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SAN DIMAS, Calif. – WesCorp and PacCorp have agreed to disagree about the need for a “consolidation” between the two corporates, and now WesCorp says it will begin building up its local presence in Hawaii with a Honolulu-based office scheduled to open in the first quarter of 2002. At $15 billion WesCorp is the nation’s largest corporate. It has a national FOM with 44 Hawaii CU members, up from 22 in 1998. PacCorp is the primary corporate for Hawaii and the Guam Territories, serving about 100 Hawaii CUs. Earlier this year WesCorp tenured a “consolidation” offer to the PacCorp Chairman and CEO – it was rejected. WesCorp President/CEO Dick Johnson said WesCorp was only doing what it’s been asked to do by Hawaiian CUs. “Some of the larger credit unions said `You really ought to get over here, show a presence in Hawaii. If you’re here people will take advantage of your services, they’re not going to do it if you’re far away.’ We are responding to what the (Hawaii) credit unions asked for,” said Johnson. Johnson said it doesn’t make sense to duplicate the physical presence PacCorp already has in Hawaii. The best way for Hawaii CUs to enjoy the economies of scale of WesCorp and the local presence of PacCorp is a WesCorp/PacCorp consolidation, said Johnson. In an August 6 letter from Johnson to Hawaii CU CEOs, Johnson outlined why he believes a consolidation makes sense. “We all know PacCorp currently relies on third-party vendors……and another corporate to serve Hawaii. Without economies of scale, PacCorp can hope for little more than to be a reseller for other service providers and local loyalties will no doubt be stretched as member credit unions are asked to further subsidize the operation through below market rates and high fees. My hope was, and continues to be, to discuss how a WesCorp/PacCorp partnership could replace all of these weaker vendors with a single provider, delivering better rates, lower fees and more value to you and your peers,” stated Johnson. “Our ability to add value has led seven credit unions to select us for share draft processing and, for several months now, a number of Hawaii members have asked us to do even more in the area of correspondent services,” stated Johnson. Johnson goes on to say that the only way WesCorp can meet more of Hawaii CUs’ needs is to develop a “local” presence. But doing this would cause PacCorp “irreparable harm.” Johnson also said if PacCorp does eventually decide to consolidate with WesCorp, PacCorp’s current facility and personnel will be “redundant and unnecessary” if WesCorp has already built its own infrastructure in Hawaii. PacCorp President/CEO Rand Yamasaki addressed Johnson’s letter in the “President’s Message” section of PacCorp’s October newsletter. “Because WesCorp realizes that they must establish a more substantial local presence, their CEO feels that `unfortunately this action would require duplication of the infrastructure that you have already built in PacCorp and will likely cause irreparable harm to your local corporate.’ Can WesCorp duplicate PacCorp’s overall value and personalized attention to you? PacCorp does more than merely boast of offering superior rates, plentiful reserves that generate interest to pay for operations, and a large infrastructure,” stated Yamasaki. Yamasaki then illustrated how PacCorp goes above and beyond to serve its members, pointing out things such as one-one-one consultation with CUs of any asset size, ALM educational sessions to address today’s narrowing net interest margins and spreads, and other services. Yamasaki’s message in PacCorp’s October newsletter spurred Johnson to rebut some of his points in yet another letter sent to Hawaii CU CEOs dated Nov. 8. “We never said a bad word about PacCorp. He took parts of our letter and tore them apart,” said Johnson. “He failed to mention in that newsletter that we offered a simple choice of a consolidation of our institutions.” In the Nov. 8 letter Johnson stated, “We are disappointed PacCorp decided to respond to our service initiatives in such a publicly negative fashion. As I stated to our Island members in the attached letter, we are obligated to meet our members’ demands for service. I have based my entire credit union career on this simple principle. In Hawaii this means we must become a `local’ service provider – maintaining a local office and employing Island residents in our new Honolulu office. We can and will duplicate infrastructure that already exists, but we do so reluctantly because we are spending credit union money – your money – and we would prefer to return it to you and your peers.” Pat Langille, a former PacCorp EVP and now regional manager, Hawaii for WesCorp, will head up the Honolulu office. Johnson said he or someone from his staff will attend all the Hawaii meetings and try to be as responsive as possible to Hawaii CUs. Johnson said he was also upset with Yamasaki’s reference to serving CUs of all asset sizes, implying that WesCorp doesn’t provide the same level of service to smaller CUs. Yamasaki was reluctant to address the Johnson letters or the consolidation offer. “They (WesCorp) did approach us. We think they are a fine organization. I respect Dick Johnson, but we feel it is in our members’ best interest to remain as an independent service provider. Our members need us,” said Yamasaki. Yamasaki said it’s a matter for the two corporates to discuss behind closed doors, and not to be aired in front of the entire nation. PacCorp even pulled the download of its October newsletter containing Yamasaki’s response to Johnson’s Aug. 6 letter off its Web site (www.paccorp.org). As for WesCorp’s planned Honolulu office, Yamasaki said, “We don’t have a problem with that. There’s a lot of local competition for credit union business.” Johnson agrees with that statement, saying Hawaii CUs have been using many services, such as ATMs, from the Bank of Hawaii for years. Johnson admitted that ATM service is a tough area to get into, but that Hawaii CUs are also investing a lot of money in Bank of Hawaii. PacCorp does offer its PRIZM ATM network, yet it’s not as vast as Bank of Hawaii’s. Twenty-one of PacCorp’s member