The $7 billion Alliant Credit Union and the $170 million Continental Federal Credit Union entered into an agreement to merge operations following recent approvals from each institution's board of directors, the cooperatives said Sept. 2. The combined entity will go forward under the Alliant Credit Union banner once the merger receives regulatory approval and the integration is complete, which is projected to be in January 2011.

The Chicago-based Alliant was founded in 1935 to serve United Airlines. In 2003, it expanded its charter to add select employee groups that now number about 150. Of its 240,000 members, 160,000 are active or former United employees. With a home base in Tempe, Ariz., CFCU was chartered in 1952 and now serves 24,000 members with branches in California, Arizona, Texas and New Jersey. The CU's separately branded US Airways Credit Union will be included in the merger.

It was shortly after United Airlines and Continental Airlines revealed its merger agreement in May that the two CUs begin serious discussions about a possible merger, said David Mooney, president/CEO of Alliant. Even if the airlines had not moved to combine, the CUs may have still explored a possible merger.

“I think there would have been interest. When you look at our background, there's a strong strategic fit. We have similar businesses and operation models,” Mooney said. “Certainly, with the pending merger of the airlines, it makes imminent sense to combine the two credit unions now.”

Continental FCU President/CEO Thomas Martin reminded members of a promise he made in 2009 when he took the helm: “to make the financial success of this membership the No. 1 priority.” Merging with Alliant will help realize that goal, he said in a message on the CU's website.

“Alliant understands the unique financial needs of airline employees, and they are dedicated to consistently providing superior financial value through high returns on deposits and low rates on loans with helpful, knowledgeable and memorable member service,” Martin said.

Mooney said the merger makes even more sense now because of the realization of increased economies of scale that will reduce unit costs, strengthen Alliant's cost advantage and further enhance the CU's financial value proposition. Alliant will also increase its presence and access in several key large metropolitan areas where Continental FCU operates. Alliant has 10 branches in Illinois, California, Colorado and Virginia whereas Continental FCU has seven branches.

Mooney said Alliant is in the process of examining where to consolidate and eliminate overlapping expenses. There could be some branch closures in areas like Los Angeles where Alliant and Continental have branches in close proximity, he said. The closures will also be driven by what the combined airline does with its location consolidation plans.

Alliant Chief Operations and Technology Officer Rudy Pereira has been named Continental FCU's interim CEO in charge of managing day-to-day operations. Martin will serve in a consultant role to assist Pereira during the transition. After the merger is complete, Martin will depart, Mooney said. At this time, there will be no combining of the respective boards of directors. However, because Continental and US Airways serve significant fields of membership, there will be strong consideration of seeking out candidates to serve on Alliant's 11-member board.

With a net worth ratio of 3.39%, Continental FCU was considered “significantly undercapitalized,” according to NCUA Call Report data as of June. It had a net income loss of negative $4.29 million and undivided earnings of negative $1.76 million. The net interest income after provision for loan and lease losses was negative $1.04 million. Alliant's financials were strong for the same period with a “well-capitalized” net worth ratio of 9.51%. Mooney said CFCU's financials “were not an issue once we did our due diligence.”

“They have encountered some loan quality issues and some expense issues,” not the best scenario to be in in the middle of a recession, Mooney said. “We were comfortable with their financial position, and they have been stabilized. We are very confident that financially, it will add to our performance through the combined situation.”

The merger will mark the first time Alliant has linked up with an airline-FOM CU, Mooney said. In 2008, Alliant purchased the assets of the liquidated Kaiperm Federal Credit Union of Oakland, Calif. A few years ago, a small SEG-affiliated CU merged with Alliant.

“We're not specifically looking to grow by merger acquisitions. We will certainly consider them but there has to be a compelling financial justification,” Mooney explained, adding organic growth will continue to be the direction. A “good opportunity” to merge would mean a strong strategic fit, a SEG base and similar operation models.

CFCU has been quiet on the merger front since an industry precedent took place in March 2007. It was then that the $2.7 billion Wings Financial Credit Union, a former foe, attempted what some described as the CU movement's first hostile takeover attempt. Despite CFCU declining Wings' merger proposal, Wings continued to campaign, targeting members and using other tactics to get the CU to bend. After a month of legal threats and other sideline action, the merger attempt was halted by the NCUA when it ruled that $200 payments Wings had offered CFCU's members should the merger go through were impermissible under the Federal Credit Union Act. Wings has since partnered with several airline to serve their employees. Meanwhile, the Apple Valley, Minn.-based CU has applauded Alliant and CFCU's merger plans.

“We have long believed that a merger would best serve the interests of Continental's members and would create greater service opportunities for the entire aviation community,” said John Wagner, vice president of marketing at Wings, in a Sept. 7 statement. “As a result, we're pleased to hear of the proposed Alliant-CFCU merger and will be following its progress with interest.”

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