Inside: - Media Communication Group

NOVEMBER/DECEMBER 2011
Inside:
7 | The Importance of Liability Waivers in Commercial Loan Workouts
9 | Bank Lawsuits Against Securities Broker-Dealers and the
“Sophisticated Investor” Defense
11 | AZ Supreme Court Opinion Affirms Position of Arizona
Bankers Association

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A MESSAGE FROM THE PRESIDENT
By paul hickman, President & CEO
2011: An Interesting Year
As we enter the holiday season I find
myself reflecting on a very dynamic
and interesting year for banking and
for the members of the arizona bankers
Association. As the banking regulators
continue to implement the Dodd-Frank Act,
and Arizona slowly begins recovering from
the housing crash, 2012 should prove equally
challenging and interesting.
We began the year focused on high unemployment
and slow economic growth. The
unemployment rate in Arizona has been above
nine percent all year. Growth has been in the
anemic one percent range all year as well. The
epicenter of the contraction was in the housing
sector and until that market finds equilibrium,
Arizona is in for more tough sledding.
The year ended with a European debt crisis
poised to send the countries of the E.U. into
another recession and possibly endanger the
fragile recovery in the United States. As I write
this, the crisis has toppled the governments in
Greece and Italy; and the future of the euro as
the common currency for the 17-nation Eurozone
is in serious doubt.
2011 also saw the Occupy Wall Street
protests go global. There were riots in Rome,
and in Oakland, California protesters managed
to temporarily shut down the fifth busiest port
in the country. London’s St. Paul’s Cathedral
also temporarily closed for the first time since
World War II. Besides a general dissatisfaction
with the distribution of wealth, it is not
absolutely clear what their goals are.
It is critically
important that we as
an industry continue
to educate the public
on our unique and
vital role in any
modern economy.
That said, however, there are always reasons
for optimism in Arizona. In terms of job
growth the W.P. Carey School of Business now
ranks Arizona tenth-best in the country – up
from dead last in 2010. Our legislature was
able to move an ambitious corporate tax cut
and jobs package through their ranks and to
the governor, who signed the measure in April.
Our political and business leaders recognize
the vital importance of diversifying our state
economy beyond its recent historical dependence
on housing. And, the sun will continue
to shine in Arizona, bringing us a key ingredient
in economic growth: people.
In banking, the drama surrounding the
Durbin Amendment debit card interchange fee
cap unfolded at a high volume. It began with the
retail and banking industries working the Federal
Reserve and Capitol Hill at cross purposes to
preserve and prevent, respectively, the implementation
of the amendment. In June the Fed issued a
final rule granting the retailers a $7 billion annual
windfall. The $64,000 question now becomes
‘will the retailers pass their savings on to their
customers’ If the Australian experience is any
guide, the smart money is on ‘probably not.’
One thing, however, is clear. They don’t like
banks. This means it is critically important
that we as an industry continue to educate the
public on our unique and vital role in any modern
economy. Mortgage banking, investment
banking, commercial and retail banking are all
conflated in the popular conscience, making
our job that much more difficult. I have found
the Arizona Bankers Association’s brochure
titled Bank’s Give Back to be a very helpful tool in
this endeavor. We sent it to every media outlet
in the state earlier this year. Since then I have
done a battery of interviews where I highlighted
the significant economic and philanthropic
contributions of our industry.
Given that 2012 is an election year, I don’t
see much controversial banking legislation
coming our way from Washington. What this
president and all incumbents in Congress are
motivated by are the high unemployment and
slow growth numbers I mentioned at the beginning
of this column. Many of their political
futures will depend on significant improvement
in those numbers.
n president’s message — continued on page 12
4 www.azbankers.org

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SMH_AZ Banker_MarApril 2011.indd 1
3/9/11 9:50 AM

111 West Monroe, Suite 440
Phoenix, Arizona 85003
Phone: (602) 258-1200 • Fax: (602) 258-8980
AzBA BOARD OF DIRECTORS
2011-2012
James Lundy, Chairman
President & CEO
Alliance Bank of Arizona
Lynne B. Herndon, Chairman-Elect
City President
BBVA Compass
Mike Thorell, Vice Chairman
President
Pinnacle Bank
Randy Yenerich, Immediate Past Chairman
President & CEO
Commerce Bank of Arizona
Benito Almanza
Arizona President
Bank of America
Toby Day
Market President
Arizona Business Bank
Gail Grace
President & CEO
Sunrise Bank of Arizona
Steve Johnson
President
BMO Harris Bank NA
Chuck Luhtala
President
Canyon Community Bank
Joe Stewart
Chairman & CEO, Arizona
JP Morgan Chase Bank NA
Gerrit Van Huisstede
Regional President
Wells Fargo Bank
Candace Wiest
President & CEO
West Valley National Bank
AzBA Staff
Paul Hickman
President & CEO
Stacey Langford
VP, Member Services
Jan Arredondo
Director, Administration
Stacey
Paul
& Jan
AzBA would
like to wish
you and yours
a joyous
holiday season
For additional information about the Arizona Bankers
Association visit us online at www.azbankers.org.
6 www.azbankers.org

