DENVER – Virginia Gray's board of directors evaluated a host of local credit unions, and ultimately halted the search for a merger candidate, prior to giving the green light to pursue a merger with a Texas credit union located 650 miles away. In November 2003, $4 million state-chartered Rocky Mountain Employees Credit Union merged with a Dallas-based institution 15 times its size, Advancial Federal Credit Union. Why? Survival is the answer from Virginia Gray's perspective. In August 2002, the number of white collar-employed members working in the building where the credit union is located dropped from 112 to 22. In Gray's words, the vast majority of her “rate-driven depositors” were gone. In the classic Catch-22 situation, she couldn't add new services without members, and she couldn't add new members without services. The credit union had no Web access, no debit cards, no investment accounts. How could it compete? Gray had seen warning signs two years earlier, but her board of directors was not receptive to merging with another credit union to diversify risk or to expand service offerings. “At that time, we were doing okay financially, so they couldn't see any reason to consider a merger,” she reflected. “But assets had remained around $4 million for a decade, and I could see the writing on the wall for our sponsor company, Conoco Oil.” After a changing of the guard brought her a “cautious, but more progressive board,” Gray went looking for “an adoptive parent.” The Board considered a “parade” of potential merger candidates from the surrounding geographic area, before Gray eventually halted the process altogether about a year ago. “I didn't feel my Board was taking it seriously, and I did not want to look foolish among my peers,” she said. But the downsizing of Conoco's work force following its merger with Phillips 66 forced the issue. The subsequent merger of Rocky Mountain with Advancial was initiated as a result of someone handing Advancial's business development director, Dave Selsky, Virginia Gray's business card at the 2003 Colorado Credit Union League Annual Meeting. With the merger, Rocky Mountain did indeed gain the power to attract and retain members with a multitude of services and technology. What did Advancial stand to gain in the deal? Will they absorb the small credit union and put in their own building and people? The majority of mergers occur between credit unions in the same or neighboring communities. Examination of NCUA's November 2003 Monthly Activity Report indicated that 100% of federal credit union mergers that month were between credit unions less than 30 miles apart. Close proximity can offer merging credit unions economies of scale, in terms of manpower and facilities, among others. But those reasons don't seem to apply in this situation. “We're not looking to grow assets,” said Advancial's Dave Selsky, “and we're not going to come in and make them change their identity. We will simply take over the back office duties, so that they can spend more time with the members. It's difficult for a small credit union to be a primary financial institution. They were forced to have better-than-average service to keep their members. We have acquired three credit union employees at two locations who are serving their existing membership very well. The credit union's identity remains the same, all the employees stay. Their standard of member service is hard to buy.” Gray said reasons the merger makes sense are: similar fields of membership, because both original sponsors were oil companies (Advancial's original sponsor was Arco); similar philosophies concerning the credit union's role in the financial marketplace and what differentiates credit unions from banks; and most importantly, similar commitments to personal service. In addition, Advancial had a Denver branch office until 1998, when Arco closed down operations there. Despite the credit union's branch closing, Advancial has retained 80%, or 1,000, of its members in the Denver area, according to Gray. Advancial has not publicized its re-entry into the Denver market. When they do, Gray expects it will have an immediate impact on her operations. “I (the credit union here) will double in size with announcement,” she said confidently. Virginia said it may take time for her members to appreciate some of the new benefits, such as Internet banking. “Why should they use that when they have me on their speed dial?” But she hastened to add that nothing will replace the customer service credit union employees have worked hard to provide. “We won't offer audio response,” Gray said. “The only thing I had to offer members [before the merger] that they couldn't get somewhere else was me answering the phone. I know their voices. I know their account numbers. I know the cars they drive. Occasionally, I'll have a member drive up in a new car, and I say, `I didn't see that loan come across my desk.' They apologize and admit that they got 0% financing somewhere else..” Gray said overall member response to the merger has been positive. She estimates 30% of her members have closed accounts they had elsewhere to make Advancial their primary financial institution. A few have been resistant, particularly to the addition of small fees, when previously there were none. “It's a small, but vocal group. They don't want anything to change. They still call us Rocky Mountain, make their checks out to Rocky Mountain.I tried to forewarn them.” In another respect, the resistance to change warmed Gray's heart. “When they found out about the potential merger, which by the way was voted for 112 to 4, they wanted to hear from the three employees. They asked, `Are you guys going to be okay? Is this a good thing?'” The former Rocky Mountain Employees Credit Union can now offer its members sophisticated Internet banking, debit cards, a shared branching network, IRAs and more. Advancial now has two new branch offices in Denver to serve its members who have stayed with them, even though the credit union had no physical presence in town. Gray suggested perhaps another reason for Advancial's interest in her small credit union. “I can read between the lines,” she laughed. “Gary Jester, Advancial's CEO, used to be the credit union's Denver branch manager. A couple of the guys, including Gary, are snow skiers. They like coming here. `Conveniences' work both ways!” -

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