ALEXANDRIA, Va. - Valentine's Day was a heartbreaker for two credit unions pursuing the industry's biggest merger.

Even insiders at Patelco Credit Union opposed its combination with First Technology Federal during a seven-hour hearing last week.

The National Credit Union Administration sponsored the hearing to consider the potential impact of the record-breaking $1.3 billion merger.

"Never in the history of credit unions have we had a merger of this kind," said NCUA Chairman Norman E. D'Amours. "We're considering issues that have never been considered before."

Observers expect the NCUA board to either block the deal or limit the membership of the new entity because opponents' testimony confirmed agency concerns that the merger would harm smaller credit unions and cooperation in the industry.

The NCUA said it will make a decision by March 16.

Of the 26 witnesses, 14 opposed the merger. The most surprising opponent was Barry Woodard, a Patelco director.

Mr. Woodard said he opposed the merger because it would lead to increased operating expenses, decreased capital, and diminished Patelco influence on the board.

Patelco acting chairman Robert L. Wenzel, who did not appear but sent Mr. D'Amours a letter, also came out against the merger. The NCUA chairman read from the letter, which claimed that Patelco chief executive Edgar F. Callahan plans to convert Patelco to a mutual savings bank if the merger is thwarted.

"It became very clear to me that Ed wanted this merger to happen at any price, even if we had to stop being what we have been for almost 59 years - a credit union," the letter said.

Mr. Callahan denied the accusation. Thomas Sargent, chief executive of First Technology, said an attorney at a planning session had discussed the possibility of converting, not Mr. Callahan.

In an interview, Mr. D'Amours said he raised the charge because, if true, it might imply that the motive for the merger was something other than improving membership service.

Mr. D'Amours, grilling the executives for 90 minutes, criticized the merger application's analysis of the new entity's projected operating expenses.

First Technology's operating expenses are higher than Patelco's because the Beaverton, Ore., credit union made a large investment in developing a PC-based home banking system several years ago, Mr. Sargent said. Its expense ratio is declining.

Mr. D'Amours said the expenses of the new entity would be about $3 million above its peer group.

"How is that going to help the members (of Patelco)?" Mr. D'Amours asked.

Mr. Callahan said his track record as chief executive of Patelco, and before that NCUA chairman in the early 1980s, demonstrates his ability to cut costs.

"A lot of (NCUA officials) in this building remember I know how to budget," Mr. Callahan said. "I don't think the expense ratio is a concern for our membership."

Mr. D'Amours also chastised the two executives for issuing membership surveys that didn't discuss any potential negative impact of the merger.

Officials of San Francisco-based Patelco and First Technology said they are seeking to create a $1.3 billion-asset institution to improve services offered to members.

For example, the new institution, which would be known as Pacific Technology Federal Credit Union, could offer high-tech delivery systems, such as home banking, to its members more effectively than through outside vendors.

"We sincerely hope the legacy this board leaves our children is one that enables credit unions to adapt and survive into the 21st century," said Carolyn Strong, chairman of $255 million-asset First Technology.

But several credit union officials claimed the merger would tarnish the industry's image and put smaller credit unions out of business.

"Larger credit unions should not be allowed to threaten the existence of smaller credit unions," said Charles Cockburn, chief executive of $812 million-asset Hudson Valley Federal Credit Union, Poughkeepsie, N.Y. "Our entire movement is based on cooperation - not competition - among credit unions."

Wayne L. Gaylin, chief executive of Oregon Telco Credit Union, said he opposed the merger because it would create overlaps with telephone company credit unions across the country.

Mr. Callahan and Mr. Sargent said they don't intend to tap into potential membership bases across the country. The merged credit union would focus on the West Coast, they insisted.

Mr. Sargent noted the institution would need NCUA permission to open branches across the country.

Officials of six credit unions complained about Patelco's "predatory" tactics, such as targeting their members and cutthroat pricing. David V. Silvestri, president of Stocktel Federal Credit Union, said he was considering suing Patelco over some of its practices.

Some credit unions defended the merger and the credit unions involved.

Robert Burns, president of Multco Credit Union, Portland, Ore., dismissed accusations of predatory practices as protectionist.

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