The Importance of
Liability Waivers in
Commercial
Loan Workouts
By David A. Sprentall, Partner, Snell & Wilmer, Phoenix, AZ
Due to the lender liability litigation fad of the late 1980s and early 1990s,
most institutional lenders significantly tightened their documentation,
particularly in workouts and restructurings. Various provisions such as
pre-negotiation agreements, reaffirmations of security and waivers of
lender liability claims became common. While lender’s counsel have
generally believed these provisions are enforceable in a commercial loan
context, it is always interesting to see a court agree.
In the recent case of interpharm,
inc. v. wells fargo bank, national
association, the u.s. second circuit
court of appeals upheld a lower
court decision dismissing various
claims made by a defaulted borrower
against Wells Fargo. The facts of the
case are relatively straightforward and
not unusual. Interpharm was a commercial
borrower with a revolving
credit facility secured by accounts receivable
and inventory. As Interpharm’s
business deteriorated, there were various
defaults on the loan agreement that
resulted in workout negotiations and
increasingly restrictive credit terms.
Throughout the workout, Wells Fargo
and Interpharm entered into a series of
forbearance agreements, each of which,
in addition to other terms, included a
waiver by the borrower of any claims
against Wells Fargo. Ultimately,
Interpharm paid off the debt through
the sale of assets, but sued Wells Fargo
alleging breach of contract, breach of
the duty of good faith and fair dealing,
tortuous interference with business
expectations, unjust enrichment and
breach of fiduciary duty - all common
lender liability claims.
Wells Fargo sought to dismiss
these claims based on the releases of
lender liability contained in each of the
forbearance agreements. Interpharm, in
turn, tried to argue that dismissal was
not appropriate because the waivers
were a product of “economic duress.”
Essentially, Interpharm argued that
it had no choice but to agree to the
terms of the forbearance agreements
and waivers or file for bankruptcy that
would have made it impossible to continue
its business.
The court pointed out that in order
to avoid a contract on the ground of
economic duress, the borrower would
have to show that the agreement was
procured by means of (i) a wrongful
threat that (ii) precluded the exercise
of its free will. After a lengthy analysis,
the court concluded that a threat to
exercise a legal right could not be the
basis for a claim of economic duress. In
other words, as long as the lender had
no duty to continue to provide credit as
a result of the borrower’s default, the
fact that the lender may have engaged
in aggressive workout tactics did not
make its actions wrongful. The case
was dismissed since the borrower
could not overcome the waivers in the
forbearance agreements.
A few observations:
The lender’s position was
strengthened by having a
clearly drafted waiver of claims
in each of the forbearance
agreements (note that this case
was decided under New York
laws - individual state laws may
vary on the enforceability and
requirements for a valid waiver
of claims).
Although the lender aggressively
pursued its rights, it always had
a definite material default to
point to.
The lender appears to have only
proceeded to grant concessions
when there was a written
forbearance agreement - in other
words, the process remained
formal rather than relying
on verbal agreements and
understandings.
The Court noted several
times that the forbearance
agreement expressly
stated that it superseded
all other negotiations and
was unambiguous - both of
which are crucial in keeping
out evidence of contrary
negotiations.
In short, this case demonstrates the
benefits of a tightly run workout process
Arizona Banker ⏐ November/December 2011 7

with well-documented forbearance agreements. Whether or not
the lender would have prevailed on the lender liability claims,
it saved significant time and expenses by having those claims
dismissed based on the waivers. w
©2011 All rights reserved. The purpose of this legal article is to provide
readers with information on current topics of general interest
and nothing herein shall be construed to create, offer or memorialize
the existence of an attorney-client relationship. The content should
not be considered legal advice or opinion, because it may not apply
to the specific facts of a particular matter. Please contact a Snell &
Wilmer attorney with any questions.
David A. Sprentall is a partner in the Phoenix, Arizona office of Snell
& Wilmer. His practice is concentrated in real estate law, commercial
law, financial institutions regulation law, real estate finance law and
construction law.
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(480) 428-0142
8 www.azbankers.org

Bank Lawsuits
Against Securities Broker-
Dealers and the “Sophisticated
Investor” Defense
By Garret W. Wotkyns, Schneider Wallace Cottrell Brayton Konecky LLP
During the early- and mid- 2000s, many regional and local banks in Arizona
and elsewhere invested in structured finance products.
Among other things, many banks
invested then in mortgage-backed
securities, sometimes called MBS for
short, and collateralized debt
obligations, often simply called CDO’s.
As we now know, such investment
products in many instances posed severe
risks to those who invested in them – bank
and non-bank investors alike. And a whirlwind
of litigation and Financial Industry
Regulatory Authority (“FINRA”) arbitration
proceedings about these investments
has ensued. In these actions, investors
assert that they were in one way or another
wrongfully directed into these investments
either by their securities broker-dealer, the
issuer of the securities in question and/or
other involved parties.
A great many such actions, especially
FINRA arbitrations have been brought in the
last several years by regional and local banks.
Unsurprisingly, from these actions certain
patterns have started to emerge. When a
bank brings a FINRA arbitration against
its securities broker-dealer, for instance,
asserting that the broker-dealer wrongfully
directed the bank into an MBS or CDO
investment, it can expect immediately to see
in response what has come to be known as
the “sophisticated investor” defense.
This defense is just what it sounds like:
namely, that the suing bank had enough
industry knowledge and experience to be
capable of evaluating risks associated with
investing in MBS or a CDO – and was thus
able to fully and properly evaluate the risks
of any particular disputed transaction.
Large securities broker-dealers time and
again have asserted that this defense protects
them from liability in actions brought
by banks.
Arizona banks that suffered losses
from investing in such products should take
heart: the sophisticated investor defense
in actions brought by banks has shown
a pattern of becoming less successful in
recent FINRA arbitrations, according to a
recent commentary by one of the officers of
the non-profit Pace Investor Rights Clinic,
Edward Pekarek.
For one thing, as he notes, common law
negligence claims (which are frequently
advanced in FINRA arbitration by banks
and other investors) are not properly subject
to this defense. Such negligence claims, he
continues, turn on the underlying duty of
care owed to an investor by its broker-dealer.
NASD Rule 2310 – Recommendations to
Customers (Suitability) defines the scope of
that duty and when it exists in the context
of brokered securities purchase transactions
– and Rule 2310 does not even mention the
sophistication of the investor.
For another, the SEC itself has noted that
the mere disclosure of risks associated with
the purchase of any particular security does
not relieve a securities broker-dealer of its
freestanding duty to make sure that those securities
are suitable investments for its client.
The SEC has also stated that not only must
the client of a regulated broker-dealer be
sufficiently sophisticated to fully understand
the risks involved with the investment, the
client also must be able to bear those risks.
And the SEC has said, finally, that the ability
to bear risks, standing alone, does not satisfy
its investor suitability rules.
In short, banks that have taken losses on
structured finance products like CDOs and
MBS in recent years may be well-served to
reevaluate those losses and consider taking
action about them. You may not be too big
to fail, but neither are you too big to sue. w
Garrett W. Wotkyns is head of the financial services
practice at Schneider Wallace Cottrell Brayton
Konecky LLP, a boutique law firm with offices in Arizona,
California and Texas. He currently represents
numerous banks seeking recovery from securities
broker-dealers concerning allegedly unsuitable
investments. Mr. Wotkyns is a frequent speaker,
writer and continuing legal education instructor
concerning financial services litigation. He received
his law degree from the University of Chicago Law
School, where he was a staff member of The University
of Chicago Law Review.
Arizona Banker ⏐ November/December 2011 9

