Part II: The Half-Billion Dollar Wealth Transfer in the SchoolsFirst FCU Merger

Why Should Credit Unions Care?

Read Part 1 here.

Mergers of sound well run credit unions are a fact of life in the cooperative system.  So why should the $2.1 billion mega-merger of Schools Financial and the $16.1 billion SchoolsFirst be an issue?

I believe the circumstances and specifics of this merger highlight in ways that smaller combinations do not, the threat these transactions represent to an independent system of cooperative financial institutions in the American economy.

Credit unions have a federal and many  state income tax exemptions because they are supposed to be creating an alternative to the purely for-profit practices of other consumer options. Cooperatives are designed around certain premises including self-help, self-finance and self-governance.  Member-owners are loyal, over and above the economic benefits, because the institution belongs to them and  future member-owners.

Once these fundamental facts are debased by agents who pay lip service to principles but act from personal and institutional self-interest, then the boundary lines between for-profit and coops is blurred, if not lost.

Factual Basis Missing From Merger Process

While not entirely unique, the size of the SchoolsFirst merger dramatizes the failures of the current merger process to disclose and to protect members interests.  A few of the critical omissions are:

  • The failure to mention any aspect of the approximate $540 million wealth transfer;
  • The absence of any description of the significant losses to the community in terms of business relationships, the setting of local lending and investment priorities and the consequent reduction in civic leadership;
  • The complete lack of any specific product, service or fee comparisons and changes that would be coming-whether gains and losses;
  • The conflicts with the senior management and the board negotiating their own ongoing roles and compensation versus the absence of any commitments for continuing or new services, programs and products from which the members would benefit;
  • The lack of any disclosure of alternatives considered and, if evaluated, why this merger was the option chosen.

These significant information gaps and subsequent post-merger announcements suggest a pattern of deception.

Given the public record and limited details provided, it is hard not to conclude that this combination is motivated more by the personal ambitions of two CEO’s and their boards, not from promoting the best interests of School Financials’ members.

Members Given 49 Days to Decide a Charter Cancellation

Today a new charter takes years, volumes of paperwork, financial  projections, organizers’ resumes,  and millions of donated capital to open the doors of a de novo credit union.  It seems contradictory, even absurd, that a CEO and board should ask members to give up a charter in less than 60 days from the public notice of October 23 to the December 12 final vote.  The timing prohibits any meaningful discussion.  Surely the process to surrender a charter granted and successfully managed since 1933 should warrant greater member dialogue and public scrutiny.

Lessons Learned

As other CEO’s and boards read about mergers similar to SchoolsFirst, these examples incentivizes behavior that contradicts both faithful stewardship and the priority of members’ wellbeing. Consultants now openly solicit engagements to show how CEO’s can enhance their benefits from mergers. Credit unions market their willingness to bargain with CEO’s where “like seeks like” to facilitate the sale of their leadership responsibilities.

Boards begin to feel  they must play the same game to protect their options or to preempt competitive intrusions in their markets.

The consequence is that instead of creating a cadre of cooperative leaders driving innovation for member benefit, the system is spawning a capitalistic, robber-baron CEO style that elevates institutional growth over member value.

These self-serving mergers  promote a stunted view of what cooperative leadership and collaboration looks like.  They adopt a simplistic view of success and a Neanderthal’s approach to change.

Cooperative growth opportunities are not being enhanced.   Rather myriad options for future innovation are shut down and the industry becomes more heavily concentrated in a small percentage of large institutions.  Industry risk becomes more concentrated.

The system does not grow its reach through mergers; it only reduces the diversity of credit union institutional models.  During the past decade the number of credit unions declined by 2,400 (virtually all by mergers) and shares grew at only  5.7%, an annual rate characteristic of a mature, if not stagnant, system.

The moral capital that the cooperative system created over the past century is being squandered by short term behaviors from executives unwilling to pursue long term member value creation.

The Arguments Back

  1. Everybody does it. Wrong, not everybody.  And if that were true, we should have had a much more public and active bidding process for not only this merger, but all mergers.  Instead CEO’s selectively seek  the best option for themselves, privately discuss the potential, and then negotiate in secret with the board’s blessing or indifference.
  2. The regulator approved this. Therefore, it must be all right.   Correct, NCUA and state regulators routinely sign off on actions even when shown that they violate any objective test of member benefit or due process.   The fact that the regulator can be, and often is incorrect or unknowing in its actions, does not mean an action is proper.

As in its financial management of credit union’s cooperative resources, the NCUA board’s oversight of mergers is squandering an inheritance that it does not value nor understand.

Instead of honoring the unique member-owner design and being the architects of a cooperative system, the NCUA board sees itself as just another banking regulator.

The NCUA’s merger process undermines any meaningful democratic choice for member owners; in fact, it promotes corruption by endorsing the self-interest of the initiators of these transactions.

Member voting is nothing more than a sham. A merger proposal has never been turned down by members.   This democratic fig leaf can no longer hide the naked ambition that animates these events.

The NCUA board lacks any respect for the member-owner cooperative system.  It does not grasp how credit unions differ from other financial institutions.   Even when given detailed examples of improper and self-serving mergers, the agency at the highest levels is unable to see the mistakes of its own making.

In sum, two wrongs do not make a right.

  1. I agree but these mergers are just the “way the world works.” This argument  reminds me a line from the play, Just Call me God.  In it the character observes, “The one thing I know about power is that the good never seek it.”

But the reality of the cooperative model is that one is not asked to stand alone.  The whole model depends on the realization that each credit union member, board and CEO is part of a whole.   That together, we uniquely contribute to a greater good.

We succeed not by acquiring but by collaborating, learning and then helping each other.

Similarly, this distortion of the cooperative system, will be ended when leaders say enough is enough.   Just as happened in the conversion from coops to mutuals and then to for-profit charters in the 1990’s.

Next Steps:

This SchoolsFirst merger is a prime example of how the community’s future is jeopardized when an individual’s ambitions or a credit union’s claim of superior capability is given priority over cooperative value and design.

It poses the question whether the cooperative system can correct its own excesses.  Will the future evolution just be a relentless pattern of bigger buying out the smaller?

This merger exposes multiple institutional failures within the cooperative system including: individual credit unions with leaders converting cooperative design to commercial ends; regulators who grasp neither purpose nor practice when faced with challenges; and,  fellow travelers trying to earn a living seeking the next big wave to take them to shore.

