o The merger would mark Alliant's first with an airline-linkedCU.

o Alliant said Continental FCU's losses were examined with duediligence.

o Former Continental FCU foe Wings Financial applauds the mergerplan.

More than four months after United Airlines and ContinentalAirlines announced merger plans that would make the two the largestsingle carrier in the world, the credit unions serving theiremployees are following suit.

The $7 billion Alliant Credit Union andthe $170 million Continental Federal Credit Union entered into anagreement to merge operations following recent approvals from eachinstitution's board of directors, the cooperatives said Sept. 2.The combined entity will go forward under the Alliant Credit Unionbanner once the merger receives regulatory approval and theintegration is complete, which is projected to be in January2011.

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

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

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

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

“Alliant understands the unique financial needs of airlineemployees, and they are dedicated to consistently providingsuperior financial value through high returns on deposits and lowrates on loans with helpful, knowledgeable and memorable memberservice,” Martin said.

Mooney said the merger makes even more sense now because of therealization of increased economies of scale that will reduce unitcosts, strengthen Alliant's cost advantage and further enhance theCU's financial value proposition. Alliant will also increase itspresence and access in several key large metropolitan areas whereContinental FCU operates. Alliant has 10 branches in Illinois,California, Colorado and Virginia whereas Continental FCU has sevenbranches.

Mooney said Alliant is in the process of examining where toconsolidate and eliminate overlapping expenses. There could be somebranch closures in areas like Los Angeles where Alliant andContinental have branches in close proximity, he said. The closureswill also be driven by what the combined airline does with itslocation consolidation plans.

Alliant Chief Operations and Technology Officer Rudy Pereira hasbeen named Continental FCU's interim CEO in charge of managingday-to-day operations. Martin will serve in a consultant role toassist Pereira during the transition. After the merger is complete,Martin will depart, Mooney said. At this time, there will be nocombining of the respective boards of directors. However, becauseContinental and US Airways serve significant fields of membership,there will be strong consideration of seeking out candidates toserve on Alliant's 11-member board.

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

“They have encountered some loan quality issues and some expenseissues,” not the best scenario to be in in the middle of arecession, Mooney said. “We were comfortable with their financialposition, and they have been stabilized. We are very confident thatfinancially, it will add to our performance through the combinedsituation.”

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

“We're not specifically looking to grow by merger acquisitions.We will certainly consider them but there has to be a compellingfinancial justification,” Mooney explained, adding organic growthwill continue to be the direction. A “good opportunity” to mergewould mean a strong strategic fit, a SEG base and similar operationmodels.

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

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

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