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10 www.azbankers.org

AZ Supreme
Court Opinion
In September 2005, Julia Vasquez, a
Tucson homeowner, refinanced her home
by executing a promissory note secured
by a deed of trust in favor of Saxon Mortgage.
The deed of trust, recorded that
month, named the company as beneficiary.
Shortly thereafter, Saxon Mortgage
assigned the note to Deutsche Bank by
endorsing the note in blank and without
recourse to Saxon Mortgage. That assignment
was not recorded.
Ms. Vasquez later defaulted under
the promissory note. On August 29,
2008, Deutsche executed a substitution
of trustee pursuant to statute. The
substitution of trustee was recorded on
September 12, the same date that the new
trustee recorded a notice of trustee’s sale.
Affirms Position of Arizona
Bankers Association
By Brad Vynalek, Quarles & Brady LLP
A recent Arizona Supreme Court opinion that the recording of an
assignment of deed of trust is not required prior to the filing of a notice of
trustee’s sale has affirmed the position advocated by the Arizona Bankers
Association. The Opinion was offered in the case of Vasquez v. Saxon
Mortgage, Inc.
On October 29, an agent of Saxon
Mortgage executed an Assignment of the
Deed of Trust, assigning all its beneficial
interest to Deutsche Bank. The document,
recorded on November 7, stated the
assignment was retroactive to August 11.
Eventually, Ms. Vasquez filed for
bankruptcy protection. During the
course of the proceedings, she argued the
notice of trustee’s sale recorded by the
new trustee was invalid because Saxon
Mortgage did not record an assignment
of the deed of trust prior to the recording
of the notice of trustee’s sale.
Given the importance of the issue, the
Bankruptcy Court certified two questions
to the Arizona Supreme Court – (1)
Was the recording of an assignment deed
of trust required under the above circumstances;
and (2) Must the beneficiary of
a deed of trust being foreclosed have the
right to enforce the second obligation
The Bankers Association was
represented in the supreme Court
proceedings by the Quarles & Brady
law firm, which filed an Amicus
Curiae brief on behalf of the association
and the Greater Phoenix Chamber of
Commerce. The Quarles & Brady legal
team was made up of attorneys Brad
Vynalek, Brian Howie, Mike Catlett and
Susan Boswell.
According to Mr. Vynalek, if the
Court had ruled that such assignments
were required, “it potentially could have
at a minimum disrupted many residential
and commercial foreclosures underway
in Arizona and added a new layer of
administration for lenders, as well as
undermined portfolio assignments.”
In its unanimous opinion, the Court
held that the Arizona statute requiring
a notice of trustee’s sale to be recorded
“does not require that an assignment
of a deed of trust be recorded before
recording the notice of trustee’s sale.”
The Court added: “While the failure to
record an assignment of deed of trust
might leave an assignee unprotected
against claims by some purchasers or
Arizona Banker ⏐ November/December 2011 11

creditors, it does not affect a deed’s validity as to the obligor.”
Concluding that an answer to the second question was unnecessary,
it declined to answer it.
Even with the ruling, the Quarles & Brady team has
recommended that, where possible, an assignment of deed
of trust be recorded as early as possible to avoid any issues
with competing creditors or purchasers. “The key is to have
all documents in order and to be able to show a chain of title,”
added Mr. Vynalek, “and ideally all of that should be resolved
before a possible bankruptcy filing.” If the assignment is not
recorded, however, a subsequent trustee’s sale will no longer
be subject to challenge based on the failure to record an
assignment of deed of trust in at least situations involving
promissory notes endorsed in blank. w
n president’s message — continued from page 4
2012 will also be the first election with the newly configured
congressional and state legislative districts that flow
from the decennial census. As I write this column, Arizona’s
commission redistricting structure is being stress-tested
by the governor exercising her constitutional authority to
replace members, and a probable federal court challenge to
the final maps. How this may impact the make-up of our
congressional delegation and state legislature is uncertain.
What is certain is that it will provide a lot of excitement
along the way.
Stay tuned, and have a great holiday season. w
Brad Brian Mike Susan
Vynalek Howie Catlett Boswell
It is my honor to serve this great industry. My aim is to serve as your resource;
I may be reached at phickman@azbankers.org or 602.258.1200.
Quarles & Brady LLP is a full-service law firm that specializes in all aspects of
financial services and bank representation, ranging from loan enforcement/
litigation to bankruptcy/restructuring and real estate transactional work. For
more information, you can contact Brad Vynalek at 602-229-5261 or brad.
vynalek@quarles.com.
Talk to Power.
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12 www.azbankers.org

