What Does Success Look Like?

As the name of my company suggests, we exist to help credit unions succeed. Consequently, when I meet with a prospective client one of the first questions I like to ask is “What does success look like?” I’m often met with a puzzled look. However when I phrase the question “How do you measure success” I tend to get better results. Improved results, but the answers still lack confidence. Without being able to define this how does an institution know whether or not it is succeeding?

The truth of the matter is that many institutions have difficulty projecting out quantifiable results 3-5 years in the future that they are willing to commit to as corporate goals. Yet to be truly successful they need to start taking specific actions today that will get them moving towards “success” in the not too distant future.

What Gets Measured Gets Done© Copyright 2012 CorbisCorporation

My opinion is that credit unions must develop a limited number (i.e. 3-5) of ideal long term measurable goals that blend growth, profitability & member satisfaction; then identify the short term measurable goals that will be required to pave the way. Follow this directly by implementing the underlying actions that will create the desired results over time.

If you’re like most institutions these days you’re creating more data than you’ll ever be able to utilize. But extracting meaningful and timely results from these warehouses of data can be incredibly frustrating. It requires a careful blend of science and art to arrive at metrics that will truly impact and move your institution forward. In my experience if you can’t measure the results at least monthly you’re not able to be proactive in responding to competitive opportunities that quickly come and go – that’s not a marketing issue it’s a strategic governance one. Eliminate “noise” and confusion whenever possible. It’s imperative that your team understands not only why the goals are critical to your success, but how they are measured and what will impact them.

Where to Start

Once you have a defined, focused vision it should be fairly easy to “see” the outcomes that successful execution will produce. Look to historical trends and peer data to see what’s reasonable yet challenging. Make certain that the results you want to achieve will produce the effect necessary to move your credit union to your desired state. Just as important, ensure that you have valid, concrete and actionable strategies that can be implemented to “raise the bar”.

It’s All about Balance© Copyright 2010 CorbisCorporation

Just like many things in life if taken to excess the end result can be unhealthy. Consequently it’s important to have the appropriate checks and balances in place when identifying your company’s critical measures. While growth is critical to overcome unavoidable increases in operating expenses, unprofitable growth can be an organization killer. Likewise growing too quickly to maintain acceptable service levels can also be the precursor to failure. It is essential in selecting what you will measure that you consider the pros and cons, and when necessary ensure the appropriate counter measures are included.

Maintaining Focus

It’s far too easy to get distracted by shiny, new apps and tools that promise a remedy for what ails you. Coupled with the excuse of ever increasing compliance, regulations and security issues maintaining focus on executing projects that will impact your corporate goals is harder than ever. Yet that’s exactly what needs to happen. It requires discipline and structure to keep your attention on the very limited number of objectives necessary for you to succeed. However, in many ways it also helps to simplify the decision making process. If it doesn’t impact the corporate goals then you don’t need to make it happen. Therefore it’s imperative to choose the right goals and set them appropriately.

Celebrate Success & Constructively Address Failure© Copyright 2014 CorbisCorporation

If you’re hitting all your goals right out of the gate you haven’t created challenging enough objectives for your credit union to really excel and differentiate itself from the competitive landscape. Failure to achieve initial progress can be a great learning tool for you to see how your team responds and who has the right attitude and determination to persevere over the long haul. While getting some quick wins has its merits consistently creating ever increasing momentum over a sustained period of time is much more difficult. A truly great organization has to be built over a period of time – part of that includes learning from your mistakes and a mindset of continuous process improvement.

Finally, if I’ve learned anything in my decades of credit union leadership it’s that change, while sometimes painful, is the only path to greater heights. At times when certain metrics have been achieved it’s fine to retire them and start working on other underperforming areas in the organization. As in life the reward is in the journey itself – hitting your goals simply reinforces the progress you’re making along the way.

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The Innovation Equation

© Copyright 2010 CorbisCorporation Empowerment + Collaboration = Innovation.

How to get started on solutions to real life issues.

In his recent post titled Disruptive Innovation In Financial Services Richard Branson states the compelling reason for innovation – to have a positive impact on people’s lives. By addressing real-world problems and providing solutions to overcome these challenges society as whole benefits. It is my experience that Empowerment & Collaboration can help facilitate, energize and speed up the innovation process, yet there are common pitfalls to avoid. Here are some lessons I’ve learned the hard way that can help you create the right type of internal environment where empowerment and collaboration feed off each other to create innovation that’s beneficial to your organization and the members you serve.

