A seemingly sleeping giant has awakened in Colorado.

Lakewood-based First Colorado Bancorp, at $1.5 billion of assets the state's largest thrift, agreed last week to acquire tiny Delta Federal Savings Bank for $5.5 million in stock.

It would be First Colorado's first acquisition since converting from a mutual holding company in December 1995. First Colorado is the state's second-largest independent financial institution, behind hometown rival FirstBank Holding Company of Colorado, which has $3 billion of assets.

Delta, with $39 million of assets, is on the other side of the Rocky Mountains from First Colorado's headquarters. First Colorado already operates 27 branches in nine Colorado counties, including Delta County.

"The merging of Delta Federal with First Federal strengthens our market presence in this region for the benefit of our customers and the community generally," First Colorado chairman and chief executive officer Malcolm E. Collier Jr. said in a press release. "This merger is a natural fit for our company."

First Colorado has been seeking to acquire another bank to help whittle down excess capital. The company, which converted to a mutual holding company in 1992, raised another $130 million in capital during its 1995 second-stage conversion, yielding a burdensome ratio of equity to assets of 16%.

As a result, return on equity has been dropping steadily during the past few years, from a booming 19.08% in 1992 to a meager 5.72% at the end of last year.

The company has used buybacks to cut down on capital, but is restricted under regulatory rules from buying back more than 10% per year during the first three years after a conversion. It has already bought back 20% in the past 18 months.

The thrift is also trying to grow its lending, but "you can only increase your lending activity so much," Mr. Collier said.

"They've been aggressive on stock buybacks and have also done a nice job on their dividend policy," said Laurie H. Hunsicker, analyst at Friedman, Billings, Ramsey & Co. in Arlington, Va. "They have a lot of excess capital, and acquisitions are something they've probably been exploring since converting."

Last year, First Colorado bid on Kiowa State Bank, but lost out to Denver-based Mountain Parks Financial Corp. Mr. Collier acknowledged he would have preferred a cash deal for Delta, but the smaller thrift wasn't interested.

Under the agreement with Delta, each share of Delta stock would be exchanged for First Colorado shares worth $30.

The transaction, which is subject to shareholder and regulatory approval, is expected to close in the fourth quarter.

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