The $3 billion Catalyst Corporate FCU announced Oct. 29 the completion of itspurchase and assumption of the Phoenix-based First Corporate Credit Union, a so-called pass-throughcorporate that struggled to gain enough scale to replace servicesprovided by U.S. Central FCU.

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The purchase and assumption agreement between the two corporatesand their regulators is unique because FirstCorp will retain itsexisting state charter for seven years without federal depositinsurance as its legacy assets either mature or are sold. Neitherthe investments nor $35 million in FirstCorp capital will betransferred to Catalyst.

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“It was necessary to develop a plan that would insulateCatalyst’s membership from risks posed by the legacy assets on theFirstCorp balance sheet. Taking on any risk was not an acceptableoutcome for us,” said Catalyst President/CEO Kathy Garner.

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FirstCorp Chairman Dave Doss said the board will continue tomeet twice a year to review the investment portfolio and decidewhether to hold on to the securities or sell them. As thesecurities mature, the earnings and principal will be returned tomembers on a capital ownership basis.

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With only one security currently reflecting a loss, Doss saidit’s very likely members will recover all of the capital theyconverted from member capital shares to perpetual contributedcapital in 2011. Per the business plan, Doss said FirstCorp plansto return $15 million to members in February 2013 and will returnat total of $20 million within the first year or two.

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That’s good news for FirstCorp members who made the transitionto Catalyst Corporate, because they had to pony up new capital tobecome full members of their new Plano, Texas-based corporate.

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Doss said back when members converted their capital in 2011,FirstCorp was attempting to expand by picking up new members fromthe failed Western Corporate FCU. However, he said too many formerWesCorp members were taking a wait-and-see approach to what wouldcome of WesBridge and its capitalization effort, and others werehesitant to invest capital anywhere after absorbing WesCorp’scapital losses.

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When former President/CEO Pete Pritts resigned, the FirstCorpboard re-evaluated its expansion plan and decided to pursue amerger instead.

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“With U.S. Central going away, I think it put more emphasis onthe need for us to acquire scale, and given the number of creditunions in Arizona, that was a challenge,” Doss said. “Ultimately,the board recognized our primary responsibility was to provideservice to our members and protect their remaining capital, so ourbest option was to seek out a partner that could bring asustainable business model to the table.”

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Doss said he did field a few tough questions from members duringa series of town hall meetings about whether FirstCorp wasconsidering consolidation when it convinced members to converttheir capital. But, for the most part, he said there was littlegrumbling about the decision.

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Forty-two of 48 FirstCorp members agreed, deciding to make themove to Catalyst, a number both Garner and Doss said exceededexpectations laid out in the business plan.

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Garner said the unique purchase and assumption could serve as atemplate for future corporate consolidations. She added she thinksmore corporates will choose to merge or otherwise consolidate withthe closing of U.S. Central FCU, announced the same day as thecompletion of the FirstCorp deal. Catalyst is not currently eyeinga new corporate acquisition, having merged with Georgia CorporateFCU in September 2011 and acquiring Western Bridge Corporate FCUassets in July 2012 before the assumption of FirstCorp just threemonths later. However, Garner said Catalyst is open to thepossibility of additional deals.

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“As the board looks at the future we will continue to considerconsolidations,” she said. “We are in a good position to take themon as long as they benefit our members and theirs. We have a veryscalable model, which we intentionally built coming out of theconservatorship.”

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Catalyst Corporate and its wholly owned credit union serviceorganization, Catalyst Strategic Solutions, provide wholesalefinancial services to credit unions in 20 states, with offices inDuluth, Ga.; Honolulu; and Ontario, Calif. Garner said Catalystwill not maintain FirstCorp’s Phoenix office. Catalyst now counts1,284 capitalized member credit unions.

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