Empowerment

Giving someone (or a group of individuals) the authorization, consent or power to make critical decisions when devising a solution to a specific problem differs greatly from enabling them to randomly innovate. It is imperative when empowering an individual or a team that they are provided with enough direction so that the end result (the solution) fulfills the needs of your institution and its members. Too often this authority is interpreted as a license to freelance and make decisions based on what the interests of the individual or teams are. Unfortunately these are often not consistent with the requirements of the credit union (or company). Specific, measurable outcomes that are expected as a result of the efforts along with enough guidance regarding dates and resource allocation should be provided at the onset. If you can’t do this you haven’t clearly defined the problem to be solved. If you can, then set them loose and get out of the way, asking only that they periodically provide updates to confirm they are on time and on target.

Collaboration

Simply means working with another person or group to achieve or do something. In the context of innovation that something is to create a solution to a real problem that impacts lives in a positive manner. You are attempting to harness the power of the cooperative resources as opposed to having everyone attempting to be the first individual to solve the problem on their own. Together we do what I can’t. At issue here is the ability of the individuals involved to set aside their personal goals and agendas in order to achieve something for the collective good. Whether the collaborative project involves only internal employees or also requires the assistance of 3rd party partners/providers it is essential each participant understands their specific purpose. If every individual clearly sees why they have been selected boundaries are more easily negotiated. Make sure you have a good cross-functional mix of all the necessary disciplines, including those who will need to interact in selling or assisting the member with the solution.

It’s also critical that you designate a leader who has a vested interest in solving the problem and is accountable to the organization as a whole for the proper and effective use of the resources that have been provided. While this could also be interpreted as empowerment, collaboration won’t work without someone paying attention to the group dynamics and making the needed adjustments. The leader will need to be able to delegate responsibility and keep the project on schedule. Many times this vital role will need to have challenging (not pleasant) conversations with a vendor, 3rd party or team member who is critical to achieving the ultimate success. These opportunities can be a great way to prepare someone for a higher level role in your organization, yet don’t let a novice at the helm of something mission critical. Take risks that are appropriate, not career threatening. Utilize project team meetings to provide status updates, not to do the actual work. Above all true collaboration requires egos to be checked at the door, leaving room for a true sense of collective achievement to permeate the environment.

Innovation

My belief is that people often avoid trying to being innovative because of the unfounded fear that they need to be able to create something starting with nothing. Some of the best solutions out there were devised quite simply by working to integrate existing solutions to create a better member experience. In his brilliant article “The High-Fidelity IT Organization”,Butch Leondardson, CTO & SVP of IT at BECU points out “We believe we should not custom-build software, but instead be highly capable in integration. Integration is often the secret sauce to agility.” Amen, brother. If it’s a good enough approach for a $10 billion+ credit union known for its innovative approaches to member service you better believe that the majority of the industry can benefit from a similar approach as well. While too many credit unions today still run legacy core systems utilizing closed, proprietary databases that aren’t generally associated with agility, the fact remains that you can persevere in blending the best of today’s technology with systems whose better days are long past.

While this article focuses on solving problems utilizing internal resources the same concepts apply on a wider scale. CUSO’s can be an effective way to leverage resources in seeking out answers to common problems. It’s of the utmost importance to make sure all participants are seeking a similar solution. When you’re combining forces to keep IT infrastructure costs down or seeking to provide alternative investment solutions to your members the common goals at a high level are usually consistent. It’s when someone in the CUSO wants a specific solution to a problem that’s primarily disturbing them that things tend to go haywire.

That’s it. Define the problem sufficiently, get the right resources on board who know why they’re involved and what you want accomplished, give them the authority they need to be successful and allow yourself to be amazed.

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Strategic Doing

Strategy = a carefully devised plan of action to achieve a goal.

The definition above has three distinct elements – the plan, the action(s) and the goal. It is vital to have all 3 components interconnecting in order to have any chance of success. This article focuses on the second element – action. Yet without a well thought out plan and the correct goals your chances of performing enough of the right strategic actions to achieve realization of your ideals will be greatly diminished.

