CU Conversions, IPOs and The Local RotaryClub

Register now

FIFE, Wash. - (04/17/06) – When shares of Rainier PacificSavings Bank hit $16.26 earlier this year there was celebrating inthe boardroom of the ex-credit union, once known as Rainer PacificCU, if not at the local Rotary Club. Because that’s when88,000 Rainier Pacific options granted directors and managementbecame ‘in the money,’ that is, worth a premium. Theinsiders, at least five of whom are brothers in the local RotaryClub, engineered the January 2001 conversion from credit union andsubsequent August 2003 initial public offering, one of the mostlucrative yet for directors and managers of a converted creditunion. The maximum allowable 50,000 shares subscribed by all buttwo of the directors and managers at the $10 offering price hasyielded them each paper profits of $258,500, or 72%, so far,according to documents filed with the Securities and ExchangeCommission. In an unusual sweetener, each of the former volunteercredit union directors was also paid 7,200 restricted shares, worth$123,614 last week ; and options to buy 4,000 shares at $16.26each. Particularly sweet was the return by Chairman Edward Brooke,past president of the Tacoma Narrows Rotary Club, who receivedalmost twice as many restricted shares–13,400 worth$230,764–and twice as many options–8,000–to gowith the $358,500 profit he’s earned on his IPO shares in twoyears. That makes the ex-credit union’s IPO even sweeter thanmost because in most conversions the directors–RainierPacific’s are paid $10,000 a year in fees as well-don’treceive any restricted stock or options. But the sweetest of thebenefits went to fellow Rotarian John Hall, president and CEO ofthe former credit union. Hall was paid almost $600,000 in cashcompensation in 2004 and 2005; as well as 60,000 shares ofrestricted stock valued at $1 million; 140,000 options worth about$140,000; and employee stock ownership shares worth$55,287–easily five times his compensation the last year heran a credit union. He receives full ownership of the restrictedshares in five annual installments but maintains voting rights toand receives dividends on all of the shares immediately. Alsoreceiving restricted shares were: Victor Toy, senior vicepresident, 40,000 shares worth $686,900; and Joel Edwards, chieffinancial officer and former CEO of Washington CU Share GuarantyAssociation, the defunct private deposit insurer, 22,500 sharesworth $386,325.

For reprint and licensing requests for this article, click here.