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SANTA CLARA, Calif. – Instead of just shuttering branches and pulling out of areas they don’t feel are strategically important any more, the $1 billion Western FCU and $714 million KeyPoint CU decided to find a cooperative way to still close branches, but not shut out their members. “We have several branches, but only one in Southern California, most of our focus is in Northern California. We made a decision to close down the one in Orange County (Irvine) and instead of just pulling out and leaving our members high and dry, we decided to talk to our local credit unions down there,” said Tim Kramer, CEO of the Sunnyvale-based KeyPoint. Those talks led to Manhattan Beach-based Western FCU and to a very unique arrangement. Western FCU has had a presence in Sunnyvale for 20 years, but decided it was time to pull out to pursue other strategic markets. The two CUs worked out a swap. Western will acquire KeyPoint’s share accounts served out of KeyPoint’s Irvine branch (and the branch itself), and KeyPoint will acquire the share accounts of Western’s members who were served out of a Sunnyvale branch. Western will renovate and re-open KeyPoint’s former branch as a Western branch as part of the deal. Since Western’s Sunnyvale location was actually a small office inside of one of KeyPoint’s larger branches, KeyPoint will just continue to serve Western’s members out of that location. As part of this deal, all the members involved will automatically become members of the acquiring credit union, unless they opt out of the arrangement. Interestingly, only share accounts will transfer, loans will not. For those members that have loans, they will maintain membership with both CUs until the loans expire. The CUs said doing this deal with the loans would be too complicated, and if you move the share accounts, you’re still reaching those members who have the loans. “A loan is a term contract. Once your car loan is paid, it’s done, whereas core deposits remain active. They don’t have a defined term. We have a very high roll over rate with our certificates for example,” said John Bommarito, CEO of Western FCU. Obviously dual-membership could cause some confusion, so the CUs issued customer letters to all members affected to explain what is happening. Both CEOs said they don’t expect too many members to opt out of the arrangement, because they would then lose their local branch access. Bommarito is excited about how well this will work out for members. “It’s just our own gesture to find a suitable home for these members as we leave the market. We think it’s a unique way for credit unions to be able to execute a strategy (leaving a market) that isn’t always member friendly,” said Bommarito. “You find a credit union that supports your values, supports members and the members involved are the beneficiaries.” “One of the keys here is the member ultimately decides. If they don’t like it, they can check the box and opt out,” said Kramer. These two CUs were probably better suited to do this than most since for years they have shared branch space. Bommarito and Kramer said in order for this to work you have to be willing to lose some very good members and the business they bring. KeyPoint is losing approximately $50 million in deposits that will go to Western, and Western is moving approximately $17 million to KeyPoint. But they also conceded that high-deposit members can be difficult to sustain without a branch presence anyway. As is often the case with CU mergers, the most difficult aspect will be the core system changes. KeyPoint is on an Open Solutions system and Western is on XP. The systems will have to be retrofitted to import the share accounts, while maintaining the loan accounts. “That point is more tantamount to a merger than anything else. The pain members feel during mergers or conversions will be no different here,” said Bommarito. [email protected]

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