These factors suggest that  change may have to come from outside the system should credit unions be unable to learn from their own experience.   The fourth estate is always looking for aberrant behaviors; competitors seek examples of cooperative hypocrisy; and congress protects the public interest by highlighting the other party’s administrative failures.

The Action Called For

However, this charade of mergers ends or is transformed so members actually received the benefit they created, this is an important moment for those aspiring to future cooperative leadership.

A participant once caught in a similar historical dilemma commented: “I didn’t do anything wrong; But I didn’t do anything right.”   The difference is courage. Do believers in the specialness of cooperatives still exist?


Part I: The Half-Billion Dollar Wealth Transfer in the SchoolsFirst FCU Merger

Note: As background for this article, please see previous posts: How Can This Merger in the Members’ Best interests and What Credit Unions Can Learn from Bank Purchases

Largest Ever “Special Credit Union Dividend” of $540 Million Paid to Members on January 1, 2020

In a December 26 release to the credit union press, Schools Financial CU announced it was paying its members a special pre-merger dividend of $4 million before it completed combining with SchoolsFirst FCU on January 1, 2020.

What the announcement omitted was that the January 1, 2020 merger will also transfer over $540 million of the reserves and net worth of Schools Financial members to the Board and members of SchoolsFirst FCU.

Each Financial Schools member’s pro rata share of this transfer is  $3,420 versus the token $26 they were given upon approval of the merger.

This is the largest wealth transfer by the members of one credit union to another credit union’s control. The use and disposition of over a half billion dollars of common wealth created by the former member-owners of Schools Financial CU since 1933 is no longer theirs to determine.

How the $540 Million Wealth Transfer Occurs

In this merger of two sound, well-run credit unions, the terms called for the entire equity of Schools Financial CU to be transferred at par. The estimated year-end net worth based on the credit union’s announced 2019 ROA of 1.73% is $270 million. This becomes “equity acquired in a merger” and is added directly to the net worth of SchoolsFirst FCU.

In addition, under the accounting standards codification for “business combinations,” Schools Financials’ merged assets and liabilities assumed by SchoolsFirst are recorded at their fair values. To simplify the numerous calculations, prior year end audits certify that the assets of Schools Financial when “fairly presented” exceed the liabilities by the amount of the net worth, which would be the estimated $270 million reserves at December 31, 2019.

This excess of assets over liabilities acquired is recognized as income on the books of SchoolsFirst FCU. It is called a “bargain purchase gain” or “negative goodwill.”

The merger of two stable credit unions creates a wealth transfer similar to a credit union which makes a “whole bank purchase.” Unlike a bank purchase however, none of the shareholders’ equity is paid to the member-owners whose loyalty and patronage created the wealth. Nor is there any additional amount, that is a “premium” over book value, offered as would be expected in a purchase of a sound bank.

The Duties of Credit Union Directors

The fiduciary duties of credit union directors, established by NCUA rule and standard legal practice, are summarized in the following article:

The five key legal concepts relating to director responsibility and liability are excerpted in part below:

    1. Business Judgment Rule

The business judgment rule dictates that a court must presume a director based his or her decision on an informed and honest belief that the decision was in the best interests of the institution and members… To receive the business judgment rule’s presumptive protection, directors must inform themselves of all material information and then act with care.

    1. Duty of Care

Fiduciary duty of due care requires directors to use that amount of care which ordinarily careful and prudent persons would use in similar circumstances and consider all material information reasonably available when making business decisions.

    1. Duty of Loyalty

This duty forbids corporate directors from using their position of trust to further their own private interest (i.e. “self-dealing”)… Additionally, directors are required to act in an “adversarial and arms-length manner” when negotiating transactions between the corporation and the director.

    1. Duty of Good Faith

Breach of the duty of good faith occurs if the directors consciously and intentionally disregard their responsibilities, adopting a “we don’t care about the risks” attitude concerning a material decision. Moreover, deliberate indifference and inaction in the face of a duty to act epitomizes bad faith.

    1. Waste

Waste is defined as a director irrationally squandering asset. To prove waste, the plaintiff must establish that an exchange was so one-sided that no businessperson of ordinary, sound judgment could conclude that the credit union received compensation.

I believe each of these standards is relevant when assessing this transaction.

What the Members of Schools Financial Were Told About the Merger

The primary document provided members was an October 23, 2019 letter to members from the Board Chair. NCUA did not post the financials referred to in the letter so it is not clear how the financial combination was presented, or even if it would have been understood by a member if received.

The Chair’s letter states the merger was a result of a mid-2017 board decision to refocus the credit union’s “efforts upon educators on a state-wide basis.” One public announcement since that mid-2017 date was on January 22, 2019 in which the two credit unions in a joint press statement announced their intent to merge. The Chairman’s announcement of the member vote in October was the implementation of this January decision.

The letter to members is very general in its justifications. The most specific language was two pages of detail about the potential increase of compensation to be received by the CEO ($8 million of the total $9 million described) and five most senior managers as a result of the merger.

The letter did not state:

  • That the credit union’s accumulated wealth of over half a billion dollars would be transferred to another credit union’s control and use;
  • That the credit union’s resources would now be controlled by a board of directors for which no information was provided and is located over 400 miles from Schools Financial primary service area;
  • That the operating control of the credit union’s assets and shares would now be under the control of a management team about which no information was provided and which, like the board, is over 400 miles removed from the Sacramento membership;
  • Any immediate changes of rates on savings or loans that would occur as a result of the merger;
  • Any information about ongoing roles negotiated for Schools Financial’s Board of Directors;
  • Any commitments relating to products and services provided by Schools Financial that are not offered by SchoolsFirst such as Banking for Everyone Savings, business accounts or the shared branching outlets-“each to be evaluated to determine whether to continue or discontinue them after the merger;”
  • Any impact on Schools Financial’s field of membership granted by the State of California which according to the September 5300 Call Report covered up to 4 million potential members.

The members were urged to give up their independent charter and the direct control of their credit union’s resources and all future decisions in return for general promises of “improved financial benefits” and “to gain economies of scale to be able to compete with larger financial services companies.”

On this latter point about the benefits of scale, in the year-end special dividend announcement by Schools Financial, the full year’s ROA of 1.73% would be approximately double the industry average and .60 basis points higher than SchoolsFirst FCU which is eight times the size of the Sacramento based credit union.

