JACKSONVILLE, Fla.–The amount of money being paid to top management as part of a merger between two credit unions here is 10 times larger than has been reported to date, according to analysis conducted by Chip Filson.
As CUToday.info reported here, members have approved the merger of the $710-million 121 Financial Credit Union (it reported $708.87 million in assets as of Sept. 30, 2023) into the $13-billion VyStar Credit Union, which is also headquartered in Jacksonville. Merger-related disclosure forms filed with NCUA indicated the CU’s top five execs would be paid a total of $900,000 in merger-related benefits by the credit union. But that amount appears to be much less than what the actual payout will be, according to Filson, who is the former president of NCUA's Central Liquidity Facility (CLF), director of the Office of Examinations and Supervision, and CEO of the NCUSIF, as well as a co-founder of Callahan & Associates.
On his blog, under the headline, “How to Steal a Cooperative and Get Paid $60 Million for Doing So,” Filson, said a deeper analysis reveals the benefits to be paid to the five executives is actually a minimum of $9,416,600 in future guaranteed salaries and benefits for merging the credit union with VyStar.
In response to the statements made on Filson's blog, CUToday.info contacted 121 Financial for a response, with a number of questions, including whether the $9,416,000 total in Filson's analysis was more accurate than the $900,000 in merger-related benefits reported by the credit union in its disclosure to members.
121 Financial and Vystar responded in a joint statement, saying, "Like many credit unions, 121 Financial recognized that limited resources made it impossible to add locations, improve rates and meet ongoing regulatory demands to lower fees. Both 121 Financial Credit Union and VyStar Credit Union look forward to our merger expanding members’ access to financial resources, products, and services.
"Since announcing the merger in April of 2023, both institutions have worked cooperatively to provide clear and transparent communications about both the voting process and merger benefits to our members and employees. All disclosures, including those relating to salaries and benefits, were properly made as required by law," the statement continued. "After a two-month voting period, all ballots were opened and counted by an independent CPA firm. That CPA firm provided certification of the positive vote at a special meeting of the members on January 26, 2024, after which all required disclosures were provided to the appropriate regulatory authorities."
‘Personal Greed’
Plans for the merger were announced in April of 2023; the credit unions announced in January the merger had been approved by members.
Filson, who said he believes that the full amounts of payments guaranteed to the five senior leaders in the form of salaries, bonuses, severance, and retirement represent “personal greed,” noted that all five will be giving up their current credit union leadership positions, four of whom have been in their positions for less than five years, in return for “special project” roles.
“But wait—doesn’t NCUA require that ‘certain material changes in total compensation and benefits of 15% or more of the five most highly compensated employees have received or will receive in connection’ to be disclosed?” Filson asked on his blog. “That is the literal requirement, but (it) obscures the full payoffs management has negotiated for itself when leaving their positions of responsibility.”
The Payouts
According to Filson’s analysis, the actual benefits going to the five executives break down as follows:
- David Marovich, CEO, who was named full-time CEO in March of 2020. Filson said the disclosures list a five-year contract with a $16,000 salary increase, two first-year bonuses totaling $245,00 and a supplemental retirement plan (SERP) for five more years at 40% of his final year’s salary. “Using the credit union’s IRS 990 filing for 2022 for these senior salaries, the minimum total payments for this work and SERP is a minimum of $3,209,600,” Filson wrote.
- Paul Blackstone, COO since January 2020. Filson said his analysis shows Blackstone will receive a five-year contract with a $95,000 salary increase and two first-year retention bonuses totaling $252,500, as well as a SERP that pays 35% of his final year’s salary for five years. The minimum of these payments is $3,867,908, he said.
- Cyndi Koan, CFO since December 2019. Koan is to receive a three-year contract with two first-year retention bonuses totaling $70,000, according to Filson, who said the minimum payments $1,168,102.
- Cathy Hufstetler, senior VP-lending since September 2019. Hufstetler will continue through the merger conversion then retire and receive a one-year severance of $273,000 and two first year bonuses totaling $56,000, Filson said, adding his analysis shows the total minimum payments amount to $602,000.
- Nichole Le Blanc, executive assistant to the C suite. Le Blanc is to receive a five-year contract with a $5,000 salary increase and two first-year retention bonuses totaling $18,000, according to Filson, who estimated the minimum payments amount to $569,000.
‘Guaranteed Nothing’
“The total salary data is from 2022 of these five guaranteed positions is a minimum $9,416,600,” Filson stated. “In addition, it should be noted that in 2022 the credit union began a SERP plan for the four senior positions that will fully vest all earned benefits upon merging. In addition, they will also receive all other retirement benefits that…will vest upon the charter closing. This is why Hufstetler, above, has no retirement benefits from the merger, because of her 121 benefits package.”
Filson suggested the remaining 130 employees of 121 Financial are “guaranteed nothing” as they become a “very small part of an organization (that) has 2,260 employees and whose locations will overlap some of 121’s existing branches.”
Challenging the Merger
As he has previously, Filson also challenged the merger itself, alleging there are no benefits beyond additional branches for the members of 121 Financial Credit Union.
He said the notice announcing the merger did not include a single example of a better rate on savings or loans), or more favorable fees or products that would benefit 121 Financial members.
“VyStar is a credit union in a financial stall,” Filson wrote. “Peak shares occurred in the first quarter of 2022 at $11.2 billion; at yearend 2023 they were $10.1 billion. At that point, VyStar reports total borrowings over $2.6 billion, including $200 million in subordinated debt to boost its capital ratio. It bought a $280 million Florida bank in 2019, creating $28 million in goodwill, which suggests a price of approximately twice book value.
“In this merger, VyStar eliminates its very effective local competitor that has managed to secure 38% of its members who also have VyStar accounts,” Filson continued. “And it gets paid $65 million in new capital versus giving cash to the credit union owners, as would be the case for bank owners, at multiple of their book value. At year end 2023, VyStar’s ROA was .18% and its ROE 2.6%--both in need of this instant boost from this free gift of $700 million in assets.”
Strong Objections
Filson, who noted some members voiced strenuous objections to the merger before the vote, including a website called StopTheMerge.com, as CUToday.info reported here, said his discussions with those same members found they had been told the vote tally would not be released and that the ballots have since been destroyed.
The full blog posting can be found here.
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