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SAN DIMAS, Calif. And NASHVILLE – Corporate credit union mergers have slowed a bit from their rapid pace in the late `90s, but a new merger has surfaced that may get all that old consolidation talk flying again. The $26 billion WesCorp and the $1 billion VolCorp have announced merger plans. It’s an interesting deal on many levels. For one it’s yet another example of how the corporate network is shattering the old rules of geographic boundaries. This has been most evident in recent years in corporates crossing state lines to add new CU members. WesCorp is in California and VolCorp is in Tennessee, but both corporates said with today’s technology, geography doesn’t mean what it once did. They also stressed however that local presence is key to this deal, and without it there would be no merger. VolCorp will maintain its 18,600 square-foot office (built just three years ago) in Nashville, and its 49 staff members will stay in place. The Nashville office will become WesCorp’s Southeastern Operations Center. “Certainly in the board’s mind and in management’s, we wanted to keep this location, primarily to be able to continue to locally serve our members in Tennessee. This merger will bring us a bigger variety of services to our members and potential members in that region,” said VolCorp CEO Bruce Fahnestock. Fahnestock said VolCorp paid close attention to how WesCorp handled its merger with Hawaii-based PacCorp. WesCorp delivered on its promise to keep PacCorp’s office and staff in place; in fact it even staffed up in Hawaii. The time zone difference will have to be worked out in this merger. VolCorp opens each day at 7:30 a.m. so it will be open a few hours before WesCorp. WesCorp CEO Bob Siravo said that could turn out to be an advantage as WesCorp may look into VolCorp’s staff being able to serve WesCorp members during those hours. Fahnestock said VolCorp has been talking about merging as far back as 10 years ago. “With more regulatory requirements and expense creep, we’ve been discussing how best to serve our members. Expense creep is something all corporates have to be aware of. Corporates traditionally have very thin bottom lines. If you look at the cost of regulatory compliance and new technology, you’re general operating cost is going up 3 to 4% a year. You want to add basis points to the bottom line, but it’s getting harder,” said Fahnestock. VolCorp is not in bad shape by any means, he said. “We are not going to have a bad bottom line this year. We’ve reacted favorably to draw down of members’ money as they need it for liquidity. This merger is part of our strategy looking forward and certainly not a reaction to any kind of indication VolCorp isn’t making the cut.” Like many corporates, VolCorp has added services to increase its fee income. For example, it has a large consulting business that includes strategic planning, ALM, Web site design, ACH audits, charter conversion assistance, and others. “It’s pretty deep,” said Fahnestock. It’s also doing well on the item processing side. All but two of its Tennessee member CUs utilize it for item processing, and it even has some business in neighboring states. As for membership, it has picked up business outside of Tennessee. Fifty-two of its 258 members are located in other states. He said VolCorp hasn’t been hurt by other corporates marketing in Tennessee. “I consider competition a good thing. We haven’t been adversely affected. If we’ve picked up 52 members around the country, we can’t complain,” said Fahnestock. He noted that just three of VolCorp’s members are members of WesCorp. Fahnestock has been with the corporate for 15 years, nine as CEO. He said his ego won’t be bruised by losing his CEO title. “I enjoy what I’m doing. I won’t mind not having CEO after my name. It just doesn’t matter to me, my ego is not in that direction. I’m much more pleased by a member calling and saying one of our MSRs did a great job serving them, that’s what I care about.” Fahnestock expects his new title to be senior vice president of southeastern operations. This is the second merger deal under Siravo, a testament to bridge building, though he doesn’t see it that way. “This is about credit unions and what we can do collectively to get them the best deal. It’s about convincing partners that we are truly interested in their members and our whole focus is about the member client,” said Siravo. He noted that WesCorp still has to battle an image that it is interested in expanding for expansion’s sake. “There’s an imbalance out there in where credit unions are investing. I think some credit unions don’t realize what a good deal corporates are, and they have strong ties with local brokers. When I talk to my colleagues in the corporate world, I tell them when we go into their territories we’re looking to take money that is being invested outside corporates,” said Siravo. The VolCorp Board looked at all corporates, paying close attention to their investment rates, powers and services, before it narrowed its list of candidates down to WesCorp and Southwest Corporate. Each corporate submitted an RFP to VolCorp, and both were impressive according to VolCorp Chairman Blake Strickland, who is also CEO of the $445 million Tennessee Valley FCU. “Our board has been looking at this for a while. When you do strategic planning you want to look down the road and see what will be best for your members. We didn’t want to wait and think back and wish we did this earlier,” said Strickland. He said for him the local staff staying in place sealed the deal. WesCorp’s impressive rates and investment powers will benefit VolCorp members, but they will still be served by the same Tennessee staffers. Strickland said the board also considered the employees of VolCorp, noting they will have better benefits and more opportunities with WesCorp as a partner. A Surprising Merger Some corporate CEOs were very surprised by this merger given the strong health of VolCorp. Southeast Corporate CEO Bill Birdwell made no bones about it, saying he believes Southeast Corporate would have been a better fit for VolCorp. Birdwell of course knows VolCorp well as he was the CEO who turned it around. He joined the corporate in ’82 when it had -6% net worth, which using today’s standards would actually be about -21%. Birdwell implemented a three-year plan that brought the corporate into positive territory – $695 net worth by June 30, 1985. “I’m surprised and disappointed. I think it’s a strong corporate. I was surprised to see they want to give up the equity built on the shoulders of the credit unions,” said Birdwell. Birdwell, who was CEO at VolCorp until 1996, said back in the early `90s he thought the corporate should look at a merger given that its capital position was so weak, but today that’s all different. “The board chose not to do it at that time because they didn’t want to give up that sense of ownership,” he said. He questions how Tennessee CUs will benefit given that if they want to take advantage of better rates from WesCorp they can simply join on their own. “We have some Tennessee credit unions as members. They belong to WesCorp, Southwest and others. Credit unions are diversifying. I don’t know why they would want to give up their capital,” said Birdwell. He said Southeast would be a better fit because it already knows many of the Tennessee CUs and Birdwell believes the corporate has some better products and services than WesCorp. “If they felt they needed to merge, we were a better fit.” FirstCorp President/CEO Pete Pritts was also surprised by the announcement. “It took me off guard. For a while we had a lot of mergers. Then we saw some mergers announced but not succeed, and now this one. I would have expected a corporate closer to Tennessee to be involved, but maybe this is a trend. Logistically they’re very far apart, but other than cash delivery, the other things can be overcome,” said Pritts. Pritts seconded Fahnestock’s take on increased compliance costs with regs such as the Bank Secrecy Act. As far as some corporates not having terrific bottom lines this year, that’s cyclical. “I think corporates go counter to what credit unions are doing. When credit unions are out there making nice loans, their numbers get better, ours don’t,” said Pritts. Doug Wolf, CEO of MidWest Corporate was surprised by the merger because of VolCorp’s health, but he can understand the compliance costs as a factor. “I’ve said for a long time, probably one of the main reasons as a small corporate we would end up merging, is for regulatory issues, not financial issues. Right now our exams are coming up good, so there’s no pressure to do anything,” said Wolf. Caren Gabriel, CEO of $1 billion AEDC FCU in Tullahoma, Tennessee, said she trusts the board on this issue. “They’ve looked at it and if they’ve determined we will benefit, I can go along with that,” said Gabriel. She said it doesn’t surprise her because she sees compliance costs force small CUs to merge all the time. As far as WesCorp being on the West Coast, Gabriel said credit unions deal with all sorts of vendors and many are not based in their states. [email protected]

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