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Cal Coast, First Future Announce Nuptials

Two of San Diego’s largest and oldest credit unions are merging, creating the second-largest credit union in the county with more than $1.8 billion in assets.

The merger of First Future Credit Union and California Coast Credit Union, each with more than $900 million in assets, was announced March 27 to employees at both institutions.

The two entities were also scheduled to distribute a news release March 31.

If approved by regulators, the combined organization, to be called California Coast Credit Union, would serve 130,000 members with 26 branches, and employ 500.

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It would be second in size to San Diego County Credit Union, which has $4 billion in assets.

Driving the deal, which has been in the works since October, is the need for each institution to grow, but reduce costs to remain competitive.

“The feeling was to survive and grow in San Diego we needed to be larger and we needed to be more efficient,” said Marla Shepard, who will become chief executive officer of the new institution.

Jim McPheters, chief executive at California Coast, said his retirement would be effective April 1, but he will stay on until regulators approve the transaction, probably by June.

“My job as CEO of this credit union is do things that are in the best interests of the membership and this one thing we can do that’s in the best interests of the membership,” he said.

Kathy Cady, California Coast’s senior vice president of member services, will become chief operating officer for the new institution.


New Branches In New Markets

There is some overlap in branch offices, and a few may close, but the plan is to continue expanding, opening more branches in new markets, Shepard said.

First Future has 19 branches and Cal Coast 11, with each operating a few branches in Riverside County.

The goal is to retain all employees from both entities, with those in similar positions given new assignments.

The new credit union would be “right-sized” by attrition, executives said.

As of the end of last year, Cal Coast had 286 employees and First Future 260.

“This is not like a bank merger designed to make money for stockholders,” McPheters said. “This is a credit union consolidation to benefit members by providing more branch offices, competitive rates, enhanced technology, new services and the same knowledge able, friendly employees whom members value.”

Rumors of the merger have been floating around the local credit union industry for weeks.

The two boards approved the transaction in late January.

“I think this is a very good fit,” said Max Paul, chief executive at Miramar Federal Credit Union. “Both are very conservative, and have been around for a long time. Their CEOs both know each other well. Together, these two will be able to be a stronger competitor to some of the larger credit unions.”

Shepard said the board authorized her to talk to two or three credit unions for a possible merger, and that Cal Coast was at the top of the list.

“She called me up to congratulate me on my retirement,” McPheters recalled. “And then she said, ‘By the way, we probably ought to merge our two shops.’ ”


Merger, Not An Acquisition

Because of their nonprofit status, credit unions can’t acquire each other but instead conduct mergers, or what is called a blending of assets.

This would be First Future’s third merger in a dozen years. In 1996, then-called Santel Federal Credit Union merged with San Diego Copley Credit Union. In 2001, Santel and Kearny Mesa Credit Union combined to create First Future.

The credit union’s roots go back to 1939, when it was called Solar Employees Credit Union.

Cal Coast is even older, starting in 1929 as San Diego Teachers Credit Union.

In 1999, it changed its name to California Coast. The institution found that many members , and potential customers , weren’t responding to advertising because of its name. The public assumed only teachers could join, McPheters said.

Both institutions have been growing, with First Future increasing $64 million in assets, or 7 percent, in the past year to reach $944.5 million. Cal Coast grew to $907 million, increasing by 5 percent.

Though both made profits, Cal Coast had net income of $604,450 in 2007, less than half the $1.3 million earned in 2006. The institution had to put more than $6 million into reserves to cover possible losses in delinquent and problem loans.

First Future also boosted reserves last year by $5.9 million to cover an increase in problem loans. Shepard and McPheters said borrowers with subprime loans with other lenders were having trouble repaying loans obtained from the two credit unions.

Both credit unions are well-capitalized, and both CEOs said the problem loans had no bearing on the decision to merge.

Under the approved plan, the headquarters for the merged institution would be Cal Coast’s relatively new offices in Kearny Mesa. “We’ve run out of room in Sorrento Mesa,” Shepard said of the 25,000 square feet of space.

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