Subsequent Announcements by Both Credit Unions

After the voting and special $4 million dividend were announced, the following information has been published by the credit unions on their websites after stating the merger was overwhelmingly approved:

  • The annual membership meeting of the newly enlarged SchoolsFirst FCU will be on May 19, in Tustin, CA approximately 430 miles from the location of the former office of Schools Financial CU.
  • The Nominating Committee of Schools Financial met on December 5th (one week before the December 12th Schools Financial member meeting to vote on the merger) and nominated two of the merged credit union board members to their board: Marie B. Smith who as Chair signed the merger letter, and Theresa Matista, another current board member approving the merger. The annual meeting notice also stated: “The election will not be conducted by ballot when there is only one nominee for each position to be filled. There will be no nominations from the floor.”
  • In a post-merger web announcement titled: An Exciting Time for Schools Financial Members,” Marie Smith, chair of Schools Financial stated: “I along with two other current Schools Financial CU Board Members will serve on the SchoolsFirst FCU Board of Directors. I look forward to our bright future and helping you and your family secure lasting financial security.” Apparently, the Nominating Committee didn’t get the same message for the December 5th nomination described only two board members from Schools Financial!
  • The letter also listed five potential fee reductions such as eliminating $8 incoming wire service fee. The post also reiterated the prospect of “improved savings rates and highly competitive interest rates on loans” but with no specifics.
  • In another section of the web: Returning to our Roots, Schools Financial, a division of SchoolsFirst FCU announces that their FOM is “exclusively open to current or retired school employees and their immediate families,” not the open community charter followed prior to the merger.
  • On the SchoolsFirst website, the FAQ about the merger includes the announcement that the credit union will open a new branch in the Sacramento area in the first half of 2020. But otherwise the credit union twice states, “most things will stay the same,” and again, “all products and services will stay the same.” One way to interpret this assurance is that the junior partner’s product and service profile will be conformed to that of the senior partner.

These after the fact disclosures illustrate the lack of transparency surrounding this $2.1 billion transaction. The assessment begun in May of 2017, triggering the joint merger press release in January 2019, which suggests the board had over two years to evaluate and to negotiate on behalf of the members. Yet the most detailed part of the letter to members concerns compensation to the CEO and senior managers, and no details of any potential benefits or losses for the membership.

Which raises the most important question, what options did the board consider and evaluate for the members’ best interest?

What Could $540 Million Endowment Contribute to the Sacramento Community

Separately from the issue of whether the board talked to or considered mergers with local credit unions such as Safe or Golden 1 to enhance the future for Schools Financial members, is whether the credit union even deliberated investing some or all of the wealth created by the members to benefit the future of the community which created this surplus.

Did the directors consider paying forward the reserves for helping the school districts and communities versus giving half a billion dollars to the control of a board and management whose primary responsibilities are rooted hundreds of miles away in a different part of the state?

What could a half billion-dollar fund do for the needs of the Sacramento educational community?

  • How might it help with affordable housing options for teachers to live closer to the communities they work in?
  • For scholarships to seniors from families that cannot afford to contribute to higher education expenses?
  • For teacher training especially in areas that fall outside the immediate priorities such as the arts, technical and vocational skills?
  • For equipment for schools that are short-changed versus wealthier districts in the allocation of funds for classroom technology or extracurricular sports?
  • For educational programs for those adults striving to get a GED or other certifications?
  • For pilot programs for encouraging and supporting new online educational options?
  • For reducing the college debt burden to hire new graduates for teaching careers so they do not have to worry about paying off loans?
  • For special grants to local community colleges and universities to underwrite innovations in educational experiences and curriculum?

With a 6% grant rate and a half billion-dollar fund, over $30 million could have been donated annually to benefit the community that created, supported, funded and made the credit union a force for good in the Sacramento area.

SchoolsFirst, the fifth largest credit union in the country, had the capital to absorb the credit union which would have allowed the credit union to transfer the wealth for the benefit of the community that created it in the first place. If the rejoinder is that the SchoolsFirst Board can now do the same work, one needs only look at the credit union’s track record to know that that is highly unlikely. For in the 2018 Annual Report, the $16 billion SchoolsFirst reports as follows: “In 2018 we partnered with local, national and global educational and credit union charities to give back in significant ways. We made more than $2 million in charitable donations including donations to local schools and colleges, Children’s Miracle Network, Hospitals, Habitat for Humanity and CUAid.”

Part II of this analysis will be posted tomorrow. It will address why credit unions should care about this wealth transfer and the circumstances which enabled it to occur.

Olan Jones: Born, Educated and Locally Grounded

Each year end brings the retirement of credit union leaders who have served a generation or more expanding the cooperative legacy. One such exit at Eastman Credit Union in Kingsport, TN is especially noteworthy.

Olan Jones is leaving an institution he guided for over 20 years. Today it is $5 billion in assets versus $600 million when he arrived. Its 820 employees serve 230,000 members at 30 employer and branch locations throughout the country.

 A Person of Purpose

The first two decades of Olan’s professional career were with Eastman Kodak and Eastman Chemical in corporate finance and human relations. Then came the switch to cooperatives.

While it would be important to single out the over 20 years of Eastman Credit Union’s sustained financial performance as CEO, what makes Olan’s contribution so special is his leadership qualities.

Even with 20 years in the corporate for-profit world, Olan believed in the unique contribution of the cooperative model. In our conversations he was curious about all things credit union. His final question in a call to me would be, who else might he ask about a topic such as “Are any credit unions actually utilizing big data analytics to improve their core understanding of their firm and make better decisions”?

“To Thine Own Self Be True”

In all my interactions, Olan’s “southern gentleman’s” personality was prominent. He was always courteous, calm and thoughtful. He welcomed all comers and made people feel at ease. No air of authority, but rather someone you want to have lunch with.

Olan calls it a “Southern Appalachian” manner. Born in Kingsport, TN, he is a life-long, all-in participant in numerous community educational institutions, economic development efforts, theatrical groups, and church and professional organizations in the east Tennessee and southwest Virginia regions of his FOM.

He always saw his responsibilities as much more encompassing than leading the credit union. One initiative he undertook was to deploy a community WiFi network in downtown Kingsport in the early era of the Internet revolution. Ultimately this community effort was ended when WiFi became ubiquitous.

He was active in many Tri-Cities community leadership roles and in financing public development projects. In the credit unions system, he served in volunteer roles with Filene, CUNA, NASCUS and the Tennessee League, to name a few. He also served on the Thrift Institution Advisory Council of the Federal Reserve Board.