Action isn’t in the “what” it’s in the “how”

Most executives in the credit union world could relatively quickly make a list of what changes or results they believe need to happen in order for their institution to remain growing, profitable and relevant. Where the strategy starts to stray is when asked specifically how they plan on enacting such changes.

If I were to make a general statement about where the difficulty lies in overcoming this challenge it would be the misperception that they need to create something new, innovative and unique. Far too often they overlook a fundamental problem which exists in the failure to properly execute the basics. For example, they believe in order to improve loan volume they need to be able to provide a mobile application platform. Yet if their ability to deliver a quality member loan experience is hindered by inefficient processes which have been cobbled together over time, adding an additional layer of complexity in executing on the loan request will only make matters worse.

 Are you being honest about your ability to deliver on the core functions that generate the majority of revenue for your institution? Usually it isn’t the quick fixes which have the most lasting and significant impact. It’s in the tedious and “boring” work of refining process details that you impact the ability to deliver on your brand promise.

Start with the Basics

Start with the Basics

Time Spent on Strategic Execution, not Excuses

So maybe you agree your core processes could use some work. At this stage excuses start entering the picture – led by the inevitable lack of resources. It’s a shortage of people where the opportunity to create real transformational value generally gets derailed. When pressed with only one additional question – “what is it that your people are doing that is of greater strategic value that they can’t enact these changes?” the overwhelming response is sadly “they’re too busy doing tasks of a routine (non-strategic) nature”, otherwise known as serving the member.

We allow too much work of a non-strategic nature to consume our staff’s precious time with nowhere near enough time, effort and focus being spent on strategic doing. If we continue to permit or even endorse “routine” activities that provide no value to the co-operative we’re allowing the competition, wherever it comes from, to win. “Serving the member” to conduct routine transactions, handle basic inquiries, maintenance requests and field questions provides virtually no value in the form of revenue generation. Worse yet, time spent on problem resolution (errors and fraud) and hand-holding members through unfriendly online systems are really value detractors. Systems are great at doing routine things consistently & efficiently. Let your staff’s time be focused on managing the processes and creating meaningful relationships with members.

Persevere, don’t become distracted Strategic Doing

Perhaps the other most significant barrier to strategic execution exists in the practice of “premature withdrawal”, instigated by unrealistic expectations or faulty goal setting. Far too often, we become disillusioned and abandon strategic initiatives too early in the process because we are not meeting goals that were somewhat arbitrarily set and overly ambitious. In many cases progress is being achieved and over time we’ll eventually reach our goals. Yet because we seek immediate gratification to achieve ill-defined goals we lose focus and start seeking the next quick fix. I advocate setting goals where consistent improvement over time denotes success, not instant perfection. Occasionally there are market driven opportunities we must respond to in a timely manner, however, we must be careful to understand these are exceptions and not what we will rely on to consistently grow our institution over time.

The great fear of competition from “non-bank” providers starts with the premise that because of their technological superiority they’ll be able to avoid having to commit unnecessary resources to the routine activities and consequently can deliver the services we value at a higher level. While there may be some truth to this statement, what’s missing is that these new entrants to the market have even less of an understanding of the “how” factor in financial services. What we have, and need to leverage, is our experience gathered through years of trial and error. In my nearly 30 years in the industry (yikes) very little has changed in the fundamental services we provide, what has changed is the manner in which we deliver these services.

“There is no substitute for hard work

Doing It

The quote above is attributed to Thomas Edison; perhaps the greatest inventor (innovator) America has produced. The essential element of strategic doing is the work; the “blocking and tackling” required for achieving success. Our biggest problem isn’t a lack of innovation – it’s in the deficiency of understanding what creates value and the lack of discipline in persevering when executing these strategies. The fact of the matter is that these skills and competencies aren’t cutting edge, and are certainly attainable. They simply require continuous commitment, on-going development and affirmation of positive change.

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IT’S REALITY (NOT VIRTUAL) – DEAL WITH IT

I’ve learned that your attitude is important in life – it’s much more enjoyable from an optimists perspective. Yet on occasion there is still the need for that reality check. So, on the heels of the recent industry group hug that is GAC and NCUA’s release of year-end data touting loan and membership growth I find it necessary to seek out the truth in the numbers. Taking a deeper dive uncovers some startling facts, but the data is of little use unless you do something about it.