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OMG! We Own What
By Patricia E. Nolan and Jonathan A. Bennett, Gammage & Burnham
Imagine you recently foreclosed on
10 acres of land and visit it to see just
what you now own. You discover that
the property is as shown on the above
map —but not vacant as you had thought.
Instead, there is a building, half of which
is located on your property and half
of which is located on a neighboring
property. What could have been done
to prevent this sad discovery and what
can you do now This was precisely the
situation recently encountered by one of
our clients.
When underwriting a nonresidential
real estate-secured loan,
you should require your borrower to
provide an ALTA survey. That survey
should include the following Table
A items from the Minimum Standard
Detail Requirements for ALTA/
ACSM Land Title Surveys in order to
determine the existence of possible
encroachments: 8, 10, 11(b), 16 and 17. See
http://www.alta.org/forms/download.
COUNSELOR’S CORNER
cfmformID=338&type=word for an
explanation of these items.
You should also request that the title
company, in addition to issuing your
lender’s title policy, also issue ALTA
Endorsement 9.3-06, commonly known
as the Comprehensive endorsement,
which will insure you against, among
other things, any encroachment of existing
improvements located on the Land
onto adjoining land or any encroachment
onto the Land of existing improvements
located on adjoining land.
With the survey, you should know
of any encroachments onto (or from)
the property, and your title policy, with
the comprehensive endorsement, which
should protect you from any encroachments
that do not appear on your survey.
But what if the building was constructed
after you made the loan If the
building was constructed by your borrow-
er, then your borrower was trespassing
on his neighbor’s property and so are you.
You may ultimately be required to move or
demolish the building.
If, however, the building was constructed
by the neighbor, then he is
trespassing on your property and, by
means of adverse possession, could eventually
claim title to the property that is
beneath the building, leaving you with an
oddly shaped parcel and less land than
you thought. You have several options
to deal with the neighbor’s encroaching
building, including: (i) do nothing
(though any future buyer of the property
may not be happy with this option and
you won’t be able to deliver clean title);
(ii) give the neighbor written permission
to encroach on your property (countering
any adverse possession claim); (iii) ask the
neighbor to move it; and (iv) take action
pursuant to Arizona’s quiet title statutes,
A.R.S. §§ 12-1101 et seq., by sending the
neighbor five dollars and a quit-claim
deed that includes his waiver of any claim
to possession. If the neighbor signs and
returns the quit-claim deed, you no longer
have to worry about the potential adverse
possession consequences and should be
able to tear down the portion of the building
that is on your property, so long as you
adequately protect the rest of the building
from destruction. If the neighbor ignores
your request for the quit-claim deed, you
may have to pursue a quiet title action
but the neighbor should ultimately be
responsible for your costs and attorneys
fees incurred in that litigation.
For help reviewing your title commitments,
title policies and surveys, please
give us a call. w
Patricia E. Nolan is a partner, and
Jonathan A. Bennett an associate of
Gammage & Burnham. Pat s areas
of practice include real estate and
commercial transactions, while Jon
does real estate, commercial finance
and transactions. For more information
you can contact Pat directly
at (602) 256-4426 or pnolan@
gblaw.com. You can reach Jon at
(602) 256- 4408, jbennett@gblaw.
com. Gammage & Burnham is a full
service law firm serving the Arizona business community
since 1983.
Arizona Banker ⏐ November/December 2011 15

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Accounting | Assurance | Tax
Consulting | Regulatory compliance | Information security
Noticeably Different.
16 www.azbankers.org

In just a few short weeks on January
9, the Fiftieth Arizona Legislature
will convene for the Second Regular
Session. Since the close of the First
Regular Session in April, it has been
unusual Arizona politics, as usual.
After the recall, the Senate was forced
to elect a new member for the body’s
top post, and elected Senator Steve
Pierce. Pierce has been in the Senate
since 2009 and, like Speaker Tobin,
represents Legislative District 1.
Under the
Copper
Dome
BY Stacey Langford, AzBA
Despite being
an off-year
for legislative
elections, the
House and Senate
will both convene
in January under
new leadership
Despite being an off-year for legislative
elections, the House and Senate
will both convene in January under new
leadership. Shortly after the close of
the First Regular Session, then House
Speaker Kirk Adams resigned in order
to run for Congress. Adams is vying for
the open congressional seat being vacated
by Congressman Jeff Flake in his
bid for the US Senate seat being vacated
by Senator Jon Kyl. The House members
elected Representative Andy Tobin to
replace Adams as Speaker of the House.
Tobin is a business-friendly Republican
from Legislative District 1, which
encompasses Prescott and the surrounding
area. Tobin has served in the
House since 2007 and as the Majority
Leader for the 2011 Legislative Session.
Controversy involving the state’s
redistricting process has also dominated
the political news in the interim. In
order to adjust for population shifts and
growth, every ten years the Independent
Redistricting Commission (IRC)
is tasked with redrawing the state’s
legislative and congressional district
boundaries. This year, the Commission
also needed to provide for an additional
ninth Congressional district due to
population growth since the last census.
The drama surrounding this redistricting
effort has been ongoing from the
earliest steps, and continues as this
magazine goes to print. It began with
the selection of the commissioners, carried
through the initial map proposals
and is continuing with the ousting of the
As the Arizona Bankers Association prepares
for the upcoming legislative session, we are
busy meeting with other trade associations
and business lobbies to discuss and compare
legislative agendas.
In an historic move, Senate President
Russell Pearce had his time as
leader abruptly cut short. After a
November 8 special election, Pearce
became the first sitting Senate president
in the nation and the first Arizona
legislator to lose a recall election. The
voters of Legislative District 18 (Mesa)
replaced Pearce with Republican political
newcomer, Jerry Lewis. Pearce
catapulted into the national spotlight
as the author of SB 1070 and continued
his immigration-hawk reputation by
authoring other controversial measures
aimed at stemming illegal-immigration.
IRC chairwoman by the Governor and
Senate in November and, shortly following,
the order to reinstate the chair from
the Arizona Supreme Court. When the
ink does dry on the map, the result will
inevitably reshape Arizona politics for
the coming ten years. Some legislative
seats will be lost due to combining or
overlapping of existing districts, some
districts will become more competitive
and other districts will more strongly
favor one party over the other.
As the Arizona Bankers Association
prepares for the upcoming legislative
Arizona Banker ⏐ November/December 2011 17