A Manager’s Manager: A Service Culture

His combination of human resource and financial background propelled a multifaceted approach to organizational change that resulted in an 800% asset growth during his two-decade tenure.

He was an advocate for quality improvement processes (Deming) and project management. He sought 5-10% annual growth in the field of membership (FOM) as the area’s population was declining at 0.5% per year and the economy growing at only 1%. The company sponsor since 1936, was downsizing employment. By adding groups and counties to its field and becoming a one-stop shop, the credit union enjoyed strong annual earnings with double digit balance sheet growth during his stewardship.

He believed that empathy was key to effective customer service, not just great products. Creating a service culture, he realized, takes time and continual measurement. Once implemented, the credit union has achieved a net promoter score of 81-87% for over ten years. Better service creates better financial results was his operating logic.

He believed so strongly that lending was the critical credit union role that he once appeared at a staff meeting in a “Hair on Fire” wig to stress this urgency. Since the 1990s, the credit union was a pioneer in a non-government guaranteed, private student loans. He refocused lending on middle-class blue-collar members, not just higher paid senior executives. He introduced business lending and financing municipal development projects resulting in a $350 million portfolio.

The credit union shared its success with its member-borrowers by paying out $130M rebates over a 20-year period. Some business clients were so surprised with annual interest checks in the tens of thousands of dollars that they sent them back thinking there had been an error.

His Credit Union Spirit

Having lived in the corporate world of quarterly earnings-per-share expectations, Olan believes that serving members, not maximizing profits, is what undergirds credit union success. ECU found that the higher the annual member service rating, the stronger the financial performance. To everyone’s surprise, almost everything else that matters to financial performance got better as well.

He preached that ECU’s strategy of “maximizing service to members” both differentiates and gives the credit union a huge competitive advantage.

The smartest investment he made was in the credit union’s hiring and training program to maximize this service quality focus. He wanted to keep goals clear, simple and understandable. An employee bonus program of up to 20% of salary, is based 50% on loan performance and 50% annual member satisfaction rating.

Service quality excellence was recognized in the staff bonus combined to create the organization’s decades-long superior outcomes.

The yearly bonus dividend paid out more to members than the credit union would have paid should it have been subject to federal and state taxes. Instead these funds were reinvested immediately to enhance member’s lives and their communities.

Not Changing of the Guard, but Drawing from a Pipeline

Credit unions are unique in their ability to capitalize on local relationships. Olan’s leadership accomplishments stem from his deep, caring loyalty for his people, his community and his region.

His successor, Kelly Price, is from the credit union’s executive ranks. Just as Olan himself sprang from the local environment.

On October 14, 2019, Olan’s singular contributions to east Tennessee were recognized by the Speaker of the Tennessee House of Representatives in a formal proclamation reciting his lifetime of service to his home region.

For those who have not had the experience of meeting Olan, this video for his work with Junior Achievement will give you a first-hand picture of his personality.

Bob Minor: Mentor, Counselor, Volunteer and Friend for Over a Quarter of a Century

This week ends the tenure of Callahan’s longest serving board member, Bob Minor. He has been part of multiple organizational transitions including three changes of CEO leadership since being asked to serve, as a personal favor to me in the early 1990’s. This was a time when Callahan & Associates transitioned to become a leader in credit union analysis, strategy and collaborative initiatives.

Bob is a long-term Washington hand, having attended almost every Presidential inauguration starting with FDR’s second in 1936, a practice that ended with the current White House occupant.

He graduated with BA and MA degrees from George Washington University followed by career stops with quintessential Washington organizations: the CIA, Clark Construction Company, the National Education Association and the State Department. What tied all of these positions together was his lifelong interest in helping people make good decisions about their employment/career ambitions. These were often at critical transition points in the life of the organization or of the employee.

An Organized Committee Member

I first saw Bob’s skills as a member of the Columbarium Committee of the Chevy Chase Presbyterian Church in Northwest DC. We were tasked with evaluating whether a columbarium addition on the church grounds made sense, and if so, to carry out the proposal.

No member of the five-person group had first-hand knowledge for this project. But as we visited other church’s examples, talked with contractors and evaluated different options, everyone learned together. Bob’s vital contribution was that he kept meticulous records and understood how to succeed in the internal decision making within the church. He then played essential roles in the fundraising, construction and dedication, a time span of almost two years.

Seeing firsthand his ability to work within a committee as part of a larger organization, I asked Bob if he would volunteer on a new Callahan “Advisory” Board of Directors. Advisory, because at the time Callahans was a sole proprietorship, and all decision making and authority was mine.

I believed that if Callahans were to grow beyond the vision of a single person or team, we needed a governance/advisory process that would fill the director’s role required by most organizations.

The Rest is History

Bob and fellow board members, Randy Karnes, Rosemary Hardiman and Mark Elliott guided the company through the inevitable transitions any successful organization must navigate.

The single proprietorship became a 25% ESOP in 2003, followed by a management led purchase in 2014, and a 100% ESOP conversion in 2018. All these changes were new for us and required careful consideration. Bob was vital counsel in ongoing personnel successions including three CEO transitions. While internally focused these transformations took place at a time of unceasing change in the credit union system, Callahans reported on with its data, market share analysis, and editorial commentary.

Essence of a Volunteer: The Elder’s Role

Bob’s volunteer role was always positive. He provided continuity with firsthand knowledge of the company’s history and previous decisions. Staff members sought his counsel about their careers within Callahans or beyond. He was trusted by all to be impartial. His patience for circumstance reflected his deep respect for individual choice. His counsel was based on his wide-ranging experiences of public, government and non-profit employment.

As a member of Northwest FCU since his time as a CIA employee, he understood the potential for credit unions’ contributions and Callahan’s important role in the industry.

Unique, But Not Original

Bob’s service to Callahans is just one aspect of his life. He served as an elder, deacon, choir member and on multiple committees in his over 50 years membership at Chevy Chase Presbyterian Church. Through his decade long association with the career management consulting firm, Drake, Beam, Morin Inc., he advised and coached literally hundreds of persons in their career decisions.

Bob’s vital role at Callahans is that he understands, values and enhances relationships. After the striving and recognition that is so strong a motivation for many, Bob practiced the value that matters most in the end: how we treat our fellow human beings. And that is the reality that ultimately makes all organizations a success—or not.