© Copyright 2010 CorbisCorporation

Membership

REALITY: More than half of the credit unions lost members. As a whole the 6,128 credit unions under $500 million in assets lost 1.2 million members in 2013. The 426 credit unions with assets greater than $500 million actually grew by 3.6 million, netting the industry its overall growth of 2.4 million members.

ACTION: If you’re in the 93% of credit unions under half a billion in assets I’d start by focusing on retention of my existing members. You better make certain you’re keeping them content before concentrating resources on trying to attract new.

Loans

REALITY: On the bright side credit unions of all sizes exhibited loan growth for the year.  Yet reality confirms the largest 7% of credit unions produced over 95% of the loan growth, with the lion’s share of institutions creating only 5% of the nearly $48 billion in growth last year.

ACTION:  There’s very little differentiation between large & small in which products produced the growth – it’s fairly broad across the spectrum.  The action here is to refine the processes involved in executing and delivering on a member’s loan request.  Being innovative, responsive and convenient as defined by the member is much more important than trying to create new types of loans to offer.

Shares

REALITY: Here again the “big CU’s” account for more than $36 billion in growth while the rest of the industry lost nearly $4.2 billion in shares.  While the industry as a whole shed $6.3 billion in share certificate balances, less than 9% of it came from CU’s with assets in excess of $500 million.

ACTION: The evidence suggests relationship trumps rate.  Members appear to want multiple accounts to distribute and park their money in. Efforts should be targeted at making it easier for members to open, manage and transfer funds among a limited suite of accounts within your institution. The product that seems to create differentiation among larger CU’s is their money market accounts.

Assets

REALITY: The entire industry has moved into longer term investments chasing yield with rates at or near all-time lows. Over the last 2 years nearly $45 billion in investments has shifted into the 3-10 year range. While that equates to only 4% of industry assets the change in risk appetite is worth noting. We’ve also added an additional $36 billion in mortgages with maturities or reset dates greater than 5 years out. What will the combined effect be after a few years of rising rates?

© Copyright 2010 CorbisCorporation

ACTION: Consider the advice you would give your own members about committing to longer terms at lower rates.  While this shift may be perfectly acceptable make certain your reasoning is sound.  Capital levels have been restored to 10.78% as an industry.  Are you taking on unnecessary risk for the future to achieve an arbitrary level of earnings today?

Earnings

REALITY:  1 in 4 credit unions has negative earnings. Over the last 5 years increases in ROA have been driven primarily by a lower provision for loan losses. Over the last decade the industry has only managed to lower operating expenses a total of 7 basis points while growing assets by a total of 74%. Last year’s Provision for Loan Loss Expense of 0.26% was 10-20 basis points below historical averages and should not be expected to continue given the recent loan growth.  Fees & Other Income have stabilized or shown modest declines in recent years, any uptick from a decade ago is now more than offset by slimmer net interest margins.

ACTION: Projects and initiatives that are being considered should be evaluated based on their ability to increase revenue and improve efficiency before being given the go ahead. Start with those activities that will most significantly improve both measures.   This is easily stated, yet harder to actually achieve.

© Copyright 2010 CorbisCorporation

Regardless of your asset size it has never been more challenging to assess the myriad of strategic options available to you. With CU Succeed in your corner you can feel confident in selecting and implementing the solution that best fits your institution’s needs.  That’s why we exist – to CU Succeed.

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Letting Members Manage Your Bottom Line?

The premise of this communication is pretty simple – if you don’t have a non-interest income strategy you better get one.  To me, a non-interest income (NII) strategy has to address three basic questions:

What member behaviors am I attempting to influence with the various components of NII? Do I want to encourage the use of electronic, insurance and investments services, or discourage certain activities through the implementation of abuse (NSF, OD & late) fees. Would I rather reduce or waive closing costs to obtain the lending relationship? Do I think members should have to earn a free checking account or that it’s an inherent right?

Why am I generating NII? Is it primarily to bridge the deficit between Net Interest Margin & Operating Expenses? Am I offering more convenience, products & services that require more NII to offset the expense?

