BRATTLEBORO — River Valley Credit Union has come a long way from the financial institution that was formed at a kitchen table in Putney in 1946 and for a time run from a folding table and cigar box at the Putney General Store.
RVCU - in its current form, a result of a marriage almost 25 years ago between two smaller credit unions - now has 61 employees, five branches, 18,540 member/owners, and an estimated $148 million in assets.
Now, with plans afoot to combine with Members Advantage Community Credit Union, a similarly long-established credit union of similar size based in Barre, leaders of both financial institutions say they are seizing an opportunity in the best interests of the members who own the two respective cooperatives.
Described in a merger plan adopted by both credit unions as “almost a perfect fit” geographically, the combined footprint will offer branches in Barre, Bellows Falls, Brattleboro, Putney, South Burlington, Townshend, White River Junction, and Windsor.
Each credit union now has a branch in Springfield. Both will initially remain open under the plan.
In a preliminary letter to members in July, RVCU President and CEO Jeff Morse described the plan as “a merger of equals that would benefit all members,” though one member strongly disputes that premise and has launched a “Save River Valley Credit Union” website, with deep scrutiny of the proposal.
Each credit union's board of directors has approved the concept, which calls for Members Advantage, with 15,558 members, to absorb RVCU. The larger single credit union will continue under the Members Advantage name as it undergoes a rebranding process.
“Technically, yes, our charter goes away,” Morse said. “And they have the continuing charter. But we're going to come up with ways to make this feel right for everybody. And it makes sense that we're going to end up with a new name so that we're not taking on Members Advantage's name. They're not taking on the River Valley name.”
The plan has received preliminary approval from the state Department of Financial Regulation, and the two credit unions are preparing to mail details to their respective members.
Members will also receive ballots for voting on the measure as a safer alternative to an in-person meeting and vote scheduled for Wednesday, Oct. 21.
Prior to the vote, the respective credit unions will hold forums about the merger, where member/owners will be invited to ask questions about the plan and the proposed changes.
Under the plan, MACCU President Sean Gammon would remain in his role. Morse would work for three years in a new management position.
Morse “will manage our branches and help provide strategic growth support for the CEO,” the plan says. “In addition, four managers/executives from MACCU and six managers/executives from RVCU will provide the structure of our senior management team.”
Economies of scale
Both Morse and Gammon said that member/owners of both credit unions will benefit from economies of scale.
Neither described any sort of event that precipitated the idea for combining the credit unions. But both executives, who both serve on the board of directors of the Association of Vermont Credit Unions - Gammon as president, Morse as treasurer - described a process where the possibilities emerged, at a time when the industry is facing pressures in a number of areas, especially technology.
“The strengths and weaknesses of both organizations matched up really, really well,” Morse said. “They had things that we need. We have things that they need. And it's just it was a-once-in-a-career, or a once-in-a-lifetime opportunity.”
For River Valley, that means the capacity to have a stronger presence in commercial business loans - a particular strength that Members Advantage can bring to the table.
Morse anticipates that within a year, with the help of a current MACCU specialist, the newly merged credit union will be able to offer members benefits like wealth-management services and products like student loans and commercial loans, including loans backed by the U.S. Small Business Administration.
“We get so many requests for business loans,” Morse said. “You have no idea how many of our members actually came to me and said, 'Jeff, why can't you offer the Payroll Protection Plan loans?'” That federal stimulus program, offered this past spring and summer in response to the economic effects of COVID-19, was administrated through the SBA.
Morse noted that RVCU's operations center on Chickering Drive, in an industrial building just behind the financial institution's flagship branch, will remain the central nervous system of the hybrid credit union, though for purposes of regulatory filings, the hybrid credit union will be legally based in South Barre.
Members Advantage, by design, has no such central operation, Morse said.
“This speaks a lot of Sean,” he said. “They are made up of five different small, small credit unions that over 15 to 17 years, merged one by one, and he was bound and determined that no one was going to lose their job, and they all have meaningful work.”
As the smaller credit unions merged into Members Advantage, Gammon “would let them keep certain pieces of the operations in the branches,” like Human Resources in one branch, compliance in another other, deposit processing in a third branch.
Even with centralized operations in Brattleboro, Morse said that some personnel will remain sprinkled at branches throughout the state, working with colleagues remotely, though he does see the jobs naturally migrating to Windham County over time.
And Gammon emphasized that even with economy of scale, the plan calls for no loss of jobs. To the contrary, he said, employees will benefit from broader professional opportunities and that RVCU employees will find a more generous benefits package.
He also said that membership would immediately benefit from the reduction of 10 fees, as well as from “better deposit rates, better loan rates.”
Both executives said they are approaching the merger as a true partnership and that River Valley will merge into Members Advantage only for “administrative ease,” Gammon said.
The proposal calls for seven board members from MACCU and six from RVCU.
“If we could have had an equal number of board members [legally], we would have done that,” he added.
“Most people hear about a merger and think about that big bank merger where someone comes in, takes over another bank and everybody loses their job,” Gammon said. “This is totally the opposite of this. It's two small Vermont credit unions working together. Yeah, we're going to be a little bit bigger, but we're still going to be a small financial cooperative.”