In credit union land, Bob’s role was not original. The fiduciary and volunteer role of credit union directors can be a critical factor in their success and sustainability. Bob’s spirit can be amplified by thousands of examples in credit unions throughout the country. His departure is a reminder of how cooperatives depend on this dedicated stewardship and oversight. So, don’t wait to recognize this dedication at a retirement event; instead reach out and give your board a hug today!

How Can This Merger Be in the Members’ Best Interest?

Top 5 managers can gain $9.8 million additional compensation; 158,000 members will have one-time “special dividend” of $4.0 million if they approve merger

On October 23, 2019, the Chair of Schools Financial Credit Union sent a letter to all members saying the board and management had decided to merger the $2.1 billion Sacramento-based credit union with SchoolsFirst FCU($16.1 billion) in Orange County.

The seven-page summary can be found on the NCUA’s website.

CEO could benefit by over $8.0 million

Two full pages are used to describe potential additional compensation benefits for the five senior managers, the bulk of which would go to the CEO. His total of over $8.0 million includes potential severance pay and salary guarantees, a three-year bonus prospect of $1.2 million, accelerated vesting of the existing supplemental retirement plan and an amended split dollar life insurance retirement benefit. These additional payments are on top of existing salaries.

The 158,000 owners of the coop will receive an average of $25 from a $4.0 million “dividend”  paid from their common equity of over $260 million. Using the credit union’s average share balance of $11,453 and the pro-rata table showing payment by average account size, this would equate to a distribution rate of 15 basis points, or 0.15%.

This token “tip” to the members, as an incentive to vote for the merger, insults both their century-long loyalty and their trust in the cooperative.

In contrast to this $25 payment, each member’s actual share of the $260 million equity averages over $1,710. This “book value” does not recognize the real market worth of the credit union if goodwill, market presence and performance were priced in a true arm’s length transaction.

The true market value would be a 150-200% of book for a franchise with its 96-year history.

So why is this merger being proposed? Why should members be asked to give up their collective capital and the legacy of member contributions since 1933? What are they gaining in return, if anything? What other services and benefits will they surrender and what is the greater Sacramento community losing?

The front cover of the credit union’s 2018 Annual Report is headlined “Members First”. The cover has a picture of a couple who have been members since 1986 with the following quote:

ABC10 Teacher of the Month! “The personal attention and family atmosphere keep us banking at Schools Financial.”

This couple have been members longer than any of the five senior management beneficiaries of the merger have worked at the credit union. In fact, this proposed merger places members last!

I believe an objective review of the credit union’s public information describing its unique role and the sparse rationale in the member mailing clearly demonstrate that the only people gaining from this merger are the CEO and his four senior executives. They are receiving increased compensation while at the same time, giving up all the responsibilities of leadership.

What the members lose

The members lose control for how their $2.0 billion in collective resources and $260 million of equity are utilized for their own circumstances. They have no control for which unique products (e.g. a special 7% Banking for Everyone Savings, Senior Savers Club and business accounts) are retained, whether to continue participating in the 5,000 shared branching service centers or even which branches remain open.

Once the Sacramento-based charter is given up, the local community relations with realtors, car dealers, school districts, community organizations and media are now directed by managers located in Orange County overseeing $16 billion in their home market. There is no more local credit union elected leadership accountable for relationships with the Sacramento community.

Here is how the credit union currently describes this leadership in Sacramento:

Community & Education Outreach

Schools Financial Credit Union strives to be an active partner in our community. We recognize that practicing good Corporate Citizenship supports the Credit Union Philosophy of “People Helping People.” Furthermore, we aspire to help raise the overall level of social and economic well-being of those in our community through direct financial support and participation in public service activities, in addition to championing the education sector. The Credit Union is always looking for ways to better position us to reach out and serve — as only credit unions can — those people in greatest need of affordable financial services.

Abdication by the Board

One has to question why, if this project was fully considered, it was not discussed with members in the March 17, 2019 annual meeting. The board has further abdicated its fiduciary responsibility to members providing just 49 days from the mailing of the announcement to the final vote and meeting on December 12. A 96-year-old, member-owned institution dissolved in a two-month process, with the only documented benefits going to the five senior managers.

The Board is charged with representing the member-owners’ interests. This is both a legal and moral role. Nowhere are the actual costs to members of the merger outlined, only the required listing of enhanced management compensation. What we do know is that the board has approved spending at least $13 million to induce members to give up their charter. That action alone seems to be a highly questionable decision and raises fundamental issues of fiduciary accountability.

For generations members gave their financial resources to the board’s care What is most disappointing is that the board’s decision to put the credit union out of business in just 46 days draws upon the members’ longstanding trust and loyalty to follow their lead. This board’s action reeks of betrayal.

The merger rationale

The document used to justify the merger is the 7-page letter to members from the Chair. The key factors cited are the intent to “re-focus its efforts upon educators on a state-wide basis.” The reasons given include the historical loyalty of educators, the value of a market niche for growth and the need to differentiate itself and gain more economies of scale.

Even though School Financial’s state charter reports a potential FOM of over 4 million, it now claims to grow it must merge with SchoolsFirst FCU in Southern California with $16.1 billion assets and its historical roots in Orange Country.

Indeed, the explanation seems to merely adopt SchoolsFirst state-wide strategy not the implementation of an independent judgment by Schools Financial.

Nowhere are the details for how this justification will better serve the interests of the Sacramento-based membership. There are broad generalities about further commitment to member service, providing low cost accounts, long-term stability and expanding “rather than competing with our existing branch/ATM footprint.”

However, all the details are left open-ended about what these changes might be, as for example:

  • The existing branches will remain open for three years unless leases expire sooner.
  • The credit union’s participation in the shared branch will be evaluated later and the participation in the ATM network will be maintained.
  • The retention of federal share insurance reads like the logic of giving the sleeves off one’s vest since that is the case now.
  • All employees are “being offered retention bonuses to help ensure a smooth transition and successful integration”- an amount not disclosed. Of course there would be no retention bonus if the employees don’t support the change, another example of “tipping” interested parties to go along with proposal.

So the letter’s assurance seems to be nothing much is going to change, and if it does, it will be for some undefined future in which the only definite reality is the members will be part of an $18 billion credit union with its main headquarters almost 500 miles away.

There are no side by side comparisons of savings or loan rates, or fees ( one example only) or any other standard performance indicators that would suggest members might be better off transferring the management and leadership of their collective and personal interests to another organization with which they have no relationship.