The political challenges facing AzBA in recent sessions should be expected
in 2012, but members can also expect to be represented with top-tier
government relations to waylay harmful legislation, promote legislation
aimed at economic recovery and build favorable relationships with elected
officials in an effort to rebuild the banking brand within the state.
session, we are busy meeting with other trade associations
and business lobbies to discuss and compare legislative
agendas. We are also hearing from legislators directly as they
begin to formulate their individual legislative agendas to serve
the needs and concerns of their constituent base. The number
of issues discussed and debated at the State Capitol that
impact the banking industry has substantially increased in
recent years and legislation that threatens banks’ ability to do
business in Arizona has come from both sides of the political
aisle. The political challenges facing AzBA in recent sessions
should be expected in 2012, but members can also expect to
be represented with top-tier government relations to waylay
harmful legislation, promote legislation aimed at economic recovery
and build favorable relationships with elected officials
in an effort to rebuild the banking brand within the state.
ON THE HILL
Dodd Frank Act Implementation Update
The Dodd-Frank Wall Street Reform and Consumer Protection
Act (P.L. 111-203) authorizes over 300 potential rules
to be issued by the various financial regulatory agencies of
the federal government. The Arizona Bankers Association’s
most recent analysis indicates that 64 final rules have been
promulgated; 25 interim final rules have been issued; 171
rules have been proposed; and 15 proposed rules are currently
open for comment. (Source: Federal Reserve Bank of
St. Louis, Reg Reform Rules, 2011. 20 November 2011 ).
The Municipal Advisors Rule
The Arizona Bankers Association opposes the Securities
and Exchange Commission’s (SEC) proposed rule for the registration
of municipal advisors. As currently proposed, the rule
would label as “municipal advisors” banks and many bank employees
providing essential and traditional banking services
to their local municipalities, including day-to-day deposit,
cash management, custody, trustee, and lending services.
Banks and their employees are already strictly regulated by
federal banking regulators with respect to all of their activities,
including the services they provide to municipalities. We
believe that this rule will fall hardest on small and rural community
banks that could refuse to bank municipalities rather
than incur the significant costs and regulatory burdens of registering
their rank and file bank employees with the SEC. In
this respect the proposed rule may also create an unintended
consequence for municipal entities who may find themselves
unable to continue banking at their local community banks.
The Arizona Bankers Association wrote to the Chairman of
the Securities and Exchange Commission expressing its reservations
about the proposed rule earlier this year.
Federal Legislative Highlights
The Arizona Bankers Association strongly supports the
Financial Institutions Examination Fairness and Reform Act
(S. 3461), introduced by Representatives Shelley Moore Capito
(R-W.Va.), Carolyn Maloney (D-N.Y.) and co-sponsored by our
own David Schweikert (R-Ariz.). Among other things the bill
would require timely examinations from the regulatory agency’s
examiner with no exam to last longer than nine months,
and examination reports to be issued within 60 days of the exit
interview. The bill articulates, and would require adherence to,
clear exam standards. Finally, and perhaps most significantly,
the bill would create an independent ombudsman to review
exam policies and investigate complaints; and an administrative
appeals process with an independent administrative law
judge structure. The legislation was introduced in the House
in mid-November and we believe its prospects for passage and
enactment look good.
The Arizona Bankers Association also strongly supports
bipartisan legislation introduced by Representatives Jim Himes
(D-CT) and David Schweikert (R-Ariz.) to raise the current
shareholder threshold for Securities and Exchange Commission
registration from 500 to 2000 shareholders. This legislation
would make it significantly more cost effective for small and
community banks to raise capital without triggering costly and
time consuming SEC registration requirements. This will allow
these banks to attract the capital they need for small business
lending, which is extremely important in states like Arizona
with a high proportion of small businesses. This legislation
passed the House 420-2 in early November. Concurrent Senate
legislation has been introduced by Sens. Mark Pryor (D-Ark.)
and Kay Bailey Hutchison (R-Texas). Given the very large
margin of approval in the House, we are optimistic the Senate
version will be approved early next year. w
18 www.azbankers.org