CUs use PRIZM. This is the second time WesCorp has attempted to merge with a smaller corporate in the last two years and failed – the first being Washington Corporate FCU, which eventually merged with Northwest Corporate CU. Johnson said he’s certain that some people look at WesCorp as the big guy trying to swallow up the little guys, but he maintains these are purely business decisions that would make good business sense for the corporates and the credit unions they serve, which is good news for credit union members. In the case of the Washington Corporate FCU potential merger, Johnson also wrote letters to the CU CEOs laying out his case as to why WesCorp is the better merger partner. That caused some tension between Johnson and Northwest Corporate CU President/CEO Kathy Garner. Johnson points out that the press never reported the follow-up letter he wrote to Washington CU CEOs once they picked Northwest Corporate. “We wrote in that letter that we thought they should have a choice and they picked Oregon (Northwest Corporate CU). That’s fine,” said Johnson, emphasizing that he wishes the new Northwest Corporate CU all the best. He pointed out that since Washington Corporate and Northwest Corporate merged, 19 credit unions from Oregon have joined WesCorp, bringing the number of Oregon CUs with WesCorp membership up to 48, or 43% of Oregon CUs. Asked why WesCorp couldn’t just continue serving Hawaii CUs remotely as it has been doing for years, Johnson said the CEOs are asking for a local presence that could help WesCorp deliver correspondent services, and that there’s a belief among Hawaii CUs that a local presence is needed for them to do more business with WesCorp. PacCorp does have a full slate of correspondent services, including item processing, which 42 of its members use. Johnson said he understands any reluctance among PacCorp and Hawaii CUs in believing WesCorp’s claims of only wanting to help the Hawaii credit union system. “If you look at the history of Hawaii, large corporation after large corporation has come there saying they have a great deal for them. They come in and rake in their money and leave. Hawaiians are used to people from the mainland coming in with big deals,” said Johnson, big deals that don’t pan out. He’s also aware of a strong sense of loyalty in Hawaii. “Loyalty is a wonderful thing, maybe the best thing. But being loyal to your members means paying the best rates you can,” said Johnson, which PacCorp could do, he believes, if it partnered with WesCorp. Johnson knows Hawaii CUs are intensely loyal to PacCorp, even saying that some are wary of doing business with WesCorp for fear that PacCorp will find out. Credit Union Times checked in with some Hawaii CU CEOs that use both corporates to get their take on a potential merger. “I think PacCorp in its products has not been competitive with WesCorp’s products. I think its fee structure is generally higher, more costly to our credit union, and what they offer in overnight funds is generally lower than WesCorp. We still use them (PacCorp) as our clearing house,” said Peter Leong, President/CEO of Hawaii State FCU. Leong said the whole “local” issue shouldn’t come into play. Hawaii CUs need to worry about the bottomline first. “Pure localism is not something that’s going to drive business decisions. To our membership it’s necessary for us to think in terms of minimizing our costs,” said Leong. “By combining organizations we’d have the local presence of PacCorp welded into WesCorp, the best of both worlds.” Ariel Chun, president/CEO of University of Hawaii FCU has a different view. “Personally I don’t see the need to combine them. I am also a member of WesCorp and can use them for certain services. I believe there is still definitely a need to have our own corporate,” said Chun. Chun doesn’t understand why a merger is needed given that Hawaii CUs can pick and choose products and services from each corporate. “It’s no different than a member being able to belong to more than one credit union.” She believes just as smaller CUs have a place as long as they are meeting member demand, so do smaller corporates. “I don’t think everyone has to be large. There are members who want to deal with smaller credit unions and credit unions that want to deal with smaller corporates. It’s good to have a corporate here, and I want to support it.” Throughout the interview, Johnson referred to the deal as a “consolidation.” He admitted that it would be termed a merger, in the business world, but “consolidation” is indicative of how WesCorp would handle the deal. “We’re not interested in getting rid of the PacCorp name or people,” he said. He noted the PacCorp local presence is a powerful, much-needed tool for Hawaii CUs that WesCorp wouldn’t want to diminish. He said there’s been discussions about a consolidation for about two years, with things coming to a head this year. Johnson estimated that WesCorp has about 10% of Hawaii CUs’ investable funds, with PacCorp having about 12%. “They’ve maintained that (12%) all the time. We’ve never taken that away from them,” said Johnson. Yamaski estimated that PacCorp has about 16% of its members’ investable funds. Moving deeper into Hawaii isn’t about more dollars for WesCorp, said Johnson. “There’s not that much money in Hawaii. It’s not that big a deal for WesCorp. We’re in 31 states. We have 39 or 40 of the top credit unions in the country. We are responding to what credit unions have asked for. Nobody else has asked us to do this, except in Hawaii.” Hawaii has about $4.5 billion in CU assets. Being turned down by PacCorp doesn’t change Johnson’s view of the business sense of a consolidation. “We have something to offer. Just because they don’t want to do this doesn’t change my mind, doesn’t mean I change my opinion. I’ve spent my whole life and career doing what I thought was right.” As for Yamasaki, all the written debates and talk don’t mean much for PacCorp. “It’s business as usual for us. We’re going to continually do what our members expect us to do, providing the personalized attention, which they deserve and value, regardless of asset size.” [email protected]

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