Reviewing the latest facts

Savings: Different rates reflect different ALM strategies

Both of these credit unions are very successful using any financial performance measures. The differences that do exist reflect the different business models each has developed in their respective markets over the past decades.

For example, the letter says that SchoolsFirst pays its members higher rates on savings as measured by the average cost of funds. This is accurate: 1.05% for SchoolsFirst and 0.54% for Schools Financial through September 30, 2019.

However, the credit unions’ call reports show exactly the same rates on the core accounts, regular shares and share drafts. The difference in cost of funds is that SchoolsFirst has 28% of its savings in higher paying CDs, versus Schools Financial’s 12%. This funding difference reflects the contrasting loan strategies discussed below, in which SchoolsFirst is more concentrated on mortgage loans.

Moreover, Schools Financial provides options not available at SchoolsFirst including a special 7% Banking for Everyone savings, Senior Savers Club and business accounts.

The latest rates posted by Schools Financial for $1,000 minimum CDs ranging from 1.10% to 2.55%, appear to be more than competitive in almost any local or out of area market.

Two distinct lending portfolio priorities

The same analysis shows that Schools Financial’s 86% loan-to-share portfolio is very different from SchoolsFirst’s 70% ratio. Real estate loans are 54% of SchoolsFirst’s portfolio, versus 33% of Schools Financial’s. The yield on the member loans at Schools Financial is 3.98% versus 4.87% at SchoolsFirst. As reported in the September 30 call report Schools Financial’s rates are lower for credit cards and 1st liens, but higher for auto loans which are 59% of their portfolio, versus 31% for SchoolsFirst.

In both cases the credit unions offer excellent member value for their markets and their differing business strategies.

Institutional performance

The September 2019 data also shows that scale seems to make little difference in overall performance

Some comparisons of note:

Ratio                                   Schools  Financial            Schools First

Efficiency                         60%                                        66%

Net Worth                        12.2%                                     11.6%

ROA (YTD)                        1.85%                                    1.16%

Delinquency                    0.22%                                   0.46%

Net C-O/ave loans        0.39%                                  0.49%

Allow/Del Loans            2.47X                                     1.58X

On many productivity measures the numbers are virtually the same even though the credit unions have contrasting business models. The average member relationship is $21.5K at Schools Financial versus $25K at SchoolsFirst, but the rate of growth in this comparison is faster at Schools Financial.

On critical productivity measures such as $ loan origination per full time employee, $ loan income per FTE or net revenue per FTE the credit unions are virtually the same.

The comparisons could continue. The point is that neither credit unions shows a significant performance advantage versus the other. Both are efficient, productive, and offer members excellent value.

Schools Financial further documents their value by referencing this citation on their website:

Schools Financial Named in Top 200 Healthiest Credit Unions List has released its list of the 2019 Top 200 Healthiest Credit Unions in America. In addition to being in the top 200, Schools Financial Credit Union has received an A+ rating for financial soundness.

The diminution of local employment and leadership

Schools Financial’s website is replete with examples of its involvement with the school districts it serves, offering special loan programs, supporting teacher recognition and local efforts at school support. Moreover, it advertises itself as a great place to work:

Top-5 Reasons to Work for Schools Financial Credit Union

      1. 100% Paid Insurance Coverage
      2. Up to 7% Employer Contribution to 401k Plan
      3. Babies in the Workplace Program
      4. Education Reimbursement
      5. Gain Sharing

In giving up their 1933 charter the members will lose control of not just their collective resources, but also of the election of local directors and governance which provides the oversight in the direction of policy and resource allocation. Business strategy and the numerous member education programs will be determined at head office and economic realities in Orange County. The priorities will then be passed down to local branches.

The relationships the credit union has created with the community–the auto dealers in its indirect program, the school district’s local support, the realtor networks which refer 1st mortgage home buyers, the media in which the credit union advertises, not to mention the civic organizations and involvement of the board and senior management—all lose their priority if not their significance once there is no longer local control.

Here is one of many examples of how Schools Financial describes its role in the community today on its website:


“People Helping People” extends beyond our branches. Our members and our staff band together to extend that philosophy to those in need who reside in the communities we serve. Some of the organizations we lend a hand to are: (details omitted)

      • Children’s Miracle Network
      • Food Banks
      • Making Strides for Breast Cancer Walk®
      • Spirit of Giving

The fallacy of cooperative mergers

Credit unions rarely succeed by trying to become larger than their competitors. Rather their success is creating and cultivating member relationships. This grows loyalty and member trust. The cooperative design, uniquely among financial alternatives, encourages participation and connectedness among the member-owners.

SchoolsFirst could compete with Schools Financial, but they know how difficult that would be given the credit union’s Sacramento track record. Or, it could embrace cooperative collaboration where there are mutual benefits for members. But no, it instead is has bought out the CEO, a much easier way to expand and gain control of members’ equity without paying anything or committing to any future details.

The consequence is the member-owners will see their loyalty being sold as executives get windfalls for surrendering their leadership responsibilities. Their elected board abdicates any fiduciary role for either a democratic process or for providing genuine member value in the transaction.

The members not only lose in what is an insider-arranged “commercial sale,” but also, the credit union system loses credibility as stewards of cooperative design and member-ownership. Instead those agents charged with overseeing the model have engineered the system to serve their self-interests first, and members last, or not at all.

But the regulator approved this

The defense and one of the FAQ explanations is that the regulator approved this transaction including the statement sent to members.

Mergers of well run, independent sound institutions are seen by some as a necessary strategy. However, the inherent conflict of interest for a CEO arranging the merger of a credit union and specifically benefiting from it, has never been openly addressed.

NCUA has long abandoned its role as a steward of member interests. Cooperative leadership throughout the system has become increasingly hollowed out by the transactions of self-interested agents, including the regulator.

NCUA proclaims its basic mission is safety and soundness. However, it has turned a blind eye as one of the most basic principles of risk management is compromised by mergers of healthy credit unions. For putting more eggs into fewer and fewer baskets only creates larger risk concentrations for the next cyclical downturn.

Merger violates a sacred trust

The strength of credit unions is first and foremost the member-owners.

Cooperative design asserts that members’ well-being and what really matters to them will be kept close at hand. Credit unions can be locally sponsored and supported. To some this model seems contrary to the temper of the times and the siren attraction of size as a monument to success.

However, cooperatives are not merely financial firms, but a form of social capital based on a covenant to serve the common good.