AzBA strives to deliver timely industry news. For up to the minute information, visit
AzBA’s homepage at www.azbankers.org.
Latest Quarterly Banking Profile Indicates
FDIC-Insured Institutions Earned $35.3 Billion
Commercial banks and savings institutions insured by
the Federal Deposit Insurance Corporation (FDIC) reported
an aggregate profit of $35.3 billion in the third quarter of
2011, an $11.5 billion improvement from the $23.8 billion in
net income the industry reported in the third quarter of 2010.
This is the ninth consecutive quarter that earnings registered
a year-over-year increase.
“We continue to see income growth that reflects improving
asset quality and lower loss provisions,” said FDIC Acting
Chairman Martin J. Gruenberg. “U.S. banks have come a long
way from the depths of the financial crisis. Bank balance
sheets are stronger in a number of ways, and the industry is
generally profitable, but the recovery is by no means complete.
“Ongoing distress in real estate markets and slow growth
in jobs and incomes continue to pose risks to credit quality,”
Acting Chairman Gruenberg added. “The U.S. economic
outlook is also clouded by uncertainties in the global economy
and by volatility in financial markets. So even as the banking
industry recovers, the FDIC remains vigilant for new economic
challenges that could lie ahead.”
Financial results for the third quarter and the first nine
months of 2011 are contained in the FDIC’s latest Quarterly
Banking Profile, which was released November 22, 2011. Also
among the findings:
Loan portfolios grew slowly for a second consecutive
quarter. Loan balances posted a quarterly
increase for the second quarter in a row and for only the
third time in the last 12 quarters.
Large institutions again experienced sizable
deposit inflows. Deposits in domestic offices increased
by $279.5 billion (3.4 percent) during the quarter. Almost
two-thirds of this increase ($183.8 billion or 65.8 percent)
consisted of balances in large noninterest-bearing transaction
accounts that have temporary unlimited deposit
insurance coverage.
The number of institutions on the FDIC’s “Problem
List” fell for the second quarter in a row. The
number of “problem” institutions declined from 865 to 844.
This is the second time since the third quarter of 2006 that the
number of “problem” banks has fallen.
The Deposit Insurance Fund (DIF) balance continued
to increase. The DIF balance — the net worth of the fund
— rose to $7.8 billion at September 30th from $3.9 billion at June
30th. Estimated insured deposits grew 3.6 percent in the third
quarter. Much of this increase is attributable to the growth in
balances exceeding $250,000 in noninterest-bearing transaction
accounts, for which the Dodd-Frank Act temporarily extended
unlimited insurance coverage through the end of 2012.
The complete Quarterly Banking Profile is available at
http://www2.fdic.gov/qbp on the FDIC Web site.
OCC Releases Status Report on Fixing Deficient
Foreclosure Practices
The Office of the Comptroller of the Currency (OCC) issued
a report November 22, 2011 on the actions by 12 national
bank and federal savings association mortgage servicers to
comply with consent orders issued in April 2011 to correct
deficient and unsafe or unsound foreclosure practices.
The report, “Interim Status Report: Foreclosure-Related
Consent Orders,” summarizes progress on activities related to
the independent foreclosure review announced November 1,
2011, as well as other activities to enhance mortgage servicing
operations, strengthen oversight of third-party service providers
and activities related to Mortgage Electronic Registration
Systems (MERS), improve management information systems,
assess and manage risk, and ensure compliance with applicable
laws and regulations.
While much of the work to correct identified weaknesses
in policies, operating procedures, control functions, and audit
processes will be substantially complete in the first part of
2012, other longer term initiatives will continue through the
balance of 2012.
Consumer Financial Protection Bureau aims to
shed light on the private student loan industry
The Consumer Financial Protection Bureau (CFPB) is seeking
information from students, schools, industry, and other
stakeholders on the private student loan market. The CFPB
published a Notice and Request for Information to collect
data on a series of issues impacting private student loans from
origination to servicing to collection.
“The private student loan market is one of the least understood
consumer credit markets. It has been operating in
the shadows for too long,” said Raj Date, Special Advisor to
the Secretary of the Treasury on the CFPB. “Shedding light
n industry updates — continued on page 25
Arizona Banker ⏐ November/December 2011 19

De Rito Partners, Inc is a full-service retail brokerage operation with 27
seasoned brokers. Specializing in property leasing & currently
representing over 210 retail shopping centers & over 60 national & local
retailers. In addition, we specialize in brokering land & investment sales
state-wide.
De Rito Partners Development, Inc specializing in creating
extraordinary retail environments. With more than five million square
feet of retail property completed, our retail development team has
delivered outstanding results for shoppers, merchants, and investors.
Currently redeveloping 1.1 million square feet at The Pavilions At Talking
Stick.
De Rito Opportunity Investors, LLC recently purchased 18 new
properties, with plans to add 4 - 8 this year. Offers individually tailored
retail property solutions and specializes in acquisitions of distressed
properties and value added opportunities.
Case, Huff & De Rito Retail LLC offering premier-quality property
management services for retail properties of any size.
De Rito Partners, Inc - Stan Sanchez
De Rito Partners Development, Inc - Chuck Carlise
De Rito Opportunity Investors, LLC - Gary Case & Tim Huff
The Pavilions at Talking Stick - Matt Morrell
www.derito.com
www.ThePavilionsAtTalkingStick.com
480-834-8500
3200 E. Camelback Road, Suite 175
Phoenix, AZ 85018

committeenotes
The Arizona Bankers Association invites committee participation in
the areas of CRA, Compliance, Fraud & Security, Human Resources,
Government Relations and Trust. Please contact Jan Arredondo at
jarredondo@azbankers.org or 602/258-1200 for further information
on committee activities and involvement.
The AzBA Compliance Committee chaired by Colleen
Dorian-Tharp of Meridian Bank met on Tuesday, November
8th at the University Club of Phoenix, closing out the year
with a Risk Assessment review focusing on fair lending.
Favorite compliance guru Dave Jaede summarized practical
and effective policies and procedures to improve the
likelihood of securing a successful regulatory review. The
committee meets quarterly with timely presentations on
all nature of compliance issues along with networking and
information sharing opportunities. All member bank compliance
professionals are encouraged to participate.
chaired by Fred Ferguson of The Harris Bank meet on the
first Tuesday of each month for an information sharing
round table. These sessions provide Fraud and Security
officers from throughout the state the opportunity to
share vital industry information in addition to frequent
presentations from law enforcement and representatives
from leading technical companies. The November 1 meeting
featured a presentation by Mr. Tom Marquoit, a prosecutor
with the Maricopa County Attorney’s office, who
addressed best practices for preparing fraud cases. The
December 6 meeting will be held at Arizona Bank & Trust,
2036 E. Camelback Rd. at 9:00 a.m.
Be sure your fraud and security personnel are registered
for access to Fraud-Net. Contact Jan Arredondo at
602/258-1200 or jarredondo@azbankers.org for information.
Fraud-Net is an invaluable tool in your institution’s
battle to prevent fraud, identity theft and robberies.
Fraud-Net is provided free of charge to all Arizona Bankers
Association member institutions. w
The AzBA Fraud Committee, chaired by James Huston
of JPMorgan Chase, and the AzBA Security Committee,
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Arizona Banker ⏐ November/December 2011 21