What is the right level of NII for my institution? Do I have a targeted level of NII? Is it sufficient to support our growth plans and sustainable given the economic & regulatory climate? Or do I attempt to “give back” on the NII by maintaining interest margins and controlling expenses?

Basic Components of Net Income

When it comes to generating net income (making money) the reality exists that the number of variables we have to work with are quite limited. These “levers” are typically broken down in the following fashion:

  1. Net Interest Margin – what we earn from loans & investments net of what we have to pay in dividends on shares or borrowings
  2. Operating Expenses – typically compensation & benefits come close to making up half of these, with facilities, systems, marketing, professional services and provision for loan losses making up the difference. Where do you think these are headed?
  3. Non-Interest Income – Over half of NII is generated from NSF fees and card interchange, while the remaining portion varies widely based on an organization’s differentiating factors and complexity.  I’ll make the argument that the remaining half provides clear insight on your organizations priorities. Whether you realize it or not, this is where you are influencing how, or if, members will conduct business with you.

Letting Members Manage Your Bottom Line?

Several recently published reports and subsequent articles have focused on the subject of non-interest income. They rightfully point out that without fees and non-interest income credit unions would be operating at a significant loss. The chart below from NCUA highlights the negative gap that has continued to emerge over the last several years.  

OE vs NIM

                       

Over the last twenty years ROA net of fees has declined by nearly 100 basis points. Conversely, fees and other Non-Interest Income (NII) haves risen by (only) 70 basis points.

If you’re not setting non-interest income targets and attempting to influence member behavior you’re letting your members manage the bottom line.

How Do I Target the Right Level of Non-Interest Income?

Each of these net income “levers” has a number of opportunities for managing them more effectively. I’d start by comparing how my NII equates to peers. The following chart recently published by Callahan provides breakdown by the percentage each component provides to the NII pie.

NII breakdown

How does your breakdown compare? Are there significant differences you wouldn’t expect based on your credit unions values? While the chart doesn’t provide a level of NII to average assets if there are substantial enough differences or complete categories missing from your income statement those may be an area to start exploring for additional NII opportunities.

There generally aren’t any easy answers to the questions I’ve posed. In order to get them right it requires you to be true to the principles your credit union operates by, and at times you won’t like the results.  If you find yourself in need of a guide in the process, don’t hesitate to reach out. That’s why we’re here – to help CU Succeed.

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Working the Plan

© Copyright 2011 CorbisCorporationThe holidays are behind us and the New Year is here. Time to get to work on actually implementing that strategic business plan you’ve toiled over for the better part of the last quarter. You know success is waiting to be had, if only the thoughts you’ve so painstakingly crafted in black and white could be brought to life in your credit union. Whether you’re struggling with where to start, or past history says you get derailed somewhere later on in the calendar year, let me share a few sure fire ways to get going and stay on track as the year progresses.

Getting started:© Copyright 2010 CorbisCorporation

Communicate, communicate, communicate – make absolutely certain your entire staff not only knows what the critical goals and organizational initiatives you must achieve this year are, but that they also understand the “why” behind them.  Based on my experience this is the cornerstone that must be laid correctly to have any chance of achieving your desired results.

Dealing with leftovers – just like the abundance of uneaten food we had to deal with over the holidays – if we don’t wrap up, properly dispose of, or digest the remaining projects in a timely manner stuff can go bad in a hurry. Don’t let last year’s unfinished assignments continue to consume precious resources this year – hold those responsible accountable to produce tangible results now. While any organization with an ambitious agenda will have these issues to deal with, use their timely completion to set the tone for a year of execution, not excuses.

Creating congruency – be certain that the critical goals and initiatives from the organization’s strategic plan match up with the individual & departmental goals for the year. If your credit union’s overall plan reflects significant changes in key performance metrics but similar measures on which an individual’s performance will be based reflect only modest improvement, what do you think the actual outcome will more likely be?

Staying on track:Business Meeting at Conference Table, High Angle View

Reporting Progress – updates and results should be provided on at least a monthly basis, if not more frequently. By providing clear, concise updates your team will start to feel the positive energy that is created by momentum. Conversely, if there is little to report the results will quickly reflect inertia.