This basic cooperative principle is compromised in this merger. For it privatizes and rewards the few from the common wealth created by generations of members. The members should vote against this merger.

The Necessity for Coop Designs: Food Deserts Turn to Co-ops for Local Grocery Stores

On November 6, a New York times story In Land of Plenty, Few Places to Find Fresh Foods described the challenges of small, rural communities maintaining local shopping options.

The article led with an example of a small town in the Midwest that is a center for the farming community. As in many other small communities across the country local grocery stores have closed in the face of large regional competitors. “It’s the story of every small town; it’s a domino effect and it starts with the grocery store,” states a resident of Winchester, Illinois, a town of 1,500.

The irony of over five million people who make their living feeding the rest of the nation but having to drive at least 10 miles to buy groceries, has prompted local residents in a number of these circumstances to seek new options.

One solution is to set up cooperatives financed by residents to start their own stores. “This isn’t charity. This was self-responsibility. If you want a grocery store in town, you have to step up to it,” says one of the founders of Winchester’s for-profit coop which opened in August 2018.

The article describes multiple volunteers contributing community help and resources. Radishes and spinach are delivered from a local farm; milk from a local dairy; beef from a nearby ranch and eggs are delivered once per week by a local farmer.

Co-op design allowed local residents to mobilize resources for solutions that larger firms do not see as practical or profitable.

Parallel histories for farmers and consumer finance

Farming coops are one of the creators of this country’s collaborative business model at the turn of the 19th century. So popular were cooperative solutions in rural America, that the original bureau for federal credit unions was assigned to the Department of Agriculture in 1934 when the Federal Credit Union Act was enacted.

Credit unions in the past and even today actively serve “credit deserts”. These are communities where no locally-owned financial institutions are located. Credit policy and lending priorities are set at headquarters located outside the areas served.

Relevance for credit unions

Should these “fresh” initiatives be borne in mind as several hundred local credit unions per year cancel their charters to merge with larger, often out-of-area, credit unions? Is giving up local control, leadership and resource allocation compromising the unique capacity of credit unions to fill voids left by larger financial competitors?

Credit Unions and Community Impact Lending: A Gold Mine

For decades Vancity Credit Union has been a leading innovation of cooperatives in Canada. US credit unions have traveled north of the border to visit this creative center of credit union evolution.

Today, Vancity is Canada’s largest community credit union, with $27.4 billion in assets plus assets under administration, more than 534,000 member-owners and 59 branches in Metro Vancouver, the Fraser Valley, Victoria, Squamish and Alert Bay.

As one element of its strategic plan, the credit union developed the concept of “impact lending and investing.”

Vancity also provides stories to illustrate how these concepts apply in both traditional and non-traditional lending programs.

The Need and a US Example

A number of credit unions have also explored this “impact” approach for their communities. This focus has become more critical as companies of all sizes are finding it harder to get loans. In a Pepperdine/Dunn & Bradstreet survey only 28% of small business reported success in getting bank loans during the September quarter, down from 32% in the second quarter.

California Coast Credit Union has tried to increase its community impact in several ways, with small business lending a more recent area for focus.

Robert Disotell, Chief Lending Officer, sent me a case study of how this opportunity is being implemented:

The business owners (husband and wife) had been individual members for many years. They decided to leave their jobs and form a company that leveraged their many years of experience as employees of other companies. They opened several business accounts with CalCoast, but no loan products since they didn’t have an immediate need. And we did not offer business loans or lines of credit at that time.

 Fast forward 18 months. The members happened to mention to one of our tellers that they may need an equipment loan. Good timing, since we had just rolled out our equipment term loan and line of credit products. The teller contacted our Commercial Services Officer and he in turn set up a meeting with the members. He and I met with them to find out more about their business.

I should mention at this point we were somewhat skeptical. The company was less than two years old, they were a contractor, and most of their work was through the government. All high risk red flags. But we took the time to meet at their facility, and we were impressed. Here is what we found:

  • They had excellent revenue growth their first full year of operation
  • Their expenses were extremely well-managed
  • They had grown with no debt, completely unleveraged (except for small trade balances)
  • They had accumulated significant cash balances in their business accounts (on a daily average basis)
  • Their Accounts Receivable and Accounts Payable were in great shape and well-managed
  • They managed to do all this without a line of credit. This is almost unheard of for a contractor, where cash cycles tend to be longer than other businesses.

We felt their story was compelling enough to go forward and provide them with an equipment loan ( a basic five year amortizing loan) and a one year line of credit at Prime +2%. They still haven’t used the line of credit, but they said they believe they will soon because revenues are on track to almost triple this year!

From a community impact standpoint, the additional equipment has given them the ability to bid on larger, more profitable jobs. It also meant hiring additional employees to form a crew to operate the machinery. So certainly helpful for the local economy. Also, this is a woman and minority-owned (Hispanic) company.

The lesson is this. There are so many opportunities to work with your local businesses. They are being abandoned by not only the big banks, but also smaller regional and community banks. This is a gold mine for CUs. Take the time to learn their business. Understand and assess their character. Ask probing questions. Be one of their key partnerships. Learning and understanding how your local businesses operate – it is extremely fun and rewarding (and profitable!).

 Robert Disotell | Chief Lending Officer

California Coast Credit Union | 858.636.4282 |


Doing What’s Right for Our Members

An earlier blog I wrote (August 1) discussed the harm done to local communities and members when sound, well run credit unions are merged into firms outside the traditional community or market areas being served.

The poster child for this concern was the announced merger between two credit unions over 1,200 mile apart:  Infinity in Westbrook, Maine, and Vibrant in Moline, Illinois.

On September 24, the merging credit union Infinity FCU reported that the deal was off, stating in part:

“The merger process brought some important differences to light and it became evident that the integration was simply not a good fit. The talks ended amicably, with both sides agreeing to work as collaborators rather than partners going forward. Infinity FCU continues to be a strong and financially sound organization and we are committed to achieving our vision for the future of doing what’s right for our members, our communities, and our employees.”

Congratulations to the CEO Elizabeth Hayes and the Infinity Board for this change of direction. It is hard to reverse course when an initiative is publicly announced. As noted above “doing what’s right for our members” is always a fail safe policy touchstone.

The Job Outlook for US Manufacturing – the GM Strike

In no other sector of the “post-war” economy, has the impact of automation, robotics and AI been more important than manufacturing. This is one of the factors underlying the current GM strike. Not only are jobs being lost to automation and outsourcing, the demand for more simply-assembled electronic vehicles may further reduce the need for skilled auto workers.

