower’s offset, and neither party contested this ruling on appeal. ISSUE 1 . 2016 21 Alisa Lacey » 602.212.8628 [email protected] Bob Monroe » 816.691.3351 [email protected] Ernie Panasci » 303.376.8402 [email protected] Deborah Bayles » 303.376.8401 [email protected] LEGAL PARTNERS YOU CAN TRUST. Our advantage is simple—we understand the business. Stinson Leonard Street’s banking attorneys have broad experience in matters related to financial services, including commercial lending, mergers and acquisitions, regulations and compliance, litigation, bankruptcies and payment systems. Bank on our reputation and knowledge. 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