Pressure to merge
Morse and Gammon pointed out the trend of small credit unions to merge into larger ones. Both River Valley and Members Advantage are already hybrids of smaller credit unions that formed in the 1940s and 1950s to serve very specific populations.
There are some historical explanations for these trends.
By day, Matthew Cropp works to help new cooperatives get off the ground as the co-executive director of the Vermont Employee Ownership Center in Burlington. Off duty, he has become a scholar of credit unions, describing himself on his LinkedIn profile as a “renegade credit union historian.” His thesis for his master's degree in history at the University of Vermont was a history of the first 25 years of the Vermont State Employees Credit Union.
Credit unions are cooperatives, entities that are owned and operated by their consumers.
“When credit unions were first created, they had this fairly tight concept of what's known as the common bond or the field of membership - like, everyone who works at the same workplace or everyone who goes to the same church,” Cropp said.
In an era that predated credit scores and computer technology, credit unions maintained creditworthiness through a combination of peer pressure and community spirit.
“If you are lending from the pool of money that all the other people at your church created with their savings, you're gonna have a strong social incentive to not default on that money,” Cropp continued.
For years, credit unions operated as “very low overhead, oftentimes volunteer run” entities, he said. And through the 1950s and 1960s, credit unions grew “like mushrooms over a couple of decades because they worked, especially for consumers.”
A combination of factors created the pressure for growth and merging, Cropp said.
In 1970, a federal law created the National Credit Union Share Insurance Fund, which for the first time federally insured credit union deposits. And with that protection came “new regulatory apparatus,” he said.
One consequence: It became very difficult and costly to start a new credit union.
“Before, it was more or less that you would get seven people to put down $5, you'd fill out a form, and then boom, you're a credit union,” Cropp said. “Now, you need to go through this multi-year process with like half a million dollars in capital and blah, blah, blah, blah, blah.”
Another consequence: mergers and consolidation. Every year, the number of credit unions has decreased as larger organizations began making more sense, he said. And as the credit unions grew, the specificity of their common bond became more vague.
River Valley Credit Union was born in 1996, when the Putney Credit Union absorbed the Maple Valley Credit Union, which had started its life as a credit union for employees of the Jones & Lamson machine tool plant in Springfield and changed its name to reflect its service to a community beyond the walls of that workplace.
“From a regulator perspective, having a smaller number of professionally run credit unions is preferable to having to try to keep track of thousands of amateur-run credit unions,” Cropp said. “So there's definitely that kind of regulatory nudge where if a credit union is kind of in trouble or on shaky financial footing, there'll be kind of a push to consider a merger into a larger, more stable credit union.”
Both Morse and Gammon say that the merger is coming from a position of strength, not vulnerability. Yet both entities have been at a crossroads with the need to upgrade their respective banking technology systems, an area that is rife with pressure of increasing customer expectations.
Strength and weakness
One River Valley Credit Union member/owner, decidedly not happy about the merger plan, has undertaken an effort to stop it in its tracks - or reverse its direction.
“Banking is a simple business,” said Howard Fairman, of Putney, who says the math just doesn't justify a scenario where RVCU is legally dissolved and its assets merged into MACCU.
A former mortgage banker, Fairman has launched a blog, saverivervalleycreditunion.wordpress.com, documenting his correspondence with Morse, Gammon, and state regulators. He also issued an open letter in The Commons' Voices section to other member/owners about the proposal [“Not in our best interest,” July 15].
In a letter to RVCU Board Chair Michael Cooney, Fairman called the management of River Valley “an exemplar to all credit unions statewide.”
In a letter to Kelley M. Reed, director of regulatory and consumer affairs for the Vermont Department of Financial Regulation, Fairman charged that year-over-year figures, publicly reported in quarterly call reports amassed by the National Credit Union Administration, illustrate Members Advantage's net income “trending steadily toward net loss.”
In one of his posts, Fairman pointed out that “Members Advantage Community Credit Union was much smaller than River Valley Credit Union until it merged with Covered Bridge Credit Union in 2015 and Windsor County South Credit Union in 2017, after which its net income began to decline steadily.”
“Members Advantage Community Credit Union has not demonstrated successful merging of smaller credit unions. Merging with larger River Valley Credit Union [would be] a much bigger challenge,” he wrote.
If there is to be a merger, he argued, the stronger of the two credit unions would be River Valley, which, despite a smaller portfolio of assets, has outperformed Members Advantage on the bottom line in 2019 and in the first half of 2020.
Fairman has also criticized the timing of the plan, whose board approval came on the heels of a RVCU annual meeting that did not mention its introduction.
Morse and Gammon had little to say about Fairman's efforts.
“For whatever reasons, he's just not happy about this, and everyone's entitled to their own opinion,” Morse said. “I can't fault that. I don't know what to tell you on that.”
Gammon declined to comment directly, asserting only that Members Advantage has been one of the strongest credit unions in the state, balancing earnings with a mission to give back to membership and to the community.
In an age of building coalitions to effect change, Fairman said he has no interest in amassing and collaborating with hordes of member/owners.
“You know, I do various things in the arena, and I'm always acting alone,” he said. “And this is a preference on my part. I can do it as I feel it should be done.”