Tax Deductible Deposits. Tax-free Gifting. High Contribution Limits. FDIC Insurance.
All possible with a 529 college savings plan, through your bank.
As a Program Manager of the Arizona Family College
529 Savings Program (AFCSP), College Savings Bank
has the experience and well-focused product line to add
strength and security to your client’s portfolios. Your clients
can take advantage of:
• Tax-advantaged CD options to shape a savings strategy
to fit your clients’ needs
• Principal protection on each CD from College Savings Bank
• CDs are FDIC-insured up to $250,000 per depositor
• Arizona taxpayers are entitled to a state income tax
deduction of $750 for singles or $1,500 for those married,
filing jointly based on contributions to the AFCSP
And the benefits don’t stop there: your bank will receive a
commission ranging from 0.15% to 2.4% on contributions,
and all of the marketing, enrollment and promotional
material will be provided—free of charge.
You can become a part of Arizona’s State-sponsored
529 plan and help your clients complete their college
savings portfolio with the AFCSP.
Join Arizona banks now offering the AFCSP by contacting
Jason Thielman, Vice President of Business Development
for College Savings Bank at 1.800.777.7927 or email
jason.thielman@collegesavings.com.
© 2011 College Savings Bank, a Pacific LifeCorp Company. Member FDIC. All rights
reserved. Before investing in any 529 plan, you should consider the benefits of your
home state’s 529 plan. It may provide taxpayers with state tax and other benefits that
are only available through your home state’s 529 plan. You should also consult your
financial, tax, or other advisor to learn how state-based benefits (or limitations) would
apply to your specific circumstances. You also may wish to contact your home state’s
529 plan[s], or any other 529 college savings plan, to learn more about those plans’
features, benefits and limitations. Keep in mind that state-based benefits should be one
of many appropriately weighted factors to be considered when making an investment
decision. Early withdrawal tax penalties apply and non-qualified withdrawals are taxable.
Read the Plan Disclosure Statement carefully before you invest or send any money. The
Arizona Family College Savings Program is not insured by the State of Arizona. Neither
the principal invested nor the investment return is guaranteed by the State of Arizona.

ankers
on the
move
Deborah Bateman, National Bank of Arizona, promoted
to Director of Wealth Strategies
Jeremy Hodgson, First Scottsdale Bank, hired as Vice
President of Business Banking
Stephen Monyer, Meridian Bank, hired as Vice President
Jesse Shetlar, Mutual of Omaha Bank, promoted to
Commercial Relationship Manager - Scottsdale
Larry Stangler, First Scottsdale Bank, hired as Senior
Vice President of SBA lending
Gene Williams, Comerica Bank, hired as Vice President
and Private Banking Officer
Gavin Hallock, Mutual of Omaha Bank, promoted to
Community Bank Manager - Gilbert
Congratulations Arizona Graduates of
the Graduate School of Banking, Colorado (GSBC)
& Pacific Coast Banking Shool (PCBS)!
KUDOS
The Graduate School of
Banking at Colorado (GSBC)
is pleased to announce the
graduation of two bankers
from Arizona as part of the
Class of 2011! The graduates
include: Donald Satiroff
(BMO Harris Bank-Phoenix)
and Jennifer Higgins
(Sunrise Bank of Arizona-Phoenix).
A total of eight Arizona bankers attended
the 61st Annual School Session this year
including the following first and second year
students: Spencer Barlow (FirstBank of
Arizona-Surprise); Jonathan Batt (M&I Bank-
Phoenix); Travis Hice (The Foothills Bank-
Yuma); Tyson Leyendecker (Arizona Bank &
Trust-Chandler); Sergio Martinez (M&I Bank-
Goodyear); and Joseph Shumway (Firstbank
Holding Company-Gilbert).
GSBC is America’s Premier Community
Banking School and prepares students to
take on senior management roles within their
organization. Over the 25-month course of
the School, students are required to complete
six intersession research projects, on-campus
coursework two weeks each summer, exams,
and a bank management simulation.
GSBC will hold the 62nd Annual School Session
July 15-27, 2012 on the beautiful University
of Colorado campus in Boulder, Colorado. For any
further information about the School, please visit www.
GSBColorado.org or call 800-272-5138. Again in 2012,
AzBA and GSBC are offering a scholarship to
attend the 2012 session! Email Stacey Langford
at slangford@azbankers.org to apply before the
March 15 deadline!
Pacific Coast Banking School (PCBS) is pleased to
announce four graduates from the State of Arizona. These
executives completed the three year PCBS graduatelevel
program focusing on risk management, financial
performance and leadership education in the financial
services industry. Participants attend a two-week resident
session each August on the University of Washington
campus in Seattle, Washington, and complete five written
extension assignments including an original management
thesis. PCBS granted Certificates to the following
bankers on September 2, 2011 at a ceremony on the
University of Washington campus: Julia L. Dollarhide
(Biltmore Bank of Arizona ~ Phoenix), Attila T. Rigo
(Wells Fargo ~ Phoenix), Mark A. Roberts (Alliance
Bank of Arizona ~ Anthem), Heath M. Scheid (Wells
Fargo ~ Phoenix).
This year’s graduating class consisted of 123 individuals
representing a diverse mix of financial institutions from
eighteen states and one American territory. Twenty-one
high-achievers were named to the honor roll, including
Mark A. Roberts from Alliance Bank of Arizona.
Arizona Banker ⏐ November/December 2011 23

