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DENVER – Merger talk is suddenly gripping Colorado credit unions with the biggest announcement coming from the $564 million DPS CU of Denver planning a September combination with the $150 million Safeway Rocky Mountain FCU of Centennial creating Colorado’s third largest. While news of the consolidation was a surprise to many, both CUs said initial merger talks began more than a year ago with management citing economies of scale, service demands and competition from out-of-state banks as factors prompting the decision to combine. Meanwhile, four northern Colorado CUs led by the $300 million Norlarco of Fort Collins and Premier Members FCU of Boulder said they are “researching and analyzing” a possible combination which would create a $620 million CU. Also in the group are Colorado Central of Arvada and Horizons North of Northglenn. Respective CU boards are slated to review a possible merger pact within 90-120 days. Chuck Mabry, president of Norlarco, said CUs everywhere are “evaluating how to do business in a changing marketplace with a wider array of enhanced products on the market” while operating with thinner margins amidst heightened competition from banks. That is the case particularly in central Colorado where CU executives point to product inroads made by TCF bank of Minneapolis as well as Washington Mutual of Seattle which on Jan. 27 announced the opening of 10 more “retail stores” on Colorado’s Front Range as part of a 250-branch expansion nationwide in 2005. But the proposed merger of DPS with Safeway described as a unique partnership of “two healthy and viable organizations-something pretty different from your typical merger” dominated news circles here last week. In the formal announcement, C. Alan Peppers, president and CEO of DPS and who will retain the CEO title of the combined organization, said the new CU, which will rank in the top 150 U.S. CUs, will have a membership of 56,000 and be able to provide a broader range of services to members. The merger pact has been approved by both boards of directors and is pending with regulatory agencies and awaiting a vote of the Safeway Rocky Mountain FCU membership in June. Membership of the Safeway CU, chartered in 1951, includes employees of the Rocky Mountain Division of the San Francisco-based Safeway grocery chain. Membership of DPS, chartered in 1934, includes employees of the Denver Public School System. Both CUs have multiple SEGs and together eight branches. A name for the combined organization is expected within about three months. Peppers has pledged there would be no employee layoffs and the combined board of directors “will be expanded to 11 members to allow for proportionate representation from both credit unions.” Darrick Weeks, president/CEO of Safeway and who will become an officer in the new organization, said for more than a year and a half his CU has been exploring a linkup with a larger CU in Colorado which could provide added member services and allow for greater expansion in such areas as business loans and mortgage servicing. “My board long understood that we could always grow on our own organically and there’d be nothing wrong with that or we could grow dynamically by finding a merger partner,” explained the 36-year-old Weeks in recalling what he said was indeed a methodical process of deciding to explore a consolidation. In informal talks at lunch or at trade gatherings, Weeks said he discussed with as many as 10 top CEOs his merger plans and soon realized the synergy with DPS would work best. Peppers, 52, said his CU had for months been on the alert for possible merger partners and in talking with Weeks agreed that a partnership would benefit DPS as well, particularly in adding new branches. Both boards subsequently entered into a confidential letter of intent last October. Before moving ahead “with our business model,” Peppers said he and his staff researched the merger landscape talking with CU executives involved in deals done by Wescom CU in Los Angeles and in Oregon where a planned merger between Oregon Teachers CU and Oregon Community collapsed last summer. As merger plans proceed, the CUs are hiring Ciruli Associates, a Denver consulting firm, to assist with member communications, noted Peppers. The firm has long been involved in Colorado public policy issues and voter initiatives. Regarding the exploratory talks among the four northern Colorado CUs, discussions among them began in earnest about three months ago though the group had long partnered in various ventures. Norlarco and Premier First are co-owners of Centennial Lending Co. a CUSO-based mortgage and lending unit, while the group also has worked together in such areas as trust services, indirect lending and shared branching. “You know when you partner together like we have with Norlarco on lots of projects over time you get to know their organization and it gives you confidence about exploring the idea of joining together,” explained Thomas Evers, president/CEO of the $225 million Premier, which counts IBM employees at high-tech Boulder facilities among its 27,000 members. Evers said there are “rumors” of other combinations of smaller size CUs with larger brethren. Such discussions may be hastened by new FASB accounting rules effective Jan. 1, 2006, prompting CU boards to protect organization capital in a merger. The Premier CEO said he is not completely familiar with the FASB rules but from what he understands it may account for a lot of the recent discussion by $25-$75 million CUs which learn that their best route to properly manage their capital “and get the full benefit” is to partner with larger institutions. Mabry, of Norlarco and also chairman of the Colorado Credit Union League, said the decision for the four to come together resulted from the close cooperation and a realization “that if we stepped back a little and took a look we might be able to do more” as a single unit. Mabry stressed that the idea remains in the preliminary stage but all CUs whether in Colorado or elsewhere “want to find ways to do their job better” and thus a merger for his CU may turn out the most viable course. Like many states, Colorado over the years has witnessed a shrinking number of CUs from a high of 323 in 1972 to 150 today. On DPS-Safeway, Fred Joseph, Colorado’s acting financial services commissioner, said he was made aware last fall of the two CUs’ interest in merging. He said he understands the reasoning behind the action but his top concern, of course, remains safety and soundness and capital adequacy, a priority issue for small CUs which face “tough economic times and high expense.” Joseph, who is the Colorado securities commissioner and served as deputy CU commissioner for nine years, said the merger activity is hardly a surprise considering the growing competition from banks and insurance firms. “We have lots of competitors now, State Farm, Allstate.” On Safeway, Weeks, the CEO, said his CU remains the largest of those linked to the grocery chain serving its Rocky Mountain Division but there are other employee-based CUs in Washington State and Montana outside of California and still others “which may have changed their name and become community or multi-SEG..” “We’ve felt from the beginning of this process that we may not find a partner but we ought to explore the field,” he concluded. [email protected]

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