Real manufacturing output has grown consistently through greater productivity while total employment in this sector peaked in the late 1970s. This long term trend (1947-2014) is shown in this graph by economics professor Alan Gin:

More Jobs Being Created

Employment keeps expanding, but the allocation of jobs between sectors is changing. The bureau of labor statistics publishes an annual ten-year forecast of job growth by sector. Its latest projection is as follows:


The implications for credit unions serving communities or SEGs are many. The fastest growing job segments tend to be lower paying as indicated by May 2018 salaries.

Two of the fastest growing sectors are driven by the response to climate change and energy production. Higher paying jobs would appear to require more college than lower paying ones. Both wholesale and retail trades show shrinking levels of employment.

The manufacturing sector is the one industry with the highest rate of projected job decline.

Credit unions have traditionally done a good job of knowing much about their members. However, as more credit unions seek ways to have a positive impact and influence the economic direction of the communities they serve, monitoring local job trends will be increasingly critical when making loans and future infrastructure investments.

A Credit Union Member Takes a Stand After a $40 Million Loss

In an 18-page complaint filed August 7, Victor Webb filed suit against the board and supervisory committee of the failed CBS Employees FCU seeking over $40 million in recoveries for members.

According to press reports the loss was first discovered on March 6, by an employee who raised questions about a $35,000 check the CEO, Rostohar, had made out to himself.

NCUA’s audit as of February 28, 2019 said the loss could be as high as $40.5 million for an embezzlement scheme that Rostohar admitted carrying out over two decades. In the credit union’s last call report as of December 31, 2018, it reported $21 million in assets, $2.6 million in capital and 2,798 members.

A Member Acts

The federal credit union was chartered in 1961 to serve CBS employees and related companies. In the complaint Webb stated he joined the credit union in 1970 while a CBS employee. He remained a member until the credit union was liquidated in March, although he retired from CBS in 2014.

His suit names the board and supervisory committee members at the time of liquidation and prior members who served in similar capacities during the two decades of defalcations.

As a class action, Webb seeks damages of $40 million on behalf of all members, by stating that the benefits of membership were devalued by this amount which should have been available so members could benefit from lower fees and loan rates or higher dividends—that is the lost benefits of credit union ownership.

“A Fiduciary Relationship”

The core argument for suing the Board and supervisory committee members is summarized as follows:

“By reason of Individual Defendants’ positions with CBS Employees (FCU) as members of the Board of Directors, they are or were, at all times herein relevant, in a fiduciary relationship with Plaintiff and other CBS Employees (FCU) members and owe them a duty of highest good faith, fair dealing, loyalty, as well as a duty to maximize member value.” (Page 3)

The fiduciary responsibility of directors and committee members is well documented in NCUA regulations and letters, but rarely is their conduct formally challenged by a member. But this is a case of extraordinary loss equal to almost 10% of the last reported assets, or $2 million per year, for over two decades. Both the amount and length suggest a complete breakdown in both internal and external, regulatory oversight.

How Could This Happen?

This suit focusing on the fiduciary duties of the Board and Supervisory committee could be a very important milestone in cooperative governance and oversight.

How NCUA’s reported audited shortfall of $40.5 million in a $21.3 million asset size credit union could occur is hard to fathom.

The credit union’s December 2018 call report shows $18.4 million in shares for 2,798 members, resulting in an average share balance of $6,576. The credit union’s assets consisted of $14.7 million of investments and $6.1 million in loans with a reported delinquency of only 0.33%.

The credit union’s $18.4 million in member shares would seem to be more than adequately covered by the $21.2 million (with $2.6 million net worth) in easily verifiable assets if a liquidation were ever necessary.

Internal processes to monitor the credit union’s management are mandated in both bylaws and by rule and reg.

Every federal credit union is required to complete an annual audit under the auspices of its Supervisory Committee. Such an audit, whether internally conducted or outsourced, would entail a verification of member accounts, selected confirmations of investments and loans, and a review of internal controls. The results are reported to the Board.

The Regulatory Review

Additionally, NCUA has conducted annual audits of every FCU since the 2008-09 financial crisis. This review would review the credit union’s own supervisory committee’s audits, including member confirmations, plus a complete examination of investments and loans. In addition, the examiner would review all settlement accounts against the latest bank statements to ensure up to date postings and that the credit union’s general ledger is in agreement with external financial confirmations.

If the assets reported by the credit union are correctly reported, then that would mean the total loss caused by the CEO’s fraudulent activities would be the $40.5 million shortfall plus the $2.6 million in net worth for a total of $43.1 million.

NCUA’s obligation to member shareholders is to pay up to the $250,000 per account insured limit. A $43.1 million payment on top of the $18 million in reported shares would mean that over 6,500 more accounts (using the average share balance from reported members) would have been kept in a second set of off-the-book records.

There are only two explanations for NCUA’s reporting a $40.5 million loss after its February 28,2019 audit:

  1. The reported asset values were widely inaccurate, which raises the question, what kind of annual regulatory examination was done; or
  2. The assets are properly recorded, which means that from $40.5-$43.1 in off balance sheet shares were being managed by the corrupt CEO.

If the second option is the explanation, this suggests the CEO was running a shadow credit union with almost three times the number of members and shares as the reporting credit union. How could this activity be hidden from employees, the directors or supervisory committee, since these members must have received statements and conducted business transactions regularly with the credit union?

If the reported assets are phony, which would account for half of the loss, the only question is what type of annual exam had NCUA conducted over the two decades that this theft occurred?

Time for a Real Accounting

I salute member Webb for standing up and asking that responsible parties be held to account. This is more than sending the former CEO to jail and then covering the tens of millions shortfall out of NCUA’s “rainy day insurance fund.”

All the public evidence suggests that the problems are much more extensive than a corrupt CEO and a hoodwinked and a deleterious board and supervisory committee. The regulatory oversight that is supposed to assure the industry’s safety and soundness through onsite examinations would appear to have been negligent as well.

When a member takes a stand against ineptness, self-serving conduct and dereliction of duty, the whole democratic movement will benefit. Cooperative governance requires that fiduciary duty have real meaning, not just good intentions. Hopefully this suit will bring out the full story and create a much-needed precedent along with a correction of examination shortfalls.

I salute Victor Webb and say with him, “Enough is Enough.” Stop paying out losses, let’s correct the problems letting these occur.