Yeah. You’re a little
pumped.
Is 6 enough
24 www.azbankers.org

n industry updates — continued from page 19
on this industry will benefit students, lenders, and the market
as a whole.”
The CFPB is asking the public, students, families, the
higher education community, and the student loan industry
– both lenders and servicers – to provide information on this
financial product voluntarily. The CFPB is interested in a complete
picture of private student lending, so it is seeking a broad
swath of information to assist with preparation of a report to
Congress on private student lending. The Dodd-Frank Wall
Street Reform and Consumer Protection Act requires the CFPB
and the Department of Education to produce this report by
July 21, 2012. The CFPB will also use the information it gathers
to prioritize its own regulatory and education work. w
Your accounting
firm has its
priorities.
Is your bank
one of them
(480) 444-3424
www.mossadams.com/financialservices
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Acumen. Agility. Answers.
529 College Savings Plans
College Savings Bank....................................................... Page 22
Accounting
Larson Allen LLP.............................................................. Page 16
McGladrey....................................................................... Page 24
Moss Adams, LLP............................................................. Page 25
Architects/Consultants
HTG Architects................................................................ Page 16
Banking Equipment and Security Services
Dakota Security Systems................................................... Page 2
Brokerage/Receiverships
De Rito Partners.............................................................. Page 20
R.O.I. Properties................................................................ Page 8
Education
Pacific Coast Banking School.......................................... Page 28
Insurance
Berkshire Hathaway Homestate Companies.................. Page 16
Law Firm
Engelman Berger, PC....................................................... Page 24
Gammage & Burnham..................................................... Page 27
Greenberg Traurig, LLP................................................... Page 14
Jones & Keller.................................................................... Page 3
Schneider Wallace Cottrell Brayton Konecky, LLP............ Page 8
Stinson Morrison Hecker LLP............................................ Page 5
Marketing
Sherri May & Company................................................... Page 10
Merchant Services
World Pay........................................................................ Page 21
Property Management
Case Huff & Associates................................................... Page 13
Arizona Banker ⏐ November/December 2011 25

AzBA for Your Training Needs
One of a bank’s most expensive and valuable
assets is its employee base. Keep yourself
and those around you educated and informed
by utilizing AzBA’s educational opportunities. We offer the
following programs as part of our expanding educational
catalog:
AIB Online Courses, Correspondence, Diplomas &
Certificates
Annual Convention & Meeting
Conferences—Fraud/Security, Directors College
Graduate School of Banking at Colorado & Pacific Coast
Banking School Diplomas
Webinars, Webcasts, and Tele-seminars offered monthly
Workshops—BSA/AML, Deposit Documentation, IRA
Essentials, and more!
More detailed information on each of our programs can be
found at www.azbankers.org. Our goal is to fulfill your training
needs; we welcome your feedback and input.
Program Spotlight:
Winter 2011/2012 Events
CEO & Bank Directors College Wrap-up
AzBA proudly hosted another successful CEO & Bank Directors
College on Thursday, October 27 at The Ritz-Carlton, Phoenix.
Thank you to our attending member bankers and directors along
with sponsors McGladrey, Jones & Keller, Harland Clarke,
Engelman Berger, ROI Properties, Predictive Index, Empire
West Title Agency, Gammage & Burnham, Gallagher & Kennedy,
Moss Adams and DeRito Partners. Topics included the
ethical implications of walking away from a home, board governance,
trends in talent, a panel discussion on M&A activity, and
an economic outlook for the next year. Thank you to keynote
speakers Marianne Jennings and Stephen Happel!
AML & BSA Compliance Seminar: January 10, 2012
Join Professional Bank Services and the Arizona Bankers Association
on January 10 for a complete regulatory update including:
Electronic Submission and Revisions of BSA Forms; Money
Services Businesses; CISADA Information Requests; Suspicious
Activity Report (SAR); Cross Border Electronic Transmittal of
Funds (CBETF); and more! For more information or to register,
visit www.azbankers.org. w
Welcome New Associate Members!
ATC Associates, Inc.
Julie M. Powers
9185 South Farmer Avenue, Suite 111, Tempe, AZ 85254
Email: julie.powers@atcassociates.com
Website: www.atcassociates.com
ATC is an environmental consulting company that provides
environmental due diligence services to the banking industry.
Due diligence services include: Phase I Environmental Site
Assessments (ESAs); Transaction Screens; Desktop Reviews;
Asbestos Surveys; Lead Paint inspections; Indoor Air Quality
(IAQ); Asbestos and Lead Paint Abatement Oversight; Mold
Investigations; and Property Condition Assessments (PCAs).
ATC also provides other services such as health and safety,
materials testing and geotechnical services.
Young & Associates, Inc.
John Fahrendorf, Executive Vice President, Western Region
121 East Main Street, P.O. Box 711, Kent, OH 44240
Office: 602.321.9463
Cell: 602.321.9463
Email: jfahrendorf@younginc.com
Website: www.younginc.com
Young & Associates, Inc. has provided consulting, outsourcing,
and educational services to community financial institutions
nationwide and overseas since 1978. Our products and
services cover all the major areas of banking, such as risk
management, capital planning, strategic planning, mergers and
acquisitions, branching and expansion, internal audit, lending
and loan review, information technology, human resources,
and regulatory compliance. We are committed to offer
practical solutions to our clients’ needs that will improve bank
profitability, increase shareholder value, reduce the regulatory
burden, and improve bank/regulatory relations.
26 www.azbankers.org

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