Clarify expectations upfront – Expectations are tricky. Are you more concerned with the end result or are there critical factors along the way that must be “done right”? Has the scope been properly identified to provide the operating boundaries which will eliminate the potential for creep to set in and cause unnecessary delays? The more clearly you can define the vision at the outset, the faster objectives can be met and the greater your chances for success.

Demonstrate support through resource allocation & empowerment – Once you’ve plainly stated the critical objectives and success factors get the right resources assigned to the job and stay out of the way. Make sure the team adequately represents the business lines that will be instrumental in accomplishing the work and that ultimate ownership is already identified. Provide them with the right level of access to the necessary tools required – no more, no less. Then be content with those timely progress reports (see above).

Embrace disciplined flexibility – Do you have a process in place to deal with potential changes to the plan? How you handle the pace of change in today’s world can be a critical factor in your success (or failure).  Don’t overreact, don’t get caught up in appeal of shiny new objects or “me too” thinking. Do have a disciplined process or structure in place to effectively manage changes in a timely manner when the circumstances warrant. Always remember to keep your organization top priorities in place while responding appropriately to the ever-changing environment around you.

That’s it. Grab a cup of coffee (or two) it’s time to get to work. Make 2014 the most fulfilling and rewarding year ever – on all fronts. That’s my resolution – to CU Succeed.

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Taking a Year End Inventory

© Copyright 2010 CorbisCorporationCU Succeed Image

Over the next month many of our counterparts in the manufacturing or retail industries will be conducting that painful year-end inventory.  This got me to thinking (dangerous as it may be) if it is such a tedious process why do they do it and is there an equivalent in the financial services industry? 

The answer to the first part of the question seems to be they primarily perform it to validate the information they will be providing in their annual financial statements. However, in the process of counting and confirming what they believe they are in possession of they may uncover some critical truths about their operations.  Some basic questions that would be worth asking might be:

  • What items just aren’t selling at the rate desired?
  • Where do we have significant waste that is the product of our processes?
  • Do we have suppliers and vendors that are not delivering on their contractual promises?
  • Where do we have substantial discrepancies between what we believe the state of our business to be and hard cold reality?

These are all important questions that merit further consideration by financial institutions as well.  While the balance sheet and income statement may be valid places to start the “inventory” process there are some real short-comings if we look no further. Let’s look at each of the questions above as it might be applied to a credit union:© Copyright 2010 CorbisCorporation

  • Product sales may be reflected on the balance sheet, yet are these numbers potentially more indicative of the economic and/or interest rate environment? For example, wouldn’t you expect mortgage loan balances to grow significantly in a rate environment where borrowers can qualify for larger loans? Do we look at the number of actual products (accounts) or services added to see if we’ve been able to make more sales, more efficiently in lieu of potentially being deceived by results that weren’t largely a product of our efforts?
  • What’s checking account churn look like at your institution? How many accounts do you have to open just to stay on the level? Given the discomfort associated with opening a new account and setting up all of the ancillary yet necessary services (debit card, bill pay, mobile access) why would anyone want to switch? Yet far too often there is something we’re doing to cause customers to bolt. Isn’t that a significant waste of an opportunity to create retention initiatives and build deeper relationships?
  • As a consultant who works primarily with mid-sized credit unions most of my clients are heavily dependent  (dead in the water without) upon the services of critical 3rd party providers and vendors.  Where is our institutions reputation suffering as a result of “strategic partners” who haven’t delivered as promised? Is this the year we actually decide do something about it?
  • What are the critical business objectives, goals or measures that we (yet again) failed to reach this year? Be honest enough with yourself to strip away the external excuses and think about what you will really need to change internally in order to meet or exceed those goals in 2014.

© Copyright 2011 CorbisCorporation

It’s time to get real folks. Being nice, having mobile apps and offering competitive rates (like there’s a margin to be had) just isn’t going to cut it anymore.  We have to be disciplined enough to stay focused on the limited number of strategic differentiators our unique client base values, execute upon them flawlessly and not allow ourselves to be deceived by outside influences that are beyond our control.

I guess I now see why the inventory process is so painful.  One final thought – do the inventory now, allowing you time to enjoy the holiday season. Then make it your New Year’s resolution to change the outcome in 2014. As always, if you need assistance I’m just a call or a click away.

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